As filed with the Securities and Exchange Commission on November 26, 1996
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 2671 25-1095978
(State or other jurisdiction (Primary Standard Industrial Classification (I.R.S Employer Identification No.)
of incorporation or organization) Code Number)
</TABLE>
--------------------
500 Central Avenue
Northfield, Illinois 60093
(847) 441-6650
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------
Lawrence D. Levin
500 Central Avenue
Northfield, Illinois 60093
(847) 441-6650
(Name, address, including
zip code, and
telephone number,
including area code,
of agent for service)
With copies to:
Lawrence R. Samuels Philip E. Ruben
Ross & Hardies Kwiatt Silverman & Ruben Ltd.
Suite 2500 500 Central Avenue
150 North Michigan Avenue Northfield, IL 60093
Chicago, IL 60601 (847) 441-7676
(312) 558-1000
---------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
---
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered(1) Per Share(1) Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 4,629,972 $6.19 $28,659,257 $8,685.00
=======================================================================================================================
<FN>
(1) Solely for the purpose of calculating the registration fee, the
offering price per share, the aggregate offering price and the amount of the
registration fee have been computed in accordance with Rule 457(c) under the
Securities Act of 1933, as amended. Accordingly, the price per share of Common
Stock has been calculated to be equal to the average of the high and low prices
for a share of Common Stock as reported by the New York Stock Exchange on
November 25, 1996, which is a specified date within five business days prior to
the original date of filing of this Registration Statement.
</FN>
</TABLE>
<PAGE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Page 1 of _____ sequentially numbered pages. Exhibit Index appears on
sequentially numbered page ______.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form S-1
Item No. Registration Item and Heading Location in Prospectus
- -------- ----------------------------- ----------------------
<C> <S>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Forepart; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus.... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges Prospectus Summary; Risk Factors
4. Outside Front Cover Page; Prospectus Summary; Plan of
Use of Proceeds............................................ Distribution
5. Determination of Offering Price............................ Not applicable
6. Dilution................................................... Not applicable
7. Selling Security Holders................................... Selling Shareholders
8. Plan of Distribution....................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered................. Description of the Company's Securities
10. Interests of Named Experts and Counsel..................... Not applicable
11. Information with Respect to the Company:
11.(a) Description of Business.................................... Business and Properties; Index to Financial Statements
11.(b) Description of Property.................................... Business and Properties
11.(c) Legal Proceedings.......................................... Legal Proceedings; Business and Properties
11.(d) Market Price of and Dividends on the Registrant's Common
Equity and
Related Shareholder Matters............................ Market Price of the Company's Common Stock
11.(e) Financial Statements....................................... Index to Financial Statements
11.(f) Selected Financial Data.................................... Prospectus Summary
11.(g) Supplementary Financial Information........................ Prospectus Summary
11.(h)
Management's Discussion and Analysis of Management's Discussion and Analysis of Financial
Financial Condition and Results of Operations.......... Condition and Results of Operations
11.(i) Disagreements with Accountants on Accounting and Financial
Disclosure............................................. Not applicable
11.(j) Directors and Executive Officers........................... Management
11.(k) Executive Compensation..................................... Executive Compensation
11.(l) Security Ownership of Certain Beneficial
Owners and Management.................................. Principal Shareholders
11.(m) Certain Relationships and Related
Transactions........................................... Transactions with Management and Others
12.
Disclosure of Commission Position on Indemnification for
Securities Act Indemnification of
Liabilities............................................ Officers and Directors
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 26, 1996
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
4,629,972 Shares
ARTRA GROUP INCORPORATED
COMMON STOCK
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. See "Risk Factors."
ARTRA GROUP Incorporated, a Pennsylvania corporation (the "Company" or
"ARTRA"), is engaged, through its subsidiary, in manufacturing flexible
packaging products principally for the food industry. It also has a significant
minority interest (1,813,036 shares or approximately 19% of the outstanding
stock as of September 26, 1996) in the common stock of COMFORCE Corporation, a
public company whose stock is listed on The American Stock Exchange under the
symbol "CFS."
All of the 4,629,972 shares of common stock of the Company (the "Common
Stock") offered hereby are being offered for sale from time to time by or for
the account of certain existing security holders of the Company (the "Selling
Shareholders"). See "Selling Shareholders." The Common Stock is listed on the
New York and Pacific Stock Exchanges. The Common Stock may be offered by the
Selling Shareholders from time to time in transactions on the New York and
Pacific Stock Exchanges, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by the sale of the Common Stock to or through broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Common Stock for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions).
In certain cases the Selling Shareholders, brokers executing sales
orders on their behalf and dealers purchasing shares from the Selling
Shareholders for resale, may be deemed to be "underwriters," as that term is
defined in Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of Common Stock purchased by them may be deemed underwriting commissions
or discounts under the Securities Act.
The Company will not receive any proceeds from sales of shares to which
this Prospectus relates. However, insofar as the holders of options or warrants
to purchase shares of the Common Stock are expected to exercise their warrants
or options in order to sell the underlying shares (which are registered hereby),
the Company will receive the amount of the exercise prices of any warrants or
options so exercised. See "Risk Factors - Dilution and Depression of Market
Price from Issuance of Additional Common Stock." As of the date hereof, the
aggregate amount of the exercise prices of all shares issuable by the Company
upon the exercise of options or warrants outstanding as of the date hereof and
subject to registration hereby is $13,098,000. The Company cannot predict when
or if it will receive proceeds from the exercise of warrants or options, or the
amount of any such proceeds. None of the holders of options or warrants can
reasonably be expected to exercise their options or warrants unless the market
price on the New York and Pacific Stock Exchanges of the Common Stock is in
excess of the exercise price therefor. The Company intends to use the proceeds,
if any, received from the exercise of warrants or options to retire or reduce
indebtedness, to pay expenses of the offering and for working capital purposes.
See "Plan of Distribution."
The Company's Common Stock is traded and quoted on the New York and
Pacific Stock Exchanges under the symbol "ATA." On November 25, 1996, the last
sale price of Common Stock, as reported on the New York Stock Exchange was
$6.50 per share.
The Company will bear all expenses (other than underwriting discounts
and selling commissions, and fees and expenses of counsel or other advisors to
the Selling Stockholders) in connection with the registration of the shares of
Common Stock being offered hereby, which expenses are estimated to be
approximately $225,000. See "Selling Shareholders" elsewhere in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain information contained in said
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and financial
statements, notes, and schedules filed as part thereof, which may be inspected
and copied at the public reference facilities of the Commission referred to
below. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the full text of such contract or other document filed with the Commission as an
exhibit to the Registration Statement, or otherwise, each such statement being
qualified and amplified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Commission.
Certain information as of specified dates concerning directors and officers,
their remuneration, options granted to them, the principal holders of securities
of the Company, and any material interest of such persons in transactions with
the Company, is disclosed in proxy statements distributed to the Company's
shareholders and filed with the Commission. Such reports, proxy statements and
other information filed by the Company, and The Registration Statement of which
this Prospectus forms a part, the exhibits and schedules thereto and amendments
thereof, may be inspected at the Commission's public reference facilities
maintained at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, and at the following SEC Regional Offices: Seven World Trade Center,
13th Floor, New York, New York 10048; and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Room 204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Common Stock of the Company is listed on the New York
Stock Exchange and the Pacific Stock Exchange, and such reports, proxy material
and other information are also available for inspection at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain of the information contained in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere herein. Prospective
investors should carefully consider the information set forth under the caption
"Risk Factors."
The Company
ARTRA, through its subsidiary, Bagcraft Corporation of America
("Bagcraft"), currently operates in one industry segment as a manufacturer of
packaging products principally serving the food industry. All of the shares of
Bagcraft are owned by BCA Holdings, Inc. ("BCA"), which is a wholly owned
subsidiary of ARTRA. BCA has no assets other than the shares of Bagcraft. ARTRA
is a public company, whose stock is listed on the New York and Pacific Stock
Exchanges under the symbol ATA.
ARTRA, through its wholly-owned subsidiary, Fill-Mor Holding, Inc.
("Fill-Mor"), also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"), consisting of 1,813,036 shares or approximately 19% of the
outstanding common stock of COMFORCE as of September 26, 1996. COMFORCE 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 capabilities. COMFORCE
is a public company, whose stock is listed on The American Stock Exchange under
the symbol "CFS." On November 25, 1996, the last reported sale price for the
Common Stock of COMFORCE was $12.00 per share. Fill-Mor has no assets other than
the COMFORCE shares.
The Offering
ARTRA is required under certain agreements it has entered into with
shareholders and warrant holders to register the shares of Common Stock held by
such shareholders or issuable upon the exercise of warrants held by such
warrantholders.
Existing security holders of the Company are offering up to 4,629,972
shares of Common Stock held by them, or issuable to them upon the exercise of
options or warrants held by them.
Common Stock Offered by the Selling Shareholders ............ 4,629,972 shares*
Common Stock Outstanding as of September 26, 1996............ 7,694,872 shares
Common Stock Issuable Under Options as of September 26, 1996. 932,350 shares
Common Stock Issuable Under Warrants as of September 26, 1996 1,584,514 shares
Total (including Options and Warrants)....................... 10,211,736 shares
- -----------------
*Includes Common Stock issuable under options and warrants. Neither the warrants
or options are being registered. The Company is registering shares of common
stock issuable upon exercise of the options and warrants, shares issuable upon
conversion of certain notes, and shares issued in payment of ARTRA notes and
other obligations.
See "Selling Shareholders" and "Plan of Distribution."
Proceeds From Exercise of Warrants or Options
The Company will not receive any proceeds from the sale of the Common
Stock offered hereby by the Selling Shareholders. However, if the holders of
options or warrants to purchase shares of Common Stock exercise their warrants
or options in order to sell the underlying shares, the Company will receive the
amount of the exercise prices of any warrants or options so exercised. Neither
the warrants or options are being registered. The Company
- 3 -
<PAGE>
is registering shares of common stock issuable upon exercise of the warrants,
shares issuable upon conversion of certain notes, and shares issued in payment
of ARTRA notes and obligations. The Company cannot predict when or if it will
receive proceeds from the exercise of warrants or options, or the amount of any
such proceeds. The Company intends to use the proceeds, if any, received from
the exercise of warrants or options to retire or reduce indebtedness, to pay
certain expenses of the offering and for working capital.
Risk Factors
Prospective investors should carefully review the risk factors and
other information set forth herein, including under the heading "Risk Factors"
which discusses, among other things, significant risks associated with an
investment in the Company.
Selected Financial Data
Following is a consolidated summary of selected financial data of the
Company for the nine month periods ended September 26, 1996 and September 28,
1995 and 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 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 its former majority-owned subsidiary COMFORCE
(formerly known as The Lori Corporation ("Lori")). 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. As of
September 26, 1996, the Company owned 1,813,036 shares, or approximately 19% of
COMFORCE. See Notes 2 and 5 to the Company's condensed consolidated financial
statements for the nine months ended September 26, 1996 for a further discussion
of the Company's investment in COMFORCE and its results of operations.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended (E)
-------------------- -----------------------------------------------------------
Sept 26, Sept 28,
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 90,162 $ 90,703 $ 121,879 $ 111,837 $ 113,584 $ 121,084 $ 123,906
Earnings (loss) from
continuing operations (A) 3,523 (12,543) (16,943) (13,529) (8,327) (4,118) (11,191)
Earnings (loss) from
discontinued operations (B) -- (9,156) 10 (15,906) (216) (33,854) (1,970)
Extraordinary credits (C) 9,424 9,113 14,030 8,965 22,057 -- --
Net earnings (loss) 12,947 (12,586) (2,903) (20,470) 13,514 (37,972) (13,161)
Earnings (loss) per share:
Continuing operations .32 (1.96) (2.69) (2.56) (1.84) (1.16) (2.87)
Discontinued operations -- (1.36) -- (2.74) (.04) (7.74) (.49)
Extraordinary credits 1.23 1.35 2.06 1.57 4.49 -- --
Net earnings (loss) 1.55 (1.97) (.63) (3.73) 2.61 (8.90) (3.36)
Total assets (D) 86,131 79,161 77,949 93,429 92,774 98,731 126,277
Long-term debt 34,541 11,086 34,113 19,673 29,264 13,802 57,296
Debt subsequently discharged -- -- -- 9,750 -- -- --
Liabilities subject
to compromise -- -- -- -- -- 41,500 --
Cash dividends -- -- -- -- -- -- --
</TABLE>
- 5 -
<PAGE>
(A) Earnings from continuing operations for the nine months ended September 26,
1996 includes realized gains of $4,823,000 from dispositions of COMFORCE
common common stock and a gain of $838,000 from an exchange of redeemable
preferred stock of its subsidiary Bagcraft.
(B) The loss from discontinued operations for the nine months ended September
26, 1996, and the year ended December 28, 1995 includes a charge to
operations of $6,430,000 to write-off the remaining goodwill of Lori's
fashion costume jewelry operations effective June 29, 1995, and a provision
of $1,000,000 for loss on disposal of the Lori's fashion costume jewelry
operations. Earnings from discontinued operations for the year ended
December 28, 1995 includes 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.
(C) The 1996, 1995 and 1994 extraordinary credits represent gains from net
discharge of bank indebtedness. The 1993 extraordinary credit represents a
gain from a net discharge of indebtedness due to the reorganization of
Lori's New Dimensions subsidiary.
(D) As partial consideration for a debt settlement agreement, in December, 1994
Lori's bank lender received all of the assets of the New Dimensions
subsidiary.
(E) Effective in 1993, the Company adopted a 52/53 week fiscal year ending the
last Thursday of December.
- 6 -
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVE A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER
THINGS, THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE
COMPANY AND THIS OFFERING, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
Continuing Losses
The Company has experienced losses from continuing operations in each
year since 1990. Losses from continuing operations of $16,943,000 and
$13,529,000 were experienced in 1995 and 1994, respectively.
Indebtedness
As of September 26, 1996, the Company had outstanding short-term
indebtedness of approximately $15,500,000, of which $3,300,000 was past due.
Bagcraft, the Company's operating subsidiary, is also obligated to pay
substantial amounts in the near future under the terms of its debt obligations.
At September 26, 1996, Bagcraft had $14,800,000 in term loans outstanding, with
$600,000 due in 1996, $200,000 payable monthly through August 31, 1997 and the
balance due on September 30, 1997. Bagcraft's Revolving Credit Loan had an
outstanding balance of $12,311,000 due on September 30, 1997. Bagcraft also had
approximately $802,000 in 1997, on loans from the City of Baxter Springs,
Kansas, the aggregate principal amount of which was $10,684,000 as of September
26, 1996. See Note 8 to the Company's condensed consolidated financial
statements for the nine months ended September 26, 1996
ARTRA has outstanding an aggregate of $3,000,000 in loans from The
Research Center of Kabbalah ("RCK"). All of these loans are currently past due,
but RCK has made no demand for payment of past due amounts. During 1993, RCK,
which held approximately 8% of ARTRA's outstanding Common Stock (including the
stock issuable upon the exercise of warrants) as of September 26, 1996, made
certain short-term loans to the Company of which $2,000,000, with interest at
10%, was outstanding at December 31, 1993. As additional compensation, RCK
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 price of
ARTRA's common stock at the date of issuance. The warrants expire five years
from the date of issuance. In January 1994, RCK made an additional $1,000,000
short-term loan to the Company, also with interest at 10%. The proceeds of this
loan were used to pay down various ARTRA short-term loans and other debt
obligations. In December, 1995, RCK received 126,222 shares of ARTRA common in
payment of past due interest through October 31, 1995. In August, 1996 RCK
received a cash payment of approximately $240,000 representing past due interest
through June, 1996. Payment on the loans was due March 31, 1994.
In July 1996, ARTRA completed a private placement of 12% promissory
notes due April 15, 1997 in the principal amount of $7,575,000. The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft). As additional consideration, the noteholders received
warrants to purchase
- 7 -
<PAGE>
an aggregate of 378,750 ARTRA common shares at a price of $6.00 per share. In
addition, warrants to purchase an additional 39,000 shares were issued to an
unrelated party as a commission in connection with the offering. The warrants
became exercisable August 15, 1996 and expire April 15, 1999. The proceeds from
this private placement were used to pay down various ARTRA debt obligations.
On August 15, 1996, ARTRA and its 100% owned Fill-Mor subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable by Fill-Mor in 90 days from the date of the loan agreement, bears
interest, payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November 1996, the option was
exercised and the loan was extended to February 11, 1997. The loan, guaranteed
by ARTRA, is collateralized by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an unaffiliated individual for an aggregate price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.
In May, 1996, ARTRA borrowed $100,000 from Mr. Celano, a private
investor, evidenced by an unsecured short-term note, due August 7, 1996, and
renewed to January 6, 1997, bearing interest at 10%. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.
In August, 1996, ARTRA borrowed $500,000 from Mr. Conant, a private
investor, evidenced by an short-term note, due December 23, 1996, bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender received a warrant, expiring in 2001, to purchase 25,000
ARTRA common shares at a price of $5.00 per share. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.
In October 1996 the Company and its Fill-Mor subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000, with interest approximating the prime rate. Borrowings under the
loan agreement are collateralized by 125,000 shares of COMFORCE common stock
owned by the Company's Fill-Mor subsidiary.
ARTRA also has outstanding short-term borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining amounts come due at various times in 1996 and 1997. The notes were
issued at various times during the period May, 1991 to September, 1996, and the
interest rates vary between 10 and 15 percent.
ARTRA has suffered recurring losses from operations. As a result of
these factors, ARTRA 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. Due to its limited ability
to receive operating funds from its operating subsidiary, 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 (including COMFORCE shares) and/or other equity
infusions. ARTRA plans to continue to seek such alternative sources of funds to
meet its future operating expenditures. However, there can be no assurance that
it will be successful in doing so in the future. 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.
COMFORCE
ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE, consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25,1996, with an
aggregate value as of that date of approximately $21,756,432 (value at September
26, 1996 was $31,728,000). The value of COMFORCE stock has
fluctuated substantially in recent periods. The high per share for the twelve
period ending September 26, 1996 was $34.12, and the per share low during the
same period was $2.75. There can be no assurance that the value of the COMFORCE
shares will not decline substantially in the future, which would have a material
adverse effect on the value of ARTRA.
- 8 -
<PAGE>
The COMFORCE shares constitute unregistered securities under the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations and management of COMFORCE, ARTRA was considered an "affiliate"
of COMFORCE under the Act, and because of this, the number of shares that ARTRA
could sell without registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration under Rule 144(k) promulgated under the Act is now available
to it, and therefore the limitations under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.
