SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 29, 1994
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from to
Commission file number 1-3916
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1095978
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Central Avenue, Northfield, IL 60093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 441-6650
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- ----------------------
Common stock, without par value New York Stock
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 28, 1995: $24,176,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 28, 1995
- ------------------------------- --------------------------------
Common stock, without par value 6,703,243
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Business
At December 29, 1994, ARTRA Group Incorporated, a Pennsylvania corporation
incorporated in 1933, and its majority-owned subsidiaries (hereinafter "ARTRA"
or the "Company") principally operate in two industry segments as: 1) a
manufacturer of packaging products principally serving the food industry; and 2)
a designer and distributor of popular-priced fashion costume jewelry.
The Company's packaging products business is conducted by the wholly-owned
Bagcraft Corporation of America ("Bagcraft") subsidiary and its wholly-owned
subsidiary Arcar Graphics, Inc. acquired effective April 9, 1994.
During 1994, the Company's jewelry business was conducted by its 66.4% owned
subsidiary The Lori Corporation ("Lori") through its wholly-owned subsidiaries:
New Dimensions Accessories, Ltd. ("New Dimensions"), formerly R. N. Koch, Inc.
Rosecraft, Inc. ("Rosecraft")
Lawrence Jewelry Corporation ("Lawrence")
See Note 19 to the Consolidated Financial Statements for a presentation of
industry segment data.
Packaging Products Segment
Effective March 3, 1990, ARTRA entered into the packaging products business with
its acquisition of Bagcraft. Bagcraft, established in 1947, is a leading
manufacturer and supplier of flexible packaging products to the fast food,
bakery, microwave popcorn and supermarket industries and is also a significant
supplier to the theater industry. Several of Bagcraft's products are widely
recognized and have become standard items within various segments of the food
industry.
Bagcraft is a full-service supplier complete with its own design studios,
laboratory and engineering departments. Bagcraft's sales and technical staff
work in conjunction with Bagcraft's customers to determine the proper components
of the package. Bagcraft's art department creates packaging designs, subject to
customer approval, or duplicates customer-supplied designs. Thereafter, the
packaging is produced in accordance with customer specifications using a variety
of papers, film, foil and lamination. Bagcraft has developed a number of
proprietary innovations in the manufacture of its packaging products. Such
innovations include the Dubl-Wax(TM) bag, which introduced specialty waxed bags
to the retail bakery industry. Bagcraft is also credited with being instrumental
in developing and producing the first microwave popcorn bags.
Bagcraft currently produces over two billion bags and two billion sheets and
wrappers annually for the packaging of more than 1,000 different products.
Bagcraft purchases the paper, foil, films and chemicals it uses from a number of
different unaffiliated suppliers. Since Bagcraft purchases each of the raw
materials it requires from more than one supplier, it is not dependent upon a
single supplier for any specific materials or supplies.
Sales orders are processed, and manufacturing and delivery schedules are
determined primarily at Bagcraft's headquarters and principle production
facility in Chicago. In September, 1994, Bagcraft completed the construction of
a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The new
Kansas facility, which has added production capacity in Bagcraft's growing food
service products business, has replaced Bagcraft's production facility in
Joplin, Missouri (which was conveyed to a contractor involved in constructing
the Baxter Springs facility in partial consideration of such contractor's fees),
its facility in Carteret, New Jersey (which was sold) and its facility in Forest
Park, Georgia (which was converted into a distribution facility).
Bagcraft's products are sold throughout the United States by a sales force of
approximately 20 full-time salespersons who sell to wholesale distributors and a
number of independent brokers who sell Bagcraft product lines to large food
processors
<PAGE>
and food chains. Bagcraft presently sells its products to more than 1,000
customers. Although some of these are the largest and most recognizable
companies in the food industry, no single customer accounted for more than 10%
of ARTRA's consolidated net sales in 1994.
Sales to customers are made pursuant to orders placed in advance for periods of
up to one year. In certain instances Bagcraft and a customer can enter into an
agreement to maintain a specified minimum inventory for the customer. The
contracts entered into by Bagcraft with its customers vary in length depending
on the customer's needs and Bagcraft's capacity to meet the customer's
requirements. Generally, Bagcraft's contracts provide advance notice of from 30
days to one year to terminate a contract. The contracts typically provide for
delivery of goods at an agreed-upon fixed price, subject to adjustment upon
timely notice in advance. Bagcraft usually grants its customers rights of
return, subject to penalty, except in the case of goods produced to
specification. In addition, Bagcraft typically requires payment for goods 30
days after shipment, but gives its customers a 1% discount if payment is made
within 10 days after shipment.
Bagcraft believes that it is the manufacturer of the most diversified line of
flexible packaging products in the United States. However, there are a number of
domestic and foreign companies which compete directly with Bagcraft in each of
its major product lines, certain of which have a larger market share with
respect to specific product lines. Bagcraft's competitors range from small
companies to divisions of large corporations which have substantially greater
financial resources than those available to Bagcraft. Bagcraft competes on the
basis of quality, service and the price of its products.
Bagcraft believes that a modest level of continuing research and development and
strict quality and process control will be necessary to maintain and improve its
position in the flexible packaging industry. All product modifications and
manufacturing innovations reflect input from its personnel in general
management, sales, marketing design, R&D and engineering.
Bagcraft's products are sold by four marketing divisions as described below:
Paper Division
Bagcraft believes it is the industry leader in specialty paper bags, which
represented approximately 30% of Bagcraft's 1994 sales. Bakeries account for
approximately 60% of the paper division's sales which also include supermarkets
and various retail food chains. A number of the paper division's products,
including Dubl-Wax(TM), Dubl-Panel(TM), Dubl-Clear(TM) and Sealing-Strip(TM)
represent significant manufacturing innovations which have contributed to
Bagcraft's position as the industry leader. Major customers include Walgreen's,
Albertson's and Dunkin' Donuts. Bagcraft believes the outlook for the future
indicates stability and growth.
Bagcraft's Paper Division stocks approximately 150 generic products, which
enables Bagcraft to lead the industry in providing the widest variety of
immediately available unprinted and stock printed bags and sheets in the
industry. Stock products are bought and inventoried by distributors who, in
turn, sell them in varying quantities to end-users for a multitude of purposes.
The stock line is sold mainly through Bagcraft field salespeople and
telemarketing from Bagcraft's Chicago home office.
Food Service Division
The Food Service Division, which represented approximately 46% of Bagcraft's
1994 sales, is a leader among its competitors. Bagcraft's products sold to the
food service industry include foil and paper bags and sheets for sandwiches,
french fries, chicken and other prepared foods. Major customers in this industry
include Wendy's, Burger King, Taco Bell, Dairy Queen and McDonald's.
The development of the Honeycomb sheet helped propel Bagcraft to its industry
leading position. The Honeycomb sheet incorporates a moisture absorbing layer
which prevents buns from becoming soggy and tends to keep food warm for a longer
period of time. Additionally, when used to replace rigid packaging, it
represents significant source reduction to the solid waste system.
<PAGE>
Specialty Bag Division
The Specialty Bag Division represented approximately 15% of Bagcraft's 1994
sales. Many of the division's products represent unique additions to Bagcraft's
standard products. The Cue-Pon Bag(TM) has a "tear out" coupon affixed near the
window on the bag which offers the shopper the immediate benefit of the coupon
upon purchase. The Cue-Pon Pocket Bag(TM) has a pouch on the front of the bag
which can be filled with novelty items by the retailer.
The division features products for the packaging of bakery goods, such as
cookies and donuts, coffee, pre-popped popcorn and specialized promotional items
such as premiums for kids meals sold by food service chains. This division
provides bags with transparent windows, metal tin tie attachments and convenient
self-opening bottoms.
This division also produces theater popcorn bags, which provide the theater
chains with a more economical package that is easy to dispose of and
substantially reduces the amount of space needed to inventory the product as
well as providing a conveniently resealable bag by using Tac-Labels(TM) in lieu
of Tin Ties. Bagcraft is the leading supplier of popcorn bags to theater chains
such as General Cinema Corporation and Mann Theaters. The newest addition to
this division is the "To Go!" Bags(TM). These double wall bags provide many of
the properties of rigid containers such as tubs and cartons with the
environmental and storage advantages of bags. Although in the early stages of
production, "To Go!" Bags(TM) have been enthusiastically received and now are
subject to a backlog. Other customers for the division include Bake-Line
Products and Interstate Brands.
Microwave Popcorn Division
The Microwave Popcorn Division, which represented approximately 7% of Bagcraft's
1994 sales, represents an example of Bagcraft's high technology advancements.
Bagcraft supplies microwave popcorn packaging to several industry leaders,
including Hunt-Wesson (Orville Redenbacher) and U.S.A. Family Foods.
Bagcraft was instrumental in the development of the first microwave popcorn bag
and played an important role in developing "susceptor" accelerator technology
which it has incorporated into its products. The susceptor technology involves
placing a metallized material into the popcorn bag which accelerates the heat
transfer and results in a higher percentage of the popcorn kernels being popped.
Golden Valley, which held a patent on the susceptor technology pursuant to which
Bagcraft held a license, recently lost a court decision which resulted in a
determination that the patent was invalid. Unless overturned on appeal, this
decision means Bagcraft will be able to produce and sell these products to all
customers without paying a license fee.
One of the former leading microwave popcorn accounts, Orville Redenbacher, has
recently changed to self-manufacture. However, with the growth anticipated from
such customers as U.S.A. Family Foods, this division is expected to continue
modest long-term growth.
In 1993, Bagcraft completed the sale of its former Roll Press Division. The
disposal of the Roll Press division has enabled Bagcraft to focus on higher
margin specialty product bags and sheets and avoid the more competitive pricing
pressures experienced in this line of business. The Roll Press Division
accounted for approximately 6% of Bagcraft's 1993 sales (12% in 1992, the last
full year of Roll Press Division production), producing products such as
wrapping for candy, baked foods, coffee and meat.
As discussed in Note 3 to the Company's Consolidated Financial Statements,
effective April 8, 1994, Bagcraft acquired the business assets, subject to
buyer's assumption of certain liabilities of Arcar Graphics, Inc. ("Arcar"), a
manufacturer and distributor of waterbase inks for the flexographic and
rotogravure printing industries. Arcar is one of the larger waterbase ink
suppliers in the United States and serves over 500 customers. The principal
markets of Arcar's products include printers of tags and labels, flexible
packaging manufacturers and polycoated cup manufacturers. Arcar's products
include ink systems and presside additives which represented approximately 86%
and 14% of 1994 sales, respectively. Management believes its product line of 39
ink systems is more extensive than those of most of its competitors. Arcar
competes on the basis of product quality and performance, as well as service.
Price is a less significant competitive factor since ink represents only an
estimated 3% of waterbase ink users' operating costs.
<PAGE>
Arcar was founded in 1982. The Company's corporate offices and manufacturing
facilities are located in West Chicago, Illinois. The Company also maintains
four satellite distribution centers in the Philadelphia, Atlanta, Cincinnati,
and Kansas City metropolitan areas.
Jewelry Segment
On February 8, 1985, ARTRA acquired a majority interest in Lori and,
concurrently, Lori entered into the jewelry business through the acquisition of
all of the outstanding capital stock of New Dimensions. On June 4, 1986, Lori
acquired all of the capital stock of Rosecraft. On October 22, 1986, Lori
acquired all of the capital stock of Lawrence.
Each of the Lori operating subsidiaries is a distributor of fashion jewelry. The
Lori operating subsidiaries contract with outside sources for the manufacture of
the jewelry it sells. Management believes that the loss of any one of its
suppliers would not have a material adverse effect on its business because an
adequate number of other suppliers are available. This jewelry is manufactured
from readily available materials, which include gold, brass, steel, copper,
zinc, plastics, glass stones, lacquer and enamel. Management believes that there
is currently an ample supply of the raw materials needed by its suppliers to
manufacture its jewelry and that multiple sources of supply exist.
The fashion jewelry business is highly competitive. The Company competes
primarily with other fashion jewelry designers and distributors. Sales of
fashion jewelry have not returned to the levels experienced prior to the general
economic recession in the United States in 1990-1991. Despite the broad-based
recovery in the United States economy which has been evident at least since the
third quarter of 1993, sales of fashion jewelry products have not returned to
pre-recession levels. Although the fashion jewelry industry has traditionally
been regarded as cyclical, the failure of fashion jewelry sales to rebound with
the economy suggests that the current industry conditions reflect a fundamental
adverse change in the industry rather than merely the trough in a cycle. Among
the factors which have been identified as contributing to the recession in the
fashion jewelry industry are (i) current fashion, which favors a minimum of
jewelry and adornment; (ii) the general trend in the United States toward more
casual attire in office and evening wear, with which attire no jewelry or a
minimum of jewelry is worn; and (iii) the recessionary environment in the fine
jewelry industry, which has resulted in fine jewelry manufacturers and
distributors lowering prices and making available lower cost items, such as 10
karat gold jewelry, to increase market share at the expense of fashion jewelry
distributors.
The continuing recession in the fashion jewelry industry has resulted in a
number of competitors ceasing operations (in what is commonly referred to as a
"shake out" in the industry). Many of the remaining competitors have taken steps
designed to strengthen their positions in the markets or, in certain instances,
simply to enable them to survive. These steps include improving operating
efficiencies in the manufacturing or sourcing of goods, reducing staff,
pressuring suppliers to lower costs or identifying new suppliers willing to do
so, and accepting lower profit margins or increasing the use of service programs
under which goods unsold by the retailer are accepted for return (or,
alternatively, increasing the guaranteed profit margins of the retailers). The
implementation of these steps by various competitors has resulted in
significantly heightened competition in the fashion jewelry industry.
Competitive pressure has also been introduced in the industry by national
discount department store chains. Tactics employed by these increasingly
powerful chains have included (i) direct sourcing of "knock-offs" of the most
successful lines or items sold, (ii) pressuring distributors such as Lori's
operating subsidiaries to accept returns of unsold goods, (iii) delaying or
withholding payments on other orders, threatening to suspend future business or
unilaterally terminating other orders, and (iv) selling competitors' jewelry
lines side-by-side. As these national chains continue to capture market share
and drive regional chains and independently-owned stores out of business, their
buying departments will have an increasing ability to dictate pricing in the
fashion jewelry industry.
Due to the conditions noted above, in recent years, Lori has suffered
significant operating losses. No assurances can be given that either the
business and operations of Lori or the market conditions in the fashion jewelry
industry generally will improve in the immediate future.
<PAGE>
Since December 30, 1993 and during 1994, Lori and its operating subsidiaries
were not in compliance with certain provisions of their respective bank loan
agreements. As discussed in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations," on August 18, 1994, as amended
December 23, 1994, ARTRA, Lori's parent, Fill-Mor Holding, Inc. ("Fill-Mor"),
Lori and Lori's operating subsidiaries entered into an agreement with Lori's
bank lender to settle obligations due the bank under terms of the bank loan
agreements of Lori and its operating subsidiaries and Fill-Mor. Under terms of
the amended settlement agreement, as partial consideration, the bank lender
received all of the assets of New Dimensions and New Dimensions ceased
operations. The operations of the Company's other subsidiaries, Lawrence and
Rosecraft, are continuing as discussed below.
Lawrence
Lawrence is engaged in the distribution and sale of a full line of
popular-priced fashion costume jewelry and fashion accessories to mass
merchandise retailers, department stores and specialty stores throughout the
United States. Lawrence's sales are subject to seasonal fluctuations with peak
selling seasons consisting of Spring (March/April), Back-to-School and Christmas
(October/November).
A majority of Lawrence's annual sales involve the sale of fashion costume
jewelry. Lawrence markets over 3,500 different styles of costume jewelry items
annually.
Approximately 95% of Lawrence's products are marketed though its full service
sales program, designed to provide customers with a continuous flow of
merchandise. Services provided under this program include packaging, price
pre-ticketing, stocking, merchandise display and inventory control.
Lawrence has approximately 20 customers with approximately 2,500 retail outlets
in the United States. Among them are department stores, mass merchandisers,
chain stores, specialty stores, boutiques, children's stores and gift stores.
Lawrence sells all of its products directly to its customers who, on a limited
basis, may be offered extended payment terms beyond 30 days depending upon their
trade practices and financial strength. Lawrence does not have sales contracts
with its customers.
Lawrence believes it is one of a number of significant costume jewelry
companies. Some of these, however, are national suppliers which have greater
financial resources than Lawrence. Lawrence competes largely through the ability
of its full time staff of professional marketing and service representatives to
meet customers' needs for continuity and timeliness of service and through the
ability of its staff to identify fashion trends and develop appropriate
products.
Lawrence has recently expanded its business to include outside retail support
services to non-jewelry companies. Lawrence views this relatively new market as
a potentially significant source of additional revenue.
Rosecraft
Rosecraft is a creator, designer, importer and distributor on a direct basis of
popular-priced fashion costume jewelry and related accessories for children
which is sold in junior specialty chains, department and specialty stores and
mass merchandise retailers throughout the United States. Rosecraft offers over
1,700 styles of earrings, necklaces, bracelets, hair and other fashion
accessories. Many items are sold under the trademark "Rosecraft Kids", which is
a recognized name in children's fashion jewelry and related accessories.
Rosecraft employs designers to develop fashion costume jewelry and accessories
to satisfy consumer demand and is responsible for creating items to provide new
merchandise for Rosecraft's customers. Approximately 80% of Rosecraft's products
are imported from the Far East with the remaining 20% of its products purchased
from domestic manufacturers. Rosecraft believes that multiple sources of supply
exist for its line of children's fashion costume jewelry and accessories.
Rosecraft has approximately 275 active customers with approximately 4,000 retail
outlets in the United States. Rosecraft sells all of its products directly to
its customers who, on a limited basis, may be offered extended payment terms
beyond 30 days depending upon their trade practices and financial strength.
Rosecraft does not have sales contracts with its customers.
Rosecraft believes that it competes in a fragmented industry with many regional
suppliers and a few national suppliers, some of whom have greater financial
resources than Rosecraft. Rosecraft competes on the basis of design, price,
quality, delivery time and customer service.
<PAGE>
In June, 1992, Rosecraft closed its Ladies line of fashion costume jewelry in
order to concentrate on its higher margin Children's line of fashion costume
jewelry and accessories. During the year ended December 31, 1992, the Ladies
line accounted for approximately 16% of Rosecraft's sales. The closing of
Rosecraft's Ladies line resulted in a charge to operations of $900,000. The
restructuring charge included inventory liquidation costs, lease termination
costs and employee severance costs.
New Dimensions
As discussed above, under terms of the amended settlement agreement, Lori's bank
lender received all of the assets of New Dimensions and New Dimensions ceased
operations effective December 27, 1994 (See Note 7). Previously, New Dimensions
was principally engaged in the design, distribution and sale of popular-priced
fashion costume jewelry and key chains to mass merchandise retailers throughout
the United States. New Dimensions' operations were conducted principally through
its service program in which New Dimensions provided product, packaging, price
pre-ticketing, stocking, merchandise display and inventory control of the
costume jewelry sold through its customers' retail outlets.
Employees
At December 29, 1994, the Company employed approximately 1,600 persons,
including approximately 350 part-time jewelry segment service representatives.
The Company considers its relationships with its employees to be good.
<PAGE>
Item 2. Properties
The following table sets forth a brief description of the properties of the
Company and its subsidiaries. The Company and its subsidiaries believe that all
of their facilities are adequate for their present and reasonably anticipated
future business requirements.
<TABLE>
<CAPTION>
General Ownership
Location Description
------------ ------------------------------------------- -----------------------
<S> <C> <C>
ARTRA:
Northfield, IL (1) Headquarters facility of Leased, month to month
approximately 27,000 sq. ft
Bagcraft:
Chicago, IL Administrative and manufacturing facility of Owned
approximately 148,000 sq. ft.
Chicago, IL (2) Warehouse and office facility of Leased, expiring in 1996
approximately 63,000 sq. ft
Baxter Springs, KS(3) Manufacturing, warehouse and office facility
of approximately 265,000 sq. ft. Owned
Forest Park, GA(3) Warehouse and office facility Owned
of approximately 35,000 sq. ft
Edison, NJ Warehouse facility Leased, expiring in 1999
of approximately 45,000 sq. ft
ARCAR:
West Chicago, IL Manufacturing, warehouse and office Leased, expiring in 2000
facility of approximately 24,000 sq. ft
West Chicago, IL Warehouse facility Leased, expiring in 2000
of approximately 8,000 sq. ft
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
General
Location Description Ownership
------------ ------------------------------------------- -----------------------
<S> <C> <C>
Lori and Rosecraft:
Woonsocket, RI Headquarters (Lori and Rosecraft) and distribution Leased, expiring in 1996
facility of approximately 86,200 sq.ft.
New York, NY Showroom of approximately 4,300 sq. ft. Leased, expiring in 1996
Lawrence:
Eden Prairie, MN Headquarters and distribution facility of Leased, expiring in 1995
approximately 42,000 sq. ft.
<FN>
(1) In July, 1992 ARTRA sold its headquarters building under a lease
arrangement with an option to buy that expired in July, 1993. The
building continues to be available to ARTRA under a month-to-month
lease.
(2) This lease provides for two ten-year options to renew at the same base
rental upon the expiration of its current term.
(3) In September, 1994, Bagcraft completed construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. This facility
replaced Bagcraft's production facilities in Joplin, Missouri,
Carteret, New Jersey and Forest Park, Georgia. Bagcraft conveyed the
former Joplin, Missouri facility to one of the contractors involved in
the construction of the Baxter Springs, Kansas facility as partial
consideration for the work performed by this contractor. Bagcraft sold
the Carteret, New Jersey facility. The Forest Park, Georgia facility is
being retained as a distribution center.
</FN>
</TABLE>
<PAGE>
Item 3. Legal Proceedings
As discussed in Note 6 to the Consolidated Financial Statements in March, 1989,
Envirodyne Industries, Inc. ("Envirodyne") and Emerald Acquisition Corporation
("Emerald") entered into a definitive agreement for a subsidiary of Emerald to
acquire all of the issued and outstanding shares of Envirodyne common stock.
Pursuant to the terms of certain letter agreements, ARTRA agreed to participate
in the transaction and received Envirodyne's consent to sell its then 4,830,000
Envirodyne common shares (a 26.3% interest) to Emerald. On May 3, 1989 the
transaction was consummated. ARTRA received consideration consisting of: (i)
cash of $75,000,000; (ii) a 27.5% common stock interest in Emerald and (iii)
Emerald junior debentures ("Junior Debentures") with a principal amount of
$20,992,710. The Junior Debentures were scheduled to mature May 1, 2001, twelve
years from the date of issuance, and to accrue and pay interest in the form of
cash or additional Junior Debentures, at Emerald's option, semi-annually, for
the first six years at the rate of 15% and to pay interest at the rate of 15% in
the form of cash thereafter, semi-annually in arrears. ARTRA's 27.5% interest in
Emerald common stock and Emerald Junior Debentures, as required by the
Securities and Exchange Commission Staff Accounting Bulletin No. 81, were
carried net of a valuation allowance.
On January 6, 1993, a group of bondholders filed an involuntary petition for
reorganization of Envirodyne under Chapter 11 of the U.S. Bankruptcy Code. On
January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed
petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division.
Subsequently, Emerald filed a voluntary petition under Chapter 11 of the
Bankruptcy Code in the same court.
On December 17, 1993 the Bankruptcy Court confirmed the First Amended Joint Plan
of Reorganization as twice modified (the "Plan") with respect to Envirodyne and
certain of its subsidiaries. The confirmation of the Plan was affirmed by the
United States District Court for the Northern District of Illinois on December
28, 1993 and Envirodyne and certain of its subsidiaries emerged from Chapter 11
on December 31, 1993, the Effective Date. A notice of appeal to the United
States Court of Appeals for the Seventh Circuit was thereafter filed by certain
holders of Envirodyne's 13.5% Subordinated Notes Due 1996. Envirodyne has filed
a motion, which is currently pending, to dismiss the appeal. Envirodyne believes
that the confirmation of the Plan should be affirmed on appeal. However, no
assurance can be given that Envirodyne will prevail on the appeal or what the
effect of any such reversal of the Plan would have on Envirodyne or the Plan.
The Emerald Chapter 11 case is still pending although ARTRA has moved to dismiss
that case.
Envirodyne's plan of reorganization did not provide any consideration or value
to Emerald and Emerald, therefore, is without assets to provide value to ARTRA
for ARTRA's investment in Emerald common stock and Emerald Junior Debentures.
See discussion below and in Note 20 Litigation for remedies being pursued by
ARTRA as compensation for the lost value of its investment in Emerald common
stock and Emerald Junior Debentures.
On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois (the State Court Action") against
Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc. (collectively,
"Salomon") D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly
Defendants" along with DPK), Charles K. Bobrinskoy, James F. Massey, William
Rifkind and Michael J. Zimmerman. The defendants removed the case to the
Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15,
1994 all but two of ARTRA's causes of action were remanded to the state court.
The Bankruptcy Court maintained jurisdiction of ARTRA's claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.
On December 21, 1994, the Salomon Defendants and the Kelly defendants brought
motions to dismiss ARTRA's Second Amended Complaint in the State Court Action.
On February 8, 1995, ARTRA's Second Amended Complaint was dismissed in part,
with leave to replead.
<PAGE>
On March 10, 1995, ARTRA filed a Third Amended Complaint in the State court
Action, pleading causes of action for breach of fiduciary duty, fraudulent
misrepresentation and negligent misrepresentation ARTRA seeks in the action
compensatory damages of $136.2 million, punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.
The case is in its early stages and discovery is just beginning. ARTRA cannot
predict, with any certainty, the outcome of the suit.
On February 5, 1993, Lori's New Dimensions subsidiary filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (Case No. 93 B 40653). On
April 9, 1993, New Dimensions' reorganization plan was confirmed by an order of
the Bankruptcy Court. On May 3, 1993, the consummation date of the
reorganization, New Dimensions emerged from Chapter 11 bankruptcy court
protection. See Note 7 to the Company's Consolidated Financial Statements for a
discussion of the terms of New Dimensions' plan of reorganization.
As a result of the time required to complete the restructuring of New Dimensions
and the financial significance to ARTRA and Lori of the restructuring, ARTRA and
Lori did not timely file Form 10-K for the year ended December 31, 1992 and Form
10-Q for the quarter ended March 31, 1993 and have also been late in previous
annual and quarterly filings with the Securities and Exchange Commission
("SEC"). As a result of discussions with the SEC, in June, 1993, ARTRA and Lori
readily consented to a Final Judgment of Permanent Injunction to file with the
SEC Form 10-K for the year ended December 31, 1992 and Form 10-Q for the quarter
ended March 31, 1993 by late July and to meet future filing requirement
deadlines.
Effective December 31, 1989, ARTRA completed the disposal of its former
scientific products segment with the sale of its Welch subsidiary, formerly
Sargent-Welch Scientific Company, to a privately held corporation whose
president and sole shareholder was a vice president of Welch prior to the sale.
The consideration received by ARTRA consisted of $2,625,000 payable June 30,
1997, with interest at 10% beginning June 30, 1990, under terms of a
noncompetition agreement and the buyer's subordinated note in the principal
amount of $2,500,000. The receivable due June 30, 1997 under terms of the
noncompetition agreement is reflected in ARTRA's consolidated balance sheet at
December 29, 1994 and December 30, 1993 in other assets at $2,625,000. The
subordinated security, due in 1997, was originally scheduled to be non-interest
bearing for a period of three years, after which time interest will accrue at
the rate of 10% per annum. The note was discounted at a rate of 10% during the
non-interest bearing period and is reflected in ARTRA's Consolidated Balance
Sheet at December 29, 1994 and December 30, 1993 in other assets at $1,375,000,
net of a discount of $1,125,000.
In December, 1991 Welch filed a lawsuit against ARTRA alleging that certain
representations, warranties and covenants made by ARTRA, which were contained in
the parties' Stock Purchase Agreement, were false. Welch is seeking compensatory
damages in the amount of $3,800,000. Subsequently, ARTRA had filed a
counterclaim predicated upon Welch's breach of the payment terms of the parties'
Non-Competition Agreement and the Subordinated Note executed by Welch. ARTRA is
seeking damages in the amount of approximately $5,300,000 plus accrued interest.
