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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Central Avenue, Northfield, IL 60093
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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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 29, 1996: $34,356,000.
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 29, 1996
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Common stock, without par value 7,477,418
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Business
At December 29, 1994 and, through September 1995, ARTRA Group Incorporated, a
Pennsylvania corporation incorporated in 1933, and its majority-owned
subsidiaries (hereinafter "ARTRA" or the "Company") principally operated 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.
During 1995, the Company's packaging products business was conducted by the
wholly-owned Bagcraft Corporation of America ("Bagcraft") subsidiary and its
then wholly-owned subsidiary Arcar Graphics, Inc. ("Arcar") acquired effective
April 9, 1994. As discussed in Note 3 to the Company's consolidated financial
statements, effective October 26, 1995, Bagcraft completed the sale of the
business assets, subject to the buyer's assumption of certain liabilities, of
Arcar.
During 1995, the Company's fashion costume jewelry business was conducted by its
then majority-owned subsidiary The Lori Corporation ("Lori") through its
wholly-owned subsidiaries:
Rosecraft, Inc. ("Rosecraft")
Lawrence Jewelry Corporation ("Lawrence")
In recent years, Lori's fashion costume jewelry operations had experienced a
pattern of significantly lower sales levels and related operating losses
primarily due to a shift in the buying patterns of its major customers (i.e.
certain mass merchandisers) from participation in Lori's service program to
purchases of costume jewelry and accessories directly from manufacturers and due
to a continued unfavorable retail environment. Accordingly, in September, 1995,
Lori adopted a plan to discontinue its fashion costume jewelry business as
discussed in Note 3 to the Company's consolidated financial statements.
As discussed in Note 3 to the Company's consolidated financial statements, on
October 17, 1995, Lori completed the acquisition of one hundred percent of the
capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global
Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. for consideration of approximately $6.4 million,
net of cash acquired, consisting of cash of approximately $5.6 million and
500,000 shares of Lori common stock issued as consideration for various fees and
guarantees associated with the transaction. Global provides telecommunications
and computer technical staffing services worldwide to Fortune 500 companies and
maintains an extensive, global database of technical specialists, with an
emphasis on wireless communications capability. The acquisition of Global was
completed on October 17, 1995. In connection with the re-focus of its business,
Lori changed its name to COMFORCE Corporation ("COMFORCE"). Additionally, in
conjunction with the Global acquisition, ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation.
Effective July 4, 1995, Lori and ARTRA entered into employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. After the issuance of the
Lori common shares, plus the effects of the issuance of Lori common shares sold
by private placements and other Lori common shares issued in conjunction with
the Global acquisition, ARTRA's common stock ownership interest in COMFORCE was
reduced to approximately 25% at December 28, 1995.
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.
<PAGE>
Bagcraft is a full-service supplier complete with its own 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 in 1994) 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 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 1995.
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 32% of Bagcraft's 1995 sales. Bakeries account for
approximately 60% of the paper division's sales which also include supermarkets
<PAGE>
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 Walmart,
Walgreen's, Albertson's, Dunkin' Donuts and Boston Market. 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 47% of Bagcraft's
1995 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.
Specialty Bag Division
The Specialty Bag Division represented approximately 15% of Bagcraft's 1995
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 5% of Bagcraft's
1995 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
<PAGE>
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.
In recent years, Bagcraft has experienced a decline in its domestic microwave
popcorn business due to the acquisition of one of its major customers by a
company with its own packaging ability. Accordingly, at December 31, 1995,
Bagcraft incurred a charge to operations of approximately $1,500,000 to
write-down the carrying value of idle machinery and equipment dedicated to the
production of microwave popcorn products.
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 included printers of tags and labels, flexible
packaging manufacturers and polycoated cup manufacturers. As discussed in Note 3
to the Company's consolidated financial statements, effective October 26, 1995,
Bagcraft completed the sale of the business assets, subject to the buyer's
assumption of certain liabilities, of Arcar.
Employees
At December 28, 1995, the Company employed approximately 1,000 persons. 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>
Location General Description Ownership
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<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 2006
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
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<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 a ten-year option to renew at the current
market rate
(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 in 1994. The Forest Park, Georgia
facility has been retained as a distribution center.
</FN>
</TABLE>
<PAGE>
Item 3. Legal Proceedings
As discussed in Note 7 to the Company's 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
cash of $75,000,000, a 27.5% common stock interest in Emerald andEmerald junior
debentures.
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.
Envirodyne's plan of reorganization did not provide for any distribution 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 damages for the lost value of its investment in Emerald
common stock and Emerald Junior Debentures.
<PAGE>
On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court
Action for breach of fiduciary duty, fraudulent misrepresentation, negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State Court's dismissal of the causes of action in
the Third Amended Complaint. Defendant Kelly was dismissed with prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.
On or about March 1, 1996, DPK brought a motion for summary judgment as to
ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is
currently pending.
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 was reflected in ARTRA's condensed consolidated balance
sheet at December 29, 1994 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 was reflected in ARTRA's consolidated balance sheet at
December 29, 1994 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 was 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 was 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 June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a
subordinated note in the principal amount of $640,000 payable June 30, 2001.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 28, 1995 and December 29,
1994, the Company had accrued $1,800,000 and $1,500,000, 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.
<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 its liability costs in connection with the Cross Brothers case. Bagcraft
was subsequently reimbursed by its insurers for its liability costs incurred in
connection with the EPA claim. With regard to the state action, Bagcraft is
participating in settlement discussions with the State and thirteen other
potential responsible parties to resolve all claims associated with the State.
The maximum state claim is $1.1 million for all participants. Bagcraft has
accrued $120,000 related to the State action in the Company's consolidated
financial statements at December 28, 1995.
Bagcraft was listed as a de minimis contributor at the American Chemical
Services, Inc. off-site disposal location in Griffith, Indiana and the Duane
Marine off-site disposal location in Perth Amboy, New Jersey. These sites are
included in the EPA's National Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.
Bagcraft has been notified by the Federal Environment Protection Agency that it
is a potentially responsible party for the disposal of hazardous substances at a
site on Ninth Avenue in Gary, Indiana. Bagcraft has no records indicating that
it deposited hazardous substances at this site and intends to vigorously defend
itself in this matter.
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 subsidiary Fill-Mor Holding, Inc.
("Fill-Mor"). 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.
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.
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
<PAGE>
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 to 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 $350,000 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.
In a case titled Illinois Environmental Protection Agency v. NL Industries,
Inc., ARTRA GROUP Incorporated, et al, the Illinois Environmental Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.
The EPA has identified ARTRA GROUP Incorporated as a potentially responsible
party in an action involving the former manufacturing facility. The EPA is
currently investigating the site to determine the extent and type of
contamination, if any. 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, 1996 and
December 28, 1995, 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:
1995 1994
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High Low High Low
------------ ------------ ------------ ----------
First quarter 5 - 3/4 3 - 1/2 7 - 3/4 5 - 1/8
Second quarter 5 - 1/2 3 - 1/4 6 - 1/4 4 - 3/8
Third quarter 6 4 - 1/8 7 - 1/4 5
Fourth quarter 5 - 1/8 3 - 5/8 5 - 3/8 3 - 3/4
No dividends were paid in 1995 or 1994 nor are any anticipated in 1996. The
Company was prohibited from paying dividends to its stockholders pursuant to the
terms of its bank loan agreement that was discharged in February 1996. In
addition, the Company's operating subsidiaries historically have been prohibited
from or restricted in paying dividends or making distributions under their
respective debt agreements (except for limited overhead allocations or payments
in accordance with tax sharing agreements with the parent entity). Accordingly,
current restrictions or limitations on the Company's Bagcraft subsidiary in
upstreaming payments in 1996 and beyond 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 Bagcraft subsidiary.
<PAGE>
Item 6. Selected Financial Data.
Following is a consolidated summary of selected financial data of the Company
for each of the five fiscal years in the period ended December 28, 1995. The
information for the year ended December 29, 1994 has been reclassified to
reflect the operations of Arcar Graphics, Inc. as discontinued operations. The
sale of Arcar (acquired effective April 9, 1994) was completed on October 26,
1995. Certain selected financial data for each of the four fiscal years in the
period ended December 29, 1994 has been reclassified to reflect the
discontinuance of the Company's fashion costume jewelry business effective
September 30, 1995 conducted by the former majority-owned subsidiary COMFORCE
Corporation, formerly The Lori Corporation. In October 1995, due to additional
issuances of COMFORCE common stock, the Company's interest in COMFORCE was
reduced to approximately 25% and the investment in COMFORCE was accounted for
under the equity method during the fourth quarter of 1995. See notes 3 and 6 to
the Company's consolidated financial statements for a further discussion of the
Company's investment in COMFORCE and its results of operations.
<TABLE>
<CAPTION>
Fiscal Year Ended (D)
-----------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 121,879 $ 111,837 $ 113,584 $ 121,084 $ 123,906
Loss from
continuing operations (16,943) (13,529) (8,327) (4,118) (11,191)
Earnings (loss) from
discontinued operations (A) 10 (15,906) (216) (33,854) (1,970)
Extraordinary credits (B) 14,030 8,965 22,057 -- --
Net earnings (loss) (2,903) (20,470) 13,514 (37,972) (13,161)
Earnings (loss) per share:
Continuing operations (2.69) (2.56) (1.84) (1.16) (2.87)
Discontinued operations -- (2.74) (.04) (7.74) (.49)
Extraordinary credits 2.06 1.57 4.49 -- --
Net earnings (loss) (.63) (3.73) 2.61 (8.90) (3.36)
Total assets (C) 77,949 93,429 92,774 98,731 126,277
Long-term debt 34,113 19,673 29,264 13,802 57,296
Debt subsequently discharged -- 9,750 -- -- --
Liabilities subject
to compromise -- -- -- 41,500 --
Cash dividends -- -- -- -- --
</TABLE>
<PAGE>
(A) The loss from discontinued operations for the year ended December 28,
1995 includes a charge to operations of $6,430,000 to write-off the
remaining goodwill of the Lori's fashion costume jewelry operations
effective June 29, 1995, a provision of $1,000,000 for loss on disposal
of the Lori's fashion costume jewelry operations and a gain on sale of
Bagcraft's Arcar subsidiary of $8,483,000. The loss from discontinued
operations for the year ended December 31, 1994 includes a charge to
operations of $10,800,000 representing a write-off of New Dimensions
goodwill. The loss from discontinued 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) The 1995 and 1994 extraordinary credits represent gains from net
discharge of indebtedness under terms of a debt settlement agreements
with banks. The 1993 extraordinary credit represents a gain from a net
discharge of indebtedness due to the reorganization of Lori's former New
Dimensions subsidiary. See Note 8 to the Company's consolidated
financial statements.
(C) As partial consideration for a debt settlement agreement, in December,
1994 the Lori's bank lender received all of the assets of the New
Dimensions subsidiary. See Note 8 to the Company's consolidated
financial statements.
(D) Effective in 1993, the Company adopted a 52/53 week fiscal year ending
the last Thursday of December .
<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
Arcar
As discussed in Note 3 to the Company's consolidated financial statements,
effective April 8, 1994, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of Arcar, a manufacturer and
distributor of waterbase inks, for consideration of $10,264,000 consisting of
cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The
acquisition of Arcar was accounted for by the purchase method and, accordingly,
the assets and liabilities of Arcar were included in ARTRA's financial
statements at their estimated fair market value at the date of acquisition.
Effective October 26, 1995, Bagcraft sold the business assets, subject to the
buyer's assumption of certain liabilities, of Arcar for cash of approximately
$20,300,000, resulting in a net gain of $8,483,000. The net proceeds, after
extinguishment of certain Arcar debt obligations, of approximately $10,400,000,
were used to reduce Bagcraft debt obligations.
Lori/COMFORCE
In September, 1995, Lori adopted a plan to discontinue its fashion costume
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion costume jewelry business.
Effective October 17, 1995, Lori acquired one hundred percent of the
capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global
Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. for consideration of approximately $6.4 million,
net of cash acquired, consisting of cash of approximately $5.6 million and
500,000 shares of Lori common stock issued as consideration for various fees and
guarantees associated with the transaction. The cash consideration included net
cash payments to the selling shareholders of approximately $5.2 million. The
500,000 shares of Lori common stock issued as consideration for the Global
transaction included 150,000 shares issued to Peter R. Harvey, then a director
of Lori and currently the president/director of ARTRA and 100,000 shares issued
to ARTRA for their guarantee to the selling shareholder of the payment of the
Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA
are subject to approval by the issuer's shareholders. Global provides
telecommunications and computer technical staffing services worldwide to Fortune
500 companies and maintains an extensive, global database of technical
specialists, with an emphasis on wireless communications capability. The
acquisition of Global was funded principally by private placements of
approximately 1,950,000 shares of Lori common stock at $3.00 per share (total
proceeds of approximately $5,800,000) plus detachable warrants to purchase
approximately 970,000 shares of Lori common stock at $3.375 per share that
expire five years from the date of issue. In connection with the re-focus of its
business, Lori changed its name to COMFORCE Corporation. Additionally, in
conjunction with the Global acquisition, ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation.
Effective July 4, 1995, Lori and ARTRA entered into employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. After the issuance of the
Lori common shares, plus the effects of the issuance of Lori common shares sold
by private placements and other Lori common shares issued in conjunction with
the Global acquisition, ARTRA's common stock ownership interest in COMFORCE
common stock was reduced to approximately 25%. Accordingly, in October 1995, the
accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated
from ARTRA's consolidated financial statements and ARTRA's investment in
COMFORCE was accounted for under the equity method through the end of fiscal
1995. See Note 6 to the Company's consolidated financial statements for a
further discussion of and the accounting treatment of the Company's investment
in COMFORCE at December 28, 1995.
<PAGE>
As discussed below in the "Liquidity and Capital Resources" section, on August
18, 1994, as amended effective December 23, 1994, ARTRA, Lori's parent,
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 discontinued fashion costume jewelry
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 terminated operations effective December 27, 1994. In March, 1995,
the remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an
additional extraordinary gain to Lori and Fill-Mor in 1995.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents increased $277,000 during the year ended December 28,
1995. Cash flows used by operating activities of $5,943,000 and cash flows used
by financing activities of $14,419,000 exceeded cash flows from investing
activities of $20,639,000. Cash flows used by operating activities were
principally attributable to the Company's loss from operations, exclusive of the
effect of a charge to operations of $6,430,000 representing an impairment of
goodwill at COMFORCE's (formerly Lori) discontinued fashion costume jewelry
operations and a compensation charge to continuing operations of $3,000,000
representing the issuance in aggregate of a 35% common stock interest in
COMFORCE as additional consideration under employment or consulting services
agreements with certain individuals to manage Lori's entry into and development
of the telecommunications and computer technical staffing services business.
Cash flows used by financing activities were principally attributable to a net
reduction of long-term debt with proceeds from the October 26, 1995 sale of
Arcar. Cash flows from investing activities represent proceeds from the October
26, 1995 sale of Arcar.
The Company's consolidated working capital deficiency decreased $34,107,000 to
$26,365,000 during the year ended December 28, 1995. The decrease in working
capital deficiency is principally attributable to the classification of
borrowings under Bagcraft's credit agreement as long-term liabilities at
December 28, 1995 due to a February 1, 1996 amendment that extended the maturity
date of the agreement until September 30, 1997 (see Note 10 to the Company's
consolidated financial statements.. At December 29, 1994, borrowings under
Bagcraft's credit agreement were classified in the Company's consolidated
balance sheet as currently payable.
Status of Debt Agreements and Operating Plan
At December 28, 1995 the Company's corporate entity was in default of provisions
of certain of its credit agreements. Under certain debt agreements ARTRA is
limited in the amounts it can withdraw from its Bagcraft operating subsidiary.
In February, 1996, a bank lender agreed to discharge amounts due under bank
notes of the corporate entity ($12,063,000 plus accrued interest) and certain
obligations of the Company's president, Peter R. Harvey. Effective February 1,
1996, Bagcraft's credit agreement was extended until September 30, 1997. See
Notes 9 and 10 to the Company's consolidated financial statements and discussion
below.
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 8
to the consolidated financial statements and discussion below.
ARTRA Corporate
At December 31, 1993, $17,063,000 in ARTRA notes, plus related loan fees and
accrued interest were payable to a bank. The notes provided for interest at the
prime rate. These bank notes were 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 subsidiary and by a
<PAGE>
subordinated note in the principal amount of $2,500,000 received by ARTRA as
part of the proceeds from the sale of Welch. See note 9 to the Company's
consolidated financial statements for a further discussion of these bank notes.
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 $12,063,000 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 Company's 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.
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 ($18.938 per share at December 28, 1995). The $2,500,000 note
payable to the private corporation is reflected in the Company's consolidated
financial statements as amounts due to related parties. During the first quarter
of 1996, the $2,500,000 note and related accrued interest was paid in full
principally with proceeds from additional short-term borrowings.
In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the
former Welch subsidiary under terms of a noncompetition agreement and a
subordinated note in the principal amount of $2,500,000 received by ARTRA as
part of the proceeds from the 1989 sale of Welch. Per terms of the settlement
agreement, ARTRA received cash of $3,000,000 and a subordinated note in the
principal amount of $640,000 payable June 30, 2001. The cash proceeds were used
for a $2,500,000 reduction of amounts due on certain ARTRA bank notes, with the
remainder used for working capital. In conjunction with this transaction, ARTRA
entered into a letter agreement with the bank whereby the bank agreed not to
exercise any of its rights and remedies with respect to amounts due the bank
under its ARTRA notes and certain obligations of ARTRA's president, Peter R.
Harvey through at least September 28, 1995.
In February 1996, the bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for
consideration of $6,000,000, consisting of a cash payment of $5,150,000 and Mr.
Harvey's $850,000 note payable to the bank. ARTRA will recognize a gain on the
discharge of its bank indebtedness of approximately $10,000,000 in the first
quarter of 1996 and will record a receivable for Mr. Harvey's prorata share of
the debt discharge funded by the Company. As collateral for this advance and
other previous advances (see note 21 to the Company's consolidated financial
statements), Mr. Harvey provided ARTRA a $2,150,000 security interest in certain
real estate.
In conjunction with the February 1996 discharge of indebtedness, the Company
entered into a $1,900,000 short-term loan agreement with an unaffiliated
company. The loan, due May 26, 1996, with interest at 12% is collateralized by,
among other things, the common stock of ARTRA's BCA subsidiary. As additional
compensation for the loan and for participating in the above discharge of
indebtedness, the lender has received, to-date, 150,000 shares of ARTRA common
stock and 37,500 shares of COMFORCE common stock held by ARTRA. Additionally,
for a cash payment of $500,000 to ARTRA, the lender purchased an option to
acquire up to 40% of the common stock of Bagcraft for nominal consideration. If
the borrowings under the loan agreement are repaid by May 26, 1996, ARTRA can
repurchase the option for a cash payment of $550,000. If the borrowings under
the loan agreement are repaid subsequent to May 26, 1996, the percentage of the
warrant ARTRA can repurchase declines on a sliding scale through July 25, 1996.
The proceeds from this loan agreement along with proceeds received from the
Bagcraft subsidiary as consideration for the issuance of BCA preferred stock
were used to fund the cash payment to the bank for the above discharge of
indebtedness.
Effective May 14, 1991, ARTRA, through its wholly-owned 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%, of which $2,200,000 was
outstanding at December 29, 1994. 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 8. In March, 1995, borrowings due under this loan agreement
were discharged.
<PAGE>
At December 29, 1994 an ARTRA bank note with outstanding borrowings of
$3,600,000 had been past due since December 31, 1990. In October, 1995 the bank
agreed to discharge the $3,600,000 note plus accrued interest of $1,467,000 for
a cash payment of $150,000, resulting in an extraordinary gain of $4,917,000 in
the fourth quarter of 1995.
An ARTRA bank note with outstanding borrowings of $345,000 at December 29, 1994
was guaranteed by a private company. Interest on the note was at the prime rate
plus 2%. In October, 1995 all amounts due on this bank note were paid in full.
In December 1995, ARTRA completed a private placement of $2,500,000 of 12%
convertible subordinated promissory notes due March 21, 1996. As additional
consideration the noteholders received 15,000 ARTRA common shares per each
$100,000 of notes issued, or an aggregate of 375,000 ARTRA common shares. The
ARTRA common shares were valued at $1,266,000 ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue, discounted for
restricted marketability. In the event the notes and all accrued interest is not
paid in full at maturity, the noteholders have the option to convert all or a
portion of the amount due into shares of ARTRA common at a conversion price of
$3.00 per share. The proceeds from the private placement, held in escrow at
December 28, 19995, were used to pay down other debt obligations in January,
1996. The notes were repaid in April, 1995, substantially with proceeds from a
new private placement of ARTRA notes.
As discussed in Note 21 to the Company's consolidated financial statements,
ARTRA has total advances due from its president, Peter R. Harvey, of which
$5,369,000 and $4,715,000, including accrued interest, remained outstanding at
December 28, 1995 and December 29, 1994, respectively. The advances bear
interest at the prime rate plus 2% (10.5% at December 28, 1995 and December 29,
1994). This receivable from Peter R. Harvey has been classified as a reduction
of common shareholders' equity.
In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey. The advances provided for interest at the prime rate plus 2%. At March
30, 1995 and December 29, 1994, advances of $1,540,000 and $1,510,000,
respectively, including accrued interest, were outstanding. In April, 1995,
these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey were
transferred to ARTRA as a dividend.
Commencing January 1, 1993 to date, interest on all advances to Peter R. Harvey
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).
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
<PAGE>
Mr. Harvey at $800,000 to $1,000,000. During 1995, Peter R. Harvey entered into
a pledge agreement with ARTRA whereby Mr. Harvey pledged additional collateral
consisting of 42,067 shares of ARTRA common stock and 707,281 shares of Puretech
International, Inc., a publicly traded corporation. As additional collateral for
the above mentioned advances and a 1996 advance for Mr. Harvey's prorata of
certain bank debt discharged, Mr. Harvey provided ARTRA a $2,150,000 security
interest in certain real estate.
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 28, 1995, options are outstanding that, if exercised, would require
ARTRA to repurchase 283,965 shares of its common stock for an aggregate amount
of approximately $4,774,000. 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 have various redeemable preferred stock
issues with an aggregate carrying value of $18,631,000 outstanding at December
28, 1995. These redeemable preferred stock issues have various maturity dates
commencing in 1997.
Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to
exchange certain preferred stock between the Companies. In connection with the
agreement, BCA issued to Bagcraft 8,135 shares of BCA Series B preferred stock
(with a liquidation preference equal to $1,000 per share) for cash of
$4,135,000. Bagcraft in turn exchanged the BCA Series B preferred stock for
Bagcraft redeemable preferred stock (82.7% of 50,000 shares, or 41,350 shares)
held by Ozite. Funds for the transaction were obtained by Bagcraft through an
advance under its revolving credit loan (see Note 10 to the Company's
consolidated financial statements). BCA then upstreamed the proceeds to ARTRA
for working capital purposes.
As a result of the preferred stock exchange agreement, 17.3% of the original
Bagcraft redeemable preferred stock and the prorata share of dividends remain
outstanding February 1, 1996. Dividends related to the Bagcraft redeemable
preferred stock exchanged have been forgiven in accordance with the agreement.
The dividend forgiveness will be reflected in the Company's consolidated
financial statements in the first quarter of 1996.
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. 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 and notes, 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.
ARTRA does not currently have available funds to repay amounts due under various
loan arrangements, principally with private investors, some of which are
currently past due. ARTRA is currently negotiating with certain investors to
issue a private placement of ARTRA notes, with the proceeds to be used to pay
down outstanding debt obligations. ARTRA will continue to have significant
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 debt. ARTRA intends to continue to negotiate with its creditors
to extend due dates to allow ARTRA to maximize value from possible sale of
assets and to explore various other sources of funding to meet its future
operating expenditures. If ARTRA is unable to negotiate extensions with its
creditors and complete the above mentioned transactions, ARTRA could suffer
severe adverse consequences, and 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
<PAGE>
Term Loan A is payable at maturity, unless accelerated under terms of the Credit
Agreement. The principal under Term Loan B ($4,600,000 and $5,000,000
outstanding at December 28, 1995 and December 29, 1994, respectively) was
scheduled to be payable in twenty-four monthly installments of $250,000 from
January 1, 1994 to December 1, 1995, with the remaining principal balance
payable at maturity, unless accelerated under terms of the Credit Agreement. At
December 28, 1995, 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 28, 1995 and December 29, 1994, approximately $6,600,000 and $800,000,
respectively, was available and unused by Bagcraft under the revolving credit
loan. Borrowings under the revolving credit loan bear interest at the lender's
index rate plus 1.5% and are payable upon maturity of the Credit Agreement,
unless accelerated under terms of the Credit Agreement. At December 28, 1995 the
interest rate on the revolving credit loan was 10%.
Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Bagcraft. The Credit Agreement, as amended, contains various
restrictive covenants, that among other restrictions, require Bagcraft to
maintain minimum levels of tangible net worth and liquidity levels, and limits
capital expenditures and restricts additional loans, dividend payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.
In October, 1995 the Credit Agreement was amended whereby, among other things,
the maturity date of the Credit Agreement was extended until March 31, 1996,
certain loan covenant violations were resolved and the principal payments under
Term Loan B were modified to include five monthly installments of $200,000 from
November 15, 1995 to March 31, 1996, with the remaining balance payable at
maturity (March 31, 1996) .
Effective February 1, 1996, the Credit Agreement was amended whereby, among
other things, the maturity date of the Credit Agreement was extended until
September 30, 1997, certain loan covenants were amended. The principal payments
under Term Loan B were modified to include twenty-three monthly installments of
$200,000 from November 15, 1995 to September 30, 1997, with the remaining
balance payable at maturity (September 30, 1997) . Additionally, the lender
consented to the use of $4,135,000 advance under the revolving credit loan to
fund a preferred stock exchange agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's 13.5% cumulative, redeemable preferred
stock (see Note 12).
As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, with a put option to
purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal
value. 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 connection with the February 1, 1996 amendment to the Credit Agreement, the
warrant agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original nominal purchase price.
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 28, 1995 and December 29, 1994,
Bagcraft had outstanding borrowings of $6,300,000 and $7,000,000,
respectively, under this loan agreement.
<PAGE>
A $5,000,000 subordinated promissory note payable as follows: $150,000
due in 1996; $2,425,000 due in 1998; and $2,425,000 due in 1999. The
subordinated promissory note is non-interest bearing, subject to
certain repayment provisions as defined in the agreement (as amended).
At December 28, 1995 and December 29, 1994, Bagcraft had outstanding
borrowings of $5,000,000 and $4,810,000, respectively, under this loan
agreement.
Two separate $250,000 subordinated promissory notes payable in varying
installments through January 20, 2025. The subordinated promissory
notes are non-interest bearing, subject to certain repayment provisions
as defined in the agreement. At December 28, 1995 and December 29,
1994, Bagcraft had outstanding borrowings of $493,000 and $500,000,
respectively, 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. Under certain circumstances,
repayment of the borrowings under the above loan agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement. At December 28,
1995 $552,000 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.
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.
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 ($5,500,000 and $8,000,000 outstanding at September 28, 1995 and
December 29, 1994, respectively). The subordinated promissory notes provided for
interest payable quarterly at the prime rate (as defined in the agreement). At
September 28, 1995, the remaining outstanding promissory notes were scheduled to
mature as follows: $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 was payable only through a
reduction of the subordinated promissory notes and accrued interest due the
seller under terms of the purchase agreement. The subordinated promissory notes
were paid in full in October, 1995 with proceeds from the sale of Arcar (see
Note 3 to the Company's consolidated financial statements).
Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the
"Agreement") with a bank that provided for a revolving credit loan and a term
loan. The term loan, in the original principal amount of $2,750,000, provided
for interest at the prime rate plus .75%. Borrowings under the Agreement were
collateralized by substantially all of the assets of Arcar. The Agreement
contained 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. All borrowings under the Agreement were paid in full in
October, 1995 with proceeds of the sale of Arcar (see Note 3 to the Company's
consolidated financial statements).
Bagcraft has historically funded its capital requirements with cash flow from
operations and funds available under its revolving credit loan. These sources
should provide sufficient cash flow to fund Bagcraft's short-term capital
requirements. As discussed above, it is anticipated that Bagcraft's recently
amended Credit Agreement will provide Bagcraft with the ability to fund its
long-term capital requirements.
Bagcraft anticipates that its 1996 capital expenditures, principally for
manufacturing equipment, will be approximately $2,500,000 and will be funded
principally from the above mentioned credit facilities and also from operations.
COMFORCE/Lori
In September, 1995, Lori adopted a plan to discontinue its fashion costume
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion costume jewelry business.
<PAGE>
Effective October 17, 1995, September 11, 1995, Lori acquired one hundred
percent of the capital stock of COMFORCE Global, Inc. ("Global"), formerly
Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of
Spectrum Information Technologies, Inc. for consideration of approximately $6.4
million, net of cash acquired, consisting of cash of approximately $5.6 million
and 500,000 shares of Lori common stock issued as consideration for various fees
and guarantees associated with the transaction. The cash consideration included
net cash payments to the selling shareholders of approximately $5.2 million. The
500,000 shares of Lori common stock issued as consideration for the Global
transaction included 150,000 shares issued to Peter R. Harvey, then a director
of Lori and currently the president/director of ARTRA and 100,000 shares issued
to ARTRA for their guarantee to the selling shareholder of the payment of the
Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA
are subject to approval by the COMFORCE's shareholders. Global provides
telecommunications and computer technical staffing services worldwide to Fortune
500 companies and maintains an extensive, global database of technical
specialists, with an emphasis on wireless communications capability. The
acquisition of Global was funded principally by private placements of
approximately 1,950,000 shares of Lori common stock at $3.00 per share (total
proceeds of approximately $5,800,000) plus detachable warrants to purchase
approximately 970,000 shares of Lori common stock at $3.375 per share that
expire five years from the date of issue. In connection with the re-focus of its
business, Lori changed its name to COMFORCE Corporation.
Effective July 4, 1995, Lori and ARTRA entered into employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. After the issuance of the
Lori common shares, plus the effects of the issuance of Lori common shares sold
by private placements and other common shares issued in conjunction with the
Global acquisition, ARTRA's common stock ownership interest in COMFORCE common
stock was reduced to approximately 25%. Accordingly, in October 1995, the
accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated
from the ARTRA's consolidated financial statements and ARTRA's investment in
COMFORCE was accounted for under the equity method through the end of fiscal
1995. See Note 6 to the Company's consolidated financial statements for a
further discussion of and the accounting treatment of the Company's investment
in COMFORCE at December 28, 1995.
In conjunction with the Global acquisition, ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation. Accordingly, ARTRA has accrued $4,500,000 of Lori
liabilities classified in its consolidated balance at December 28, 1995 as
current liabilities of discontinued operations.
Lori Debt Restructuring
Effective August 18, 1994, as amended December 23, 1994, ARTRA, Fill-Mor, Lori
and Lori's fashion costume jewelry subsidiaries, (including the New Dimensions
Accessories, Ltd., ("New Dimensions") subsidiary, which terminated operations
effective December 27, 1994) 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 fashion costume jewelry subsidiaries and Fill-Mor. Borrowings due
the bank (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 debt settlement agreement in 1995, as discussed below, the
balance of this indebtedness was discharged.
In conjunction with the debt 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%, was
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 August, 1995 the loan was extended until September 15,
1995 and the lender received the above mentioned 100,000 Lori common shares as
consideration for the loan extension. The loan was repaid by ARTRA in February,
1996.
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
<PAGE>
$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.
On March 31, 1995 the bank was paid $750,000 and the remaining indebtedness of
Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain
to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The
$750,000 payment was funded with the proceeds of a $850,000 short-term loan from
a former director of Lori. As consideration for assisting in the debt
restructuring, the former director received 150,000 shares of the Lori common
stock valued at $337,500 ($2.25 per share) based upon Lori's closing market
value on March 30, 1995.
The common stock and virtually all the assets of the Company and its Bagcraft
subsidiary have been pledged as collateral for borrowings under various loan
agreements. Under certain debt agreements the Company is limited in the amounts
it can withdraw from its operating subsidiaries. At December 28, 1995
substantially all cash and equivalents on the Company's consolidated balance
sheet were restricted to use by and for the Company's operating subsidiaries.
Litigation
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Note 20 to the Company's consolidated
financial statements. At December 28, 1995 and December 29, 1994, the Company
had accrued $1,800,000 and $1,500,000 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.
Net Operating Loss Carryforwards
At December 28, 1995, ARTRA had Federal income tax loss carryforwards of
approximately $33,000,000 expiring principally in 2003 - 2010. Additionally,
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. 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
On July 31, 1995, ARTRA and Bagcraft, entered into a letter of intent to sell
the business assets, subject to the buyer's assumption of certain liabilities,
of Arcar. On October 26, 1995, Bagcraft completed the sale of Arcar.
In September, 1995, Lori adopted a plan to discontinue its fashion costume
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion costume jewelry business.
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Arcar and COMFORCE's (formerly Lori)
discontinued fashion costume jewelry business prior to the deconsolidation of
COMFORCE and its majority-owned subsidiaries effective October 1995. The
following discussion of results of operations is presented for the Company's
continuing operations at December 28, 1995, which were conducted by the
Company's wholly-owned Bagcraft subsidiary.
<PAGE>
The Company's Bagcraft subsidiary sells all of its products directly to its
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.
1995 vs 1994
Net sales from continuing operations of $121,879,000 for the year ended December
28, 1995 were $10,042,000, or 9.0%, higher than net sales from continuing
operations for the year ended December 29, 1994. The 1995 sales increase is
attributable to increased 1995 selling prices due to the significant increases
in paper costs in the second half of 1994 and early 1995 and to an improved
sales mix in 1995.
The Company's cost of sales from continuing operations of $102,508,000 for year
ended December 28, 1995 increased $7,742,000 as compared to year ended December
29, 1994. Cost of sales from continuing operations in the year ended December
28, 1995 was 84.1% of net sales compared to a cost of sales percentage of 84.7%
for the year ended December 29, 1994. The increase in cost of sales is primarily
attributable to the significant increases in paper costs in the second half of
1994 and early 1995. The decrease in cost of sales percentage is primarily
attributable to the Company's ability to pass along the significant increases in
paper costs and to improved production efficiencies in 1995.