Rule 144(k) of the Act permits the sale without registration under the
Act of restricted shares of an issuer that have been held in excess of three
years by persons who have not been "affiliates" of the issuer for the preceding
three months. Since December 28, 1995, ARTRA, Fill-Mor and their respective
officers, directors, affiliates and employees have held no managerial or
executive positions with COMFORCE nor have any of the above served in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995. Likewise, neither
ARTRA, Fill-Mor nor any of the above had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA, Fill-Mor nor any of their respective officers, directors,
affiliates and employees have had any material involvement in, nor have they
been able to exercise any control over, COMFORCE, either individually or
together with any other person or entity. Because of this, the Company believes
that ARTRA and Fill-Mor are not "affiliates" of COMFORCE and, since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.
COMFORCE has not agreed that Rule 144(k) is available to ARTRA and
Fill-Mor, and accordingly has not permitted ARTRA and Fill-Mor to sell shares
using the Rule 144(k) exemption, and ARTRA has no right, short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption. Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell COMFORCE shares, or eventually to
realize on the value of its COMFORCE shares, will be affected in a material
adverse way, although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k), and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.
Inability to Honor Put Options
ARTRA has entered into various agreements under which it has sold its
common shares along with put options that require ARTRA to repurchase these
shares at the option of the holder, usually one year after the date of each such
agreement. At September 26, 1996, options were outstanding that, if exercised,
would require ARTRA to repurchase 98,734 shares of its Common Stock for an
aggregate of $3,565,000. ARTRA does not have adequate resources to make such
redemptions. However, the holders have the option to sell their shares in the
market, subject to the limitations of Rule 144 of the Securities Act, which
could adversely impact the market price of the Common Stock. At its discretion
and subject to its financial ability, ARTRA could reimburse the option holders
for any shortfall resulting from such sale. At the present time none of the
option holders have demanded payment, and all of the option holders have
indicated to the Company a willingness to work with the Company to satisfy the
obligations, in some manner other than a demand for payment under the put
option. See "Risk Factors - Dilution and Depression of Market Price from
Issuance of Additional Common Stock" and "- Limited Trading Activity."
Need for Additional Funds; Unfavorable Credit Terms
The Company continues to be engaged in efforts to obtain equity and
debt financing. Even if the Company's Bagcraft subsidiary generates positive
cash flow (and there can be no assurances that it will), it is restricted in
paying dividends or making distributions to the Company under certain loan
agreements (except for limited overhead allocations payable to ARTRA in certain
circumstances and payments under tax sharing arrangements where applicable). As
a result, ARTRA does not have a means of generating cash flow on a regular
basis. Consequently, ARTRA is reliant on its ability to place debt and equity
securities privately and to sell COMFORCE shares to raise cash needed to meet
its working capital requirements.
The costs and conditions associated with raising required capital may
not be on favorable terms, and the Company may not be able to sell COMFORCE
shares at favorable prices. In recent years, short-term borrowings by the
Company from private investors have generally been available, but at a high cost
to the Company. Stated base interest rates on its notes have been as high as 20%
(with substantially higher default rates), and certain of the borrowers have
- 9 -
<PAGE>
demanded warrants as additional consideration for agreeing to extend credit to
the Company. Warrants to purchase approximately 1,584,514 shares of the
Company's common stock (at exercise prices equal to the market price when
issued, which has ranged from $3.50 to $9.875 per share) have previously been
issued to private lenders in connection with these transactions. The
continuation of such practices could result in further dilution of the existing
shareholders' interests in the Company.
Risks Relating to Peter R. Harvey
The Company's ability to continue to refinance its operations is
dependent on the ability of the Company's officers and directors, especially
Peter R. Harvey, to raise capital. In the event Mr. Harvey were not affiliated
with the Company for any reason, this could adversely affect the ability of the
Company to survive.
As of September 26, 1996, ARTRA has outstanding total amounts due from
Peter R. Harvey, including accrued interest, of $5,861,000. The advances bear
interest at the prime rate plus 2%, which was 10.25% at September 26, 1996. This
receivable has been classified as a reduction of common shareholder's equity.
As partial collateral for amounts due from Peter R. Harvey, the Company
has received the pledge of 1,523 shares of ARTRA redeemable Series A 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 PureTec
Corporation, a publicly traded corporation ("PureTec"). As of November 25, 1996,
the closing market price of PureTec on the NASDAQ National Market was $2.0625
per share. In addition, in connection with a discharge of certain bank
indebtedness discussed below, ARTRA received rights under a mortgage of certain
real estate owned by Mr. Harvey. The real estate had an appraised value of $2
million as of December 13, 1993. The mortgage secures $2,150,000 of the amount
owed by Mr. Harvey. Bank of America Illinois has a senior security interest in
the amount of $850,000. See "Transactions with Management And Others --
Settlement of the Bank of America Illinois Debt."
Explanatory Paragraph in Report of Independent Accountants
The Company's independent accountants, Coopers & Lybrand L.L.P.
("Coopers & Lybrand"), has issued an explanatory paragraph with respect to the
Company, that expresses substantial doubt as to the ability of the Company to
continue as a going concern due to recurring losses from operations and a net
capital deficiency at December 28, 1995. Coopers & Lybrand has stated in its
report that, as a result of these factors, the Company has experienced
difficulty in obtaining adequate financing to replace the current credit
agreements, to fund its debt service and liquidity requirements. The
Consolidated Financial Statements do not include any adjustments that might
result from this uncertainty. If the Company ceases to operate as a going
concern, an investor would be likely to lose his entire investment in the
Company's Common Stock.
Dilution and Depression of Market Price from Issuance of Additional
Common Stock
As of September 26, 1996, there were 7,694,872 shares of the Company's
common stock outstanding. The Company's Board of Directors has the power to
issue any and all authorized but unissued shares without shareholder approval.
At the annual meeting held on August 29, 1996, the Company's shareholders
approved an amendment to the Company's Articles of Incorporation to increase the
number of authorized common shares from 7,500,000 to 20,000,000. In addition,
the Company anticipates that holders of options and warrants will exercise their
options and warrants in order to sell the underlying shares registered hereby.
Such an exercise could result in a dilution of the interests of existing
- 10 -
<PAGE>
shareholders. Purchasers of the Shares offered hereby should be aware that the
issuance of additional shares may result in a reduction in the market price of
the Company's Common Stock then outstanding. See also "Risk Factors - Limited
Trading Volume."
Possible Delisting of Securities from the New York Stock Exchange and
the Pacific Stock Exchange
The Company's Common Stock is currently listed on the New York and
Pacific Stock Exchanges. The Company has been unable to maintain the standards
for continued listing on these exchanges, and the Company's securities could be
subject to delisting from these exchanges at any time. Trading of the Common
Stock might thereafter be conducted in the over-the-counter markets on the
electronic bulletin board established for securities that do not meet the New
York and Pacific Stock exchange listing requirements or in what is commonly
referred to as the "pink sheets." If delisting were to occur, an investor could
find it more difficult to dispose of, or to obtain accurate quotations regarding
the price of the Company's Common Stock, and the market price of the Common
Stock could decline significantly.
Composition of the Board
The Company's Articles of Incorporation require that at least six
persons serve on the Board of Directors. Vacancies existed on the Company's
Board between 1989 and August 29, 1996. All corporate actions taken between
October 12, 1993 and August 29, 1996 are potentially voidable since such actions
were take in reliance on the consent or affirmative vote of less than four of
the Company's directors which would constitute a majority of the required six
person Board.
Conflicts of Interest
In the past, the Company has been a party to numerous transactions with
officers and directors of the Company or with entities in which officers and
directors of the Company own substantial equity interests. While the Company
does not presently contemplate effectuating any additional transactions with
officers and directors of the Company or with management-owned entities, there
can be no assurance that it will not do so in the future. See "Transactions with
Management and Others." In addition, as described under "Principal
Shareholders," various officers and directors hold warrants or options to
purchase shares of the Company's Common Stock, including at exercise prices
lower than the market price of the Company's Common Stock as of the date hereof.
Limited Trading Activity
During the six months ended September 26, 1996, the daily average
number of shares of Common Stock traded on the New York Stock Exchange was
approximately 39,500 shares. If such trading levels continue, it may be
difficult for Selling Shareholders to effect sales of their shares on the New
York and Pacific Stock Exchanges, and the placement of a substantially larger
number of sell orders could materially and adversely impact the market price
- 11 -
<PAGE>
of the Common Stock. See also "Risk Factors - Dilution and Depression of Market
Price from Issuance of Additional Common Stock."
Competitive Conditions in the Packaging Products Industry
The packaging products industry is highly competitive. The Company's
Bagcraft subsidiary competes as a printer and converter within the competitive
flexible packaging business. Management believes the principal competitive
factors in the Company's markets are product quality and functionality, price,
service and reputation. Bagcraft encounters competition from both integrated
producers and independents in each of its four divisions. Some of these
competitors are larger and have access to greater financial resources than
Bagcraft. Bagcraft's costs have increased substantially in recent years, largely
due to increases in the cost of paper. Although Bagcraft generally seeks to pass
its increased costs on to its customers, this is frequently not possible due to
the competitive nature of the paper products industry. See "Business and
Properties - Packaging Products Segment."
Litigation
At September 26, 1996, ARTRA has reserved $1,900,000 for business
litigation and environmental liabilities. Based on investigation and settlement
discussions, the Company believes this to be a sufficient amount for any
potential costs or liabilities for the matters described below. However, no
assurance can be given that the reserved amount is sufficient to satisfy all
potential business litigation and environmental liabilities. As described under
"Business and Properties - Legal Proceedings" herein, ARTRA or its predecessors
or their subsidiaries have been identified by the U.S. Environmental Protection
Agency ("EPA") as potentially responsible parties for environmental clean-up
costs (or sued by a named potentially responsible party seeking indemnification
or contribution for clean-up costs) for waste sent to several sites included on
the EPA's National Priorities List, which are commonly known as "Superfund"
sites. In addition, ARTRA or its predecessors and their subsidiaries are alleged
to have sent hazardous substances to certain other sites which, although not
designated as Superfund sites, are sites at which environmental clean-up or
remediation may be required to be undertaken. ARTRA and its predecessors,
directly and through subsidiaries, have, since 1960, operated in excess of 30
manufacturing facilities. Certain of these facilities used and/or generated
hazardous materials and disposed of the hazardous substances, directly or
through third party waste disposal firms at various off-site waste disposal
locations, in most cases before laws had been enacted governing the safe
disposal of hazardous substances.
ARTRA has not conducted a comprehensive audit of potential
environmental liability at the facilities formerly owned or operated by ARTRA or
its predecessors and their subsidiaries since it is no longer the owner or
operator of most of the properties at which it or its predecessors or their
affiliates conducted manufacturing operations. As a result, ARTRA cannot
accurately quantify potential environmental liability associated with past
ownership or operation of these facilities. ARTRA did not keep records of the
companies with which it contracted for the disposal of wastes before such
record-keeping became mandated by law.
In addition, even if ARTRA is not found to be responsible for clean-up
costs at any particular site, the costs of defending itself in any proceedings
or inquiries instituted by the EPA, any state environmental agencies or private
parties could itself be significant. As described under "Risk Factors - Need for
Additional Funds" herein, ARTRA has limited funds available to it, including for
its legal defense. In certain cases, ARTRA may be unable to raise
- 12 -
<PAGE>
the funds needed to mount an adequate (or any) defense against the claims
raised, even if it has legal grounds to do so. In one case described under
"Business and Properties - Legal Proceedings" herein, ARTRA did not prosecute an
appeal of a decision adverse to ARTRA in which its insurer was held not
responsible for defending or indemnifying ARTRA in connection with two
environmental clean-up cases in California. In addition, in another case, ARTRA
entered into a consent decree with the EPA to pay certain clean-up costs, but
was unable to pay the costs it had agreed to bear.
No Cash Dividends
The Company has not paid any cash dividends on its Common Stock in
recent years and does not anticipate paying any such dividends in the
foreseeable future. In addition, the Bagcraft operating subsidiary of the
Company is prohibited from or restricted in paying dividends or making
distributions to the Company under various loan agreements (except for limited
overhead allocations payable to ARTRA in certain circumstances and tax sharing
agreements where applicable). Accordingly, even if ARTRA were able to pay
dividends to its shareholders, the restrictions or limitations on Bagcraft in
upstreaming payments would make payment of dividends by ARTRA unlikely.
Negative Effect on Shareholders from Possible Issuance of Preferred
Stock
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value $1,000 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In 1990 the Company issued 3,750 shares of Series A
Preferred Stock and in 1996 the Company has agreed to issued 2,250 shares of
Series E Preferred Stock. No other preferred stock is currently outstanding and
the Company has no present plans for the issuance thereof. The issuance of any
preferred stock could affect the rights of the holders of Common Stock and, in
certain circumstances, reduce the value of the Common Stock. See "Description of
the Company's Securities".
- 13 -
<PAGE>
CAPITALIZATION
(in thousands)
The following table sets forth the capitalization of the Company at
September 26, 1996. The following should be read in conjunction with the
Company's consolidated financial statements appearing elsewhere in this
Prospectus.
Current maturities of long-term debt $ 2,407
===========
Long-term debt:
Bagcraft Credit Agreement,
Term loans, interest at the prime rate
plus 1.75% to 3%, matures 9/30/97 $ 12,400
Revolving credit loan, interest at the
prime rate plus 1.5%, matures 9/30/97 12,311
Unamortized discount (71)
Bagcraft, City of Baxter Springs,
Kansas loan agreements, interest,
at varying rates to 6.6%,
due in varying amounts through 2025 9,901
-----------
$ 34,541
===========
Redeemable common stock, issued 164,847 shares $ 3,565
===========
ARTRA redeemable preferred stock:
Series A, $1,000 par value,
6% cumulative payment-in-kind, including
accumulated dividends, net of unamortized
discount of $1,349 in 1996 and
$1,575 in 1995; redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,750 shares 4,157
===========
Series E, $1,000 par value, 10% cumulative,
liquidation preference equal to $1,000
or 200 shares of common stock per
share, plus accrued dividends;
convertible, at the holder's option into
200 shares of common stock per share 2,250
===========
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;
8,650 shares issued and outstanding $ 1,978
===========
BCA Holdings preferred stock:
Series A, $1.00 par value, 6% cumulative;
including accumulated dividends;
liquidation preference of $1,000 per share;
10,000 shares authorized; issued 3,675 shares $ 4,308
===========
Series B, payable to a related party,
$1.00 par value, 13.5% cumulative;
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
8,135 shares authorized and issued $ 8,818
===========
- 14 -
<PAGE>
Common stock, no par value;
authorized 20,000,000 shares;
issued 7,603,766 shares $ 5,777
Additional paid-in capital 40,140
Unrealized appreciation of investments 34,960
Receivable from related party,
including accrued interest (5,861)
Accumulated deficit (86,568)
-----------
(11,552)
Less treasury stock (7,628 shares), at cost (52)
-----------
Total shareholders' equity $ (11,604)
===========
Total capitalization $ 50,420
===========
- 15 -
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ARTRA, through its Bagcraft subsidiary, currently operates in one
industry segment as a manufacturer of packaging products principally serving the
food industry. ARTRA also owns a significant minority interest in COMFORCE
through ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,813,036 shares
or approximately 19% of the outstanding common stock of COMFORCE as of September
26, 1996. COMFORCE 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
capabilities. COMFORCE is a public company, whose stock is listed on The
American Stock Exchange under the symbol "CFS." On November 25, 1996, the last
reported sale price for the Common Stock of COMFORCE was $12.00 per share.
Fill-Mor has no assets other than its COMFORCE shares.
The following discussion supplements the information found in the
financial statements and related notes:
Changes in Business
Arcar
As discussed in Note 2 to the Company's condensed consolidated
financial statements for the nine months ended September 26, 1996, 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. 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.
COMFORCE
Prior to September, 1995, ARTRA's then 62.9% owned subsidiary, COMFORCE
(formerly Lori), operated as a designer and distributor of popular-priced
fashion costume jewelry and accessories. In September, 1995, COMFORCE adopted a
plan to discontinue its 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, COMFORCE acquired all of the capital stock
of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc.
d/b/a YIELD Global, for consideration of approximately $6.4 million, net of cash
acquired. This consideration consisted of cash to the seller of approximately
$5.1 million, fees of approximately $700,000, including a fee of $500,000 to a
related party, and 500,000 shares of COMFORCE common stock valued at $843,000
(at a price per share of $1.68) issued as consideration for various fees and
guarantees associated with the transaction. The 500,000 shares of COMFORCE
common stock consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing the purchase price to the seller, (ii) 100,000 shares issued to
ARTRA, then the majority stockholder of COMFORCE, in consideration of its
guaranteeing the purchase price to the seller and agreeing to enter into the
Assumption Agreement, as discussed below, (iii) 150,000 issued to two unrelated
parties for advisory services in connection with the acquisition, and (iv)
150,000 shares issued to Peter R. Harvey, then a Vice President and director of
COMFORCE for guaranteeing the payment of the $6.4 million purchase price to the
seller. Additionally, in conjunction with the Global acquisition, ARTRA entered
into an Assumption Agreement whereby it agreed to assume substantially all
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation. Accordingly, at September 26, 1996, $764,000 of such
pre-existing Lori liabilities were classified in ARTRA's condensed consolidated
balance as current liabilities of discontinued operations.
- 16 -
<PAGE>
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 COMFORCE Global was completed on October 17,
1995.
Effective July 4, 1995, Lori's management agreed to issue up to a 35%
common stock interest in the COMFORCE to certain individuals to manage
COMFORCE's entry into the telecommunications and computer technical staffing
business. COMFORCE recognized a non-recurring charge of $3,425,000 related to
this stock since these stock awards were 100% vested when issued, and were
neither conditioned upon these individuals' service to the Company as employees
nor the consummation of the COMFORCE Global acquisition. Accordingly, this
compensation charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in accordance with the above agreements were valued at $.93 per
share. COMFORCE's management valued COMFORCE based on its discussions with
market makers and other advisors, taking into account (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally related to the
potential effect that a purchase of COMFORCE Global, if successfully concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this value of $.93 per share to be a fair and appropriate value based upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other transactions, ARTRA's common stock ownership interest in COMFORCE
common stock was reduced to approximately 19% and 25% at September 26, 1996 and
December 28, 1995, respectively. Accordingly, in October 1995, the accounts of
COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's
consolidated financial statements. See Note 5 to the Company's condensed
consolidated financial statements for the nine months ended September 26, 1996
for a further discussion of the accounting treatment of ARTRA's investment in
COMFORCE.