On November 23, 1994, the Circuit Court of Cook County Law Division in Chicago
granted a judgment in favor of ARTRA affirming the validity of the amounts due
under the Non-Competition Agreement and the Subordinated Note of $2,625,000 and
$2,500,000, respectively.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 29, 1994 and December 30,
1993, the Company has accrued $1,500,000 and $1,850,000, respectively for
potential business-related litigation and environmental liabilities. However, as
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations, ARTRA may not have available funds to pay liabilities
arising out of these business-related litigation and environmental matters or,
in certain instances, to provide for its legal defense.
In January 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the Comprehensive Environmental Responsibility Compensation and
Liability Act ("CERCLA") for alleged release of hazardous substances at the
Cross Brothers site near Kankakee, Illinois.
<PAGE>
Although Bagcraft has denied liability for the site, it has entered into a
settlement agreement with the EPA, along with the other third party defendants,
to resolve all claims associated with the site except for state claims. In May,
1994 Bagcraft paid $850,000 plus accrued interest of $29,000 to formally
extinguish the EPA claim. Bagcraft filed suit in 1993 in the United States
District Court for the Northern District of Illinois, against its insurers to
recover a portion of its liability costs in connection with the Cross Brothers
case. Bagcraft recovered $725,000 from its insurers in 1994 and an additional
$250,000 in 1995. With regard to the state action, Bagcraft is participating in
settlement discussions with the State and thirteen other potential parties to
resolve all claims associated with the State. The maximum state claim is $1.1
million. Bagcraft has accrued $120,000 related to the State action in the
Company's consolidated financial statements at December 29, 1994.
Bagcraft was listed as a de minimis contributor at the American Chemical
Services, Inc. off-site disposal location in Griffith, Indiana. This site is
included in the EPA's National Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.
Bagcraft is presently undertaking a soil remediation project for
solvent-contaminated soil at its Chicago manufacturing facility. The
environmental firm responsible for implementing the remediation has recommended
that a soil vapor extraction process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation costs will not exceed this
estimate, in the opinion of management, no material additional costs are
anticipated.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1968 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 million to $6 million. The Company has filed counterclaims
against Sherwin-Williams and cross claims against other former owners of the
property. The Company also is vigorously defending this action and has raised
numerous defenses. Currently, the case is in its early stages of discovery and
the Company cannot determine what, if any, its liability may be in this matter.
In connection with this suit, in a case filed in 1992 in the Circuit Court for
Baltimore City, Maryland, American Motorists Insurance Company ("AMICO") is
seeking a declaratory judgment that it is not required to defend, indemnify or
provide insurance coverage to ARTRA in connection with the Sherwin-Williams
case. The Circuit Court ruled in favor of AMICO, but in June 1994, the Court of
Special Appeals of Maryland reversed the final Circuit Court, ruling that AMICO
was obligated to defend and indemnify ARTRA.
ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process.
<PAGE>
ARTRA entered into a consent decree with the EPA in which it agreed to pay
$85,000 for one phase of the clean-up costs for this site; however, ARTRA
defaulted on its payment obligation. ARTRA is presently unable to estimate the
total potential liability for clean-up costs at this site, which clean-up is
expected to continue for a number of years. The consent decree, even if it had
been honored by ARTRA, was not intended to release ARTRA from liability for
costs associated with other phases of the clean-up at this site. The Company is
presently unable determine what, if any, additional liability it may incur in
this matter.
In a case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP
Incorporated, filed in the Circuit Court of Cook County, Illinois, the City of
Chicago alleged that ARTRA (and NL Industries, Inc.) had improperly stored,
discarded and disposed of hazardous substances at the subject site, and that
ARTRA had conveyed the site to Goodwill Industries to avoid clean-up costs. At
the time the suit was filed, the City of Chicago claimed to have expended
$1,000,000 in clean-up costs. ARTRA and NL Industries, Inc. have counter sued
each other and have filed third party actions against the subsequent owners of
the property. The City of Chicago has made an offer to settle the matter for
$400,000 for all parties. The parties are currently conducting discovery. The
Company is presently unable to determine ARTRA's liability, if any, in
connection with this case.
<PAGE>
PART II
Item 5. Market For the Registrant's Common Equity and Related Shareholder
Matters.
ARTRA's common stock, without par value, is traded on the New York ("NYSE") and
Pacific Stock Exchanges. The Company currently does not meet certain of the
requirements for maintaining its listing on the NYSE and the NYSE is reviewing
the status of the Company's listing on the exchange. As of March 31, 1995 and
December 29, 1994, the approximate number of holders of its common stock was
2,500.
The high and low sales prices for ARTRA's common stock, as reported in the NYSE
Quarterly Market Statistics reports, during the past two fiscal years were as
follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- ---------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First quarter .......... 7 - 3/4 5 - 1/8 4 - 5/8 3 - 1/2
Second quarter ......... 6 - 1/4 4 - 3/8 4 - 7/8 3
Third quarter .......... 7 - 1/4 5 5 - 3/4 3 - 1/4
Fourth quarter ......... 5 - 3/8 3 - 3/4 8 - 3/8 4 - 7/8
</TABLE>
No dividends were paid in 1994 or 1993 nor are any anticipated in 1995. The
Company is prohibited from paying dividends to its stockholders pursuant to the
terms of its bank loan agreement. In addition, the Company's operating
subsidiaries are prohibited from or restricted in paying dividends or making
distributions under their respective bank loan agreements (except for limited
overhead allocations payable to the parent entity). Accordingly, even if ARTRA
were permitted to pay dividends to its stockholders, the restrictions or
limitations on these operating subsidiaries in upstreaming payments would make
the payment of dividends by ARTRA unlikely. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a discussion
of the loan agreements of the Company and its operating subsidiaries.
<PAGE>
Item 6. Selected Financial Data.
Following is a consolidated summary of selected financial data of the Company
(in thousands, except per share data) for each of the five fiscal years in the
period ended December 29, 1994. The information for the year ended December 29,
1994 includes the operations of Arcar Graphics, Inc. since its acquisition
effective April 9, 1994. The information for the year ended December 31, 1990
includes the operations of Bagcraft Corporation of America since its acquisition
effective March 3, 1990.
<TABLE>
<CAPTION>
Fiscal Year Ended (E)
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 152,115 $ 159,638 $ 196,568 $ 230,740 $ 210,106
Loss from
continuing operations (A) ............. (29,435) (8,543) (38,302) (13,161) (3,894)
Earnings from
discontinued operations (B) ............. 330 772
Extraordinary credits (C) ................ 8,965 22,057 35
Net earnings (loss) ...................... (20,470) 13,514 (37,972) (1,161) (3,087)
Earnings (loss) per share:
Continuing operations ................. (5.30) (1.88) (8.98) (3.36) (1.25)
Discontinued operations ............... .08 .21
Extraordinary credits ................. 1.57 4.49 .01
Net earnings (loss) ................... (3.73) 2.61 (8.90) (3.36) (1.03)
Total assets (D) ......................... 93,429 92,774 98,731 126,277 141,345
Long-term debt ........................... 19,673 29,264 13,802 57,296 67,116
Debt subsequently discharged ............. 9,750
Liabilities subject
to compromise ......................... 41,500
Cash dividends ...........................
<FN>
(A) The loss from continuing operations for the year ended December 29, 1994
includes a charge to operations of $10,800,000 representing a write-off
of New Dimensions goodwill December 31, 1994. See Note 7 to the
Company's Consolidated Financial Statements. The loss from continuing
operations for the year ended December 31, 1992 includes charges to
operations of $8,664,000 representing an impairment of goodwill at
December 31, 1992 and $8,500,000 representing increased reserves for
markdowns allowances and inventory valuation.
(B) Earnings from discontinued operations for the year ended December 31,
1992 represents a gain from the sale of ARTRA's Ratex Resources
subsidiary. Ratex was part of ARTRA's discontinued oil and gas
operations. Earnings from discontinued operations for the year ended
December 31, 1990 represents a gain due to additional proceeds received
from the disposition of the Company's former Sargent-Welch Scientific
Company.
(C) The 1994 extraordinary credit represents a gain from a net discharge of
indebtedness under terms of the Company's debt settlement agreement with
its bank.. See Note 7 to the Company's Consolidated Financial
Statements. The 1993 extraordinary credit represents a gain from a net
discharge of indebtedness due to the reorganization of the Company's New
Dimensions subsidiary. See Note 8 to the Company's Consolidated
Financial Statements. The 1990 extraordinary credit represent gains on
purchases of New Dimensions senior notes at market prices lower than
face value.
(D) As partial consideration for the debt settlement agreement, in December,
1994 the Company's bank lender received all of the assets of New
Dimensions. See Note 7 to the Company's Consolidated Financial
Statements.
(E) Effective in 1993, the Company adopted a 52/53 week fiscal year ending
the last Thursday of December .
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion supplements the information found in the financial
statements and related notes:
Changes in Business
As discussed in Note 3 to the Consolidated Financial Statements, in March, 1994,
Bagcraft entered into an agreement to purchase the business assets, subject to
buyer's assumption of certain liabilities, of Arcar Graphics, Inc. ("Arcar"), a
manufacturer and distributor of waterbase inks, for consideration of
$10,264,000. The consideration consisted of cash of $2,264,000 and subordinated
promissory notes totaling $8,000,000. In addition to the initial consideration,
the purchase price may be increased based upon Arcar's cumulative earnings, as
defined in the purchase agreement, for the period from January 1, 1994 until
December 31, 1997 ("earnout compensation"). The earnout compensation, if
applicable, is payable on or before January 2, 1999 along with interest thereon
at the prime rate for the period January 1, 1998 until final payment. The seller
also received a warrant to purchase 177,778 ARTRA common shares at a price of
$5.625 per share, the market value at the date of grant. Exercise of the warrant
is payable only through a reduction of the subordinated promissory notes and
accrued interest due the seller under terms of the purchase agreement. The
acquisition of Arcar, completed on April 8, 1994, was accounted for by the
purchase method and, accordingly, the assets and liabilities of Arcar have been
included in ARTRA's financial statements at their estimated fair market value at
the date of acquisition. The purchase price has been allocated to the assets and
liabilities of Arcar based on their estimated respective fair values. The
purchase price and expenses associated with the acquisition exceed the fair
value of Arcar's net assets by approximately $8,400,000 and is being amortized
on a straight-line basis over forty years. Arcar's results of operations have
been included in ARTRA's financial statements since April 8, 1994, the date of
acquisition. Arcar's results of operations prior to its acquisition are not
considered material to the Company's consolidated financial statements.
As discussed in Note 6 to the Consolidated Financial Statements in March, 1989,
Envirodyne Industries, Inc. ("Envirodyne") and Emerald Acquisition Corporation
("Emerald") entered into a definitive agreement for a subsidiary of Emerald to
acquire all of the issued and outstanding shares of Envirodyne common stock.
Pursuant to the terms of certain letter agreements, ARTRA agreed to participate
in the transaction and received Envirodyne's consent to sell its then 4,830,000
Envirodyne common shares (a 26.3% interest) to Emerald. On May 3, 1989 the
transaction was consummated. ARTRA received consideration consisting of: (i)
cash of $75,000,000; (ii) a 27.5% common stock interest in Emerald and (iii)
Emerald junior debentures ("Junior Debentures") with a principal amount of
$20,992,710. The Junior Debentures were scheduled to mature May 1, 2001, twelve
years from the date of issuance, and to accrue and pay interest in the form of
cash or additional Junior Debentures, at Emerald's option, semi-annually, for
the first six years at the rate of 15% and to pay interest at the rate of 15% in
the form of cash thereafter, semi-annually in arrears. ARTRA's 27.5% interest in
Emerald common stock and Emerald Junior Debentures, as required by the
Securities and Exchange Commission Staff Accounting Bulletin No. 81, were
carried net of a valuation allowance.
On January 6, 1993, a group of bondholders filed an involuntary petition for
reorganization of Envirodyne under Chapter 11 of the U.S. Bankruptcy Code. On
January 7, 1993, Envirodyne and certain of its subsidiaries filed petitions
under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of Illinois, Eastern Division. Subsequently,
Emerald filed a voluntary petition under Chapter 11 of the Bankruptcy Code in
the same court.
On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint
Plan of Reorganization as twice modified (the "Plan") with respect to Envirodyne
and certain of its subsidiaries. The order confirming the Plan was affirmed by
the United States District Court for the Northern District of Illinois on
December 28, 1993 and Envirodyne and certain of its subsidiaries emerged from
Chapter 11 on December 31, 1993, the Effective Date. The order confirming the
Plan was affirmed by the United States Court of Appeals for the Seventh Circuit
on July 12, 1994. The Emerald Chapter 11 case is still pending although ARTRA
has moved to dismiss that case.
Envirodyne's plan of reorganization did not provide any consideration or value
to Emerald and Emerald, therefore, is without assets to provide value to ARTRA
for ARTRA's investment in Emerald common stock and Emerald Junior Debentures.
See discussion below and in Note 20 Litigation for remedies being pursued by
<PAGE>
ARTRA as compensation for the lost value of its investment in Emerald common
stock and Emerald Junior Debentures.
On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois (the State Court Action") against
Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc. (collectively,
"Salomon") D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly
Defendants" along with DPK), Charles K. Bobrinskoy, James F. Massey, William
Rifkind and Michael J. Zimmerman. The defendants removed the case to the
Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15,
1994 all but two of ARTRA's causes of action were remanded to the state court.
The Bankruptcy Court maintained jurisdiction of ARTRA's claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.
On December 21, 1994, the Salomon Defendants and the Kelly defendants brought
motions to dismiss ARTRA's Second Amended Complaint in the State Court Action.
On February 8, 1995, ARTRA's Second Amended Complaint was dismissed in part,
with leave to replead.
On March 10, 1995, ARTRA filed a Third Amended Complaint in the State court
Action, pleading causes of action for breach of fiduciary duty, fraudulent
misrepresentation and negligent misrepresentation ARTRA seeks in the action
compensatory damages of $136.2 million, punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.
The case is in its early stages and discovery is just beginning. ARTRA cannot
predict, with any certainty, the outcome of the suit.
As discussed below in the "Liquidity and Capital Resources" section, on February
5, 1993 the Lori's New Dimensions subsidiary filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York (Case No. 93 B 40653). On April 9, 1993,
New Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court. On May 3, 1993, the consummation date of the reorganization, New
Dimensions emerged from Chapter 11 bankruptcy court protection. On August 18,
1994, as amended effective December 23, 1994, ARTRA, Lori's parent, Fill-Mor
Holding, Inc. ("Fill-Mor"), Lori and Lori's operating subsidiaries entered into
and agreement with Lori's bank lender to settle obligations due the bank under
terms of the bank loan agreements of Lori and its operating subsidiaries and
Fill-Mor. Under terms of the amended settlement agreement, Lori's bank lender
received all of the assets of New Dimensions and New Dimensions ceased
operations effective December 27, 1994.
Liquidity and Capital Resources
Cash and cash equivalents increased approximately $1,000,000 during the year
ended December 29, 1994. Cash flows from financing activities of approximately
$21,700,000 exceeded cash flows used by operating activities of approximately
$8,300,000 and cash flows used by investing activities of approximately
$12,400,000. Cash flows from financing activities were principally attributable
to borrowings obtained for the construction of Bagcraft's new production
facility in Baxter Springs, Kansas and borrowings used to finance the cash
portion of Bagcraft's acquisition of Arcar. Cash flows used by operating
activities were principally attributable to the Company's loss from operations,
partially offset by the effect of depreciation and amortization and other
noncash expenses. Cash flows used by investing activities represent net
expenditures for plant and equipment and cash expended for Bagcraft's
acquisition of Arcar.
The Company's consolidated working capital deficiency increased approximately
$13,500,000 to approximately $60,500,000 during the year ended December 29,
1994. The increase in working capital deficiency is principally attributable to
the current maturity of borrowings under Bagcraft's Credit Agreement, partially
offset by a net discharge of indebtedness under terms of the debt restructuring
agreement with a bank lender as discussed below and in Note 7 to the Company's
Consolidated Financial Statements.
At December 29, 1994 the Company's corporate entity was in default of provisions
of certain of its credit agreements. Under certain subsidiary debt agreements
ARTRA is limited in the amounts it can withdraw from its operating subsidiaries.
See Notes 9 and 10 to the Consolidated Financial Statements.
<PAGE>
Effective August 18, 1994, as amended effective December 23, 1994, ARTRA,
Fill-Mor, Lori and Lori's operating subsidiaries entered into an agreement with
Lori's bank lender to settle obligations due the bank under terms of the bank
loan agreements of Lori and its operating subsidiaries and Fill-Mor. See Note 7
to the Consolidated Financial Statements and discussion below.
ARTRA Corporate
At December 30, 1993 (the end of ARTRA's previous fiscal year), $18,452,000 in
ARTRA notes and related loan fees of $1,107,000 were payable to a bank. On
December 31, 1993, a religious organization, currently holding approximately
5.8% of ARTRA's outstanding common stock, made a $2,000,000 short-term loan to
the Company with interest at 10%. See Note 9 to the Consolidated Financial
Statements for further discussion of this transaction and additional
consideration received by the religious organization. The proceeds of this loan
were remitted to the bank to pay interest and other costs due through December
31, 1993 and to reduce the principal amount outstanding on the bank notes to
$17,063,000.
On March 31, 1994, ARTRA entered into a series of agreements with its primary
bank lender and with a private corporation that had guaranteed $2,500,000 of
ARTRA's bank notes. Per terms of the agreements, the private corporation
purchased $2,500,000 in ARTRA notes from ARTRA's bank thereby reducing the
outstanding principal on ARTRA's bank notes to $14,563,000 at March 31, 1994 and
the bank released the private corporation from its $2,500,000 loan guaranty. As
consideration for purchasing $2,500,000 of ARTRA bank notes, the private
corporation received a $2,500,000 note payable from ARTRA bearing interest at
the prime rate. See Note 9 to the Consolidated Financial Statements for further
discussion of this transaction and additional consideration received by the
private corporation. A major shareholder and executive officer of the private
corporation is an ARTRA director.
The $14,563,000 of ARTRA bank notes were payable on September 30, 1994. On
October 25, 1994, ARTRA's bank lender filed suit against ARTRA in the Circuit
Court of Cook County, Illinois alleging nonpayment by ARTRA of the amounts due
under the above notes payable to the bank. The bank has requested that the court
enter judgment in its favor against ARTRA in the amount of approximately
$16,000,000, which includes the principal balance of the notes of $14,563,000,
plus interest, costs and fees.
As discussed in Note 21 to the Consolidated Financial Statements, Related Party
Transactions, ARTRA has total advances due from its president, Peter R. Harvey,
of which $3,205,000 and $2,713,000 remained outstanding at December 29, 1994 and
December 30, 1993, respectively. The advances bear interest at the prime rate
plus 2%. Additionally, in May, 1991, ARTRA's wholly-owned Fill-mor subsidiary
made advances to Peter R. Harvey. The advances, made out of a portion of the
proceeds of a short-term bank loan bear interest at the prime rate plus 2%. At
December 29, 1994 and December 30, 1993, advances of $1,510,000 and $1,404,000,
respectively, were outstanding. Commencing January 1, 1993 to date, interest on
the ARTRA and Fill-Mor advances has been accrued and fully reserved.
Peter R. Harvey has not received other than nominal compensation for his
services as an officer or director of ARTRA or any of its subsidiaries since
October of 1990. Additionally, Mr. Harvey has agreed not to accept any
compensation for his services as an officer or director of ARTRA or any of its
subsidiaries until his obligations to ARTRA, described above, are fully
satisfied.
Under Pennsylvania Business Corporation Law of 1988, ARTRA (a Pennsylvania
corporation) is permitted to make loans to officers and directors. Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted to make loans to an officer (including any officer who is also a
director, as in the case of Peter R. Harvey), whenever, in the judgment of the
directors, the loan can reasonably be expected to benefit Fill-Mor.
At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did
not act on a proposal to ratify the advances made by ARTRA to Peter R. Harvey.
The 1992 advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of
Directors. In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan obligations to the bank.
However, the resolutions did not acknowledge the use of such proceeds for this
purpose and the formal loan documents with the bank did not set forth this
condition (though in fact, the proceeds were so applied by the bank).
<PAGE>
As partial collateral for amounts due from Peter R. Harvey, the Company has
received the pledge of 1,523 shares of ARTRA redeemable preferred stock (with a
liquidation value of $1,523,000, plus accrued dividends) which are owned by Mr.
Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to $1,000,000.
ARTRA has entered into various agreements under which it has sold its common
shares along with options that require ARTRA to repurchase these shares at the
option of the holder, principally one year after the date of each agreement. At
December 29, 1994, options are outstanding that, if exercised, would require
ARTRA to repurchase 279,679 shares of its common stock for an aggregate amount
of approximately $4,100,000. ARTRA does not have available funds to satisfy its
obligations if these options were exercised. However the holders of redeemable
common stock have the option to sell their shares in the market subject to the
limitations of Securities Act Rule 144. At its discretion and subject to its
financial ability, ARTRA could reimburse the optionholders for any short-fall
resulting from such sale.
As discussed in Note 12 to the Consolidated Financial Statements, ARTRA,
Bagcraft and Bagcraft's parent BCA Holdings, Inc. ("BCA") have various
redeemable preferred stock issues with an aggregate carrying value of
approximately $17,200,000 outstanding at December 29, 1994. These redeemable
preferred stock issues have various maturity dates commencing in 1997.
Due to its limited ability to receive operating funds from its operating
subsidiaries, ARTRA historically has met its operating expenditures with funds
generated by such alternative sources as private placements of ARTRA common
stock, sales of ARTRA common stock with put options, loans from
officers/directors and private investors, as well as through sales of assets
and/or other equity infusions. ARTRA plans to continue to seek such alternative
sources of funds to meet its future operating expenditures. However, ARTRA does
not have available funds to repay the principal amount of its bank notes at
their scheduled maturity date of December 29, 1994 and is pursuing a refinancing
or restructuring of its bank notes. As a result, ARTRA will continue to have
high levels of indebtedness in the future. The level of indebtedness may affect
the rate at which or the ability of ARTRA to effectuate the refinancing or
restructuring of its bank notes. ARTRA has neither identified any other lender
to refinance such obligations nor received any commitment from the bank to
further extend the maturity of the notes. On October 25, 1994, ARTRA's bank
lender filed suit against ARTRA in the Circuit Court of Cook County, Illinois
alleging nonpayment by ARTRA of the amounts due under the above notes payable to
the bank. Unless ARTRA receives a commitment from another lender to refinance
these obligations or from the bank to extend these obligations past their
scheduled maturity dates, of which there can be no assurance, it is anticipated
that ARTRA could suffer severe adverse consequences which may include the sale
by the bank of all or substantially all of the related collateral. As a result,
ARTRA may be forced to liquidate its assets or file for protection under the
Bankruptcy Code.
ARTRA's corporate entity has no material commitments for capital expenditures.
Bagcraft
Effective December 17, 1993, Bagcraft refinanced its bank debt by entering into
a Credit Agreement that provides for a revolving credit loan and two separate
term loans. The term loans were separate two-year facilities initially totaling
$12,000,000 (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%, respectively. The principal under Term
Loan A is payable at maturity (December 17, 1995), unless accelerated under
terms of the Credit Agreement. The principal under Term Loan B ($5,000,000
outstanding at December 29, 1994) is payable in varying monthly installments
from January 1, 1994 to December 1, 1995, with the remaining principal balance
payable at maturity (December 17, 1995), unless accelerated under terms of the
Credit Agreement. At December 29, 1994, interest rates on Term Loan A and Term
Loan B were 10.25% and 11.5%, respectively.
The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000. At
December 29, 1994 and December 30, 1993, approximately $450,000 and $1,800,000,
respectively, was available and unused by Bagcraft under the revolving credit
loan. The revolving credit loan bears interest at the lender's index rate plus
1.5%. The revolving credit loan is scheduled to become due and payable upon
maturity of the Credit Agreement (December 17, 1995), unless accelerated under
terms of the Credit Agreement. At December 29, 1994 the interest rate on the
revolving credit loan was 10%.
<PAGE>
Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Bagcraft. The Credit Agreement contains various restrictive
covenants, that among other restrictions, require Bagcraft to maintain minimum
levels of tangible net worth and liquidity levels and limit additional loans,
dividend payments, capital expenditures and payments to related parties. In
addition, the Credit Agreement prohibits changes in ownership of Bagcraft. At
December 29, 1994 Bagcraft was not in compliance with the provisions of its
Credit Agreement. Bagcraft is currently negotiating with its lender to amend or
restructure the Credit Agreement.
As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant with a put option to purchase up to 10% of the
fully diluted common equity of Bagcraft. The warrant allows Bagcraft to
reacquire up to 2-1/2% of Bagcraft's fully diluted common equity from the lender
contingent upon Bagcraft's repayment of Term Loan B as defined in the Credit
Agreement. Under certain conditions Bagcraft is required to repurchase the
warrant from the lender. The determination of the repurchase price of the
warrant is to be based on the warrant's pro rata share of the highest of book
value, appraised value or market value of Bagcraft.
In March, 1994 Bagcraft and the City of Baxter Springs, Kansas completed a
$12,500,000 financing package associated with the construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. The financing package,
funded by a combination of Federal, state and local funds, consists of the
following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:
A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At December 29, 1994, Bagcraft had borrowed the
maximum of $7,000,000 available under this loan agreement.
A $5,000,000 subordinated promissory note payable as follows:
$2,000,000 installments due June 30,1998 and June 30, 1999; $1,000,000
due on January 2, 2000. The subordinated promissory note is interest
free provided that loan payments are made on a timely basis and no
events of default occur under terms of the agreement. At December 29,
1994 Bagcraft had outstanding borrowings of $4,810,000 under this loan
agreement.
A $250,000 subordinated promissory note payable in 240 monthly
installments commencing August 1, 1995 through maturity on July 18,
2015. The subordinated promissory note is interest free provided that
loan payments are made on a timely basis and no events of default occur
under terms of the agreement. At December 29, 1994, Bagcraft had
borrowed the maximum amount available under this loan agreement.
A $250,000 subordinated promissory note payable January 20, 2005. The
subordinated promissory note is interest free provided that loan
payments are made on a timely basis and no events of default occur
under terms of the agreement. At December 29, 1994, Bagcraft had
borrowed the maximum amount available under this loan agreement.
Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain machinery and equipment. At December 29, 1994,
approximately $800,000 of borrowings from the above loan agreements is reflected
in the Consolidated Balance Sheet in current assets as restricted cash and
equivalents. These funds, invested in interest bearing cash equivalents, are
restricted for expenditures associated with the Baxter Springs, Kansas project.
In December, 1993 the Bagcraft subsidiary recorded a charge to operations of
$1,175,000 representing equipment and inventory relocation costs and employee
severance and outplacement costs relating to the construction of the Baxter
Springs, Kansas plant. These costs were expended principally in the second and
third quarters of 1994. The new facility became operational in late 1994. The
new Kansas facility replaced Bagcraft's production facility in Joplin, Missouri.
Additionally, with the completion of the new Kansas facility, Bagcraft converted
the manufacturing facility in Forest Park, Georgia into a distribution facility.
The former Carteret, New Jersey facility was sold in December, 1994 and the
proceeds of approximately $1,700,000 were used to reduce borrowings under
Bagcraft's Credit Agreement.
<PAGE>
As discussed in Note 3 to the Consolidated Financial Statements, on April 8,
1994,, Bagcraft completed the acquisition of Arcar for consideration consisting
of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The
promissory notes provide for interest payable quarterly at the prime rate (as
defined in the agreement). The promissory notes mature as follows: $2,500,000
payable March 15, 1995; $2,500,000 payable March 15, 1996; $2,500,000 payable
March 15, 1997; $500,000 payable March 15, 1998. The seller also received a
warrant to purchase 177,778 ARTRA common shares at a price of $5.625 per share.
Exercise of the warrant is payable only through a reduction of the subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement.
Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the
"Agreement") with a bank that provides for a revolving credit loan and a term
loan. The term loan, in the principal amount of $2,750,000, bears interest at
the prime rate plus .75%. The principal under the term loan is payable in
forty-eight varying monthly installments from April 30, 1995 to March 31, 1999,
unless accelerated under terms of the Agreement.
The amount available to Arcar under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $1,500,000. The
revolving credit loan bears interest at the prime rate plus .5% and becomes due
and payable March 31, 1995, unless accelerated under terms of the Agreement. The
revolving credit loan is renewable, solely at the discretion of the lender, for
additional one year periods until maturity of the Agreement (March 31, 1999).