Selling, general and administrative expenses from continuing operations were
$19,131,000 in the year ended December 28, 1995 as compared to $16,760,000 in
the year ended December 29, 1994. Selling, general and administrative expenses
were 15.7% of net sales in the year ended December 28, 1995 as compared to 15.0%
of net sales in the year ended December 29, 1994. The 1995 increase in selling,
general and administrative expenses is primarily attributable to a compensation
charge of $3,000,000 related to the issuance of a 35% common stock interest in
COMFORCE/Lori as additional compensation for certain individuals to enter into
employment or consulting services agreements to manage its entry into and
development of the telecommunications and computer technical staffing services
business.
In recent years, Bagcraft has experienced a decline in its domestic microwave
popcorn business due to the acquisition of one of its major customers by a
company with its own packaging ability. Accordingly, at December 31, 1995,
Bagcraft incurred a charge to operations of $1,503,000 to write-down the
carrying value of idle machinery and equipment dedicated to the production of
microwave popcorn products.
Operating loss from continuing operations in the year ended December 28, 1995
was $5,593,000 as compared to operating loss of $4,026,000 in the year ended
December 29, 1994. The increased operating loss is primarily attributable to a
compensation charge of $3,000,000 related to the issuance of a 35% common stock
interest in COMFORCE/Lori as additional compensation for certain individuals to
enter into employment or consulting services agreements to manage its entry into
and development of the telecommunications and computer technical staffing
services business and a charge to operations of $1,503,000 to write-down the
carrying value of idle machinery and equipment dedicated to the production of
microwave popcorn products, partially offset by improved operating margins of
the Bagcraft subsidiary.
Interest expense from continuing operations in the year ended December 28, 1995
increased $1,164,000 as compared to the year ended December 29, 1994. The 1995
increase is principally due to the cost of ARTRA common stock issued as
additional compensation for the December 1995 private placement of ARTRA
short-term notes.
Due to the Company's tax loss carryforwards and the uncertainty of future
taxable income, no income tax benefit was recognized in connection with the
Company's 1995 and 1994 pre-tax losses. The 1995 extraordinary credit represents
a net gain from discharge of bank indebtedness.
<PAGE>
1994 vs 1993
Net sales from continuing operations of $111,837,000 for the year ended December
29, 1994 were $1,747,000, or 1.5%, lower than net sales from continuing
operations for the year ended December 30, 1993. The 1994 net sales decrease is
primarily attributable to the sale of Bagcraft's Roll Press division, which was
completed in the second quarter of 1993.
The Company's cost of sales from continuing operations of $94,766,000 for year
ended December 29, 1994 increased $1,305,000 as compared to year ended December
30, 1993. Cost of sales from continuing operations in the year ended December
28, 1995 was 84.7% of net sales compared to a cost of sales percentage of 82.3%
for the year ended December 30, 1993. The increase in the packaging segment cost
of sales and 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 from continuing operations were
$16,760,000 in the year ended December 29, 1994 as compared to $15,537,000 in
the year ended December 30, 1993. Selling, general and administrative expenses
were 15.0% of net sales in the year ended December 29, 1994 as compared to 13.7%
of net sales in the year ended December 30, 1993. The 1994 increase in selling,
general and administrative expenses is primarily attributable to an increase in
employee benefit costs and professional fees.
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.
Operating loss from continuing operations in the year ended December 29, 1994
was $4,026,000 as compared to operating loss of $974,000 in the year ended
December 30, 1993. The increased operating loss 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 from continuing operations in the year ended December 29, 1994
increased $2,067,000 as compared to the year ended December 30, 1993. The 1994
increase is principally due to an overall increase in borrowings due to the
December, 1993 refinancing of Bagcraft's bank debt, an increase in the prime
rate and fees incurred for short-term borrowings at the Corporate entity.
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.
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.
<PAGE>
Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 26, 1996. The Company believes that
adoption will not have a material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock based
compensation is not mandatory, the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle is
effective for the Company's fiscal year ending December 26, 1996. The Company
believes that adoption will not have a material impact on its financial
statements as the Company will not adopt the new fair value accounting, but
instead comply with the disclosure requirements.
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 November 8, 1995 the Company filed Form 8-K to report:
1) The October 26, 1995 sale of the business assets,
subject to the buyers assumption of certain
liabilities, of Bagcraft's Arcar Graphics
subsidiary.
2) The settlement of certain debt obligations due a
bank lender of approximately $5,000,000 for a cash
payment of $150,000.
On October 31, 1995 the Company filed Form 8-K to report:
1) The October 17, 1995 acquisition of COMFORCE Global
Inc. by The Lori Corporation and the discontinuance
of Lori's fashion costume jewelry business.
2) The reduction of the Company's common stock
ownership interest in The Lori Corporation from
62.6% to approximately 25% due to the issuance Lori
common shares principally to certain individuals to
manage Lori's entry into and development of the
telecommunications and computer technical staffing
services business and a private placement of Lori
common shares to fund the acquisition of COMFORCE
Global.
On October 11, 1995 the Company filed Form 8-K to report:
1) On September 11, 1995, the Company's 62.6% owned
subsidiary The Lori Corporation agreed to
participate in the acquisition of COMFORCE Global
Inc.
2) On July 11, 1995 The Company and its 62.6% owned
subsidiary The Lori Corporation entered into
agreements with certain individuals to manage Lori's
entry into and development of the telecommunications
and computer technical staffing services business.
<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 9, 1996 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.
JOHN HARVEY Chairman and Director April 9, 1996
- -----------------------
John Harvey Chief Executive Officer
PETER R. HARVEY President and Director April 9, 1996
- -----------------------
Peter R. Harvey Chief Operating Officer
JAMES D. DOERING Vice President /Treasurer April 9, 1996
- -----------------------
James D. Doering Chief Financial Officer
GERARD M. KENNY Director April 9, 1996
- -----------------------
Gerard M. Kenny
LAWRENCE D. LEVIN Controller April 9, 1996
- -----------------------
Lawrence D. Levin
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 28, 1995
and December 29, 1994 F-3
Consolidated Statements of Operations
for each of the three fiscal years
in the period ended December 28, 1995 F-5
Consolidated Statements of Changes in
Shareholders' Equity (Deficit)
for each of the three fiscal years
in the period ended December 28, 1995 F-6
Consolidated Statements of Cash Flows
for each of the three fiscal years
in the period ended December 28, 1995 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
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 28, 1995 and December 29,
1994, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 28, 1995 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 its current credit arrangements, certain of which are in default, to
fund its debt service and to satisfy liquidity requirements for 1996. 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 9, 1996
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 28, December 29,
1995 1994
-------- --------
ASSETS
Current assets:
Cash and equivalents $2,347 $2,070
Restricted cash and equivalents 552 1,324
Receivables, less allowance for doubtful accounts
and markdowns of $250 in 1995 and $1,654 in 1994 10,897 13,707
Inventories 16,634 20,268
Available -for-sale securities 1,427 -
Other 324 1,148
-------- --------
Total current assets 32,181 38,517
-------- --------
Property, plant and equipment
Land 930 930
Buildings 11,679 10,584
Improvements to land and leaseholds - 187
Machinery and equipment 30,547 33,756
Construction in in progress 1,117 2,693
-------- --------
44,273 48,150
Less accumulated depreciation and amortization 17,335 17,110
-------- --------
26,938 31,040
-------- --------
Other assets:
Available -for-sale securities 15,519 -
Excess of cost over net assets acquired,
net of accumulated amortization of
$2,022 in1995 and $7,934 in 1994 3,258 19,076
Other 53 4,796
-------- --------
18,830 23,872
-------- --------
$77,949 $93,429
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 28, December 29,
1995 1994
-------- --------
LIABILITIES
Current liabilities:
Notes payable, including amounts due to
related parties of $5,675 in 1995
and $5,669 in 1994 $25,300 $28,053
Current maturities of long-term debt 3,512 37,521
Accounts payable, including amounts due
to a related party of $399 in 1995 10,925 16,788
Accrued expenses 14,106 16,533
Income taxes 203 94
Liabilities of discontinued operations 4,500 -
-------- -------
Total current liabilities 58,546 98,989
-------- -------
Long-term debt 34,113 19,673
Debt subsequently discharged - 9,750
Other noncurrent liabilities 650 1,463
Commitments and contingencies
Redeemable common stock,
issued 283,965 shares in 1995 and
279,679 shares in 1994 4,774 4,144
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 $1,575 in 1995
and $1,842 in 1994; redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,750 shares 3,694 3,129
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 10,794 10,119
BCA Holdings preferred stock payable to a
related party, $1.00 par value, Series A,
6% cumulative; including accumulated dividends;
liquidation preference of
$1,000 per share; 10,000 shares authorized;
issued 3,675 shares 4,143 3,922
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorized
7,500,000 shares; issued 7,102,979 shares
in 1995 and 6,455,602 shares in 1994 5,540 5,052
Additional paid-in capital 38,526 36,613
Unrealized appreciation of investments 21,047 -
Receivable from related party,
including accrued interest (4,318) (4,100)
Accumulated deficit (98,755) (94,520)
-------- --------
(37,960) (56,955)
Less treasury stock (57,038 shares), at cost 805 805
-------- --------
(38,765) (57,760)
-------- --------
$77,949 $93,429
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1995 1994* 1993*
--------- -------- ----------
<S> <C> <C> <C>
Net sales $121,879 $111,837 $113,584
--------- --------- ---------
Costs and expenses:
Cost of goods sold, exclusive of
depreciation and amortization 102,508 94,766 93,461
Selling, general and administrative 19,131 16,760 15,537
Depreciation and amortization 4,330 4,337 4,385
Write-down of idle machinery and equipment 1,503 - -
Restructuring costs - - 1,175
--------- --------- ---------
127,472 115,863 114,558
--------- --------- ---------
Operating loss (5,593) (4,026) (974)
--------- --------- ---------
Other income (expense):
Interest expense (9,782) (8,618) (6,551)
Equity in loss of COMFORCE (533) - -
Other income (expense), net (88) 13 (87)
--------- --------- ---------
(10,403) (8,605) (6,638)
--------- --------- ---------
Loss from continuing operations before
income taxes and minority interest (15,996) (12,631) (7,612)
Provision for income taxes (51) (9) (7)
Minority interest (896) (889) (708)
--------- --------- ---------
Loss from continuing operations (16,943) (13,529) (8,327)
Earnings (loss) from
discontinued operations 10 (15,906) (216)
--------- --------- ---------
Loss before extraordinary credit (16,933) (29,435) (8,543)
Extraordinary credit,
net discharge of indebtedness 14,030 8,965 22,057
--------- --------- ---------
Net earnings (loss) (2,903) (20,470) 13,514
Dividends applicable to
redeemable preferred stock (565) (516) (471)
Reduction of retained earnings
applicable to redeemable common stock (767) (309) (243)
--------- --------- ---------
Earnings (loss) applicable to common shares ($4,235) ($21,295) $12,800
========= ========= =========
Earnings (loss) per share:
Continuing operations ($2.69) ($2.56) ($1.84)
Discontinued operations - (2.74) (0.04)
--------- --------- ---------
Loss before extraordinary credit (2.69) (5.30) (1.88)
Extraordinary credit 2.06 1.57 4.49
--------- --------- ---------
Net earnings (loss) ($0.63) ($3.73) $2.61
========= ========= =========
Weighted average number of shares of common stock
and common stock equivalents outstanding 6,776 5,702 4,908
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
_______________________________________________
* As reclassified for discontinued operations.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized Receivable Total
Common Stock Additional Appreciation From Treasury Stock Shareholders'
----------------- Paid-in of Related Accumulated ---------------- Equity
Shares Dollars Capital Investments Party (Deficit) Shares Dollars (Deficit)
---------- ------- ------- ------------ --------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 reclassification of
redeemable common stock (34,266) - (282) - - - - (282)
Common stock contributed
to ESOP 65,000 49 292 - - - - 341
Exercise of stock options 25,300 19 116 - - - - 135
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)
Net loss - - - - (2,903) - - (2,903)
Reclassification of redeemable
common stock (100,000) - (500) - - - - (500)
Common stock issued to
pay liabilities 243,915 183 857 - - - - 1,040
Common stock as additional
consideration for private
placement of ARTRA notes 375,000 281 985 - - - - 1,266
Net increase in receivable
from related party,
including accrued interest - - - (218) - - - (218)
Redeemable common stock
put option exercised (8) 8 - - - - - - -
Sale and reclassification of
redeemable common stock 85,714 399 - 399
Unrealized appreciation
of investments - - - $21,047 - - - - 21,047
Common stock contributed
to ESOP 23,750 18 95 - - - - - 113
Exercise of stock options 12,100 9 39 - - - - - 48
Redeemable common
stock accretion - - - - - (767) - - (767)
Redeemable preferred
stock dividends - - - - - (565) - - (565)
Common stock issued
as compensation 6,898 5 30 - - - - - 35
--------- ------ -------- ------- -------- --------- ------- ------ --------
Balance at December 28, 1995 7,102,979 $5,540 $38,526 $21,047 ($4,318) ($98,755) 57,038 ($805) ($38,765)
========= ====== ======== ======= ======== ========= ======= ====== ========
</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
-----------------------------------
1995 1994 1993
--------- ---------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($2,903) ($20,470) $13,514
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (14,030) (8,965) (22,057)
Gain on disposal of discontinued operations (8,183) - -
Depreciation of property, plant and equipment 4,120 4,252 4,283
Amortization of excess of cost over net assets acquired 837 1,693 1,623
Impairment of goodwill 6,430 10,800 -
Amortization of other assets 689 963 216
Inventory valuation reserve 290 - -
Gain on sale of property, plant and equipment - (59) (284)
Write-down of idle equipment and machinery 1,503 - -
Equity in loss of COMFORCE 533 - -
Minority interest 896 889 708
Contribution to ARTRA ESOP 42 77 423
Other, principally common issued as compensation 1,300 485 389
Changes in assets and liabilities, net of effects of
businesses acquired and discontinued:
Increase in receivables (184) (1,923) (348)
(Increase) decrease in inventories 453 (727) 2,453
(Increase) decrease in other current and noncurrent assets 1,421 1,068 (1,031)
Increase in payables and accrued expenses 611 4,675 804
Increase (decrease) in other current and noncurrent liabilities 450 (763) 170
(Increase) decrease in receivable from related party,
including accrued interest (218) (257) 42
--------- ---------- --------
Net cash flows from (used by) operating activities (5,943) (8,262) 905
--------- ---------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 2,251 1,401
Additions to property, plant and equipment (2,820) (11,881) (3,156)
Retail fixtures (631) (665) (951)
Acquisition of Arcar - (2,264) -
Proceeds from sale of Arcar 20,318 - -
Proceeds from collection of Welch notes 3,000 - -
Decrease in restricted cash 772 - -
Other - 101 -
--------- ---------- --------
Net cash flows from (used by) investing activities 20,639 (12,458) (2,706)
--------- ---------- --------
</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
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in short-term debt 5,488 1,920 54
Proceeds from long-term borrowings 136,756 116,775 123,743
Reduction of long-term debt 156,641) (100,131) (124,759)
Proceeds from private placements of ARTRA common stock - 3,230 -
Proceeds from exercise of stock options 48 30 129
Proceeds from sale of BCA Holdings preferred stock - - 3,000
Exercise of redeemable common stock put options - (50) -
Other (70) (44) (187)
-------- ---------- ---------
Net cash flows from (used by) financing activities (14,419) 21,730 1,980
-------- ---------- ---------
Increase in cash and cash equivalents 277 1,010 179
Cash and equivalents, beginning of year 2,070 1,060 881
======== ========== =========
Cash and equivalents, end of year $2,347 $2,070 $1,060
======== ========== =========
Supplemental cash flow information:
Cash paid during the year for:
Interest $5,847 $8,811 $7,333
Income taxes paid (refunded), net (15) 59 (108)
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $1,040 $756 $1,636
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. Basis of Presentation and Financial Restructuring
ARTRA Group Incorporated's ("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, and to fund its debt service and liquidity
requirements in 1996. 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 alternative sources, such
as private placements of ARTRA common stock and notes, 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.
ARTRA, through its wholly-owned subsidiary, Bagcraft Corporation of America
("Bagcraft"), currently operates in one industry segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995, ARTRA's then 62.9% owned subsidiary, The Lori Corporation ("Lori"),
operated as a designer and distributor of popular-priced fashion costume jewelry
and accessories. In recent years, Lori's fashion costume jewelry operations had
experienced a pattern of significantly lower sales levels and related operating
losses primarily due to a shift in the buying patterns of its major customers
(i.e. certain mass merchandisers) from participation in Lori's service program
to purchases of costume jewelry and accessories directly from manufacturers and
due to a continued unfavorable retail environment. Accordingly, in September,
1995, Lori adopted a plan to discontinue its fashion costume jewelry business as
discussed in Note 3.
As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of COMFORCE Global Inc. ("Global"), formerly Spectrum Global
Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. Global provides telecommunications and computer
technical staffing and consulting services worldwide to Fortune 500 companies
and maintains an extensive, global database of technical specialists, with an
emphasis on wireless communications capability. On October 17, 1995, Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In connection with the re-focus of its business Lori changed its name to
COMFORCE Corporation ("COMFORCE").
Effective July 4, 1995, Lori and ARTRA entered into employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. After the issuance of the
Lori common shares, plus the effects of the issuance of Lori common shares sold
by private placements and other Lori common shares issued in conjunction with
the Global acquisition, ARTRA's common stock ownership interest in COMFORCE
common stock was reduced to approximately 25% at December 28, 1995. Accordingly,
in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries
were deconsolidated from ARTRA's consolidated financial statements and ARTRA's
investment in COMFORCE was accounted for under the equity method through the end
of fiscal 1995. See Note 6 for a further discussion of ARTRA's investment in
COMFORCE.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Effective October 26, 1995, Bagcraft completed the sale of the business assets,
subject to the buyer's assumption of certain liabilities, of its wholly-owned
subsidiary, Arcar Graphics, Inc. ("Arcar"), for cash of approximately
$20,300,000. The net proceeds, after extinguishment of certain Arcar debt
obligations, of approximately $10,400,000, were used to reduce Bagcraft debt
obligations.
In October, 1995 the Company recognized an extraordinary gain of $4,917,000
($.71 per share) as a result of a settlement agreement with a bank whereby a
$3,600,000 note payable due December 31, 1990 plus accrued interest of
$1,467,000 were discharged for a cash payment of $150,000.
As discussed in Note 8, the Company recognized an extraordinary gain of
$9,113,000 ($1.35 per share) in March 1995 as a result of the discharge of
amounts due a bank under the loan agreements of Lori and its parent, Fill-Mor
Holding, Inc.
("Fill-Mor").
In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the
former Welch Vacuum Technology ("Welch") subsidiary under terms of a
noncompetition agreement and a subordinated note in the principal amount of
$2,500,000 received by ARTRA as part of the proceeds from the 1989 sale of
Welch. Per terms of the settlement agreement, ARTRA received cash of $3,000,000
and a subordinated note in the principal amount of $640,000 payable June 30,
2001. The cash proceeds were used for a $2,500,000 reduction of amounts due on
certain ARTRA bank notes, with the remainder used for working capital. In
conjunction with this transaction, ARTRA entered into a letter agreement with
the bank whereby the bank agreed not to exercise any of its rights and remedies
with respect to amounts due the bank under its ARTRA notes (see Note 9) and
certain obligations of ARTRA's president, Peter R. Harvey.
In February 1996, the bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for a
cash payment of $5,150,000 and Mr. Harvey's $850,000 note payable to the bank.
ARTRA will recognize a gain on the discharge of this indebtedness of
approximately $10,000,000 in the first quarter of 1996. The cash payment due the
bank was funded principally with proceeds received from a short-term loan
agreement along with proceeds received from the Bagcraft subsidiary as
consideration for the issuance of BCA Holdings, Inc. ("BCA", the parent of
Bagcraft) preferred stock, see Note 12.
ARTRA intends to continue to negotiate with its creditors to extend due dates to
allow ARTRA to maximize value from possible sale of assets and to explore
various other sources of funding to meet its future operating expenditures. If
ARTRA is unable to negotiate extensions with its creditors and complete the
above mentioned transactions, ARTRA could suffer severe adverse consequences,
and as a result, ARTRA may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
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.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. Investments in Equity Securities
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." Under this statement, at December 28, 1995, the Company's
investment in COMFORCE (see Note 6) is classified as available for sale and is
stated at fair value. The adoption of SFAS No. 115 resulted in an increase to
shareholders' equity in the fourth quarter of 1995 of $21,047,000. In prior
years and, until October 1995, COMFORCE was a majority-owned subsidiary included
in the consolidated financial statements of the Company.
F. Intangible 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 over its remaining life can be
recovered through forecasted future operations.
G. Revenue Recognition
Sales to customers are recorded at the time of shipment net of estimated
markdowns and merchandise credits.
H. 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, the Company recognizes the amount of
income taxes payable. 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.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
I. Use of Estimates In Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J. Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 26, 1996. The Company believes that
adoption will not have a material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock based
compensation is not mandatory, the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle is
effective for the Company's fiscal year ending December 26, 1996. The Company
believes that adoption will not have a material impact on its financial
statements as the Company will not adopt the new fair value accounting, but
instead comply with the disclosure requirements.
3. CHANGE OF BUSINESS
Arcar Graphics, Inc.
Effective April 8, 1994, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of Arcar, a manufacturer and
distributor of waterbase inks, for consideration of $10,264,000 consisting of
cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The
acquisition of Arcar was accounted for by the purchase method and, accordingly,
the assets and liabilities of Arcar were included in ARTRA's financial
statements at their estimated fair market value at the date of acquisition.
Effective October 26, 1995, Bagcraft sold the business assets, subject to the
buyer's assumption of certain liabilities, of Arcar for cash of approximately
$20,300,000, resulting in a net gain of $8,483,000. The net proceeds, after
extinguishment of certain Arcar debt obligations, of approximately $10,400,000,
were used to reduce Bagcraft debt obligations. At December 29, 1994, the total
assets and liabilities of Arcar were approximately $13,157,000 and $11,914,000,
respectively.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lori/COMFORCE
In September, 1995, Lori adopted a plan to discontinue its fashion costume
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion costume jewelry business. At December
29, 1994, the total assets and liabilities of Lori's discontinued fashion
costume jewelry business were approximately $17,460,000 and $11,914,000,
respectively.
Effective October 17, 1995, Lori acquired one hundred percent of the capital
stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services,
Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information
Technologies, Inc. for consideration of approximately $6.4 million, net of cash
acquired, consisting of cash of approximately $5.6 million and 500,000 shares of
Lori common stock issued as consideration for various fees and guarantees
associated with the transaction. The cash consideration included net cash
payments to the selling shareholders of approximately $5.2 million. The 500,000
shares of Lori common stock issued as consideration for the Global transaction
included 150,000 shares issued to Peter R. Harvey, then a director of Lori and
currently the president/director of ARTRA and 100,000 shares issued to ARTRA for
their guarantee to the selling shareholder of the payment of the Global purchase
price at closing. The shares issued to Peter R. Harvey and ARTRA are subject to
approval by the issuer's shareholders.
Global provides telecommunications and computer technical staffing services
worldwide to Fortune 500 companies and maintains an extensive, global database
of technical specialists, with an emphasis on wireless communications
capability. The acquisition of Global was funded principally by private
placements of approximately 1,950,000 shares of Lori common stock at $3.00 per
share (total proceeds of approximately $5,800,000) plus detachable warrants to
purchase approximately 970,000 shares of Lori common stock at $3.375 per share
that expire five years from the date of issue. In connection with the re-focus
of its business, Lori changed its name to COMFORCE Corporation. Additionally, in
conjunction with the Global acquisition, ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation. Accordingly, ARTRA has accrued $4,500,000 of Lori
liabilities classified in its consolidated balance at December 28, 1995 as
current liabilities of discontinued operations.
Effective July 4, 1995, Lori and ARTRA entered into employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. After the issuance of the
Lori common shares, plus the effects of the issuance of Lori common shares sold
by private placements and other Lori common shares issued in conjunction with
the Global acquisition, ARTRA's common stock ownership interest in COMFORCE
common stock was reduced to approximately 25%. Accordingly, in October 1995, the
accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated
from ARTRA's consolidated financial statements and ARTRA's investment in
COMFORCE was accounted for under the equity method through the end of fiscal
1995. See Note 6 for a further discussion of and the accounting treatment of the
Company's investment in COMFORCE at December 28, 1995.
Other
During 1995 the Company was dismissed as party to certain litigation relating to
the former Welch subsidiary. Accordingly, the Company reversed $700,000 of
excess liability accruals originally provided in 1989 to complete the disposal
of Welch.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Arcar and COMFORCE's discontinued
fashion costume jewelry business prior to the deconsolidation of Lori and its
majority-owned subsidiaries effective October 1995. The 1995, 1994 and 1993
operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's discontinued fashion costume jewelry business and net gain on
disposal of discontinued operations consist of:
1995 1994 1993
-------- -------- ---------
Net sales $ 16,932 $ 40,278 $ 46,054
======== ======== =========
Loss from operations
before income taxes $ (8,156) $(15,832) $ (183
Provision for income taxes (17) (74) (33)
-------- -------- ---------
Loss from operations (8,173) (15,906) (216)
-------- -------- ---------
Gain on sale of Arcar subsidiary 8,483 -- --
Provision for disposal of business (300)
Provision for income taxes -- -- --
-------- -------- ---------
Gain on disposal of businesses 8,183 -- --
-------- -------- ---------
Earnings (loss) from
discontinued operations $ 10 $(15,906) $ (216)
======== ======== =========
4. CONCENTRATION OF RISK
The accounts receivable of the Company's Bagcraft subsidiary at December 28,
1995 consist primarily of amounts due from companies in the food industry. As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large number and diverse nature of Bagcraft's
customer base. Bagcraft's major customers include some of the largest companies
in the food industry. At December 28, 1995, Bagcraft had 10 customers with
accounts receivable balances that aggregated approximately 40% of the Company's
total trade accounts receivable. No single customer accounted for 10% or more of
Bagcraft's 1995 sales.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. INVENTORIES
Inventories consist of:
December 28, December 29,
1995 1994
-------- --------
(in thousands)
Raw materials and supplies $ 5,645 $ 7,041
Work in process 40 877
Finished goods 10,949 12,350
-------- --------
$ 16,634 $ 20,268
======== ========
6. INVESTMENT IN COMFORCE (formerly LORI) CORPORATION
As discussed in Note 3, due to the issuances of COMFORCE common shares in
conjunction with the acquisition of Global, ARTRA's common stock ownership in
COMFORCE was reduced to approximately 25%. Accordingly, in October 1995, the
accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated
from ARTRA's consolidated financial statements and ARTRA's investment in
COMFORCE was accounted for under the requirements of APB Opinion No. 18 "The
Equity Method of Accounting for Investments in Common Stock" through the end of
fiscal 1995.
Effective December 28, 1995, John Harvey and Peter R. Harvey, ARTRA's chairman
and president, respectively, resigned as directors of COMFORCE. Due to such
factors as a lack of board of directors representation and participation in
policy formulation by ARTRA, as well as a lack of interchange of managerial
personnel, ARTRA is not able to exercise significant influence over the
operating and financial policies of COMFORCE. Additionally, assuming
contemplated additional issuances of COMFORCE common shares, on a fully diluted
basis ARTRA's ownership interest in COMFORCE will be reduced to less than 20%.
In the opinion of the Company, effective December 28, 1995, the investment in
COMFORCE ceased to conform to the requirements of APB Opinion No. 18.
Accordingly, the Company adopted SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Under this statement, at December
28, 1995, the Company's investment in COMFORCE is classified as available for
sale and is stated at fair value. The adoption of SFAS No. 115 resulted in an
increase to shareholders' equity in the fourth quarter of 1995 of $21,047,000.
In prior years and, until October 1995, COMFORCE was a majority-owned subsidiary
included in the consolidated financial statements of the Company.
In February 1996, ARTRA sold the 200,000 COMFORCE common shares it received in
connection with Lori's acquisition of COMFORCE to certain officers, directors
and key employees of ARTRA. As additional consideration for a February 1996
short-term loan (see Note 9) the lender has received to-date 37,500 COMFORCE
common shares held by ARTRA. In March 1996, ARTRA sold 93,000 COMFORCE shares in
the market, with the proceeds used for working capital. The above mentioned
330,500 COMFORCE shares were classified in the Company's consolidated balance
sheet at December 28, 1995 in current assets as "Available-for-sale securities."
ARTRA's remaining investment in COMFORCE (1,970,536 shares) was classified in
the Company's consolidated balance sheet at December 28, 1995 in noncurrent
assets as "Available-for-sale securities."
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. 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 cash of $75,000,000, a 27.5% common stock interest
in Emerald and Emerald junior debentures.
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.
Envirodyne's plan of reorganization did not provide for any distribution 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 damages 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., Charles K.
Bobrinskoy, Michael J. Zimmerman (collectively, "Salomon Defendants"), D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William Rifkind. On November 22, 1993, ARTRA filed a
First Amended Complaint. 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
retained jurisdiction of ARTRA's claims against the defendants for breaching
their fiduciary duty as directors of Emerald to Emerald's creditors and
interference with ARTRA's contractual relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied. On July 26, 1995, the Bankruptcy Court entered an order
dismissing these claims. On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's dismissal order. That appeal is still pending.
On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court
Action for breach of fiduciary duty, fraudulent misrepresentation, negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State Court's dismissal of the causes of action in
the Third Amended Complaint. Defendant Kelly was dismissed with prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.
On or about March 1, 1996, DPK brought a motion for summary judgment as to
ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is
currently pending.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. EXTRAORDINARY GAINS
ARTRA Debt Restructuring
In October, 1995 the Company recognized an extraordinary gain of $4,917,000
($.71 per share) as a result of a settlement agreement with a bank whereby a
$3,600,000 note payable due December 31, 1990 plus accrued interest of
$1,467,000 were discharged for a cash payment of $150,000.
Lori Debt Restructuring
Per terms of a debt settlement agreement, borrowings due a bank under the loan
agreements of Lori and its discontinued fashion costume jewelry subsidiaries
(including the former New Dimensions ("New Dimensions") subsidiary, which ceased
operations in December 1994) 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 debt settlement agreement in 1995,
as discussed below, the balance of this indebtedness was discharged.
In conjunction with the debt 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%, was
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 debt settlement
agreement. In August, 1995 the loan was extended until September 15, 1995 and
the lender received the above mentioned 100,000 Lori common shares as
consideration for the loan extension. The loan was repaid by ARTRA in February,
1996.
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 Lori and its discontinued fashion costume jewelry
subsidiaries 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:
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 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
at estimated fair market value (7,149)
---------
Net extraordinary gain $ 8,965
=========
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On March 31, 1995, the bank was paid $750,000 and the remaining indebtedness of
Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain
to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The
$750,000 payment was funded with the proceeds of a $850,000 short-term loan from
a former director of Lori. As consideration for assisting in the debt
restructuring, the former director received 150,000 shares of Lori common stock
valued at $337,500 ($2.25 per share) based upon Lori's closing market value on
March 30, 1995. The first quarter 1995 extraordinary gain was calculated (in
thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries and Fill-mor $ 10,500
Less amounts due the bank (750)
---------
Bank debt discharged 9,750
Less fair market value of Lori common stock
issued as consideration for the debt restructuring (337)
Other fees and expenses (300)
---------
Net extraordinary gain $ 9,113
=========
New Dimensions 1993 Restructuring
The reorganization of New Dimensions resulted in a 1993 extraordinary gain of
$22,057,000 ($4.49 per share) from a net discharge of indebtedness calculated
(in thousands) as follows:
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
=========
9. NOTES PAYABLE
Notes payable (in thousands) consist of:
December 28, December 29,
1995 1994
-------- --------
ARTRA bank notes payable,
at various interest rates $ 12,063 $ 18,507
Amounts due to related parties,
interest from 8% to 12% 5,675 5,669
ARTRA 12% convertible subordinated
promissory notes 2,500 -
Other, interest from 8% to 20% 5,062 3,877
-------- --------
$ 25,300 $ 28,053
======== ========
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Bank Notes Payable
At December 31, 1993, $17,063,000 in ARTRA notes, plus related loan fees and
accrued interest were payable to a bank. The notes provided for interest at the
prime rate. These bank notes were collateralized by, among other things, 100% of
the common stock of ARTRA's 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 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, the bank notes are collateralized by a
$5,500,000 personal guaranty of a private investor and, prior to March 31, 1994
as discussed below, the bank notes were collateralized by 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 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 $12,063,000 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 (8.75% and 8.5%
at September 28, 1995 and December 29, 1994, 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
7. 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.
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 ($18.938 per share at December 28, 1995). The $2,500,000 note
payable to the private corporation is reflected in the above table as amounts
due to related parties. During the first quarter of 1996, the $2,500,000 note
and related accrued interest was paid in full principally with proceeds from
additional short-term borrowings.
In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the
former Welch subsidiary under terms of a noncompetition agreement and a
subordinated note in the principal amount of $2,500,000 received by ARTRA as
part of the proceeds from the 1989 sale of Welch. Per terms of the settlement
agreement, ARTRA received cash of $3,000,000 and a subordinated note in the
principal amount of $640,000 payable June 30, 2001. The cash proceeds were used
for a $2,500,000 reduction of amounts due on certain ARTRA bank notes, with the
remainder used for working capital. In conjunction with this transaction, ARTRA
entered into a letter agreement with the bank whereby the bank agreed not to
exercise any of its rights and remedies with respect to amounts due the bank
under its ARTRA notes and certain obligations of ARTRA's president, Peter R.
Harvey through at least September 28, 1995.
In February 1996, the bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for
consideration of $6,000,000, consisting of a cash payment of $5,150,000 and Mr.