A disagreement has arisen between ARTRA and COMFORCE regarding
interpretations of the July 4, 1995 agreement, as amended, to issue up to a 35%
common stock interest in COMFORCE to certain individuals to manage COMFORCE's
entry into the telecommunications and computer technical staffing business; the
Global acquisition agreement; and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. The disputed issues include (i) the
number of COMFORCE common shares issued to the above individuals to manage
COMFORCE's entry into the telecommunications and computer technical staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's Annual Meeting of Stockholders held on October 28, 1996;
(ii) the number of COMFORCE common stock options issued to COMFORCE's current
management group subsequent to the Global acquisition; (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in consideration of its guaranteeing the
Global purchase price to the seller and agreeing to assume certain pre-existing
Lori liabilities; (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain stock options granted in 1993 under provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above disagreements, ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation value of
$19.5 million for 100,000 COMFORCE common shares, as required by the Assumption
Agreement, and will not consummate the exchange until all of the disputes are
resolved. ARTRA's financial statements have reflected the exchange of the Lori
Series C preferred stock for 100,000 COMFORCE common shares in accordance with
the Assumption Agreement. Based on the above disputed matters, ARTRA is
withholding delivery of the Lori Series C preferred shares and is seeking
appropriate resolution in conformity with the Assumption Agreement and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA will seek to rescind this aspect of the agreement. Additionally,
ARTRA's financial statements have reflected the issuance of 100,000 COMFORCE
common shares to ARTRA as compensation for guaranteeing the Global purchase
price to the seller and entering into the Assumption Agreement. COMFORCE is
withholding issuance of such shares to ARTRA, in violation of the Global
acquisition agreement. ARTRA has aggressively attempted to resolve its dispute
with COMFORCE without success and at this point, ARTRA can not predict the
ultimate resolution, nor whether such dispute can be resolved without
litigation.
Results of Operations
On October 26, 1995, the Company's wholly-owned subsidiary, Bagcraft,
completed the sale of the business assets, subject to the buyer's assumption of
certain liabilities, of its Arcar subsidiary.
In September, 1995, COMFORCE adopted a plan to discontinue its jewelry
business and recorded a provision of $1,000,000 for the estimated costs to
complete the disposal of the jewelry business.
- 17 -
<PAGE>
The Company's consolidated financial statements have been reclassified
to report separately the results of operations of Arcar and COMFORCE's
discontinued 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
September 26, 1996 and December 28, 1995, which were conducted by the Company's
Bagcraft subsidiary.
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.
Nine Months Ended September 26, 1996 vs. Nine Months Ended September 28, 1995
Net sales from continuing operations of $90,162,000 for the nine months
ended September 26, were $541,000, or 0.6%, lower than net sales from continuing
operations for the nine months ended September 28, 1995. The 1996 sales decrease
is attributable to an overall volume decrease partially offset by increased
selling prices. The volume decrease is principally attributable to a 1995
promotion by a major fast food customer. The increased 1996 selling prices were
in response to the significant increases in paper costs in 1995.
The Company's cost of sales from continuing operations of $71,710,000
for the nine months ended September 26, 1996 decreased $5,161,000 as compared to
the nine months ended September 28, 1995. Cost of sales from continuing
operations in the nine months ended September 26, 1996 was 79.5% of net sales
compared to a cost of sales percentage of 84.8% for the nine months ended
September 28, 1995. The decrease in cost of sales is primarily attributable to
lower paper costs and decreased sales volume as noted above. The decrease in
cost of sales percentage is primarily attributable to lower paper costs and
improved production efficiencies in 1996.
Selling, general and administrative expenses from continuing operations
were $10,967,000 in the nine months ended September 26, 1996 as compared to
$15,972,000 in the nine months ended September 28, 1995. Selling, general and
administrative expenses were 12.2% of net sales in the nine months ended
September 26, 1996 as compared to 17.6% of net sales in the nine months ended
September 28, 1995. The 1996 decrease in selling, general and administrative
expenses is primarily attributable to a third quarter 1995 compensation charge
related to the issuance of a 35% common stock interest in COMFORCE as additional
consideration for certain individuals to enter into employment or consulting
services agreements to manage COMFORCE's entry into and development of the
telecommunications and computer technical business and to professional fees
incurred in 1995 related to certain consulting projects.
Depreciation and amortization expense from continuing operations was
$2,954,000 in the nine months ended September 26, 1996 as compared to $3,306,000
in the nine months ended September 28, 1995. Depreciation and amortization
expense was 3.3 % of net sales in the three months ended September 26, 1996 as
compared to 3.6% of net sales in the three months ended September 28, 1995. The
1996 decrease in depreciation and amortization expense is primarily attributable
to the December, 1995 write-down of idle machinery and equipment dedicated to
the production of microwave popcorn products.
The Company had operating earnings in the nine months ended September
26, 1996 of $4,531,000 as compared to operating loss of $5,446,000 in the nine
months ended September 28, 1995. The 1996 increase in operating earnings is
attributable to improved operating margins and to the decrease in selling,
general and administrative expenses as noted above.
Interest expense from continuing operations in the nine months ended
September 26, 1996 decreased $1,022,000 as compared to the nine months ended
September 28, 1995. The 1996 decrease is principally due to an overall decrease
in borrowings.
- 18 -
<PAGE>
During the nine months ended September 26, 1996, ARTRA sold 193,000
COMFORCE shares in the market. As additional consideration for 1996 short-term
loans, the lenders received 95,000 COMFORCE common shares held by ARTRA's
Fill-Mor subsidiary. The disposition of these 288,000 COMFORCE shares resulted
in realized gains of $4,823,000 during the nine months ended September 26, 1996.
The 1996 and 1995 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 and from the
Company's 1996 earnings from continuing operations due to the utilization of tax
loss carryforwards. 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 pre-tax loss.
Year Ended December 28, 1995 vs. Year Ended December 29, 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 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 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.
- 19 -
<PAGE>
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.
Year Ended December 29, 1994 vs. Year Ended December 30, 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 29, 1994 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.
- 20 -
<PAGE>
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 COMFORCE and its operating
subsidiaries. The 1993 extraordinary credit represents a gain from a net
discharge of indebtedness at COMFORCE'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.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents decreased $2,248,000 during the nine months
ended September 26, 1996. Cash flows used by operating activities of $4,516,000
and cash flows used by financing activities of $637,000 exceeded cash flows
from investing activities of $2,905,000. Cash flows used by operating activities
were principally attributable to funds used to pay down accounts payable and
accrued liabilities. Cash flows used by financing activities were principally
attributable to a net reduction of short-term borrowings. Cash flows from
investing activities principally represent proceeds from the sale of COMFORCE
common stock.
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 discontinued jewelry business 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 COMFORCE'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
$15,486,000 to $10,879,000 during the nine months ended September 26, 1996. The
decrease in working capital deficiency is principally attributable to an
agreement to discharge amounts due on ARTRA bank notes and related accrued
interest and fees.
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
- 21 -
<PAGE>
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 for the year ended
December 28, 1995). 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 September 26, 1996 the Parent Company was in default of provisions
of certain of its credit agreements. Under certain debt agreements of Bagcraft
with its lenders, Bagcraft is restricted in the distributions that it can make
to ARTRA. Effective February 1, 1996, Bagcraft's credit agreement was extended
until September 30, 1997. See Notes 6, 7 and 8 to the Company's condensed
consolidated financial statements for the nine months ended September 26, 1996
and discussion below.
ARTRA Corporate
As of September 26, 1996, the Company had outstanding short-term
indebtedness of approximately $15,500,000, of which $3,300,000 was past due.
ARTRA has outstanding an aggregate of $3,000,000 in loans from RCK. All
of these loans are currently past due, but RCK has made no demand for payment of
past due amounts. During 1993, RCK, which held approximately 8% of ARTRA's
outstanding Common Stock (including the stock issuable upon the exercise of
warrants) as of September 26, 1996, made certain short-term loans to the Company
of which $2,000,000, with interest at 10%, was outstanding at December 31, 1993.
As additional compensation, RCK 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 price of ARTRA's common stock at the date of issuance. The
warrants expire five years from the date of issuance. In January 1994, RCK made
an additional $1,000,000 short-term loan to the Company, also with interest at
10%. The proceeds of this loan were used to pay down various ARTRA short-term
loans and other debt obligations. In December, 1995, RCK received 126,222 shares
of ARTRA common in payment of past due interest through October 31, 1995.
Payment on the loans was due March 31, 1994. In August, 1996 RCK received a cash
payment of approximately $240,000 representing past due interest through June,
1996. Payment on the loans was due March 31, 1994.
In July 1996, ARTRA completed a private placement of 12% promissory
notes due April 15, 1997 in the principal amount of $7,575,000. The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft). As additional consideration, the noteholders received
warrants to purchase an aggregate of 378,750 ARTRA common shares at a price of
$6.00 per share. In addition, warrants to purchase an additional 35,000 shares
were issued to an unrelated party as a commission in connection with the
offering. The warrants became exercisable August 15, 1996 and expire April 15,
1999. The proceeds from this private placement were used to pay down various
ARTRA debt obligations.
- 22 -
<PAGE>
On August 15, 1996, ARTRA and its 100% owned Fill-Mor subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable by Fill-Mor in 90 days from the date of the loan agreement, bears
interest, payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November 1996, the option was
exercised and the loan was extended to February 11, 1997. The loan, guaranteed
by ARTRA, is collateralized by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an unaffiliated individual for an aggregate price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.
In May, 1996, ARTRA borrowed $100,000 from Mr. Celano, a private
investor, evidenced by an unsecured short-term note, due August 7, 1996, and
renewed to January 6, 1997, bearing interest at 10%. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.
In August, 1996, ARTRA borrowed $500,000 from Mr. Conant, a private
investor, evidenced by an short-term note, due December 23, 1996, bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender received a warrant, expiring in 2001, to purchase 25,000
ARTRA common shares at a price of $5.00 per share. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.
ARTRA also has outstanding short-term borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining amounts come due at various times in 1996. The notes were issued at
various times during the period May, 1991 to May, 1996, and the interest rates
vary between 10 and 15 percent.
In October 1996 the Company and its Fill-Mor subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000, with interest approximating the prime rate. Borrowings under the
loan agreement are collateralized by 125,000 shares of COMFORCE common stock
owned by the Company's Fill-Mor subsidiary.
ARTRA has suffered recurring losses from operations and had a net
capital deficiency at September 26, 1996 and December 28, 1995. As a result of
these factors, ARTRA 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 1996. Due to its limited
ability to receive operating funds from its operating subsidiary, 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 (including COMFORCE
shares) and/or other equity infusions. ARTRA plans to continue to seek such
alternative sources of funds to meet its future operating expenditures.
ARTRA believes that it will be able to satisfy its obligations.
However, there can be no assurance that ARTRA will be able to successfully
refinance the above referenced indebtedness or that it will be able to sell
COMFORCE shares at an acceptable price. See "Investment In COMFORCE
Corporation." 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 was the obligor under two demand notes issued to CIPKA S.A., an
unrelated Swiss company, in the amount of $1,811,000. The notes were issued in
October, 1990 and with interest at 15 percent. In September, 1996, CIPKA S.A.
agreed to exchange its notes and the amounts due under other ARTRA obligations
for 2,250 shares of ARTRA Series E Preferred Stock.
As of February 26, 1996, ARTRA was indebted to Bank of America Illinois
("B of A") in the sum of $14,563,639.59 including accrued interest and fees (the
"Prior ARTRA Indebtedness"). As of February 26, 1996, Peter R. Harvey, an
officer and director of ARTRA, was indebted to B of A in the sum of $7,496,830
including accrued interest (the "Prior Harvey Indebtedness"). The Prior ARTRA
Indebtedness and the Prior Harvey Indebtedness are collectively referred to as
the "Debt," or "Prior Notes."
- 23 -
<PAGE>
On February 26, 1996, for an aggregate purchase price of $5,150,000
(the "Purchase Price") Arabella, S.A. ("Arabella") purchased from B of A (the
"Debt Purchase") all of B of A's interest in the Debt except that B of A
retained the rights to $3 million of the Prior Harvey Indebtedness. B of A then
entered into a Participation Agreement with ARTRA pursuant to which B of A
transferred to ARTRA the right to receive $2.15 million of the retained $3
million indebtedness. The $3 million indebtedness is secured by a mortgage on
certain real estate owned by Mr. Harvey. B of A's rights to the remaining
$850,000 of the indebtedness have priority over ARTRA's rights to the $2.15
million.
The Prior ARTRA Indebtedness and the Prior Harvey Indebtedness were
satisfied as follows.
1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA common stock (valued at $440,667 after a discount for restricted
marketability) and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).
2. BCA executed a note in favor of Arabella in the principal amount of
$1,900,000 with a maturity date of May 26, 1996 (the "New ARTRA Note"), and
Peter R. Harvey executed a note in favor of Arabella in the principal amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996. Arabella was entitled to up to an
additional 100,000 shares of ARTRA common stock and 25,000 shares of COMFORCE
stock depending on when ARTRA and Peter R. Harvey repaid the new debt. The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April). Based on the
date of the repayment, Arabella received an additional 50,000 shares of ARTRA
stock, which had a value of $220,000 after a discount for restricted
marketability. Arabella also received an additional $125,000 in lieu of the
additional 12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.
3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal consideration. The option was valued at $500,000. Per the
terms of the agreement, ARTRA repurchased the option for $550,000 in April,
1996.
ARTRA recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's pro rata share ($1,089,000) of the debt discharge funded by the
Company. In addition, ARTRA discharged $2,150,000 of amounts previously owed to
it by Peter Harvey, which offset ARTRA's right to receive $2,150,000 from Mr.
Harvey pursuant to the Participation Agreement discussed above. See
"Transactions With Management And Others -- Settlement of the Bank of America
Illinois Debt."
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 were
not paid in full at maturity, the noteholders had 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. At March 28, 1996, the outstanding principal amount due on these notes was
reduced to $1,975,000. In April, 1996, the remaining outstanding notes were
repaid principally with proceeds from the private placement of ARTRA notes
completed in July, 1996 as discussed above.
- 24 -
<PAGE>
On March 31, 1994, ARTRA entered into a series of agreements with B of
A and Kenny Construction Company ("Kenny"), which had guaranteed $2,500,000 of
ARTRA bank notes held by B of A. A major shareholder and executive officer of
Kenny is an ARTRA director. Per terms of the agreements, Kenny purchased
$2,500,000 of ARTRA notes from B of A and B of A released Kenny from its
$2,500,000 loan guaranty. As additional consideration, Kenny received an option
to put back to ARTRA the 49,980 shares of ARTRA common stock which it had
received as compensation for the former $2,500,000 loan guaranty at a price of
$15.00 per share. The put option was exercisable on the later of the day that
the $2,500,000 note payable to Kenny became due or the date the ARTRA bank notes
payable to B of A were paid in full. The option price was to increase by $2.25
annually. During the first quarter of 1996, the $2,500,000 note and related
accrued interest was paid in full, principally with the proceeds from additional
short-term borrowings. The put option remains outstanding.
On February 20, 1996, the Company issued 10% Secured Convertible
Promissory Notes to two lenders for the aggregate principal amount of
$2,400,000. Up to an aggregate principal amount of $400,000 of Secured Notes was
convertible into common stock of the Company at the rate of $5.00 per share. The
notes were collateralized by an aggregate of 1,980,000 shares of COMFORCE common
stock, which constituted all of the COMFORCE stock owned by the Company. The 10%
Notes were due on June 19, 1996. The holders converted notes with a value of
$400,000, and the remaining notes were repaid with the proceeds from the June
sale of COMFORCE shares. See "Investment In COMFORCE Corporation."
As discussed in Note 14 to the Company's condensed consolidated
financial statements for the nine months ended September 26, 1996, ARTRA has
total amounts due from its president, Peter R. Harvey, of which 7,232,000 and
$5,369,000, including accrued interest, remained outstanding at September 26,
1996 and December 28, 1995, respectively. The amounts due bear interest at the
prime rate plus 2% (10.25% at September 26, 1996 and 10.5% at December 28, 1995,
respectively). This receivable from Peter R. Harvey has been classified as a
reduction of common shareholders' equity.
Commencing January 1, 1993 to date, interest on all amounts due from
Peter R. Harvey has been accrued and fully reserved.
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 PureTec. As of
November 25, 1996, the closing market price of Puretec on the NASDAQ National
Market was $2.0625 per share. In addition, in connection with a discharge of
certain bank indebtedness discussed below, ARTRA received rights under a
mortgage of certain real estate owned by Mr. Harvey. The real estate had an
appraised value of $2 million as of December 13, 1993. The mortgage secures
$2,150,000 of the amount owed by Mr. Harvey. Bank of America Illinois has a
senior security interest in the amount of $850,000. See "Transactions With
Management And Others -- Settlement of the Bank of America Illinois Debt."
ARTRA's corporate entity has no material commitments for capital
expenditures.
- 25 -
<PAGE>
Bagcraft
Bagcraft has entered into a Credit Agreement (the "Credit Agreement")
that provides for a revolving credit loan and two separate term loans. The term
loans are separate 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. At September 26, 1996, outstanding borrowings on Term Loan
A and Term Loan B were $12,000,000 and $2,800,000, respectively, with interest
rates of 10% and 11.25% respectively. At December 28, 1995, outstanding
borrowings on Term Loan A and Term Loan B were $12,000,000 and $4,600,000,
respectively, with interest rates of 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 Credit Agreement, up to a maximum
of $18,000,000. At September 26, 1996 and December 28, 1995, approximately
$1,900,000 and $6,600,000, 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
September 26, 1996 and December 28, 1995, interest rates on the revolving credit
loan were 9.75% and 10%, respectively.
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, and 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, in
conjunction with a preferred stock exchange agreement between BCA (the parent of
Bagcraft), Bagcraft and the holder of Bagcraft's 13.5% cumulative redeemable
preferred stock, the lender consented to an advance to Bagcraft of $4,135,000
under the revolving credit loan to be transferred to ARTRA as a dividend (see
Note 10 to the Company's condensed consolidated financial statements for the
nine months ended September 26, 1996).
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.
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. At September 26, 1996 Bagcraft was
in compliance with the provisions of its Credit Agreement.