The revolving credit loan has been renewed until March 31, 1996. As of December
29, 1994, Arcar had not yet utilized funds available under the revolving credit
loan.
Borrowings under the Agreement are collateralized by substantially all of the
assets of Arcar. The Agreement contains various restrictive covenants, that
among other restrictions, require Arcar to maintain minimum levels of net worth
and liquidity levels and limit additional loans, dividend payments, capital
expenditures and payments to related parties.
Bagcraft has historically generated cash flow from operations and has available
funds under its revolving credit loan. These sources should provide sufficient
cash flow to fund Bagcraft's short-term capital requirements. As discussed
above, Bagcraft is currently negotiating to amend or restructure the borrowings
under the Credit Agreement. It is anticipated that the successful completion of
these negotiations, of which there can be no assurance, will provide Bagcraft
with the ability to fund its long-term capital requirements.
Bagcraft anticipates that its 1995 capital expenditures, principally for the
Kansas facility and manufacturing equipment, will be approximately $2,500,000
and will be funded principally from the above mentioned credit facilities and
also from operations.
Lori
In recent years, Lori has suffered significant operating losses, principally at
its New Dimensions subsidiary. As a result of the significant operating loss
incurred in 1992, on February 5, 1993, New Dimensions filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code. On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date of the reorganization, New
Dimensions emerged from Chapter 11 bankruptcy court protection. The plan, among
other things, provided for New Dimensions' bank lender to have the right to
receive all of the issued and outstanding shares or assets of New Dimensions
immediately prior to the consummation date. The bank then assigned its rights to
receive the New Dimensions stock to a newly formed Lori subsidiary, which was
then merged into New Dimensions, for consideration of $2,500,000, evidenced by
New Dimensions' term loan note originally scheduled to be payable in varying
quarterly installments, commencing March 31, 1994 through December 31, 1996.
Lori assumed and guaranteed the balance of New Dimensions' pre-bankruptcy loans
payable to the bank, amounting to $12,036,000, including accrued interest, which
included the New Dimensions former line of credit and the New Dimensions former
term loan, net of New Dimensions' direct obligation payable to the bank of
$2,500,000 as noted above. The bank also provided New Dimensions with a
revolving line of credit, including a letter of credit facility. Borrowings were
limited to the lesser of $1,600,000 or a calculated borrowing base.
On February 5, 1993, Lawrence entered into a credit agreement with Lori's bank
that provided for a revolving line of credit, which includes a letter of credit
facility. Borrowings were limited to the lesser of $2,100,000 or a calculated
borrowing base.
<PAGE>
Effective March 31, 1993 Rosecraft entered into agreements with a bank that
provided for a term loan of $2,977,000 and a revolving line of credit. The
revolving line of credit provided for borrowings, including a letter of credit
facility. Borrowings were limited to the lesser of $1,000,000 or a calculated
borrowing base, less outstanding letters of credit. In addition to the revolving
line of credit, the bank has provided an overadvance credit commitment of
$1,200,000.
Since December 30, 1993 and during 1994, Lori and its operating subsidiaries
were not in compliance with certain provisions of their respective bank loan
agreements. At December 30, 1993, borrowings under the bank loan agreements of
Lori and its operating subsidiaries totaled $21,952,000. In addition to
scheduled maturitities of $2,833,000 under the bank loan agreements of Lori and
its operating subsidiaries, the remaining borrowings of $19,119,000 under the
bank loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 30, 1993.
Effective August 18, 1994, Lori and Lori's operating subsidiaries (collectively,
the "Borrowers"), ARTRA and Fill-Mor entered into an agreement with Lori's bank
lender to settle obligations due the bank under terms of the bank loan
agreements of Lori and its operating subsidiaries. On December 13, 1994, Lori
and Lori's operating subsidiaries were notified by the bank of certain defaults
under the Settlement Agreement, including but not limited to a $1,115,000
payment due the bank on December 8, 1994. Prior to receipt of the default notice
and thereafter, ARTRA and Lori entered into negotiations with the bank to amend
or restructure the terms of the August 18, 1994 Settlement Agreement.
Effective December 23, 1994, the Borrowers, ARTRA and Fill-Mor and the bank
entered into an amendment to the August 18, 1994 Settlement Agreement ("Amended
Settlement Agreement"). Per terms of the Amended Settlement Agreement,
borrowings due the bank under the loan agreements of the Borrowers and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in 1995, as discussed below, the balance of
this indebtedness was discharged.
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares were
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement.
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, the Borrowers, ARTRA and Fill-Mor agreed to pay the
following consideration, which supersedes the consideration agreed to under
terms of the August 18, 1994 Settlement Agreement:
A) A cash payment to the bank of $1,900,000, which was made
prior to consummation of the Amended Settlement
Agreement.
B) 400,000 shares of ARTRA common stock.. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
Among other things, ARTRA has agreed to register the ARTRA shares issued in
order to enable the ARTRA shares issued to be freely tradeable without
restriction on or before July 31, 1995. Additionally, ARTRA advanced $400,000 to
Lori to be used to fund the installment payment due December 31, 1994 for
unsecured claims arising from the May 3, 1993 reorganization of New Dimensions.
<PAGE>
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
Lori recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank) as of December 23, 1994. Lori also
recorded a charge against operations of $10,800,000 in December 1994 to
write-off New Dimensions' remaining goodwill.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor of approximately $9,400,000 in 1995.
Among other things, ARTRA has agreed to register the ARTRA shares issued in
order to enable the ARTRA shares issued to be freely tradeable without
restriction on or before July 31, 1995. In the event the shares are not
registered by July 31, 1995, the bank has the right to put the 100,000 ARTRA
shares back to ARTRA for an exercise price of $500,000. The $750,000 note
payment was funded with the proceeds of a $850,000 short-term loan from a
director of Lori. The loan provides for interest at the prime rate plus 1%, and,
as additional consideration, the director received 150,000 Lori common shares
valued at $337,500 ($2.25 per share) based upon Lori's closing market value on
March 30, 1995.
In recent years, New Dimensions has experienced a pattern of operating losses
primarily due to a shift in the buying patterns of its major customers (i.e.
certain mass merchandisers) from participation in the New Dimension's service
program to purchases of costume jewelry and accessories directly from
manufacturers. Accordingly, the assignment to the Company's bank lender of all
of the assets of the New Dimensions subsidiary in accordance with terms of the
Amended Settlement Agreement, resulted in New Dimensions ceasing its operations
effective December 27, 1994. New Dimensions cessation of operations is not
expected to have a material adverse effect on the financial condition, liquidity
or results of operations of the Company in the immediate future.
Lori anticipates that the successful completion of the restructuring of its
debt, plus additional working capital borrowings either from ARTRA or external
sources will permit it to fund its capital requirements in 1995. In addition,
the Company continues to restructure its operations and is attempting to
increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's 1995 business plan is based on the continued dependence upon certain
major customers.
The common stock and virtually all the assets of the Company and its operating
subsidiaries have been pledged as collateral for the Company's and its operating
subsidiaries' bank borrowings. Under its debt agreements the Company is limited
in the amounts it can withdraw from its operating subsidiaries. At December 29,
1994 substantially all cash and equivalents on the Company's consolidated
balance sheet were restricted to use by and for the Company's operating
subsidiaries. Due to the limited ability of the Company to receive funds from
its operating subsidiaries, effective July 1, 1989, ARTRA placed a moratorium on
the accrual of interest and the declaration and accrual of dividends on its Lori
note and preferred stock, respectively. The moratorium has been extended
indefinitely.
During 1994, ARTRA made net advances to Lori of $2,531,000 during 1994. The
advances consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to the bank in
conjunction with the Amended Settlement Agreement with Lori's bank lender, and
certain non-interest bearing advances used to fund Lori working capital
requirements.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally, the August 18, 1994
Settlement Agreement required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.
In February, 1993, ARTRA transferred all of its notes (with a principal value of
$15,990,000) to Lori's capital account.
<PAGE>
Rosecraft, Lawrence and Lori's corporate entity have no material commitments for
capital expenditures.
The Company's operating subsidiaries sell all of their products directly to
their customers. On a very limited basis certain customers may be offered
extended payment terms beyond 30 days depending upon prevailing trade practices
and financial strength.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Notes 14 and 20 to the Consolidated
Financial Statements. At December 29, 1994 and December 30, 1993, the Company
had accrued $1,500,000 and $1,850,000, respectively, for potential
business-related litigation and environmental liabilities. However, as discussed
above ARTRA may not have available funds to pay liabilities arising out of these
business-related litigation and environmental matters or, in certain instances,
to provide for its legal defense. ARTRA could suffer severe adverse consequences
in the event of an unfavorable judgment in any of these matters.
At December 29, 1994, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $97,000,000 available to be applied against
future taxable income, if any. ARTRA's tax loss carryforwards of approximately
$32,000,000 expire principally in 2003 - 2009. ARTRA's discontinued Ultrasonix
and Ratex subsidiaries had Federal income tax loss carryforwards of
approximately $11,000,000 available to be applied against future taxable income,
if any. Lori has Federal income tax loss carryforwards of approximately
$54,000,000 available to be applied against future Lori taxable income, if any,
expiring principally in 1995 - 2009. In recent years, the Company has issued
shares of its common stock to repay various debt obligations, as consideration
for acquisitions, to fund working capital obligations and as consideration for
various other transactions. Section 382 of the Internal Revenue Code of 1986
limits a corporation's utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the opinion of management, the Company is not currently subject to such
limitations regarding the utilization of its Federal income tax loss
carryforwards. Should the Company continue to issue a significant number of
shares of its common stock, it could trigger a limitation that would prevent it
from utilizing a substantial portion of its Federal income tax loss
carryforwards.
Results of Operations
1994 vs 1993
Net sales of approximately $152,100,000 for the year ended December 29, 1994
were approximately $7,500,000, or 4.7%, lower than net sales for the year ended
December 30, 1993. Jewelry segment sales decreased approximately $11,600,000 or
25.2% while packaging segment sales increased approximately $4,100,000 or 3.6%.
The 1994 jewelry segment results of operations include New Dimensions net sales
of $13,701,000 and operating loss of $2,143,000 before a write-off of goodwill.
The 1994 jewelry segment sales decrease is principally attributable to the
combination of a soft retail environment, a planned reduction of in-store
inventory levels by certain major customers in 1994 and a shift in the buying
patterns of certain mass merchandisers from participation in the Company's
service program to purchases of costume jewelry and accessories directly from
manufacturers. The 1994 packaging segment sales increase is primarily
attributable to the April, 1994 acquisition of Arcar, partially offset by the
sale of Bagcraft's Roll Press division, which was completed in the second
quarter of 1993.
The Company's cost of sales of approximately $119,100,000 for the year ended
December 29, 1994 increased approximately $800,000 as compared to the year ended
December 30, 1993. Cost of sales in the year ended December 29, 1994 was 78.3%
of net sales compared to a cost of sales percentage of 74.1% for the year ended
December 30, 1993. Jewelry segment cost of sales decreased $3,700,000 in the
year ended December 29, 1994, as compared to the year ended December 30, 1993.
Jewelry segment cost of sales was 61.2% of net sales in the year ended December
29, 1994, as compared to 58.3% of net sales in the year ended December 30, 1993.
The 1994 jewelry segment cost of sales decrease is principally attributable to
the decrease in sales volume as noted above. The jewelry segment cost of sales
percentage increase of 3.9% is primarily attributable to a soft retail
environment that resulted in depressed operating margins. Packaging segment cost
of sales increased $4,500,000 in the year ended December 29, 1994, as compared
to the year ended December 30, 1993. Packaging segment cost of sales was 83.3%
of net sales in the year ended December 29, 1994, as
<PAGE>
compared to 82.3% of net sales in the year ended December 30, 1993. is primarily
attributable to the April, 1994 acquisition of Arcar. The increase in the
packaging segment cost of sales percentage is primarily attributable to
unforeseen delays in the completion of and higher than anticipated start-up
costs of the Baxter Springs, Kansas production facility and higher raw material
costs in the second half of 1994, partially offset by a more favorable product
mix.
Selling, general and administrative expenses were approximately $34,100,000 in
the year ended December 29, 1994 as compared to approximately $33,600,000 in the
year ended December 30, 1993. Selling, general and administrative expenses were
22.4% of net sales in the year ended December 29, 1994 as compared to 21.1% of
net sales in the year ended December 30, 1993. The increase in selling, general
and administrative expenses as a percentage of net sales is primarily
attributable to the semi-fixed nature of these expenses.
As partial consideration per the terms of its debt settlement agreement with its
bank lender the Company assigned the bank all of the assets of it's New
Dimensions subsidiary. Accordingly, the Company recorded a charge against
operations of $10,800,000 in December 1994 representing a write-off of New
Dimensions' remaining goodwill.
Operating loss in the year ended December 29, 1994 was approximately $17,800,000
as compared to operating earnings of approximately $700,000 in the year ended
December 30, 1993. The jewelry segment incurred an operating loss of $15,200,000
as compared to operating earnings of approximately $1,600,000 in the year ended
December 31, 1993. The 1994 operating loss is principally attributable to the
write-off of New Dimensions goodwill, plus the combination of a soft retail
environment, a planned reduction of in-store inventory levels by certain major
customers in 1994 and a shift in the buying patterns of certain mass
merchandisers from participation in the Company's service program to purchases
of costume jewelry and accessories directly from manufacturers. The packaging
segment operating earnings were approximately $900,000 in the year ended
December 29, 1994, as compared to operating earnings of approximately $2,000,000
the year ended December 30, 1993. The jewelry segment operating loss is
principally attributable to the combination of a soft retail environment and a
planned reduction of in-store inventory levels by certain major customers in
1994 and to the discontinuance of New Dimensions "Contempra" line of fashion
costume jewelry service program in February, 1993 as noted above. The decrease
in packaging segment operating profit is primarily attributable to unforeseen
delays in the completion of and higher than anticipated start-up costs of the
Baxter Springs, Kansas production facility.
Interest expense in the year ended December 29, 1994 increased approximately
$2,900,000 as compared to the year ended December 30, 1993. The 1994 increase is
principally due to the combination of long-term debt incurred in connection with
Bagcraft's acquisition of Arcar, to an overall increase in borrowings and to the
effect of an increase in the prime rate.
The 1994 extraordinary credit represents a net gain from discharge of bank
indebtedness under the loan agreements of Lori and its operating subsidiaries.
The 1993 extraordinary credit represents a gain from a net discharge of
indebtedness at Lori's New Dimensions subsidiary. No income tax expense is
reflected in the Company's financial statements resulting from the extraordinary
credit due to the utilization of tax loss carryforwards.
1993 vs 1992
Net sales of approximately $159,600,000 for the year ended December 30, 1993
were approximately $37,000,000, or 18.8%, lower than net sales for the year
ended December 31, 1992. Jewelry segment sales decreased approximately
$29,400,000 or 38.9%, while packaging segment sales decreased approximately
$7,500,000 or 6.2%. The 1993 jewelry segment sales decrease is primarily
attributable to the New Dimensions reorganization which resulted in a reduction
of New Dimensions' operating focus to certain product lines which management
believed would be better received in the market than discontinued lines. In
early 1993, Wal-Mart ended its participation in New Dimensions' "Contempra"
service program, although Wal-Mart continues to be a significant customer for
New Dimensions' "Sarah Coventry" line of ladies costume jewelry and Trilko key
chains through New Dimensions' service program. Due primarily to the
discontinuance of the "Contempra" service program with Wal-Mart and other New
Dimensions customers, in conjunction with its Chapter 11 reorganization, New
Dimensions terminated its in-house service staff early in 1993 and contracted
with Lori's Lawrence subsidiary to conduct its remaining service program.
Additionally, in June, 1992 Rosecraft closed its Ladies line of fashion costume
jewelry in order to concentrate on its higher margin Children's line of fashion
costume jewelry and accessories. The packaging segment 1993 sales decrease is
primarily attributable to the sale of it Roll Press division, which was
completed in the second quarter of 1993.
<PAGE>
The Company's cost of sales in the year ended December 30, 1993 of approximately
$118,300,000 in the year ended December 30, 1993 decreased approximately
$32,300,000 as compared to the year ended December 31, 1992. Cost of sales in
the year ended December 30, 1993 was 74.1% of net sales compared to a cost of
sales percentage of 76.6% for the year ended December 31, 1992. Jewelry segment
cost of sales decreased $29,500,000 in the year ended December 30, 1993, as
compared to the year ended December 31, 1992. Jewelry segment cost of sales was
53.8% of net sales in the year ended December 30, 1993, as compared to 72.0% of
net sales the year ended December 31, 1992. The jewelry segment cost of sales
decrease is primarily attributable to the sales volume decrease as noted above.
The jewelry segment cost of sales percentage decrease is primarily attributable
to management's efforts to concentrate on higher margin lines of jewelry and
accessories and to costs incurred in 1992 related to discontinued lines of
business. Packaging segment cost of sales decreased $2,800,000 in the year ended
December 30, 1993, as compared to the year ended December 31, 1992. Packaging
segment cost of sales was 82.8% of net sales in the year ended December 30,
1993, as compared to 79.5% of net sales in the year ended December 31, 1992. The
packaging segment 1993 cost of sales decrease is primarily attributable to the
sale of it Roll Press division, which was completed in the second quarter of
1993. The decrease in the packaging segment's cost of sales percentage is
primarily attributable to a more favorable product mix.
Selling, general and administrative expenses in the year ended December 30, 1993
decreased approximately $22,800,000 as compared to the year ended December 31,
1992. Selling, general and administrative expenses were 21.1% of net sales in
the year ended December 30, 1993 as compared to 28.7% of net sales in the year
ended December 31, 1992. The decrease in selling, general and administrative
expenses is attributable to a combination of the 1993 jewelry segment decrease
in sales volume and to the jewelry segment management's aggressive cutting of
fixed overhead costs that began in the second half of 1992.
Depreciation and amortization expense decreased approximately $600,000 in the
year ended December 30, 1993 as compared to the year ended December 31, 1992.
The decrease is primarily attributable to the New Dimensions reorganization.
In December, 1993 the Bagcraft subsidiary recorded a charge to operations of
$1,175,000 representing equipment and inventory relocation costs and employee
severance and outplacement costs, to be expended principally in the second and
third quarters of 1994, relating to the construction of a new manufacturing
facility in Baxter Springs, Kansas. The new facility has replaced Bagcraft's
production facility in Joplin, Missouri (except for limited production which is
being phased-out as the new facility achieves full operational capacity), its
facility in Carteret, New Jersey (which was sold in December, 1994) and its
facility in Forest Park, Georgia (which has been converted into a distribution
facility).
During 1992 Lori's subsidiaries incurred restructuring costs aggregating
$1,575,000. In June, 1992, Lori's Rosecraft subsidiary closed its Ladies line of
fashion costume jewelry in order to concentrate on its higher margin Children's
line of fashion costume jewelry and accessories. The closing of Rosecraft's
Ladies line resulted in a charge to operations of $900,000 representing
principally inventory liquidation costs, lease termination costs and employee
severance costs. In the fourth quarter of 1992, Lori's New Dimensions subsidiary
closed certain of its "Whims" retail outlet stores and made the decision to
close additional "Whims" retail outlet stores and its New York City sales and
executive office in 1993. The closing of the "Whims" retail outlet stores and
the New York City sales and executive office resulted in a charge to operations
of $675,000 representing principally inventory liquidation costs, lease
termination costs and employee severance costs which were expended principally
in the first quarter of 1993. Operating earnings in the year ended December 30,
1993 were approximately $700,000 as compared to an operating loss of
approximately $27,200,000 in the year ended December 31, 1992. The jewelry
segment had operating earnings of approximately $1,600,000 in the year ended
December 30, 1993 as compared to an operating loss of approximately $28,800,000
in the year ended December 31, 1992. The packaging segment operating earnings
were approximately $2,000,000 in the year ended December 30, 1993 as compared to
operating earnings of approximately $4,100,000 in the year ended December 31,
1992. The 1993 jewelry segment operating earnings are principally attributable
to the New Dimensions reorganization which resulted in a reduction of New
Dimensions' operating focus to certain product lines which management believed
would be better received in the market than discontinued lines and to costs
incurred in 1992 related to discontinued lines of business. The decrease in
packaging segment operating profit is primarily attributable the 1993
restructuring charge relating to the construction of a new manufacturing
facility in Baxter Springs, Kansas. Corporate and other operating costs were
approximately $2,2000,000 in the year ended December 30, 1993 as compared to
approximately $2,100,000 in the year ended December 31, 1992.
<PAGE>
The 1993 extraordinary credit represents a gain from a net discharge of
indebtedness at Lori's New Dimensions subsidiary. No income tax expense is
reflected in the Company's financial statements resulting from the extraordinary
credit due to the utilization of tax loss carryforwards. Due to the Company's
tax loss carryforwards, no income tax benefit was recognized in connection with
the Company's 1992 pre-tax loss.
Seasonality
Retail sales of the Company's jewelry segment products are higher during the
Spring (February through April) and Christmas seasons (September through
December). As a result of these seasonal factors, the Company's jewelry segment
inventories of finished goods reach peak levels just prior to these periods and
are generally lower during the balance of the year.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy; however, to the
extent permitted by competition, the Company generally passes increased costs to
its customers by increasing sales prices over time.
Item 8. Financial Statements and Supplementary Data.
Financial Statements and Schedules as listed on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
The information required by Part III will be filed as an amendment to Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedules as listed on Page F-1.
3. Exhibits as listed on Page E-1.
(b) Reports on Form 8-K.
On October 31, 1994 the Company filed Form 8-K to report the
complaint filed on October 25, 1994 by Bank America Illinois
in the Circuit Court of Cook County, Illinois against ARTRA
and certain of its subsidiaries for amounts due the bank
under terms of certain ARTRA promissory notes.
On January 3, 1995 the Company filed Form 8-K to report the
December 13, 1994 notification of certain defaults by the
Company's 66.4% owned subsidiary The Lori Corporation and its
operating subsidiaries under the August Debt Settlement
Agreement with a bank. Effective December 23, 1994, the
parties entered into an Amended Settlement Agreement to
discharge certain indebtedness due the bank.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ARTRA GROUP INCORPORATED
By: JOHN HARVEY
-----------------------
John Harvey
Chairman and Director
Dated: April 12, 1995 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the registrant, in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
JOHN HARVEY Chairman and Director April 12, 1995
-----------------
John Harvey Chief Executive Officer
PETER R. HARVEY President and Director April 12, 1995
-----------------
Peter R. Harvey Chief Operating Officer
JAMES D. DOERING Vice President /Treasurer April 12, 1995
-----------------
James D. Doering Chief Financial Officer
GERARD M. KENNY Director April 12, 1995
- ------------------
Gerard M. Kenny
LAWRENCE D. LEVIN Controller April 12, 1995
------------------
Lawrence D. Levin
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1994
and December 30, 1993 F-3
Consolidated Statements of Operations
for each of the fiscal years in the three year period ended December 29, 1994 F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for each of the fiscal years in the three year period ended December 29, 1994 F-6
Consolidated Statements of Cash Flows
for each of the fiscal years in the three year period ended December 29, 1994 F-7
Notes to Consolidated Financial Statements F-9
Schedules:
I. Condensed Financial Information of Registrant F-39
II. Valuation and Qualifying Accounts F-43
</TABLE>
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois
We have audited the consolidated financial statements and the financial
statement schedules of ARTRA GROUP Incorporated and Subsidiaries as listed in
the index on page F-1 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of ARTRA GROUP
Incorporated's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ARTRA
GROUP Incorporated and Subsidiaries as of December 29, 1994 and December 30,
1993, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 29, 1994 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency. As a result of these factors,
the Company has experienced difficulty in obtaining adequate financing to
replace the current credit arrangements, certain of which are in default, to
fund its debt service and to satisfy liquidity requirements for 1995. 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 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 12, 1995
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1994 1993
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,070 $ 1,060
Restricted cash and equivalents 1,324 875
Receivables, less allowance
for doubtful accounts
and markdowns of $1,654 in
1994 and $3,095 in 1993 13,707 11,972
Inventories 20,268 21,540
Other 1,148 2,047
------ ------
38,517 37,494
------ ------
Property, plant and equipment:
Land 930 2,283
Buildings 10,584 8,345
Improvements to land and leaseholds 187 493
Machinery and equipment 33,756 31,923
Construction in in progress 2,693 2,397
------ ------
48,150 45,441
Less accumulated depreciation and amortization 17,110 18,034
------ ------
31,040 27,407
------ ------
Other assets:
Excess of cost over net assets acquired, net
of accumulated amortization of $7,934 in
1994 and $21,634 in 1993 19,076 22,693
Other 4,796 5,180
------ ------
23,872 27,873
------ ------
$93,429 $92,774
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1994 1993
------ ------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable, including amounts due to
related parties
of $5,669 in 1994 and $1,446 in 1993 $ 28,053 $ 29,444
Current maturities of long-term debt 37,521 5,851
Long-term debt reclassified as current 19,119
Accounts payable 16,788 12,495
Accrued expenses 16,533 17,214
Income taxes 94 402
------ ------
98,989 84,525
------ ------
Long-term debt 19,673 29,264
Debt subsequently discharged 9,750
Other noncurrent liabilities 1,463 2,853
Commitments and contingencies
Redeemable common stock,
issued 279,679 shares in 1994 and 245,413
shares in 1993 4,144 3,276
ARTRA redeemable preferred stock payable
to a related party, $1,000 par
value, Series A, 6% cumulative
payment-in-kind, including accumulated
dividends, net of unamortized discount
of $1,842 in 1994 and $2,076 in
1993; redeemable March 1, 2000 at $1,000
per share, plus accumulated
dividends; authorized 2,000,000
shares all series; issued 3,750 shares 3,129 2,613
Bagcraft redeemable preferred stock payable
to a related party, cumulative
$.01 par value, 13.5%, including accumulated
dividends; redeemable in 1997 with a
liquidation preference equal to $100 per share
50,000 shares authorized and issued 10,119 9,444
BCA Holdings preferred stock payable to a
related party, $1,000 par value,
6%cumulative, including accumulated
dividends; liquidation preference of
$1,000 per share; 10,000 shares
authorized; issued 3,675 shares 3,922 3,708
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorzed
7,500,000 shares; issued 6,455,602 shares
in 1994 and 4,983,608 shares in 1993 5,052 3,922
Additional paid-in capital 36,613 31,042
Receivable from related party,
including accrued interest (4,100) (3,843)
Accumulated deficit (94,520) (73,225)
------- -------
(56,955) (42,104)
Less treasury stock (57,038 shares), at cost 805 805
------ ------
(57,760) (42,909)
------ ------
$ 93,429 $ 92,774
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 152,115 $ 159,638 $ 196,568
--------- --------- ---------
Costs and expenses:
Cost of goods sold, exclusive of 119,081 118,256 150,591
depreciation and amortization
Selling, general and administrative 34,090 33,647 56,414
Depreciation and amortization 5,945 5,906 6,496
Impairment of goodwill 10,800 8,664
Restructuring costs 1,175 1,575
--------- --------- ---------
169,916 158,984 223,740
--------- --------- ---------
Operating earnings (loss) (17,801) 654 (27,172)
--------- --------- ---------
Other income (expense):
Interest expense (10,655) (7,733) (10,846)
Other income (expense), net (7) 51 123
Reorganization and debt
renegotiation costs (767) (700)
--------- --------- ---------
(10,662) (8,449) (11,423)
--------- --------- ---------
Loss from continuing operations before
income taxes and minority interest (28,463) (7,795) (38,595)
(Provision) credit for income taxes (83) (40) 968
Minority interest (889) (708) (675)
--------- --------- ---------
Loss from continuing operations (29,435) (8,543) (38,302)
Earnings from discontinued operations,
net of income taxes of $170 330
--------- --------- ---------
Loss before extraordinary credit (29,435) (8,543) (37,972)
Extraordinary credit,
net discharge of indebtedness 8,965 22,057
--------- --------- ---------
Net earnings (loss) (20,470) 13,514 (37,972)
Dividends applicable to
redeemable preferred stock (516) (471) (431)
Reduction of retained earnings
applicable to redeemable common sto (309) (243) (511)
--------- --------- ---------
Earnings (loss) applicable to
common shares $ (21,295) $ 12,800 $ (38,914)
========= ========= =========
Earnings (loss) per share:
Continuing operations $ (5.30) $ (1.88) $ (8.98)
Discontinued operations 0.08
--------- --------- ---------
Loss before extraordinary credit (5.30) (1.88) (8.90)
Extraordinary credit 1.57 4.49
--------- --------- ---------
Net earnings (loss) $ (3.73) $ 2.61 $ (8.90)
========= ========= =========
Weighted average number of shares of
common stock and
common stock equivalents outstanding 5,702 4,908 4,372
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIT)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Receivable Total
Common Stock Additional From Treasury Stock Shrhldrs
--------------------- Paid-in Related Accumulated -------------- Equity
Shares Dollars Capital Party (Deficit) Shares $ (Deficit)
---------- ------- ------- ------- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 3,973,050 $3,118 $25,793 ($5,250) ($47,111) 4,245 ($ 66) ($23,516)
Net loss (37,972) (37,972)
Redeemable common stock accretion (511) (511)
Redeemable common stock put options exercised 144,106 59 1,103 46,793 (645) 517
Common stock issued to pay liabilities 281,812 302 1,548 1,850
Exercise of stock options 24,333 18 176 6,000 (94) 100
Net increase in receivable from related
party, including accrued interest (635) (635)
Redeemable preferred stock dividends (431) (431)
Common stock contributed to ESOP 100,000 75 325 400
Common stock issued as compensation 19,291 15 89 104
---------- ------- ------- ------- -------- ------- ---- --------
Balance at December 31, 1992 4,542,592 3,587 29,034 (5,885) (86,025) 57,038 (805) (60,094)
Net earnings 13,514 13,514
Redeemable common stock accretion (243) (243)
Common stock issued to pay liabilities 292,996 224 1,412 1,636
Exercise of stock options 74,700 56 294 350
Net decrease in receivable from related party 2,042 2,042
Redeemable preferred stock dividends (471) (471)
Common stock issued as compensation 73,320 55 302 357
---------- ------- ------- ------- -------- ------- ---- --------
Balance at December 30, 1993 4,983,608 3,922 31,042 (3,843) (73,225) 57,038 (805) (42,909)
Net loss (20,470) (20,470)
Redeemable common stock accretion (309) (309)
Common stock sold through private placements 855,000 641 2,484 3,125
Common stock issued for Lori
debt settlement agreement 400,000 300 2,200 2,500
Common stock issued to pay liabilities 142,635 107 684 791
Sale and reclass of redeemable common stock (14,266) 15 (192) (177)
Common stock contributed to ESOP 65,000 49 292 341
Exercise of stock options 5,300 4 26 30
Net increase in receivable from related party (257) (257)
Redeemable preferred stock dividends (516) (516)
Common stock issued as compensation 18,325 14 77 91
---------- ------- ------- ------- -------- ------- ---- --------
Balance at December 29, 1994 6,455,602 $5,052 $36,613 ($4,100) ($94,520) 57,038 ($805) ($57,760)
========== ======= ======= ======= ======== ======= ==== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($20,470) $13,514 ($37,972)
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (8,965) (22,057)
Depreciation of property, plant and equipment 4,252 4,283 4,762
Amortization of excess of cost over net assets acquired 1,693 1,623 1,734
Impairment of goodwill 10,800 8,664
Amortization of other assets 963 216 665
Inventory valuation reserve 4,900
(Gain) loss on sale of property, plant and equipment (59) (284) 267
Gain on sale of Ratex subsidiary (500)
Minority interest 889 708 675
Contribution to ARTRA ESOP 77 423 400
Other 485 389 327
Changes in assets and liabilities, net of effects of
Arcar acquisiton and debt restructuring
(Increase) decrease in receivables (1,923) (348) 6,650
Decrease in inventories (727) 2,453 1,309
(Increase) decrease in other current and noncurrent assets 1,068 (1,031) 671
Increase in payables and accrued expenses 4,675 804 2,362
Decrease in other current and noncurrent liabilities (763) 170 (889)
(Increase) decrease in receivable from related party,
including accrued interest (257) 42 (635)
--------- --------- ---------
Net cash flows from (used by) operating activities (8,262) 905 (6,610)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 2,251 1,401 1,717
Additions to property, plant and equipment (11,881) (3,156) (3,508)
Retail fixtures (665) (951)
Acquisition of Arcar (2,264)
Proceeds from sale of Ratex subsidiary 1,089
Other 101
--------- --------- ---------
Net cash flows used by investing activities (12,458) (2,607) (702)
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in short term debt 1,920 54 8,455
Proceeds from long term borrowings 116,775 123,743 132,212
Reduction of long term debt (100,131) (124,759) (133,196)
Proceeds from private placements of ARTRA common stock 3,230
Proceeds from exercise of stock options 30 129 48
Proceeds from sale of BCA Holdings preferred stock 3,000 675
Exercise of redeemable common stock put options (50) (456)
Other (44) (187) (21)
--------- --------- ---------
Net cash flows from financing activities 21,730 1,980 7,717
--------- --------- ---------
Increase in cash and cash equivalents 1,010 179 405
Cash and equivalents, beginning of year 1,060 881 476
--------- --------- ---------
Cash and equivalents, end of year $ 2,070 $ 1,060 $ 881
========= ========= =========
Supplemental cash flow information: Cash paid during the year for:
Interest $ 8,811 $ 7,333 $ 7,743
Income taxes paid (refunded), net 59 (108) 190
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $ 756 $ 1,636 $ 2,601
Notes issued to sellers as consideration for Arcar acquisition 8,000
ARTRA common stock issued to Lori's bank lender as partial
consideration for discharge of indebtedness 2,500
Transfer New Dimensions assets, net of cash of $674,
to Lori's bank lender under terms of the
debt settlement agreement 6,475
Debt refinanced 36,609
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Restructuring and Basis of Presentation
ARTRA Group Incorporated ("ARTRA" or the "Company") consolidated financial
statements are presented on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any
adjustments relating to recoverability and classification of recorded asset
amounts or the amount and classification of liabilities or other adjustments
that might be necessary should ARTRA be unable to continue as a going concern.