Harvey's $850,000 note payable to the bank. ARTRA will recognize a gain on the
discharge of its bank indebtedness of approximately $10,000,000 in the first
quarter of 1996 and will record a receivable for Mr. Harvey's prorata share of
the debt discharge funded by the Company. As collateral for this advance and
other previous advances (see note 21), Mr. Harvey provided ARTRA a $2,150,000
security interest in certain real estate.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In conjunction with the February 1996 discharge of indebtedness, the Company
entered into a $1,900,000 short-term loan agreement with an unaffiliated
company. The loan, due May 26, 1996, with interest at 12% is collateralized by,
among other things, the common stock of ARTRA's BCA subsidiary. As additional
compensation for the loan and for participating in the above discharge of
indebtedness, the lender has received, to-date, 150,000 shares of ARTRA common
stock and 37,500 shares of COMFORCE common stock held by ARTRA. Additionally,
for a cash payment of $500,000 to ARTRA, the lender purchased an option to
acquire up to 40% of the common stock of Bagcraft for nominal consideration. If
the borrowings under the loan agreement are repaid by May 26, 1996, ARTRA can
repurchase the option for a cash payment of $550,000. If the borrowings under
the loan agreement are repaid subsequent to May 26, 1996, the percentage of the
warrant ARTRA can repurchase declines on a sliding scale through July 25, 1996.
The proceeds from this loan agreement along with proceeds received from the
Bagcraft subsidiary as consideration for the issuance of BCA preferred stock
(see Note 12) were used to fund the cash payment to the bank for the above
discharge of indebtedness.
Effective May 14, 1991, ARTRA, through its wholly-owned 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%, of which $2,200,000 was
outstanding at December 29, 1994. 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 8. In March, 1995, borrowings due under this loan agreement
were discharged.
At December 29, 1994 an ARTRA bank note with outstanding borrowings of
$3,600,000 had been past due since December 31, 1990. Effective October 30,
1995, the Company settled this bank obligation totaling approximately
$5,000,000, including accrued interest, for a cash payment of $150,000. The gain
on this debt extinguishment was reflected in the Company's consolidated
financial statements in the fourth quarter of 1995. In October, 1995 the bank
agreed to discharge the $3,600,000 note plus accrued interest of $1,467,000 for
a cash payment of $150,000, resulting in an extraordinary gain of $4,917,000
($.71 per share) in the fourth quarter of 1995.
An ARTRA bank note with outstanding borrowings of $345,000 at December 29, 1994
was guaranteed by a private company. Interest on the note was at the prime rate
plus 2%. In October, 1995 all amounts due on this bank note were paid in full.
Amounts Due To Related Parties
At December 28, 1995 and December 29, 1994, the Company had outstanding
borrowings from its Chairman, John Harvey, of $175,000 and $42,000,
respectively. Since January, 1995, John Harvey's borrowings have been evidenced
by unsecured short-term notes bearing interest at 8%. As additional compensation
the loans provide for the issuance of warrants to purchase ARTRA common shares
at prices equal to 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 loans are outstanding. Through
February 29, 1996, John Harvey has received warrants to purchase an aggregate of
58,007 shares of ARTRA common stock at prices ranging from $3.75 to $6.125 per
share as additional compensation for his loans to ARTRA.
At March 30, 1995, amounts due to related parties included a $850,000 short-term
loan from a then director of COMFORCE. The loan provided for interest at the
prime rate plus 1%. As consideration for assisting with the debt restructuring,
the former director received 150,000 Lori common shares valued at $337,500
($2.25 per share) based upon COMFORCE closing market value on March 30, 1995.
The principal amount of the loan was reduced to $750,000 at July 31, 1995. The
remaining loan principal was not repaid on its scheduled to maturity date of
July 31, 1995. Per terms of the loan agreement, the former director received an
additional 50,000 COMFORCE common shares as compensation for the
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
non-payment of the loan at its originally scheduled maturity. The maturity date
of the loan was subsequently extended to September 30, 1995. The Company then
entered into discussions with the director to extend the maturity date of the
loan and, as additional consideration for the non-payment of the loan, the
former director received an additional 25,000 shares of COMFORCE common stock in
January 1996. In March 1996, the loan was repaid in full by ARTRA.
At December 29, 1994, amounts due to related parties also included borrowings of
$127,000, respectively, from the above mentioned former director of COMFORCE. As
additional compensation the former director has received 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. In December
1995, amounts due pursuant to this loan were repaid by the issuance of 33,000
shares of ARTRA common stock.
On December 31, 1993, a religious organization, currently holding approximately
7% of ARTRA's outstanding common stock, 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 in 1998, 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. At December 28, 1995 and December 29, 1994 borrowings due
the religious organization totaled $3,000,000. In December, the religious
organization received 126,222 shares of ARTRA common in payment of past due
interest through October 31, 1995.
Convertible Subordinated Promissory Notes
In December 1995, ARTRA completed a private placement of $2,500,000 of 12%
convertible subordinated promissory notes due March 21, 1996. As additional
consideration the noteholders received 15,000 ARTRA common shares per each
$100,000 of notes issued, or an aggregate of 375,000 ARTRA common shares. The
ARTRA common shares were valued at $1,266,000 ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue, discounted for
restricted marketability. In the event the notes and all accrued interest is not
paid in full at maturity, the noteholders have the option to convert all or a
portion of the amount due into shares of ARTRA common at a conversion price of
$3.00 per share. The proceeds from the private placement, held in escrow at
December 28, 1995, were used to pay down other debt obligations in January,
1996. The notes were repaid in April, 1996, substantially with proceeds from a
new private placement of ARTRA notes.
Other
In conjunction with the debt settlement agreement discussed in Note 8, 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%, was collateralized by 100,000 shares of Lori common stock. These 100,000
COMFORCE common shares were originally issued to the bank under terms of the
August 18, 1994 Settlement Agreement. In August, 1995 the loan was extended
until September 15, 1995 and the lender received the above mentioned 100,000
COMFORCE common shares as consideration for the loan extension. The loan was
repaid by ARTRA in February, 1996.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. LONG-TERM DEBT
Long-term debt (in thousands) consists of:
December 28, December 29,
1995 1994
-------- --------
Bagcraft Credit Agreement,
Term loans,
interest at the prime rate plus 1.75% to 3% $ 16,600 $ 17,000
Revolving credit loan,
interest at the prime rate plus 1.5% 9,231 16,672
Unamortized discount - (315)
Bagcraft, City of Baxter Springs,
Kansas loan agreements,
interest, at varying rates 11,794 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
Other, at various interest rates,
due in varying amounts through 1995 - 27
-------- --------
37,625 66,944
Current scheduled maturities (3,512) (37,521)
Debt subsequently discharged - (9,750)
-------- --------
$ 34,113 $ 19,673
======== ========
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, unless accelerated under terms of the Credit
Agreement. The principal under Term Loan B ($4,600,000 and $5,000,000
outstanding at December 28, 1995 and December 29, 1994, respectively) was
scheduled to be payable in twenty-four monthly installments of $250,000 from
January 1, 1994 to December 1, 1995, with the remaining principal balance
payable at maturity, unless accelerated under terms of the Credit Agreement. At
December 28, 1995, 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 28, 1995 and December 29, 1994, approximately $6,600,000 and
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
$800,000, respectively, was available and unused by Bagcraft under the revolving
credit loan. Borrowings under the revolving credit loan bear interest at the
lender's index rate plus 1.5% and are payable upon maturity of the Credit
Agreement, unless accelerated under terms of the Credit Agreement. At December
28, 1995 the interest rate on the revolving credit loan was 10%.
Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Bagcraft. The Credit Agreement, as amended, contains various
restrictive covenants, that among other restrictions, require Bagcraft to
maintain minimum levels of tangible net worth and liquidity levels, and limits
capital expenditures and restricts additional loans, dividend payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.
In October, 1995 the Credit Agreement was amended whereby, among other things,
the maturity date of the Credit Agreement was extended until March 31, 1996,
certain loan covenant violations were resolved and the principal payments under
Term Loan B were modified to include five monthly installments of $200,000 from
November 15, 1995 to March 31, 1996, with the remaining balance payable at
maturity (March 31, 1996) .
Effective February 1, 1996, the Credit Agreement was amended whereby, among
other things, the maturity date of the Credit Agreement was extended until
September 30, 1997, certain loan covenants were amended. The principal payments
under Term Loan B were modified to include twenty-three monthly installments of
$200,000 from November 15, 1995 to September 30, 1997, with the remaining
balance payable at maturity (September 30, 1997) . Additionally, the lender
consented to the use of $4,135,000 advanced under the revolving credit loan to
fund a preferred stock exchange agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's 13.5% cumulative, redeemable preferred
stock (see Note 12).
As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, allowing the holder to
purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal
value. 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 connection with the February 1, 1996 amendment to the Credit Agreement, the
warrant agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original nominal purchase price and to
extend the expiration date to December 17, 1999.
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 28, 1995 and December 29, 1994,
Bagcraft had outstanding borrowings of $6,300,000 and $7,000,000,
respectively, under this loan agreement.
A $5,000,000 subordinated promissory note payable as follows: $150,000
due in 1996; $2,425,000 due in 1998; and $2,425,000 due in 1999. The
subordinated promissory note is non-interest bearing, subject to
certain repayment provisions as defined in the agreement (as amended).
At December 28, 1995 and December 29, 1994, Bagcraft had outstanding
borrowings of $5,000,000 and $4,810,000, respectively, under this loan
agreement.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Two separate $250,000 subordinated promissory notes payable in varying
installments through January 20, 2025. The subordinated promissory
notes are non-interest bearing, subject to certain repayment provisions
as defined in the agreement. At December 28, 1995 and December 29,
1994, Bagcraft had outstanding borrowings of $493,000 and $500,000,
respectively, 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. Under certain circumstances,
repayment of the borrowings under the above loan agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement. At December 28,
1995 and December 29, 1994, $552,000 and $774,000, respectively, 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
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 ($5,500,000 and $8,000,000 outstanding at September 28, 1995 and
December 29, 1994, respectively). The subordinated promissory notes provided for
interest payable quarterly at the prime rate (as defined in the agreement). At
September 28, 1995, the remaining outstanding promissory notes were scheduled to
mature as follows: $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 was payable only through a
reduction of the subordinated promissory notes and accrued interest due the
seller under terms of the purchase agreement. The subordinated promissory notes
were paid in full in October, 1995 with proceeds from the sale of Arcar (see
Note 3).
Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the
"Agreement") with a bank that provided for a revolving credit loan and a term
loan. The term loan, in the original principal amount of $2,750,000, provided
for interest at the prime rate plus .75%. Borrowings under the Agreement were
collateralized by substantially all of the assets of Arcar. The Agreement
contained 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. All borrowings under the Agreement were paid in full in
October, 1995 with proceeds from the sale of Arcar (see Note 3).
Lori
As discussed in Note 8, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry 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 fashion costume
jewelry subsidiaries and Fill-Mor. 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 as of December 23, 1994 (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 partial consideration for the Amended Settlement Agreement the bank
received a $750,000 Lori note payable due March 31, 1995.
In March, 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 $9,113,000 in 1995 (See Note 8).
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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
certain debt agreements the Company is limited in the amounts it can withdraw
from its operating subsidiaries. At December 28, 1995 and December 29, 1994,
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 28, 1995 the aggregate amount of yearly maturities of long-term
debt, exclusive of debt discharged, is: 1996, $3,512,000; 1997, $24,143,000;
1998, $3,137,000; 1999, $3,137,000; 2000, $712,000; thereafter, $2,983,000.
11. REDEEMABLE COMMON STOCK
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. 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. ARTRA agreed to
register 100,000 ARTRA common shares issued to a bank as partial consideration
for a 1994 debt settlement agreement on or before July 31, 1995, after which the
bank has the right to put the 100,000 common shares back to ARTRA for an
exercise price of $500,000. As of March 31, 1996 the ARTRA common shares have
not been registered and the bank has not exercised the put option. At December
28, 1995 and December 29, 1994 options are outstanding that, if exercised, would
require ARTRA to repurchase 283,965 and 279,679 shares of its common stock for
an aggregate amount of $4,774,000 and $4,144,000, respectively.
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 $1,519,000 and $1,221,000 were
accrued at December 28, 1995 and December 29, 1994, respectively.
In 1987, Bagcraft issued to 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
holder has agreed to forego dividend payments as long as such payments are
prohibited by Bagcraft's lenders. Accumulated dividends of $5,794000 and
$5,119,000 were accrued at December 28, 1995 and December 29, 1994,
respectively.
In 1987, Bagcraft obtained financing from 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 Series A 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 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)
Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to
exchange certain preferred stock between the Companies. In connection with the
agreement, BCA issued to Bagcraft 8,135 shares of BCA Series B preferred stock
(with a liquidation preference equal to $1,000 per share) for cash of
$4,135,000. Bagcraft in turn exchanged the BCA Series B preferred stock for
Bagcraft redeemable preferred stock (82.7% of 50,000 shares, or 41,350 shares)
held by Ozite. Funds for the transaction were obtained by Bagcraft through an
advance under its revolving credit. BCA then upstreamed the proceeds to ARTRA
for working capital purposes.
As a result of the preferred stock exchange agreement, 17.3% of the original
Bagcraft redeemable preferred stock and the prorata share of dividends remain
outstanding February 1, 1996. Dividends related to the Bagcraft redeemable
preferred stock exchanged have been forgiven in accordance with the agreement.
The dividend forgiveness will be reflected in the Company's consolidated
financial statements in the first quarter of 1996.
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, as amended, reserved 1,000,000 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 was 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.
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.
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.
<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 28, 1995 is as follows:
1995 1994 1993
-------- -------- --------
Outstanding at beginning 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 granted:
Shares 20,000 198,100
Prices $ 5.75 $ 3.75
Options exercised:
Shares
(12,100) (25,300) (74,700)
$ 3.75
Prices $ 4.00 $ 5.25 to
$ 5.25
Options canceled:
Shares (1,860) (13,000)
$ 5.25
Prices $ 20.50 to
$ 5.75
Outstanding at end of year:
Shares 431,500 445,460 450,760
======== ======== ========
$ 3.65 $ 3.75 $ 3.75
Prices to to to
$ 10.00 $ 20.50 $ 20.50
Options exercisable at end of year 431,500 445,460 450,760
======== ======== ========
Options available for future grant
at end of year - 390,814 410,814
======== ======== ========
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Warrants
At December 28, 1995, warrants were outstanding to purchase a total of 1,148,548
common shares at prices ranging from $3.50 per share to $10.50 per share. The
warrants, exercisable from the date of issue, expire at various dates through
2003.
During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of
its common stock at prices ranging from $3.75 per share to $6.125 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates in 2000. Warrants to purchase 48,331 shares
of ARTRA common stock at prices ranging from $6.75 per share to $11.375 per
share expired unexercised during 1995. The warrants were issued as additional
compensation for various short-terms loans.
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,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates from 1996 and 1999. 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,
principally to certain lenders 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.
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. 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.
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 28, 1995,
future minimum lease payments under operating leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:
Year
----
1996 $ 944
1997 860
1998 737
1999 719
2000 449
After 2000 765
-------
$ 4,474
=======
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Rental expense was $861,000, $1,116,000 and $1,240,000 in fiscal years 1995,
1994 and 1993 respectively.
In conjunction with the sale of Arcar (see Note 3), Bagcraft entered into an ink
products purchase agreement with the Arcar buyer for a period of five years.
Under terms of the agreement, Bagcraft is required to purchase a minimum supply
of ink based on market prices in effect at the time of each purchase. Minimum
dollar amounts required for each of the contract years ending September 30 is
$4,100,000 in 1996; $4,300,000 in 1997; $4,500,000 in 1998; $3,375,000 in 1999;
and $2,250,000 in 2000. Bagcraft has issued a letter of credit of $1,000,000 in
conjunction with this agreement.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 28, 1995 and December 29,
1994, the Company had accrued $1,800,000 and $1,500,000, 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. Bagcraft filed
suit in 1993 in the United States District Court for the Northern District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case. Bagcraft was subsequently reimbursed by its insurers
for its liability costs incurred in connection with the EPA claim. With regard
to the state action, Bagcraft is participating in settlement discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated with the State. The maximum state claim is $1.1 million for all
participants. Bagcraft has accrued $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.
Bagcraft was listed as a de minimis contributor at the American Chemical
Services, Inc. off-site disposal location in Griffith, Indiana and the Duane
Marine off-site disposal location in Perth Amboy, New Jersey. These sites are
included in the EPA's National Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.
Bagcraft has been notified by the Federal Environment Protection Agency that it
is a potentially responsible party for the disposal of hazardous substances at a
site on Ninth Avenue in Gary, Indiana. The Company has no records indicating
that it deposited hazardous substances at this site and intends to vigorously
defend itself in this matter.
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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
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 $350,000 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.
In a case titled Illinois Environmental Protection Agency v. NL Industries,
Inc., ARTRA GROUP Incorporated, et al, the Illinois Environmental Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.
The EPA has identified ARTRA GROUP Incorporated as a potentially responsible
party in an action involving the former manufacturing facility. The EPA is
currently investigating the site to determine the extent and type of
contamination, if any. The Company is presently unable to determine ARTRA's
liability, if any, in connection with this case.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. INCOME TAXES
The provision (credit) for income taxes is included in the statements of
operations as follows:
1995 1994 1993
--------- --------- ---------
(in thousands)
Continuing operations $ 51 $ 9 $ 7
Discontinued operations 17 74 33
--------- --------- ---------
$ 68 $ 83 $ 40
========= ========= =========
A summary of the provision (credit) for income taxes is as follows:
1995 1994 1993
--------- --------- ---------
(in thousands)
Current:
Federal $ - $ - $ -
State 68 83 40
--------- --------- ---------
$ 68 $ 83 $ 40
========= ========= =========
The 1995, 1994 and 1993 extraordinary credits represent net gains from discharge
of indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits due to the utilization of
tax loss carryforwards.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. INCOME TAXES, continued
In 1995, 1994 and 1993, the effective tax rates from operations, including
discontinued operations were (3.9)%, (.4)% and .3%, respectively, as compared to
the statutory Federal rate, which are reconciled as follows:
1995 1994 1993
--------- --------- ----------
(in thousands)
Provision (credit) for
income taxes
using statutory rate $ (600) $ (6,629) $ 4,992
State and local taxes,
net of Federal benefit 68 73 7
Current year tax
loss not utilized - 3,151 1,938
Amortization of goodwill 155 206 212
Previously unrecognized
benefit from utilizing
tax loss carryforwards (2,136) - -
Effect of not including
all subsidiaries in the
consolidated tax return 2,546 3,249 (7,113)
Other 35 33 4
--------- --------- ----------
$ 68 $ 83 $ 40
========= ========= ==========
<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 28, 1995 and December 29,
1994 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- -----------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable $ 200 $ 100 $ 1,700 $ 700
Inventories - - 400 200
Investment in Emerald Acquisition Corporation - - 18,600 7,200
Accrued personnel costs 1,800 700 1,900 800
Restructuring reserve 200 100 1,100 400
Environmental reserve 400 200 400 200
Other 2,900 1,100 2,600 1,000
Capital loss carryforward 11,000 4,300 - -
Net operating loss 44,000 17,200 97,000 37,800
-------- -------
Total deferred tax assets 23,700 48,300
-------- -------
Inventories (6,700) (2,600) (6,100) (2,400)
Accumulated depreciation (7,900) (3,100) (9,500) (3,700)
Other (800) (300) (400) (200)
--------
Total deferred tax liabilities (6,000) (6,300)
-------- -------
Valuation allowance (17,700) (42,000)
-------- -------
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 28, 1995, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $44,000,000 available to be applied against
future taxable income, if any. ARTRA's tax loss carryforwards of approximately
$33,000,000 expire principally in 2003 - 2010. Additionally, 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. 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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $477,000, $333,000 and $450,000 in 1995, 1994 and
1993, 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 contributed 8,750 common shares to the
Plan with a fair market value of $42,000 ($4.75 per share) for the plan year
ending December 28, 1995. ARTRA contributed 15,000 common shares to the Plan
with a fair market value of $71,250 ($4.75 per share) for the plan year ending
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. At December 28, 1995, the ESOP held 271,775 shares of ARTRA
common stock.
Effective August 1, 1995, the Company terminated the ESOP and is currently is
the process of distributing the related Employee accounts to participants.
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.
19. INDUSTRY SEGMENT INFORMATION
At December 28, 1995, the Company, through its Bagcraft subsidiary operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.
Prior to September 28, 1995 and in prior years, ARTRA's then majority owned
subsidiary, Lori, operated as a designer and distributor of popular-priced
fashion costume jewelry and accessories. In recent years, Lori's fashion costume
jewelry operations had experienced a pattern of significantly lower sales levels
and related operating losses primarily due to a shift in the buying patterns of
its major customers (i.e. certain mass merchandisers) from participation in
Lori's service program to purchases of costume jewelry and accessories directly
from manufacturers and due to a continued unfavorable retail environment.
Accordingly, in September, 1995, Lori adopted a plan to discontinue its fashion
costume jewelry business as discussed in Note 3.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of Global. Global provides telecommunications and computer
technical staffing and consulting services worldwide to Fortune 500 companies
and maintains an extensive, global database of technical specialists, with an
emphasis on wireless communications capability. On October 17, 1995, Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In connection with the re-focus of its business, Lori changed its name to
COMFORCE Corporation.
Due to the issuances of COMFORCE common shares in conjunction with the
acquisition of Global, ARTRA's common stock ownership in COMFORCE was reduced to
approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and
its majority-owned subsidiaries were deconsolidated from the ARTRA's
consolidated financial statements and ARTRA's investment in COMFORCE was
accounted for under the equity method through the end of fiscal 1995. As
discussed in note 6, effective December 28, 1995, the Company adopted SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities." Under
this statement, at December 28, 1995, the Company's investment in COMFORCE is
classified as available for sale and is stated at fair value.
No single customer accounted for more than 10% of consolidated net sales in
1995, 1994 and 1993.
20. LITIGATION
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., Charles K.
Bobrinskoy, Michael J. Zimmerman (collectively, "Salomon Defendants"), D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William Rifkind. On November 22, 1993, ARTRA filed a
First Amended Complaint. 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
retained jurisdiction of ARTRA's claims against the defendants for breaching
their fiduciary duty as directors of Emerald to Emerald's creditors and
interference with ARTRA's contractual relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied. On July 26, 1995, the Bankruptcy Court entered an order
dismissing these claims. On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's dismissal order. That appeal is still pending.
On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court
Action for breach of fiduciary duty, fraudulent misrepresentation, negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State Court's dismissal of the causes of action in
the Third Amended Complaint. Defendant Kelly was dismissed with prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.
On or about March 1, 1996, DPK brought a motion for summary judgment as to
ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is
currently pending.
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 was reflected in ARTRA's condensed consolidated balance
sheet at December 29, 1994 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 was reflected in ARTRA's consolidated balance sheet at
December 29, 1994 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 was 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 was 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 June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a
subordinated note in the principal amount of $640,000 payable June 30, 2001.
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. Bagcraft filed
suit in 1993 in the United States District Court for the Northern District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case. Bagcraft was subsequently reimbursed by its insurers
for its liability costs incurred in connection with the EPA claim. With regard
to the state action, Bagcraft is participating in settlement discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated with the State. The maximum state claim is $1.1 million for all
participants. Bagcraft has accrued $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.
The Company and its subsidiaries are the defendants in various other
business-related litigation and environmental matters (see Note 15). 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:
December 28, December 29,
1995 1994
--------- ---------
(in thousands)
ARTRA $ 5,369 $ 3,205
Fill-Mor - 1,510
--------- ---------
5,369 4,715
Less interest for the period
January 1, 1993 to date,
accrued and fully reserved (1,051) (615)
--------- ---------
$ 4,318 $ 4,100
========= =========
ARTRA has total advances due from its president, Peter R. Harvey, of which
$5,369,000 and $3,205,000, including accrued interest, remained outstanding at
December 28, 1995 and December 29, 1994 The advances bear interest at the prime
rate plus 2% (10.5% at December 28, 1995 and December 29, 1994). This receivable
from Peter R. Harvey has been classified as a reduction of common shareholders'
equity. See note 9 for an additional 1996 advance for Mr. Harvey's prorata share
of debt discharged by a bank. The debt discharge was principally funded by
ARTRA.
In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey. The advances provided for interest at the prime rate plus 2%. At March
30, 1995 and December 29, 1994, advances of $1,540,000 and $1,510,000,
respectively, including accrued interest, were outstanding. In April, 1995,
these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey were
transferred to ARTRA as a dividend.
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 28, 1995 and December
29, 1994 totaled $436,000 and $341,000, 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. During 1995, Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067 shares of ARTRA common stock and 707,281 shares of Puretech
International, Inc., a publicly traded corporation.
In conjunction with Lori's October 1995 acquisition of Global (see Note 3),
ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify
COMFORCE in the event any future liabilities arise concerning pre-existing
environmental matters and business related litigation. Accordingly, ARTRA has
accrued $4,500,000 of Lori liabilities classified in its consolidated balance at
December 28, 1995 as current liabilities of discontinued operations.
For a discussion of certain other related party debt obligations see Note 9.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
BALANCE SHEETS
(Registrant Only In Thousands)
December 28, December 29,
1995 1994
--------- ---------
ASSETS
Current assets:
Cash $2,347 $91
Receivables 25 55
Other current assets 85 87
--------- ---------
2,457 233
--------- ---------
Property, plant and equipment 25 19
Less accumulated depreciation and amortization 14 6
--------- ---------
11 13
--------- ---------
Other assets:
Investments in and advances to affiliates 2,567 (15,264)
Other - 4,000
--------- ---------
2,567 (11,264)
--------- ---------
$5,035 ($11,018)
========= =========
LIABILITIES
Current liabilities:
Notes payable and current maturities
of long-term debt $25,300 $28,053
Accounts payable 509 1,576
Accrued expenses 9,323 9,702
Income taxes 200 138
--------- ---------
35,332 39,469
--------- ---------
Redeemable common stock 4,774 4,144
--------- ---------
Redeemable preferred stock 3,694 3,129
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 5,540 5,052
Additional paid-in capital 38,526 36,613
Unrealized appreciation of investments 21,047 -
Receivable from related party,
including accrued interest (4,318) (4,100)
Accumulated deficit (98,755) (94,520)
--------- ---------
(37,960) (56,955)
Less treasury stock, at cost 805 805
--------- ---------
(38,765) (57,760)
--------- ---------
$5,035 ($11,018)
========= =========
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)
Fiscal Year
-----------------------------
1995 1994* 1993*
-------- --------- --------
Selling, general and administrative expenses $1,760 $2,158 $1,907
Depreciation and amortization 27 4 2
Interest expense 4,953 3,139 2,641
Equity in loss of affiliates 7,817 6,129 3,423
Other expense, net 424 308 85
-------- --------- --------
Loss from continuing operations
before income taxes (14,981) (11,738) (8,058)
Charge equivalent to income taxes (1,962) (1,791) (269)
-------- --------- --------
Loss from continuing operations (16,943) (13,529) (8,327)
Equity in earnings (loss)
of discontinued affiliate 10 (15,906) (216)
-------- --------- --------
Loss before extraordinary credit (16,933) (29,435) (8,543)
Extraordinary credit,
net discharge of indebtedness 14,030 8,965 22,057
-------- --------- --------
Net earnings (loss) ($2,903) ($20,470) $13,514
======== ========= ========
The accompanying notes are an integral part of the condensed financial
information.
______________________________________________
* As reclassified for discontinued operations.
<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
-------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($2,903) ($20,470) $13,514
Adjustments to reconcile net loss
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (14,030) (8,965) (22,057)
Equity in loss of affiliates 7,817 6,129 3,423
Equity in (earnings) loss of discontinued operations (10) 15,906 216
Gain on sale of property, plant and equipment - - -
Other, principally common stock issued as compensation 1,370 489 392
Changes in assets and liabilities:
Increase (decrease) in other current and noncurrent assets 32 56 (42)
Increase in other current and noncurrent liabilities 1,738 2,152 1,076
(Increase) decrease in receivable from related party (218) (257) 42
-------- --------- --------
Net cash flows used by operating activities (6,204) (4,960) (3,436)
-------- --------- --------
Cash flows from investing activities:
Proceeds from collection of Welch notes 3,000 - -
Proceeds from sale of property, plant and equipment - - -
Proceeds from sale of BCA Holdings preferred stock - - 3,000
Dividends and advances from (to) subsidiaries - (772) 1,824
Additions to property, plant and equipment (6) (9) (10)
-------- --------- --------
Net cash flows from (used by) investing activities 2,994 (781) 4,814
-------- --------- --------
Cash flows from financing activities:
Proceeds from private placements of ARTRA common stock - 3,230 -
Proceeds from exercise of stock options and warrants 48 30 129
Net increase (decrease) in short-term borrowings 5,488 1,226 (158)
Exercise of redeemable common stock options (70) (50) -
-------- --------- --------
Net cash flows from (used by) financing activities 5,466 4,436 (29)
-------- --------- --------
Net increase (decrease) in cash 2,256 (1,305) 1,349
Cash balance beginning of year 91 1,396 47
-------- --------- --------
Cash balance end of year $2,347 $91 $1,396
======== ========= ========
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $1,040 $756 $1,636
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 3 and 21 of the consolidated financial statements for a discussion of
guarantees of subsidiary 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 28, 1995
(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>
For the fiscal year ended December 28, 1995:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 207 $ 315 $ (232)(A) $ 290
========= ========== ======== =========
Allowance for markdowns $ 835 $ 291 $ (1,126)(A) $ -
Allowance for doubtful accounts 819 487 (1,056)(A) 250
-------- ---------- -------- ---------
$ 1,654 $ 778 $ (2,182) $ 250
======== ========== ======== =========
For the fiscal year ended December 29, 1994:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,315 $ 218 $ (4,326)(D) $ 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)(D) $ 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
======== ======== ======== ========
</TABLE>
(A) Principally amounts of discontinued operations.
(B) Principally markdowns taken.
(C) Principally uncollectible accounts written off, net of recoveries.
(D) Principally inventory written off, net of recoveries.
<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 Letter Agreement dated February 26, 1996 by and among
ARTRA GROUP Incorporated, ARTRA Subsidiary, Inc., BCA
Holdings, Inc., Peter and Jean Harvey, and Bank of
America Illinois, re. certain Purchase and Sale
Agreement and Assignment between the Bank and
Arabella S.A., a Luxembourg holding company.
10.2 PURCHASE AND SALE AGREEMENT AND ASSIGNMENT, dated as
of February 26, 1996, by and between Bank of America
Illinois (the "Seller") and Arabella S.A., a
Luxembourg holding company (the "Purchaser").
10.3 Letter Agreement dated February 26, 1996 by and among
ARTRA GROUP Incorporated and Arabella S.A., a
Luxembourg holding company, re. purchase of certain
indebtedness by Arabella (the "Purchaser") from Bank
of America Illinois (the "Seller").
10.4 AMENDED AND RESTATED PROMISSORY NOTE, dated February
26, 1996 made by BCA HOLDINGS, INC. in favor of
ARABELLA S.A.
10.5 OPTION TO PURCHASE SHARES OF COMMON STOCK OF BAGCRAFT
CORPORATION OF AMERICA sold by BCA HOLDINGS, INC. to
ARABELLA S.A.
10.6 PREFERRED STOCK AGREEMENT made by and between BCA
HOLDINGS INC. AND BAGCRAFT CORPORATION OF AMERICA.
10.7 PREFERRED STOCK EXCHANGE AGREEMENT, dated as of
January 31, 1996 by and between Ozite Corporation,
BCA Holdings Inc. and Bagcraft Corporation of
America.
10.8 LIMITED CONSENT AND SIXTH AMENDMENT TO CREDIT
AGREEMENT, dated as of February 1, 1996 between
BAGCRAFT CORPORATION OF AMERICA and GENERAL ELECTRIC
CAPITAL CORPORATION.
EXHIBIT 11 Computation of earnings per share and equivalent
share of common stock for each of the three years in
the period ended December 28, 1995.
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 ASSET PURCHASE AGREEMENT made as of the 28th
day of September, 1995, by and among Arcar
Graphics, Inc., an Illinois corporation
("Arcar" or "Seller"), BCA Holdings, Inc., a
Delaware corporation ("BCA"), Bagcraft
Corporation of America, a Delaware
corporation ("BCA" and, collectively with
BCA, "Bagcraft"), ARTRA GROUP Incorporated,
a Pennsylvania corporation ("ARTRA"), and
Arcar Acquisition Corp., a Delaware
corporation ("Buyer"), filed with
Registrant's Form 8-K dated October 26,
1995.
10.2 LIMITED RELEASE, dated October 30, 1995,
between NatWest Bank N. A. ("Releasor"), and
ARTRA GROUP Incorporated and Peter R. Harvey
("Releasee"), filed with Registrant's Form
8-K dated October 26, 1995.
10.3 STOCK PURCHASE AGREEMENT, Dated September
11, 1995 by and Among Spectrum Technologies,
Inc., The Lori Corporation, COMFORCE Corp.;
ARTRA Group Incorporated, Peter R. Harvey,
Marc L. Werner, James L. Paterek, Michael
Ferrentino, and Christopher P. Franco, filed
with Registrant's Form 8-K dated September
11, 1995.
10.4 Letter Agreement dated June 29, 1995,
regarding employment or consulting services
between The Lori Corporation, ARTRA Group
Incorporated, James L. Paterek, Michael
Ferrentino, and Christopher P. Franco, filed
with Registrant's Form 8-K dated September
11, 1995.
10.5 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, filed as an exhibit to Registrant's
Form 10-K, for the year ended December 29,
1994, dated April 12, 1995.
10.6 REGISTRATION AND SETTLEMENT AGREEMENT dated
as of March 31, 1995 by and between ARTRA
GROUP Incorporated and IBJ Schroder Bank &
Trust Company filed as an exhibit to
Registrant's Form 10-K, for the year ended
December 29, 1994, dated April 12, 1995.
10.7 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.
<PAGE>
10.8 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.
10.9 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.
10.10 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
.
10.16 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.
10.19 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.
10.20 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.
<PAGE>
10.21 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.
10.22 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.
10.23 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.
10.24 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.