- 26 -
<PAGE>
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 September 26, 1996, Bagcraft had outstanding
borrowings of $5,600,000 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 September 26, 1996, Bagcraft had outstanding borrowings of
$4,850,000 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 September 26, 1996 Bagcraft had
outstanding borrowings of $234,000 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 was
reflected in the condensed consolidated balance sheet in current assets as
restricted cash and equivalents. These funds, invested in interest bearing cash
equivalents and restricted for expenditures associated with the Baxter Springs,
Kansas project were expended during the first quarter of 1996.
The Kansas facility replaced Bagcraft's production facilities in
Joplin, Missouri and Carteret, NJ.
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 is currently negotiating with the
lender to extend the maturity date (September 30, 1997) and increase the amount
of borrowings available to it under the credit agreement.
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.
- 27 -
<PAGE>
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 September 26, 1996
and 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.
Investment In COMFORCE Corporation
ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE, consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25, 1996, with an
aggregate value as of that date of approximately $21,756,432 (value at September
26, 1996 was $31,728,000). The value of COMFORCE stock has fluctuated
substantially in recent periods. The high per share for the twelve period ending
September 26, 1996 was $34.12, and the per share low during the same period was
$2.75. There can be no assurance that the value of the COMFORCE shares will not
decline substantially in the future, which would have a material adverse effect
on the value of the Company.
The COMFORCE shares constitute unregistered securities under the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations and management of COMFORCE, ARTRA was considered an "affiliate"
of COMFORCE under the Act, and because of this, the number of shares that ARTRA
could sell without registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration under Rule 144(k) promulgated under the Act is now available
to it, and therefore the limitations under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.
Rule 144(k) of the Act permits the sale without registration under the
Act of restricted shares of an issuer that have been held in excess of three
years by persons who have not been "affiliates" of the issuer for the preceding
three months. Since December 28, 1995, ARTRA, Fill-Mor and their respective
officers, directors, affiliates and employees have held no managerial or
executive positions with COMFORCE nor have any of the above served in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995. Likewise, neither
ARTRA, Fill-Mor nor any of the above had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA, Fill-Mor nor any of their respective officers, directors,
affiliates and employees have had any material involvement in, nor have they
been able to exercise any control over, COMFORCE, either individually or
together with any other person or entity. Because of this, the Company believes
that ARTRA and Fill-Mor are not "affiliates" of COMFORCE and, since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.
COMFORCE has not agreed that Rule 144(k) is available to ARTRA and
Fill-Mor, and accordingly has not permitted ARTRA and Fill-Mor to sell shares
using the Rule 144(k) exemption, and ARTRA has no right, short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption. Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell COMFORCE shares, or eventually to
realize on the value of its COMFORCE shares, will be affected in a material
adverse way, although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k), and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.
In January 1996, the Company's Board of Directors approved the sale of
200,000 of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable resale waiting period under Securities Act
Rule 144. Additionally, the noteholders have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their notes. Based upon
the preceding factors, the Company has concluded that, for reporting purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE common shares have been removed from the Company's portfolio of
"Available-for-sale securities" and are classified in the Company's condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate value of $400,000, based upon the value of proceeds to be received
upon future exercise of the options. The disposition of these 200,000 COMFORCE
common shares will result in a gain which has been deferred and will not be
recognized in the Company's financial statements until the options to purchase
these 200,000 COMFORCE common shares are exercised. As of September 26, 1996, no
options to acquire any of the 200,000 COMFORCE common shares had been exercised.
- 28 -
<PAGE>
During the nine months ended September 26, 1996, ARTRA sold 193,000
COMFORCE shares in the market. As additional consideration for 1996 short-term
loans, the lenders received 95,000 COMFORCE common shares held by ARTRA. The
disposition of these 288,000 COMFORCE shares resulted in realized gains of
$4,823,000 during the nine months ended September 26, 1996.
At September 26, 1996 ARTRA's remaining investment in COMFORCE
(1,813,036 shares, or approximately a 19% common stock ownership interest) was
classified in the Company's condensed consolidated balance sheet in noncurrent
assets as "Available-for-sale securities." At September 26, 1996 the gross
unrealized gain relating to ARTRA's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $34,950,000.
In conjunction with the Global acquisition, ARTRA agreed to assume
substantially all pre-existing COMFORCE liabilities (i.e., COMFORCE liabilities
existing from operations prior to the acquisition of Global) and indemnify
COMFORCE in the event any future liabilities arise concerning pre-existing
environmental matters and business related litigation. Accordingly, at September
26, 1996 and December 28, 1995, respectively, $764,000 and $4,500,000 of such
pre-existing COMFORCE liabilities were classified in ARTRA's condensed
consolidated balance sheet as current liabilities of discontinued operations.
See Note 5 to the condensed consolidated financial statements for the nine
months ended September 26, 1996 for a further discussion of ARTRA's investment
in COMFORCE. See "Changes in Business - COMFORCE" for additional information
relating to the Company's investment in COMFORCE.
Litigation
The Company and its subsidiaries are the defendants in various
business-related litigation and environmental matters. See Note 13 to the
Company's condensed consolidated financial statements for the nine months ended
September 26, 1996. At September 26, 1996 and December 28, 1995, the Company had
accrued $1,900,000 and $1,500,000, respectively, for business-related litigation
and environmental liabilities. However, as discussed elsewhere herein, 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. See "Risk
Factors -- Litigation," and "Legal Proceedings."
Net Operating Loss Carryforwards
At September 26, 1996, the Company and its subsidiaries had Federal
income tax loss carryforwards of approximately $33,000,000 available to be
applied against future taxable income, if any. ARTRA's tax loss carryforwards of
approximately $22,000,000 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
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.
- 29 -
<PAGE>
Impact of Inflation and Changing Prices
Bagcraft's costs have increased substantially in recent years, largely
due to increases in the cost of paper. Although Bagcraft seeks to pass its
increased costs on to its customers, this is frequently not possible due to the
competitive nature of the paper products industry.
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 did 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.
BUSINESS AND PROPERTIES
General
At December 29, 1994 and, through September 1995, ARTRA 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.
- 30 -
<PAGE>
During 1995, the Company's packaging products business was conducted by
its current principal operating subsidiary, Bagcraft, 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 for the
year ended December 28, 1995, effective October 26, 1995, Bagcraft completed the
sale of the business assets of Arcar, subject to the buyer's assumption of
certain liabilities.
During 1995, the Company's fashion costume jewelry business was
conducted by its then majority-owned subsidiary COMFORCE (then known as The Lori
Corporation) through its wholly-owned subsidiaries: Rosecraft, Inc. and Lawrence
Jewelry Corporation. In recent years, COMFORCE'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
COMFORCE'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, COMFORCE adopted a plan to
discontinue its jewelry business as discussed in Note 3 to the Company's
consolidated financial statements for the year ended December 28, 1995.
As discussed in Note 3 to the Company's consolidated financial
statements for the year ended December 28, 1995, on October 17, 1995, COMFORCE
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. This
consideration consisted of cash of approximately $5.1 million, fees of
approximately $700,000 including a fee of $500,000 to a related party, and
500,000 shares of COMFORCE 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.
Additionally, in conjunction with the Global acquisition, ARTRA has agreed to
assume certain pre-existing COMFORCE liabilities and indemnify COMFORCE in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation.
Effective July 4, 1995, COMFORCE and ARTRA entered into employment or
consulting services agreements with certain individuals to manage COMFORCE'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 COMFORCE. After
the issuance of the COMFORCE common shares, plus the effects of the issuance of
COMFORCE common shares sold by private placements and other COMFORCE common
shares issued in conjunction with the Global acquisition, ARTRA's common stock
ownership interest in COMFORCE was reduced to approximately 19% and 25% at
September 26, 1996 and December 28, 1995, respectively. See "Changes in Business
- - COMFORCE" for additional information relating to the Company's investment in
COMFORCE.
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
- 31 -
<PAGE>
industry. Several of Bagcraft's products are widely recognized and have become
standard items within various segments of the food industry. Bagcraft is a
full-service supplier complete with its own 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
- 32 -
<PAGE>
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 only 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 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 Wal*Mart, 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.
- 33 -
<PAGE>
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 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.
- 34 -
<PAGE>
Discontinued Business - Arcar
As discussed in Note 3 to the Company's consolidated financial
statements for the year ended December 28, 1995, 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 for the year ended December 28, 1995, effective October 26, 1995,
Bagcraft completed the sale of the business assets of Arcar, subject to the
buyer's assumption of certain liabilities.
Employees
The Company currently employs approximately 940 persons. The Company
considers its relationships with its employees to be good.
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
- -------- ------------------- ---------
<S> <C> <C>
ARTRA:
Northfield, IL (1) Headquarters facility of Leased, month to month
approximately 7,000 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
- 35 -
<PAGE>
<FN>
(1) In July, 1992 ARTRA sold its headquarters building, and now leases it
under a month-to-month lease.
(2) This lease provides for a ten-year option to renew at the then 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 was retained as a distribution center until June, 1996 and was
subsequently closed.
</FN>
</TABLE>
Legal Proceedings
The Company and its subsidiaries are the defendants in various
business-related litigation and environmental matters. At September 26, 1996 the
Company had accrued $1,900,000 for 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 position;
however it may have have an adverse effect on the results of operations for an
individual reporting period. 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 November, 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 relating to the acquisition of
Envirodyne in 1989 form Emerald Acquisition Corp. ("Emerald"). Envirodyne had
filed a Chapter 11 bankruptcy on January 7, 1993 which provided ARTRA with no
value in the Emerald Stock received in connection with the acquisition. 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
was denied on October 31, 1996 by the United States District Court. ARTRA has a
right to appeal the District Court's decision. This appeal has been filed in the
United States Court of Appeals for the Seventh Circuit.
On July 18, 1995, ARTRA filed a Fourth Amended Complaint in the State
Court Action for breach of fiduciary duty, fraudulent misrepresentation,
negligent misrepresentation, breach of contract and promissory estoppel. In the
State Court Action, ARTRA seeks compensatory damages of $136.2 million, punitive
damages of $408.6 million and the repayment of 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. The cause of
action against 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
was granted on June 4, 1996. The Company has appealed this decision.
In January, 1985 the United States Environmental Protection Agency
("EPA") notified Bagcraft that it was a potentially responsible party ("PRP")
under the Comprehensive Environmental Responsibility Compensation and Liability
Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers
site near Kankakee,
- 36 -
<PAGE>
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 action. 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 September 26, 1996, which
constitutes Bagcraft's pro rata share of the $1.1 million.
Bagcraft was listed by the EPA as a de minimis PRP 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. On July 22, 1994 Bagcraft
executed a de minimis settlement with the EPA with respect to the American
Chemical Services, Inc. site. Bagcraft is presently unable to determine its
liability, if any, with respect to the Duane Marine site.
Bagcraft has been notified by the EPA that it is a potentially
responsible party for the disposal of hazardous substances at the Ninth Avenue
site in Gary, Indiana. This site is listed on the EPA's National Priorities
list. A group of defendant PRPs, known as the Ninth Avenue Remedial Group,
settled with the USEPA and agreed to remediate the site. This Group subsequently
sued numerous third party defendants, including Bagcraft, alleged also to be
responsible parties at the site. The plaintiffs have produced only limited
testamentary evidence, and no documentary evidence, linking Bagcraft to this
site, and the Company has neither discovered any records which indicate, nor
located any current or former employees who have advised, that Bagcraft
deposited hazardous substances at the site. Based on the foregoing, management
of the Company does not believe that it is probable that the Company will have
any liability for the costs of the clean-up of this site. The Company intends to
vigorously defend itself in this case.
Bagcraft reported a release associated with solvent tanks located in a
vault at its Chicago facility. After seeking approval from the IEPA, Bagcraft
installed and is currently operating a soil vapor and extraction system designed
to achieve remedial objectives which the IEPA has determined to be appropriate
to the site.
Bagcraft's Chicago facility has also been the subject of allegations
that it violated laws and regulations associated with the Clean Air Act. The
facility has numerous sources of air emissions of volatile organic materials
("VOMs") associated with its printing operations and is required to maintain and
comply with permits and emissions regulations with regard to each of these
emission sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV")
against Bagcraft's Chicago facility alleging numerous violations of the Clean
Air Act and related regulations. The NOV alleges that the facility installed and
operated emission sources without permits, that it failed to operate air
pollution control equipment at required efficiencies and that there were
releases of VOMs above permitted limits. Although Bagcraft is attempting to
negotiate a settlement, the EPA may yet file a federal complaint to enforce its
NOV. The EPA has not demanded a specific penalty but maximum penalties under the
Clean Air Act are $25,000 per day for each demonstrated violation.
In April 1994, the EPA notified the Company that it was a PRP 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. 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,
when Harvel was a majority-owned subsidiary of ARTRA. In early 1994, a group of
PRP's filed a claim in the Envirodyne bankruptcy proceeding with respect to the
Palmer site. In May 1994, Envirodyne and its Clearshield National, Inc.
subsidiary filed an adversary proceeding against ARTRA for indemnification in
connection with this claim. Both the claim and the adversary proceeding were
voluntarily dismissed, but the PRP group has requested that ARTRA pay a share of
the response costs. The cost of clean-up at the Palmer, Massachusetts site has
been estimated to be approximately $7 million
- 37 -
<PAGE>
according to proofs of claim filed in the adversary proceeding. A committee
formed by the PRP group has estimated the liability respecting the activities of
Clearshield to be approximately $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 1960 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 the 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"), a 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 to determine what, if any, additional liability it may incur in
this matter. There can be no assurance that ARTRA's liability will not be
material in amount.
Several cases have arisen from ARTRA's purchase of Dutch Boy Paints
which owned a facility in Chicago which it purchased from NL Industries. 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 brought
a nuisance action and alleged that ARTRA (and NL Industries, Inc.) had
improperly stored, discarded and disposed of hazardous substances at the Dutch
Boy 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 that
it would cost $1,000,000 to remediate the site.
ARTRA and NL Industries, Inc. have counter sued each other and have
filed third party actions against the subsequent owners of the property. The
Company is presently unable to determine its liability, if any, in connection
with this case. The parties were conducting discovery but the case was stayed
pending the resolution of the EPA action described below.
In 1986, in a case titled People of the State of Illinois v. NL
Industries, Inc., ARTRA GROUP Incorporated, et al., the Cook County State's
attorney filed suit seeking response costs in excess of $2,000,000 and treble
punitive damages for costs expended by IEPA in remediating contamination at the
Dutch Boy site, alleging that all former owners contributed to the
contamination. In 1989, the Circuit Court dismissed the action, holding that the
state had failed to exhaust its administrative procedures. In 1992, this holding
was reversed by the Illinois Supreme Court. In 1996, the Illinois Appellate
Court affirmed the District Court's decision to dismiss the case based on lack
of due diligence on the part of the State of Illinois. The State of Illinois has
filed a Petition for
- 38 -
<PAGE>
Rehearing which was granted. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.
On November 17, 1995, the EPA issued letters to ARTRA, NL Industries
and others alleging that they were potentially responsible parties with respect
to releases at the Dutch Boy facility in Chicago and demanding that they
remediate the site. NL Industries entered into a consent decree with EPA in
which it agreed to remediate the site. The Company is presently unable to
determine its liability, if any, in connection with this case.
On August 7, 1995, a Second Amended Verified Complaint was filed in the
Supreme Court of N.Y. by Philip Elghanian against ARTRA, its officers and
directors (the "ARTRA Defendants") and others alleging that the defendants
engaged in a scheme to defraud plaintiff of approximately $5 million of the
value of his investment in shares of ARTRA. The plaintiff seeks damages and
interest in excess of $38 million and punitive and exemplary damages in excess
of $100 million. On January 19, 1996, the ARTRA Defendants filed a motion to
dismiss the Second Amended Complaint. As of June 7, 1996 that motion is still
pending. Since New York permits interlocutory appeals, the decision, if adverse,
may be appealed.
On June 14, 1995 Tartan Resources brought suit in the United States
District Court for the Northern District of Illinois against A.G. Holding
Corporation, The Lori Corporation and Bagcraft. Bagcraft was voluntarily
dismissed from the lawsuit by the plaintiff. Tartan Resources alleges that under
the alter-ego theory, A.G. Holding is liable for a judgment entered against
ARTRA and Artra Resources Corp. The plaintiff seeks $151,215.46 plus interest,
costs and attorneys fees. Discovery is complete and all parties are moving for
summary judgment.
On March 17, 1993, a judgment in the amount of $599,187.52 was entered
against Artra Group, Inc. in the matter entitled SW Associates Limited
Partnership v. Artra Group, Inc., Case No. 90 L 19514. Plaintiff commenced post
judgment collection proceedings to collect its debt, but in 1994 these
proceedings were dismissed for lack of diligence. To date, no money has been
recovered from Artra.
In connection with the sale of its former Sargent Welch Scientific
Company subsidiary, ARTRA assumed liabilities relating to early retirement
claims. ARTRA is approximately $120,000 behind in scheduled payments. ARTRA
intends to pay the entire liability, which is a maximum of $320,000, depending
upon years lived by covered employees. ARTRA has accrued the entire $320,000 in
its financial statements.
In 1994, ARTRA entered into a settlement agreement in connection with a
lawsuit filed by Hosiery Manufacturing Company. Under the terms of the
settlement, ARTRA was to pay $500,000. ARTRA was unable to satisfy its
obligations under the settlement agreement and subsequently entered into a new
settlement agreement reducing the liability to $125,000.
- 39 -
<PAGE>
MARKET PRICE OF THE COMPANY'S COMMON STOCK
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
September 26, 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 quarter ended September
26, 1996 and the past two fiscal years were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- --------------------- ---------------------
High Low High Low High Low
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter 6 - 3/4 4 - 5/8 5 - 3/4 3 - 1/2 7 - 3/4 5 - 1/8
Second quarter 9 - 1/4 5 - 3/4 5 - 1/2 3 - 1/4 6 - 1/4 4 - 3/8
Third quarter 8 - 3/8 4 - 3/4 6 4 - 1/8 7 - 1/4 5
Fourth quarter * * 5 - 1/8 3 - 5/8 5 - 3/8 3 - 3/4
</TABLE>
No dividends have been paid thus far in 1996 nor were any dividends
paid in 1995 or 1994, and no dividends are anticipated in the remainder of 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 "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.