The Company has suffered recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit arrangements,
certain of which are in default, to fund its debt service and liquidity
requirements in 1995. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
9, Notes Payable, and Note 10, Long Term Debt, for further discussion of the
status of credit arrangements and restrictions on the ability of operating
subsidiaries to fund ARTRA corporate obligations. Due to its limited ability to
receive operating funds from its operating subsidiaries, ARTRA has historically
met its operating expenditures with funds generated by such alternative sources
as private placements of ARTRA common stock, sales of ARTRA common stock with
put options, loans from officers/directors and private investors, as well as
through sales of assets and/or other equity infusions. ARTRA plans to continue
to seek such alternative sources of funds to meet its future operating
expenditures.
As discussed in Note 7, on August 18, 1994, as amended December 23, 1994, ARTRA,
The Lori Corporation ("Lori"), a 66.4% owned subsidiary of the Company, Lori's
parent, Fill-Mor Holding, Inc. ("Fill-Mor"), a wholly-owned subsidiary of the
Company, and Lori's operating subsidiaries, New Dimensions Accessories, Ltd.
("New Dimensions"), Lawrence Jewelry Corporation ("Lawrence") and Rosecraft,
Inc. ("Rosecraft"), entered into an agreement with Lori's bank lender to settle
obligations due the bank under terms of the bank loan agreements of Lori and its
operating subsidiaries and Fill-Mor.
Lori anticipates that the successful completion of the restructuring of its
debt, plus additional working capital borrowings either from ARTRA or external
sources will permit it to fund its capital requirements in 1995. In addition,
the Company continues to restructure its operations and is attempting to
increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
ARTRA intends to continue to negotiate with its bank and other creditors to
extend due dates and allow ARTRA opportunities to obtain alternative sources of
financing and to maximize value from possible sale of assets. Unless ARTRA
receives a commitment from another lender to refinance these obligations or from
the bank to extend these obligations past their scheduled maturity dates, of
which there can be no assurance, it is anticipated that ARTRA could suffer
severe adverse consequences which may include the sale by the bank of all or
substantially all of the related collateral. As a result, ARTRA may be forced to
liquidate its assets or file for protection under the Bankruptcy Code.
On December 31, 1993, a religious organization, currently holding approximately
5.8% of ARTRA's outstanding common made a $2,000,000 short-term loan to the
Company with interest at 10%. See Note 9 for further discussion of this
transaction and additional consideration received by the religious organization.
The proceeds of this loan were remitted to the bank to pay interest and other
costs due through December 31, 1993 and to reduce the principal amount
outstanding on the bank notes to $17,063,000. On March 31, 1994 ARTRA entered
into a series of agreements with its bank lender and
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
with a private corporation that had guaranteed $2,500,000 of ARTRA's bank notes.
Per terms of the agreements, the private corporation purchased $2,500,000 in
ARTRA notes from ARTRA's bank thereby reducing the outstanding principal on
ARTRA's bank notes to $14,563,000 at March 31, 1994 and the bank released the
private corporation from its $2,500,000 loan guaranty. As consideration for
purchasing $2,500,000 of ARTRA bank notes, the private corporation received a
$2,500,000 note payable from ARTRA bearing interest at the prime rate. See Note
9 for further discussion of this transaction and additional consideration
received by the private corporation. A major shareholder and executive officer
of the private corporation is an ARTRA director.
Effective in 1993, the Company has adopted a 52/53 week fiscal year ending the
last Thursday of December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Intercompany accounts and transactions are
eliminated.
B. Cash Equivalents
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
C. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
D. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
E. Intangible Assets and Other Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance (for each operating company)
over its remaining life can be recovered through forecasted future operations.
The charge to operations of $10,800,000 in 1994 represents the write-off of all
of New Dimensions' goodwill.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 1992, the Company recognized an impairment of goodwill at the
New Dimensions subsidiary due to the significant operating loss incurred in 1992
which resulted in the Chapter 11 reorganization of New Dimensions as discussed
in Note 8. The Company adjusted the carrying value of New Dimensions' goodwill
to its estimated value based upon New Dimensions' expected level of future cash
flows from operations and reduced the amortization period of the remaining New
Dimensions goodwill to a twenty year period beginning January 1, 1993.
Retail displays, classified in other assets, are amortized on a straight-line
basis over their estimated lives.
F. Revenue Recognition
Sales to customers are recorded at the time of shipment net of estimated
markdowns and merchandise credits.
G. Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to recovered or settled.
H. Reclassifications
The Company has made certain reclassifications in the Consolidated Statement of
Operations for the year ended December 30, 1993 to conform to the 1994
presentation. The reclassifications had no effect on operating earnings (loss),
net loss or loss per share.
3. ACQUISITION
In March, 1994, Bagcraft entered into an agreement to purchase the business
assets, subject to buyer's assumption of certain liabilities, of Arcar Graphics,
Inc. ("Arcar"), a manufacturer and distributor of waterbase inks, for
consideration of $10,264,000. The consideration consisted of cash of $2,264,000
and subordinated promissory notes totaling $8,000,000. In addition to the
initial consideration, the purchase price may be increased based upon Arcar's
cumulative earnings, as defined in the purchase agreement, for the period from
January 1, 1994 until December 31, 1997 ("earnout compensation"). The earnout
compensation, if applicable, is payable on or before January 2, 1999 along with
interest thereon at the prime rate for the period January 1, 1998 until final
payment. The seller also received a warrant to purchase 177,778 ARTRA common
shares at a price of $5.625 per share, the market value at the date of grant.
Exercise of the warrant is payable only through a reduction of the subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement. The acquisition of Arcar, completed on April 8, 1994, is being
accounted for by the purchase method and, accordingly, the assets and
liabilities of Arcar have been included in ARTRA's financial statements at their
estimated fair market value at the date of acquisition. The purchase price has
been allocated to the assets and liabilities of Arcar based on their estimated
respective fair values. The purchase price and expenses associated with the
acquisition exceed the fair value of Arcar's net assets by approximately
$8,400,000 and is being amortized on a straight-line basis over forty years.
Arcar's results of operations have been included in ARTRA's financial statements
since April 8, 1994, the date of acquisition. Arcar's results of operations
prior to its acquisition are not considered material to the Company's
consolidated financial statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. DISCONTINUED BUSINESS
In February, 1992, the Company completed the sale of the common stock and
preferred stock of its Ratex Resources Incorporated ("Ratex") subsidiary
resulting in a gain of $330,000, net of income taxes of $170,000. The proceeds
received of approximately $1,100,000 were used to pay down outstanding
liabilities. Ratex was part of the Company's discontinued oil and gas
operations.
5. INVENTORIES
Inventories (in thousands) consist of:
<TABLE>
December 29, December 30,
1994 1993
<S> <C> <C>
------- -------
Raw materials and supplies $ 7,041 $ 5,299
Work in process 877 408
Finished goods 12,350 15,833
------- -------
$20,268 $21,540
======= =======
</TABLE>
6. INVESTMENT IN EMERALD ACQUISITION CORPORATION / ENVIRODYNE INDUSTRIES, INC.
In March, 1989, Envirodyne Industries, Inc. ("Envirodyne") and Emerald
Acquisition Corporation ("Emerald") entered into a definitive agreement for a
subsidiary of Emerald to acquire all of the issued and outstanding shares of
Envirodyne common stock. Pursuant to the terms of certain letter agreements,
ARTRA agreed to participate in the transaction and received Envirodyne's consent
to sell its then 4,830,000 Envirodyne common shares (a 26.3% interest) to
Emerald. On May 3, 1989 the transaction was consummated. ARTRA received
consideration consisting of: (i) cash of $75,000,000; (ii) a 27.5% common stock
interest in Emerald and (iii) Emerald junior debentures ("Junior Debentures")
with a principal amount of $20,992,710. The Junior Debentures were scheduled to
mature May 1, 2001, twelve years from the date of issuance, and to accrue and
pay interest in the form of cash or additional Junior Debentures, at Emerald's
option, semi-annually, for the first six years at the rate of 15% and to pay
interest at the rate of 15% in the form of cash thereafter, semi-annually in
arrears. ARTRA's 27.5% interest in Emerald common stock and Emerald Junior
Debentures, as required by the Securities and Exchange Commission Staff
Accounting Bulletin No. 81, were carried net of a valuation allowance.
On January 6, 1993, a group of bondholders filed an involuntary petition for
reorganization of Envirodyne under Chapter 11 of the U.S. Bankruptcy Code. On
January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed
petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division.
Subsequently, Emerald filed a voluntary petition under Chapter 11 of the
Bankruptcy Code in the same court.
On December 17, 1993 the Bankruptcy Court confirmed the First Amended Joint Plan
of Reorganization as twice modified (the "Plan") with respect to Envirodyne and
certain of its subsidiaries. The confirmation of the Plan was affirmed by the
United States District Court for the Northern District of Illinois on December
28, 1993 and Envirodyne and certain of its subsidiaries emerged from Chapter 11
on December 31, 1993, the Effective Date. A notice of appeal to the United
States Court of Appeals for the Seventh Circuit was thereafter filed by certain
holders of Envirodyne's 13.5% Subordinated Notes Due 1996. Envirodyne has filed
a motion, which is currently pending, to dismiss the appeal. Envirodyne believes
that the
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
confirmation of the Plan should be affirmed on appeal. However, no assurance can
be given that Envirodyne will prevail on the appeal or what the effect of any
such reversal of the Plan would have on Envirodyne or the Plan. The Emerald
Chapter 11 case is still pending although ARTRA has moved to dismiss that case.
Envirodyne's plan of reorganization did not provide any consideration or value
to Emerald and Emerald, therefore, is without assets to provide value to ARTRA
for ARTRA's investment in Emerald common stock and Emerald Junior Debentures.
See discussion below and in Note 20 Litigation for remedies being pursued by
ARTRA as compensation for the lost value of its investment in Emerald common
stock and Emerald Junior Debentures.
On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois (the State Court Action") against
Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc. (collectively,
"Salomon") D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly
Defendants" along with DPK), Charles K. Bobrinskoy, James F. Massey, William
Rifkind and Michael J. Zimmerman. The defendants removed the case to the
Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15,
1994 all but two of ARTRA's causes of action were remanded to the state court.
The Bankruptcy Court maintained jurisdiction of ARTRA's claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.
On December 21, 1994, the Salomon Defendants and the Kelly defendants brought
motions to dismiss ARTRA's Second Amended Complaint in the State Court Action.
On February 8, 1995, ARTRA's Second Amended Complaint was dismissed in part,
with leave to replead.
On March 10, 1995, ARTRA filed a Third Amended Complaint in the State court
Action, pleading causes of action for breach of fiduciary duty, fraudulent
misrepresentation and negligent misrepresentation ARTRA seeks in the action
compensatory damages of $136.2 million, punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.
The case is in its early stages and discovery is just beginning. ARTRA cannot
predict, with any certainty, the outcome of the suit.
7. DEBT RESTRUCTURING
Effective August 18, 1994, Lori and Lori's operating subsidiaries (collectively,
the "Borrowers"), ARTRA and Fill-Mor entered into an agreement with Lori's bank
lender to settle obligations due the bank under terms of the bank loan
agreements of Lori and its operating subsidiaries. On December 13, 1994, Lori
and Lori's operating subsidiaries were notified by the bank of certain defaults
under the Settlement Agreement, including but not limited to a $1,115,000
payment due the bank on December 8, 1994. Prior to receipt of the default notice
and thereafter, ARTRA and Lori entered into negotiations with the bank to amend
or restructure the terms of the August 18, 1994 Settlement Agreement.
Effective December 23, 1994, the Borrowers, ARTRA and Fill-Mor and the bank
entered into an amendment to the August 18, 1994 Settlement Agreement ("Amended
Settlement Agreement"). Per terms of the Amended Settlement Agreement,
borrowings due the bank under the loan agreements of the Borrowers and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank). Upon the satisfaction of certain
conditions of the Amended Settlement Agreement in 1995, as discussed below, the
bank lender has agreed to discharge the balance of this indebtedness.
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares were
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement.
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, the Borrowers, ARTRA and Fill-Mor agreed to pay the
following consideration, which supersedes the consideration agreed to under
terms of the August 18, 1994 Settlement Agreement:
A) A cash payment to the bank of $1,900,000, which was made
prior to consummation of the Amended Settlement Agreement.
B) 400,000 shares of ARTRA common stock. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary .
D) A $750,000 note payable to the bank due March 31, 1995.
Among other things, ARTRA has agreed to register the ARTRA shares issued in
order to enable the ARTRA shares issued to be freely tradeable without
restriction on or before July 31, 1995. Additionally, the Settlement Agreement
required ARTRA to advance $400,000 to Lori which, along with $150,000 of the
ARTRA $1,850,000 short-term loan agreement noted above, was deposited in trust
at December 29, 1994. This deposit was used to fund the installment payment due
December 31, 1994 for unsecured claims arising from the May 3, 1993
reorganization of New Dimensions (See Note 8). The installment payment was made
in January, 1995.
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank) as of December 23, 1994 calculated (in
thousands) as follows:
<TABLE>
<CAPTION>
<S> <C>
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries and Fill-Mor $ 25,394
Less amounts due the bank at December 29, 1994 (10,500)
-------
Bank debt discharged 14,894
Accrued interest and fees discharged 3,635
Other New Dimensions liabilities discharged 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash (1,900)
ARTRA common stock (2,500)
New Dimensions assets assigned to the bank (7,149)
------
Net extraordinary gain $ 8,965
======
</TABLE>
Lori also recorded a charge against operations in December 1994 to write-off New
Dimensions' goodwill, which had a book value of $10,800,000.
Upon payment of the $750,000 note due the bank on March 31, 1995 and the
registration of the ARTRA common shares issued to it, the bank has agreed to
discharge the remaining indebtedness, which is expected to result in an
additional extraordinary gain in 1995. The $9,750,000 of debt pending discharge
has been classified as such in the Consolidated Balance Sheet at December 29,
1994.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor of approximately $9,400,000 in 1995.
Among other things, ARTRA has agreed to register the ARTRA shares issued in
order to enable the ARTRA shares issued to be freely tradeable without
restriction on or before July 31, 1995. In the event the shares are not
registered by July 31, 1995, the bank has the right to put the 100,000 ARTRA
shares back to ARTRA for an exercise price of $500,000. The $750,000 note
payment was funded with the proceeds of a $850,000 short-term loan from a
director of Lori. The loan provides for interest at the prime rate plus 1% and,
as additional consideration, the director received 150,000 Lori common shares
valued at $337,500 ($2.25 per share) based upon Lori's closing market value on
March 30, 1995.
8. NEW DIMENSIONS 1993 RESTRUCTURING
On February 5, 1993, New Dimensions filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York (Case No. 93 B 40653). On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date, New Dimensions emerged from
Chapter 11 bankruptcy court protection, New Dimensions' bank lender provided
long-term working capital financing and Lori guaranteed and assumed certain New
Dimensions' debt obligations.
Lori's ownership of 100% of the common stock of New Dimensions was not affected
by the reorganization of New Dimensions. Accordingly, the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code", were not applicable to the New
Dimensions reorganization and no adjustments were made to the carrying value of
New Dimensions assets and liabilities, except to reflect terms of the plan of
reorganization.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reorganization of New Dimensions resulted in an extraordinary gain of
$22,057,000 ($4.49 per share) in 1993 from a net discharge of indebtedness
calculated (in thousands) as follows:
<TABLE>
<CAPTION>
<S> <C>
Amount due on New Dimensions' 12.75% Senior Notes,
including accrued interest $ 22,822
Trade liabilities and accrued expenses 3,231
-------
Total unsecured claims 26,053
Less present value of payments due to unsecured creditors (2,725)
Less present value of bank restructuring loan fee (1,271)
-------
Net extraordinary gain $ 22,057
=======
</TABLE>
Additionally, during 1993 New Dimensions incurred reorganization expenses of
$767,000 related to the bankruptcy process, which are classified as
non-operating expenses.
In conjunction with the consummation of New Dimensions' reorganization plan, the
license agreement to distribute ladies fashion jewelry and sunglasses under the
"Sarah Coventry" trademark was amended and restated for a term of five years
commencing March 31, 1993 through March 31, 1998, with annual renewals for an
additional five years.
Due to the reduction of sales volume and resulting operating losses incurred in
1992 that culminated in the February, 1993 Chapter 11 filing, at December 31,
1992 New Dimensions recorded a charge to operations of $8,664,000 ($1.98 per
share) representing the excess of net book value of New Dimensions goodwill over
its estimated recoverable value. Effective January 1, 1993, the remaining New
Dimensions goodwill amortization period was adjusted to twenty years.
At December 31, 1992, due to the reduction in sales volume and resulting
operating losses incurred in 1992 that culminated in the February, 1993 Chapter
11 filing, New Dimensions discontinued several lines of fashion costume jewelry
and recorded a charge to operations of $4,900,000 ($1.12 per share) to
write-down the remaining inventory to estimated net realizable value.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. NOTES PAYABLE
<TABLE>
<CAPTION>
December 29, December 30,
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
ARTRA bank notes payable,
at various interest rates $ 18,507 $ 24,647
Amounts due to related parties,
interest from 7.75% to 15% 5,669 1,446
Other, interest from 8.5% to 20% 3,877 3,351
-------- --------
$ 28,053 $ 29,444
======== ========
</TABLE>
ARTRA
At December 30, 1993, $18,452,000 in ARTRA notes and related loan fees of
$1,107,000 were payable to a bank. The notes provided for interest at the prime
rate. These bank notes are collateralized by, among other things, 100% of the
common stock of ARTRA's BCA Holdings, Inc. ("BCA") subsidiary, the parent of
Bagcraft, and a secondary position on the assets of BCA, payments due under a
noncompetition agreement with the Company's former Welch Vacuum Technology
("Welch") subsidiary and by a subordinated note in the principal amount of
$2,500,000 received by ARTRA as part of the proceeds from the sale of Welch.
Additionally, at December 30, 1993 the bank notes were collateralized by a
$5,500,000 personal guaranty of a private investor and a $2,500,000 guaranty of
a private corporation. A major shareholder and executive officer of the private
corporation is an ARTRA director. As additional compensation, the private
investor is receiving 1,833 shares of ARTRA common stock for each month the
guaranty is outstanding and the private corporation received 833 shares of ARTRA
common stock for each month the guaranty was outstanding. Among other things,
the bank notes prohibit the payment of cash dividends by ARTRA.
On December 31, 1993, a religious organization, currently holding approximately
5.8% of ARTRA's outstanding common stock, made a $2,000,000 short-term loan to
the Company with interest at 10%. See discussion of amounts due to related
parties below for further discussion of this transaction and additional
consideration received by the religious organization. The proceeds of this loan
were remitted to the bank to pay interest and other costs due through December
31, 1993 and to reduce the principal amount outstanding on the bank notes to
$17,063,000 at December 31, 1993.
On March 31, 1994, ARTRA entered into a series of agreements with its bank
lender and with the private corporation noted above that had guaranteed
$2,500,000 of ARTRA's bank notes. Per terms of the agreements, the private
corporation purchased $2,500,000 of ARTRA notes from ARTRA's bank thereby
reducing the outstanding principal on ARTRA's bank notes to $14,563,000 and the
bank released the private corporation from its $2,500,000 loan guaranty. The
ARTRA bank notes and related loan fees were payable on September 30, 1994.
Interest on the bank notes continues to accrue at the prime rate (8.5% and 6% at
December 29, 1994 and December 30, 1993, respectively) and is payable quarterly.
Interest on the bank notes has been paid through June 14, 1994. Effective March
31, 1994, ARTRA pledged, as additional collateral for its bank notes, any and
all net proceeds arising from its lawsuit against Salomon Brothers, Inc.,
Salomon Brothers Holding Company Inc. (collectively, "Salomon") D.P. Kelly &
Associates, L.P. ("Kelly") and all of the directors of Emerald for breaches of
fiduciary duty by the directors of Emerald, induced by Salomon and Kelly, in
connection with the reorganization of Envirodyne as discussed in Note 6. As
consideration for purchasing $2,500,000 of ARTRA bank notes, the private
corporation received a $2,500,000 note payable from ARTRA bearing interest at
the prime rate.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As additional consideration, the private corporation has received an option to
put back to ARTRA the 49,980 shares of ARTRA common stock received as
compensation for its former $2,500,000 ARTRA loan guaranty at a price of $15.00
per share. The put option is exercisable on the later of the day that the
$2,500,000 note payable to the private corporation becomes due or the date the
ARTRA bank notes have been paid in full. The option price increases by $2.25 per
share annually. The $2,500,000 note payable to the private corporation is
reflected in the above table as amounts due to related parties.
On October 25, 1994, ARTRA's bank lender filed suit against ARTRA in the Circuit
Court of Cook County, Illinois alleging nonpayment by ARTRA of the amounts due
under the above notes payable to the bank. The bank has requested that the court
enter judgment in its favor against ARTRA in the amount of approximately
$16,000,000, which includes the principal balance of the notes of $14,563,000,
plus interest, costs and fees.
Effective May 14, 1991, ARTRA, through its wholly-owned Fill-Mor Holding, Inc.
("Fill-Mor") subsidiary, entered into a loan agreement with a bank providing for
borrowings of up to $2,500,000 with interest at the prime rate plus 2% (10.5%
and 8% at December 29, 1994 and December 30, 1993, respectively), of which
$2,200,000 was outstanding at December 29, 1994 and December 30, 1993. The loan
was collateralized by ARTRA's interest in Lori common stock and preferred stock,
by the proceeds of a tax sharing agreement between ARTRA and its Bagcraft
subsidiary and by ARTRA's interest in Fill-Mor's common stock. At December 29,
1994, borrowings on this note were reclassified as amounts due under the debt
restructuring agreement discussed in Note 7.
A $3,600,000 bank note payable due December 31, 1990, has not been paid.
However, the bank has not demanded payment. This loan is collateralized by a
$2,500,000 guarantee of Peter R. Harvey, ARTRA's president.
An ARTRA bank note with outstanding borrowings of $344,000 and $395,000 at
December 29, 1994 and December 30, 1993, respectively, is guaranteed by a
private company. Interest on the note is at the prime rate plus 2% (10.5% and 8%
at December 29, 1994 and December 30, 1993, respectively).