EXHIBIT 11
ARTRA GROUP INCORPORATED
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
Line 1995 1994* 1993*
-------- -------- --------
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C> <C>
1 Weighted average number of shares of common stock
outstanding during the period 6,776 5,702 4,823
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 6,776 5,702 4,908
========= ========= ========
EARNINGS (LOSS)
4 Loss from continuing operations ($16,943) ($13,529) ($8,327)
5 Less dividends applicable to redeemable preferred stock (565) (516) (471)
6 Less redeemable common stock accretion (767) (309) (243)
========= ========= ========
7 Amount for per share computation ($18,275) ($14,354) ($9,041)
========= ========= ========
8 Loss before extraordinary credit (16,933) ($29,435) ($8,543)
9 Less dividends applicable to redeemable preferred stock (565) (516) (471)
10 Less redeemable common stock accretion (767) (309) (243)
========= ========= ========
11 Amount for per share computation ($18,265) ($30,260) ($9,257)
========= ========= ========
12 Net earnings (loss) ($2,903) ($20,470) $13,514
13 Less dividends applicable to redeemable preferred stock (565) (516) (471)
14 Less redeemable common stock accretion (767) (309) (243)
--------- --------- --------
15 Amount for per share computation ($4,235) ($21,295) $12,800
========= ========= ========
PER SHARE AMOUNTS
Loss from continuing operations
(line 7 / line 3) ($2.69) ($2.56) ($1.84)
========= ========= ========
Loss before extraordinary credit
(line 11 / line 3) ($2.69) ($5.30) ($1.88)
========= ========= ========
Net earnings (loss)
(line 15 / line 3) ($0.63) ($3.73) $2.61
========= ========= ========
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss), less
redeemable preferred stock ock dividends and redeemable common stock accretion,
by the weighted average number of shares of common stock tock 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 s equivalent to primary earnings
(loss) per share.
_________________________________________________
* As reclassified for discontinued operations.
EXHIBIT 21
SUBSIDIARIES
(As of April 9, 1996)
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 %
(1) Pennsylvania Corporation
(2) Delaware Corporation
(3) lllinois Corporation
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 9, 1996 on our
audits of the consolidated financial statements and financial statement
schedules of ARTRA GROUP Incorporated as of December 28, 1995 and December 29,
1994, and for each of the three fiscal years in the period ended December 28,
1995, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 9, 1996
EXHIBIT 10.1
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 1
February 26, 1996
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, Illinois 60093
ARTRA Subsidiary, Inc.
500 Central Avenue
Northfield, Illinois 60093
BCA Holdings, Inc.
500 North Central
Northfield, Illinois 60693
Peter and Jean Harvey
c/o ARTRA GROUP Incorporated
Attention: Mr. Peter R. Harvey
Gentlemen:
Reference is made herein to that certain letter agreement dated
September 29, 1991, as amended by that certain letter agreement dated February
11, 1992, as amended by that certain letter agreement dated September 10, 1992,
as amended by that certain letter agreement dated December 31, 1992, as amended
by that certain letter agreement dated June 30, 1993, as amended by that certain
letter agreement dated March 31, 1994, and as further amended by that certain
letter agreement dated June 30, 1995, from Continental Bank N.A., which has
subsequently become Bank of America Illinois (the "Bank") addressed to and
accepted by ARTRA GROUP Incorporated ("ARTRA"), ARTRA Subsidiary, Inc., a
wholly-owned subsidiary of ARTRA ("ARTRA SUB"), BCA Holdings, Inc., a
wholly-owned subsidiary of ARTRA ("BCA") and Peter and Jean Harvey ("Harvey")
(as so amended, the "June 1995 Letter Agreement"). Reference is also made to the
Harvey Indebtedness (as defined below) and all documents and instruments
executed in connection therewith.
Each of the ARTRA Notes (as defined below) has matured and the Harvey
Indebtedness has matured. ARTRA, ARTRA Sub, BCA, the Harveys and the Bank have
agreed to satisfy all obligations under the ARTRA Notes and Harvey Indebtedness,
all in accordance with and subject to the provisions set forth herein. This
letter shall be referred to hereinafter as this "Letter Agreement."
I. Preliminary Statements.
A. ARTRA Notes.
1. As of the date hereof, ARTRA is indebted to the Bank pursuant
to the ARTRA Notes (as defined herein) in the aggregate principal amount of
$14,563,639.59, together with interest thereon (the "Indebtedness").
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 2
ARTRA is further indebted to the Bank for, among other things, legal fees
through the date hereof, and the Outstanding Fee Amount (as defined in the
September 1991 Letter Agreement).
2. The ARTRA Indebtedness is evidenced by, inter alia, that
certain Amended and Restated Secured Promissory Note dated as of July 6, 1988,
made by ARTRA payable to the order of Bank in the original principal amount of
$5,000,000 (the "1988 ARTRA Note"), that certain Amended and Restated Promissory
Note dated as of March 21, 1989, made by ARTRA payable to the order of Bank in
the original principal amount of $2,500,000 (the "1989 ARTRA Note"), and that
certain Amended and Restated Promissory Note dated as of June 22, 1990, made by
ARTRA payable to the order of Bank in the original principal amount of
$7,063,639.59 (the "1990 ARTRA Note", and collectively with the 1988 ARTRA Note
and the 1989 ARTRA Note, the "ARTRA Notes");
3. Payment of the 1988 ARTRA Note is partially guaranteed by that
certain Guaranty dated July 6, 1988, made by Mr. Barry Rymer ("Rymer") in favor
of Bank (as heretofore amended and supplemented, the "1988 Rymer Guaranty"), and
fully guaranteed by (i) that certain Amended and Restated ARTRA SUB Guaranty and
Security Agreement executed on October 15, 1991, by ARTRA SUB in favor of Bank
(as heretofore amended and supplemented, the "ARTRA SUB Guaranty and Security
Agreement"), and (ii) that certain BCA Holdings, Inc. Guaranty and Security
Agreement executed on October 15, 1991 by BCA in favor of Bank (as heretofore
amended and supplemented, the "BCA Guaranty and Security Agreement");
4. Payment of the 1989 ARTRA Note is partially guaranteed by that
certain Guaranty dated March 21, 1989, made by Rymer in favor of Bank (as
heretofore amended and supplemented, the "1989 Rymer Guaranty" and together with
the 1988 Rymer Guaranty, the "Rymer Guaranties"), and fully guaranteed by the
ARTRA SUB Guaranty and Security Agreement and the BCA Guaranty and Security
Agreement;
5. Payment of the 1990 ARTRA Note is fully guaranteed by (i) the
ARTRA Sub Guaranty and Security Agreement and (ii) the BCA Guaranty and Security
Agreement;
6. Payment of the ARTRA Indebtedness is secured by, inter alia,
(i) that certain Amended and Restated Pledge Agreement dated as of June 22,
1990, made by and between ARTRA and Bank (as heretofore amended and
supplemented, the "1990 ARTRA Pledge Agreement"), (ii) that certain ARTRA Pledge
Agreement dated as of September 29, 1991, made by and between ARTRA and Bank (as
heretofore amended and supplemented, the "1991 ARTRA Pledge Agreement") and
(iii) that certain Pledge and Security Agreement and Financing Statement dated
as of September 29, 1991, by and between BCA and Bank (as heretofore amended,
the "BCA Pledge Agreement") (collectively, the "ARTRA Collateral");
7. Each of the 1988 ARTRA Note, the 1989 ARTRA Note and the 1990
ARTRA Note has matured, and Bank has not received principal payment of the 1988
ARTRA Note, 1989 ARTRA Note or the 1990 ARTRA Note or payment of interest due
thereunder or payment of certain fees to which Bank is entitled thereunder. As a
result of such non-payment, ARTRA is in default under the June 1995 Letter
Agreement and each of the ARTRA Notes;
B. Harvey Indebtedness
1. Harvey is indebted to Bank pursuant to Harvey Note A, Harvey
Note B, the Canary Obligations and Mortgage Note (each as defined below), in the
aggregate principal amount of $7,496,830, together with accrued interest thereon
(collectively, the "Harvey Indebtedness");
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 3
2. On September 14, 1990, Peter R. Harvey and Jean M. Harvey made
and delivered to Bank a promissory note payable on demand in the original
principal amount of $1,400,000 ("Harvey Note A");
3. As security for the payment of Harvey Note A and all
extensions, renewals and substitutions, defendants Peter R. Harvey and Jean M.
Harvey gave Bank a lien upon and a security interest in certain collateral
consisting of sundry securities (the "Harvey Note A Collateral");
4. On September 14, 1990, Peter R. Harvey made and delivered to
Bank a promissory note payable on demand in the original principal amount of
$896,830 ("Harvey Note B");
5. As security for the payment of Harvey Note B and all
extensions, renewals and substitutions, defendant Peter Harvey gave Bank a lien
upon and a security interest in certain collateral consisting of sundry
securities (the "Harvey Note B Collateral");
6. On April 27, 1989, Peter R. Harvey executed a guaranty (the
"Canary Guaranty") in favor of Bank, as reaffirmed by a reaffirmation agreement
dated as of November 6, 1991 with respect to the Canary Guaranty (the
"Reaffirmation Agreement");
7. Pursuant to the Canary Guaranty and the Reaffirmation
Agreement, Peter R. Harvey and Prior Management, Inc. guaranteed repayment to
Bank of all obligations of the Canary and the Elephant, Inc. (hereinafter
"Canary") to Bank, including (a) those pursuant to that certain Demand
Promissory Note dated as of April 27, 1989, made by Canary payable to the order
of Bank in the original principal amount of $5,700,000 and (b) those made by
Canary pursuant to that certain Loan and Security Agreement dated as of November
6, 1991, between Canary and Bank, which provided for Canary to borrow funds from
Bank pursuant to a revolving credit facility in the original principal amount of
$800,000 (collectively, the "Canary Obligations");
8. Peter R. Harvey's liability under the Canary Guaranty is
limited to the amount of $2,200,000, plus interest on such amount and all
expenses of enforcing the Canary Guaranty, including attorneys' fees;
9. Bank is the first mortgage lienholder on certain real property
and improvements located in Northbrook, Cook County, Illinois (the "Mortgage
Note Collateral" and, collectively with the Harvey Note A Collateral and the
Harvey Note B Collateral, the "Harvey Collateral") through operation of the
following documents:
a. Mortgage dated as of March 1, 1983, Supplemental Mortgage dated
as of November 22, 1983, Supplemental Mortgage Modification and
Extension Agreement dated as of March 12, 1985, and Second Supplemental
Mortgage Modification and Extension Agreement dated as of January 14,
1988, all made by First Bank, formerly National Boulevard Bank, N.A.,
formerly National Boulevard Bank of Chicago, as Trustee under a Trust
Agreement dated as of February 10, 1977 known as Trust No. 5601
("Mortgagor") (collectively, the "Mortgage");
b. Fourth Substitute Note dated as of September 7, 1990 made by
Peter R. Harvey and Jean M. Harvey payable to Bank in the principal
amount of $3,000,000 (the "Mortgage Note");
In consideration of the above Preliminary Statements and the mutual
covenants contained herein and other good and valuable consideration, the
sufficiency of which is hereby acknowledged by all parties hereto, ARTRA, ARTRA
SUB, BCA, Harvey, Jean Harvey and the Bank hereby agree as follows:
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 4
II. Transactions To Be Consummated On The Closing Date.
A. Sale and Assignment of ARTRA Notes, Harvey Indebtedness and
collateral security and related rights and documents.
1. On the Closing Date, pursuant to that certain Purchase and Sale
Agreement and Assignment between the Bank and Arabella S.A., a Luxembourg
holding company ("Buyer"), of even date herewith, the form of which is attached
hereto as Exhibit A, the Bank shall sell and assign all of its right, title and
interest in the ARTRA Notes, the Harvey Indebtedness and all collateral security
and related documentation (except for the Mortgage Note and Mortgage Note
Collateral) to Buyer, as is, without any representations or warranties
whatsoever, in consideration of $5,150,000 (the "Cash Purchase Price"), to be
paid in cash at closing.
2. In addition, on the Closing Date, the Mortgage Note shall be
amended and restated such that the indebtedness owing to the Bank thereunder is
$3,000,000 (the "Amended Mortgage Note"). The form of the Amended Mortgage Note
is attached hereto as Exhibit B. The term of such Amended Mortgage Note shall
provide for maturity one year from the date hereof, with interest at the Bank's
Reference Rate (as defined in the Amended Mortgage Note). In consideration of
the transactions contemplated by this Letter Agreement, including, without
limitation, the releases contained herein, the Bank shall sell to ARTRA a
participation in the Amended Mortgage Note, pursuant to the terms and conditions
of that certain Participation Agreement between the Bank and ARTRA of even date
herewith (the "Participation Agreement"), the form of which is attached hereto
as Exhibit C.
B. Release. Effective on the date hereof, for valuable consideration the
receipt of which is hereby acknowledged, ARTRA, ARTRA SUB, BCA, Harvey and Jean
Harvey hereby, for themselves, and their affiliates, successors, heirs,
executors, administrators and assigns ("Releasors"), forever release, discharge
and acquit the Bank and its parents, subsidiaries and affiliates, and each of
their respective officers, directors, shareholders, attorneys, agent and
employees and their successors, heirs and assigns ("Released Parties"), and each
of them, separately and collectively, of and from any and all claims, demands,
obligations, liabilities, indebtedness, breaches of contract, breaches of duty
or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes
of action, actions, counterclaims, debts, sums of money, accounts,
compensations, contracts, controversies, promises, damages, costs, losses and
expenses, of every type, kind, nature, description or character, and
irrespective of how, why or by reason of what fact ("Claims"), whether
heretofore, now existing or hereafter arising, or which could, might, or may be
claimed to exist, of whatever kind or name, whether known or unknown, suspected
or unsuspected, liquidated or unliquidated, fixed or contingent, and defenses of
every nature and kind whatsoever, each as though fully set forth herein at
length, including but not limited to any Claims which in any way arise prior to
the date hereof out of, are connected with or relate to the transactions
contemplated by and occurring in connection with the ARTRA Notes, the Harvey
Indebtedness and the other loan documents or any other loan or extension of
credit by the Bank or any of the other Released Parties to any of the Releasors
prior to the date hereof, as well as any action or inaction of any person or
entity released hereunder with respect thereto, and any action or inaction with
respect to any and all guaranties of the indebtedness evidenced thereby and/or
any and all collateral security for such indebtedness. Notwithstanding the
foregoing, the Bank shall continue to have its rights and obligations under the
Amended Mortgage Note and Mortgage Note Collateral documents from and after the
date hereof.
Effective on the Closing Date, the Released Parties release, discharge
and acquit the Releasors of and from any and all Claims which in any way arise
prior to the Closing Date out of, are connected with or relate to the
transactions
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 5
contemplated by, and occurring in connection with, the ARTRA Notes and the
Harvey Indebtedness (excluding any and all claims arising at any time whatsoever
relating to the Mortgage Note or the Mortgage Note Collateral).
In this connection, the Releasors hereby agree, represent and warrant
that they realize and acknowledge that factual matters now unknown to them may
have given or may hereafter give rise to causes of action, claims, demands,
debts, controversies, damages, costs, losses and expenses which are presently
unknown, unanticipated and unsuspected, and they further agree, represent and
warrant that this release has been negotiated and agreed upon in light of that
realization and that they nevertheless hereby intend to release, discharge and
acquit the parties set forth hereinabove from any such unknown losses or Claims
which are in any way related to the transactions referred to hereinabove.
It is hereby further understood and agreed that the acceptance of
delivery of this release by the parties released hereby shall not be deemed or
construed as an admission of liability by any party released by the terms
hereof, and each such party hereby expressly denies liability of any nature
whatsoever arising from or related to the subject of the within release.
C. Litigation Covenants.
1. The Bank hereby covenants that it shall promptly after the
Closing Date, take all necessary and appropriate action, in good faith, to have
the following lawsuits dismissed with prejudice:
Bank of America v. ARTRA Group Incorporated, ARTRA
Subsidiary, Inc and BCA Holdings, Inc., Case 95L13519, Circuit
Court of Cook County, Illinois, Law Division;
Bank of America v. Peter and Jean Harvey, Case 94L0769,
Circuit Court of Cook County, Illinois,
Law Division; and
Bank of America v. Barry Rymer, Case 94L13521, Circuit Court
of Cook County, Illinois, Law Division.
2. Upon receipt by the Bank of executed confessions of judgement
by Peter R. Harvey and Jean M. Harvey in form and substance satisfactory to the
Bank, the Bank will take necessary appropriate action to dismiss, without
prejudice, the lawsuit entitled Bank of America v. First Bank, formerly National
Boulevard Bank, N.A., formerly National Boulevard Bank of Chicago, as Trustee
under a Trust Agreement dated February 20, 1977 Known as Trust No. 5601; Peter
R. Harvey and Jean M. Harvey, individually, and unknown others, Case 94CH05671,
Circuit Court of Cook County, Illinois, Chancery Division.
III. The Closing Date.
The Closing Date shall occur when, and for purposes of this Letter
Agreement shall be defined as the date upon which, each of the following has
occurred:
A. The Bank shall have received counterparts of this Letter
Agreement duly executed by ARTRA, ARTRA SUB, BCA, Harvey and Jean
Harvey.
B. Final documentation of the sale and assignment of the ARTRA
Notes, Harvey Indebtedness and all collateral security and related
rights and documents (except the Mortgage Note and Mortgage Note
Collateral)
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 6
and all related documentation shall have been fully executed and
effective pursuant to their terms and all conditions precedent thereto
shall have been satisfied or duly waived;
C. the Amended Mortgage Note and the Participation Agreement
shall have been duly executed and delivered by all parties thereto;
D. the Bank shall have received an officer's certificate
together with resolutions of the Board of Directors of each of ARTRA,
ARTRA SUB and BCA;
E. the Cash Purchase Price shall have been received by the
Bank; and
F. the Bank shall have received all further instruments and
documents which are necessary or appropriate, or which the Bank shall
reasonably request, in order to implement the agreements described
herein, each duly executed by all parties thereto.
IV. Future Release.
Upon the request of Harvey, and after the indefeasible payment in full
of the Seller's Interest (as defined in the Participation Agreement), the Bank
agrees to execute and deliver such releases of the Mortgage Note and Mortgaged
Note Collateral that are reasonable and necessary under the circumstances.
V. Governing Law.
THIS LETTER AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
VI. Waiver of Jury Trial.
ARTRA, ARTRA SUB, BCA AND HARVEY EACH WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THEM AND THE BANK ARISING OUT OF, CONNECTED WITH, RELATED TO
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS LETTER AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. ARTRA,
ARTRA SUB, BCA AND HARVEY EACH AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION MAY BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
THE BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS LETTER AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ARTRA, ARTRA SUB, BCA OR
HARVEY TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE>
ARTRA GROUP Incorporated
ARTRA Subsidiary, Inc.
BCA Holdings, Inc.
February 26, 1996
Page 7
Please indicate your agreement to be bound by the terms of this Letter
Agreement by signing in the space provided below.
Very truly yours,
BANK OF AMERICA ILLINOIS
By:
Title: Vice President
AGREED, ACCEPTED AND ACKNOWLEDGED
this 26th day of February, 1996
ARTRA GROUP INCORPORATED ARTRA SUBSIDIARY, INC.
By: By:
Title: Title:
BCA HOLDINGS, INC. PETER HARVEY
By:
Title:
JEAN HARVEY
EXHIBIT 10.2
PURCHASE AND SALE AGREEMENT AND ASSIGNMENT
This Purchase and Sale Agreement and Assignment, dated as of
February 26, 1996 (this "Agreement"), is made by and between Bank of America
Illinois (the "Seller") and Arabella S.A., a Luxembourg holding company (the
"Purchaser").
PRELIMINARY STATEMENTS:
A. ARTRA Indebtedness.
1. As of the date of this Agreement, ARTRA GROUP Incorporated
("ARTRA") is indebted to the Seller under the ARTRA Notes (as defined below) in
the aggregate principal amount of $14,563,639.59, together with interest on such
principal amount (collectively, the "ARTRA Indebtedness"). ARTRA is further
indebted to the Seller for, among other things, legal fees through the date of
the Agreement and the Outstanding Fee Amount under, and as defined in, the
letter agreement dated September 29, 1991 (as amended or supplemented) from the
Seller (f/k/a Continental Bank N.A.) and addressed to and accepted by ARTRA,
ARTRA Subsidiary Inc., a wholly owned subsidiary of ARTRA ("ARTRA SUB").
2. The ARTRA Indebtedness is evidenced by, among other things,
the Amended and Restated Secured Promissory Note dated as of July 6, 1988, made
by ARTRA payable to the order of the Seller in the original principal amount of
$5,000,000 (the "1988 ARTRA Note"), the Amended and Restated Promissory Note
dated as of March 21, 1989, made by ARTRA payable to the order of the Seller in
the original principal amount of $2,500,000 (the "1989 ARTRA Note"), and the
Amended and Restated Promissory Note dated as of June 22, 1990, made by ARTRA
payable to the order of the Seller in the original principal amount of
$7,063,639.59 (the "1990 ARTRA Note" and, together with the 1988 ARTRA Note and
the 1989 ARTRA Note, the "ARTRA Notes").
3. Under the Subordination Agreement dated as of March 31,
1994 (the "Kenny Subordination Agreement") by and between the Seller and Kenny
Construction Company ("Kenny"), payment of the ARTRA Indebtedness is senior to
the indebtedness of ARTRA to Kenny under the Amended and Restated Promissory
Note dated as of March 21, 1989 made by ARTRA and payable to the order of Kenny
in the original principal amount of $2,500,000.
4 Payment of the 1988 ARTRA Note is partially guaranteed by
the Guaranty dated July 6, 1988, made by Barry Rymer ("Rymer") in favor of the
Seller (as amended, restated or supplemented, the "1988 Rymer Guaranty"), and
fully guaranteed by (i) the Amended and Restated ARTRA SUB Guaranty and Security
Agreement executed on October 15, 1991, by ARTRA SUB in favor of the Seller (as
amended, restated or supplemented, the "ARTRA SUB Guaranty"), and (ii) the BCA
Holdings, Inc. Guaranty and Security Agreement executed on October 15, 1991 by
BCA Holdings, Inc., a wholly owned subsidiary of ARTRA ("BCA"), in favor of the
Seller (as amended, restated or supplemented, the "BCA Guaranty").
5. Payment of the 1989 ARTRA Note is partially guaranteed by
the Guaranty dated March 21, 1989, made by Rymer in favor of the Seller (as
amended, restated or supplemented, the "1989 Rymer Guaranty" and, together with
the 1988 Rymer Guaranty, the "Rymer Guaranties"), and fully guaranteed by the
ARTRA SUB Guaranty and the BCA Guaranty.
6. Payment of the 1990 ARTRA Note is fully guaranteed by (i)
the ARTRA SUB Guaranty and (ii) the BCA Guaranty.
<PAGE>
7. Payment of the ARTRA Indebtedness is secured by, among
other things, (i) the Amended and Restated Pledge Agreement dated as of June 22,
1990, made by and between ARTRA and the Seller (as amended, restated or
supplemented, the "1990 ARTRA Pledge Agreement"), (ii) the ARTRA Pledge
Agreement dated as of September 29, 1991, made by and between ARTRA and the
Seller (as amended, restated or supplemented, the "1991 ARTRA Pledge Agreement")
and (iii) the Pledge and Security Agreement and Financing Statement dated as of
September 29, 1991, by and between BCA and the Seller (as amended, restated or
supplemented, the "BCA Pledge Agreement" and, together with the 1990 ARTRA
Pledge Agreement, the 1991 Pledge Agreement, the Rymer Guaranties, the ARTRA SUB
Guaranty, the BCA Guaranty and the Kenny Subordination Agreement, the "ARTRA
Collateral").
B. Harvey Indebtedness.
1. As of the date of this Agreement, Peter R. Harvey and/or
Jean M. Harvey (collectively, "Harvey") are indebted to the Seller under the
Harvey Note A, the Harvey Note B and the Canary Obligations (each as defined
below), in the aggregate principal amount of $4,496,830, together with accrued
interest on such principal amount (collectively, excluding the Mortgage Note (as
defined below), the "Harvey Indebtedness").
2. On September 14, 1990, Harvey made and delivered to the
Seller a promissory note payable on demand in the original principal amount of
$1,400,000 (the "Harvey Note A").
3. On September 14, 1990, Peter R. Harvey made and delivered
to the Seller a promissory note payable on demand in the original principal
amount of $896,830 (the "Harvey Note B").
4. As security for the payment of the Harvey Note A, the
Harvey Note B and all extensions, renewals and substitutions, Peter R. Harvey
gave the Seller a lien upon and a security interest in certain collateral
consisting of sundry securities listed on Schedule I (the "Harvey Note
Collateral").
5. On April 27, 1989, The Canary and the Elephant, Inc.
("Canary") made and delivered to the Seller a promissory note payable on demand
in the original principal amount of $5,700,000 (the "Canary Note") and on
November 6, 1991, Canary and the Seller entered into a revolving credit
facility, which provided for Canary to borrow funds from the Seller in the
original principal amount of $800,000 (collectively with the Canary Note, the
"Canary Obligations").
6. On April 27, 1989, Peter R. Harvey executed a guaranty (the
"Canary Guaranty") in favor of the Seller, as reaffirmed by a reaffirmation
agreement dated as of November 6, 1991 with respect to the Canary Guaranty (the
"Reaffirmation Agreement" and, together with the Canary Guaranty and the Harvey
Note Collateral, the "Harvey Collateral"), under which Peter R. Harvey
guaranteed repayment to the Seller of all obligations of Canary to the Seller
under the Canary Obligations; Peter R. Harvey's liability under the Canary
Guaranty is limited to the amount of $2,200,000, plus interest on such amount
and all expenses of enforcing the Canary Guaranty, including attorneys' fees.
C. Mortgage.
1. As of the date of this Agreement, Harvey is indebted to the
Seller in the aggregate principal amount of $3,000,000, together with interest
on such principal amount, under the Fourth Substitute Note dated as of September
7, 1990 (as amended, restated or supplemented, the "Existing Mortgage Note")
made by Harvey payable to the Seller in the original principal amount of
$3,000,000.
2. Concurrently with the execution of this Agreement, the
Existing Mortgage Note is amended and restated such that (i) the rate at which
the principal amount of the Existing Mortgage Note will accrue interest is the
Seller's "Reference Rate," (ii) interest is payable quarterly in arrears and
(iii) the principal amount of the Existing Mortgage Note matures one year from
the date of this Agreement (as amended and restated, the "Mortgage Note").
<PAGE>
3. Payment of the Mortgage Note is secured by a first mortgage
lien on real property and improvements located in Northbrook, Cook County,
Illinois (the "Mortgage Note Collateral") through operation of the Mortgage Note
and the Mortgage dated as of March 1, 1983, the Supplemental Mortgage as of
dated November 22, 1983, the Supplemental Mortgage Modification and Extension
Agreement dated as of March 12, 1985, and the Second Supplemental Mortgage
Modification and Extension Agreement dated as of January 14, 1988, all made by
First Bank (formerly National Boulevard Bank, N.A., formerly National Boulevard
Bank of Chicago), as Trustee under a Trust Agreement dated as of February 10,
1977 known as Trust No. 5601.
D. Purchase and Sale Agreement and Assignment.
1. The Seller desires to sell to the Purchaser and the
Purchaser desires to purchase from the Seller all of the Seller's right, title
and interest in the ARTRA Indebtedness and the Harvey Indebtedness, excluding
the Mortgage Note (the "Purchase and Sale").
2. In connection with the Purchase and Sale, the Purchaser
will receive assignment of all of the Seller's right, title and interest in the
ARTRA Collateral and the Harvey Collateral, excluding the Mortgage Note
Collateral (the "Assignment").
3. In consideration of the Purchase and Sale and the
Assignment, the Seller will receive from the Purchaser the sum of $5,150,000 in
cash.
AGREEMENT:
The Purchaser and the Seller agree the following terms and
conditions govern the Purchase and Sale and the Assignment:
1. PURCHASE, SALE AND ASSIGNMENT
1.1 Purchase and Sale. On the date this Agreement becomes
effective, after satisfaction of each of the conditions set forth in Section 5
(the "Closing Date"), the Seller shall sell to the Purchaser and the Purchaser
shall acquire from the Seller all right, title and interest of the Seller in the
ARTRA Indebtedness and the Harvey Indebtedness, excluding the Mortgage Note.
1.2 Assignment. On the Closing Date, the Seller shall assign
to the Purchaser all documents, agreements, papers and instruments guarantying
or securing the ARTRA Indebtedness, as set forth on Schedule II and the Harvey
Indebtedness, excluding the Mortgage Note Collateral, as set forth in Schedule
III (collectively, the "Indebtedness Agreements").
1.3 Purchase Price. On the Closing Date, the Purchaser shall
pay to the Seller, in immediately available funds, a purchase price (the
"Purchase Price") of $5,150,000.
1.4 Non-Recourse Sale. It is agreed by the Seller and the
Purchaser that the purchase and sale of the ARTRA Indebtedness and the Harvey
Indebtedness under this Agreement, as well as the assignment of the ARTRA
Collateral and the Harvey Collateral under this Agreement, is without recourse
and without representation or warranty, express (except as set forth in Section
2) or implied, by the Seller.
1.5 Further Assurances. The Seller agrees that at any time and
from time to time, at the cost and expense of the Purchaser, the Seller will
execute and deliver all further instruments and documents, and take all further
action, that may be reasonably necessary to complete the Assignment.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
To induce the Purchaser to enter into this Agreement, the
Seller represents and warrants to the Purchaser that:
2.1 Authority and Enforceability. The execution, delivery and
performance of this Agreement by the Seller have been duly authorized by all
necessary action on the part of the Seller.
2.2 Indebtedness Documents. To the best of the Seller's
knowledge, (i) the ARTRA Indebtedness and Harvey Indebtedness constitutes all of
the obligations of ARTRA, ARTRA SUB, BCA and Harvey to the Seller, respectively,
except for the Mortgage Note, (ii) the Seller is the sole owner and holder the
ARTRA Notes, the Harvey Note A and the Harvey Note B and (iii) the documents,
instruments and agreements listed on Schedules II and III constitute all the
material documents, instruments and agreements governing the ARTRA Collateral
and the Harvey Collateral.
2.3 Exclusive Representations and Warranties. The
representations and warranties set forth in this Section 2 are the sole and
exclusive representations and warranties made by the Seller, its
representatives, agents, officers, directors and other employees, with respect
to the ARTRA Indebtedness, the Harvey Indebtedness, the ARTRA Collateral, the
Harvey Collateral the Mortgage Note or the Mortgage Note Collateral, and the
sale or assignment thereof to the Purchaser under this Agreement or otherwise.
Without limiting the generality of the foregoing, it is expressly acknowledged
and agreed by the Purchaser that no covenant, agreement, representation or
warranty made by the Seller or any such other person, in this Agreement or
otherwise, is construed as a warranty, representation, guaranty or other
agreement or acknowledgement as to, nor does the Seller or any such other person
assume any responsibility for:
(A) the creditworthiness of ARTRA, ARTRA SUB, BCA or Harvey or
the collectability of the ARTRA Notes, the Harvey Note A, the Harvey
Note B or the Mortgage Note or the ARTRA Collateral, the Harvey
Collateral or the Mortgage Note Collateral by reason of the respective
obligors' ability to make payments with respect thereto;
(B) the conformity of the ARTRA Indebtedness, the Harvey
Indebtedness, the Mortgage Note, the ARTRA Collateral, the Harvey
Collateral, or the Mortgage Note Collateral with laws and regulations
binding upon the Seller or the Purchaser;
(C) the genuineness, legality, validity or enforceability of
the ARTRA Indebtedness, the Harvey Indebtedness, the Mortgage Note, the
ARTRA Collateral, the Harvey Collateral or the Mortgage Note
Collateral, whether by the Seller or otherwise; or
(D) the value of the ARTRA Collateral, the Harvey Collateral
or the Mortgage Note Collateral or the priority or validity of the
liens and security interests with respect to the ARTRA Indebtedness,
the Harvey Indebtedness or the Mortgage Note.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
To induce the Seller to enter into this Agreement, the
Purchaser represents and warrants to the Seller that:
3.1 Legal Status. The Purchaser is an entity duly organized
and validly existing under the laws of the jurisdiction of its organization.
3.2 Capacity. The Purchaser has full power, authority and
legal right to execute and deliver, and to perform and observe the provisions of
this Agreement and to carry out the transactions contemplated by this
<PAGE>
Agreement, including, without limitation, to purchase the ARTRA Indebtedness and
the Harvey Indebtedness and to receive assignment of the ARTRA Collateral and
the Harvey Collateral from the Seller.
3.3 Authority and Enforceability. The execution, delivery and
performance of this Agreement by the Purchaser have been duly authorized by all
necessary action.
3.4 No Reliance. The Purchaser has, independently and without
reliance upon the Seller or any of the Seller's officers, directors, employees,
agents or affiliates, and based upon such documents and information as the
Purchaser has deemed appropriate, made its own appraisal of and investigation
into ARTRA, ARTRA SUB, BCA and Harvey, the ARTRA Indebtedness, the Harvey
Indebtedness, the Mortgage Note, the ARTRA Collateral, the Harvey Collateral and
the Mortgage Note Collateral and made its own decision to enter into this
Agreement and to purchase the ARTRA Indebtedness and the Harvey Indebtedness and
to receive assignment of the ARTRA Collateral and the Harvey Collateral under
this Agreement.
4. INDEMNIFICATION
The Purchaser agrees to indemnify, defend and hold harmless
the Seller from and against any and all liabilities, claims, demands, losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees for the Seller's outside attorneys and allocated costs and
expenses of the Seller's in-house attorneys), actions or causes of action
(collectively and severally, "Claims"), assessed against or imposed upon the
Seller by any person or entity, arising out of or related to any action or
inaction by the Purchaser following the Closing Date as successor in interest to
the Seller under the ARTRA Indebtedness, the Harvey Indebtedness, the ARTRA
Collateral and the Harvey Collateral; provided, however, that the Purchaser has
no obligation under this Section 4 with respect to any Claims directly resulting
from the willful misconduct of the Seller.