- 40 -
<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
General
The authorized capital stock of the Company consists of (i) 20,000,000
shares of Common Stock without par value, of which 7,694,872 shares have been
issued and are outstanding as of September 26, 1996, and (ii) 2,000,000 shares
of Preferred Stock, par value $1,000 per share, which may be issued in one or
more series with such rights and preferences as determined by the Board of
Directors, of which 3,750 shares of a series designated "Series A Preferred
Stock" have been issued and are outstanding as of the date hereof and the
Company has agreed to issue 2,250 shares of "Series E Preferred Stock". As of
the date hereof, there were approximately 2,600 holders of record of the
Company's Common Stock. Common Stock
The Company has not paid any cash dividends on its Common Stock in
recent years and does not anticipate paying any such dividends in the
foreseeable future. In addition, Bagcraft is prohibited from or restricted in
paying dividends or making distributions to the Company under various loan
agreements (except for limited overhead allocations payable to the parent entity
and payments under tax sharing arrangements where applicable). Accordingly, even
if the Company were permitted to pay dividends to its shareholders, the
restrictions or limitations on Bagcraft in upstreaming payments would make
payment of dividends by the Company unlikely.
Payment of dividends by the Company is also subject to the significant
cumulated dividends on the Company's Series A Preferred Stock, which must be
paid prior to the payment of dividends on the common stock. The holders of the
Common Stock are entitled to dividends or other distributions only if, as and
when declared out of funds legally available therefor after payment of any
dividends required to be paid in respect of any preferred stock then
outstanding. Holders of the Series A Preferred Stock are entitled to receive
cumulative dividends at the rate of $60.00 per share per annum prior to the
payment of dividends on the Common Stock.
The Company's ability to pay dividends in respect of the Common Stock
may be further limited since it is required to redeem the Series A Preferred
Stock on March 1, 2000 to the extent of legally available funds for a redemption
price of $1,000 per share plus accrued and unpaid dividends to the date of
redemption. In the event legally available funds are insufficient to redeem the
Series A Preferred Stock on March 1, 2000, ARTRA must thereafter redeem such
stock when and as funds become legally available. In addition, in the event a
"control transaction" (as described below under "-Series A Preferred Stock")
occurs, which is not approved by the Board of Directors, the Series A Preferred
Stock is required to be thereupon redeemed.
Pursuant to the Articles of Incorporation of the Company, the Board of
Directors may, without shareholder approval, authorize the issuance of such
other series of preferred stock with dividend rights and liquidation preferences
prior and superior to those of the common stock. In the event the Board of
Directors authorizes one or more additional series of Preferred Stock, the
ability of the Company to pay dividends or other distributions to the holders of
the Common Stock may be further limited and could have the effect of making the
acquisition of the Company more difficult or unattractive or uneconomic for a
potential hostile acquirer, as more fully described under "Shareholder Voting
Rights," below.
The Common Stock is not subject to any conversion or redemption
provisions and the holders thereof are not provided any pre-emptive rights. All
outstanding shares of Common Stock are fully-paid and non-assessable.
See also "Shareholder Voting Rights," below for a description of the
voting rights of shareholders.
- 41 -
<PAGE>
Series A Preferred Stock
The following is a brief description of the rights and preferences of
the Series A Preferred Stock. No Series A Preferred Stock is being offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series A Preferred Stock.
Holders of the Series A Preferred Stock are entitled to receive
dividends at the rate of $60.00 per share per annum, payable annually. The
annual dividend shall be payable in cash or at the sole option of ARTRA, in
additional shares or fractional shares of the Series A Preferred Stock having
the aggregate redemption value equal to the amount of such dividends. Such
dividends shall be cumulative and shall accrue on each share on a day-to-day
basis. No dividends or distributions upon liquidation may be paid to the holders
of common stock if there is any deficiency in the payment of Series A Preferred
Stock dividends and, in the case of distributions upon liquidation, of a
liquidation preference of $1,000 per share of Preferred Stock. To date, no
dividends have been declared or paid on the Series A Preferred Stock.
The outstanding shares of Series A Preferred Stock are required to be
redeemed by ARTRA on March 1, 2000 to the extent funds are legally available
therefor. The redemption price is $1,000 per share plus an amount equal to the
accrued and unpaid dividends to the date fixed for redemption. Also, in the
event of a "control transaction" which is not approved by the Board of Directors
of ARTRA, all of the outstanding shares of the Series A Preferred Stock shall be
redeemed at a price of $1,000 per share plus unpaid accrued dividends prior to
the consummation of the "control transaction." The term "control transaction"
means the acquisition by a person or group (other than Messrs. P. Harvey and J.
Harvey and their affiliates) of the voting power over voting shares of ARTRA
which would entitle the holder or holders thereof to cast at least 40% of the
votes that all shareholders would be entitled to cast in an election of
directors of ARTRA.
The Series A Preferred Stock is not convertible into Common Stock and
no pre-emptive rights have been granted with respect to the Series A Preferred
Stock.
See also "Shareholder Voting Rights," below for a description of the
voting rights of shareholders.
Series E Preferred Stock
The following is a brief description of the rights and preferences of
the Series E Preferred Stock. No Series E Preferred Stock is being offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series E Preferred Stock.
Holders of the Series E Preferred Stock are entitled to receive cash
dividends, payable quarterly. Such dividends shall be cumulative and shall
accrue, whether or not declared from September 30, 1996. The rate of dividends
shall be 10% per annum of the Class E Preferred Stock liquidation preference per
share. No dividends or distributions upon liquidation may be paid to the holders
of common stock or any other stock ranking junior to this Series E Preferred
Stock, other than a dividend or distribution payable in shares of common stock,
or in any other stock ranking junior to this Series E Preferred Stock, if there
is any deficiency in the payment of Series E Preferred Stock dividends.
The Company may at any time redeem all or any number of the outstanding
shares of Series E Preferred Stock. The redemption price is $1,000 per share
plus an amount equal to the accrued and unpaid dividends to the date fixed for
redemption.
Each share of Series E Preferred Stock is convertible into 200 shares
of Common Stock.
Series E Preferred Stock is not entitled to vote on any matters
required or permitted to be submitted to the shareholders of the Corporation.
Shareholder Voting Rights
Each share of Common Stock has equal voting rights and each share is
entitled to one vote in all matters in which shareholders shall be entitled to
vote. The Articles of Incorporation provide for cumulative voting in the
election of directors. Therefore, every shareholder entitled to vote for
directors has the right, in person or by proxy, to multiply the number of votes
to which the shareholder is entitled to cast by the total number of directors to
be elected in the same election. The shareholder may cast the whole number of
such votes for one candidate or may distribute them among any two or more
candidates.
- 42 -
<PAGE>
Generally, the holders of shares of Common Stock and Series A Preferred
Stock are entitled to one vote per share on a combined basis and not on a class
basis except in limited circumstances. Under the Articles of Incorporation of
the Company, the affirmative vote of a majority of the holders of Common Stock
and Series A Preferred Stock (voting as a single class) represented in person or
by proxy at a meeting at which a quorum is present, is generally required to
approve matters submitted to the shareholders, subject to certain exceptions
under both the Articles of Incorporation and the Pennsylvania Business
Corporation Law of 1988, as amended (the "BCL"), described below.
Under the BCL, the holders of the stock of each class or series are
entitled to vote, as a class, on the following: (i) an amendment to the Articles
of Incorporation authorizing the board to fix the rights and preferences of
preferred stock; (ii) an amendment to the Articles of Incorporation authorizing
a new class or series of shares, or increasing the number of authorized shares
of any class or series of shares having a preference as to dividends or assets
which is senior to an existing class of shares; (iii) an amendment to the
Articles of Incorporation making a change in the preferences, limitations or
special rights of any class of shares which is adverse to such class; and (iv)
adoption of a plan authorizing the division, merger, consolidation or conversion
of the corporation or the sale by the corporation of all or substantially all of
its assets if the plan effects a change in the Articles of Incorporation such
that a vote would have been required under any of the preceding three clauses.
Under the Company's Articles of Incorporation, shareholders have
certain special voting rights. The Articles provide that if required by the BCL
(as summarized in the preceding paragraph), the holders of stock of each class
or series are entitled to vote as a class. Since the designations of rights and
preferences of the Series A Preferred Stock provide that the holders of such
stock shall vote with the holders of the common stock as a single class, the
holders of Series A Preferred Stock would vote as a separate class only where
required by the BCL.
These special voting rights are as follows:
(1) Removal of the entire Board of Directors or any class thereof or
any individual director without assigning any cause requires the vote of 80% of
the shares of all shareholders entitled to vote on the election of directors.
(2) Approval of (a) a proposal that the Company enter into a merger or
consolidation with a person who, together with his affiliates, owns or controls
5% or more of the voting stock of the Company, or (b) a proposal to reclassify
securities, recapitalize or other transaction (except certain redemptions
permitted by the terms of the security to be redeemed) designed to decrease the
number of shares of voting stock outstanding after any person has acquired 5% or
more of the Company's voting stock, requires the affirmative vote of 80% of the
shares of all shareholders entitled to vote on the proposal, except that the
foregoing provisions do not apply to a merger, consolidation or sale of assets
and property (i) which shall have been approved by a resolution duly adopted by
a majority of the directors in the office and the affirmative vote of the
holders of shares of voting stock of the Corporation representing at least a
majority of the shares of all shareholders entitled to vote on the proposal or
(ii) between the Company and another corporation, 50% or more of the voting
stock of which is owned by the Company, if the Company is the survivor or
purchaser.
(3) The affirmative vote of 80% of the shares of all shareholders
entitled to vote on the amendment of the Articles of Incorporation or of a
majority of the shares of all shareholders entitled to vote and 80% of the
directors in office is required to amend the provisions of the Articles of
Incorporation described in paragraphs (1) and (2).
- 43 -
<PAGE>
These provisions could have the effect of deterring a hostile takeover
attempts in several respects. First, the takeover of the Company would certainly
be made more difficult (and thus the Company would be a less attractive target)
in that removal of a member or class of members of, or the entire board of
directors requires approval of the holders of 80% of the Company's stock.
Second, the requirement that the holders of 80% of the Company's stock approve a
merger with a 5% stockholder unless the Company's board approves the transaction
(in which case the affirmative vote of the holders of only a majority of the
Company's stock is needed to approve the transaction) could also make a hostile
takeover quite difficult, while increasing the probability that a transaction
with a person controlling the board or with another friendly suitor would be
approved.
"Blank Check" Preferred Stock
The Articles of Incorporation of the Company authorize its Board of
Directors to establish series or classes of preferred stock and fix the rights,
preferences, privileges and restrictions thereof. The Board is authorized to
issue up to 2,000,000 shares of preferred stock, of which 3,750 shares of Series
A Preferred Stock have been issued and are are oustanding as of the date hereof.
Effective September 1996, the Company agreed to issue 2,250 shares of Series E
Preferred Stock in settlement of certain liabilities.
The BCL provides that if any proposed amendment to the certificate of
incorporation of a corporation adversely affects the preferences, limitations or
special rights of any class of shares, then the holders of shares of such class
are entitled to vote as a class as to such amendment. However, since the holders
of Common Stock approved an amendment to the Articles of Incorporation of the
Company which permits the Board of Directors to authorize the issuance of new
series of preferred stock with such rights (including voting rights) and
preferences as fixed by the Board of Directors, the holders of Common Stock will
not have the right to vote, whether as class or otherwise, to authorize the
issuance of new series of preferred stock with preferences as to dividends and
distributions on liquidation.
By authorizing and issuing preferred stock with particular rights, the
Company might be able to deter a hostile acquisition. For example, the Company
could issue shares of preferred stock with extraordinary voting rights or
liquidation preferences to make it more difficult for a hostile acquirer to gain
control of the Company. In addition to the anti-takeover effect of the issuance
of preferred stock, holders of preferred stock have a preferred position over
holders of common stock on liquidation, the right to a fixed or minimum dividend
before any dividend is paid (or accrued) on common stock, and the right to
approve certain extraordinary corporate matters.
See also "Description of the Company's Securities - Series A Preferred
Stock."
Put Options
From time to time the Company has issued shares of its Common Stock to
private investors in transactions in which the investors received
non-transferable put options to resell such shares to the Company for prescribed
periods at prices in excess of the purchase price paid by them for such shares.
As of September 26, 1996, private investors held in the aggregate 98,734 shares
of the Common Stock subject to put options requiring the Company to repurchase
shares for $3,565,000 in the aggregate.
Warrants and Options
From time to time the Company has issued warrants and options to
purchase its Common Stock for an exercise price generally based on the market
price of the Common Stock as of the date of grant of the option or warrant. As
of September 26, 1996, investors held warrants to purchase 1,584,514 shares in
the aggregate of Common Stock. In addition, as of such date, employees or former
employees of the Company held options granted under the Company's 1985 Stock
Option Plan to purchase 932,350 shares in the aggregate of Common Stock.
- 44 -
<PAGE>
MANAGEMENT
Information Regarding Directors
The following table lists the name and age of each director of ARTRA,
his business experience during the past five (5) years, his positions with ARTRA
and certain directorships.
Name Age Positions and Experience
- ---- --- ------------------------
John Harvey 64 Chairman of the Board of Directors and
Chief Executive Officer of ARTRA;
Director since 1968; Chairman of the
Board of Directors, since 1985, a
Director from 1982 to December 1995
and the Chief Executive Officer from
1990 to November 1995 of COMFORCE
Corporation (temporary professional
employment, formerly The Lori
Corporation); an equity holding of
ARTRA representing 19% of COMFORCE
outstanding stock; a Director of
Plastic Specialties and Technologies,
Inc. ("PST") (textiles, hose and
tubing); and Director of Ozite
Corporation (textiles, hose and
tubing). Director of PureTec
Corporation, the successor by merger
to Ozite. Former Director of Rymer
Foods, Inc. (portion control meat
products and seafood).
Peter R. Harvey 61 President and Chief Operating Officer
and a Director since 1968; Director
of COMFORCE (temporary professional
employment, formerly The Lori
Corporation)from 1985 to December 1995
and a vice president through January
1996, an equity holding of ARTRA
representing 19% of COMFORCE
outstanding common stock; a former
Director and Chief Operating Officer
of SoftNet Systems, Inc. ("SoftNet").
During 1995, Mr. Harvey resigned
from all of the Softnet offices,
formerly The Vader Group Inc. (image
processing and health care cost
containment); Vice President and
Director of Ozite Corporation, the
majority parent of PST (textiles, hose
and tubing). Director of PureTec
Corporation, the successor by merger
to Ozite. Former Director of Rymer
Foods Inc., (portion control meat
products and seafood).
Gerard M. Kenny 44 Director since 1988; Executive Vice
President and Director since 1982 of
Kenny Construction Company since 1982
(diversified heavy construction);
General Partner of Clinton Industries
(investments), a limited partnership,
since 1972.
Edward A. Celano 57 Executive Vice President of the
Atlantic Bank of New York since May 1,
1996, Senior Vice President of
National Westminster, USA from 1984
through April 1996, corporate finance.
Howard R. Conant 71 Retired Chairman of the Board of
Interstate Steel Co., 1970 to 1990,
and a consultant to Interstate through
1992.
- 45 -
<PAGE>
Maynard K. Louis 66 Retired Chairman of the Board of Lord
Label (now known as Porter &
Chatburn), a printing company, from
1965 to 1989, Vice President, 1989 to
1993, director of ARTRA from 1993
through 1995.
Robert L. Johnson 60 Chairman and Chief Executive Officer
of Johnson Bryce, Inc., flexible
packaging materials of food products
since 1991, and previously, for many
years, a vice president of Sears
Roebuck & Co.
John Harvey and Peter R. Harvey are brothers. COMFORCE was a 64.3%
owned subsidiary of ARTRA until October, 1995. ARTRA now owns approximately 19%
of COMFORCE. PureTec International, Inc. and PST are affiliates of ARTRA.
Information Regarding Executive Officers
Set forth below is information concerning the executive officers and
other key employees of ARTRA who were in office or employed as of the date of
this Prospectus.
Name Age Position
- ---- --- --------
John Harvey 64 Chairman of the Board and Chief Executiv0
Officer of ARTRA
Peter R. Harvey 61 President and Chief Operating Officer of ARTRA
John G. Hamm 57 Executive Vice President of ARTRA
Robert S. Gruber 63 Vice President - Corporate Relations of ARTRA
James D. Doering 59 Vice President, Treasurer and Chief Financial
Officer of ARTRA
John Conroy 52 Vice President - Corporate Administration of
ARTRA
Lawrence D. Levin 44 Controller of ARTRA
Edwin G. Rymek 66 Secretary of ARTRA
John Harvey, Chairman and Chief Executive Officer of ARTRA. See
"Information Concerning Directors" above for a description of Mr. Harvey's
relevant business experience.
Peter R. Harvey, President and Chief Operating Officer of ARTRA. See
"Information Concerning Directors" above for a description of Mr. Harvey's
relevant business experience.
John G. Hamm, Executive Vice President of ARTRA. Mr. Hamm has served as
Executive Vice President, since February 1988, and Vice President - Finance,
from 1975 until 1988, of ARTRA. Mr. Hamm has also served as Vice President -
Finance, from August 1990 until July 1995, and as a Director, from 1984 until
July
- 46 -
<PAGE>
1995, of Ozite Corporation. Mr. Hamm also serves as a Director of
SoftNet Systems, Inc. since 1985 and served as Director of PST from 1985 until
January, 1996.
Robert S. Gruber, Vice President - Corporate Relations of ARTRA. Mr.
Gruber has served as Vice President - Corporate Relations of ARTRA since 1975
and The Lori Corporation from 1975 to 1995. Mr. Gruber has served as a
consultant to COMFORCE during 1996.
James D. Doering, Vice President, Treasurer and Chief Financial Officer
of ARTRA. Mr. Doering has served as Vice President, since 1980, Treasurer, since
1987, Chief Financial Officer, since February 1988, and Controller, from 1980 to
1987. Mr. Doering has also served as Vice President and Chief Financial Officer
of COMFORCE from February 1988 through January 1996.
John Conroy, Vice President - Corporate Administration of ARTRA. Mr.
Conroy has served as Vice President - Corporate Administration since March 1990.
Prior thereto, he served as Vice President - Corporate Administration, of
Sargent-Welch Scientific Company from September 1988 to December 1989. Mr.
Conroy previously served in various risk management positions with ARTRA from
1978 to September 1988, most recently as Corporate Risk Director.
Lawrence D. Levin, Controller of ARTRA. Mr. Levin has served as
Controller, since 1987, Assistant Treasurer and Assistant Secretary, since 1980,
and Assistant Controller, from 1980 to 1987. Mr. Levin has also served as
Controller of COMFORCE since December 1989 through January 1996 and as the
Assistant Chief Financial Officer of COMFORCE from May 1993 through January
1996.