Amounts Due To Related Parties
During the third quarter of 1992, ARTRA borrowed funds from its Chairman of the
Board of Directors, John Harvey, payable on demand of which $42,000 were
outstanding at December 29, 1994 and December 30, 1993. In January, 1995, John
Harvey loaned ARTRA $100,000 evidenced by an unsecured 30 day note bearing
interest at 8%. As additional compensation for the loan, John Harvey received a
warrant to purchase 6,000 ARTRA common shares at $4.75 per share based upon the
market value of ARTRA's common stock at the date of issuance. The warrant
expires five years from the date of issuance. If not paid at maturity, terms of
the note provide for the issuance of additional warrants to purchase ARTRA
common shares as determined by the number of days the loan is outstanding.
At December 29, 1994 and December 30, 1993, other notes payable included
borrowings of $127,000 and $829,000, respectively, from a director of Lori. As
additional compensation the Lori director has received, through December 29,
1994, warrants to purchase an aggregate of 236,315 ARTRA common shares at prices
ranging from $3.75 to $6.375 per share based upon the market value of ARTRA's
common stock at the date of issuance. The warrants expire five years from the
date of issuance. Terms of the note provide for the issuance of additional
warrants to purchase ARTRA common shares as determined by the number of days the
loan is outstanding.
At June 30, 1994 and December 30, 1993, other notes payable included loans
totaling $250,000 and $400,000, respectively, from a officer/director of Lori.
The loans are evidenced by notes bearing interest at 12% - 15%. As additional
compensation the Lori officer/director received warrants to purchase an
aggregate of 27,500 ARTRA common shares at prices ranging from $5.375 to $5.75
per share based upon the market value of ARTRA's common stock at the date of
issuance. The warrants expire five years from the date of issuance. The $250,000
loan from the officer/director of Lori outstanding at June 30, 1994, plus
accrued interest thereon, was subsequently repaid by the issuance of 58,333
shares of ARTRA common stock. The ARTRA common shares were valued at $6.00 per
share, based upon the market value of
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ARTRA's common stock at the date of issuance. In July, 1994, the
officer/director of Lori loaned ARTRA an additional $200,000, evidenced by two
demand notes bearing interest at 10%. The loans were subsequently repaid by the
issuance of 50,000 shares of ARTRA common stock. The ARTRA common shares were
valued at $4.00 per share, based upon the market value of ARTRA's common stock
at the date of issuance
During 1993 a religious organization, holding approximately 7.5% of ARTRA's
outstanding common stock as of December 30, 1993, made a short-term loan of
$850,000 to the Company which was repaid in December, 1993. Subsequent to
year-end, on December 31, 1993, the religious organization loaned the Company
$2,000,000 evidenced by a short-term note bearing interest at 10%. The proceeds
of this loan were remitted to ARTRA's bank to pay principal and interest on
ARTRA's bank notes as discussed above. In January, 1994 the religious
organization made an additional $1,000,000 short-term loan to the Company also
with interest at 10%. As additional compensation for the above loans, the lender
received warrants to purchase an aggregate of 86,250 ARTRA common shares at
prices ranging from $6.00 to $7.00 per share based upon the market of ARTRA's
common stock at the date of issuance. The warrants expire five years from the
date of issuance. In July, 1994 ARTRA made a $2,000,000 payment against the
amounts outstanding on the above loans and the religious organization
subsequently loaned ARTRA an additional $2,000,000. As of December 29, 1994
borrowings due the religious organization totaled $3,000,000.
Other
In conjunction with the debt restructuring agreement discussed in Note 7, ARTRA
entered into a $1,850,000 short-term loan agreement with a non-affiliated
corporation, with the proceeds used to fund amounts due the bank under terms of
the debt restructuring agreement. The loan, due June 30, 1995, with interest
payable monthly at 10%, is collateralized by 100,000 shares of Lori common
stock.
Effective as of May 15, 1992, the Company had entered into a letter of intent to
sell a 50% interest in its Bagcraft subsidiary to Field Container Corporation
("Field"), a manufacturer and distributor of converted paper and paperboard
products. On September 18, 1992, the Company announced that it had discontinued
discussions with Field regarding the sale of a 50% interest in Bagcraft. On May
19, 1992, Field advanced ARTRA $1,000,000 under terms of a promissory note due
May 15, 1993, with interest at the prime rate plus 2-1/2%. As additional
consideration for this advance, the Company granted to Field a warrant,
exercisable for a period of five years expiring in 1997, to purchase 150,943
shares of the Company's common stock for an exercise price of $5.375 per share.
In March, 1994 a payment of $250,000 was made against amounts due on this note
and in April, 1994 the note was repaid in full.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. LONG-TERM DEBT
Long-term debt (in thousands) consists of:
<TABLE>
<CAPTION>
December 29, December 30,
1994 1993
-------- --------
<S> <C> <C>
Bagcraft Credit Agreement,
Term loans,
interest at the prime rate plus 1.75% to 3% $ 17,000 $ 20,000
Revolving credit loan,
interest at the prime rate plus 1.5% 16,672 12,868
Unamortized discount (315) (630)
Bagcraft, City of Baxter Springs, Kansas loan agreements,
interest, at varying rates 12,310
Arcar subordinated promissory notes due to seller,
interest, at the prime rate 8,000
Arcar bank term loan,
interest at the prime rate plus .75% 2,750
Amounts due a bank term under terms of
a debt settlement agreement 10,500
New Dimensions bank term loan,
interest at the prime rate plus 1% 2,500
New Dimensions bank line of credit,
interest at the prime rate plus 1% 350
Lori bank term loan,
interest at the prime rate plus 1% 11,899
Lawrence bank line of credit,
interest at the prime rate plus 1.75% 2,099
Rosecraft bank credit agreement,
interest at the prime rate plus 2% 5,104
Other, at various interest rates,
due in varying amounts through 1995 27 44
-------- --------
66,944 54,234
Current scheduled maturities (37,521) (5,851)
Debt subsequently discharged (9,750) --
Long-term debt reclassified as current (19,119)
-------- --------
$ 19,673 $ 29,264
======== ========
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Bagcraft
Effective December 17, 1993, Bagcraft refinanced its bank debt by entering into
a Credit Agreement that provides for a revolving credit loan and two separate
term loans. The term loans were separate two-year facilities initially totaling
$12,000,000 (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%, respectively. The principal under Term
Loan A is payable at maturity (December 17, 1995), unless accelerated under
terms of the Credit Agreement. The principal under Term Loan B ($5,000,000
outstanding at December 29, 1994) is payable in varying monthly installments
from January 1, 1994 to December 1, 1995, with the remaining principal balance
payable at maturity (December 17, 1995), unless accelerated under terms of the
Credit Agreement. At December 29, 1994 and December 30, 1993, interest rates on
Term Loan A and Term Loan B were 10.25% and 11.5% and 7.75% and 9%,
respectively.
The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000. At
December 29, 1994 and December 30, 1993, approximately $450,000 and $1,800,000,
respectively, was available and unused by Bagcraft under the revolving credit
loan. The revolving credit loan bears interest at the lender's index rate plus
1.5%. The revolving credit loan is scheduled to become due and payable upon
maturity of the Credit Agreement (December 17, 1995), unless accelerated under
terms of the Credit Agreement. At December 29, 1994 and December 30, 1993 the
interest rates on the revolving credit loan was 10% and 7.75%, respectively.
Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Bagcraft. The Credit Agreement contains various restrictive
covenants, that among other restrictions, require Bagcraft to maintain minimum
levels of net worth and liquidity levels and limit additional loans, dividend
payments, capital expenditures and payments to related parties. In addition, the
Credit Agreement prohibits changes in ownership of Bagcraft. At December 29,
1994 Bagcraft was not in compliance with the provisions of its Credit Agreement.
Bagcraft is currently negotiating with its lender to amend or restructure the
Credit Agreement.
As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant with a put option to purchase up to 10% of the
fully diluted common equity of Bagcraft. The warrant allows Bagcraft to
reacquire up to 2-1/2% of Bagcraft's fully diluted common equity from the lender
contingent upon Bagcraft's repayment of Term Loan B as defined in the Credit
Agreement. Under certain conditions Bagcraft is required to repurchase the
warrant from the lender. The determination of the repurchase price of the
warrant is to be based on the warrant's pro rata share of the highest of book
value, appraised value or market value of Bagcraft.
In March, 1994 Bagcraft and the City of Baxter Springs, Kansas completed a
$12,500,000 financing package associated with the construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. The financing package,
funded by a combination of Federal, state and local funds, consists of the
following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:
A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At December 29, 1994, Bagcraft had borrowed the
maximum of $7,000,000 available under this loan agreement.
A $5,000,000 subordinated promissory note payable as follows:
$2,000,000 installments due June 30,1998 and June 30, 1999; $1,000,000
due on January 2, 2000. The subordinated promissory note is interest
free provided that loan payments are made on a timely basis and no
events of default occur under terms of the agreement. At December 29,
1994 Bagcraft had outstanding borrowings of $4,810,000 under this loan
agreement.
A $250,000 subordinated promissory note payable in 240 monthly
installments commencing August 1, 1995 through maturity on July 18,
2015. The subordinated promissory note is interest free provided that
loan payments are made on a timely basis and no events of default occur
under terms of the agreement. At December 29, 1994, Bagcraft had
borrowed the maximum amount available under this loan agreement.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
A $250,000 subordinated promissory note payable January 20, 2005. The
subordinated promissory note is interest free provided that loan
payments are made on a timely basis and no events of default occur
under terms of the agreement. At December 29, 1994, Bagcraft had
borrowed the maximum amount available under this loan agreement.
Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain machinery and equipment. At December 29, 1994,
approximately $800,000 of borrowings from the above loan agreements is reflected
in the Consolidated Balance Sheet in current assets as restricted cash and
equivalents. These funds, invested in interest bearing cash equivalents, are
restricted for expenditures associated with the Baxter Springs, Kansas project.
Arcar
As discussed in Note 2, on April 8, 1994, Bagcraft completed the acquisition of
Arcar for consideration consisting of cash of $2,264,000 and subordinated
promissory notes totaling $8,000,000. The subordinated promissory notes provide
for interest payable quarterly at the prime rate (as defined in the agreement).
The promissory notes mature as follows: $2,500,000 payable March 15, 1995;
$2,500,000 payable March 15, 1996; $2,500,000 payable March 15, 1997; $500,000
payable March 15, 1998. The seller also received a warrant to purchase 177,778
ARTRA common shares at a price of $5.625 per share, the market value at the date
of grant. Exercise of the warrant is payable only through a reduction of the
subordinated promissory notes and accrued interest due the seller under terms of
the purchase agreement.
Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the
"Agreement") with a bank that provides for a revolving credit loan and a term
loan. The term loan, in the principal amount of $2,750,000, bears interest at
the prime rate plus .75%. The principal under the term loan is payable in
forty-eight varying monthly installments from April 30, 1995 to March 31, 1999,
unless accelerated under terms of the Agreement. At December 29, 1994 the
interest rate on the term loan was 9.25 %.
The amount available to Arcar under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $1,500,000. The
revolving credit loan bears interest at the prime rate plus .5% and becomes due
and payable March 31, 1995, unless accelerated under terms of the Agreement. The
revolving credit loan is renewable, solely at the discretion of the lender, for
additional one year periods until maturity of the Agreement (March 31, 1999).
The revolving credit loan has been renewed until March 31, 1996. As of December
29, 1994, Arcar had not yet utilized funds available under the revolving credit
loan.
Borrowings under Agreement are collateralized by substantially all of the assets
of Arcar. The Agreement contains various restrictive covenants, that among other
restrictions, require Arcar to maintain minimum levels of net worth and
liquidity levels and limit additional loans, dividend payments, capital
expenditures and payments to related parties.
Lori
As discussed in Note 8, on February 5, 1993, New Dimensions filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code. On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date of the reorganization, New
Dimensions emerged from Chapter 11 bankruptcy court protection. The plan, among
other things, provided for New Dimensions' bank lender to have the right to
receive all of the issued and outstanding shares or assets of New Dimensions
immediately prior to the consummation date. The bank then assigned its rights to
receive the New Dimensions stock to a newly formed Lori subsidiary, which was
then merged into New Dimensions, for consideration of $2,500,000, evidenced by
New Dimensions' term loan note originally
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
scheduled to be payable in varying quarterly installments, commencing March 31,
1994 through December 31, 1996. Interest on the term note was at the prime rate
plus 1%. Lori assumed and guaranteed the balance of New Dimensions' pre-
bankruptcy loans payable to the bank, amounting to $12,036,000, including
accrued interest, which included the New Dimensions former line of credit
discussed and the New Dimensions former term loan, net of New Dimensions' direct
obligation payable to the bank of $2,500,000 as noted above. The bank also
provided New Dimensions with a revolving line of credit, including a letter of
credit facility. Borrowings, limited to the lesser of $1,600,000 or a calculated
borrowing base. The credit agreement was scheduled to mature on April 30, 1996.
On February 5, 1993, Lawrence entered into a credit agreement with Lori's bank
that provided for a revolving line of credit, which included a letter of credit
facility. Borrowings were limited to the lesser of $2,100,000 or a calculated
borrowing base, less outstanding letters of credit. The loan provided for
interest at the prime rate plus 1.75%.
Effective March 31, 1993 Rosecraft entered into agreements with a bank that
provided for a term loan of $2,977,000 and a revolving line of credit, both with
interest at the prime rate plus 2%. The term loan was payable in varying monthly
installments commencing January 31, 1994, with the final monthly installment
originally scheduled to be payable November 30, 1997. The revolving line of
credit provided for borrowings, including a letter of credit facility.
Borrowings were limited to the lesser of $1,000,000 or a calculated borrowing
base, less outstanding letters of credit. In addition to the revolving line of
credit, the bank has provided an overadvance credit commitment of $1,200,000.
The revolving line of credit was scheduled to mature December 31, 1997.
Since December 30, 1993 and during 1994, Lori and its operating subsidiaries
were not in compliance with certain provisions of their respective bank loan
agreements. At December 30, 1993, borrowings under the bank loan agreements of
Lori and its operating subsidiaries totaled $21,952,000. In addition to
scheduled maturitities of $2,833,000 under the bank loan agreements of Lori and
its operating subsidiaries, the remaining borrowings of $19,119,000 under the
bank loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 31, 1993.
As discussed in Note 7, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor, Lori and Lori's operating subsidiaries entered into
an agreement with Lori's bank lender to settle obligations due the bank under
terms of the bank loan agreements of Lori and its operating subsidiaries and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan agreements of Lori and its operating subsidiaries and Lori's
parent, Fill-Mor, plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to
the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank).
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor of approximately $9,400,000 in 1995 (See
Note 7).
The common stock and virtually all the assets of ARTRA's subsidiaries have been
pledged as collateral for ARTRA's and its subsidiaries' borrowings. Under its
debt agreements the Company is limited in the amounts it can withdraw from its
operating subsidiaries. At December 29, 1994 and December 30, 1993,
substantially all cash and equivalents on the Company's consolidated balance
sheet are restricted to use by and for the Company's operating subsidiaries.
At December 29, 1994 the aggregate amount of yearly maturities of long-term
debt, exclusive of debt discharged, is: 1995, $37,521,000; 1996, $3,567,000;
1997, $4,062,000; 1998, $4,575,000; 1999, $2,712,000; thereafter, $4,757,000.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
11. REDEEMABLE COMMON STOCK
ARTRA has entered into various agreements under which it has sold its common
shares along with put options that require ARTRA to repurchase these shares at
the option of the holder, principally one year after the date of each agreement.
The difference between the option price and the net proceeds received is
amortized over the life of the options by a charge to retained earnings. At
December 29, 1994, options are outstanding that, if exercised, would require
ARTRA to repurchase 279,679 shares of its common stock for an aggregate of
$4,144,000.
12. REDEEMABLE PREFERRED STOCK
On September 27, 1989, ARTRA received a proposal to purchase BCA, the parent of
Bagcraft, from Sage Group, Inc. ("Sage"), a privately-owned corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite Corporation ("Ozite") on August 24, 1990. Peter R. Harvey, ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal shareholders of Sage and are the principal shareholders of Ozite.
Effective March 3, 1990, a wholly-owned subsidiary of ARTRA acquired 100% of
BCA's issued and outstanding common shares for consideration of $5,451,000,
which included 772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible payment-in-kind redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued dividends. Accumulated dividends of $1,221,000 and $939,000 were
accrued at December 29, 1994 and December 30, 1993, respectively.
In 1987, Bagcraft issued to an affiliate, currently a subsidiary of Ozite,
$5,000,000 of preferred stock (50,000 shares of 13.5% cumulative, redeemable
preferred stock with a liquidation preference equal to $100 per share)
redeemable by Bagcraft in 1997 at a price of $100 per share plus accrued
dividends. Dividends, which accrue and are payable semiannually on June 1 and
December 1 of each year, are reflected in the Company's Consolidated Statement
of Operations as minority interest. The affiliate has agreed to forego dividend
payments as long as such payments are prohibited by bank lenders. Accumulated
dividends of $5,119,000 and $4,444,000 were accrued at December 29, 1994 and
December 30, 1993, respectively.
As discussed in Note 10, in 1987, Bagcraft obtained financing from an affiliate,
currently a subsidiary of Ozite, through the issuance of a $5,000,000 unsecured
subordinated note, due June 1, 1997. During 1992, per agreement with the
noteholder, the interest payments were remitted to ARTRA and the noteholder
received 675 shares of BCA preferred stock ($1.00 par value, 6% cumulative with
a liquidation preference equal to $1,000 per share) with a liquidation value of
$675,000. In December, 1993, the unsecured subordinated note and accrued
interest thereon were paid in full from proceeds of Bagcraft's new Credit
Agreement. Per agreement with the noteholder, the accrued interest outstanding
on the note of $3,000,000 was remitted to ARTRA and the noteholder received an
additional 3,000 shares BCA preferred stock having a liquidation value of
$3,000,000.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
13. STOCK OPTIONS AND WARRANTS
Stock Option Plan
In July, 1985, ARTRA's shareholders approved a stock option plan (the "Plan")
for certain officers and key employees of the Company and its subsidiaries. The
Plan initially reserved 150,000 shares of the Company's common stock and
authorized the granting of options on or before February 1, 1995. The purchase
price of such options is to be not less than the market value at the date of
grant for incentive stock options ("ISO") and not less than 110% of the market
value on the date of grant for an ISO granted to a shareholder possessing 10%
more of the voting stock of the Company. Non-qualified options may be granted at
such price and amount as the Company determines at the date of grant.
In December, 1990, ARTRA's shareholders approved an amendment to the Plan which
increased the number of shares available under the Plan from 150,000 to 500,000
shares and provided for discretionary grants of nonqualified stock options to
non-employee directors. The Plan provided for an initial grant to each
non-employee director of an option for 2,000 shares. Thereafter the Plan
provides for an annual grant, effective January, 1991 and each year thereafter
until expiration of the Plan, to each non-employee director on such date of an
option for 1,000 shares of ARTRA common stock. The granting of annual options to
non-employee directors, effective January, 1991 is subject to approval by
ARTRA's Board of Directors. The exercise price of all options granted to
non-employee directors will be equal to 100% of the closing market price on the
trading day before the date of grant.
During 1994, the Company issued a former officer of Bagcraft a non-qualified
option to purchase 20,000 shares of ARTRA common stock at $5.75 per share as
additional compensation for short-term loans to ARTRA.
In December, 1993, ARTRA's shareholders approved an amendment to the Plan which
increased the number of shares available under the Plan from 500,000 to
1,000,000 shares.
Effective January 8, 1993, the Company issued certain officers and key employees
of ARTRA options to purchase 148,100 shares of ARTRA common stock at $3.75 per
share. The options expire ten years from the date of grant.
During 1993, the Company issued to a then officer of Bagcraft a non-qualified
option to purchase 50,000 shares of ARTRA common stock at $3.75 per share as
additional compensation for short-term loans to ARTRA. The options were
exercised during 1993. The exercise of these options was principally paid
through a reduction of the then Bagcraft officer's loans to ARTRA.
Effective June 22, 1992, the Company issued certain officers of Bagcraft options
to purchase 50,000 shares of ARTRA common stock at $5.25 per share. The options
expire ten years from the date of grant. Additionally, at the same time, an
officer of Bagcraft was issued a non-qualified option to purchase 50,000 shares
of ARTRA common stock at $5.25 per share. The option expires seven years from
the date of grant.
Effective September 19, 1991, the Company issued certain officers and key
employees of ARTRA options to purchase 58,967 shares of ARTRA common stock at
$8.00 per share. The options expire ten years from the date of grant.
Effective December 19, 1990, the Company canceled all options previously granted
under the Plan to certain officers and key employees of ARTRA and its
subsidiaries and issued options to purchase 197,366 shares of ARTRA common stock
at $5.75 per share. The options expire ten years from the date of grant.
In conjunction with Lori's acquisition of New Dimensions, ARTRA granted certain
New Dimensions employees options to acquire 43,912 ARTRA shares at $20.50 per
share on the closing date of the New Dimensions acquisition. The options, which
expire ten years from the date of grant, became exercisable when the plan was
approved by the ARTRA shareholders in July, 1985.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of stock option transactions for the three years in the period ended
December 29, 1994 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of year:
Shares 450,760 340,360 265,991
$ 3.75 $ 5.25 $ 5.75
Prices to to to
$ 20.50 $ 20.50 $ 20.50
Options granted:
Shares 20,000 198,100 100,000
Prices $ 5.75 $ 3.75 $ 5.25
Options exercised:
Shares (25,300) (74,700) (17,333)
$ 3.75 $ 5.25
Prices $ 5.25 to to
$ 5.25 $ 5.75
Options canceled:
Shares (13,000) (8,298)
$ 5.25
Prices to $ 20.50
$ 5.75
Outstanding at end of year:
Shares 445,460 450,760 340,360
======= ======= =======
$ 3.75 $ 3.75 $ 5.25
Prices to to to
$ 20.50 $ 20.50 $ 20.50
Options exercisable at end of year 450,760 450,760 340,360
======= ======= =======
Options available for future grant
at December 31 390,814 410,814 104,212
======= ======= =======
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Warrants
At December 29, 1994, warrants were outstanding to purchase a total of 1,234,151
common shares at prices ranging from $3.50 per share to $11.63 per share. The
warrants, exercisable from the date of issue, expire at various dates through
2003.
During 1994, ARTRA issued warrants to purchase an aggregate of 154,719 shares of
its common stock at prices ranging from $4.50 per share to $6.625 per share, the
fair market value at the dates of grant, principally to certain lenders
principally as additional compensation for short-term loans. The warrants expire
at various dates from 1996 and 1999. As discussed in Note 3, as part of the
consideration for Bagcraft's acquisition of Arcar, the seller also received a
warrant to purchase 177,778 ARTRA common shares at a price of $5.625 per share.
Exercise of the warrant is payable only through a reduction of the subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement. Warrants to purchase 9,166 shares of ARTRA common stock at prices
ranging from $10.00 per share to $11.25 per share expired unexercised during
1994. The warrants were issued as additional compensation for various
short-terms loans.
During 1993, ARTRA issued warrants to purchase an aggregate of 326,090 shares of
its common stock at prices ranging from $3.50 per share to $7.00 per share, the
fair market value at the dates of grant, to certain lenders principally as
additional compensation for short-term loans. The warrants expire at various
dates from 1998 and 2003. Additionally, warrants to purchase 76,668 shares of
ARTRA common stock at prices ranging from $18.00 per share to $27.00 per share
expired unexercised during 1993. The warrants were issued as additional
compensation for short-term loans in 1988.
During 1992, ARTRA issued warrants to purchase an aggregate of 374,973 shares of
its common stock at prices ranging from $4.75 per share to $7.00 per share, the
fair market value at the date of grant, to certain lenders principally as
additional compensation for short-term loans. The warrants expire at various
dates from 1997 and 2003. Additionally, a warrant to purchase 25,000 shares of
ARTRA common stock at $14.00 per share expired unexercised on December 30, 1992.
The warrant was issued as additional compensation for short-term loans in 1987.
During 1991, ARTRA issued warrants to purchase an aggregate of 152,260 shares of
its common stock at prices ranging from $5.75 per share to $10.50 per share, the
fair market value at the date of grant, to certain lenders principally as
additional compensation for short-term loans. The warrants expire at various
dates in 1996 and 2001.
14. RESTRUCTURING COSTS
In December, 1993 the Bagcraft subsidiary recorded a charge to operations of
$1,175,000 representing equipment and inventory relocation costs and employee
severance and outplacement costs relating to the construction of a new
manufacturing facility in Baxter Springs, Kansas. The new facility is expected
to be operational in mid 1994. The new Kansas facility will replace Bagcraft's
production facility in Joplin, Missouri. Additionally, with the completion of
the new Kansas facility, Bagcraft plans to convert present manufacturing
facilities in Carteret, New Jersey and Forest Park, Georgia into distribution
facilities.
In the fourth quarter of 1992, the Lori's New Dimensions subsidiary closed
certain of its "Whims" retail outlet stores and made the decision to close
additional "Whims" retail outlet stores and its New York City sales and
executive office in 1993. The closing of the "Whims" retail outlet stores and
the New York City sales and executive office resulted in a charge to operations
in the fourth quarter of 1992 of $675,000. The restructuring charge includes
inventory liquidation costs, lease termination costs and employee severance
costs.
In June, 1992, the Lori's Rosecraft subsidiary closed its Ladies line of fashion
costume jewelry in order to concentrate on its higher margin Children's line of
fashion costume jewelry and accessories. The closing of Rosecraft's Ladies line
resulted in a charge to operations of $900,000. The restructuring charge
includes inventory liquidation costs, lease termination costs and employee
severance costs.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease certain buildings and equipment which are
used in its manufacturing and distribution operations. At December 29, 1994,
future minimum lease payments under operating leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1995 $ 826
1996 705
1997 607
1998 490
1999 490
After 1999 984
-------
$ 4,102
=======
</TABLE>
Rental expense was $1,116,000, $1,240,000 and $1,991,000 in fiscal years 1994,
1993 and 1992, respectively, net of sublease income of $73,000 in 1992.
In 1993 the Company entered into management agreements, for a three year period
ending March 31, 1996, with a corporation controlled by Austin Iodice, the Vice
Chairman, President and director of the Company's Lori subsidiary, and with an
individual to provide managerial and supervisory services to Lori and its
subsidiaries. The agreements provide for minimum salary levels, as well as for
incentive bonuses which are payable if certain management goals are attained.
Additionally, the agreements called for the issuance of non-qualified options to
purchase an aggregate of 555,628 shares of Lori common stock, pursuant to Lori's
Long-Term Stock Investment Plan, at a price of $1.125 per share. The aggregate
commitment for future salaries at December 29, 1994, excluding bonuses, during
the remaining term of all management and employment agreements is approximately
$600,000.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 29, 1994 and December 30,
1993, the Company had accrued $1,500,000 and $1,850,000, respectively, for
potential business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management does not believe the outcome of these matters will have a material
adverse effect on the Company's financial statements. However, ARTRA may not
have available funds to pay liabilities arising out of these business-related
litigation and environmental matters or, in certain instances, to provide for
its legal defense.
In January, 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the Comprehensive Environmental Responsibility Compensation and
Liability Act ("CERCLA") for alleged release of hazardous substances at the
Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party defendants, to resolve all claims associated
with the site except for state claims. In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. The $850,000
settlement was accrued in the Company's financial statements at December 30,
1993. Bagcraft filed suit in 1993 in the United States District Court for the
Northern District of Illinois, against its insurers to recover a portion of its
liability costs in connection with the Cross Brothers case. Bagcraft recovered
$725,000 from its insurers in 1994 and an additional $250,000 in 1995. With
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
regard to the state action, Bagcraft is participating in settlement discussions
with the State and thirteen other potential parties to resolve all claims
associated with the State. The maximum state claim is $1.1 million. Bagcraft has
accrued $120,000 related to the State action in the Company's consolidated
financial statements at December 29, 1994.
Bagcraft was listed as a de minimis contributor at the American Chemical
Services, Inc. off-site disposal location in Griffith, Indiana. This site is
included in the EPA's National Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.
Bagcraft is presently undertaking a soil remediation project for
solvent-contaminated soil at its Chicago manufacturing facility. The
environmental firm responsible for implementing the remediation has recommended
that a soil vapor extraction process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation costs will not exceed this
estimate, in the opinion of management, no material additional costs are
anticipated.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1968 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. The Company has filed counterclaims against
Sherwin-Williams and cross claims against other former owners of the property.