5. CONDITIONS TO EFFECTIVENESS.
The transactions contemplated by this Agreement are deemed to
have occurred for all purposes at the opening of business of the Seller on the
date all conditions precedent set forth below have been met (or waived in
writing):
5.1 Conditions Precedent to the Obligations of the Seller. The
obligation of the Seller to sell the ARTRA Indebtedness and the Harvey
Indebtedness, excluding the Mortgage Note, to the Purchaser under this
Agreement, and to assign the ARTRA Collateral and the Harvey Collateral to the
Purchaser under this Agreement, are subject to the following conditions:
(A) This Agreement. The Seller has received a duly executed
and delivered copy of this Agreement (or counterpart copies of this
Agreement).
(B) Purchase Price. The Seller has received the Purchase
Price.
(C) Resolutions. The Seller has received evidence satisfactory
to the Seller that the board of directors, shareholders or general
partners, as the case may be, of the Purchaser have approved the
execution, delivery and performance of this Agreement.
(D) Letter Agreement. All conditions set forth in the letter
agreement of even date herewith from the Seller and addressed to and
accepted by ARTRA, ARTRA SUB, BCA and Harvey have been satisfied.
(E) Other. The Seller has received all further instruments and
documents which are necessary or appropriate, or which the Seller
reasonably requests, in order to implement the agreements contained in
this Agreement, each duly executed by all parties to such instruments
and documents.
<PAGE>
5.2 Conditions Precedent to the Obligations of the Purchaser.
The obligation of the Purchaser to purchase the ARTRA Indebtedness and the
Harvey Indebtedness from the Seller under this Agreement is subject to the
following conditions:
(A) This Agreement. The Purchaser has received a duly executed
and delivered copy of this Agreement (or counterpart copies of this
Agreement).
(B) Endorsed Notes. The Purchaser has received the ARTRA
Notes, the Harvey Note A and the Harvey Note B, each duly endorsed as
follows:
Pay to The Order of Arabella S.A., a Luxembourg
holding company, without recourse.
Signed.
(C) Indebtedness Agreements. The Purchaser has received the
original of each Indebtedness Agreement which the Seller has agreed to
sell, assign and transfer to the Purchaser under this Agreement, as set
forth on Schedule II and III (or if the original is not in the
possession of the Seller, a copy of such Indebtedness Agreement),
accompanied by an assignment in the form attached as Exhibit A.
(D) Possessory Collateral. The Purchaser has received
such of the ARTRA Collateral and the Harvey Collateral as is held by
the Seller.
6. MISCELLANEOUS
6.1 Survival. The representations and warranties, covenants
and agreements of the Seller and the Purchaser under this Agreement survive the
Closing Date.
6.2 Waiver. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
is deemed to be, or construed as, a further or continuing waiver of any such
term, provision or condition, or of any other term, provision or condition of
this Agreement.
6.3 Captions. The preliminary statements of this Agreement
(except for definitions) and section or other headings contained in this
Agreement are for reference purposes only and do not affect in any way the
meaning or interpretation of this Agreement.
6.4 Entire Agreement. This Agreement constitutes the entire
agreement between the Seller and the Purchaser with regard to the subject matter
of this Agreement, and there are no prior agreements, understandings,
restrictions, warranties or representations between the parties with regard to
the subject matter of this Agreement.
6.5 Assignment. This Agreement is not assignable, by operation
of law or otherwise, by the Purchaser (or its successors or assigns) to any
person or entity without the prior written consent of the Seller. Any purported
assignment in violation of this subsection 6.5 is void and of no effect as
against the Seller. Subject to the foregoing, this Agreement is binding upon,
and inures to the benefit of, the Seller, the Purchaser, ARTRA, ARTRA SUB, BCA
and Harvey and their respective successors and assigns.
6.6 Amendment and Waiver. Neither this Agreement nor any
provision of this Agreement may be changed, waived, discharged or terminated
orally, except by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
6.7 Counterparts. This Agreement may be executed in
counterparts and such counterparts, when taken together, constitute one and the
same agreement. The Seller and the Purchaser agree to accept facsimile
counterparts.
<PAGE>
6.8 Notices. Any notices to be given under this Agreement
are sufficiently given if in writing and delivered personally, sent by telecopy
(answerback received), mailed by registered or certified mail, return receipt
requested, postage prepaid, or sent by overnight courier to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this subsection 6.8:
To the Purchaser:
Arabella S.A.
c/o Scorpion Holdings
599 Lexington Avenue, Suite 2700
New York, New York 10022
Attention: Kevin McCarthy
N. Brandolini
Telephone: (212) 207-9020
Fax: (212) 207-9050
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Nancy L. Kasko, Esq.
Telephone: (312) 715-4000
Fax: (312) 715-4800
with a copy to:
Kwiatt, Silverman & Ruben
500 North Central Avenue
Northfield, Illinois 60093
Attention: Philip E. Ruben, Esq.
Telephone: (847) 441-7676
Fax: (847) 441-7696
To the Seller:
Bank of America Illinois
231 South LaSalle Street
8th Floor
Chicago, Illinois 60697
Attention: Andrew J. Sutherland
Telephone: (312) 828-8673
Fax: (312) 987-1276
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz, Esq.
Timothy R. Pohl, Esq.
Telephone: (312) 782-3939
Fax: (312) 782-8585
<PAGE>
with a copy to:
Kwiatt, Silverman & Ruben
500 North Central Avenue
Northfield, Illinois 60093
Attention: Philip E. Ruben, Esq.
Telephone: (847) 441-7676
Fax: (847) 441-7696
Any notice to be given under this Agreement is deemed received (i) on the date
delivered, if delivered personally, (ii) on the date a telecopied answerback is
received, if sent by telecopy, (iii) on the third business day after the date
such notice was sent, if sent by registered or certified mail, or (iv) the date
of the stamped receipt, if sent by overnight delivery service.
6.9 Governing Law, Severability. THIS AGREEMENT IS GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
Wherever possible, each provision of this Agreement is interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is prohibited by, or invalid under, applicable law, such
provision is ineffective only to the extent of such prohibition or invalidity
and without invalidating the remaining provisions of this Agreement.
6.10 CONSENT TO JURISDICTION. THE SELLER AND THE PURCHASER
CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN THE COUNTY OF COOK IN THE STATE OF ILLINOIS FOR ANY PROCEEDING FOR
ANY OBLIGATION UNDER THIS AGREEMENT AND WAIVE ANY OBJECTION WHICH THEY MAY NOW
OR HEREINAFTER HAVE TO THE LAYING OF VENUE OR TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION OR PROCEEDING OR ANY CLAIM THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM.
6.11 WAIVER OF JURY TRIAL. THE PURCHASER AND THE SELLER WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE SELLER AND THE PURCHASER ARISING
OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS RELATED TO THIS AGREEMENT. THE PURCHASER AND THE SELLER AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION MAY BE DECIDED BY
COURT TRIAL WITHOUT A JURY AND THAT EITHER MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
OTHER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
* * *
<PAGE>
Delivered at Chicago, Illinois, as of the day and year above
first written.
BANK OF AMERICA ILLINOIS
By:
Andrew J. Sutherland
Vice President
ARABELLA S.A., a Luxembourg
holding company
By:
Name:
Title:
Accepted and Acknowledged as of
the day and year first above written.
ARTRA GROUP INCORPORATED
By:
Name:
Title:
ARTRA SUBSIDIARY, INC.
By:
Name:
Title:
BCA HOLDINGS, INC.
By:
Name:
Title:
Peter R. Harvey
Jean M. Harvey
<PAGE>
EXHIBIT A
Form of Assignment of Indebtedness Agreement
FOR VALUE RECEIVED, the undersigned ("Assignor") grants,
assigns and transfers to Arabella S.A., a Luxembourg holding company
("Assignee"), without recourse and without representation or warranty, express
or implied (except as explicitly set forth in the Purchase and Sale Agreement
and Assignment dated as of February 26, 1996 by and between Assignor and
Assignee), all right, title and interest of Assignor under the documents
described on Schedule 1 attached hereto, the originals or true and correct
copies of which are attached hereto as well.
Dated: February 26, 1996
BANK OF AMERICA ILLINOIS
By:
Andrew J. Sutherland
Vice President
<PAGE>
SCHEDULE I
Sundry Securities Comprising Harvey Note A Collateral
1. 191,780 shares of ARTRA Group Incorporated common stock.
2. 171,105 shares The of Rymer Company (f/k/a Kroehler Mfg. Co.) stock.
3. 52,655 shares of Pure Tech International, Inc. stock.
<PAGE>
SCHEDULE II
ARTRA Indebtedness Agreements
<TABLE>
<CAPTION>
Agreement Date
- --------- ----
<S> <C> <C>
1. Subordination Agreement between Bank of America Illinois March 31, 1994
(f/k/a Continental Bank N.A.) and Kenny Construction Company
2. Guaranty made by Barry Rymer in favor of Bank of America July 6, 1988
Illinois (f/k/a Continental Bank N.A.), as amended on October
15, 1991 by the Acknowledgement Consent and Amendment to
Guaranty
3. Amended and Restated ARTRA Sub Guaranty and Security October 15, 1991
Agreement made by ARTRA Subsidiary, Inc. in favor of Bank
of America Illinois (f/k/a Continental Bank N.A)
4. BCA Holdings, Inc. Guaranty and Security Agreement made by October 15, 1991
BCA Holdings, Inc. in favor of Bank of America Illinois (f/k/a
Continental Bank N.A.)
5. Guaranty made by Barry Rymer in favor of Bank of America March 21, 1989
Illinois (f/k/a Continental Bank N.A.), as supplemented on
March 21, 1989 by a letter agreement, and as amended on
October 15, 1991 by the Acknowledgement to Consent and
Amendment to Guaranty
6. Amended and Restated Pledge Agreement made by ARTRA June 22, 1990
Group Incorporated in favor of Bank of America Illinois (f/k/a
Continental Bank N.A.), as amended on March 31, 1994 by the
First Amendment to Amended and Restated Pledge Agreement,
and as further amended on June 31, 1995 by the Second
Amendment to Amended and Restated Pledge Agreement
7. ARTRA Pledge Agreement made by ARTRA Group September 29, 1991
Incorporated in favor of Bank of America Illinois
(f/k/a Continental Bank N.A.), as amended on March 31, 1994
by the First Amendment to ARTRA Pledge Agreement
8. Pledge and Security Agreement and Financing Statement made September 29, 1991
by BCA Holding Company, Inc. in favor of Bank of America
Illinois (f/k/a Continental Bank N.A.), as amended on March 31,
1994 by the First Amendment to Pledge and Security Agreement
and Financing Statement
</TABLE>
<PAGE>
SCHEDULE III
Harvey Indebtedness Agreements
<TABLE>
<CAPTION>
Agreement Date
- --------- ----
<S> <C> <C>
1. Guaranty made by Peter R. Harvey in favor of Bank of America April 27, 1989
Illinois (f/k/a Continental Bank N.A.), as reaffirmed on
November 6, 1991 by the Reaffirmation Agreement
</TABLE>
EXHIBIT 10.3
February 26, 1996
Arabella S.A.
c/o Scorpion Holdings, Inc.
599 Lexington
Suite 2700
New York, NY 10022
Gentlemen:
Concurrently with the delivery of this letter ("Letter Agreement"), (a)
Arabella S.A., a Luxembourg holding company ("Lender"), is purchasing from Bank
of America Illinois ("BA") certain indebtedness (the "ARTRA Prior Indebtedness")
owed to BA by the undersigned, ARTRA Group Incorporated, a Pennsylvania
corporation (the "Company"), and certain indebtedness (the "Harvey
Indebtedness") owed to BA by Peter Harvey ("Harvey"); (b) a portion of the ARTRA
Prior Indebtedness is being forgiven by Lender and direct liability for payment
of the Prior Indebtedness, as so reduced, is being assumed by BCA Holdings Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company ("BCA"), and
the notes evidencing the ARTRA Prior Indebtedness are being consolidated,
amended and restated as evidenced by an Amended and Restated Note of even date
herewith (the "BCA Note") made by BCA and payable to the order of Lender in the
principal amount of $1,900,000; (c) the notes evidencing the Harvey Prior
Indebtedness are being consolidated, amended and restated as evidenced by an
Amended and Restated Note of even date herewith (the "Harvey Note" and, together
with the BCA Note, the "Notes") made by Harvey and payable to the order of
Lender in the principal amount of $2,296,830. The transactions described above
are referred to herein as the "Transactions".
Lender has required as a condition to Lender's consummation of the
Transactions that the Company execute and deliver this Letter Agreement.
In consideration of Lender's agreement to enter into the Transactions,
the Company agrees with Lender as follows:
1. DELIVERY OF SHARES. The Company hereby delivers to Lender (a)
certificates representing 100,000 shares of common stock of the Company, and (b)
certificates representing 25,000 shares of common stock of Comforce Corporation
("Comforce"). All such shares are validly issued, fully paid and nonassessable.
2. AGREEMENT TO DELIVER ADDITIONAL SHARES. If the Notes have not been
prepaid prior to the applicable dates set forth below, Lender shall be entitled
to receive, and the Company shall deliver to Lender certificates representing,
additional shares of common stock of the Company and of Comforce in the
following amounts and on the following dates:
No. of Shares No. of Shares
of the Company of Comforce Date
-------------- ----------- ----
50,000 12,500 March 27, 1996
50,000 12,500 April 26, 1996
3. REGULATION S. All shares of common stock of the Company delivered to
Lender pursuant to Section 1 or 2 above shall be registered pursuant to
Regulation S of the Securities and Exchange Commission ("Regulation S"). The
Company shall use its best efforts to cause all shares of common stock of
Comforce delivered to Lender pursuant to Section 1 or 2 above to be registered
pursuant to Regulation S.
4. PIGGYBACK REGISTRATION RIGHTS WITH RESPECT TO ARTRA COMMON STOCK.
(a) As used in this Section 4, the term "Registrable Shares"
shall means all shares of common stock of the Company held by Lender or any
affiliate of Lender, whether acquired pursuant to this Letter Agreement or
otherwise.
(b) If the Company proposes to file with the Securities and
Exchange Commission ("SEC") for its own account or for the account of any of the
holders of its common stock, a registration statement under the Securities Act
of 1933, as amended (the "Act") and the registration form to be used may be used
for the registration of Registrable Shares, then the Company shall give written
notice to Lender, not less than 20 days prior to the time such registration
statement is to be filed with the SEC, of such proposed registration statement.
The notice shall offer to include in such registration statement, to the extent
then permissible under the Act, all of the Registrable Shares for the account of
the holders of Registrable Shares. Within 10 days after receipt of such notice,
each holder of Registrable Shares may deliver a written notice to the Company
requesting that the Company include in such registration statement Registrable
Shares held by such holder and stating the number of Registrable Shares that
such holder requests that the Company include in such registration. Subject to
the limitations set forth in Section 4(b), the Company shall include in such
registration all Registrable Shares that holders of Registrable Shares have
requested that the Company register and shall use its best efforts to effect
registration under the Act of such Registrable Shares.
(c) The right of holders of Registrable Shares to include
Registrable Shares in the registration statement provided for herein shall be
subject to the following conditions:
(i) The Company, in its sole discretion, shall select
the underwriter or underwriters, if any, to manage and administer the
sale and distribution of the Registrable Shares to be included in a
registration statement filed under the provisions of this Section 4.
(ii) The Company shall have the right to require, in
any offering to be made solely, or in part, for its own account, that
the holder of Registrable Shares delay any offering or sale of
Registrable Shares for a period of 90 days after the first effective
date of such registration statement, upon the Company first having
delivered to each holder of Registrable Shares requesting registration
the written opinion of its underwriter to the effect that the inclusion
of such Registrable Shares in the registration statement may have an
adverse effect on the marketing of such offering; provided, however,
that in the event of such delay, the Company shall maintain the
effectiveness of the registration statement, for which purpose the
Company shall prepare and file such amendments and supplements to the
registration statement and prospectus used in connection therewith as
may be necessary to include the Registrable Shares after such 90 day
period, and to keep the registration statement effective for a period
of 90 days after the effective date of the post-effective amendment
pursuant to which the holders of Registrable Shares requesting
registration shall be entitled to sell the Registrable Shares.
(d) Each holder of Registrable Shares agrees to cooperate with
the Company in the preparation and filing of any registration statement
hereunder and shall promptly provide to the Company such information as it may
reasonably request to enable it to comply with any applicable law or regulation
to facilitate the preparation of the registration statement. The Company shall
bear all expenses in connection with the preparation and filing of any
registration statement provided for herein excluding underwriting fees,
discounts and commissions attributable to the sale of Registrable Shares.
(e) The Company shall furnish, without charge, to each holder
of Registrable Shares included in any registration statement, a copy of the
registration statement and of each amendment and supplement thereto, including
all financial statements and exhibits, and such number of conformed copies of
the registration statement and of each amendment thereto, including all
financial statement, but excluding exhibits, as such holder may reasonably
request.
(f) The Company shall furnish to each holder of Registrable
Shares included in any registration statement, as soon as possible after the
effective date of such registration statement or post-effective amendment
thereto and thereafter, from time to time, as many copies of the prospectus (and
of any amended or supplemental prospectus) as such holder may reasonably
request. If, during such period, any event occurs as a result of which the
prospectus, as then amended or supplemented, would include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading, or it shall be necessary to amend or supplement the prospectus
to comply with the law or with the rules and regulations promulgated by the SEC,
the Company shall forthwith notify each holder of Registrable Shares included in
such registration statement and, at the request of such holder, prepare and
furnish to such holder, in such quantity as such holder may reasonably request,
an amendment or supplement which shall correct such statement or omission or
cause the prospectus to comply with law and with such rules and regulations.
(g) The Company shall use its best efforts to cause such
registration statement to become effective and shall promptly advise each holder
of Registrable Shares included in such registration statement (i) when such
registration statement, or any post-effective amendment thereto, shall have
become effective, and when any amendment of, or supplement to, the prospectus is
filed with the SEC, (ii) when the SEC shall make a request or suggestion for any
amendment to such registration statement or the prospectus or for additional
information and the nature and substance thereof, and (ii) of the issuance by
the SEC of a stop order suspending the effectiveness of such registration
statement or the suspension of the order suspending the effectiveness of such
registration statement or the suspension of the qualification of the Registrable
Shares for sale in any jurisdiction, or of the initiation or threatening of any
proceedings for that purpose, and shall use its best efforts to prevent the
issuance of any such stop orders, or, if such order shall be issued, to obtain
the withdrawal thereof.
(h) The Company, when and as requested by any holder of
Registrable Shares included in any registration statement, shall take all action
necessary to permit the offering of such Registrable Shares under the securities
laws of such states as such holder shall designate at the sole expense of the
Company; provided, however, that the Company shall not be required to qualify as
a foreign corporation or to file a consent to service of process in any state in
which it is not then so qualified or in which it has not then filed such consent
notwithstanding the Lender's agreement to pay the cost thereof.
(i) The Company agrees to indemnify and hold harmless, to the
fullest extent permitted by law, each holder of Registrable Securities included
in any registration statement pursuant to this Section 4, its officers,
partners, directors and each person or entity who control such holder (within
the meaning of the Act) against any and all losses, claims, damages,
liabilities, expenses or any amounts paid in settlement of any commenced or
threatened litigation or investigation or proceeding by any governmental body
("Claims") to which such indemnified party may become subject under the Act or
otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto, (ii)
any omission or alleged omission of a material fact required to be stated
therein or a fact necessary to make the statements therein not misleading, or
(iii) any violations by the Company of any federal, state or common law statute,
rules or regulations applicable to the Company and relating to action required
of or inaction by the Company in connection with any such registration, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same.
(j) In connection with any registration statement in which a
holder of registrable Shares is participating, such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, shall indemnify and hold
harmless the Company, its directors and officers and each person or entity who
controls the Company (within the meaning of the Act) against any Claims to which
such indemnified party may become subject under the Act or otherwise insofar as
such Claim arose out of (i) any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any
violations by such holder of any federal, state or common law statute, rule or
regulation applicable to such holder and relating to action required of or
inaction by such holder in connection with any such registration, but only to
the extent that such untrue statement or omission is caused by or contained in
any information or affidavit so furnished in writing by such holder; provided
that the obligation to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
(k) Any person or entity entitled to indemnification hereunder
shall (i) give prompt written notice to the indemnifying party of any Claim with
respect to which it seeks indemnification (but the failure to provide such
notice shall not release the indemnifying party of its obligations to indemnify
unless the indemnifying party has been prejudiced by the failure to provide such
notice) and(ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such Claim, permit such indemnifying party to assume the defense
of such Claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party shall not be subject to any
liability for any settlement made by the indemnified party without its consent,
but such consent shall not be unreasonably withheld. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a Claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such Claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such Claim.
(l) The indemnification provided for in this Section 4 shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, direct, partner or controlling
person or entity of such indemnified party and shall survive the transfer of
securities. Each indemnifying party agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the indemnifying party's indemnification is unavailable for any
reason.
(m) No holder of Registrable Shares may participate in any
underwritten registration hereunder unless such holder agrees to sell such
holder's Registrable Shares on the basis provided in any underwriting
arrangement and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements; provided, however, that no
holder shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such holder and such holder's intended method of distribution.
(n) The inclusion of Registrable Shares in any registration
statement shall not be required if counsel of the Company shall render an
opinion, in writing, that all of the Registrable Shares proposed to be included
in such registration statement may be publicly distributed without restriction
of any kind or, if subject to Rule 144, by the holder thereof without
registration under the Act in which case all restrictive legends and stop
transfer notices shall be removed.
5. PIGGYBACK REGISTRATION RIGHTS WITH RESPECT TO COMFORCE COMMON STOCK.
(a) As used in this Section 5, the term "Registrable Shares"
shall means all shares of common stock of Comforce held by Lender or any
affiliate of Lender, whether acquired pursuant to this Letter Agreement or
otherwise.
(b) If Comforce proposes to file with the Securities and
Exchange Commission ("SEC") for its own account or for the account of any of the
holders of its common stock, a registration statement under the Securities Act
of 1933, as amended (the "Act") and the registration form to be used may be used
for the registration of Registrable Shares, then Comforce shall give written
notice to Lender, not less than 20 days prior to the time such registration
statement is to be filed with the SEC, of such proposed registration statement.
The notice shall offer to include in such registration statement, to the extent
then permissible under the Act, all of the Registrable Shares for the account of
the holders of Registrable Shares. Within 10 days after receipt of such notice,
each holder of Registrable Shares may deliver a written notice to Comforce
requesting that Comforce include in such registration statement Registrable
Shares held by such holder and stating the number of Registrable Shares that
such holder requests that Comforce include in such registration. Subject to the
limitations set forth in Section 5(b), Comforce shall include in such
registration all Registrable Shares that holders of Registrable Shares have
requested that Comforce register and shall use its best efforts to effect
registration under the Act of such Registrable Shares.
(c) The right of holders of Registrable Shares to include
Registrable Shares in the registration statement provided for herein shall be
subject to the following conditions:
(i) Comforce, in its sole discretion, shall select
the underwriter or underwriters, if any, to manage and administer the
sale and distribution of the Registrable Shares to be included in a
registration statement filed under the provisions of this Section 5.
(ii) Comforce shall have the right to require, in any
offering to be made solely, or in part, for its own account, that the
holder of Registrable Shares delay any offering or sale of Registrable
Shares for a period of 90 days after the first effective date of such
registration statement, upon Comforce first having delivered to each
holder of Registrable Shares requesting registration the written
opinion of its underwriter to the effect that the inclusion of such
Registrable Shares in the registration statement may have an adverse
effect on the marketing of such offering; provided, however, that in
the event of such delay, Comforce shall maintain the effectiveness of
the registration statement, for which purpose Comforce shall prepare
and file such amendments and supplements to the registration statement
and prospectus used in connection therewith as may be necessary to
include the Registrable Shares after such 90 day period, and to keep
the registration statement effective for a period of 90 days after the
effective date of the post-effective amendment pursuant to which the
holders of Registrable Shares requesting registration shall be entitled
to sell the Registrable Shares.
(d) Each holder of Registrable Shares agrees to cooperate with
Comforce in the preparation and filing of any registration statement hereunder
and shall promptly provide to Comforce such information as it may reasonably
request to enable it to comply with any applicable law or regulation to
facilitate the preparation of the registration statement. Comforce shall bear
all expenses in connection with the preparation and filing of any registration
statement provided for herein excluding underwriting fees, discounts and
commissions attributable to the sale of Registrable Shares.
(e) Comforce shall furnish, without charge, to each holder of
Registrable Shares included in any registration statement, a copy of the
registration statement and of each amendment and supplement thereto, including
all financial statements and exhibits, and such number of conformed copies of
the registration statement and of each amendment thereto, including all
financial statement, but excluding exhibits, as such holder may reasonably
request.
(f) Comforce shall furnish to each holder of Registrable
Shares included in any registration statement, as soon as possible after the
effective date of such registration statement or post-effective amendment
thereto and thereafter, from time to time, as many copies of the prospectus (and
of any amended or supplemental prospectus) as such holder may reasonably
request. If, during such period, any event occurs as a result of which the
prospectus, as then amended or supplemented, would include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading, or it shall be necessary to amend or supplement the prospectus
to comply with the law or with the rules and regulations promulgated by the SEC,
Comforce shall forthwith notify each holder of Registrable Shares included in
such registration statement and, at the request of such holder, prepare and
furnish to such holder, in such quantity as such holder may reasonably request,
an amendment or supplement which shall correct such statement or omission or
cause the prospectus to comply with law and with such rules and regulations.
(g) Comforce shall use its best efforts to cause such
registration statement to become effective and shall promptly advise each holder
of Registrable Shares included in such registration statement (i) when such
registration statement, or any post-effective amendment thereto, shall have
become effective, and when any amendment of, or supplement to, the prospectus is
filed with the SEC, (ii) when the SEC shall make a request or suggestion for any
amendment to such registration statement or the prospectus or for additional
information and the nature and substance thereof, and (ii) of the issuance by
the SEC of a stop order suspending the effectiveness of such registration
statement or the suspension of the order suspending the effectiveness of such
registration statement or the suspension of the qualification of the Registrable
Shares for sale in any jurisdiction, or of the initiation or threatening of any
proceedings for that purpose, and shall use its best efforts to prevent the
issuance of any such stop orders, or, if such order shall be issued, to obtain
the withdrawal thereof.
(h) Comforce, when and as requested by any holder of
Registrable Shares included in any registration statement, shall take all action
necessary to permit the offering of such Registrable Shares under the securities
laws of such states as such holder shall designate at the sole expense of
Comforce; provided, however, that Comforce shall not be required to qualify as a
foreign corporation or to file a consent to service of process in any state in
which it is not then so qualified or in which it has not then filed such consent
notwithstanding the Lender's agreement to pay the cost thereof.
(i) Comforce agrees to indemnify and hold harmless, to the
fullest extent permitted by law, each holder of Registrable Securities included
in any registration statement pursuant to this Section 5, its officers,
partners, directors and each person or entity who control such holder (within
the meaning of the Act) against any and all losses, claims, damages,
liabilities, expenses or any amounts paid in settlement of any commenced or
threatened litigation or investigation or proceeding by any governmental body
("Claims") to which such indemnified party may become subject under the Act or
otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto, (ii)
any omission or alleged omission of a material fact required to be stated
therein or a fact necessary to make the statements therein not misleading, or
(iii) any violations by Comforce of any federal, state or common law statute,
rules or regulations applicable to Comforce and relating to action required of
or inaction by Comforce in connection with any such registration, except insofar
as the same are caused by or contained in any information furnished in writing
to Comforce by such holder expressly for use therein or by such holder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after Comforce has furnished such holder with a
sufficient number of copies of the same.
(j) In connection with any registration statement in which a
holder of registrable Shares is participating, such holder shall furnish to
Comforce in writing such information and affidavits as Comforce reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, shall indemnify and hold
harmless Comforce, its directors and officers and each person or entity who
controls Comforce (within the meaning of the Act) against any Claims to which
such indemnified party may become subject under the Act or otherwise insofar as
such Claim arose out of (i) any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any
violations by such holder of any federal, state or common law statute, rule or
regulation applicable to such holder and relating to action required of or
inaction by such holder in connection with any such registration, but only to
the extent that such untrue statement or omission is caused by or contained in
any information or affidavit so furnished in writing by such holder; provided
that the obligation to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
(k) Any person or entity entitled to indemnification hereunder
shall (i) give prompt written notice to the indemnifying party of any Claim with
respect to which it seeks indemnification (but the failure to provide such
notice shall not release the indemnifying party of its obligations to indemnify
unless the indemnifying party has been prejudiced by the failure to provide such
notice) and(ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such Claim, permit such indemnifying party to assume the defense
of such Claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party shall not be subject to any
liability for any settlement made by the indemnified party without its consent,
but such consent shall not be unreasonably withheld. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a Claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such Claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such Claim.
(l) The indemnification provided for in this Section 5 shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, direct, partner or controlling
person or entity of such indemnified party and shall survive the transfer of
securities. Each indemnifying party agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the indemnifying party's indemnification is unavailable for any
reason.
(m) No holder of Registrable Shares may participate in any
underwritten registration hereunder unless such holder agrees to sell such
holder's Registrable Shares on the basis provided in any underwriting
arrangement and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements; provided, however, that no
holder shall be required to make any representations or warranties to Comforce
or the underwriters other than representations and warranties regarding such
holder and such holder's intended method of distribution.
(n) The inclusion of Registrable Shares in any registration
statement shall not be required if counsel of Comforce shall render an opinion,
in writing, that all of the Registrable Shares proposed to be included in such
registration statement may be publicly distributed without restriction of any
kind or, if subject to Rule 144, by the holder thereof without registration
under the Act in which case all restrictive legends and stop transfer notices
shall be removed.
6. AGREEMENT TO CAUSE CONVERSION OF CERTAIN PREFERRED STOCK. If either or
both of the Notes are not paid in full on or before the Termination Date (as
defined in the BCA Note) the Company shall cause all outstanding shares of the
Class B Preferred Stock of BCA to be converted into preferred stock of the
Company.
7. FURTHER ASSURANCES. The Company shall execute such additional documents
and do such further acts or things as may be necessary or appropriate to
effectuate the terms of this Letter Agreement.
<PAGE>
Please acknowledge this Letter Agreement by signing in the space
provided below.
Very truly yours,
ARTRA GROUP INCORPORATED
By:______________________
ACKNOWLEDGED:
ARABELLA S.A.
By:____________________
JOINDER
The undersigned, Comforce Corporation, hereby joins in the foregoing
Letter Agreement for the purpose of agreeing to be bound by the provisions of
Section 5 thereof.
COMFORCE CORPORATION
By:______________________
EXHIBIT 10.4
AMENDED AND RESTATE PROMISSORY NOTE
THIS AMENDED AND RESTATED PROMISSORY NOTE ("Note") dated February 26,
1996 is made by the undersigned, BCA HOLDINGS, INC., a Delaware corporation, in
favor of ARABELLA S.A., a Luxembourg holding company ("Holder").
Background:
A. The undersigned is a wholly-owned subsidiary of ARTRA Group
Incorporated, a Pennsylvania corporation ("ARTRA").
B. Immediately prior to the execution and delivery of this Note by the
undersigned, ARTRA was indebted to Bank of America Illinois ("BA") in the
aggregate amount of $14,563,639.59, together with accrued interest and fees
thereon (the "Prior Indebtedness"), as evidenced by (i) an Amended and Restated
Promissory Note dated as of March 21, 1989 in the principal amount of
$2,500,000, an Amended and Restated Promissory Note dated as of June 22, 1990 in
the principal amount of $7,063,639.59 and an Amended and Restated Promissory
Note dated as of July 6, 1988 in the principal amount of $5,000,000
(collectively, the "Prior Notes"); and (ii) various letter agreements.
C. All of the Prior Indebtedness was guaranteed by the undersigned
pursuant to an Amended and Restated Guaranty dated October 15, 1991.
D. Effective as of the date hereof, BA has sold, transferred and
assigned to Holder, and Holder has purchased and accepted assignment from BA, of
all of BA's right, title and interest in and to the Prior Indebtedness and
certain property of ARTRA serving as collateral security therefor.
E. Effective as of the date hereof, Holder has forgiven $12,663,639.59
of the Prior Indebtedness on the condition that the undersigned is substituted
as obligor, and assumes direct liability, under the Prior Notes, as amended and
restated herein.
In consideration of the purchase of the Prior Indebtedness by Holder,
the forgiveness of a portion of the Prior Indebtedness and for other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the undersigned agrees with Holder as follows:
ON MAY 26, 1996 (the "Termination Date"), the undersigned, for value
received, promises to pay to the order of Holder at Siege Social, 35 Rue
Glesener, L-1631, Luxembourg R.C. Luxembourg NB49756, or such other place as
Holder may from time to time designate in writing to the undersigned, the
principal sum of One Million Nine Hundred Thousand and 00/100 Dollars
($1,900,000). The undersigned further promises to pay interest on the aggregate
unpaid principal amount hereof from time to time outstanding, from and including
the date hereof until the Termination Date, at a rate per annum equal to 12%,
all such interest to be due and payable monthly on the 26th day of each month
commencing on March 26, 1996 and after maturity (whether by acceleration or
otherwise) until paid, at a rate per annum equal to 14%. After maturity, accrued
interest shall be payable on demand. Interest shall be calculated for actual
days elapsed on the basis of a 360-day year.
1. REPRESENTATIONS AND WARRANTIES. The undersigned represents and
warrants to Holder as follows:
1.1 Existence. The undersigned is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is in good standing and is duly qualified to do business in each
state where, because of the nature of its activities or properties, such
qualification is required.
1.2 Authorization. The undersigned is duly authorized to
execute and deliver this Note and is and will continue to be duly authorized to
perform its obligations under this Note. The execution, delivery and performance
by the undersigned of this Note and the borrowing hereunder do not and will not
require any consent or approval of any governmental agency or authority.
1.3 No Conflicts. The execution, delivery and performance by
the undersigned of this Note does not and will not conflict with (a) any
provision of law, (b) the certificate of incorporation or by-laws of the
undersigned, (c) any agreement binding on the undersigned or (d) any court or
administrative order or decree applicable to the undersigned, and does not and
will not require, or result in, the creation or imposition of any lien on any
asset of the undersigned.