Edwin G. Rymek, Secretary of ARTRA. Mr. Rymek has served as Secretary
of ARTRA since 1987 and of COMFORCE from 1982 through 1995.
Officers are appointed by the boards of directors of ARTRA and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey (a director and executive officer) and John
Harvey (a director and executive officer), who are brothers, there are no family
relationships among the executive officers and/or directors, nor are there any
arrangements or understandings between any officer and another person pursuant
to which he was appointed to office except as may be hereinafter described.
EXECUTIVE COMPENSATION
Directors' Compensation
Directors who are not employees of ARTRA ("Outside Directors") are
entitled to receive an annual retainer of $4,000 and $250 per meeting attended;
however, no fees were paid to Outside Directors in 1995. Each Outside Director
who sits on an established committee of ARTRA is entitled to receive $150 per
committee meeting attended. Employees of ARTRA who also serve as directors
receive no additional compensation for such service.
Executive Officer Compensation
The following table shows all compensation paid by ARTRA and its
subsidiaries for the fiscal years ended December 28, 1995, December 29, 1994 and
December 30, 1993, to the chief executive officer of ARTRA and each of its other
most highly compensated executive officers who were serving as executive
officers of ARTRA as of December 28, 1995 and whose compensation exceeded
$100,000 in 1995.
- 47 -
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation(1)
---------------------- -------------------------
Securities All
Underlying(3) Other
Name and Salary Salary Options - Compen-
Principal Positions Year Paid Deferred(2) Bonus No. of Shares sation
------------------- ---- ---- ----------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
John Harvey, 1995 $126,200 $ -0- $ -0- -0- $2,520(4)
Chairman and Chief 1994 126,200 -0- -0- -0- 2,520(5)
Executive Officer 1993 126,200 -0- -0- 4,000 2,431(5)
James D. Doering, 1995 49,900 83,500 -0- -0- 3,470(4)
V.P. and Chief 1994 111,333 22,267 -0- -0- 3,000(5)
Financial Officer 1993 111,133 22,267 -0- 31,000 3,054(5)
John G. Hamm, 1995 49,900 83,500 -0- -0- 3,470(4)
Executive 1994 111,133 22,267 -0- -0- 3,000(5)
Vice President 1993 55,667 22,267 -0- 13,200 2,210(5)
Robert S. Gruber, 1995 92,000 69,000 -0- -0- 2,868(4)
Vice President 1994 -0- 18,400 -0- -0- 3,000(5)
Corporate Relations 1993 62,753 110,400 -0- 12,000 4,831(5)
- -----------------------
<FN>
(1) No additional annual compensation was paid, no restrictive stock awards
or stock appreciation rights were granted, and no long term incentive
plan payouts were made to any of the officers listed in the table. Only
compensation earned in 1995 (irrespective of the year in which paid) is
considered in determining inclusion in this table.
(2) Salaries are shown as paid (or deferred) in the year earned. Any
deferred salaries paid in a year subsequent to the year earned are not
shown as paid in such subsequent year. All salary deferrals for the
years 1993, 1994 and 1995 have been paid as of the date hereof.
(3) All of the options shown in this column were granted under the
Company's 1985 Stock Option Plan at an exercise price of $3.75 per
share, being the closing price of the Company's common stock on the New
York Stock Exchange on the date of grant (January 8, 1993). These
options expire January 8, 2003.
(4) These amounts include the Company's contributions to the 401(k) plan
and amounts contributed to the ARTRA GROUP Incorporated Employee Stock
Ownership Plan (the "ESOP") during 1995. See note (5) below for a
further discussion of the ESOP.
(5) These amounts represent the closing price on the New York Stock
Exchange of Common Stock as of the date the named officers became
entitled to receive the stock (i.e., December 29, 1994 and December 30,
1993) pursuant to the ESOP. Annual contributions were made to the ESOP
at the discretion of the Board of Directors. 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 and 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. Effective August 1,
1995, the Company terminated the ESOP and is currently is the process
of distributing the related Employee accounts to participants.
</FN>
</TABLE>
- 48 -
<PAGE>
No options to purchase capital stock of the Company or other stock
appreciation rights were granted by the Company in 1995 to any other executive
officers of the Company named in the Summary Compensation Table.
The following table sets forth information concerning the aggregate
number and values of options held by the Chief Executive Officer and the other
executive officers of the Company listed in the Summary Compensation Table as of
December 28, 1995 which were granted to such officers in consideration of their
services as officers or directors of the Company. No options held by the Chief
Executive Officer or any other executive officers of the Company listed in the
Summary Compensation Table were exercised in 1995.
AGGREGATED OPTION EXERCISES IN 1995 AND
OPTION VALUES AS OF DECEMBER 28, 1995
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at 12-28-95 Options at 12-28-95
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable(1) Unexercisable(2)
- ------------------ --------------- --------- ------------------- ------------------
<S> <C> <C> <C> <C>
John Harvey 0 $ 0 80,000/ $ 117,600/None
0
James D. Doering 0 0 62,000/ 88,350/None
0
John G. Hamm 0 0 39,200/ 56,500/None
0
Robert S. Gruber 0 0 21,000/ 29,775/None
0
- -------------------------------
<FN>
(1) See the notes under "Principal Shareholders" for a description of the
options (including exercise prices) granted to each of the executive
officers listed in this table.
(2) The listed options were issued at per share exercise prices of from
$3.65 per share to $3.75 per share. The market price of Common Stock as
of the close of trading on December 28, 1995 on the New York Stock
Exchange was $5.125 per share.
</FN>
</TABLE>
- 49 -
<PAGE>
Compensation Committee Interlocks And Insider Participation
Authority to determine the compensation of executive officers is
conferred upon the Company's Board of Directors or, in the case of officers paid
by Bagcraft Corporation of America ("Bagcraft"), by Bagcraft's Board of
Directors. The salary of John Harvey was paid by Bagcraft.
ARTRA's Board did not consider the compensation of its officers in
1995. The decisions concerning the cash compensation of these executive officers
(including of John Harvey, the Chairman and Chief Executive Officer of ARTRA,
who was compensated by Bagcraft for his services as its Chairman) were made by
Peter R. Harvey, the President and Chief Operating Officer of ARTRA. Although
ARTRA has an Option and Compensation Committee formed to consider and award
options under ARTRA's 1985 Stock Option Plan, this committee did not meet in
1995. In December, 1995, the ARTRA Board awarded options to the Chief Executive
Officer and to certain executive officers subject to approval by the
shareholders of the proposed 1996 Stock Option Plan. Peter R. Harvey, John
Harvey and Gerard Kenny executed the consent approving these awards. These
awards were granted as compensation for late salary payments during the period
1991 to 1995. See "Transactions with Management and Others" for a description of
various transactions and relationships between the Company and each of these
directors.
- 50 -
<PAGE>
PRINCIPAL SHAREHOLDERS
As of October 31, 1996, there were 7,694,872 shares of Common Stock
issued and outstanding. The following table sets forth the number and percentage
of Common Stock known by management of ARTRA to be beneficially owned as of
October 31, 1996 by (i) all stockholders known by management of ARTRA to own 5%
or more of ARTRA's Common Stock, (ii) all directors of ARTRA, (iii) each
executive officer included in the Summary Compensation Table and (iv) all
directors, executive officers and other key employees of ARTRA as a group (9
persons). Unless stated otherwise, each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated.
As of October 31, 1996, 3,750 shares of Series A Preferred Stock of
ARTRA, par value $1,000 per share, were issued and outstanding. Each share of
this Series A Preferred Stock entitles the holder to one vote on an equal basis
with each share of Common Stock. Accordingly, for purposes of showing ownership
of Common Stock in the table below, the Series A Preferred Stock is treated as
Common Stock.
Name of Beneficial Owner Number Percent
of Shares
Beneficially
Owned
Research Center of Kabbalah(1) 600,772 7.7%
Peter R. Harvey(2) Common 440,243 5.7%
Preferred 1,523 40.6%
John Harvey(3) 523,796 6.6%
Gerard M. Kenny(4) 240,048 3.1%
Maynard K. Louis(5) 110,000 1.4%
Howard R. Connant(6) 120,000 1.6%
Robert L. Johnson 2,873 *
John G. Hamm(7) 143,498 1.8%
Robert S. Gruber(8) 141,104 1.8%
James D. Doering(9) 124,311 1.6%
All directors and executive officers
as a group (12 persons) 2,072,567 23.5%
* Less than 1% of the outstanding shares.
Ozite Corporation, an affiliate of ARTRA by reason of Peter R. Harvey
and John Harvey being directors of the parent corporation, Puretec, is the
record holder of 2,227 shares (59.4%) of the ARTRA Series A Preferred.
(1) The address of Research Center of Kabbalah ("RCK") is 83-84 115th Street,
Richmond Hill, New York 11418. The shares beneficially owned by RCK consist
of 514,522 shares of Common Stock owned directly, 21,250 shares of Common
Stock issuable under a warrant which expires October 29, 1998 at an
exercise price of $6.00 per share, and 65,000 shares of Common Stock
issuable under a warrant which expires December 31, 1998 at an exercise
price of $7.00 per share.
- 51 -
<PAGE>
(2) Mr. Peter R. Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares beneficially owned by Mr. Harvey consist of
375,138 shares held directly by him (of which 373,615 are Common Stock and
1,523 are shares of Series A Preferred Stock), 23,001 shares held as
trustee for the benefit of his nieces, 800 shares owned by his wife and
children, 634 shares held in his 401(k) plan, 7,193 shares held in his
individual retirement account, 20,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share and
15,000 shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share.
(3) Mr. John Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares of Common Stock beneficially owned by Mr. Harvey
consist of 123,100 shares held directly by him, 1,705 shares held in his
401(k) plan, 5,746 shares held in his individual retirement account,
100,000 shares held by Mr. Harvey's daughters, 75,000 shares issuable under
an option which expires December 19, 2000 at an exercise price of $3.65 per
share, 1,000 shares issuable under an option which expires September 19,
2001 at an exercise price of $3.65 per share, 4,000 shares issuable under
an option which expires January 8, 2003 at an exercise price of $3.75 per
share, 141,000 shares issuable under an option which expires October 4,
2006 at an exercise price of $5.25 per share and an aggregate of 72,245
shares issuable under warrants expiring at various dates in 2000 and 2001
received in 1995 and 1996 as additional compensation for 1995 and 1996
short-term loans at exercise prices of $3.75 per share to $6.25 per share.
(4) The shares beneficially owned by Mr. Kenny consist of 2,000 shares of
ARTRA's common stock issuable upon the exercise of an option at $10.00 per
share expiring November 28, 1996, 75,652 shares held by (or issuable to)
Kenny Construction Company, 14,411 shares held by Clinton Industries, and
75,001 shares issuable under a warrant held by Clinton Industries which
expires November 10, 1997 at an exercise price of $5.00 per share. Kenny
Construction Company holds put options to sell to ARTRA (i) 23,004 shares
of Common Stock for a put price of $56.76 per share plus an amount equal to
15% per annum for each day from March 1, 1991 to the date of payment by
ARTRA, which put option expires December 31, 1997, and (ii) 49,980 shares
of Common Stock for a put price of $15.00 per share, subject to an annual
increase of $2.25, which put option is exercisable on the later of the date
ARTRA's obligations to Bank of America are repaid or the $2,500,000 note of
ARTRA payable to Kenny Construction Company (as described in paragraph 5
under "Transactions with Management and Others." If the stock subject to
the put is sold at a price less than the put price, the Company would
remain liable to the holder of the put for the amount by which the put
price of the shares exceeds the selling price. Mr. Kenny is Executive Vice
President, Director and beneficial owner of 16.66% of the issued and
outstanding stock of Kenny Construction Company. He is also the General
Partner and a 14.28% beneficial owner of Clinton Industries, a limited
partnership. See paragraphs 4 and 5 under "Transactions with Management and
Others."
(5) Mr. Louis is the holder of warrants to purchase 110,000 shares of ARTRA
common stock at prices of $4.50 to $8.00 which warrants expire on various
dates commencing in 1997 and ending June 13, 2001. Comforce is currently
indebted to Mr. Louis in the sum of $50,000. Mr. Louis owns 5,000 shares of
Comforce common stock and warrants to purchase 5,000 shares of Comforce
common stock at $2 per share expiring September 11, 2000.
(6) Mr. Conant holds 90,000 ARTRA common shares directly, Mrs. Conant holds
5,000 ARTRA common shares and Mr. Conant holds a warrant to acquire 25,000
shares of ARTRA common stock at $5.00 per share which warrant expires
August 26, 2001. Mr. Conant owns 130,000 shares of Comforce and warrants to
purchase 30,000 shares of Comforce common stock at $2.00 per share expiring
September 11, 2000 and 50,000 shares Comforce at $3.375 per share which
warrant expires October 17, 2000. A. G. Holding Inc., a wholly-owned
subsidiary of ARTRA, is indebted to Mr. Conant in the sum of $200,000 and
Comforce was formerly indebted to Mr. Conant in the sum of $300,000 which
was repaid in May 1996.
- 52 -
<PAGE>
(7) The shares of Common Stock beneficially owned by Mr. Hamm consist of 50
shares held directly by him, 93 shares held by him and his wife jointly,
2,905 shares held in his 401(k) plan, 25,000 shares issuable under an
option which expires December 19, 2000 at an exercise price of $3.65 per
share, 1,000 shares issuable under an option which expires September 19,
2001 at an exercise price of $3.65 per share, 13,200 shares issuable under
an option which expires January 8, 2003 at an exercise price of $3.75 per
share, and 101,250 shares issuable under an option which expires October 4,
2006, at an exercise price of $5.25 per share.
(8) The shares of Common Stock beneficially owned by Mr. Gruber consist of
20,190 shares held directly by him, 943 shares held in his 401(k) plan,
1,221 shares held in his individual retirement account, 8,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share, 12,000
shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share and 97,750 shares issuable under an
option which expires October 4, 2006, at an exercise price of $5.25 per
share.
(9) The shares of Common Stock beneficially owned by Mr. Doering consist of
2,000 shares held by him in joint tenancy with his wife, 1,693 shares held
in his 401(k) plan, 1,118 shares held in his individual retirement account,
25,000 shares issuable under an option which expires December 19, 2000 at
an exercise price of $3.65 per share, 6,000 shares issuable under an option
which expires September 19, 2001 at an exercise price of $3.65 per share,
31,000 shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share and 57,500 shares issuable under an
option which expires October 4, 2006, at an exercise price of $5.25 per
share.
- 53 -
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Effective October 17, 1995, COMFORCE, formerly a 64% owned subsidiary
of ARTRA, acquired all of the capital stock of Comforce Global, Inc. ("Global"),
formerly Spectrum Global Services, Inc. d/b/a YIELD Global, for consideration of
approximately $6.4 million, net of cash acquired. This consideration consisted
of cash to the seller of approximately $5.1 million, fees of approximately
$700,000, including a fee of $500,000 to a related party, and 500,000 shares of
COMFORCE common stock valued at $843,000 (at a price per share of $1.68) issued
as consideration for various fees and guarantees associated with the
transaction. The 500,000 shares of COMFORCE common stock consisted of (i)
100,000 shares issued to an unrelated party for guaranteeing the purchase price
to the seller, (ii) 100,000 shares issued to ARTRA, then the majority
stockholder of the Company, in consideration of its guaranteeing the purchase
price to the seller and agreeing to enter into the Assumption Agreement, as
discussed below, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the acquisition, and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller. Additionally, in
conjunction with the Global acquisition, ARTRA entered into an Assumption
Agreement whereby it agreed to assume substantially all pre-existing Lori
liabilities and indemnify COMFORCE in the event any future liabilities arise
concerning pre-existing environmental matters and business related litigation.
Accordingly, at September 26, 1996, $764,000 of such pre-existing Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.
Effective July 4, 1995, Lori's management agreed to issue up to a 35%
common stock interest in the COMFORCE to certain individuals to manage
COMFORCE's entry into the telecommunications and computer technical staffing
business. COMFORCE recognized a non-recurring charge of $3,425,000 related to
this stock since these stock awards were 100% vested when issued, and were
neither conditioned upon these individuals' service to the Company as employees
nor the consummation of the COMFORCE Global acquisition. Accordingly, this
compensation charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in accordance with the above agreements were valued at $.93 per
share. COMFORCE's management valued COMFORCE based on its discussions with
market makers and other advisors, taking into account (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally related to the
potential effect that a purchase of COMFORCE Global, if successfully concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this value of $.93 per share to be a fair and appropriate value based upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other transactions, ARTRA's common stock ownership interest in COMFORCE
common stock was reduced to approximately 19% and 25% at September 26, 1996 and
December 28, 1995, respectively. Accordingly, in October 1995, the accounts of
COMFORCE and its majority-owned subsi diaries were deconsolidated from ARTRA's
consolidated financial statements. See Note 5 to the Company's condensed
consolidated financial statements for the nine months ended September 26, 1996
for a further discussion of the accounting treatment of ARTRA's investment in
COMFORCE.
A disagreement has arisen between ARTRA and COMFORCE regarding
interpretations of the July 4, 1995 agreement, as amended, to issue up to a 35%
common stock interest in COMFORCE to certain individuals to manage COMFORCE's
entry into the telecommunications and computer technical staffing business; the
Global acquisition agreement; and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. The disputed issues include (i) the
number of COMFORCE common shares issued to the above individuals to manage
COMFORCE's entry into the telecommunications and computer technical staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's Annual Meeting of Stockholders held on October 28, 1996;
(ii) the number of COMFORCE common stock options issued to COMFORCE's current
management group subsequent to the Global acquisition; (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in consideration of its guaranteeing the
Global purchase price to the seller and agreeing to assume certain pre-existing
Lori liabilities; (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for guaranteeing the payment of the Global purchase price to the seller,
and (v) certain stock options granted in 1993 under provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above disagreements, ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation value of
$19.5 million for 100,000 COMFORCE common shares, as required by the Assumption
Agreement, and will not consummate the exchange until all of the disputes are
resolved. ARTRA's financial statements have reflected the exchange of the Lori
Series C preferred stock for 100,000 COMFORCE common shares in accordance with
the Assumption Agreement. Based on the above disputed matters, ARTRA is
withholding delivery of the Lori Series C preferred shares and is seeking
appropriate resolution in conformity with the Assumption Agreement and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA will seek to rescind this aspect of the agreement. Additionally,
- 54 -
<PAGE>
ARTRA's financial statements have reflected the issuance of 100,000 COMFORCE
common shares to ARTRA as compensation for guaranteeing the Global purchase
price to the seller and entering into the Assumption Agreement. COMFORCE is
withholding issuance of such shares to ARTRA, in violation of the Global
acquisition agreement. ARTRA has aggressively attempted to resolve its dispute
with COMFORCE without success and at this point, ARTRA can not predict the
ultimate resolution, nor whether such dispute can be resolved without
litigation.