The Company also is vigorously defending this action and has raised numerous
defenses. Currently, the case is in its early stages of discovery and the
Company cannot determine what, if any, its liability may be in this matter.
In connection with this suit, in a case filed in 1992 in the Circuit Court for
Baltimore City, Maryland, American Motorists Insurance Company ("AMICO") is
seeking a declaratory judgment that it is not required to defend, indemnify or
provide insurance coverage to ARTRA in connection with the Sherwin-Williams
case. The Circuit Court ruled in favor of AMICO, but in June 1994, the Court of
Special Appeals of Maryland reversed the final Circuit Court, ruling that AMICO
was obligated to defend and indemnify ARTRA.
ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ARTRA entered into a consent decree with the EPA in which it agreed to pay
$85,000 for one phase of the clean-up costs for this site; however, ARTRA
defaulted on its payment obligation. ARTRA is presently unable to estimate the
total potential liability for clean-up costs at this site, which clean-up is
expected to continue for a number of years. The consent decree, even if it had
been honored by ARTRA, was not intended to release ARTRA from liability for
costs associated with other phases of the clean-up at this site. The Company is
presently unable determine what, if any, additional liability it may incur in
this matter.
In a case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP
Incorporated, filed in the Circuit Court of Cook County, Illinois, the City of
Chicago alleged that ARTRA (and NL Industries, Inc.) had improperly stored,
discarded and disposed of hazardous substances at the subject site, and that
ARTRA had conveyed the site to Goodwill Industries to avoid clean-up costs. At
the time the suit was filed, the City of Chicago claimed to have expended
$1,000,000 in clean-up costs. ARTRA and NL Industries, Inc. have counter sued
each other and have filed third party actions against the subsequent owners of
the property. The City of Chicago has made an offer to settle the matter for
$400,000 for all parties. The parties are currently conducting discovery. The
Company is presently unable to determine ARTRA's liability, if any, in
connection with this case.
16. INCOME TAXES
The provision (credit) for income taxes is included in the statements of
operations as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Continuing operations $ 83 $ 40 $(968)
Discontinued operations 170
----- ----- -----
$ 83 $ 40 $(798)
===== ===== =====
</TABLE>
A summary of the provision (credit) for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Current:
Federal $(255)
State $ 83 $ 40 (543)
----- ----- -----
$ 83 $ 40 $(798)
===== ===== =====
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. INCOME TAXES, continued
The 1994 extraordinary credit represents a net gain from discharge of bank
indebtedness under the loan agreements of Lori and its operating subsidiaries.
The 1993 extraordinary credit represents a gain from a net discharge of
indebtedness at Lori's New Dimensions subsidiary. No income tax expense is
reflected in the Company's financial statements resulting from the extraordinary
credit due to the utilization of tax loss carryforwards.
No income tax benefit was recognized in connection with the Company's 1992
pre-tax loss due to the Company's tax loss carryforwards.
In 1994, 1993 and 1992, the effective tax rates from operations, including
discontinued operations were .4%, .3% and 2.1%, respectively, as compared to the
statutory Federal rate, which are reconciled as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Provision (credit) for income taxes
using statutory rate $ (6,629) $ 4,992 $(12,953)
State and local taxes,
net of Federal benefit 73 7 (529)
Current year tax loss not utilized 3,151 1,938 971
Taxes previously provided
in excess of taxes paid (255)
Amortization of goodwill 206 212 206
Impairment of goodwill 2,946
Effect of not including all subsidiaries
in the consolidated tax return 3,249 (7,113) 8,815
Other 33 4 1
-------- -------- -------
$ 83 $ 40 $ (798)
======== ======== =======
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. INCOME TAXES, continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 29, 1994 and December 30,
1993 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable $ 1,700 $ 700 $ 3,300 $ 1,300
Inventories 400 200 5,600 2,200
Investment in Emerald Acquisition Corporation 18,600 7,200 18,600 7,200
Accrued personnel costs 1,900 800 2,000 800
Restructuring reserve 1,100 400 1,200 400
Environmental reserve 400 200 900 300
Other 2,600 1,000 3,300 1,300
Net operating loss 97,000 37,800 81,000 31,600
------ ------
Total deferred tax assets 48,300 45,100
------ ------
Inventories (6,100) (2,400) (5,300) (2,100)
Accumulated depreciation (9,500) (3,700) (11,000) (4,300)
Other (400) (200) (1,000) (300)
------ ------
Total deferred tax liabilities (6,300) (6,700)
Valuation allowance (42,000) (38,400)
------ ------
Net deferred tax asset $ -- $ --
========= ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.
At December 29, 1994, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $97,000,000 available to be applied against
future taxable income, if any. ARTRA's tax loss carryforwards of approximately
$32,000,000 expire principally in 2003 - 2009. ARTRA's discontinued Ultrasonix
and Ratex subsidiaries had Federal income tax loss carryforwards of
approximately $11,000,000 available to be applied against future taxable income,
if any. Lori has Federal income tax loss carryforwards of approximately
$54,000,000 available to be applied against future Lori taxable income, if any,
expiring principally in 1995 - 2009. In recent years, the Company has issued
shares of its common stock to repay various debt obligations, as consideration
for acquisitions, to fund working capital obligations and as consideration for
various other transactions. Section 382 of the Internal Revenue Code of 1986
limits a corporation's utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
corporation's common stock occurs. In the opinion of management, the Company is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should the Company continue to issue a
significant number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.
17. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have certain contributory and noncontributory
benefit plans covering eligible employees. Both employee and employer
contributions are generally determined as a percentage of the covered employee's
annual compensation. The total expense charged to continuing operations from all
of these plans amounted to $333,000, $450,000 and $521,000 in 1994, 1993 and
1992, respectively.
Effective June 1, 1990, the Company adopted an Employee Stock Ownership Plan
("ESOP") which covers eligible employees of ARTRA and certain of its
subsidiaries. Employer contributions to the Plan are at the discretion of
ARTRA's Board of Directors. Employee contributions are not permitted.
Contributions are allocated in the same proportion that the percentage of a
participant's compensation for the Plan year bears to the compensation of all
participants for the Plan year. ARTRA's contribution for the plan year ended
December 31, 1994, 15,000 ARTRA common shares, was accrued in the Company's
Consolidated Balance Sheet in current liabilities at their fair market value of
$77,000 ($5.125 per share) as of December 29, 1994. ARTRA contributed 65,000
common shares to the Plan with a fair market value of $423,000 ($6.50 per share)
for the plan year ending December 30, 1993. During 1992 ARTRA contributed
100,000 common shares to the Plan with a fair market value of $400,000 ($4.00
per share) for the plan year ending December 31, 1992. At December 29, 1994, the
ESOP held 277,590 shares of ARTRA common stock.
The Company typically does not offer the types of benefit programs that fall
under the guidelines of Statement of Financial Accounting Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions.
18. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss), less
redeemable preferred stock dividends and redeemable common stock accretion, by
the weighted average number of shares of common stock and common stock
equivalents (redeemable common stock, stock options and warrants), unless
anti-dilutive, outstanding during each period. Fully diluted earnings per share
is not presented since the result is equivalent to primary earnings per share.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. INDUSTRY SEGMENT INFORMATION
The Company and its subsidiaries operate within the U.S. in two industry
segments. The Company's packaging products business is conducted by its
wholly-owned Bagcraft subsidiary. During 1994, Company's jewelry business was
conducted by its 66.4% owned Lori subsidiary through Lori's wholly-owned
subsidiaries New Dimensions, Rosecraft and Lawrence. Amounts in thousands.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net Sales:
Packaging $117,684 $113,584 $121,084
-------- -------- --------
Jewelry 34,431 46,054 75,484
-------- -------- --------
$152,115 $159,638 $196,568
======== ======== ========
Operating Earnings (Loss):
Packaging $882 $1,960 $4,150
Jewelry (15,219) 1,630 (28,795)
Corporate and other (3,464) (2,936) (2,527)
-------- -------- --------
$ (17, 801) $654 $(27,172)
======== ======== ========
Identifiable Assets:
Packaging $76,597 $52,682 $57,975
Jewelry 12,166 34,256 37,585
Corporate and other 4,666 5,836 3,171
-------- -------- --------
$93,429 $92,774 $98,731
======== ======== ========
Capital Expenditures:
Packaging $11,840 $3,038 $2,889
Jewelry 32 108 619
Corporate and other 9 10
-------- -------- --------
$11,881 $3,156 $3,508
======== ======== ========
Depreciation and Amortization:
Packaging $4,185 $4,083 $3,982
Jewelry 1,756 1,821 2,402
Corporate and other 4 2 112
-------- -------- --------
$5,945 $5,906 $6,496
======== ======== ========
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Operating earnings (loss) represents net sales less operating costs and expenses
pertaining to a particular segment. There were no significant intersegment
sales. Jewelry segment 1994 operating loss includes a charge to operations of
$10,800,00 to write-off New Dimensions goodwill as discussed in Note 7. Jewelry
segment 1992 operating loss includes a charge to operations of $8,664,000
representing an impairment of goodwill at Lori's New Dimensions subsidiary.
Identifiable assets by segment include all assets directly identified with those
operations. Corporate assets consist primarily of cash, investments, notes
receivable and certain property, plant and equipment.
Jewelry segment customers are primarily mass merchandisers and others engaged in
the retail industry. No single jewelry segment customer accounted for more than
10% of consolidated net sales in 1994 and 1993. A major jewelry segment
customer, Wal-mart, accounted for sales of approximately $21,600,000 in 1992.
Packaging segment customers include major companies in the food industry, as
well as supermarket chains and fast food chains. No single packaging segment
customer accounted for more than 10% of consolidated net sales in 1994, 1993 and
1992.
20. LITIGATION
On February 5, 1993, New Dimensions filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York (Case No. 93 B 40653).
On April 9, 1993, New Dimensions' reorganization plan was confirmed by an order
of the Bankruptcy Court and on May 3, 1993, the consummation date, New
Dimensions emerged from Chapter 11 bankruptcy court protection, New Dimensions'
bank lender provided long-term working capital financing and Lori guaranteed and
assumed certain New Dimensions debt obligations. See Note 5 for a discussion of
the terms of New Dimensions' plan of reorganization.
As a result of the time required to complete the restructuring of New Dimensions
and the financial significance to ARTRA and Lori of the restructuring, ARTRA and
Lori did not timely file Form 10-K for the year ended December 31, 1992 and its
Form 10-Q for the quarter ended March 31, 1993 and has also been late in
previous annual and quarterly filings with the Securities and Exchange
Commission ("SEC"). As a result of discussions with the SEC, in June, 1993,
ARTRA and Lori readily consented to a Final Judgment of Permanent Injunction to
file with the SEC Form 10-K for the year ended December 31, 1992 and Form 10-Q
for the quarter ended March 31, 1993 by late July and to meet future filing
requirement deadlines.
On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois (the State Court Action") against
Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc. (collectively,
"Salomon") D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly
Defendants" along with DPK), Charles K. Bobrinskoy, James F. Massey, William
Rifkind and Michael J. Zimmerman. The defendants removed the case to the
Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15,
1994 all but two of ARTRA's causes of action were remanded to the state court.
The Bankruptcy Court maintained jurisdiction of ARTRA's claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.
On December 21, 1994, the Salomon Defendants and the Kelly defendants brought
motions to dismiss ARTRA's Second Amended Complaint in the State Court Action.
On February 8, 1995, ARTRA's Second Amended Complaint was dismissed in part,
with leave to replead.
On March 10, 1995, ARTRA filed a Third Amended Complaint in the State court
Action, pleading causes of action for breach of fiduciary duty, fraudulent
misrepresentation and negligent misrepresentation ARTRA seeks in the action
compensatory damages of $136.2 million, punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The case is in its early stages and discovery is just beginning. ARTRA cannot
predict, with any certainty, the outcome of the suit.
Effective December 31, 1989, ARTRA completed the disposal of its former
scientific products segment with the sale of its Welch subsidiary, formerly
Sargent-Welch Scientific Company, to a privately held corporation whose
president and sole shareholder was a vice president of Welch prior to the sale.
The consideration received by ARTRA consisted of $2,625,000 payable June 30,
1997, with interest at 10% beginning June 30, 1990, under terms of a
noncompetition agreement and the buyer's subordinated note in the principal
amount of $2,500,000. The receivable due June 30, 1997 under terms of the
noncompetition agreement is reflected in ARTRA's consolidated balance sheet at
December 29, 1994 and December 30, 1993 in other assets at $2,625,000. The
subordinated security, due in 1997, was originally scheduled to be non-interest
bearing for a period of three years, after which time interest will accrue at
the rate of 10% per annum. The note was discounted at a rate of 10% during the
non-interest bearing period and is reflected in ARTRA's Consolidated Balance
Sheet at December 29, 1994 and December 30, 1993 in other assets at $1,375,000,
net of a discount of $1,125,000.
In December, 1991 Welch filed a lawsuit against ARTRA alleging that certain
representations, warranties and covenants made by ARTRA, which were contained in
the parties' Stock Purchase Agreement, were false. Welch is seeking compensatory
damages in the amount of $3,800,000. Subsequently, ARTRA had filed a
counterclaim predicated upon Welch's breach of the payment terms of the parties'
Non-Competition Agreement and the Subordinated Note executed by Welch. ARTRA is
seeking damages in the amount of approximately $5,300,000 plus accrued interest.
On November 23, 1994, the Circuit Court of Cook County Law Division in Chicago
granted a judgment in favor of ARTRA affirming the validity of the amounts due
under the Non-Competition Agreement and the Subordinated Note of $2,625,000 and
$2,500,000, respectively.
In January, 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the Comprehensive Environmental Responsibility Compensation and
Liability Act ("CERCLA") for alleged release of hazardous substances at the
Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party defendants, to resolve all claims associated
with the site except for state claims. In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. The $850,000
settlement was accrued in the Company's financial statements at December 30,
1993. Bagcraft filed suit in 1993 in the United States District Court for the
Northern District of Illinois, against its insurers to recover a portion of its
liability costs in connection with the Cross Brothers case. Bagcraft recovered
$725,000 from its insurers in 1994 and an additional $250,000 in 1995. With
regard to the state action, Bagcraft is participating in settlement discussions
with the State and thirteen other potential parties to resolve all claims
associated with the State. The maximum state claim is $1.1 million. Bagcraft has
accrued $120,000 related to the State action in the Company's consolidated
financial statements at December 29, 1994.
The Company and its subsidiaries are the defendants in various other
business-related litigation and environmental matters (see Note 14). Management
does not believe the outcome of these matters will have a material adverse
effect on the Company's financial statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
21. RELATED PARTY TRANSACTIONS
Advances to Peter R. Harvey, ARTRA's president, classified in the Consolidated
Balance Sheet as a reduction of common shareholders' equity, consist of (in
thousands):
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1994 1993
--------- --------
<S> <C> <C>
ARTRA $ 3,205 $2,713
Fill-Mor 1,510 1,404
------ ------
4,715 4,117
Less interest for the period January 1,
1993 to date, accrued and fully reserved (615) (274)
------ ------
$ 4,100 $ 3,843
======= =======
</TABLE>
ARTRA has total advances due from its president, Peter R. Harvey, of which
$3,205,000 and $2,713,000, including accrued interest, remained outstanding at
December 29, 1994 and December 30, 1993. The advances bear interest at the prime
rate plus 2% (10.5% at December 29, 1994). This receivable from Peter R. Harvey
has been classified as a reduction of common shareholders' equity.
Prior to its acquisition by ARTRA, Bagcraft made certain advances to Peter R.
Harvey evidenced by demand notes with interest at the prime rate plus 1-1/4%. In
December, 1993, the advances from ARTRA's Bagcraft subsidiary to Peter R. Harvey
of $1,774,000 were transferred to ARTRA as a dividend.
In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey. The advances bear interest at the prime rate plus 2% (10.5% at December
29, 1994). At December 29, 1994 and December 30, 1993, advances of $1,510,000
and $1,404,000, respectively, including accrued interest, were outstanding. This
receivable from Peter R. Harvey has been classified as a reduction of common
shareholders' equity.
Commencing January 1, 1993 to date, interest on all advances to Peter R. Harvey
has been accrued and fully reserved. Interest accrued and fully reserved on the
advances to Peter R. Harvey for the years ended December 29, 1994 and December
30, 1993 totaled $341,000 and $274,000, respectively.
Peter R. Harvey has not received other than nominal compensation for his
services as an officer or director of ARTRA or any of its subsidiaries since
October of 1990. Additionally, Mr. Harvey has agreed not to accept any
compensation for his services as an officer or director of ARTRA or any of its
subsidiaries until his obligations to ARTRA, described above, are fully
satisfied.
Under Pennsylvania Business Corporation Law of 1988, ARTRA (a Pennsylvania
corporation) is permitted to make loans to officers and directors. Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted to make loans to an officer (including any officer who is also a
director, as in the case of Peter R. Harvey), whenever, in the judgment of the
directors, the loan can reasonably be expected to benefit Fill-Mor.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did
not act on a proposal to ratify the advances made by ARTRA to Peter R. Harvey.
The 1992 advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of
Directors. In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan obligations to the bank.
However, the resolutions did not acknowledge the use of such proceeds for this
purpose and the formal loan documents with the bank did not set forth this
condition (though in fact, the proceeds were so applied by the bank).
As partial collateral for amounts due from Peter R. Harvey, the Company has
received the pledge of 1,523 shares of ARTRA redeemable preferred stock (with a
liquidation value of $1,523,000, plus accrued dividends) which are owned by Mr.
Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to $1,000,000.
For a discussion of certain other related party debt obligations see Note 9.
22. FOURTH QUARTER ADJUSTMENTS
As discussed in Note 7, in December 1994 Lori recorded a charge against
operations of $10,800,000 ($1.89 per share) to write-off New Dimensions'
goodwill and also recognized an extraordinary gain of $8,965,000 ($1.57 per
share) as a result of a net discharge of indebtedness.
In December, 1993 the Bagcraft subsidiary recorded a charge to operations of
$1,175,000 ($.24 per share) representing equipment and inventory relocation
costs and employee severance and outplacement costs relating to the construction
of a new manufacturing facility in Baxter Springs, Kansas. The new Kansas
facility replaced Bagcraft's production facility in Joplin, Missouri.
Additionally, with the completion of the new Kansas facility, Bagcraft converted
the manufacturing facility in Forest Park, Georgia into a distribution facility.
The former Carteret, New Jersey facility was sold in December, 1994 and the
proceeds of approximately $1,700,000 were used to reduce borrowings under
Bagcraft's Credit Agreement.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
BALANCE SHEETS
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1994 1993
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 91 $ 1,396
Receivables 55 143
Other current assets 87 55
-------- -------
233 1,594
-------- -------
Property, plant and equipment 19 10
Less accumulated depreciation and amortization 6 2
-------- -------
13 8
-------- -------
Other assets:
Investments in and advances to affiliates (15,264) (5,466)
Other 4,000 4,000
-------- -------
(11,264) (1,466)
-------- -------
($11,018) $ 136
======== ========
LIABILITIES
Current liabilities:
Notes payable and current
maturities of long-term debt $ 28,053 $ 26,882
Accounts payable 1,576 1,622
Accrued expenses 9,702 8,312
Income taxes 138 340
-------- -------
39,469 37,156
-------- -------
Redeemable common stock 4,144 3,276
-------- -------
Redeemable preferred stock 3,129 2,613
-------- -------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 5,052 3,922
Additional paid-in capital 36,613 31,042
Receivable from related party,
including accrued interest (4,100) (3,843)
Accumulated deficit (94,520) (73,225)
-------- -------
(56,955) (42,104)
Less treasury stock, at cost 805 805
-------- -------
(57,760) (42,909)
-------- -------
($11,018) $ 136
======== =======
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Selling, general and administrative expenses $ 2,158 $ 1,907 $ 1,644
Depreciation and amortization 4 2 112
Interest expense 3,139 2,641 2,930
Equity in loss of affiliates 22,035 3,639 35,312
Other (income), net 308 85 (342)
Earnings (loss) from continuing ------ ----- ------
operations before income taxes (27,644) (8,274) (39,656)
Benefit (charge) equivalent to income taxes (1,791) (269) 1,354
------ ----- ------
Loss from continuing operations (29,435) (8,543) (38,302)
Equity in earnings of discontinued affiliate
Loss before extraordinary credit 330
------ ----- ------
(29,435) (8,543) (37,972)
Extraordinary credit, net discharge of indebtedness 8,965 22,057
------ ------ ------
Net earnings (loss) ($20,470) $ 13,514 ($37,972)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
STATEMENTS OF CASHFLOWS
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($20,470) $ 13,514 ($37,972)
Adjustments to reconcile net loss
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (8,965) (22,057)
Equity in (earnings) loss of affiliates 22,035 3,639 35,312
Equity in (earnings) loss of discontinued operations (330)
Gain on sale of property, plant and equipment (423)
Other 489 392 45
Changes in assets and liabilities:
Increase (decrease) in other current and
noncurrent assets 56 (42) (237)
Increase (decrease) in other current and
noncurrent liabilities 2,152 1,076 (429)
(Increase) decrease in receivable from related party (257) 42 (635)
-------- -------- --------
Net cash flows used by operating activities (4,960) (3,436) (4,669)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of Ratex subsidiary 1,089
Proceeds from sale of property, plant and equipment 1,425
Proceeds from sale of BCA Holdings preferred stock 3,000 675
Dividends and advances from (to) subsidiaries (772) 1,824 2,254
Additions to property, plant and equipment (9) (10)
-------- -------- --------
Net cash flows from investing activities (781) 4,814 5,443
-------- -------- --------
Cash flows from financing activities:
Proceeds from private placements of ARTRA common stock 3,230
Proceeds from exercise of stock options and warrants 30 129 48
Net increase (decrease) in short-term borrowings 1,226 (158) (546)
Exercise of redeemable common stock options (50) (456)
Other, net 1
-------- -------- --------
Net cash flows from (used by) financing activities 4,436 (29) (953)
-------- -------- --------
Net increase (decrease) in cash (1,305) 1,349 (179)
Cash balance beginning of year 1,396 47 226
-------- -------- --------
Cash balance end of year $ 91 $ 1,396 $ 47
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $ 756 $ 1,636 $ 2,601
ARTRA common stock issued to Lori's bank lender as partial
consideration for discharge of indebtedness 2,500
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
<PAGE>
ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.)
ARTRA GROUP INCORPORATED
NOTES TO FINANCIAL INFORMATION
(Registrant Only)
1. Presentation
The condensed financial information of the Registrant has been prepared in
accordance with the instructions for Schedule I to Form 10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.
2. Commitments and Contingencies
See Note 15 of the consolidated financial statements.
3. Restricted Assets
The terms of several agreements place certain restrictions on the net assets of
certain operating subsidiaries. See Notes 9 and 10 of the consolidated financial
statements for additional information.
4. Notes Payable and Long-Term Debt
See Notes 9 and 10 of the consolidated financial statements.
5. Redeemable Common and Preferred Stock and Stock Options
See Notes 11, 12 and 13 of the consolidated financial statements.
6. Income Taxes
The Registrant files a consolidated income tax return with its 80% or more owned
subsidiaries. Separate returns are filed by the Company's majority-owned, but
less than 80% owned subsidiaries. For financial reporting purposes, the
Registrant's charge or benefit equivalent to income tax represents the
difference between the aggregate of income taxes computed on a separate return
basis for each of the subsidiaries and affiliates and the income taxes computed
on a consolidated basis.
7. Guarantees of Subsidiaries' Obligations
See Notes 9 and 10 of the consolidated financial statements for a discussion of
guarantees of subsidiary debt obligations.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for each of the three fiscal years in the period ended December 29, 1994
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------------------------------- -------- ---------------------------- -------- --------
Additions
----------------------------
(1) (2)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
-------------------------------------------- -------- --------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended December 29, 1994:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,315 $ 218 $ (4,326)(A) $ 207
======= ======== ======== =======
Allowance for markdowns $ 2,499 $ 4,799 $ (6,463)(B) $ 835
Allowance for doubtful accounts 595 445 (221)(C) 819
------- -------- -------- -------
$ 3,094 $ 5,244 $ (6,684) $ 1,654
======= ======== ======== =======
For the fiscal year ended December 30, 1993:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,900 $ 337 $ (922)(A) $ 4,315
======= ======== ======== =======
Allowance for markdowns $ 5,280 $ 5,722 $ (8,503)(B) $ 2,499
Allowance for doubtful accounts 671 450 (526)(C) 595
------- -------- -------- -------
$ 5,951 $ 6,172 $ (9,029) $ 3,094
======= ======== ======== =======
For the fiscal year ended December 31, 1992:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,900 $ 4,900
======= ========
Allowance for markdowns $ 5,125 $ 21,051 $(20,896)(B) $ 5,280
Allowance for doubtful accounts 783 229 (341)(C) 671
------- -------- -------- -------
$ 5,908 $ 21,280 $(21,237) $ 5,951
======= ======== ======== =======
<FN>
(A)Principally inventory written off, net of recoveries. (B) Principally
markdowns taken. (C) Principally uncollectible accounts written off, net of
recoveries.
</FN>
</TABLE>
<PAGE>
INDEX OF EXHIBITS
(A) Exhibits included herein:
EXHIBIT 3 Articles of Incorporation and By-laws
3.1 Statement with Respect to Shares of Series
A Preferred Stock of Registrant.
3.2 Statement with Respect to Shares of Rights
and Preferences of Series B Preferred Stock
of Registrant.
EXHIBIT 10 Material contracts
10.1 ASSIGNMENT AGREEMENT, dated and effective March 31,
1995, by and among IBJ Schroder Bank & Trust Company,
The Lori Corporation, Lawrence Jewelry Co., Lawrence
Jewelry Corporation, New Dimensions Accessories Ltd.,
Rosecraft, Inc., Fill-Mor Holding, Inc., ARTRA GROUP
Incorporated and Alexander Verde.
10.2 REGISTRATION AND SETTLEMENT AGREEMENT dated as of
March 31, 1995 by and between ARTRA GROUP
Incorporated and IBJ Schroder Bank & Trust Company.
EXHIBIT 11 Computation of earnings per share and equivalent
share of common stock for each of the three years in
the period ended December 29, 1994.
EXHIBIT 21 Subsidiaries.
EXHIBIT 24 Consent of Independent Accountants.
<PAGE>
(B) Exhibits incorporated herein by reference:
EXHIBIT 3 Articles of Incorporation and By-laws
3.3 Amended and Restated Articles of
Incorporation of the Registrant as filed in
the Department of State of Pennsylvania on
December 21, 1990.
3.4 Bylaws of the Registrant, amended as of July
24, 1990, filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1990.
EXHIBIT 10 Material contracts
10.1 AMENDED SETTLEMENT AGREEMENT by and among
THE LORI CORPORATION, LAWRENCE JEWELRY CO.,
LAWRENCE JEWELRY CORPORATION, NEW DIMENSIONS
ACCESSORIES LTD. (formerly known as R.N.
Koch, Inc.), ROSECRAFT, INC., FILL-MOR
HOLDING, INC., ARTRA GROUP INCORPORATED AND
IBJ SCHRODER BANK & TRUST COMPANY, dated as
of December 23, 1994 filed as an exhibit to
Registrant's Form 8-K, dated January 3,
1995.
10.2 Loan Agreement, dated as of December 23,
1994, by and among ARTRA GROUP Incorporated
and McGOODWIN JAMES & CO filed as an exhibit
to Registrant's Form 8-K, dated January 3,
1995.
10.3 Settlement Agreement dated August 18, 1994
by among The Lori Corporation, Lawrence
Jewelry Co., Lawrence Jewelry Corporation,
New Dimensions Accessories, Ltd., Rosecraft,
Inc., Fill-Mor Holding, Inc., ARTRA GROUP
Incorporated and IBJ Schroder Bank & Trust
Company, dated as of August 18,1994 filed as
an exhibit to Registrant's Form 10-Q for the
quarterly period ended June 30, 1994, dated
August 19, 1994.
10.4 Pledge and Security Agreement between The
Lori Corporation and IBJ Schroder Bank &
Trust Company dated as of August 18, 1994
filed as an exhibit to Registrant's Form
10-Q for the quarterly period ended June 30,
1994, dated August 19, 1994.