1.4 Validity and Binding Effect. This Note is the legal, valid
and binding obligation of the undersigned, enforceable against the undersigned
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principals of equity limiting
the availability of equitable remedies.
1.5 Financial Statements. A copy of the most recent unaudited
consolidated and consolidating financial statements of ARTRA are attached hereto
as Schedule 1 and such financial statements have been prepared in conformity
with generally accepted accounting principles, and present fairly the financial
condition of ARTRA and its Subsidiaries as of the date thereof (including all
guaranties, indirect obligations and contingent liabilities of ARTRA and its
Subsidiaries).
1.6 Capitalization; Subsidiaries. The undersigned has no
Subsidiaries (as defined below) except as listed on the Schedule of Subsidiaries
attached hereto as Exhibit A. The authorized, issued and outstanding shares of
each class of capital stock of the undersigned and its Subsidiaries and the
owners of such shares are as set forth in Exhibit A. Except as set forth on
Exhibit A, none of the issued and outstanding capital stock of the undersigned
or any of its Subsidiaries is subject to any redemption, vesting or repurchase
agreement and there are no warrants or options outstanding with respect to such
capital stock. The outstanding capital stock of Borrower and its Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable. The aggregate
stated amount plus accrued and unpaid dividends on the issued and outstanding
preferred stock of Bagcraft Corporation of America does not exceed $4,000,000 on
the date hereof. For the purposes of this Note and such Schedule of
Subsidiaries, the term "Subsidiary" means a partnership, corporation, trust,
joint venture, joint stock company, association, unincorporated organization,
limited liability company or other entity of which or in which the undersigned
and its other Subsidiaries own directly or indirectly 50% or more of (a) the
combined voting power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
entity, if it is a corporation, (b) the capital interest or profits interest of
such entity, if it is a partnership, joint venture, limited liability company or
similar entity or (c) the beneficial interest of such entity, if it is a trust,
association or other unincorporated organization.
1.7 Investments. The undersigned and its Subsidiaries have no
Investments (as defined below) except as listed on the Schedule of Investments
attached hereto as Exhibit B. The undersigned and its Subsidiaries own the
Investments as set forth on Exhibit B attached hereto, including with respect to
such of the Investments as are in corporations, the percentages and number of
shares of each class stock as are set forth on such Exhibit B. For the purposes
of this Note and the Schedule of Investments, the term "Investment" means any
investment, made in cash or by delivery of any kind of property or asset, in any
entity, including a partnership, corporation, trust, joint venture, joint stock
company, association, unincorporated organization or other entity of which or in
which the undersigned and its Subsidiaries own directly or indirectly less than
50% of (a) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the board of
directors of such entity, if its is a corporation, (b) the capital interest or
profits interests of such entity, if its a partnership, joint venture, limited
liability company or similar entity or (c) the beneficial interest of such
entity, if it is a trust, association or other unincorporated organization.
1.8 Liens. None of the assets of the undersigned or any direct
Subsidiaries is subject to any lien, except liens listed on the Schedule of
Liens attached hereto as Exhibit C.
1.9 Litigation; Other Circumstances. No litigation or
governmental proceedings are pending or threatened against the undersigned, nor
do any other circumstances exist, the results of which might materially and
adversely affect its financial condition, except those disclosed to Holder in a
Schedule of Litigation attached hereto as Exhibit D. Other than any liability
incident to such litigation or proceedings or provided for or disclosed in the
financial statements referred to in paragraph 1.5, the undersigned has no
material contingent liabilities.
1.10 Indebtedness. The undersigned has no Indebtedness (as
defined below) except for:
(a) Indebtedness under the terms of this Note and any
other Indebtedness of the undersigned to Holder; and
(b) other Indebtedness outstanding on the date hereof and
listed on Exhibit E.
"Indebtedness" of any person means, without duplication, (i) any obligation of
such person for borrowed money, including, without limitation, (A) any
obligation of such person evidenced by bonds, debentures, notes or other similar
debt instruments, and (B) and obligation for borrowed money which is
non-recourse to the credit of such person but which is secured by any asset of
such person, (ii) any obligation of such person on account of deposits or
advances, (iii) any obligation of such person for the deferred purchase price of
any property or services, except accounts payable arising in the ordinary course
of such person's business, (iv) any obligation of such person as lessee under a
capitalized lease, and (v) any Indebtedness of another person secured by a lien
on any asset of such first person, whether or not such Indebtedness is assumed
by such first person.
2. COVENANTS. From the date of the execution of this Note until this
Note and all other liabilities of the undersigned to Holder are paid in full,
the undersigned agrees that, unless Holder shall otherwise expressly agree in
writing, it will:
2.1 Merger, Purchase and Sale. Not, directly or
indirectly:
(a) be a party to any merger or consolidation;
(b) sell, transfer, convey, lease or otherwise
dispose of all or any part of the assets of the undersigned; or
(d) purchase or otherwise acquire all or
substantially all the assets of any individual, joint venture, trust,
partnership, association, unincorporated organization, joint stock
company, corporation, limited liability company or other entity (a
"Person").
2.2 Restricted Payments. Not purchase or redeem any shares
of its stock and not permit any of its Subsidiaries to purchase or redeem any
shares of the capital stock of any Subsidiary; not declare or pay any dividends
on any shares of its capital stock (other than stock dividends) and not permit
any of its Subsidiaries to declare or pay any dividends on any shares of the
capital stock of any Subsidiary; not make any distribution to stockholders as
such or set aside any funds for any such purpose and not permit any of its
Subsidiaries to make any such distribution; and not prepay, purchase or redeem,
and not permit any of its Subsidiaries to purchase, any Indebtedness of the
undersigned (other than Indebtedness to Holder).
2.3 Stock. Not permit any Subsidiary to purchase or
otherwise acquire any shares of the stock of the undersigned and not take any
action, or permit any Subsidiary to take any action, which will result in a
decrease in the undersigned's or any Subsidiary's ownership interest in any
Subsidiary.
2.4 Liens. Not, directly or indirectly, create or permit
to exist any lien with respect to any assets now owned or hereafter acquired
except for liens permitted in paragraph 1.8.
2.5 Guaranties. Not, directly or indirectly, become a
guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to, any undertaking of any other Person, except for:
(a) the endorsement, in the ordinary course of
collection, of instruments payable to it or its order; and
(b) guaranties existing on the date hereof ("Existing
Guaranties") by the undersigned of Indebtedness of Subsidiaries, as
reflected on Exhibit E, and substitute guaranties (including guaranties
of extensions, renewals, restatements or refinancings of Indebtedness
of a Subsidiary) which replace Existing Guaranties, so long as the
total liability of the undersigned under any such substitute guaranty
does not increase the total liability of the undersigned under the
Existing Guaranty which was replaced.
2.6 Investments. Not, directly or indirectly, make or
permit to exist any Investment in any Person, except for:
(a) shares of stock, obligations or other securities
received in settlement of claims arising in the ordinary course of business;
(b) Investments (other than Investments in the nature
of loans or advances) outstanding on the date hereof in Subsidiaries by the
undersigned; and
(c) other Investments outstanding on the date hereof
and listed on Exhibit B.
2.7 Financial Information. Deliver to Holder as soon as
available and in any event within 30 days after the end of each month, the
unaudited consolidated and consolidating balance sheet of ARTRA and its
Subsidiaries and the related statements of income, stockholders' equity and cash
flow for such month.
3. PAYMENT GUARANTEE. Payment in full of all liabilities of the
undersigned under this Note (including all extensions and renewals) to Holder is
unconditionally guaranteed by that certain Guaranty (the "ARTRA Guaranty") made
by ARTRA in the favor of Holder. Payment in full of all liabilities of ARTRA
under the Guaranty is secured pursuant to a Pledge Agreement dated of even date
herewith (the "ARTRA Pledge Agreement") made by ARTRA in favor of Holder.
4. CONDITIONS TO EFFECTIVENESS. This Note shall not become effective
until the following conditions have been satisfied:
4.1 Corporate Authority. The undersigned shall have delivered
or caused to be have been delivered to Holder (i) duly certified resolutions of
the Board of Directors of the undersigned authorizing the execution and delivery
of this Note and all other documents to be delivered by the undersigned
hereunder and all documents evidencing other necessary corporate action by the
undersigned; (ii) a certificate of the secretary or an assistant secretary of
the undersigned certifying the names of its officers authorized to sign this
Note and other documents and certificates to be delivered by the undersigned
hereunder, together with true signatures of such officers, each in form and
substance satisfactory to Holder; (iii) duly certified resolutions of the Board
of Directors of ARTRA authorizing the execution and delivery of the ARTRA
Guaranty and the ARTRA Pledge Agreement and all other documents to be delivered
by ARTRA hereunder and all documents evidencing other necessary corporate action
by ARTRA; and (iv) a certificate of the secretary or an assistant secretary of
ARTRA certifying the names of its officers authorized to sign the ARTRA
Guaranty, the ARTRA Pledge Agreement and other documents and certificates to be
delivered by ARTRA hereunder, together with true signatures of such officers,
each in form and substance satisfactory to Holder.
4.2 Opinion of Counsel. The undersigned shall have delivered
to Holder an opinion of counsel for the undersigned and ARTRA dated the date of
this Note or such other date as is satisfactory to Holder, which opinion shall
be in form and substance satisfactory to Holder.
4.3 Other Documents. The undersigned shall have delivered or
caused to have been delivered to Holder the following documents:
(i) the ARTRA Guaranty duly executed by ARTRA;
(ii) the ARTRA Pledge Agreement duly executed by ARTRA;
(iii) an Amended and Restated Promissory Note, in form
and substance satisfactory to Holder, executed by Peter and Jeanne Harvey and
payable to the order of Holder in the principal amount of $2,296,830, together
with a pledge agreement, in form and substance satisfactory to Holder, executed
by Peter and Jeanne Harvey (collectively, the "Harvey Agreements");
(iv) a letter agreement (the "ARTRA Letter Agreement"),
in form and substance satisfactory to Holder, duly executed by ARTRA and
acknowledged and consented to by Holder, pursuant to which, among other things,
ARTRA will transfer certain shares of common stock of ARTRA and of Comforce
Corporation to Holder and provide certain registration rights to Holder;
(v) an Option to Purchase Shares of Common Stock of
Bagcraft Corporation of America, in form and substance satisfactory to Holder,
duly executed by the undersigned;
(vi) a subordination agreement, in form and substance
satisfactory, duly executed by ARTRA;
(vii) a Consulting Agreement, in form and substance
satisfactory to Holder, duly executed by the undersigned and Holder and joined
in by ARTRA for the purpose of guaranteeing the payment obligations of the
undersigned thereunder; and
(viii) a Preferred Stock Exchange Agreement, in form
and substance satisfactory to Holder, duly executed by the undersigned, Bagcraft
Corporation of America and Ozite Corporation.
4.4 Preferred Stock. The undersigned shall have filed with the
Secretary of State of Delaware Articles of Amendment to the Certificate of
Incorporation of the undersigned, in form and substance satisfactory to Holder,
and the undersigned shall have delivered to Holder certificates representing
1,865 shares of Class C Preferred Stock, $.01 par value, of the undersigned.
4.5 By-Laws. If required by Holder, the undersigned shall have
adopted amendments to its by-laws in form and substance satisfactory to Holder.
4.6 Common Stock. ARTRA shall have delivered to Holder (i)
certificates representing 100,000 shares of common stock of ARTRA and (ii)
certificates representing 25,000 shares of common stock of Comforce Corporation.
4.7 Schedules. The undersigned shall have delivered to Holder
the Schedules contemplated
by this Note.
4.8 Fees and Expenses. The undersigned shall have paid to
Holder a fee in the amount of $87,500 and an amount equal to the aggregate of
Holder's good faith estimate of all attorneys' fees and other disbursements
incurred by Holder in connection with the transactions contemplated hereby,
which payment shall be subject to adjustment following receipt by Holder of
final invoices.
5. Events of Default and Remedies.
5.1 Events of Default. Each of the following shall constitute
an Event of Default under this Note:
(a) Non-Payment. Default in the payment when due of any
principal of, or interest on, this Note or any fee hereunder.
(b) Other Obligations. Default in the payment when due,
whether by acceleration or otherwise, or in the performance or observance
(subject to any applicable grace period) of (i) any obligation or agreement of
the undersigned to or with Holder (other than any obligation or agreement of the
undersigned under this Note); or (ii) any obligation or agreement of ARTRA to or
with Holder.
(c) Insolvency. The undersigned becomes insolvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they mature, or applies for, consents to, or acquiesces in,the appointment of a
trustee, receiver or other custodian for the undersigned or for a substantial
part of the property of the undersigned, or makes a general assignment for the
benefit of creditors; or,in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
undersigned or for a substantial part of the property of the undersigned and is
not discharged within 45 days; or any bankruptcy, reorganization, debt
arrangement or other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by or against the
undersigned and, if instituted against the undersigned,is consented to or
acquiesced in by the undersigned or remains for 45 days undismissed; or any
warrant of attachment or similar legal process is issued against any substantial
part of the property of the undersigned which is not released within 45 days of
service.
(d) Agreements. Default in the performance of any of the
undersigned's agreements herein (and not constituting an Event of default under
any other paragraphs of this paragraph 5); or the occurrence of any other
default or event of default under any other document or instrument, including,
without limitation, any security agreement or pledge agreement now or hereafter
existing which secures or supports this Note or any other Indebtedness of the
undersigned;
(e) Representations and Warranties. Any representation or
warranty made by the undersigned herein is untrue or misleading in any material
respect when made or deemed made; or any schedule, statements, report, notice,
certificate or other writing furnished by the undersigned to Holder is untrue or
misleading in any material respect on the date as of which the facts set forth
therein are stated or certified; or any certification made or deemed made by the
undersigned to Holder is untrue or misleading in any material respect on or as
of the date made or deemed made.
(f) Litigation. Notice is given to the undersigned by
Holder that in the opinion of Holder, any litigation, arbitration proceeding or
governmental proceeding which has been instituted against or otherwise affects
the undersigned or any of its Subsidiaries will, to a material extent, adversely
affect the undersigned, and such litigation or proceeding is not dismissed
within 10 days after such notice.
(g) Cessation of Security Document or Lien. Any security
document, including, without limitation, any document or instrument now or
hereafter existing which secures or supports this Note or any other Indebtedness
of the undersigned to Holder, or any of the liens granted thereunder, shall at
any time and for any reason cease to be in full force and effect.
(h) Cessation of Other Agreements. The ARTRA Guaranty, the
ARTRA Pledge Agreement, the ARTRA Letter Agreement or the Harvey Agreements
shall at any time and for any reason cease to be in full force and effect, other
than by reason of an express and voluntary release by Holder.
(i) Default Under Other Agreements. Default shall occur
which respect to the performance of ARTRA's obligations under the ARTRA
Guaranty, the ARTRA Pledge Agreement or the ARTRA Letter Agreement or with
respect to the performance of Peter and Jeanne Harvey's obligations under the
Harvey Agreements.
(j) IRS Lien. Any property of the undersigned shall become
subject to a lien in favor of the Internal Revenue Service (other than a lien
for current taxes not delinquent or taxes being contested in good faith and by
appropriate proceedings and as to which reserves or other appropriate provisions
as may be required by generally accepted accounting principles are being
maintained.
5.2 Remedies. If any Event of Default described in paragraph
5.1 shall have occurred and be continuing, Holder may declare this Note to be
due and payable, whereupon this Note shall become immediately due and payable,
all without notice of any kind; except that if an Event of Default described in
paragraph 5.1(c) occurs, this Note shall become immediately due and payable
without declaration or notice of any kind. Holder shall promptly advise the
undersigned of any such declaration but failure to do so shall not impair the
effect of such declaration.
6. GENERAL.
6.1 Delay. No delay on the part of Holder or any other holder
of this Note in the exercise of any power or right shall operate as a waiver
thereof, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof,or the exercise of any other power or right.
The remedies herein provided are cumulative and not exclusive of remedies
provided by law.
6.2 Notices. Any notice hereunder to the undersigned or Holder
shall be in writing and,if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, and addressed, if to the
undersigned, at 500 Central Avenue, Northfield, IL 60093, and if to Holder, c/o
Scorpion Holdings, Inc., 599 Lexington, Suite 2700, New York, NY 10022
Attention: K. McCarthy and N. Brandolini, or at such other address as the
undersigned or Holder may, by written notice, designate as its address for
purposes of notice hereunder.
6.3 Expenses. The undersigned agrees to reimburse Holder upon
demand for all reasonable expenses (including reasonable attorneys' fees and
legal expenses)incurred by Holder in the preparation, negotiation and execution
of this Note and any document required to be furnished herewith, and in
enforcing the obligations of the undersigned under this Note, and to pay, and
save Holder harmless from all liability for, any stamp or other taxes which may
be payable with respect to the execution, delivery or issuance of this Note,
which obligations of the undersigned shall survive any termination of this Note.
6.4 Law. This Note shall be a contract made under and governed
by the internal laws of the State of Illinois without regard to conflicts of law
principles.
6.5 Waiver. The undersigned expressly waives any presentment,
demand, protest or notice in connection with this Note.
6.6 Successors. this Note shall be binding upon the
undersigned and its respective successors and assigns, and shall inure to the
benefit of Holder and the successors and assigns of Holder.
6.7 Waiver of Jury Trial. The undersigned hereby waives any
rights TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS (A) UNDER THIS NOTE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR (B) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
6.8 Substitution of Instrument. This note is issued in
substitution for and replacement of the Prior Notes. Neither the execution nor
delivery of this Note shall be construed (a) as a novation of that portion of
the indebtedness evidenced by the Prior Note which is now evidenced by this Note
or (b) to release, cancel, terminate or otherwise impair the status or priority
of the liens or security for the Prior Notes except such liens or security
expressly released by Holder.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Promissory Note on the date first written above.
BCA HOLDINGS, INC.
By:_________________________
EXHIBIT 10.5
This Option and the Common Stock issuable upon exercise hereof have not been
registered or qualified for sale under the Securities Act of 1933, as amended,
or any state securities law and may not be sold or transferred in the absence of
such registration or qualification or an exemption therefrom under such Act and
any such applicable state laws.
Aggregate Applicable Percentage: 40%
AGGREGATE EXERCISE PRICE $250.00
OPTION TO PURCHASE
SHARES OF COMMON STOCK
OF
BAGCRAFT CORPORATION OF AMERICA
THIS IS TO CERTIFY that, for value received, Arabella S.A., a
Luxembourg holding company (the "Initial Purchaser"), or its registered assigns,
is entitled to purchase from BCA HOLDINGS INC., a Delaware corporation ("BCA"),
that number of shares of Common Stock, par value $.01 per share, of BAGCRAFT
CORPORATION OF AMERICA (the "Company") which after giving effect to such
purchase will equal 40% (the "Applicable Percentage") of Common Stock Deemed
Outstanding of the Company for an aggregate price of $250.00 (the "Aggregate
Exercise Price"), all on and subject to the terms, provisions and conditions
herein set forth. All or a portion of this Option is subject to repurchase by
BCA pursuant to Section 2 hereof. The initial number of shares of Common Stock
of the Company purchasable hereunder is 4,367.816.
In consideration of the grant by BCA of this Option, the Initial
Purchaser has paid to BCA the sum of $500,000.
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Option, the following terms shall have the meanings set forth below:
(a) "Common Stock" shall mean the Company's Common Stock, $,01
par value, and any capital stock of any class of the Company hereafter
authorized having the right to share in distributions either of earnings or
assets of the Company without limit as to amount or percentage.
(b) "Common Stock Deemed Outstanding" shall mean, at any date
as to which the number of shares is to be determined, (i) all of the shares of
Common Stock issued at such date, excluding any shares of Common Stock then
owned or held by or for the account of the Company, and (ii) all shares of
Common Stock issuable upon the exercise, exchange or conversion of any unexpired
right or option (including this Option) to subscribe for, purchase or receive
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock, regardless of whether any of the foregoing are actually
exercisable on such date.
(c) "Holder" shall mean the person in whose name this Option
is registered on the books of the Company maintained for such purpose.
(d) "Notes" shall mean (i) that certain promissory note dated
February 26, 1996 in the principal amount of $1,900,000 made by BCA and payable
to the order of the Initial Purchaser; and (ii) that certain promissory note
dated February 26, 1996 in the principal amount of $2,296,830 made by Peter
Harvey and Jeanne Harvey and payable to the order of the Initial Purchaser.
(e) "Payment Date" shall mean the date on which each of the
following events shall have occurred: (i) all indebtedness owing to the Initial
Purchaser under the Notes shall have been paid in full; and (ii) BCA shall have
paid to Holder the Repurchase Price.
(f) "Sale of the Company" shall mean a sale of the Company,
whether by sale stock or assets, by merger or otherwise.
2. EXERCISE PERIOD. The Applicable Percentage of this Option which is
unpurchased by BCA in accordance with Section 3 may be exercised by Holder at
any time and from time to time on during the period commencing on July 26, 1996
and ending on February 26, 2006.
3. REPURCHASE RIGHTS. If the Payment Date occurs on or prior to July
25, 1996 (the "Repurchase Termination Date"), BCA may repurchase all or a
percentage of this Option determined in accordance with the provisions of this
Section 3.
(a) If the Payment Date occurs on or prior to May 26, 1996,
then BCA may repurchase this Option in full at a price of $550,000 (the
"Repurchase Price").
(b) If the Payment Date occurs during any period set forth in
the table below, BCA may repurchase at the Repurchase Price that portion of the
Option representing the Applicable Percentage set forth opposite such period
below:
Period Applicable Percentage
05/27/96 through 05/29/96 35.0%
05/30/96 through 06/01/96 33.25
06/02/96 through 06/04/96 31.50
06/05/96 through 06/07/96 29.75
06/08/96 through 06/10/96 28.00
06/11/96 through 06/13/96 26.25
06/14/96 through 06/16/96 24.50
06/17/96 through 06/19/96 22.75
06/20/96 through 06/22/96 21.00
06/23/96 through 06/25/96 19.25
06/26/96 through 06/28/96 17.50
06/29/96 through 07/01/96 15.75
07/02/96 through 07/04/96 14.00
07/05/96 through 07/07/96 12.25
07/08/96 through 07/10/96 10.50
07/11/96 through 07/13/96 8.75
07/14/96 through 07/16/96 7.00
07/17/96 through 07/19/96 5.25
07/20/96 through 07/22/96 3.50
07/23/96 through 07/25/96 1.75
(c) If the Payment Date has not occurred on or before the
Repurchase Termination Date, all of BCA's repurchase rights hereunder shall
terminate.
(d) If the Payment Date shall occur, Holder shall surrender
this Option to BCA and, if any portion of the Applicable Percentage has not been
repurchased pursuant to this Section 3, BCA shall issue and deliver to Holder a
new Option setting forth as the Applicable Percentage on the face of this Option
the Applicable Percentage as reduced by the percentage of this Option
repurchased, if any.
4. EXERCISE OF OPTION.
(a) Subject to the conditions set forth in this Option, this
Option may be exercised in whole or in part by the surrender of this Option
(with the subscription form at the end hereof duly completed and executed) at
the principal office of BCA and upon payment to BCA of the Aggregate Exercise
Price or, if exercised in part, upon payment to BCA of a proportionate part of
the Aggregate Exercise Price for the shares so purchased. BCA shall pay all
reasonable expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of stock certificates pursuant to this
Section 4.
(b) Notwithstanding any other provision of this Option to the
contrary, if an exercise of any portion of this Option is made in connection
with a Sale of the Company, such exercise may, at the election of Holder, be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
5. MERGERS, CONSOLIDATIONS, ETC. In the case of any consolidation or
merger of the Company with another entity or any reorganization or
reclassification of the Common Stock or other equity securities of the Company,
then, as a condition of such consolidation, merger, reorganization or
reclassification, lawful and adequate provision shall be made whereby Holder
shall thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore purchasable hereunder, such shares of stock, securities
or assets as may be (by virtue of such consolidation, merger, reorganization or
reclassification) issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore so purchasable hereunder had such consolidation,
merger, reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
Holder to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon exercise of this Option. BCA shall not permit the
Company to effect any such consolidation or merger, unless prior to or
simultaneously with the consummation thereof, the successor entity (if other
than the Company) resulting from such consolidation or merger shall assume by
written instrument executed and delivered to Holder, the obligation to deliver
to Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, Holder may be entitled to receive.
6. DISSOLUTION OR LIQUIDATION. In the event of any proposed
distribution of the assets of the Company in dissolution or liquidation except
under circumstances when the foregoing Section 5 shall be applicable, BCA shall
cause the Company to mail notice thereof to Holder and shall not permit the
Company to make any distribution to stockholders until the expiration of 60 days
from the date of mailing of such notice and, in any such case, Holder may
exercise this Option at the then Applicable Percentage within 60 days from the
date of delivery of such notice.
7. DIVIDENDS. If the Board of Directors of the Company shall declare
any dividend or other distribution on its Common Stock except by way of a stock
dividend payable on its Common Stock, BCA shall deliver notice thereof to Holder
not less than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution and
Holder shall have the right to participate in such dividend or other
distribution to the same extent Holder would have participated if it had
previously fully exercised this Option prior to such record date. The provisions
of this Section 7 shall not apply to distributions made in connection with
transactions covered by Section 5.
8. FULLY PAID STOCK; TAXES. BCA covenants that the shares of stock
represented by each and every certificate for Common Stock to be delivered on
the exercise of the purchase rights herein shall, at the time of such delivery,
be duly authorized, validly issued and outstanding and fully paid and
nonassessable and free and clear of all pledges, liens, proxies, claims,
charges, security interests or other encumbrances (collectively,
"Encumbrances"), except for the pledge in favor of General Electric Capital
Corporation ("GECC") securing indebtedness owed by the Company to GECC on the
date hereof; provided, however, that the foregoing exception shall not apply if
this Option is being exercised in connection with a Sale of the Company. BCA
further covenants that it shall pay all expenses in connection with, and all
federal and state taxes (other than income taxes) which may be imposed in
respect of this Option or the shares of Common Stock issued or issuable
hereunder.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS. BCA represents and
warrants to, and covenants with, Holder as follows:
(a) BCA has all necessary corporate power and authority to
enter into this Option and to perform its obligations hereunder.
(b) The execution, delivery and performance of this Option by
BCA have been duly authorized by all necessary action on the part of BCA and
this Option has been duly executed and delivered by a duly authorized officer of
BCA and constitutes a valid and binding agreement of BCA, enforceable in
accordance with its terms.
(c) The execution, delivery and performance by BCA of this
Option does not and will not constitute a violation of any applicable law or a
breach of any provision contained in BCA's certificate of incorporation or
by-laws or in any agreement, instrument or document to which it is now or
hereafter a party.
(d) The execution, delivery of this Option by BCA does not
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority or any other person or
entity.
(e) BCA is the beneficial and record owner on the date hereof
of 9,500 shares of Common Stock of the Company. Such shares are all of the
securities of the Company owned of record or beneficially by BCA on the date of
this Option and such Shares are owned by BCA free and clear of all Encumbrances,
except for a pledge of all such shares in favor of GECC, and BCA has not entered
into any voting agreement, voting trust or other arrangement with respect to
such shares.
(f) If and so long as this Option has not been exercised in
full, no shares of Common Stock of the Company held by BCA shall be transferred
to any third party and shall be and remain free and clear of all Encumbrances,
except for a pledge in favor of GECC securing indebtedness owed by the Company
to GECC on the date hereof.
(g) If and so long as this Option has not been exercised in
full, BCA shall cause to be delivered to Holder as soon as available and in any
event within 30 days after the end of each month, the unaudited consolidated and
consolidating balance sheet of ARTRA and its Subsidiaries and the related
statements of income, stockholders' equity and cash flow for such month.
10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. If this Option is
exercised in part only, Holder shall be entitled to receive a new Option,
registered in the name of Holder or its nominee and setting forth as the
Applicable Percentage on the face thereof the Applicable Percentage attributable
to the portion of this Option not exercised. This Option may be assigned, in
whole or in part, by surrender of this Option to BCA with the assignment or
partial assignment, as the case may be, at the end of this Option duly executed.
If this Option is partially assigned, a new Option shall be issued to Holder,
registered in the name of Holder or its nominee, setting forth as the Applicable
Percentage on the face thereof the Applicable Percentage attributable to the
portion of this Option not so assigned and containing proportionate adjustments
to the Repurchase Price and percentages set forth in Section 3. The assignee
shall receive a new Option, registered in the name of such assignee or its
nominee and setting forth as the Applicable Percentage on the face thereof the
Applicable Percentage attributable to the portion of this Option so assigned and
containing proportionate adjustments to the Repurchase Price and percentages set
forth in Section 3.
11. REPLACEMENT OPTIONS. If this Option shall be mutilated, lost,
stolen or destroyed, BCA shall issue a new Option of like date, tenor and
denomination and deliver the same in exchange and substitution for and upon
surrender and cancellation of the mutilated Option, or in lieu of the Option
lost, stolen or destroyed, upon receipt of evidence and indemnification
reasonably satisfactory to the Company of the loss, theft or destruction of such
Option.
12. OPTION HOLDER NOT A SHAREHOLDER. This Option does not confer upon
Holder any right to vote or to consent or to receive notice as a shareholder of
the Company, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a shareholder, prior to the exercise hereof as hereinbefore
provided.
13. NOTICES. Except as otherwise expressly provided herein, all notices
referred to in this Option shall be in writing and shall be delivered
personally, sent by prepaid overnight courier service, sent by telecopy or sent
by registered or certified mail, return receipt requested, postage prepaid,
shall be deemed to have been given when so delivered, sent or deposited in the
U.S. Mail (or, in the case of telecopy, when received), and shall be addressed
(i) to BCA, at its principal executive offices and (ii) to Holder, at Holder's
address as it appears in the records of BCA (unless otherwise indicated by
Holder).
14. SEVERABILITY. Whenever possible, each provision of this Option
shall be interpreted in such manner as to be effective under applicable law, but
if any provision of this Option is held to be prohibited by or invalid under
applicable law in any jurisdiction, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating any other
provision of this Agreement.
15. CAPTIONS; GOVERNING LAW. The descriptive headings of the various
sections of this Option are for convenience only and shall not affect the
meaning or construction of the provisions hereof. All questions concerning the
construction, validity, enforcement and interpretation of this Option shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule.
16. INJUNCTIVE RELIEF. The parties hereto acknowledge that money
damages would be an inadequate remedy for breach of this Option because of the
difficulty of ascertaining the amount of damage that will be suffered by Holder
in the event that BCA breaches its obligations hereunder. Therefore, BCA agrees
that Holder may obtain specific performance of this Option and injunctive relief
against any breach hereof.
IN WITNESS WHEREOF, BCA has caused this Option to be signed and
attested by its duly authorized officers and to be dated February 26, 1996.
BCA HOLDINGS INC.
By ______________________
Its ___________________
<PAGE>
EXERCISE
BCA HOLDINGS INC.
The undersigned, __________________________________, pursuant to the
provisions of the within Option, hereby elects to purchase _____________ shares
of Common Stock of BAGCRAFT CORPORATION OF AMERICA covered by the within Option.
Signature
Address
Dated:
ASSIGNMENT
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto ____________________________________ the within
Option and all rights evidenced thereby and does irrevocably constitute and
appoint _____________________, attorney, to transfer such Option on the books of
BCA HOLDINGS INC.
Dated:
Signature _______________________
Address _______________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto ____________________________________ that portion of
the within Option and the rights evidenced thereby which will on the date hereof
entitle the holder to purchase ______% of the Common Stock Deemed Outstanding of
BAGCRAFT CORPORATION OF AMERICA and irrevocably constitutes and appoints
_____________________________________, attorney, to transfer that part of such
Option on the books of BCA HOLDINGS INC.
Dated:
Signature _______________________
Address _______________________
EXHIBIT 10.6
PREFERRED STOCK AGREEMENT
THIS AGREEMENT FOR CONTRIBUTION TO CAPITAL AND THE SALE AND PURCHASE OF
PREFERRED STOCK ("Agreement") is made by and between BCA HOLDINGS INC., a
Delaware Corporation ("BCA Holdings") and BAGCRAFT CORPORATION OF AMERICA, a
Delaware Corporation ("Bagcraft") as of January 31, 1996 and is executed in
reliance upon Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder by the
Securities and Exchange Commission (the "SEC").
WHEREAS, BCA Holdings, the holder of all of the outstanding common
stock of Bagcraft, desires to contribute $4,000,000. redemption value of its
Class B Exchangeable Preferred ("B Pref") shares to Bagcraft's capital in
connection with the amendment of Bagcraft's credit agreement with General
Electric Capital Corporation ("GECC"), the effect of which when combined with
the purchase described below, will permit Bagcraft to exchange the B Pref. for
41,350 shares of the existing Bagcraft Cumulative Redeemable Preferred Stock
("BCRPS").
WHEREAS, BCA Holdings desires to sell and Bagcraft desires to purchase
$4,135,000 redemption value of BCA Holding's B Pref for a price of $4,135,000.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, the parties agree as follows:
1. COVENANTS AND AGREEMENTS TO PURCHASE, PURCHASE PRICE,
CONTRIBUTION TO BAGCRAFT'S CAPITAL
a. Purchase of BCA Pref.. Bagcraft hereby agrees to purchase 4,135
shares of the Class B Exchangeable Preferred Stock of BCA Holdings which bear
the rights and preferences as set forth on Exhibit 1a at a price of $1000. per
share for an aggregate purchase price of Four Million One Hundred Thirty-Five
Thousand Dollars ($4,135,000.00). The B Pref are exchangeable for a like number
of shares of the ARTRA GROUP Incorporated ("Artra") Class C Exchangeable
Preferred stock ("Artra Class C") bearing the rights and preferences as stated
on Exhibit 1a (1) attached hereto, and, in the event that Artra defaults on a
certain loan to Artra due Scorpion Holdings, Inc. ("Scorpion") in the sum of up
to $3,500,000.00, and Scorpion has delivered a notice of default to Artra which
has failed to cure the default in all material respects within the time
allotted, the BCA Pref. is mandatorily exchangeable for the Artra Class C stock
in the manner and pursuant to the terms of the Statement establishing the Artra
Class C stock.
b. Delivery of Funds. Upon the issuance and delivery of the duly
authorized, non-assessable B Pref, and compliance with clause 2 a. below by BCA
Holdings, Bagcraft shall pay the purchase price by delivering $4,135,000. in
good funds in United States Dollars to BCA Holdings in a manner to be mutually
determined.