During 1995, ARTRA received $399,000 of advances from COMFORCE. In
1996, COMFORCE advanced ARTRA an additional $54,000. As of September 26, 1996
ARTRA repaid the above advances and paid down, assumed or otherwise settled
substantially all of the known pre-existing COMFORCE liabilities it assumed in
conjunction with the COMFORCE Global acquisition.
John Harvey was the chief executive officer, the chairman of the board
of COMFORCE until November 1995 and a director to December 1995. Peter R. Harvey
was a a director of COMFORCE to December 1995 and a vice president of COMFORCE
through January 1, 1996. James D. Doering was the vice president and chief
financial officer of COMFORCE through January 1996. Lawrence D. Levin was the
controller and assistant chief financial officer of COMFORCE through January
1996. Edwin Rymek was the secretary of COMFORCE through November 1995.
In January 1995, ARTRA borrowed $100,000 from John Harvey on a
short-term basis evidenced by a note due March 20, 1995 and bearing interest at
8% per annum. This loan, as well as other short-term borrowings from John
Harvey, aggregating $175,000 at December 28, 1995, have been renewed as they
matured during 1995. In February 1996 ARTRA repaid $50,000 to Mr. Harvey. In May
1996 ARTRA repaid Mr. Harvey's loans and related accrued interest in their
entirety. As additional compensation the loans provided for the issuance of
warrants to purchase ARTRA common shares, as determined by the number of days
the loans are outstanding. John Harvey received warrants to purchase an
aggregate of 66,045 shares of ARTRA common stock at prices ranging from $3.75 to
$6.125 per share as additional compensation for his loans to ARTRA.
During 1990 and 1991, ARTRA made advances to Peter R. Harvey, of which
$820,000 (including $112,000 in accrued interest) remained outstanding at
December 30, 1993. The outstanding principal balance of these advances bears
interest at the prime rate plus 2%. ARTRA had previously borrowed funds from Mr.
Harvey evidenced by a $2,000,000 ARTRA note payable to him. Upon Mr. Harvey's
surrender of this note to ARTRA (which note had previously been pledged by him
to secure obligations he owed to another company), ARTRA applied the $2,000,000
to amounts due from him.
In addition to the advances made directly by ARTRA, certain advances
were previously made to Mr. Harvey by Bagcraft prior to its acquisition by ARTRA
in 1990. In December 1993, $1,894,000, representing the total amount of these
advances (including accrued interest of $120,000) was transferred from ARTRA's
Bagcraft subsidiary to ARTRA as a dividend (a portion of which interest has been
reserved on ARTRA's books).
In February 1996, a bank agreed to discharge all amounts under its
ARTRA notes ($14,563,639.39 including accrued interest and fees) and certain
obligations of ARTRA's president, Peter R. Harvey. In connection with said
discharge, ARTRA obtained a $2,150,000 participation right in a $3 million note,
which was offset by the discharge of $2,150,000 in prior Harvey indebtedness. In
addition, ARTRA recorded a receivable of $1,089,000 for Mr. Harvey's pro rata
share of the debt discharge funded by the Company. See "Transactions with
Management and Others -- Settlement of the Bank of America Illinois Debt."
In May 1991, ARTRA's Fill-Mor subsidiary made advances to Peter R.
Harvey. The advances, made out of a portion of the proceeds of a short-term bank
loan, bear interest at the prime rate plus 2%. The amount of these advances at
March 30, 1995 was $1,540,000 (including $398,000 of accrued interest). In
April, 1995, these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.
The aggregate amount of all amounts due from Mr. Harvey which remained
outstanding as of September 26, 1996 was $5,861,000. ARTRA has accrued interest
in the sum of $1,371,000 on the principal owed to it by Mr. Harvey. Commencing
January 1, 1993 to date, interest on these amounts due from Peter R. Harvey has
been accrued and fully reserved.
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
- 55 -
<PAGE>
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 PureTec. In
addition, in connection with a discharge of certain bank indebtedness discussed
below, ARTRA received rights under a mortgage of certain real estate owned by
Mr. Harvey. The mortgage secures $2,150,000 of the amount owed by Mr. Harvey.
The bank has a senior security interest in the amount of $850,000. See
"Transactions With Management And Others - - Settlement of the Bank of America
Illinois Debt."
Peter R. Harvey has not received compensation for his services other
than nominal amounts as an officer or director of ARTRA or any of its
subsidiaries since October 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. Additionally, since December 31, 1986, Peter R. Harvey has
guaranteed approximately $40,000,000 of ARTRA obligations to private and
institutional lenders (John Harvey also was a co-guarantor of a $26,700,000 loan
included in that total with Peter R. Harvey), and has also hypothecated personal
assets as security for the ARTRA obligations which are described in this proxy
statement.
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 Peter R. Harvey were ratified by
ARTRA's Board of Directors. In the case of the loan made by Fill-Mor to Peter R.
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 Peter R. 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).
Please see the section entitled "Artra Participation in Peter Harvey
Note, Collateral Provided to Artra" hereafter for a description of pledges,
mortgage and security interests granted to ARTRA on assets owned by Peter R.
Harvey.
In June 1996, Peter R. Harvey loaned the Company 100,000 shares of
ARTRA common stock with (with a then fair market value of $587,000). The Company
principally issued these common shares to certain lenders as additional
consideration for short-term loans. In September 1996, after the Company's
shareholders approved an increase in the number of authorized common shares, the
Company repaid this loan. At Peter R. Harvey's direction, the 100,000 shares of
the Company's common stock were issued in blocks of 25,000 shares to the four
daughters of the Company's Chairman of the Board, John Harvey. John Harvey and
Peter R. Harvey are brothers.
During 1986 and through August 10, 1988, ARTRA entered into a series of
short-term borrowing agreements with private investors. Each agreement granted
an investor a put option, principally due in one year, that required ARTRA to
repurchase any or all of the shares sold at a 15% to 20% premium during a
specified put period. Kenny Construction Company ("Kenny") entered into a put
option agreement with ARTRA, which has been extended from time to time, most
recently on November 11, 1992. At such time ARTRA and Kenny agreed to extend the
put option whereby Kenny received the right to sell to ARTRA 23,004 shares of
ARTRA common stock at a put price of $56.76 plus an amount equal to 15% per
annum for each day from March 1, 1991 to the date of payment by ARTRA, which
option expires December 31, 1997.
Gerard M. Kenny, a director of ARTRA, is the Executive vice-president
and Chief Executive Officer and a director of Kenny and beneficially owns 16.66%
of Kenny's capital stock.
On March 21, 1989, ARTRA borrowed $5,000,000 from its bank lender
evidenced by a promissory note. This note has been amended and extended from
time to time. The borrowings on this note were collateralized by, among other
things, a $2,500,000 personal guaranty by Kenny. Kenny received compensation in
the form of 833 shares of ARTRA common stock for each month that its guaranty
remained outstanding through March 31, 1994. Under this arrangement, Kenny
received 49,980 shares of ARTRA common stock as compensation for its guaranty.
- 56 -
<PAGE>
On March 31, 1994, ARTRA entered into a series of agreements with its
bank lender and with Kenny. Under the terms of these agreements, Kenny purchased
a $2,500,000 participation in the $5,000,000 note payable to ARTRA's bank
lender. Kenny's participation is evidenced by a $2,500,000 ARTRA note (the
"Kenny Note") bearing interest at the prime rate. As consideration for its
purchase of this participation, the bank lender released Kenny from its
$2,500,000 loan guaranty. As additional consideration, Kenny received an option
to put back to ARTRA the 49,980 shares of ARTRA common stock received as
compensation for its $2,500,000 ARTRA loan guaranty at a price of $15.00 per
share. The put option is subject to increase at the rate of $2.25 per share per
annum ($19.50 at May 31, 1996). The put option is exercisable on the later of
the date the Kenny Note is repaid or the date ARTRA's obligations to its bank
lender are fully paid. During the first quarter of 1996, the $2,500,000 note and
related accrued interest was paid in full, principally with the proceeds from
additional short-term borrowings. The put option remains outstanding.
On September 27, 1989, ARTRA received a proposal to purchase Bagcraft
from Sage Group, Inc. ("Sage"), a privately-owned corporation. Effective March
3, 1990, a wholly-owned subsidiary of ARTRA indirectly
acquired from Sage 100% of the issued and outstanding common shares of BCA
Holdings, Inc., which in turn owned 100% of the stock of Bagcraft, for total
consideration which was delivered to Ozite as the successor by merger to Sage,
upon approval of ARTRA's shareholders. The consideration for the Bagcraft
acquisition consisted of 772,000 shares of ARTRA's common stock and 3,750 shares
of its $1,000 par value junior non-convertible payment-in-kind preferred stock
bearing a dividend rate of 6%. The issuance of the ARTRA Common and Preferred
Stock as consideration was approved by ARTRA's shareholders at the December 1990
annual meeting of shareholders. Upon the merger of Sage into Ozite on August 24,
1990, Ozite became entitled to receive this consideration, which right Ozite
assigned to its PST subsidiary. Peter R. Harvey, ARTRA's President, and John
Harvey, ARTRA's Chairman of the Board of Directors, were the principal
shareholders of Sage and Ozite as of the times that the merger agreements were
executed and the mergers consummated.
Ozite subsequently repurchased the 3,750 shares of preferred stock in
February 1992, 1,523 of which shares were subsequently assigned to Peter Harvey
in consideration of his discharge of certain indebtedness of Ozite to him in
April 1992. Mr. Harvey pledged these 1,523 preferred shares to ARTRA. The
$4,750,000 price of the 772,000 shares of common stock and 3,750 shares of
preferred stock was equal to the fair market value thereof as of January 31,
1991 as determined by an independent investment banking firm engaged by PST to
make such determination.
Peter R. Harvey and John Harvey are significant stockholders of PST's
parent, PureTec, as described in Note 1 to the table under "Principal
Shareholders." Peter R. Harvey is a Vice President and a director of PST and a
director of PureTec. John Harvey is a director of PST and PureTec.
In 1987, the predecessor of PST acquired a $5,000,000 subordinated note
bearing interest at a rate of 13.5% per annum and 50,000 shares of 13-1/2%
cumulative redeemable preferred stock of Bagcraft with a liquidation preference
of $5,000,000 with $10,000,000 of the net proceeds of the PST public offering in
May 1987. Interest accrued on the note at a rate of 13.5% per annum. No cash
payments of interest were made during the term of the note. However, during
1992, per agreement with PST, the interest payments for 1992 were remitted by
Bagcraft to ARTRA and the noteholder received Series A preferred stock of
Bagcraft's parent, BCA Holdings, Inc. ("BCA") having a liquidation value of
$675,000. In December 1993, the principal outstanding under this note was repaid
in full in cash from proceeds of Bagcraft's new credit facility with an
institutional lender and PST accepted additional BCA preferred stock having a
liquidation value of $3,000,000 in satisfaction of all unpaid accrued interest
thereon.
The BCA preferred stock provides a $1,000 per share liquidation
preference and annual cumulative cash dividends of $60.00 per share when and if
declared by BCA. The Bagcraft redeemable preferred stock remains outstanding as
of the date hereof. As of May 30, 1996, dividends in the amount of $ 560,000 had
cumulated thereon.
Settlement of the Bank of America Illinois Debt
As of February 26, 1996, ARTRA was indebted to B of A in the sum of
$14,563,639.59 including accrued interest and fees (the "Prior Indebtedness").
As of February 26, 1996, Peter R. Harvey, an officer and director of ARTRA, was
indebted to B of A in the sum of $7,496,830 including accrued interest (the
"Prior Harvey Indebtedness"), (the Prior Indebtedness and the Prior Harvey
Indebtedness are collectively referred to as the "Debt", or "Prior Notes").
On February 26, 1996, for an aggregate purchase price of $5,150,000
(the "Purchase Price") Arabella, S.A. ("Arabella") purchased from B of A (the
"Debt Purchase") all of B of A's interest in the Debt except that B of A
- 57 -
<PAGE>
retained the rights to $3 million of the Prior Harvey Indebtedness. B of A then
entered into a Participation Agreement with ARTRA pursuant to which B of A
transferred to ARTRA the right to receive $2.15 million of the retained $3
million indebtedness. The $3 million indebtedness is secured by a mortgage on
certain real estate owned by Mr. Harvey. B of A's rights to the remaining
$850,000 of the indebtedness have priority over ARTRA's rights to the $2.15
million.
The Prior ARTRA Indebtedness and the Prior Harvey Indebtedness were
satisfied as follows.
1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA common stock (valued at $440,667 after a discount for restricted
marketability) and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).
2. BCA executed a note in favor of Arabella in the principal amount of
$1,900,000 with a maturity date of May 26, 1996 (the "New ARTRA Note,") and
Peter R. Harvey executed a note in favor of Arabella in the principal amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996. Arabella was entitled to up to an
additional 100,000 shares of ARTRA common stock and 25,000 shares of COMFORCE
stock depending on when ARTRA and Peter R. Harvey repaid the new debt. The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April). Based on the
date of the repayment, Arabella received an additional 50,000 shares of ARTRA
stock, which had a value of $220,000 after a discount for restricted
marketability. Arabella also received an additional $125,000 in lieu of the
additional 12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.
3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal consideration. The option was valued at $500,000. Per the
terms of the agreement, ARTRA repurchased the option for $550,000 in April,
1996.
ARTRA recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's pro rata share ($1,089,000) of the debt discharge funded by the
Company. In addition, ARTRA forgave $2,150,000 debt previously owed to it by
Peter Harvey, which offset ARTRA's right to receive $2,150,000 from Mr. Harvey
pursuant to the Participation Agreement discussed above.
In order to obtain access to the $2,650,000 paid to Arabella, the
following transactions occurred.
1. Bagcraft purchased from BCA all of the authorized shares of a newly
created BCA Class B Redeemable Preferred stock (the "BCA B Pref") consisting of
8,135 shares, a $1,000 per share liquidation preference and annual cumulative
cash dividends of $135 per share for $4,135,000 which was borrowed under
Bagcraft's line of credit.
2. BCA distributed the $4,135,000 to ARTRA. ARTRA paid $2,650,000 to
Arabella and used the remaining $1,485,000 to pay down other debt obligations
and for working capital.
3. Bagcraft then exchanged the BCA B Pref for 82.7% of the outstanding
shares of Bagcraft preferred stock (the "Bagcraft Preferred") which were owned
by Ozite Corporation, a wholly owned subsidiary of PureTec. Following this
exchange, Ozite held all of the outstanding BCA B Pref. Bagcraft then held 82.7%
of the outstanding shares of its Preferred which was canceled. There are 8,650
shares of Bagcraft Preferred remaining outstanding held by PST.
- 58 -
<PAGE>
Other Transactions
On March 9, 1990, Maynard K. Louis, a member of the Board of Directors,
made a loan to ARTRA in the principal amount of $500,000 bearing interest at the
rate of 10% per annum. This loan was repaid in 1992 through the issuance to Mr.
Louis of 68,198 shares of ARTRA's common stock. On April 2, 1992, Mr. Louis made
a loan to ARTRA in the principal amount of $100,000 bearing interest at the rate
of 9% per annum, which loan, due April 1, 1994, has been extended. On October 1,
1993, Mr. Louis made a short term loan in the principal amount of $75,000
bearing interest at the rate of 8% per annum to ARTRA's BCA Holdings Inc. and A
G Holding Corp. subsidiaries due October 22, 1993, which loan was repaid. As
consideration for making or agreeing to extend these loans, Mr. Louis received
the warrants to purchase ARTRA's common stock described in note 5 to the table
under "Principal Shareholders."
During 1993, The Research Center of Kabbalah ("RCK"), which holds
approximately 8% of ARTRA's outstanding Common Stock (including the stock
issuable upon the exercise of warrants) as of September 26, 1996, made certain
short-term loans to the Company of which $2,000,000, with interest at 10%, was
outstanding at December 31, 1993. As additional compensation, RCK received
warrants to purchase an aggregate of 86,250 ARTRA common shares at prices
ranging from $6.00 to $7.00 per share based upon the market of ARTRA's common
stock at the date of issuance. The warrants expire five years from the date of
issuance. In January 1994, Kabbalah made an additional $1,000,000 short-term
loan to the Company, also with interest at 10%. The proceeds of this loan were
used to pay down various ARTRA short-term loans and other debt obligations. In
December, 1995, RCK received 126,222 shares of ARTRA common in payment of past
due interest through October 31, 1995. In August 1996, RCK received a cash
payment of $240,000 representing past due interest through June, 1996.
In May, 1996, ARTRA borrowed $100,000 from Mr. Celano, a private
investor, evidenced by an unsecured short-term note, due August 7, 1996, and
renewed to January 6, 1997, bearing interest at 10%. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.
In August, 1996, ARTRA borrowed $500,000 from Mr. Conant, a private
investor, evidenced by an short-term note, due December 23, 1996, bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender received a warrant, expiring in 2001, to purchase 25,000
ARTRA common shares at a price of $5.00 per share. At the Company's annual
meeting of shareholders, held August 29, 1996, Mr. Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.
- 59 -
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information, as of September 26, 1996,
when 7,694,872 shares of Common Stock were issued and outstanding regarding the
shares of Common Stock held by the persons ("Selling Shareholders") offering
shares pursuant to this Prospectus. Included in certain of the shares owned and
offered by Selling Shareholders are shares issuable upon the exercise of
warrants, as described in the notes to the table.
In cases where the Selling Shareholder serves or has served within the past
three years as an officer, director or employee of the Company or any of its
subsidiaries, this relationship is noted. In most instances in which shares of
Common Stock issuable upon the exercise of Warrants are being registered, the
Selling Shareholder acquired the Warrant as additional consideration for
extending credit to the Company or in connection with another transaction. In
certain instances, shares of Common Stock of Selling Shareholders being
registered were acquired in exchange for debt securities (promissory notes) of
the Company previously held by the Selling Shareholders, or otherwise to pay,
compromise or discharge indebtedness (including interest) of the Company due to
the Selling Shareholder. Because the Selling Shareholders may offer all or some
part of the Common Stock that they hold pursuant to the offering contemplated by
this Prospectus, and because this offering is not being underwritten (on a firm
commitment or any other basis), no estimate can be given as to the amount of
Common Stock that will be held by Selling Shareholders upon termination of this
offering.