10.5 Pledge and Security Agreement between
Lawrence Jewelry Co. and IBJ Schroder Bank &
Trust Company dated as of August 18, 1994
filed as an exhibit to Registrant's Form
10-Q for the quarterly period ended June 30,
1994, dated August 19, 1994.
10.6 Pledge and Security Agreement between
Lawrence Jewelry Corporation and IBJ
Schroder Bank & Trust Company dated as of
August 18, 1994 filed as an exhibit to
Registrant's Form 10-Q for the quarterly
period ended June 30, 1994, dated August 19,
1994.
10.7 Pledge and Security Agreement between New
Dimensions Accessories, Ltd and IBJ Schroder
Bank & Trust Company dated as of August 18,
1994 filed as an exhibit to Registrant's
Form 10-Q for the quarterly period ended
June 30, 1994, dated August 19, 1994.
<PAGE>
10.8 Pledge and Security Agreement between
Rosecraft, Inc. and IBJ Schroder Bank &
Trust Company dated as of August 18, 1994
filed as an exhibit to Registrant's Form
10-Q for the quarterly period ended June 30,
1994, dated August 19, 1994.
10.9 Pledge and Security Agreement between
Fill-Mor Holding, Inc. and IBJ Schroder Bank
& Trust Company dated as of August 18, 1994
filed as an exhibit to Registrant's Form
10-Q for the quarterly period ended June 30,
1994, dated August 19, 1994.
10.10 Credit Agreement dated as of December 17,
1993 by and between Bagcraft Corporation of
America as Borrower and General Electric
Capital Corporation as agent and lender
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
.
10.11 Warrant to Purchase Common Stock of Bagcraft
Corporation of America dated December 17,
1993 (1,055.6 shares) issued to General
Electric Capital Corporation filed as an
exhibit to Registrant's Form 10-K for the
year ended December 30, 1993, dated April
11, 1994.
10.12 Letter Agreement dated as of March 31, 1994
between Registrant and Continental Bank
N. A. filed as an exhibit to Registrant's
Form 10-K for the year ended December 30,
1993, dated April 11, 1994.
10.13 Amended and Restated Promissory Note
dated as of March 21, 1989 in the amount of
$2,500,000 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.14 Amended and Restated Promissory Note dated
as of March 21, 1989 in the amount of
$2,5000,000 from Registrant to Kenny
Construction Company filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.15 Amended and Restated Promissory Note dated
as of June 22, 1990 in the amount of
$7,063,639.59 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.16 Amended and Restated Promissory Note dated
as of July 6, 1988 in the original amount of
$5,000,000 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994..
10.17 Letter Agreement dated as of April 1, 1994
between Kenny Construction Company,
Registrant and Bagcraft Corporation of
America filed as an exhibit to Registrant's
Form 10-K for the year ended December 30,
1993, dated April 11, 1994.
10.18 Kenny Construction Company Option to Sell
Common Stock filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993 dated April 11, 1994.
10.19 Loan Agreement dated December 27, 1993 in
the amount of $5,000,000 between Bagcraft
Corporation of America and the City of
Baxter Springs, Kansas filed as an exhibit
to Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
<PAGE>
10.20 Construction Loan Agreement dated as of
February 15, 1994 in the amount of
$7,000,000 between the City of Baxter
Springs, Kansas and Bagcraft Corporation of
America filed as an exhibit to Registrant's
Form 10-K for the year ended December 30,
1993, dated April 11, 1994.
10.21 Loan Agreement dated January 19, 1994 in the
amount of $250,000 between Bagcraft
Corporation of America and the City of
Baxter Springs, Kansas filed as an exhibit
to Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.22 Loan Agreement dated January 20, 1994 in the
amount of $250,000 between Bagcraft
Corporation of America and the City of
Baxter Springs, Kansas filed as an exhibit
to Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.23 Asset Purchase Agreement dated as March 1,
1994 by and between AGI Acq. Inc., a
subsidiary of Bagcraft Corporation of
America, and Arcar Graphics, Inc. filed as
an exhibit to Registrant's Form 10-K for the
year ended December 30, 1993, dated April
11, 1994.
.
10.24 Warrant to Purchase Common Stock of
Registrant dated April 8, 1994 (177,778
shares) issued to TAMBS, INC. (formerly
Arcar Graphics, Inc.) filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.25 Guarantee of Bagcraft Corporation of America
dated April 8, 1994 in favor of TAMBS, INC.
(formerly known as Arcar Graphics, Inc.)
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
10.26 Pledge Agreement dated April 8, 1994 from
Bagcraft Corporation of America in favor of
TAMBS, INC. (formerly known as Arcar
Graphics, Inc.) filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.27 Subordinated Promissory Note dated April 8,
1994 in the amount of $2,500,000 from AGI
Acq. Inc. to TAMBS, INC. (formerly known as
Arcar Graphics, Inc.) due March 15, 1995
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
10.28 Subordinated Promissory Note dated April 8,
1994 in the amount of $2,500,000 from AGI
Acq. Inc. to TAMBS, INC. (formerly known as
Arcar Graphics, Inc.) due March 15, 1996
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
10.29 Subordinated Promissory Note dated April 8,
1994 in the amount of $2,500,000 from AGI
Acq. Inc. to TAMBS, INC. (formerly known as
Arcar Graphics, Inc.) due March 15, 1997
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
10.30 Subordinated Promissory Note dated April 8,
1994 in the amount of $500,000 from AGI Acq.
Inc. to TAMBS, INC. (formerly known as
Arcar Graphics, Inc.) due March 15, 1998
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
<PAGE>
10.31 Loan and Security Agreement dated as of
April 8, 1994 between AGI Acq. Inc. and
American National Bank and Trust Company of
Chicago filed as an exhibit to Registrant's
Form 10-K for the year ended December 30,
1993, dated April 11, 1994.
10.32 Revolving Note dated as of April 8, 1994 in
the amount of $1,500,000 from AGI Acq. Inc.
to American National Bank and Trust
Company of Chicago filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993, dated April 11, 1994.
10.33 Term Note dated as of April 8, 1994 in the
amount of $2,750,000 from AGI Acq. Inc. to
American National Bank and Trust Company
filed as an exhibit to Registrant's Form
10-K for the year ended December 30, 1993,
dated April 11, 1994.
10.34 Term Loan Agreement dated as of May 3, 1993
between New Dimensions Accessories, Ltd. and
IBJ Schroder Bank & Trust Company filed as
an exhibit to Registrant's Form 10-K for the
year ended December 31, 1992, dated July 23,
1993.
10.35 Credit Agreement dated as of May 3, 1993
between New Dimensions Accessories, Ltd. and
IBJ Schroder Bank & Trust Company filed as
an exhibit to Registrant's Form 10-K for the
year ended December 31, 1992, dated July 23,
1993.
10.36 Term Loan Agreement dated as of March 31,
1993 between Rosecraft, Inc. and IBJ
Schroder Bank & Trust Company filed as an
exhibit to Registrant's Form 10-K for the
year ended December 31, 1992, dated July 23,
1993.
10.37 Credit Agreement dated as of March 31, 1993
between Rosecraft, Inc. and IBJ Schroder
Bank & Trust Company filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.38 Management Agreement dated as of April 9,
1993 between The Lori Corporation and
Nitsua, Ltd. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.39 Management Agreement dated as of April 9,
1993 between The Lori Corporation and
Anthony J. Giglio filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.40 Amended and Restated Guarantee Agreement
dated as of March 31, 1993 by The Lori
Corporation in favor IBJ Schroder Bank &
Trust Company filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.41 Letter Agreement dated as June 30, 1993
between Registrant and Continental Bank,
N.A. filed as an exhibit to Registrant's
Form 10-K for the year ended December 31,
1992, dated July 23, 1993.
<PAGE>
10.42 Amended and Restated Promissory Note dated
as of March 21, 1989 in the original amount
of $5,000,000 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.43 Amended and Restated Promissory Note dated
as of June 22, 1990 in the amount of
$8,452,399.65 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.44 Amended and Restated Promissory Note dated
as of July 6, 1988 in the original amount of
$5,000,000 from Registrant to Continental
Bank, N.A. filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1992, dated July 23, 1993.
10.45 Debtor's Amended Chapter 11 Plan of New
Dimensions Accessories, Ltd. filed on
February 16, 1993 in the United States
Bankruptcy Court for the Southern District
of New York filed as an exhibit to
Registrant's Form 8-K, dated February 18,
1993.
10.46 Voluntary Petition of New Dimensions
Accessories, Ltd. (for reorganization under
Chapter 11 of the Bankruptcy Code) filed
February 5, 1993 in the United States
Bankruptcy Court for the Southern District
of New York filed as an exhibit to
Registrant's Form 8-K, dated February 18,
1993.
10.47 Debtor's Amended Chapter 11 Plan, As
Modified, of New Dimensions Accessories,
Ltd. dated March 9, 1993 With Proposed
Modifications dated March 26, 1993, as filed
in the United States Bankruptcy Court for
the Southern District of New York, filed as
an exhibit to Registrant's Form 8-K, dated
May 17, 1993.
10.48 Second Amended Disclosure Statement Pursuant
to Section 1125 of the Bankruptcy Code of
New Dimensions Accessories, Ltd. filed as
an exhibit to Registrant's Form 8-K, dated
May 17, 1993.
10.49 Notice of Entry of Order Confirming Second
Amended Plan of Reorganization as Modified
dated April 9, 1993 filed as an exhibit to
Registrant's Form 8-K, dated May 17, 1993.
10.50 Amended and Restated License Agreement Dated
as of July 20, 1988 between Lifestyle
Brands, Ltd. and New Dimensions Accessories,
Ltd. filed as an exhibit to Registrant's
Form 8-K, dated May 17, 1993.
10.51 Amended Disclosure Statement dated as of
February 16, 1993, of New Dimensions
Accessories, Ltd. Pursuant to Section 1125
of the Bankruptcy Code filed as an exhibit
to Registrant's Form 8-K, dated February 18,
1993.
10.52 Credit Agreement dated as February 5, 1993
between Lawrence Jewelry Co. and IBJ
Schroder Bank & Trust Company filed as an
exhibit to Registrant's Form 8-K, dated
February 18, 1993.
10.53 Letter Agreement dated as of February 11,
1992 between Registrant and Continental
Bank, N.A. filed as an Exhibit to
Registrant's Form 8-K, dated
February 27, 1992.
10.54 Exhibit pages from The Lori Corporation Form
10-K for the year ended December 31, 1994,
on file with the Commission, are
herebyincorporated by reference hereto.
EXHIBIT 10.1
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated and effective as of March 31,
1995, by and among IBJ Schroder Bank & Trust Company ("the Bank"), The Lori
Corporation ("Lori"), Lawrence Jewelry Co., Lawrence Jewelry Corp., New
Dimensions Accessories, Ltd.("NDAL"), Rosecraft, Inc. ("Rosecraft")
(collectively the "Borrowers"), Fill-Mor Holding, Inc. ("Fill-Mor"), ARTRA Group
Inc. ("ARTRA") and Alexander Verde ("Verde"). W I T N E S S E T H:
WHEREAS, the Bank, the Borrowers, Fill-Mor and ARTRA are
parties to that certain Amended Settlement Agreement by and among Lori, Lawrence
Jewelry Co., Lawrence Jewelry Corp., NDAL, Rosecraft, Fill-Mor and ARTRA dated
as of December 23, 1994 ("Amended Settlement Agreement");
WHEREAS, the Bank has made loans and otherwise extended credit
to the Borrowers pursuant to certain notes, agreements and guarantees more fully
described in Exhibit 1 to the Amended Settlement Agreement ("Agreements");
WHEREAS, the Bank entered into the Amended Settlement
Agreement with each Borrower, Fill-Mor and ARTRA after each Borrower, Fill-Mor
and ARTRA was in default under certain notes, agreements and guarantees and the
Settlement Agreement dated as of August 18, 1994, as more fully described in the
Amended Settlement Agreement;
WHEREAS, concurrently with the date hereof, the Bank and ARTRA
have executed a Registration and Settlement Agreement dated as of March 31, 1995
("Registration Agreement") and ARTRA has executed a Confession of Judgment;
WHEREAS, on the terms and conditions set forth below, the Bank
and Verde have agreed that the Bank will sell, transfer, assign and convey to
Verde certain of the Bank's rights, title and interest in, to or under the
Amended Settlement Agreement and the Agreements -- other than certain rights,
title and interest in certain obligations of ARTRA under the Amended Settlement
Agreement -- as described below;
WHEREAS, the Borrowers and Fill-Mor have agreed, in exchange
for the Bank's agreement to assign certain of its rights under the Amended
Settlement Agreements as described more fully below and for other good and
valuable consideration, to maintain certain relationships with the Bank and
compensate the Bank as specified below; and
WHEREAS, in addition to other good and valuable consideration
provided for herein, Verde will, on the terms and conditions set forth herein,
pay to the Bank for the Assigned Rights in immediately available funds an amount
in United States dollars of $750,000.00 (the "Purchase Price").
NOW, THEREFORE, in consideration of the promises contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Sale and Purchase. Subject to the terms and conditions of
this Assignment ----------------- Agreement:
(a) For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, subject to the Bank's receipt of
the Purchase Price pursuant to Section 1(b), the Bank hereby sells, transfers,
assigns and conveys to Verde and Verde purchases, assumes and accepts, the
following without representation, recourse or warranty of any kind or nature
except as expressly provided herein:
<PAGE>
(i) any rights or claims, if any, the Bank has now or
hereafter acquires into or under any guaranty,
security interest, lien, mortgage, pledge, deed of
trust, deposit account or other setoff, or other
collateral (and any substitutions therefor or
additions thereto) relating to or securing
obligations under the Agreements and all documents
relating to any of the foregoing other than the
Retained Rights as described as described in Section
2 below (the "Related Documents");
(ii) any rights or claims, if any, against the Borrowers
or Fill-Mor, its affiliates, and any third party
from, under or with respect to the Agreements or
Related Documents, including, without limitation, any
rights against any party arising in connection with
the making of the Agreements; and
(iii) any and all proceeds of the foregoing ("Proceeds");
all the foregoing are collectively referred to herein as the "Assigned Rights";
(b) In consideration for the Assigned Rights being sold,
transferred, assigned and conveyed by the Bank to Verde pursuant to the
preceding Section 1(a), Verde will on the Closing Date pay to the Bank in
immediately available funds the Purchase Price.
(c) The closing of the transaction contemplated herein
shall take place on or before April 7, 1995 or such other date as the parties
hereto agree upon in writing (the "Closing Date") by:
(i) Verde's delivery to the Bank of a copy of this
Assignment Agreement executed by Verde, which delivery shall be made by
facsimile transmission and by overnight courier;
(ii) the Bank's delivery by facsimile transmission and
by overnight courier to Verde of a copy of this Assignment Agreement duly
contemplated and executed by the Bank; and
(iii) the Borrowers', Fill-Mor's and ARTRA's delivery
by facsimile transmission and by overnight courier to each of the Bank and Verde
of copies of this Assignment Agreement duly contemplated and executed by the
Borrowers, Fill-Mor and ARTRA; and
(d) This Assignment Agreement shall not be effective
until the Registration Agreement and Confession of Judgment have been fully
executed by all parties thereto and are in full force and effect.
(e) Verde and the Bank agree that from and after the
Closing Date, other than as to the Retained Rights and other rights and
obligations under the Agreements, Amended Settlement Agreement and Related
Documents specifically excluded from this Assignment Agreement as provided in
Section 2,: (i) Verde shall be deemed a party to and beneficiary under the
Agreements, Amended Settlement Agreement and the Related Documents; and (ii)
Verde shall be entitled to (x) the benefits of all of the terms, conditions,
representations, warranties, covenants and agreements set forth in the
Agreements, Amended Settlement Agreement and the Related Documents and (y)
exercise and enforce such rights of the Bank under the Agreements, Amended
Settlement Agreement and Related Documents as Verde would have been entitled to
exercise if he had been the party to the Agreements, Amended Settlement
Agreement and Related Documents when originally executed and delivered.
<PAGE>
2. Retained Rights.
(a) The Bank, Verde, the Borrowers, Fill-Mor and ARTRA
agree that the Bank shall retain all rights, title and interest in to the
following provisions in the Amended Settlement Agreement:
(i) Paragraph 2.2 Settlement Amount; NDAL
Assets; Additional Payment;
Application of Proceeds, provided,
however, the Bank shall retain the
rights under Paragraph 2.2(g) only
through March 31, 1995;
(ii) Paragraph 2.3(a) The Bank's
Retention of ARTRA Shares.
(iii) Paragraph 2.3(b) Registration of
ARTRA Shares.
(iv) Paragraph 2.3(c) Sale of ARTRA
Shares by Bank.
(v) Paragraph 3.2 Real Estate.
(vi) Paragraph 3.4 No Rent on Woonsocket.
(vii) Paragraph 3.11 No Contact with
Customers, Creditors or
Vendors of NDAL/Trilko.
(b) The Bank, Verde, the Borrowers, Fill-Mor and ARTRA
agree that the Bank shall exclusively retain all rights, title and interest in
ARTRA's obligations under and be entitled to rely upon and enforce the following
provisions of the Amended Settlement Agreement; provided, however, ARTRA shall
no longer be jointly and severally liable for the other obligations of the
Borrowers and Fill-Mor under the Amended Settlement Agreement:
(i) Paragraph 3.10 Commitment to Take
Further Action.
(ii) Article IV. Representations and Warranties of
Borrowers,Fill-Mor and ARTRA; provided, ------------------------------- --------
however, the representations and warranties ------- provided by the Borrowers
and Fill-Mor to the Bank under the Amended Settlement Agreement shall survive
through the date of execution of this Assignment Agreement. The Representation
and Warranties provided by ARTRA to the Bank under the Amended Settlement
Agreement shall survive execution of this Assignment Agreement. (iii) Paragraph
5.1(c) - (i).
(iv) Paragraph 5.2(b).
<PAGE>
(v) Paragraph 5.3. Remedies
Cumulative; No Waiver.
(vi) Paragraph 5.4. Discontinuance of
Proceedings.
(vii) Article VI. Additional
Undertakings.
(viii) Article VII. Miscellaneous.
(c) Nothing in this Assignment Agreement impairs or
supersedes any rights orobligations that ARTRA has under the Registration
Agreement or Confession of Judgment. In the event ARTRA defaults on its
obligations under the Registration Agreement, in addition to any rights the Bank
has under the Registration Agreement, including but not limited to enforcement
of ARTRA's Confession of Judgment, the Bank may exercise all rights under the
Amended Settlement Agreement retained by it pursuant to this Assignment
Agreement.
(d) Nothing in this Assignment Agreement shall effect any
rights other than those specifically set forth in this Assignment Agreement. All
other rights held by the Bank including, but not limited to, warrants and other
equity interests, the Bank's rights against NDAL under the Amended Settlement
Agreement and otherwise are hereby specifically preserved.
(e) In the event a registration is declared effective on
or before July 31, 1995 whereby the ARTRA Shares are being registered and all
necessary authorities and agencies have approved such registration enabling such
shares to be freely tradeable, without restriction of any kind immediately upon
effectiveness of such registration, the Bank shall have no further rights or
remedies against ARTRA.
(f) Neither nor his successors or assigns has any claim,
right or
interest of any kind, nature or description at law or in equity in the Retained
Rights (as described in this Assignment Agreement), including, but not limited
to, in the ARTRA Shares Put, the ARTRA shares, and all other rights and interest
under the Registration Agreement or the Confession of Judgment.
(g) All of the foregoing shall constitute "Retained
Rights" and may be referred to as such throughout this Assignment Agreement
3. Demand Deposit Account 88383000. Lori's Demand Deposit
Account No. 88383000 is not being transferred pursuant to this Assignment
Agreement and there are no claims for any amounts due thereunder by any party.
4. Cash Dominion Accounts. Notwithstanding the provisions of
paragraph 7.2(b) of the Amended Settlement Agreement, Verde irrevocably
authorizes the Bank to release all monies in cash dominion accounts for the
general purposes of Lawrence Jewelry Co. and Rosecraft. Verde will hold the Bank
harmless from any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements, including
reasonable attorney's fees and disbursements which the Bank shall incur or
suffer as a result of or arising from or relating to the release of such cash
dominion accounts. Lawrence Jewelry Co. and Rosecraft shall execute all
documents necessary to modify existing cash management services as deemed
appropriate by the Bank. The Borrowers and Fill-Mor further agree to promptly
take action to eliminate all their cash management facilities maintained at the
Bank.
<PAGE>
5. Obligations of the Borrowers and Fill-Mor.
(a) The Borrowers shall continue to maintain Demand Deposit
Account No. 70978605 ("DDA") at the Bank with a balance of $43,018.84 as cash
collateral for stand-by Letter of Credit C45186 ("LOC") in favor of the Walt
Disney Company. If the LOC is returned undrawn, the balance in the DDA shall
revert to Rosecraft. At any time the LOC is drawn down to any extent, the
balance in the DDA will revert to the Bank as to the amount drawn down plus all
of the Bank's charges in connection with such drawing;
(b) The Borrowers shall maintain deposit balances at the Bank
sufficient to satisfy any unpaid fees, interest, including interest on the
$750,000.00 owed to the Bank under the Amended Settlement Agreement, and
expenses incurred in connection with the Amended Settlement Agreement, this
Assignment Agreement and the Registration Agreement;
(c) Commencing April 3, 1995, the Borrowers shall pay the Bank
a non-refundable $1,000.00 per week, payable in advance, for banking services
provided by the Bank in addition to any and all account analysis or maintenance
charges due to the Bank from the Borrowers and Fill-Mor;
(d) There shall be no overdrafts by any of the Borrowers or
Fill-Mor, nor shall any of the Borrowers or Fill-Mor request payments against
uncollected funds.
6. Representations and Warranties of the Bank. The Bank hereby
represents and ------------------------------------------- warrants to Verde:
(a) The Assigned Rights are not subject to any prior
assignment, conveyance, transfer or participation or agreement to assign,
convey, transfer or participate, in whole or in part.
(b) The Bank has all requisite power and authority to execute
and deliver, and to perform all of its obligations under this Assignment
Agreement (including, without limitation, the assignment hereunder).
(c) The execution, delivery and performance of this Assignment
Agreement (including, without limitation, the assignment hereunder) has been
duly authorized and does not and will not (i) require any consent or approval of
the Bank's shareholders, (ii) violate any law, rule, regulation, order, writ or
judgment presently in effect having applicability to the Bank or any provision
of the Bank's charter or bylaws, (iii) result in a breach or constitute a
default under any indenture or loan or credit agreement or other material
agreement to which the Bank is a party or by which it is bound, (iv) require the
Bank to obtain any authorizations, consents or approvals, licenses, exemptions
from or filings or registrations with any person, party, entity, court,
executive or legislative body, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that the Bank has not
already obtained, or (v) result in the creation of any lien, encumbrance,
security interest, claim, setoff or charge upon the Assigned Rights.
(d) This Assignment Agreement and all other instruments and
documents executed and delivered by the Bank in connection herewith constitute
legal, valid and binding obligations of the Bank enforceable against it in
accordance with their respective terms.
(e) Except with regard to the Retained Rights and all other
rights and interests retained by the Bank herein, the Bank has not subordinated
or agreed to subordinate all or any portion of the Assigned Rights to any other
obligation of the Borrowers or Fill-Mor.
<PAGE>
7. Representations and Warranties of Verde. Verde hereby
represents and warrants to the Bank:
(a) In entering into this Assignment Agreement, Verde is
acting solely in his individual capacity, without partners or otherwise. Verde
has all requisite power and authority to execute and deliver, and to perform all
of his obligations under, this Assignment Agreement.
(b) The execution, delivery and performance by Verde of this
Assignment Agreement and all other instruments and documents executed and
delivered by Verde in connection herewith have been duly authorized and do not
and will not (i) require any consent or approval of any other person or entity
which have not been obtained, (ii) violate any law, rule, regulation, order,
writ or judgment presently in effect having applicability to any other agreement
to which Verde is a party, (iii) result in a breach or constitute a default
under any indenture or loan or credit agreement or other material agreement to
which Verde is a party or (iv) require any authorizations, consents or approvals
with any court or governmental department.
(c) This Assignment Agreement, and all other instruments and
documents executed and delivered by Verde in connection herewith, constitute
legal, valid and binding obligations of Verde enforceable against Verde in
accordance with their respective terms.
(d) Without implying that the Assigned Rights or any portion
thereof is a "security" within the meaning of any applicable federal or state
law relating to securities, (i) Verde is acquiring the Assigned Rights and any
Distributions received in respect thereof for his own account, and not with a
view to any distribution thereof which would violate applicable securities laws;
(ii) Verde agrees that he will not at any time sell or otherwise transfer, or
permit the sale of or other transfer of, the Assigned Rights or any
Distributions received in respect hereof other than in compliance with the
Securities Act of 1933 as amended (the "Securities Act"); and (iii) Verde is an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act.
(e) Verde acknowledges that Verde is a sophisticated buyer
with respect to the Assigned Rights and has adequate information concerning the
business and financial condition of the Borrowers, Fill-Mor and ARTRA to make an
informed decision regarding the purchase of the Assigned Rights and has
independently and without reliance upon the Bank whatsoever (except with respect
to the representations, warranties and covenants expressly contained herein) and
based on such information that Verde has deemed appropriate in his independent
judgment, made his own analysis and decision to enter into this Assignment
Agreement. Without limiting the representations, warranties and indemnities of
the Bank hereunder, Verde further acknowledges (i) that certain information
which may be pertinent to Verde's decision to purchase the Assigned Rights is
available to Verde and can be obtained from a variety of public sources, (ii)
that the consideration paid herein for the purchase of the Assigned Rights may
differ both in kind and amount from any distributions made pursuant to any
repayment by the Borrowers or Fill-Mor of the Agreements (and that such
distributions may consist solely of securities or other non-negotiable
instruments), (iii) that the transfer of the Assigned Rights by the Bank to
Verde is irrevocable and is without representation, recourse or warranty,
whether express or implied, of any kind or character by the Bank except as
expressly provided in this Assignment Agreement and (iv) that the Bank has
confidential information with respect to the Assigned Rights that it has not
delivered, and is not obligated to deliver, to Verde. Without limiting the
Bank's representations and warranties hereunder, Verde expressly releases the
Bank from any and all liabilities arising from Verde's inability or failure to
review such confidential information or any information that is publicly
available and from any other matter referred to in this Section 5(e).
<PAGE>
(f) Verde is not purchasing the Assigned Rights with any
monies invested by persons or entities protected under the United States
Employee Retirement Income Security Act of 1974, as amended.
(g) Verde acknowledges and agrees that he has no right or
interest in and to the Retained Rights and that the Bank may enforce its
Retained Rights and remedies against ARTRA under the Amended Settlement
Agreement independently of and without any notice or obligation to Verde or any
other person or entity.
8. Representations and Warranties of the Borrowers, Fill-Mor
and ARTRA. The Borrowers, Fill-Mor and ARTRA hereby represent and warrant to the
Bank:
(a) The Borrowers, Fill-Mor and ARTRA have all requisite power
and authority to execute and deliver, and to perform all of their obligations
under this Assignment Agreement and all instruments and other documents executed
and delivered by the Borrowers, Fill-Mor and ARTRA in connection herewith.
(b) The execution, delivery and performance by the Borrowers,
Fill-Mor and ARTRA of this Assignment Agreement and the execution, delivery and
performance by ARTRA of the Registration Agreement and Confession of Judgment
and all other instruments and documents executed and delivered by the Borrowers,
Fill-Mor and ARTRA in connection herewith have been duly authorized and do not
and will not (i) require any consent or approval of the Borrowers', Fill-Mor's
or ARTRA's partners or shareholders, as the case may be, which have not been
obtained, (ii) violate any law, rule, regulation, order, writ or judgment
presently in effect having applicability to the Borrowers, Fill-Mor or ARTRA or
any provision of (x) any partnership agreement to which the any of the
Borrowers, Fill-Mor or ARTRA is a party or (y) any of the Borrowers', Fill-Mor's
or ARTRA's charter or bylaws, (iii) result in a breach or constitute a default
under any indenture or loan or credit agreement or other material agreement to
which any of the Borrowers, Fill-Mor or ARTRA is a party or by which any of them
is bound or (iv) require any authorizations, consents or approvals with any
court or governmental department.