2. CONTRIBUTION BY BCA HOLDINGS OF B PREF.
a. Contemporaneous with the events described in Clause 1, BCA Holdings
shall cause to be issued and delivered to Bagcraft, 4,000 additional shares of B
Pref which shall represent a contribution to Bagcraft's capital and when
combined with the 4,000 B Pref shares, all of the B Pref is intended to be
exchanged with Ozite Corporation, a Delaware corporation ("Ozite"), for not less
than 82.7% of the BCRPS outstanding and held by Ozite.
3. BUYER REPRESENTATIONS.
a. Private Offering. Bagcraft represents and warrants to BCA Holdings
as follows: (i) Bagcraft is purchasing the B Pref for Bagcraft's own account and
for investment purposes only. Bagcraft is not acquiring the B Pref with a view
towards subsequent distribution except as contemplated by a certain letter dated
as of January 31, 1996 ("Letter Agreement") from Peter R. Harvey to the former
Ozite Corporation preferred stockholders and Ozite. Except as stated, Bagcraft
does not have any contract, understanding or arrangement with any person to
sell, transfer or grant participation to such person or any third person with
respect to the B Pref.
(ii) Bagcraft understands that the B Pref (including
in all cases in this Agreement, the Artra stock upon conversion) is being
offered by BCA Holdings (including Artra) under the private offering exemption
of Section 4(2) of the Securities Act and, accordingly, the B Pref is not
registered under the Securities Act. Bagcraft agrees that all subsequent offers
and sales of the B Pref shall be made pursuant to registration of the B Pref
under the Securities Act or pursuant to an exemption from such registration.
(iii) Bagcraft acknowledges that it has received and
reviewed the information regarding the rights and preferences of the B Pref, as
set forth in Exhibit 1 a and the Artra stock as set forth ----------- on Exhibit
1a (1) attached hereto. -------------- (iv) Bagcraft agrees that BCA Holdings,
in order to assure compliance with the restrictions against subsequent
distribution under the private offering exemption of the Securities Act, shall
cause a restrictive legend to be placed on the share certificates evidencing the
B Pref. (v) Bagcraft agrees that BCA Holdings and Artra in order to further
assure compliance with the aforementioned restrictions against subsequent
distribution, shall place a stop-transfer order with their respective transfer
agents. (vi) Bagcraft understands that since the B Pref and Artra stock are
being offered under the private offering exemption from registration of the
Securities Act, BCA Holdings and Artra are relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and
understandings of Bagcraft set forth herein in order to determine the
applicability of such exemption and the suitability of Bagcraft to acquire the B
Pref and Artra stock. b. Non-contravention. The execution and delivery of this
Agreement, acceptance of the B Pref, the exchange of the B Pref for
approximately 82.7% of the BCRPS and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by the
Bagcraft of any of the terms or provision of, or constitute a default under any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Bagcraft is a party or by which its or any of its respective
properties or assets are bound, or any existing applicable law, rule or
regulation, or any applicable decree, judgment or order of any court, Federal or
state regulatory body, administrative agency or other governmental body having
jurisdiction over the Bagcraft or any of its properties or assets. c. No
Government Recommendation or Approval. Bagcraft understands that no Federal or
state governmental agency has passed on or made any recommendation or
endorsement of the B Pref or Artra Class C stock. d. Binding Agreement. This
Agreement has been duly authorized, validly executed and delivered on behalf of
Bagcraft and is a valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
4. BCA HOLDINGS REPRESENTATIONS.
a. Authorized B Pref.. The B Pref when issued and delivered will be
duly and validly authorized and issued, fully paid and non-assessable and will
not subject the holders thereof to personal liability by reason of being such
holders. There are no preemptive rights of any shareholder of the BCA Holdings.
BCA Holdings has made no representations regarding the actual market value
before or after the consummation of the sale contemplated hereby.
b. Designation. The rights and preferences of the B Pref and the rights
and preferences of the Artra Class C stock are accurately and completely
described on the attached Exhibits 1 a and 1 a (1) respectively c. Binding
Agreement. The Purchase Agreement has been duly authorized, validly executed and
delivered on behalf of BCA Holdings and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
d. Non-contravention. The execution and delivery of this Agreement and
the consummation of the issuance of the B Pref and the transactions contemplated
by this Agreement do not and will not conflict with or result in a breach by BCA
Holdings of any of the terms or provision of, or constitute a default under, the
articles of incorporation or by-laws of BCA Holdings or any indenture, mortgage,
deed of trust or other material agreement or instrument to which BCA Holdings is
a party or by which its or any of its respective properties or assets are bound,
or any existing applicable law, rule or regulation or any applicable decree,
judgment or order of any court, Federal or state regulatory body, administrative
agency or other governmental body having jurisdiction over the BCA Holdings or
any of its properties or assets.
e. Approvals. BCA Holdings is not aware of any authorization, approval
or consent of any governmental body which is legally required for the issuance
and sale of the B Pref as contemplated by this Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
BCA Holdings' transfer agent or corporate secretary will be instructed
to issue one or more share certificates representing the B Pref with a
restrictive legend in the name of Bagcraft, Ozite or as contemplated by the
Letter Agreement and in such denominations to be specified prior to closing. BCA
Holdings further warrants that no instructions other than these instructions and
instructions for a stop-transfer instruction have been given to the transfer
agent or corporate secretary and that such B Pref shall otherwise be freely
transferable on the books and records of BCA Holdings subject to the legends to
be placed thereon. Nothing in this Agreement, however, shall affect in any way
Bagcraft's obligations and agreement to comply with all applicable securities
laws upon resale or transfer of the B Pref.
6. CLOSING DATE. The date of the issuance and the sale of the B Pref
(the "Closing") shall be February 15, 1996, or such other mutually agreed date.
7. CONDITIONS TO BCA HOLDINGS' OBLIGATION TO SELL. Bagcraft understands
that BCA Holding's obligation to sell the B Pref is conditioned upon:
(a) the receipt and acceptance by BCA Holdings of this Agreement for
the purchase of B Pref and BCA's contribution of B Pref as evidenced by
execution (facsimile signatures in counterparts are acceptable) of this
Agreement by any authorized officer or agent of BCA Holdings.
(b) the establishment of the Artra Class C preferred which may be
exchanged for the B Pref in the event that Artra defaults on a certain loan from
Scorpion thereby and the determination that the Artra Class C conforms to the
Statement.
(c) BCA acknowledges that Bagcraft must conform to the terms and
conditions of a certain Limited Consent and Sixth Amendment to Credit Agreement
with GECC dated as of January __, 1996 and that a true and correct copy of
paragraph 5(m) (as provided to BCA Holding of that Agreement) sets forth the
requirements to be complied with by the parties in this transaction, and,
therefore BCA Holdings agrees to promptly perform and use all reasonable efforts
to cause the satisfaction of all conditions set forth in clause 5(m) of the GECC
agreement as so stated.
8.CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.
BCA Holdings understands that Bagcraft's obligation to purchase the B
Pref is conditioned upon:
(a) acceptance by Bagcraft of this Purchase Agreement for the sale of
the B Pref as evidenced by execution (facsimile signatures in counterparts are
acceptable) of this Agreement by any authorized officer or agent of BCA Holdings
and delivery of share certificate or certificates evidencing the B Pref as
described herein;
(b) the execution, delivery and performance by Ozite, Bagcraft and BCA
of the Preferred Stock Exchange Agreement;
(c) the acceptance by all of the former Ozite Preferred Stockholders of
the Letter Agreement;
(d) the consent of General Electric Credit Corporation and other
necessary consents to permit the payment by Bagcraft to BCA as required by the
Agreement. Bagcraft represents that Bagcraft must conform to the terms and
conditions of a certain Limited Consent and Sixth Amendment to Credit Agreement
with GECC dated as of January __, 1996 and that a true and correct copy of
paragraph 5(m) (as provided to BCA Holding of that Agreement) sets forth the
requirements to be complied with by the parties to this transaction. Bagcraft
agrees to promptly perform and use all reasonable efforts to cause the
satisfaction of all conditions set forth in clause 5(m) of the GECC agreement as
so stated.
(e) the establishment of the Artra Class C preferred which may be
exchanged for the B Pref in the event that
Artra defaults on a certain loan from Scorpion thereby and the determination
that the Artra Class C conforms to the Statement.
9. Brokerage. All parties
respectively represent and warrant to each other that no person employed a
broker relative to this Agreement or the transactions contemplated hereby, and
Bagcraft and BCA shall indemnify and hold harmless the other from and against
any and all commissions, fees or claims of any person employed or retained or
claiming to be employed or retained by such other party to bring about, or to
represent to such party in, the transactions contemplated hereby.
10. Survival.
All representations, warranties, covenants and agreements made by either party
or pursuant hereto, except as otherwise expressly stated, shall survive closing.
11. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when received, whether personally, by
telegram, telex, facsimile transmission (followed by regular mail) or registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to Bagcraft, : Bagcraft Corporation of America
addressed to Mark F. Santacrose, Pres.
3900 W. 43rd
Chicago, Il. 60632
If to BCA BCA Holdings, Inc.
addressed to: %Artra Group Incorporated
500 Central
Northfield, Il 60093
12. Benefit. This Agreement shall be binding upon and inure to the
benefit of the successors and assign of Bagcraft and BCA.
13. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original.
14. Severability. Should any term, provision or section hereof be held
to be invalid, such invalidity shall not affect any other provisions or sections
hereof or thereof which can be given effect without such invalid provision or
section, all of which shall remain in full force and effect.
15. Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
16. Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
17. Entire Agreement. This Agreement represents the entire agreement
and understanding of the parties hereto and all prior and concurrent agreements,
understandings, representations and warranties in regard to the subject matter
hereof are and have been merged herein.
18. Governing Law, Jurisdiction, Remedies. The Federal and state courts
sitting in Chicago, Illinois shall have exclusive jurisdiction on all matters
relating to this Agreement, and shall apply the laws of such state to the claims
thereof and, in such application, shall disregard the conflicts of law
provisions. Trial by jury is expressly waived. In the event of a breach or
threatened breach by any party, the other party shall be entitled to decrees of
specific performance, without posting bond or security, in addition to such
other remedies as may be available.
* * * * *
IN WITNESS WHEREOF, this Agreement is duly executed on the date firs written
above.
BCA HOLDINGS INC.
By:_________________________________
Title: _______________________________
BAGCRAFT CORPORATION OF AMERICA
By:_________________________________
Title: _______________________________
EXHIBIT 10.7
PREFERRED STOCK EXCHANGE AGREEMENT
AGREEMENT made as of the 31st day of January, 1996 by and between Ozite
Corporation ("Ozite") a Delaware Corporation, a subsidiary of Pure Tech
International, Inc., a Delaware corporation, BCA Holdings, Inc., a Delaware
corporation ("BCA") and Bagcraft Corporation of America, a Delaware Corporation
("Bagcraft").
WHEREAS, Ozite has possession of 41,350 shares of Bagcraft 13 1/2%
cumulative redeemable preferred stock (the 41,350 shares referred to hereinafter
as the "BCRPS") with a liquidation preference of $100 per share and cumulative
dividends in the sum of $217.00 in the aggregate on the BCRPS stock; and
WHEREAS, ARTRA GROUP Incorporated, a Pennsylvania corporation,
("ARTRA") is the parent corporation of BCA which is the parent corporation of
Bagcraft. ARTRA desires to resolve certain debt matters with a bank lender and
in connection with the proposed settlement of that debt, requires access to
certain of the cash proceeds derived from Bagcraft's sale of the assets of Arcar
Graphics, Inc., a former wholly-owned subsidiary of Bagcraft. In order to permit
the debt settlement to proceed, Bagcraft and BCA have entered into an agreement
whereby Bagcraft has purchased from BCA 4,135 BCA Class B Exchangeable Preferred
stock and BCA has contributed 4,000 shares of the BCA Class B Exchangeable
Preferred stock (the 8135 shares are hereinafter referred to as the "B Pref").
The B Pref bear a $1,000 per share liquidation preference and annual cumulative
cash dividends of $135 per share when and if declared by BCA and the rights and
preferences as set forth on Exhibit B Pref. The B Pref shares are exchangeable
for a like number of shares of the ARTRA GROUP Incorporated Preferred stock
bearing the rights and preferences as stated on Exhibit ATA Pref. attached
hereto, and, in the event that Artra defaults on a certain loan due Scorpion
Holdings, Inc. in the sum of up to $3,500,000.00 to Artra, and Scorpion has
delivered a notice of default to Artra which has failed to cure the default in
all material respects within the time allotted, the BCA Pref is mandatorily
exchangeable for the Artra Class C stock in the manner and pursuant to the terms
of the Statement establishing the Artra Class C stock; and
WHEREAS, Ozite and Bagcraft desire to exchange the BCRPS for the shares
of B Pref and such exchange shall be in complete satisfaction of any liability
of Bagcraft for redemption of and any cumulative dividends applicable to the
BCRPS to the persons listed on Exhibit S/H List who at the present time are to
receive the BCRPS from Ozite; and
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the undertakings described in the Preambles and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Exchange for Bagcraft Preferred Stock.
(a) Ozite agrees to and will exchange, transfer, assign and deliver the
BCRPS to Bagcraft at the Closing, free and clear of all liens, pledges,
encumbrances, security interests, claims and equities of every kind including
all preferred stock dividends accrued on such shares in full satisfaction
thereof and due and owing from Bagcraft on the BCRPS owned of record by Ozite.
Bagcraft agrees to accept from Ozite and will exchange for the BCRPS on the
terms and subject to the conditions set forth in 1(b) and elsewhere in this
Agreement.
(b) Bagcraft agrees to and will exchange, transfer, assign and deliver
to Ozite at the closing, free and clear of all liens, pledges, encumbrances,
security interest, claims and equities of every kind, and Ozite agrees to and
will exchange for and accept from Bagcraft, on the terms and subject to the
conditions set forth in this agreement, 8,135 shares of BCA Class B Exchangeable
Preferred stock as described above with an annual dividend of $135 per share and
a liquidation preference of $1,000 per share and having such designations and
preferences as contained in all in the Statement of Designation and Preferences
to be recorded with the Secretary of State of the State of Delaware and as
attached hereto as Exhibit B Pref.
2. Accumulated Dividends, Assignment of Rights. At the closing, in
exchange for the BCRPS shares, Bagcraft shall deliver to Ozite the certificates
of B Pref issued in the names of the recipients thereof and in the amounts as
set forth on Exhibit S/H List and Ozite shall assign to Bagcraft the BCRPS share
certificates and any and all rights to receive accumulated or future dividends
of cash, property, shares of stock or other consideration that Ozite may have
owned or claimed as the owner of the BCRPS shares from the time of issuance to
the exchange contemplated by this Agreement.
3. Closing. The closing of the sale shall take place at the offices of
ARTRA, 500 Central Avenue, Northfield, Illinois 60093, on or before February 15,
1996. At the closing:
(a) Ozite shall deliver to Bagcraft, free and clear of all liens,
options,es and security interests, certificates for the BCRPS shares to be
exchanged by Ozite, duly endorsed by Ozite.
(b) Bagcraft shall deliver to those recipients identified on Exhibit
S/H List, 8,135 shares of B Pref, free and clear of all liens, options,
encumbrances and security interests to be delivered to Ozite in exchange for the
BCRPS.
4. Ozite 's Representations and Warranties. Ozite makes the following
representations and warranties, each of which is material and is being relied
upon by Bagcraft and shall be true as of the date hereof and shall survive the
Closing:
(a) Due Organization and Qualification.Ozite is duly organized
and validly existing under the laws of the State of Delaware; is
qualified in every jurisdiction where the nature of its business
requires it to be so qualified and where failure to so qualify would
materially and adversely affect its business or assets.
(b) Execution of Agreement.
(i) The execution, delivery and performance of this Agreement
do not and will not result in a breach of or constitute a default under
any agreement or instrument or result in the creation of any lien,
charge or encumbrance upon any property or assets of Ozite, and do not
require the consent or approval of any governmental body, agency,
authority or any other person.
(ii) The execution, delivery and performance of this Agreement
do not and will not result in the acceleration of any indebtedness of
Ozite .
(c) Authority. Ozite has full power, authority and legal right
to enter into and perform this Agreement and cause the distribution of
the B Pref shares to the recipients as required by this Agreement.
(d) Outstanding Shares; Title to Shares. Ozite is the sole
legal and beneficial owner of the BCRPS shares, free and clear of any
liens, claims, encumbrances or restrictions of any kind (other than
restrictions imposed by the federal and state securities laws), and, to
its best information and belief, all of such shares are validly issued
and outstanding, fully paid and nonassessable. There are no existing
liens, mortgages, security interests or encumbrances on any of the
BCRPS shares. Ozite has no judgments outstanding against it with
respect to the BCRPS shares.
5. Bagcraft's Representations and Warranties. Bagcraft and BCA
make the following representations and warranties, each of which is
material and is being relied upon by Ozite and shall be true as of the
date hereof and shall survive the Closing:
(a) Due Organization and Qualification. Bagcraft and BCA are
duly organized and validly existing under the laws of the State of
Delaware; are qualified in every jurisdiction where the nature of its
business requires them to be so qualified and where failure to so
qualify would materially and adversely affect their business or assets.
(b) Execution of Agreement.
(i) The execution, delivery and performance of this Agreement
do not and will not result in a breach of or constitute a default under
any agreement or instrument or result in the creation of any lien,
charge or encumbrance upon any property or assets of Bagcraft and BCA
and do not require the consent or approval of any governmental body,
agency, authority or any other person.
(ii) The execution, delivery and performance of this Agreement
do not and will not result in the acceleration of any indebtedness of
Bagcraft or BCA.
(c) Authority. Bagcraft and BCA have full power, authority and
legal right to enter into and perform this Agreement.
(d) Outstanding Shares; Title to Shares.
(i) Bagcraft is the original issuer of the BCRPS shares and
such shares when issued and currently are free and clear of any liens,
claims, encumbrances or restrictions of any kind.
(ii) BCA is the original issuer of the B Pref shares and such
shares are free and clear of any liens, claims, encumbrances or
restrictions of any kind (other than restrictions imposed by the
federal and state securities laws), and, upon issuance, all of such B
Pref shares will be validly issued and outstanding, fully paid and
non-assessable. There are no existing liens, mortgages, security
interests or encumbrances on any of the B Pref shares.
(e) This Agreement, when executed and delivered, will
constitute, a valid, legal and binding obligation of each of BCA and
Bagcraft enforceable against BCA and Bagcraft in accordance with its
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and except as may be limited by
applicable principals of equity (whether considered in a suit at law or
in equity).
6. Conditions Precedent:
6.1 The obligations of Ozite under this Agreement are subject
to the fulfillment prior to or at the closing of each of the following
conditions:
(a) Representations and Warranties True at Closing. As to
Ozite 's obligation to close, Bagcraft's representations and warranties
contained in this Agreement shall be true at the time of closing as
though such representations and warranties were made at such time.
(b) Litigation, Material Adverse Change. During the period
from the date hereof to the closing there shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit or invalidate
the exchange and delivery of the BCRPS to Bagcraft in exchange for the
B Pref by Ozite or any other transaction contemplated hereby, or which
might affect the right of Bagcraft to own the BCRPS or Ozite to
distribute the B Pref as contemplated and which, in the judgment of
Ozite, makes it inadvisable to proceed with the transaction
contemplated hereby.
(c) Performance. Each party shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by such party prior to or at the Closing.
6.2 The obligations of Bagcraft and BCA under this Agreement
are subject to the fulfillment prior to or at the closing of each of
the following conditions precedent:
(a) Representations and Warranties True at Closing. As to
Bagcraft's and BCA's obligations to close, Ozite 's representations and
warranties contained in this Agreement shall be true at the time of
closing as though such representations and warranties were made at such
time.
(b) Litigation, Material Adverse Change. During the period
from the date hereof to the closing there shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit or invalidate
the exchange and delivery of the BCRPS shares to Bagcraft for the B
Pref by Ozite and Bagcraft or any other transaction contemplated
hereby, or which might affect the right of Bagcraft to own the BCRPS
and which, in the judgment of Bagcraft, makes it inadvisable to proceed
with the transaction contemplated hereby.
(c) Performance. Each party shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by such party prior to or at the Closing.
(d) Consent of Former Ozite Preferred Stockholders. Ozite
shall deliver to Bagcraft and BCA the consent of the former Ozite
preferred holders entitled to receive the BCRPS approving and
consenting to the exchange of the B Pref shares for the BCRPS shares.
Additionally, the consenting parties shall acknowledge that the B Pref
share certificates delivered to them (including any Artra preferred
that may be exchanged for the B Pref) shall bear an imprint setting
forth that the share certificates have not been registered under any
state or federal securities law, are not transferable as a result
thereby and that no representations have been made by Bagcraft or BCA
as to the market value for the B Pref, BCA's financial capacity to
either pay current dividends on the B Pref or to redeem the B Pref
shares and cumulative dividends at the maturity date thereof and that
there are BCA Class A preferred shares with a redemption value of
$3,675,000. that are senior to the B Pref. Attached to and made a part
hereof as Exhibit Consent is a true and correct copy of the Consent
Agreement to be provided by each former Ozite preferred stockholder as
listed on Exhibit S/H List who will receive B Pref stock.
7. Brokerage. All parties respectively represent and warrant to each
other that no person employed a broker relative to this Agreement or the
transactions contemplated hereby, and Bagcraft and BCA, on the one hand, and
Ozite, on the other hand, shall indemnify and hold harmless the other from and
against any and all commissions, fees or claims of any person employed or
retained or claiming to be employed or retained by such other party to bring
about, or to represent to such party in, the transactions contemplated hereby.
8. Survival. All representations, warranties, covenants and agreements
made by either party or pursuant hereto, except as otherwise expressly stated,
shall survive closing.
9. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when received, whether personally, by
telegram, telex, facsimile transmission (followed by regular mail) or registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Ozite, addressed to: Ozite Corporation
F.W. Broling, Chairman
65 Railroad Avenue
Ridgefield, NJ 07657
If to Bagcraft, addressed to: Bagcraft Corporation of America
Mark F. Santacrose
3900 West 43rd
Chicago, IL 60632
If to BCA Holdings, BCA Holdings, Inc.
addressed to: Peter R. Harvey
500 Central
Northfield, Il., 60093
10. Indemnification. Bagcraft and BCA hereby agree to indemnify Ozite
and Ozite's former preferred stockholders identified on Exhibit S/H List,
Ozite's respective directors, officers, agents and employees against, and hold
each of them harmless from, any and all liabilities or Expenses, as defined
herein, incurred or arising or resulting from any breach by Bagcraft or BCA of
any provisions of this Agreement. As used herein, the term "Expenses" means all
direct and indirect costs of any type whatsoever (including, without limitation,
reasonable attorneys' fees), incurred by Ozite or the recipients identified on
Exhibit S/H List in settling or satisfying any claim in connection with an
indemnified claim or in connection with the investigation, preparation, defense
or appeal of any Proceeding. As used herein, the term "Proceeding" means any
threatened, pending or completed action or proceeding involving an indemnified
claim, whether civil, criminal, administrative or investigative in which Ozite
or any of its respective directors, officers, agents, employees or Exhibit S/H
List recipients may be or may have been involved as a party, a witness or
otherwise.
11. Benefit. This Agreement shall be binding upon and inure to the
benefit of the successors and assign of Bagcraft, BCA, Ozite, Artra and the
Exhibit S/H List recipients.
12. Counterparts. This Agreement may be executed simul taneously in two
or more counterparts, each of which shall be deemed an original.
13. Severability. Should any term, provision or section hereof be held
to be invalid, such invalidity shall not affect any other provisions or sections
hereof or thereof which can be given effect without such invalid provision or
section, all of which shall remain in full force and effect.
14. Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
15. Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
16. Entire Agreement. This Agreement represents the entire agreement
and understanding of the parties hereto and all prior and concurrent agreements,
understandings, representations and warranties in regard to the subject matter
hereof are and have been merged herein.
17. Governing Law, Jurisdiction, Remedies. The Federal and state courts
sitting in Chicago, Illinois shall have exclusive jurisdiction on all matters
relating to this Agreement, and shall apply the laws of such state to the claims
thereof and, in such application, shall disregard the conflicts of law
provisions. Trial by jury is expressly waived. In the event of a breach or
threatened breach by any party, the other party shall be entitled to decrees of
specific performance, without posting bond or security, in addition to such
other remedies as may be available.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
OZITE CORPORATION BAGCRAFT CORPORATION OF AMERICA
By: __________________________ By: __________________________
Name: __________________________ Name: __________________________
Title: __________________________ Title: __________________________
BCA HOLDINGS, INC.
By: __________________________
Name: _________________________
Title: __________________________
EXHIBIT 10.8
LIMITED CONSENT AND
SIXTH AMENDMENT TO CREDIT AGREEMENT
This LIMITED CONSENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT
(this "Amendment") dated as of February 1, 1996 is by and between BAGCRAFT
CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual
capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders.
R E C I T A L S:
WHEREAS, Borrower, Agent and Lenders are parties to that
certain Credit Agreement dated as of December 17, 1993 (as amended or otherwise
modified by a First Amendment to Credit Agreement dated as of December 23, 1993,
a Second Amendment to Credit Agreement dated as of March 14, 1994, a Limited
Waiver and Consent dated as of April 8, 1994, a Third Amendment to Credit
Agreement dated as of April 30, 1994, a Fourth Amendment to Credit Agreement
dated as of August 15, 1994, a Consent and Fifth Amendment to Credit Agreement
dated as of October 25, 1995 (the "Fifth Amendment"), and as now or hereafter
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement"), pursuant to which Lenders have made and may hereafter make loans
and advances and other extensions of credit to Borrower;
WHEREAS, Borrower wishes to amend the Credit Agreement and
obtain the consent of Agent and Lenders to permit (a) the redemption of certain
outstanding shares of Borrower's preferred stock and the repurchase of all
dividends thereon accumulated through the date thereof and (b) the deferred
payment of accrued interest due and owing by Borrower under the Credit
Agreement;
WHEREAS, and Agent and Lenders are willing to amend the Credit
Agreement and grant the consent requested above, all subject to the express
terms and conditions specified in this Amendment; and
WHEREAS, this Amendment shall constitute a Loan Document and
these Recitals shall be construed as part of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the
agreements, promises and covenants set forth below, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, capitalized
terms used in this Amendment and not otherwise defined in this Amendment shall
have the meanings ascribed to them in Schedule A to the Credit Agreement. In
addition, the following terms shall have the following meanings:
"Default Interest Amount" shall mean the sum of $299,313.44
currently due and owing by Borrower to Agent, for the benefit of
Lenders, representing interest which has accrued under the Credit
Agreement at the Default Rate from May 20, 1995 through October 25,
1995.
"Redemption Date" shall mean the date of the consummation of
the Redemption in accordance with the terms of the Limited Consent and
Sixth Amendment to Credit Agreement between Borrower, Agent and
Lenders.
"Term Loan B Reserve" shall mean an amount equal to
$2,000,000; provided, that the Term Loan B Reserve shall be reduced to
$0 should Borrower and its Subsidiaries on a consolidated basis
maintain a ratio of (I) EBITDA to (ii) the sum of (x) Fixed Charges and
(y) Capital Expenditures equal to or greater than the ratio of 1.10 to
1.00 for any trailing twelve (12) Fiscal Month period. Such reduction,
if any, in the Term Loan B Reserve shall be effective upon Agent's
determination of the foregoing ratio on the basis of financial
information required to be delivered in accordance with clauses (a)
and/or (c), as applicable, of Schedule 4.1(a)."
<PAGE>
2. ACKNOWLEDGMENT. Borrower hereby acknowledges that: (a) the
entire Default Interest Amount is currently due and owing by Borrower to Agent
and Lenders under the Credit Agreement and (b) on October 25, 1995, Agent
applied the entire Net Proceeds received by Agent from Borrower pursuant to the
Sale to the outstanding principal balance of the Revolving Credit Loan and other
Obligations then due and payable under the Credit Agreement.
3. CONSENT. Notwithstanding any provision of the Credit
Agreement to the contrary, Borrower may (a) consummate the Redemption (as
defined in Section 5(m) hereof) in accordance with the express terms and
conditions of this Amendment, including, without limitation, Section 5(m)
hereof, (b) repay the Default Interest Amount in accordance with the express
terms and conditions of the Credit Agreement, as amended hereby, including,
without limitation, Section 8.1(u) thereof and (C) enter into the transactions
with the Kansas Lender consummated in accordance with the correspondence
attached as Schedule I hereto and the definitive documents executed between
Borrower and the Kansas Lender delivered to Agent at least three (3) days prior
to the Redemption Date under a certificate of Borrower's chief financial officer
stating that the same are true, correct and complete copies thereof and
constitute all documents relating to such transactions, all of which shall be in
form and substance satisfactory to Agent.
4. AMENDMENT TO CREDIT AGREEMENT. Borrower, Agent and Lenders
hereby agree that the Credit Agreement is hereby amended as follows:
(a) The text appearing in the first sentence of Section
1.1(a) after the term "("Borrowing Availability")" is hereby
deleted in its entirety and replaced with:
", in any case less the Term Loan B Reserve and such other
reserves as Agent may deem appropriate from time to time in
its sole and absolute discretion."
(b) The first sentence of Section 1.5(b) of the Credit
Agreement is hereby deleted in its entirety and replaced
with:
"In the event that the Revolving Credit Loan is terminated by
Borrower at any time prior to January 31, 1997, Borrower
shall pay to Agent for the ratable benefit of Lenders a
prepayment fee in an amount equal to $500,000."
(C) The first sentence of Section 1.5(e) of the Credit
Agreement is hereby deleted in its entirety and replaced
with:
"Within sixty (60) days following the end of Fiscal Year 1996
and each Fiscal Year thereafter, Borrower shall prepay the
Term Loans in an amount equal to seventy-five percent (75%)
of Excess Cash Flow for such respective Fiscal Year
calculated on the basis of Borrower's financial statements
for such Fiscal Year delivered to Agent pursuant to Section
4.1 hereof; provided, that the foregoing percentage shall be
reduced to fifty (50%) with respect to Excess Cash Flow
generated after repayment in full in cash of Term Loan B
pursuant to the terms of this Agreement and Schedule B-2
hereof."
(d The following is hereby added as the final sentence of
Section 1.17 of the Credit Agreement:
"A fee of $500 per day per individual (plus all out-of-pocket
costs and expenses) in connection with each field audit
conducted by Agent pursuant to this Agreement and the other
Loan Documents shall be due and payable by Borrower (and, in
Agent's sole and absolute discretion, charged against the
Revolving Credit Facility)."
(e) The text "December 31, 1995" is hereby deleted from
Section 8.1(q) of the Credit Agreement and replaced with
"December 30, 1996".
(f) The following clauses is hereby added to Section 8.1 of
the Credit Agreement:
<PAGE>
"(t) Agent shall not have received by no later than March 31,
1996 a copy of a duly executed termination, release and
waiver between Borrower and Kenny Construction Company with
respect to that certain Subscription Agreement dated as of
March 31, 1994 between such parties and the transactions
contemplated pursuant thereto, all in form and substance
satisfactory to Agent in its sole and absolute discretion."
(g) The financial covenants set forth on Schedule 6.11 of the
Credit Agreement are hereby deleted in their entirety and replaced with
the financial covenants set forth on Schedule II hereto.
(h) The text "December 17, 1996" is hereby deleted from the
definition of "Commitment Termination Date" contained in Schedule A of
the Credit Agreement and replaced with "September 30, 1997."
(I) Clause (d) of Schedule B-2 of the Credit Agreement is
hereby deleted in its entirety and replaced with:
"(d) The aggregate principal amount of Term Loan B shall be
payable to Agent, for the ratable benefit of Lenders, in
twenty-three (23) consecutive monthly installments of
principal in the amount of Two Hundred Thousand Dollars
($200,000) each, payable on the fifteenth day of each month,
commencing on November 15, 1995, with a final installment
payable on September 30, 1997 in the principal amount of the
greater of Four Hundred Thousand Dollars ($400,000) or the
then outstanding principal balance of Term Loan B."
(j) The text "One Million Dollars ($1,000,000)" is hereby
deleted from clause (a) of Schedule C of the Credit Agreement and
replaced with "Three Million Dollars ($3,000,000)".
(k) Notwithstanding Section 2(f) of the Fifth Amendment, the
Revolving Credit Loan Commitment shall be Eighteen Million Dollars
($18,000,000); it being understood that $4,200,000 thereof shall only
be available to Borrower for the Redemption and shall not be so
available until the Redemption Date.
(L) Notwithstanding Section 6(k)(I) or Section 7(f) of the
Fifth Amendment, the Tax Sharing Agreement shall be in the form and
substance required by the Credit Agreement without giving effect to the
Fifth Amendment; provided that the first $400,000 of any distributions,
dividends, payments or other advances payable by Borrower pursuant to
the Tax Sharing Agreement shall be permanently retained by Borrower as
an offset against the outstanding $400,000 Loan advanced by Borrower to
ARTRA in accordance with that certain Acknowledgment and Consent dated
as of December 28, 1994 between Borrower and Agent.
5. CONDITIONS TO EFFECTIVENESS. Notwithstanding any other
provision contained in this Amendment, the effectiveness of this Amendment shall
be conditioned upon the satisfaction of all of the matters set forth in this
Section 5 on or prior to the date hereof (except as otherwise expressly
specified herein), all in form and substance acceptable to Agent in its sole and
absolute discretion:
(a) Warranties and Representations. All of the warranties and
representations of Borrower contained in the Credit Agreement and in
the other Loan Documents (including, without limitation, this
Amendment) shall be true and correct in all material respects on and as
of the date hereof and on the Redemption Date (except those
representations and warranties made expressly as of a different date).
(b) No Material Adverse Change. Since the date of the Fifth
Amendment through the date hereof and through the Redemption Date,
nothing shall have occurred (and neither Agent nor Lenders shall have
become aware of any facts or conditions not previously known) which
Agent shall determine has, or could be expected to have, a Material
Adverse Effect.