(c) This Assignment Agreement, and all other instruments and
documents executed and delivered by the Borrowers, Fill-Mor and ARTRA in
connection herewith, constitute legal, valid and binding obligations of the
Borrowers, Fill-Mor and ARTRA and are enforceable against the Borrowers,
Fill-Mor and ARTRA in accordance with their respective terms.
9. Survival of Representations and Warranties. The
representations, warranties, covenants and indemnities of the parties contained
herein shall survive the consummation of the transactions contemplated in this
Assignment Agreement.
10. The Bank's Duties; Further Assurances. (a) The Bank shall
have no duties or responsibilities except those expressly set forth in this
Assignment Agreement. The Bank shall not by reason of this Assignment Agreement
have a fiduciary relationship in respect of Verde, the Borrowers, Fill-Mor,
ARTRA or any other person or entity involved in the transaction described
herein. Nothing in this Assignment Agreement, express or implied, is intended to
or shall be construed so as to impose upon the Bank any obligation in respect of
this Assignment Agreement, the Amended Settlement Agreement, Agreements or the
Related Documents, except as expressly set forth herein or therein. The Bank
shall forward to Verde any notices it receives in connection with the Assigned
Rights; provided, however, the Bank shall have no liability whatsoever for
failure to forward any such notice.
<PAGE>
(b) The Bank shall deliver, as soon as practicably possible,
the physical collaterals of the Borrowers and Fill-Mor in its possession after
execution of this Assignment Agreement, Registration Agreement and Confession of
Judgment to Philip E. Ruben, Esq., counsel to the Borrowers and Fill-Mor, and
acting on behalf of Verde, at the address specified in Section 16 below.
(c) The Bank shall execute UCC and other necessary assignments
and terminations relating to the Assigned Rights as requested by Verde. It shall
be Verde's sole obligation to prepare and file all such assignments and
terminations at his own cost.
(d) Each party shall execute and deliver all further documents
or instruments and take such other actions reasonably requested by the other
party in order to effectuate the intent of this Assignment Agreement; provided,
however, that any actions taken by the Bank shall be at the sole cost and
expense of Verde, the Borrowers, Fill-Mor or ARTRA as the case may be.
11. Assignments. The Bank shall have the right to sell,
assign, transfer or participate the Retained Rights without the consent of
Verde, the Borrowers, Fill-Mor or ARTRA.
12. Costs and Expenses; Interest Accrued Prior to Closing
Date. The Borrowers, Fill-Mor and ARTRA shall be responsible for all costs,
expenses or disbursements with respect to this Assignment Agreement, the
Registration Agreement, the Confession of Judgment, the Agreements or Related
Documents attributable to the period prior to and following the Closing Date,
including the Bank's attorney's fees as provided in the Registration Agreement.
The Borrowers, Fill-Mor and ARTRA agree to pay the Bank promptly in immediately
available funds.
13. Governing Law. This Assignment Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
regard to conflicts of law principles.
14. Entire Agreement. This Assignment Agreement, the
Registration Agreement, Confession of Judgment and the other documents executed
in connection herewith set forth the entire agreement and understanding of the
parties hereto, and supersede all prior agreements and understandings between
the parties hereto with respect to the transactions contemplated hereby. This
Assignment Agreement shall be binding on, and inure to the benefit of, the
parties hereto and their successors and assigns.
15. Modifications. This Assignment Agreement may not be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
16. Notices. All notices between parties shall be in writing
and shall be served either personally, by certified mail, by overnight courier
service, or by telecopy.
All notices to the Bank shall be given at:
IBJ Schroder Bank & Trust Co.
One State Street
New York, NY 10004
Attention: Daniel Casher
<PAGE>
With a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attention: Richard S. Miller, Esq.
All notices to Verde shall be given at:
Alexander H. Verde
c/o Alex H. Verde & Sons
3939 N. Wilke Road
Arlington Heights, IL 60004
All notices to the Borrowers, Fill-Mor and ARTRA
shall be given at:
ARTRA Group, Inc.
500 N. Central Avenue
Northfield, IL 60093
With copies of all notices to Verde, the Borrowers,
Fill-Mor and ARTRA to:
Kwiatt, Silverman & Ruben, Ltd.
500 N. Central Ave.
Northfield, IL 60093
Attention: Philip E. Ruben, Esq.
All such notices or communication shall be deemed to have been given on (i) the
date received if delivered personally or by courier, (ii) the date of
transmission if transmitted by telecopy (if legible and complete upon receipt),
or (iii) three (3) business days after the date of posting if transmitted by
mail. Any party hereto may change the address to which notice or other
communications to it are to be delivered or mailed by written notice to the
other parties hereto.
17. Severability. If any provision of this Assignment
Agreement shall for any reason be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof, but
this Assignment Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.
18. Counterparts. This Assignment Agreement may be executed in
counterparts each of which when so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
19. Jurisdiction; Immunities; Waiver of Jury Trial. Each of
the Borrowers, Fill-Mor and ARTRA hereby irrevocably submits to the jurisdiction
of any New York State or United States Federal Court sitting in the Southern
District of New York over any action or proceeding arising out of or relating to
this Assignment Agreement and the payments, obligations, covenants,
undertakings, guarantees and collateral interests agreed to herein, and any
action or proceeding arising out of or relating to the Assignment Agreement,
Registration Agreement, Amended Settlement Agreement, or Related Documents. Each
of the Borrowers, Fill-Mor and ARTRA hereby irrevocably agrees that all claims
in respect of such actions or proceedings may be heard and determined in such
New York State or Federal court. Each of the Borrowers, Fill-Mor and ARTRA
irrevocably designates and appoints CT Corporation as its agent to receive on
its behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by
<PAGE>
each of the Borrowers, Fill-Mor and ARTRA to be effective and binding service in
every respect. A copy of any such process so served shall be mailed by certified
mail, return receipt requested, to each of the Borrowers, Fill-Mor and ARTRA at
the addresses specified in Section 16 above. Each of the Borrowers, Fill-Mor and
ARTRA agrees that a final judgment in any such action or proceeding (for which
all appeal periods have expired) shall be conclusive and may be enforced in any
jurisdiction by suit on the judgment or in any other manner provided by law.
Each of the Borrowers, Fill-Mor and ARTRA further waives any objection to venue
in such state on the basis of forum non conveniens.
The Bank agrees that any action brought against Verde arising
out of or relating to the Assignment Agreement shall be brought only in Illinois
State or United States Federal District Court sitting in the Northern District
of Illinois. Verde hereby irrevocably agrees that all claims in respect of such
actions or proceedings may be heard and determined in such Illinois State or
Federal court. Verde irrevocably designates and appoints CT Corporation and
Philip E. Ruben, Esq. as his agents to receive on his behalf service of all
process in any such proceedings in any such court, such service on either CT
Corporation or Philip E. Ruben, Esq. being hereby acknowledged by Verde to be
effective and binding service in every respect. A copy of any such process so
served shall be mailed by certified mail, return receipt requested, to Verde at
the address specified in Section 16 above. Verde agrees that a final judgment in
any such action or proceeding (for which all appeal periods have expired) shall
be conclusive and may be enforced in any jurisdiction by suit on the judgment or
in any other manner provided by law.
Each of the Borrowers, Fill-Mor, ARTRA and Verde further
agrees that any action or proceeding brought against the Bank arising out of or
relating to the Assignment Agreement, Registration Agreement, Amended Settlement
Agreement and any obligation, guarantee, or undertaking issued in connection
therewith shall be brought only in New York State or United States Federal Court
sitting in the Southern District of New York.
Nothing in this Section 19 shall affect the right of the Bank
to serve legal process in any other manner permitted by law or affect the right
of the Bank to bring any action or proceeding against any of the Borrowers,
Fill-Mor, ARTRA or Verde or any of their respective properties in the courts of
any other jurisdictions.
To the extent that any or all of the Borrowers, Fill-Mor,
ARTRA or Verde has or hereafter may acquire any immunity from jurisdiction of
any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, each of the Borrowers,
Fill-Mor, ARTRA and Verde hereby irrevocably waives such immunity in respect of
its or his respective obligations, undertaking and guarantees entered into under
or in connection with this Assignment Agreement.
EACH OF THE BORROWERS, FILL-MOR, ARTRA AND VERDE, WITH THE
ADVICE OF COUNSEL, WAIVES ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS ASSIGNMENT AGREEMENT AND THE OBLIGATIONS,
UNDERTAKINGS AND GUARANTEES AGREED TO HEREUNDER AND ARISING OUT OF OR RELATING
TO THE REGISTRATION AGREEMENT, AMENDED SETTLEMENT AGREEMENT, AGREEMENTS, RELATED
DOCUMENTS AND OTHER LOAN DOCUMENTS AND THE FILL-MOR CREDIT AGREEMENT, INCLUDING
BUT NOT LIMITED TO ALL NOTES, MORTGAGES, SECURITY AGREEMENTS, PLEDGE AGREEMENTS
AND LEASEHOLD AGREEMENTS.
20. Confidentiality of Terms. The Purchase Price and the basis
upon which it is calculated shall remain confidential and shall not be disclosed
by any party without the written consent of the other parties hereto, except to
the extent such disclosure is required by applicable law. In the event
disclosure is ordered by a court of competent jurisdiction, the parties shall
request that such disclosure be made in camera and kept under seal of the court.
<PAGE>
21. Indemnity. (a) Verde agrees to indemnify the Bank and its
officers, directors, trustees, employees, agents and controlling persons
(collectively, the "Bank Indemnities") against and hold the Bank Indemnities
harmless from any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements, including
reasonable attorneys fees and disbursements (collectively, "Liabilities") which
the Bank Indemnities shall incur or suffer as a result of or arising from or
relating to the breach of a representation, warranty or covenant of Verde
contained herein.
(b) The Bank agrees to indemnify Verde against and hold Verde
harmless from any and all Liabilities which Verde shall incur or suffer solely
as a result of or arising from or relating to the breach of a representation
warranty or covenant of the Bank contained herein.
(c) The Borrowers, Fill-Mor and ARTRA agree to indemnify the
Bank Indemnities against and hold the Bank Indemnities harmless from any and all
Liabilities which the Bank Indemnities shall incur or suffer solely as a result
of or arising from or relating to the breach of a representation, warranty or
covenant of the Borrowers, Fill-Mor or ARTRA contained herein.
IN WITNESS WHEREOF, the undersigned have duly executed this
Assignment Agreement as of the date first above written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
THE LORI CORPORATION
By:_________________________
Name: Austin Iodice
Title: President
An Authorized Officer
LAWRENCE JEWELRY CO.
By:___________________________
Name: Austin Iodice
Title: Chairman
An Authorized Officer
LAWRENCE JEWELRY CORPORATION
By:_________________________
Name: Austin Iodice
Title: Chairman
An Authorized Officer
NEW DIMENSIONS ACCESSORIES, LTD.
By:___________________________
Name: Austin Iodice
Title: Chairman
An Authorized Officer
ROSECRAFT, INC.
By:___________________________
Name: Austin Iodice
Title: Chairman
An Authorized Officer
FILL-MOR HOLDINGS, INC.
By:___________________________
Name: Peter R. Harvey
Title: Vice President
An Authorized Officer
<PAGE>
ARTRA GROUP, Incorporated
By:___________________________
Name: Peter R. Harvey
Title: President
An Authorized Officer
IBJ SCHRODER BANK & TRUST COMPANY
By:___________________________
Name: Daniel Casher
Title: Vice President
An Authorized Officer
ALEXANDER H. VERDE
By:___________________________
Name: Alexander H. Verde
EXHIBT 10.2
REGISTRATION AND SETTLEMENT AGREEMENT
THIS REGISTRATION AND SETTLEMENT AGREEMENT dated as of March
31, 1995 (the "Registration Agreement") by and between ARTRA GROUP Incorporated,
a Pennsylvania corporation ("ARTRA") and IBJ Schroder Bank & Trust Company, A
New York banking corporation (together with its successors and assigns, the
"Bank").
WHEREAS, ARTRA, certain of its affiliates (collectively, the
"ARTRA Group") and the Bank are parties to certain notes, agreements and
guarantees (hereinafter collectively referred to as the "Agreements");
WHEREAS, the ARTRA Group and the Bank agreed to compromise and
settle the Obligations of the ARTRA Group under the Agreements (as such
Obligations are defined within the Agreements) for an aggregate amount
substantially less than the amounts due and owing under the Agreements pursuant
to the Settlement Agreement dated as of August 18, 1994 by and among the ARTRA
Group and the Bank (the "Settlement Agreement");
WHEREAS, upon the request of the ARTRA Group, the Bank agreed
to again forbear from enforcing its rights and remedies under each of the
Agreements and other related documents pursuant to that certain Amended
Settlement Agreement dated December 23, 1994 (the "Amended Settlement
Agreement");
WHEREAS, pursuant to the Amended Settlement Agreement, ARTRA
agreed to register the 100,000 shares of ARTRA stock held in the name of the
Bank (as defined in the Settlement Agreement, the "ARTRA Shares") in connection
with the Settlement Agreement;
WHEREAS, pursuant to the Amended Settlement Agreement, the
ARTRA Group agreed to pay to the Bank an additional Seven Hundred Fifty Thousand
Dollars ($750,000.00), plus interest at the rate of 12% per annum (calculated on
a 360 day year), no later than March 31, 1995;
WHEREAS, ARTRA and the Bank desire to discharge any further
financial obligations owed by the ARTRA Group to the Bank under the Agreements,
the Settlement Agreement, the Amended Settlement Agreement and all other related
documents;
WHEREAS, ARTRA and the Bank desire that ARTRA provide
registration for the ARTRA Shares, and to cause such shares to be freely
tradable without restriction of any kind in accordance with Section 2.3(b) of
the Amended Settlement Agreement. <PAGE>
NOW, THEREFORE, in consideration of the promises and the
mutual agreements contained herein, the undersigned hereby agree as follows:
1. Registration of ARTRA Shares. On or before July 31, 1995,
ARTRA shall cause the ARTRA Shares to be registered and approved by all
necessary authorities and agencies to enable all such shares to be freely
tradable and without restriction of any kind. ARTRA shall bear all costs and
expenses arising out of or relating to the registration and issuance of the
ARTRA Shares. The Bank shall have no liability of any kind, nature or
description concerning preparation, filing or dissemination of the necessary
documents or for the contents thereof. Within 5 days of registration of the
ARTRA Shares, ARTRA shall forward to the Bank $10,000.00 in readily available
funds as reimbursement for costs, fees and expenses incurred by the Bank in
connection with this Registration Agreement and the Assignment Agreement among
ARTRA, The Lori Corporation, Lawrence Jewelry Co., Lawrence Jewelry Corp., New
Dimensions Accessories, Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., Alexander
Verde and the Bank, executed concurrently with this Registration Agreement.
ARTRA shall promptly provide to the Bank any and all amendments to the Form S-1
and any and all correspondence between ARTRA and the Securities and Exchange
Commission relating to the Form S-1;
2. ARTRA Shares Put. In the event the ARTRA Shares are not
registered by July 31, 1995 as contemplated in Paragraph 1 above, the Bank, at
its sole option, shall have the right to require ARTRA to purchase the ARTRA
Shares on July 31, 1995 or at any time thereafter at the discretion of the Bank
for an exercise price equal to $500,000.00 (the "ARTRA Shares Put"). The ARTRA
Shares Put shall be exercised upon issuance by the Bank of written demand for
payment ("Written Demand"). ARTRA will deliver readily available funds on the
third business day after receipt of the Bank's Written Demand. Promptly
following receipt by the Bank of payment in full by ARTRA of the amount required
to be paid under this ARTRA Shares Put, the Bank shall deliver the ARTRA Shares
to ARTRA. Prior to the Bank's execution of the ARTRA Shares Put, nothing in this
Paragraph 2 or otherwise precludes the Bank from selling all or any of the ARTRA
Shares at any time before or after July 31, 1995, to any person that the Bank,
in the sole exercise of its discretion and judgment, deems to be an appropriate
purchaser for an appropriate price. There shall no restrictions on the Bank's
ability to market or sell the ARTRA shares.
3. Confession of Judgment. If for any reason ARTRA fails to
perform its obligations under the ARTRA Shares Put, ARTRA hereby unconditionally
and irrevocably authorizes any attorney of any court of record to (a) appear for
it in such court, in term time or vacation, at any time after the date hereof,
(b) confess a judgment against ARTRA, without process or notice to ARTRA, in
favor of the Bank for $500,000.00, plus interest of $5,000.00, and reasonable
costs of collection, including attorney's fees, of $5,000.00 plus disbursements,
(c) waive and release all errors which may intervene in any such proceedings and
consent to immediate execution upon such judgment. By execution of this
Registration Agreement, ARTRA hereby ratifies and confirms all that said
attorney may do pursuant to the provisions of the previous sentences.
Notwithstanding the fact that the Complaint for enforcement of the Confession of
Judgment has not been executed concurrently with execution of the Confession of
Judgment, ARTRA waives any and all and releases all defenses, claims, set-offs
or counterclaims whatsoever it may have to enforcement of the Confession of
Judgment or the Registration Agreement and will not seek to open, appeal or
dispute the Confession of Judgment pursuant to Illinois Supreme Court Rule 276
or otherwise. ARTRA agrees that concurrently with the execution of this
Registration Agreement, its attorney will execute a Confession of Judgment in
the form substantially the same as Exhibit "A" attached hereto and made a part
hereof (the "Confession of Judgment"). ARTRA agrees that it shall not in any way
defend against the Bank's enforcement of the Confession of Judgment. ARTRA
further agrees to execute and deliver to the Bank immediately upon the Bank's
request any further documents as may be necessary to effectuate and enforce the
Confession of Judgment. ARTRA hereby irrevocably grants the Bank power of
attorney, coupled with an interest, to take all such action and perform all such
acts in ARTRA's name and in its behalf as ARTRA's attorney that the Bank may
deem necessary or advisable in its sole discretion, fully to all intents and
purposes as ARTRA might or could do if personally present, enforce the
Confession of Judgment, including, but not limited to, the Confession of
Judgment and duplicates thereof.
<PAGE>
4. This Agreement shall be binding upon, and shall inure to
the benefit of, ARTRA, the Bank and their respective successors and assigns.
5. Representations and Warranties of ARTRA. ARTRA hereby
represents and warrants to the Bank:
(a) ARTRA has all requisite power and authority to execute and
deliver, and to perform all of their obligations under this Registration
Agreement and all instruments and other documents executed and delivered by
ARTRA in connection herewith.
(b) The execution, delivery and performance by ARTRA of this
Registration Agreement, Confession of Judgment and all other instruments and
documents executed and delivered by ARTRA in connection herewith have been duly
authorized and do not and will not (i) require any consent or approval of
ARTRA's partners or shareholders, as the case may be, which have not been
obtained, (ii) violate any law, rule, regulation, order, writ or judgment
presently in effect having applicability to ARTRA or any provision of (x) any
partnership agreement to which ARTRA is a party or (y) ARTRA's charter or
bylaws, (iii) result in a breach or constitute a default under any indenture or
loan or credit agreement or other material agreement to which ARTRA is a party
or by which it is bound or (iv) require any authorizations, consents or
approvals with any court or governmental department.
(c) This Registration Agreement and Confession of Judgment,
and all other instruments and documents executed and delivered by ARTRA in
connection herewith, constitute legal, valid and binding obligations of ARTRA
and are enforceable against ARTRA in accordance with their respective terms.
6. Assignments. The Bank shall have the right to sell, assign,
transfer or participate the Retained Rights without the consent of Verde, the
Borrowers, Fill-Mor or ARTRA.
7. Governing Law. This Registration Agreement shall be
governed by and interpreted in accordance with the laws of the State of New York
without regard to conflicts of law principles.
8. Entire Agreement. This Registration Agreement, the
Confession of Judgment and the other documents executed in connection herewith
set forth the entire agreement and understanding of the parties hereto, and
supersede all prior agreements and understandings between the parties hereto
with respect to the transactions contemplated hereby. This Registration
Agreement shall be binding on, and inure to the benefit of, the parties hereto
and their successors and assigns.
9. Modifications. This Registration Agreement may not be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
10. Notices. All notices between parties shall be in writing
and shall be served either personally, by certified mail, by overnight courier
service, or by telecopy.
All notices to the Bank shall be given at:
IBJ Schroder Bank & Trust Co.
One State Street
New York, NY 10004
Attention: Daniel Casher
With a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attention: Richard S. Miller, Esq.
All notices to ARTRA shall be given at:
ARTRA Group, Inc.
500 N. Central Ave.
Northfield, IL 60093
With a copy to:
Kwiatt, Silverman & Ruben, Ltd.
500 N. Central Ave.
Northfield, IL 60093
Attention: Philip E. Ruben, Esq.
All such notices or communication shall be deemed to have been
given on (i) the date received if delivered personally or by courier, (ii) the
date of transmission if transmitted by telecopy (if legible and complete upon
receipt), or (iii) three (3) business days after the date of posting if
transmitted by mail. Any party hereto may change the address to which notice or
other communications to it are to be delivered or mailed by written notice to
the other parties hereto. <PAGE>
11. Severability. If any provision of this Registration Agreement shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this
Registration Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.
12. Counterparts. This Registration Agreement may be executed
in counterparts each of which when so executed shall be an original, but all
such counterparts shall together constitute but one and the same instrument.
13. Jurisdiction; Immunities; Waiver of Jury Trial. ARTRA
hereby irrevocably submits to the jurisdiction of any New York State or United
States Federal Court sitting in the Southern District of New York over any
action or proceeding arising out of or relating to this Registration Agreement.
ARTRA hereby irrevocably agrees that all claims in respect of such actions or
proceedings may be heard and determined in such New York State or Federal court.
ARTRA irrevocably designates and appoints CT Corporation as its agent to receive
on its behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by ARTRA to be effective and binding
service in every respect. A copy of any such process so served shall be mailed
by certified mail, return receipt requested, to ARTRA at the address specified
in Paragraph 9 above. ARTRA agrees that a final judgment in any such action or
proceeding (for which all appeal periods have expired) shall be conclusive and
may be enforced in any jurisdiction by suit on the judgment or in any other
manner provided by law. ARTRA further waives any objection to venue in such
state on the basis of forum non conveniens. ARTRA further agrees that any action
or proceeding brought against the Bank arising out of or relating to the
Registration Agreement and any obligation, guarantee, or undertaking issued in
connection therewith shall be brought only in New York State or United States
Federal Court sitting in the Southern District of New York.
Nothing in this paragraph 12 shall affect (i) the right of the
Bank to serve legal process in any other manner permitted by law or affect the
right of the Bank to bring any action or proceeding against ARTRA or any of its
respective properties in the courts of any other jurisdictions; (ii) the rights
previously agreed to in any preexisting agreement, guarantee or pledge executed
by any of ARTRA with or in favor of the Bank regarding the subject matter of
this paragraph 12; or (iii) the acknowledgments, waivers of defenses and
releases issued by ARTRA in favor of the Bank and the agreement of ARTRA to
turnover to and give peaceful possession of the collateral now or previously
granted to the Bank.
To the extent that ARTRA has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, ARTRA
hereby irrevocably waives such immunity in respect of its obligations,
undertaking and guarantees entered into under or in connection with this
Registration Agreement.
ARTRA, WITH THE ADVICE OF COUNSEL, WAIVES ITS RIGHT TO A JURY
TRIAL IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REGISTRATION AGREEMENT OR THE CONFESSION OF JUDGMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration and Settlement Agreement as of the date first above written.
ARTRA GROUP INCORPORATED
By:___________________________
Name: Peter R. Harvey
Title: President
An Authorized Officer
Executed in Northfield, Illinois
Sworn to before me this
7th day of April, 1995
Notary Public
IBJ SCHRODER BANK & TRUST
COMPANY
By:___________________________
Name: Daniel Casher
Title: Vice President
An Authorized Officer
Executed in New York, New York
Sworn to before me this
7th day of April, 1995
Notary Public
EXHIBIT 11
ARTRA GROUP INCORPORATED
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
for the years ended December 29, 1994, December 30, 1993 and December 31, 1992
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
Line 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Weighted average number of shares of common stock
outstanding during the period 5,702 4,823 4,372
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares 85
------- ------- -------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period 5,702 4,908 4,372
======= ======= ======
EARNINGS (LOSS)
4 Loss from continuing operations $(29,435) $ (8,543) $(38,302)
5 Less dividends applicable to redeemable preferred stock (516) (471) (431)
6 Less redeemable common stock accretion (309) (243) (511)
-------- -------- --------
7 Amount for per share computation $(30,260) $ (9,257) $(39,244)
======== ======== ========
8 Loss before extraordinary credit $(29,435) $ (8,543) $(37,972)
9 Less dividends applicable to redeemable preferred stock (516) (471) (431)
10 Less redeemable common stock accretion (309) (243) (511)
-------- -------- --------
11 Amount for per share computation $(30,260) $ (9,257) $(38,914)
======== ======== ========
12 Net earnings (loss) $(20,470) $ 13,514 $(37,972)
13 Less dividends applicable to redeemable preferred stock (516) (471) (431)
14 Less redeemable common stock accretion (309) (243) (511)
-------- -------- --------
15 Amount for per share computation $(21,295) $ 12,800 $(38,914)
======== ======== ========
PER SHARE AMOUNTS
Loss from continuing operations
(line 7 / line 3) $ (5.30) $ (1.88) $ (8.98)
======== ======== ========
Loss before extraordinary credit
(line 11 / line 3) $ (5.30) (1.88) (8.90)
======== ======== ========
Net loss
(line 15 / line 3) $ (3.73) $ 2.61 $ (8.90)
======== ======== ========
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss),
less redeemable preferred stock dividends and redeemable common stock
accretion, by the weighted average number of shares of common stock and
common stock equivalents (redeemable common stock, stock options and
warrants), unless anti-dilutive, outstanding during the period. Fully
diluted earnings (loss) per share are not presented since the result is
equivalent to primary earnings (loss) per share.
>
EXHIBIT 22
SUBSIDIARIES
(As of April 12, 1995)
ARTRA GROUP INCORPORATED (1)
|
|
|
A. G. Fill-Mor ARTRA ARTRA BCA
Holding Corp. (2) Holding Inc (2) Resources Subsidiary Inc. Holdings Inc.
100 % Corp. (2) 100 % (3) 100 %(2)
| 100 % |
| Bagcraft Corporation
| of America (2)
| 100 %
The Lori |
Corporation (2) Graphics, Inc. (3)
64.3 % 100 %
|
|
|
New Rosecraft, Inc. (1) Lawrence Jewelry
Dimensions* 100 % Corporation (1)
Accessories, Ltd.(4) 100 %
100 %
(1) Pennsylvania Corporation (3) lllinois Corporation
(2) Delaware Corporation (4) New York Corporation
* Effective December 27, 1994 New Dimensions ceased operations.
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
ARTRA GROUP Incorporated on Form S-8 (File No. 2-61375) of our report, which
includes an explanatory paragraph referring to an uncertainty concerning the
Company's ability to continue as a going concern, dated April 12, 1995 on our
audits of the consolidated financial statements and financial statement
schedules of ARTRA GROUP Incorporated as of December 29, 1994 and December 30,
1993, and for each of the three fiscal years in the period ended December 29,
1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 29, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-29-1994
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-29-1994
<EXCHANGE-RATE> 1.000
<CASH> 2,070
<SECURITIES> 0
<RECEIVABLES> 15,361
<ALLOWANCES> 1,654
<INVENTORY> 20,268
<CURRENT-ASSETS> 38,537
<PP&E> 48,150
<DEPRECIATION> 17,110
<TOTAL-ASSETS> 93,429
<CURRENT-LIABILITIES> 98,989
<BONDS> 0
<COMMON> 5,052
17,170
0
<OTHER-SE> (68,812)
<TOTAL-LIABILITY-AND-EQUITY> 93,429
<SALES> 152,115
<TOTAL-REVENUES> 152,115
<CGS> 119,081
<TOTAL-COSTS> 119,081
<OTHER-EXPENSES> 51,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,655
<INCOME-PRETAX> (29,352)
<INCOME-TAX> 83
<INCOME-CONTINUING> (29,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 8,965
<CHANGES> 0
<NET-INCOME> (20,470)
<EPS-PRIMARY> (3.73)
<EPS-DILUTED> 0
</TABLE>