(C) No Default or Event of Default. As determined by Agent,
neither a Default nor an Event of Default shall have occurred and be
continuing as of the date hereof or as of the Redemption Date or will
result here from.
<PAGE>
(d) No Litigation. As of the date hereof and as of the Redemption
Date, no litigation, investigation or proceeding before any court,
governmental agency, or arbitrator shall be pending or threatened
against Borrower, any Subsidiary of Borrower, or any officer, director,
or executive of Borrower or such Subsidiary (A) in connection with the
Credit Agreement or the other Loan Documents or (B) which, if adversely
determined, would, in the sole and absolute opinion of Agent, have a
Material Adverse Effect, and no injunction, writ, restraining order or
other order of any material nature adverse to Borrower or any of its
Subsidiaries shall have been issued or threatened by any court or
governmental agency.
(e) Agreement. Agent shall have received a duly executed original
of this Amendment, together with all Schedules attached hereto.
(f) First Amendment to Warrant. Agent shall have received a duly
executed original of that certain First Amendment to Warrant dated as
of the date hereof between Borrower and GE Capital, together with all
attachments thereto.
(g) Acknowledgment, Agreement and Waiver. As of the Redemption
Date, Agent shall have received, in the form supplied by Agent and
attached as Schedule III hereto, a duly executed original
acknowledgment, agreement and waiver by each holder of any share of
Borrower's preferred stock with respect to the prohibition under the
Credit Agreement of the payment of dividends on, or redemption of, any
preferred stock.
(h) Projections. Agent shall have received Borrowers forecasted
consolidated balance sheet, income statement and statement of cash
flows for Fiscal Year 1996, together with appropriate supporting
details and a statement of underlying assumptions, all prepared on a
monthly basis consistent with Borrower's historical financial
statements and representing management's good faith estimates of future
financial performance based on historical performance, all certified as
of the date hereof by Borrower's chief financial officer as being true,
accurate and complete.
(I) Officer's Certificate. Agent shall have received a duly
executed original certificate dated as of the date hereof by Borrower's
chief financial officer stating, and Borrower hereby represents and
warrants, that since the date of the Fifth Amendment, there has been
(I) no Material Adverse Effect on the business, operations, financial
condition, prospects or projections of Borrower, the industries in
which it operates, or any of its Subsidiaries, (ii) no litigation which
has commenced which could be expected to have any such Material Adverse
Effect or challenge any of the transactions contemplated by the
Agreement and the other Loan Documents, (iii) except as expressly
permitted by the Credit Agreement, no dividends, distributions,
payments, loans, contributions, fees or other transfers of cash,
property or other assets to any stockholder or Affiliate of Borrower,
including, without limitation, ARTRA or its employees, directors,
officers or Affiliates, (iv) no material increase in liabilities,
liquidated or contingent, and no material decrease in assets of
Borrower or any of its Subsidiaries and (v) no Events of Default have
occurred and are continuing.
(j) Secretary's Certificate. Agent shall have a duly executed
original certificate dated the date hereof by Borrower's corporate
secretary or an assistant secretary stating that (I) since the date of
the Fifth Amendment, there has been no amendment or other modification
(nor any proposal therefor) to Borrower's certificate or articles of
incorporation or bylaws and that each of the foregoing is in full force
and effect, (ii) the resolutions attached thereto are of its Board of
Directors and, as required, stockholders, approving and authorizing the
execution, delivery and performance of this Amendment and the other
documents and agreements executed in connection herewith or pursuant
hereto to which Borrower is a party, and the transactions to be
consummated in connection herewith and therewith and that each of the
foregoing resolutions is in full force and effect without any
modification or amendment, (iii) the officers of Borrower executing
this Amendment and the other documents and agreements executed in
connection herewith or pursuant hereto to which Borrower is a party are
the incumbent officers of the Borrower and, as such, are authorized to
execute each of such documents and (iv) Borrower is in good standing in
its state of incorporation and in good standing and qualified to
conduct business in each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification.
<PAGE>
(k) Consents and Acknowledgments. Agent shall have received
evidence that (I) Borrower has obtained consents and acknowledgments of
all Persons whose consents and acknowledgments may be required,
including, but not limited to, Borrower's, Parent's, ARTRA's and PST's
stockholders and all requisite Governmental Authorities, to the terms,
and to the execution and delivery, of this Amendment and the other
documents and agreements executed in connection herewith or pursuant
hereto to which Borrower is a party, and the transactions to be
consummated in connection herewith and therewith and (ii) no action has
been taken by any competent authority which restrains, prevents or
imposes material adverse conditions upon the consummation of all or any
part of such transactions contemplated by this Amendment, nor has any
judgment, order, injunction or other restraint been issued or filed,
nor is any hearing seeking injunctive relief or other restraint pending
or noticed which prohibits or imposing material adverse conditions upon
all or any part of the transactions contemplated by this Amendment.
(l) Kansas Lender's Consent or Acknowledgment. Agent shall have
received a copy of a duly executed and effective (I) consent between
Borrower and the Kansas Lender with respect to the terms and conditions
of this Amendment and the Redemption, the execution and delivery of all
documents and agreements entered into pursuant hereto and thereto, and
the consummation of all transactions contemplated hereby and thereby or
(ii) acknowledgment of the Kansas Lender that its consent is not
required in connection with any of the foregoing.
(m) Redemption. On the Redemption Date, (I) Borrower shall have
redeemed against surrender of certificates therefor shares of its
outstanding preferred stock, and repurchased all dividends accrued
thereon through the date thereof, all of which when valued together
according to Borrower's most recent set of financial statements
delivered to Agent pursuant to the Credit Agreement, shall equal
$4,200,000 in the aggregate, and all such certificates shall have been
canceled, (ii) all rights of holders of such preferred stock shall have
ceased, (iii) such shares of preferred stock shall not be deemed
outstanding for any purpose, (iv) Borrower shall have consummated the
foregoing transactions for an aggregate amount not to exceed $4,200,000
(including, without limitation, all fees, costs and expenses incurred
in connection therewith, and all direct or indirect dividends,
distributions, payments, advances, contributions, investments or other
transfer of cash, property or other assets made to or in respect of
PST, ARTRA, Parent, Peter R. Harvey or any of his family members, or
any stockholder, employee, director, officer or Affiliate of any of the
foregoing) and (v) each of the foregoing transactions, and all terms
and conditions thereof, shall have been duly approved by the board of
directors and, if required, the shareholders of Borrower and shall have
been consummated in accordance with all applicable law (all of the
foregoing referred to herein collectively as the "Redemption"). Agent
shall have received copies of canceled certificates representing all
shares of Borrower's preferred stock redeemed pursuant to the
Redemption, all of which shall be certified by Borrower's secretary as
being true, accurate and complete copies thereof. So long as Borrower
is in compliance with the foregoing restrictions, Borrower may
consummate the Redemption through the purchase of shares of Parent's
preferred stock and the simultaneous exchange of such shares for
Borrower's preferred stock and all dividends accumulated thereon
through the Redemption Date.
(n) Funds Flow Memorandum. Agent shall have received copies of the
final funds flow memorandum for the Redemption not less than five (5)
days prior to the Redemption Date (with drafts thereof distributed to
Agent when produced), which shall evidence, in detail satisfactory to
Agent in its sole and absolute discretion, all payments (including,
without limitation, those specified in clause (iv) of Section 5(m)
above) proposed to be made pursuant to or otherwise in respect of the
Redemption, all certified as of the Redemption Date by Borrower's chief
financial officer as being true, accurate and complete.
(o) Fees, Costs and Expenses; Amendment Fee. Agent shall have
received payment of all fees, costs and expenses, including, without
limitation, attorney's fees and expenses and as otherwise due pursuant
to Section 11.3 of the Credit Agreement, incurred by Agent through the
date hereof, together with a fully earned and non-refundable amendment
fee in the amount of $150,000 as consideration for the execution and
delivery of this Amendment by Agent and Lenders. Such amendment fee
shall be paid with an advance under the Revolving Loan on the date
hereof; provided, that such advance, in and of itself, shall not result
in an immediate reduction in Borrowing Availability, but rather, with
respect thereto, Borrowing Availability shall reduced by an initial
$37,500 on April 15, 1996, an additional $37,500 on July 1, 1996 and a
final $75,000 on September 30, 1996.
<PAGE>
(p) Default Interest Amount. The Default Interest Amount shall be
paid with an advance under the Revolving Loan on the date hereof;
provided, that such advance, in and of itself, shall not result in an
immediate reduction in Borrowing Availability, but rather, with respect
thereto, Borrowing Availability shall reduced by an initial $74,828.36
on April 15, 1996, an additional $74,828.36 on July 1, 1996 and a final
$149,656.72 on September 30, 1996.
(q) Other Requirements. Agent shall have received all
certificates, orders, authorizations, consents, affidavits, schedules,
instruments, security agreements, financing statements, mortgages,
guarantees, opinions, pledges and other documents or instruments which
are provided for hereunder, or which Agent may at any time request.
6. WARRANTIES AND REPRESENTATIONS. All of Borrower's warranties
and representations contained in this Amendment shall survive the execution,
delivery and acceptance of this Amendment by the parties hereto. Borrower
expressly reaffirms that each of the representations and warranties set forth in
the Credit Agreement continues to be accurate and complete in all material
respects, and hereby remakes and incorporates herein by reference each such
representation and warranty as though made on the date of the execution of this
Amendment and on the Redemption Date.
7. FURTHER ASSURANCES. Borrower hereby agrees, at its expense, to
duly execute, acknowledge and deliver to Agent all other documents and
instruments and take all such action as Agent may request in order to further
effectuate the purposes of this Amendment and to carry out the terms hereof.
8. RELEASES; INDEMNITIES. In further consideration of Agent's and
Lenders' execution of this Amendment, Borrower, individually and on behalf of
its successors (including, without limitation, any trustee acting on its behalf
and any debtor-in-possession with respect to it), assigns, subsidiaries and
affiliates, hereby forever releases Agent and Lenders and their respective
successors, assigns, parents, subsidiaries, affiliates, officers, employees,
directors, agents and attorneys (collectively, the "Releasees") from any and all
debts, claims, demands, liabilities, responsibilities, disputes, actions and
causes of action (whether at law or in equity) and obligations of every nature
whatsoever, whether liquidated or unliquidated, whether known or unknown,
matured or unmatured, fixed or contingent (collectively, "Claims") that Borrower
may have against the Releasees which arise from or relate to any actions which
the Releasees may have taken or omitted to take on or prior to the date hereof
or prior to the Redemption Date with respect to the Obligations, any Collateral,
the Credit Agreement, any Loan Document and any third parties liable in whole or
in part for the Obligations. Borrower hereby agrees to indemnify and hold the
Releasees harmless with respect to any and all liabilities, obligations, losses,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever incurred by the Releasees, or any of them, whether
direct, indirect or consequential, as a result of or arising from or relating to
any proceeding by, or on behalf of any Person, including, without limitation,
officers, directors, agents, trustees, creditors, partners or shareholders of
Borrower, whether threatened or initiated, asserting any claim for legal or
equitable remedy under any statute, regulation or common law principle arising
from or in connection with the negotiation, preparation, execution, delivery,
performance, administration and enforcement of the Credit Agreement, any other
Loan Document or any other document executed in connection therewith. The
foregoing indemnity shall survive the payment in full of the Obligations and the
termination of the Credit Agreement and the other Loan Documents.
9. STATUS OF LOAN DOCUMENTS; NO NOVATION; REFERENCE TO CREDIT AGREEMENT.
Except as specifically modified and amended hereby, the Credit Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed. This Amendment is not a waiver or a novation of the
Credit Agreement, nor is it to be construed as a release, waiver or modification
of any of the terms, conditions, representations, warranties, covenants, rights,
powers or remedies set forth in the Credit Agreement or any of the other Loan
Documents, except as expressly set forth herein. Upon the effectiveness of this
Amendment each reference in (a) the Credit Agreement to "this Amendment,"
"hereunder," "hereof," or words of similar import and (b) any other Loan
Document to "the Credit Agreement" shall, in each case and except as otherwise
specifically stated therein, mean and be a reference to the Credit Agreement, as
amended and modified hereby pursuant to the terms hereof.
<PAGE>
10. ACKNOWLEDGMENT OF VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS.
Borrower expressly acknowledges and agrees that the Credit Agreement and the
other Loan Documents are valid and enforceable by Agent and Lenders against
Borrower, and expressly reaffirms each of its obligations under the Credit
Agreement and each of the Loan Documents, including, without limitation, the
Obligations. Borrower further expressly acknowledges and agrees that Agent and
Lenders have a valid, duly perfected, first priority and fully enforceable
security interest in and lien against each item of Collateral except as
otherwise set forth in the Credit Agreement. Borrower agrees that,
notwithstanding any prior practice or course of dealing, or any waiver,
forbearance or other similar agreement or understanding, whether any of the
foregoing were or are oral or written, by or between the parties hereto, it
shall not dispute the validity or enforceability of the Credit Agreement or any
of the Loan Documents or any of its respective obligations thereunder, or the
validity, priority, enforceability or extent of Agent's or any Lender's security
interest in or lien against any item of Collateral, in any judicial,
administrative or other proceeding.
11. NO AMENDMENTS. No amendment or modification of any provision
of this Amendment shall be effective without the written agreement of Agent and
Borrower, and no termination or waiver of any provision of this Amendment, or
consent to any departure by Borrower therefrom, shall in any event be effective
without the written concurrence of Agent. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand upon Borrower in any case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances.
12. NO WAIVER. Agent's failure, at any time or times hereafter, to
require strict performance by Borrower of any provision or term of the Credit
Agreement or the other Loan Documents shall not waive, affect or diminish any
right of Agent or Lenders thereafter to demand strict compliance and performance
therewith. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in the Credit Agreement or in any of the
other Loan Documents, and no Event of Default or Default shall be deemed to have
been suspended or waived by Agent unless such suspension or waiver is (a) in
writing and signed by Agent and (b) delivered to Borrower, notwithstanding any
prior practice or course of dealing, or any waiver, forbearance or other similar
agreement or understanding, whether any of the foregoing were or are oral or
written, by or between the parties hereto.
13. SOLE BENEFIT OF PARTIES. This Amendment is solely for the
benefit of the parties hereto and their respective successors and assigns, and
no other Person shall have any right, benefit or interest under or because of
the existence of this Amendment.
14. LIMITATION ON RELATIONSHIP BETWEEN PARTIES. The relationship
of Agent and Lenders, on the one hand, and Borrower, on the other hand, has been
and shall continue to be, at all times, that of creditor and debtor and not as
joint venturers or partners. Nothing contained in the Credit Agreement or any
other Loan Document, or any instrument, document or agreement delivered in
connection therewith, shall be deemed or construed to create a fiduciary
relationship between or among the parties hereto.
15. NO ASSIGNMENT. Borrower may not assign, transfer, hypothecate
or otherwise convey its rights, benefits, obligations or duties hereunder
without the prior express written consent of Agent and Requisite Lenders. The
terms and provisions of this Amendment are for the purpose of defining the
relative rights and obligations of Borrower, Agent and Lenders with respect to
the transactions contemplated hereby and there shall be no third party
beneficiaries of any of the terms and provisions of this Amendment.
16. SECTION TITLES. The Section and subsection titles contained in
this Amendment are included for the sake of convenience only, shall be without
substantive meaning or content of any kind whatsoever, and are not a part of the
agreement among the parties.
17. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
18. SEVERABILITY. Wherever possible, each provision of this
Amendment shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Amendment shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
<PAGE>
of such provision or the remaining provisions of this Amendment.
19. GOVERNING LAW; CONSENT TO JURISDICTION. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AMENDMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS APPLICABLE
TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. BORROWER, AGENT AND LENDERS HEREBY CONSENT AND AGREE
THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, CITY OF CHICAGO,
ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER, AGENT AND LENDERS PERTAINING TO THIS AMENDMENT OR TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS AMENDMENT, PROVIDED, THAT AGENT,
LENDERS AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF COOK, CITY OF CHICAGO,
ILLINOIS AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AMENDMENT SHALL BE DEEMED
OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
AGENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES
ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND BORROWER HEREBY AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE UPON CT CORPORATION
SYSTEM, 208 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER
PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE IN
WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS
IN ANY SUCH ACTION OR SUIT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER
TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS
SO SERVED MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT
THE ADDRESS SET FORTH ON SCHEDULE 11.10 OF THE CREDIT AGREEMENT AND THAT SERVICE
SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO
MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT
APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT THE
FOREGOING SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
20. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND BORROWER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AMENDMENT OR THE TRANSACTIONS
RELATED HERETO. <PAGE>
BORROWER WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION
REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
21. CONSULTATION WITH COUNSEL. BORROWER REPRESENTS TO AGENT THAT,
PRIOR TO ITS EXECUTION HEREOF, IT HAS DISCUSSED THIS AMENDMENT WITH COUNSEL OF
ITS CHOICE, FULLY UNDERSTANDS THIS AMENDMENT, THE IMPLICATIONS HEREOF AND ITS
OBLIGATIONS HEREUNDER AND THAT BORROWER'S EXECUTION HEREOF CONSTITUTES ITS FREE
WILL AND ACT.
IN WITNESS WHEREOF, this Limited Consent and Sixth Amendment to
Credit Agreement has been duly executed as of the date first written above.
BAGCRAFT CORPORATION OF AMERICA
By:___________________________
Title:________________________
GENERAL ELECTRIC CAPITAL CORPORATION
By:___________________________
Title:________________________
<PAGE>
SCHEDULE II
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied:
(a) EBITDA. Borrower and its Subsidiaries on a consolidated basis
shall have, measured during each of the periods set forth below, EBITDA
equal to or greater than the amounts set forth opposite each of such
periods:
Period EBITDA
------ ------
For the trailing ten (10) Fiscal $2,850,000
Month period ended on the last day
of October, 1995
For the trailing eleven(11) Fiscal $3,400,000
Month period ended on the last day
of November, 1995
For the trailing twelve (12) Fiscal Month period ended on the last day
of each of the following Fiscal Months:
December, 1995 $4,200,000
January, 1996 $4,800,000
February, 1996 $5,500,000
March, 1996 $5,245,000
April, 1996 $5,800,000
May, 1996 $6,200,000
June, 1996 $6,500,000
July, 1996 $6,800,000
August, 1996 $7,370,000
September, 1996 $7,815,000
October, 1996 $8,124,000
November, 1996 $8,500,000
December, 1996 $8,800,000
January, 1997 $9,300,000
February, 1997 $9,155,000
March, 1997 $9,400,000
April, 1997 $9,400,000
May, 1997 $9,400,000
June, 1997 $9,360,000
July, 1997 and each $9,350,000
Fiscal Month thereafter
(b) EBITDA to Interest Expense. Borrower and its Subsidiaries on a
consolidated basis shall have, measured during each of the periods set
forth below, a ratio of (i) EBITDA to (ii) Interest Expense equal to or
greater than the ratios set forth opposite each of such periods:
<PAGE>
EBITDA to
Period Interest Expense
------ ----------------
For the trailing ten (10) Fiscal 0.82 to 1.00
Month period ended on the last day
of October, 1995
For the trailing eleven(11) Fiscal 0.89 to 1.00
Month period ended on the last day
of November, 1995
For the trailing twelve (12) Fiscal Month period ended on the last day
of each of the following Fiscal Months:
December, 1995 1.01 to 1.00
January, 1996 1.15 to 1.00
February, 1996 1.32 to 1.00
March, 1996 1.30 to 1.00
April, 1996 1.50 to 1.00
May, 1996 1.60 to 1.00
June, 1996 1.70 to 1.00
July, 1996 1.90 to 1.00
August, 1996 2.10 to 1.00
September, 1996 2.20 to 1.00
October, 1996 2.40 to 1.00
November, 1996 2.50 to 1.00
December, 1996 2.60 to 1.00
January, 1997 2.70 to 1.00
February, 1997 2.75 to 1.00
March, 1997 2.75 to 1.00
April, 1997 and each 2.80 to 1.00
Fiscal Month thereafter
(c) EBITDA to the sum of Fixed Charges and Capital Expenditures.
Borrower and its Subsidiaries on a consolidated basis shall have,
measured during each of the periods set forth below, a ratio of (i)
EBITDA to (ii) the sum of (x) Fixed Charges and (y) Capital
Expenditures equal to or greater than the ratios set forth opposite
each of such periods:
EBITDA to the sum of
Fixed Charges and
Period Capital Expenditures
------ --------------------
For the trailing ten (10) Fiscal 0.49 to 1.00
Month period ended on the last day
of October, 1995
For the trailing eleven(11) Fiscal 0.52 to 1.00
Month period ended on the last day
of November, 1995
<PAGE>
For the trailing twelve (12) Fiscal Month period ended on the last day
of each of the following Fiscal Months:
December, 1995 0.57 to 1.00
January, 1996 0.60 to 1.00
February, 1996 0.68 to 1.00
March, 1996 0.65 to 1.00
April, 1996 0.70 to 1.00
May, 1996 0.75 to 1.00
June, 1996 0.75 to 1.00
July, 1996 0.80 to 1.00
August, 1996 0.85 to 1.00
September, 1996 0.85 to 1.00
October, 1996 0.85 to 1.00
November, 1996 0.88 to 1.00
December, 1996 0.92 to 1.00
January, 1997 1.00 to 1.00
February, 1997 1.00 to 1.00
March, 1997 and each 1.05 to 1.00
Fiscal Month thereafter
(d) Consolidated Tangible Net Worth. Borrower, its Subsidiaries on
a consolidated basis shall have, measured as at each of the dates set
forth below, Tangible Net Worth equal to or greater than the amounts
set forth opposite each of such dates:
Consolidated
Date Tangible Net Worth
---- ------------------
At the end of the trailing ten (10) ($3,325,000)
Fiscal Month period ended on the last
day of October, 1995
At the end of the trailing eleven(11) ($3,315,000)
Fiscal Month period ended on the last
day of November, 1995
At the end of the trailing twelve (12) Fiscal Month period ended on the
last day of each of the following Fiscal Months:
December, 1995 ($3,220,000)
January, 1996 ($3,319,000)
February, 1996 ($5,500,000)
March, 1996 ($6,951,000)
April, 1996 ($6,820,000)
May, 1996 ($6,689,000)
June, 1996 ($5,999,000)
July, 1996 ($5,992,000)
August, 1996 ($5,862,000)
September, 1996 ($5,654,000)
October, 1996 ($5,541,000)
November, 1996 ($5,366,000)
December, 1996 ($5,076,000)
<PAGE>
January, 1997 ($5,000,000)
February, 1997 ($4,800,000)
March, 1997 ($4,700,000)
April, 1997 ($4,600,000)
May, 1997 ($4,500,000)
June, 1997 ($4,400,000)
July, 1997 and each ($4,300,000)
Fiscal Month thereafter
(e) Maximum Capital Expenditures. Borrower and its Subsidiaries
on a consolidated basis shall not make Capital Expenditures that exceed
in the aggregate $3,000,000 during any Fiscal Year.
(f) Notwithstanding anything contained in the Agreement or any
other Loan Document to the contrary, for purposes of calculating
compliance with (i) clauses (a), (b) and (c) above, in calculating
EBITDA for any period of determination there shall be included therein
non-cash ESOP and 401K expenses for such period, as reflected on the
books of Borrower in accordance with GAAP, (ii) clauses (c) and (e)
above, in calculating Capital Expenditures for any period of
determination there shall be excluded therefrom Capital Expenditures
made during such period pursuant to Section 1.5(d) of the Credit
Agreement and (iii) clause (d) above, in calculating Tangible Net Worth
for any period of determination there shall be excluded therefrom any
write-downs taken by Borrower or its Subsidiaries with respect to
machinery or equipment used to manufacture Inventory consisting of
popcorn containers, to the extent properly classified as such on the
consolidated financial statements of Borrower and its Subsidiaries in
accordance with GAAP.
<PAGE>
FIRST AMENDMENT TO WARRANT
This FIRST AMENDMENT TO WARRANT, dated as of February 1, 1996, is by
and between BAGCRAFT CORPORATION OF AMERICA, a Delaware corporation ("Company"),
and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York corporation.
R E C I T A L S:
WHEREAS, GE Capital is the holder of Warrant No. 1 with respect to
1,055.6 shares of the Common Stock of Company issued by Company on December 17,
1993 (the "Warrant"); and
WHEREAS, GE Capital and Company desire to amend the Warrant as herein
set forth and such amendment is a condition to the amendment of certain credit
terms offered by GE Capital to Company, which credit terms have been requested
by, and are of substantial benefit to Company:
NOW, THEREFORE, for and in consideration of the terms set forth herein
and in the premises, the parties hereto agree as follows:
1. Definitions. Except as otherwise set forth herein, all defined terms
herein shall have the respective meanings ascribed thereto in the Warrant and
the Loan Agreement, as amended.
2. Amendment to Warrant. The Warrant is hereby amended as follows:
(a) Each reference to the number "1,055.6" contained in the
Warrant is deleted and replaced with a reference to the number
"1,419.54".
(b) Clauses (A) and (B) appearing in the definition of "Appraised
Value" contained in Section 1 of the Warrant and replaced with
the following clauses (A) and (B):
"(A) shares of preferred stock of the Company which were
issued to PST prior to the Closing Date, if any such shares
remain outstanding as of the Closing Date ("PST-Held Shares"),
and the redemption of certain of such shares in connection
with the "Redemption" (as defined in the Limited Consent and
Sixth Amendment to Credit Agreement to which Company and
Holder are parties), (B) accrued dividends as of the Closing
Date on any PST-Held Shares, and the repurchase (but not the
forgiveness) of certain of such dividends in connection with
the Redemption,"
(c) The parenthetical phrase appearing in the definition of "Book
Value" contained in Section 1of the Warrant is deleted and
replaced with the following parenthetical phrase:
"(except for those of such shares issued to PST prior to the
Closing Date, if any remain then outstanding, accrued
dividends thereon as of the Closing Date and the redemption of
certain of such shares and the repurchase of certain of such
dividends (but not the forgiveness thereof) in connection
<PAGE>
with the Redemption, or, in the event of a Qualified
Transaction, the aggregate principal amount of Qualified
Subordinated Debt issued in such Qualified Transaction)"
(d) The first parenthetical phrase appearing in the third sentence
of clause (c) of the definition of "Current Market Price"
contained in Section 1 of the Warrant is deleted and replaced
with the following parenthetical phrase:
"(except for those of such shares issued to PST prior to the
Closing Date, if any remain then outstanding, accrued
dividends thereon as of the Closing Date and the redemption of
certain of such shares and the repurchase of certain of such
dividends (but not the forgiveness thereof) in connection with
the Redemption, or, in the event of a Qualified Transaction,
the aggregate principal amount of Qualified Subordinated Debt
issued in such Qualified Transaction)"
(e) The definition of "Expiration Date" contained in Section 1 of
the Warrant is deleted and replaced with the definition "shall
mean the sixth anniversary of the Closing Date".
(f) The word "third" contained in clause (i) of Section 14.1(a) of
the Warrant is deleted and replaced with the word "fourth".
(g) The following Section 14.1(c) is inserted immediately after
Section 14.1(b) of the Warrant:
"(c) Notwithstanding any provision contained in this Warrant
to the contrary, should Company for any reason fail to perform
its obligations arising under Section 14.1 hereof, such
obligations shall in all respects continue until Company has
fulfilled such obliqations."
(h) The word "third" contained in Section 14.2(a) of the Warrant
is deleted and replaced with the word"fourth".
(i) The open bracket appearing immediately prior to the second
sentence of Section 17.1(b) of the Warrant is deleted and
inserted immediately prior to the fourth sentence of such
Section.
(j) The letter attached to the Warrant and referred to in Section
17.2 thereof is replaced with the letter attached hereto.
3. Consent. Holder hereby consents to Company's repurchase of
certain PST-Held Shares and accrued dividends thereon in
accordance with the Redemption.
<PAGE>
4. Additional Conditions.
(a) From and after the date hereof, Company shall not, without Holder's
prior written consent, amend its certificate of incorporation in any manner
which could adversely affect the rights of Holder granted pursuant to the
Warrant or the value of the Warrant.
(b) On the date hereof, Holder shall receive a duly executed original
of the letter attached to this First Amendment to Warrant.
5. Miscellaneous.
(a) This First Amendment to Warrant shall be incorporated into the
Warrant, and except as exPressly amended hereby, the Warrant shall remain in
full force and effect and, as hereby amended, is hereby ratified and confirmed.
(b) This First Amendment to Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of Company and
the successors and assigns of GE Capital and any subsequent Holder.
(c) Wherever possible, each provision of this First Amendment to
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this First Amendment to Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of the
Warrant, as amended by this First Amendment to Warrant.
(d) THIS FIRST AMENDMENT TO WARRANT SHALL BE GOVERNED BY THE INTERNAL
LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITlIOUT REGARD TO THE PROVISIONS
THEREOF RELATING TO CONFLICT OF LAWS.
(e) This First Amendment to Warrant shall become effective on the
date hereof.
<PAGE>
IN WITNESS WHEREOF, Company has duly executed and delivered this First
Amendment to Warrant as of the date first above written.
BAGCRAFT CORPORATION OF AMERICA
By: ___________________________________
Name: _________________________________
Title: __________________________________
ATTEST:
By: ___________________________________
Name: _________________________________
Title: __________________________________
ACCEPTED:
GENERAL ELECTRIC CAPITAL CORPORATION
By: ___________________________________
Name: _________________________________
Title: __________________________________
<PAGE>
February 1, 1996
To Each Holder of a Warrant to Purchase
Common Stock of Bagcraft Corporation of America
and all Assignees, Transferees and
Successors of such Holder:
Reference is made to the Warrant dated as of December 17, 1993 to
purchase the Common Stock of Bagcraft Corporation of America, a Delaware
corporation (the "Company"), issued pursuant to the Credit Agreement dated as of
such date by and between the Company and General Electric Capital Corporation, a
New York corporation ("GE Capital"), as agent and lender thereunder (as from
time to time amended, replaced, refinanced, restated, superseded, supplemented
or otherwise modified). All capitalized terms used in this agreement which are
defined in the Warrant are used as defined in the Warrant unless the context
otherwise requires.
The undersigned, BCA Holdings, Inc., a Delaware corporation ("BCA") and
ARTRA GROUP Incorporated, a Pennsylvania corporation ("ARTRA"; collectively, BCA
and ARTRA are referred to herein as the "Controlling Stockholders"), warrant,
covenant and agree with the holders of the Warrant and the Warrant Stock, their
assignees, transferees and successors (the "Warrantholders") as follows:
If any Controlling Stockholder proposes any sale (other than pursuant
to a public offering) (a "Sale") of all or a portion of its common stock of the
Company ("Common Stock") or any class of capital stock of BCA ("BCA Stock")
(collectively, Common Stock and BCA Stock are referred to herein as "Controlling
Stock"), the Controlling Stockholders shall provide for such Sale on a basis
which includes a ratable share of all shares which have been issued or then are
issuable under the Warrants (collectively "Warrant Stock") on a pro-rata basis.
1. The Controlling Stockholders shall give each Warrantholder written
notice of a proposed Sale of Controlling Stock not less than 45 days before such
Sale is to take place. The notice ("Sale Notice") shall set forth:
a. the name and address of the Proposed Purchaser;
b. the name and address of each Warrantholder as shown on the
records of the Company, the number of shares of Warrant Stock
held by or issuable to each Warrantholder;
c. the number and nature of shares of Controlling Stock proposed
to be transferred by the Controlling Stockholders:
d. the proposed amount and form of consideration and terms and
conditions of payment offered by such Proposed Purchaser: and
<PAGE>
e. the signed agreement of the Proposed Purchaser acknowledging
that he has been informed of this letter agreement and has
agreed to purchase Warrant Stock in accordance with the terms
hereof.
2. The take-along rights provided in this agreement may be exercised by
any Warrantholder (an "Electing Warrantholder") by delivery of a written notice
(a "Take-Along-Notice") to the Company or ARTRA (with a copy to each other
Warrantholder) within thirty (30) days after receipt of the Sale Notice. A
Take-Along Notice shall state the number of shares of Warrant Stock which the
Warrantholder wishes to include in such Sale to the Proposed Purchaser.
3. The Warrantholders shall be entitled to sell to the Proposed
Purchaser Warrant Stock at the same price per share as the price per share to be
paid for Controlling Stock and otherwise on the same terms as are to be
applicable to the sale of the Controlling Stock, except as provided in paragraph
5 below. The Warrantholders shall be entitled to sell the same percentage of the
Warrant Stock held by them, as that percentage of the Controlling Stock
ultimately sold by the Controlling Stockholders (after reductions to permit the
sale of the Warrant Stock).
4. Any shares of Warrant Stock purchased from the Warrantholders
pursuant to this agreement shall be purchased on terms and conditions which do
not include the making of any representations and warranties, indemnities or
other similar agreements other than the representations, warranties and
indemnities as to the ownership of such shares of Warrant Stock and the due
authority to sell such shares.
BCA HOLDINGS, INC. ARTRA GROUP INCORPORATED
By: By:
Title: Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 28, 1995 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-28-1995
<PERIOD-START> DEC-30-1994
<PERIOD-END> DEC-28-1995
<EXCHANGE-RATE> 1.000
<CASH> 2,347
<SECURITIES> 1,427
<RECEIVABLES> 11,147
<ALLOWANCES> 250
<INVENTORY> 16,634
<CURRENT-ASSETS> 32,181
<PP&E> 44,273
<DEPRECIATION> 17,335
<TOTAL-ASSETS> 77,949
<CURRENT-LIABILITIES> 58,546
<BONDS> 0
18,631
0
<COMMON> 5,540
<OTHER-SE> (44,305)
<TOTAL-LIABILITY-AND-EQUITY> 77,949
<SALES> 121,879
<TOTAL-REVENUES> 121,879
<CGS> 102,508
<TOTAL-COSTS> 102,508
<OTHER-EXPENSES> 26,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,782
<INCOME-PRETAX> (16,892)
<INCOME-TAX> 51
<INCOME-CONTINUING> (16,943)
<DISCONTINUED> 10
<EXTRAORDINARY> 14,030
<CHANGES> 0
<NET-INCOME> (2,903)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> 0
</TABLE>