- 60 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert Abrams (22) 4,724 * 4,724
Donald Arends (22) 2,847 * 2,847
Donald Arends Pension Plan (3) 2,200 * 2,200
Baytree Associates, Inc. (15) 15,000 * 15,000
James F. Beedie (4) 5,000 * 5,000
James A. Belushi (4) 5,000 * 5,000
Morris Belzberg (4) 25,000 * 25,000
William Belzberg (4) 25,000 * 25,000
K. Reed Berkey (4) 2,500 * 2,500
Berkshire Capital/Partners Ltd. (4) 5,000 * 5,000
Julius Berman (24) 6,250 * 6,250
Evelyn Bishop, Trustee (5) 157,440 2.0% 157,440
Richard Blackmore (28) 17,500 * 17,500
Violet M. Blank Living Trust (15) 7,500 * 7,500
Blacksmith Books, Ltd. (22) 2,873 * 2,873
Barry W. Blank (15) 75,000 * 75,000
John Bramsen (4) 10,000 10,000
Fred Broling (22) 14,234 * 14,234
Robert A. Calabrese (27) 15,000 * 15,000
Thomas J. Carroll (34) 28,461 * 28,461
Edward A Celano (12) 16,327 * 16,327
Woodrow Chamberlain (4) 10,000 * 10,000
Cipka S.A. (6) 642,790 7.7% 642,790
Clinton Industries (7) 75,001 1.0% 75,001
</TABLE>
- 61 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marilyn Cohen (15) 3,750 * 3,750
Stanley Cohen (24) 6,250 * 6,250
Earle Combs (22) 4,724 * 4,724
Howard R. Conant (20) 120,000 1.6% 120,000
Leo Denslow (15) 9,000 * 9,000
Ronald Di Martino (15) 15,000 * 15,000
David J. Doerge Trust (34) 20,677 * 20,677
David J. Doerge Trust (4) 45,000 * 45,000
Richard A. Dolan (23) 33,263 * 33,263
Mark Dorian (4) 5,000 * 5,000
Stephen N. Engberg (4) 10,000 * 10,000
Kelly Erickson (15) 7,500 * 7,500
Paul Farmer IRA (4) 2,500 * 2,500
Leonard Feldman (4) 10,000 * 10,000
Barry M. Ferrigno & B. Allan P/S Plan (15) 7,500 * 7,500
Field Container Corp. (8) 150,943 1.9% 150,943
William F. Foster Jr. (32) 5,000 * 5,000
Rudolph Frank (22) 2,363 * 2,363
Paul H. Fricke (22) 2,873 * 2,873
William Gallagher (22) 4,724 * 4,724
Gibralt Holdings, Ltd. (4) 5,000 * 5,000
Howard Grafman (4) 5,000 * 5,000
Ilse W. Grafman (4) 5,000 * 5,000
James E. Grieger (22) 5,693 * 5,693
</TABLE>
- 62 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert S. Gruber (22) 141,104 1.8% 2,874
Morton J. Harris (22) 2,873 * 2,873
Bucky W.F. Fong (15) 3,750 * 3,750
Joseph Giamanco (15) 30,000 * 30,000
Myron and Donna Goldstein (15) 11,250 * 11,250
GHM, Inc. (15) 3,750 * 3,750
Clark Gunderson (30) 5,000 * 5,000
John Harvey (9) 523,796 6.6% 82,206
Peter R. Harvey (21) 440,243 5.7% 42,067
Kim Eliabeth Harvey (40) 25,000 * 25,000
Julie Harvey Valeriote (40) 25,000 * 25,000
Lori Ann Harvey (40) 25,000 * 25,000
Kim Eliabeth Harvey (40) 25,000 * 25,000
Norton Herrick (34) 41,333 * 41,333
Austin Iodice (10) 17,873 * 17,873
Dane Johnson, IRA (15) 3,750 * 3,750
Carol M. Jacobsohn (11) 8,250 * 8,250
Robert Johnson (22) 2,873 * 2,873
Robert Jones (31) 8,321 * 8,321
Catherine Joyce (22) 4,745 * 4,745
Karel Private Mangers Fund (24) 25,000 * 25,000
Karel Private Managers Fund - 25,000 * 25,000
Series TE (24)
Robert Kartheiser (22) 6,641 * 6,641
</TABLE>
- 63 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephen Kaufman (24) 6,250 * 6,250
Thomas Kigin (4) 2,500 * 2,500
Craig Kubacki (22) 4,724 * 4,724
David Kubacki (22) 4,724 * 4,724
Kenneth L. Kwiatt (22) 12,687 * 12,687
Kwiatt, Silverman & Ruben, Ltd. (38) 40,000 * 40,000
Michael Laundrie (12) 8,958 * 8,958
R. D. Levy (22) 5,364 * 5,364
Steven M. Levy (29) 12,500 * 12,500
Robert Lofblad (22) 16,154 * 16,154
Frank N. Magid (4) 2,500 * 2,500
Maynard K. Louis (13) 110,000 1.4% 110,000
MH Capital Partners, L.P. (15) 7,500 * 7,500
Richard McLean (22) 3,320 * 3,320
M. A. Berman Partners, L.P. (24) 25,000 * 25,000
M. A. Berman Trading (24) 12,500 * 12,500
David MacDonald (22) 4,726 * 4,726
Maser Sosinski & Assoc. P.A. (15) 7,500 * 7,500
Thomas L. Mason (22) 959 * 959
D. Michael Meyer (4) 10,000 * 10,000
John E. Mc Connnaughy (15) 75,000 1.0% 75,000
James McHugh (4) 5,000 * 5,000
James B. McGill (4) 5,000 * 5,000
Johanna B. McGill (4) 5,000 * 5,000
</TABLE>
- 64 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alfred Mendelson (22) 9,513 * 9,513
Ira Mendelson (22) 4,724 * 4,724
Mesirow Financial Inc., Custodian for 5,000 * 5,000
Thomas Philipsborn IRA (4)
Richard Meyer (22) 2,873 * 2,873
Jerry Michelson IRA (4) 3,750 * 3,750
Jerry Michelson (4) 1,250 * 1,250
Mid America Hospital Group Inc. (24) 12,500 * 12,500
William J. Mirch (4) 5,000 * 5,000
Dr. John H. Muehlstein IRA (4) 5,000 * 5,000
Jerry Pillard (22) 385 * 385
Pollack Family L.L.C. (15) 3,750 * 3,750
Janet M. Portelly (15) 6,000 * 6,000
Ravinia Investors LLC (4) 2,500 * 2,500
Charles Reeder (4) 20,000 * 20,000
Research Center of Kabbalah (14) 600,772 7.2% 600,772
William G. Reynolds, Jr. (4) 1,250 * 1,250
J.E. Rich (22) 14,239 * 14,239
Richard Richter, IRA (15) 22,500 * 22,500
Evan D. Ritchie Living Trust (4) 2,500 * 2,500
Robert Rittmaster (22) 3,321 * 3,321
Philip E. Ruben (22) 12,687 * 12,687
Barry Rymer (35) 113,481 1.5% 113,481
</TABLE>
- 65 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
B. Rymer Insurance Trust (22) 48,715 * 48,715
Lenore M. Schnick dtd 12/30/70 (4) 15,000 * 15,000
Harvey Schuster (33) 25,000 * 25,000
Fred Schwartz (24) 6,250 * 6,250
James Scott (4) 5,000 * 5,000
Martha T. Seelbach (4) 3,750 * 3,750
William Seelbach (4) 5,000 * 5,000
William G. Reynolds, Jr. (4) 1,250 * 1,250
Marshall Rodin (41) 18,184 * 18,184
Sherwood Securities Corp. (15) 15,000 * 15,000
Sigma Pairs (24) 87,500 1.1% 87,500
Michael Silverman (22) 12,687 * 12,687
Lloyd Singer (22) 4,724 * 4,724
Alfred Slatin (22) 3,257 * 3,257
Paul Smeets (4) 10,000 * 10,000
Eva Staley Residential Trust (4) 5,000 * 5,000
Henry M. Staley Trust u/a/d 11/13/73 (4) 7,500 * 7,500
Staley Family Agency Account (4) 20,000 * 20,000
Avery J. StoneTrust (4) 20,000 * 20,000
Josef Strahammer (16) 127,512 * 127,512
Shepard C. Swift Trust (4) 10,000 * 10,000
Dieter E.A. Tannenberg (39) 30,000 * 30,000
Michael Targoff (24) 125,000 1.6% 125,000
</TABLE>
- 66 -
<PAGE>
<TABLE>
<CAPTION>
Before the Offering
-------------------------------------------------
Number of Percent of Shares
Shares Total Shares Offered
Name of Beneficial Owner Beneficially Outstanding Hereby
Owned (1)(2) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emanuel Tarrson (36) 37,500 * 37,500
Ronald Tarrson (37) 27,500 * 27,500
Steven Tarrson (4) 10,000 * 10,000
Joann Timbanard (15) 3,750 * 3,750
John Tull (17) 13,122 * 13,122
James C. Tull (22) 2,873 * 2,873
Thomas Urich (22) 448 * 448
Kenneth D. Vander Weele (22) 2,873 * 2,873
Alexander Verde (18) 245,561 3.1% 245,561
Billy Walker Enterprises (15) 7,500 * 7,500
Martin Weinstein, IRA (15) 15,000 * 15,000
Ginette Weiss (22) 1,403 * 1,403
Roger Weissenberg (22) 1,406 * 1,406
Westminster Capital (34) 41,333 * 41,133
Thomas Whitney (4) 10,000 * 10,000
Roger D. and Gail L. Williams (15) 7,500 * 7,500
Diane Wilson (4) 1,250 * 1,250
D. R. Zaccone (19) 174,000 * 174,000
Marc L. Werner (25) 90,000 1.2% 90,000
Manufacturers Indemnity and Insurance
Co. of America (26) 5,000 * 5,000
------- --- -------
TOTAL 5,607,968 63.6% 4,629,972
<FN>
-------------------------------------
*Less than 1% of the total shares outstanding.
</FN>
</TABLE>
- 67 -
<PAGE>
(1) The ownership percentages are calculated based on the assumption
that all shares issuable to the Selling Shareholder upon the exercise of options
or warrants by such shareholder (but only such shareholder) have been issued.
(2) Unless otherwise indicated in the notes to this table, all shares
shown as beneficially owned by the named individual are owned of record by such
person.
(3) Consists of 2,200 shares of Common Stock issuable to the D.L.
Arends Pension Plan upon the exercise of a warrant at an exercise price of $8.00
per share, which expires May 5, 2001.
(4) Consists of shares of Common Stock issuable upon the exercise of a
warrant at an exercise price of $6.00 per share and expiring April 15, 1999.
These warrants were issued under the Company's 1996 Private Placement of 12%
Secured Promissory Notes.
(5) Consists of 111,657 shares of Common Stock owned of record by
Evelyn Bishop as trustee under the Bishop Living Trust dated 10/4/94 and 45,783
shares issuable to the trustee upon the exercise of the following warrants:
Number of Shares Exercise Price Per Share Expiration Date of Warrant
6,685 8.625 11-28-96
4,457 8.375 11-16-96
1,560 5.375 05-16-97
7,023 5.000 05-28-97
7,383 4.750 11-28-97
7,764 3.750 05-28-98
10,911 8.000 06-13-01
(6) Consists of 450,000 shares of Common Stock issuable upon conversion of 2,250
shares of ARTRA Series E Preferred Stock to be issued to Cipka S.A. ("Cipka")
and 192,790 shares of Common Stock owned of record by Cipka.
(7) Consists of 75,001 shares of Common Stock issuable to Clinton
Industries upon the exercise of a warrant at an exercise price of $5.00 per
share, which warrant expires November 10, 1997. Clinton Industries is a
partnership, the general partners of which are the controlling shareholders of
Kenny Construction Company, also a holder of shares of the Common Stock.
(8) Consists of 150,943 shares of Common Stock issuable to Field
Container Corp. upon the exercise of a warrant at an exercise price of $5.375
per share, which warrant expires May 15, 1997.
(9) The shares of Common Stock beneficially owned by Mr. Harvey consist
of 123,100 shares held directly by him, 1,705 shares held in his 401(k) plan,
5,746 shares held in his individual retirement account, 100,000 shares held by
Mr. Harvey's daughters, 75,000 shares issuable under an option which expires
December 19, 2000 at an exercise price of $3.65 per share, 1,000 shares issuable
- 68 -
<PAGE>
under an option which expires September 19, 2001 at an exercise price of $3.65
per share, 4,000 shares issuable under an option which expires January 8, 2003
at an exercise price of $3.75 per share and an aggregate of 72,245 shares
issuable under the following warrants issued as additional consideration for
short-term loans:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
4,700 $5.500 02-01-99
1,500 5.625 03-30-99
6,000 4.750 01-20-00
11,667 3.750 04-28-00
7,800 4.750 04-28-00
8,426 4.250 07-27-00
4,019 4.625 09-30-00
4,019 4.875 10-31-00
4,019 4.375 11-30-00
8,038 6.125 12-31-00
4,019 6.125 02-29-01
4,019 6.250 03-31-01
4,019 6.000 04-30-01
(10) Consists of 2,873 owned of record by Mr. Iodice and 30,000 shares
of Common Stock issuable to Mr. Iodice upon the exercise of the following
warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
3,000 5.375 09-30-09
4,500 5.375 10-07-98
7,500 5.375 10-14-98
(11) Consists of 38,000 shares of Common Stock owned of record by Ms.
Jacobsohn and 8,250 shares of the Common Stock issuable to Ms. Jacobsohn upon
the exercise of the following warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
5,500 $9.875 01-28-97
2,750 5.000 12-02-97
- 69 -
<PAGE>
(12) Consists of shares of Common Stock issuable upon conversion of
a $100,000 short-term note. Mr. Celano is a director of the Company.
(13) Consists of 110,000 shares of the Common Stock issuable to Mr.
Louis upon the exercise of the following warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
3,000 $7.000 04-02-97
15,000 5.625 09-29-97
15,000 4.500 04-01-98
15,000 5.125 10-01-98
1,500 5.375 10-01-98
2,250 5.375 10-08-98
3,750 5.375 10-15-98
2,500 6.000 02-16-99
15,000 5.375 04-01-99
15,000 5.125 10-01-99
22,000 8.000 06-13-01
Mr. Louis is a director of the Company.
(14) Consists of 514,522 shares of Common Stock owned of record by
Research Center of Kabbalah and 21,250 shares of Common Stock issuable to
Research Center of Kabbalah upon the exercise of a warrant at an exercise price
of $6.00 per share, which warrant expires October 29, 1998 and 65,000 shares of
Common Stock issuable upon the exercise of a warrant at an exercise price of
$7.00 per share which warrant expires December 31, 1998.
(15) Consists of shares of Common Stock of record issued under the
Company's December 1995, Private Placement of $2,500,000 of 12% convertible
subordinated promissory notes. 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.
(16) Consists of 20,812 shares of Common Stock issued to Mr. Strahammer
in lieu of interest on certain borrowings. These borrowings are evidenced by
25,750 shares of Common Stock owned of record by Mr. Strahammer, which shares
are subject to a put option requiring the Company to repurchase such shares (if
the shares are put to the Company) at a price of $26.36 per share. If at the
time Mr. Strahammer desires to sell any of the 25,750 shares subject to the put
option, the market price thereof is less than the put price, it is expected that
the Company will enter into an arrangement with Mr. Strahammer whereby he will
sell the shares in a regular way brokerage transaction and the Company will pay
to him an amount equal to the difference by which the put price of the shares
exceeds the selling price. Additionally, Mr. Strahammer has the right to convert
a note due him by ARTRA in the principal amount of $678,000 which is payable on
demand on December 31, 1998 into 106,702 shares of Common Stock plus the 25,750
shares of Common Stock subject to the put option.
- 70 -
<PAGE>
(17) Consists of 11,622 shares of Common Stock owned of record by Mr.
Tull and 1,500 shares of Common Stock issuable to Mr. Tull upon the exercise of
a warrant at an exercise price of $6.375 per share, which warrant expires
September 9, 1997.
(18) Consists of 49,153 shares of Common Stock owned of record by Mr.
Verde and 196,408 shares of Common Stock issuable to Mr. Verde upon the exercise
of the following warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
76,480 6.000 09-09-97
37,258 3.750 02-09-98
36,651 4.125 08-09-98
35,555 5.500 02-09-99
10,464 6.625 08-09-99
(19) Consists of 174,000 shares of the Common Stock issuable to Mr.
Zaccone upon the exercise of the following warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
10,000 $6.250 07-05-02
600 6.250 09-03-02
10,600 6.250 09-03-02
17,000 5.375 10-31-02
16,800 7.750 12-17-02
17,000 3.750 01-30-03
17,000 7.000 03-31-03
17,000 4.000 05-01-03
5,667 3.500 07-31-03
11,333 5.125 09-01-03
25,667 3.500 09-16-03
25,333 5.875 10-26-03
(20) Consists of 90,000 shares of Common Stock owned of record by Mr.
Conant, 25,000 shares of Common Stock issuable to Mr. Conant upon the exercise
of a warrant at an exercise price of $5.00 per share, which warrant expires
August 26, 2001 and 5,000 shares held by Mrs. Conant. Mr. Conant is a director
of the Company.
- 71 -
<PAGE>
(21) The shares of Common Stock beneficially owned by Mr. Harvey
consist of 375,138 shares held directly by him (of which 373,615 are Common
Stock and 1,523 are shares of Series A Preferred Stock), 23001 shares held as
trustee for the benefit of his nieces, 800 shares owned by his wife and
children, 634 shares held in his 401(k) plan, 7,193 shares held in his
individual retirement account, 20,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share and 15,000
shares issuable under an option which expires January 8, 2003 at an exercise
price of $3.75 per share.
(22) As part of the consideration for ARTRA's March 1990 acquisition of
Bagcraft, a subsidiary of Ozite Corporation ("Ozite") received 772,000 shares of
ARTRA common stock. In 1995, Ozite distributed certain of these shares of ARTRA
common stock to the listed owner of record in connection with a settlement of
certain Ozite liabilities.
(23) Consists of 33,263 shares of record owned by Mr. Dolan, of which
7,500 were in payment of the principal amount of a short-term loan, of which
7,246 were in payment of an ARTRA loan guarantee fee and which 18,517 were
distributed to Mr. Dolan by Ozite in connection with a settlement of certain
Ozite liabilities.
(24) Consists of shares of Common Stock of record sold to the owner in
a private placement, the proceeds of which were used to fund working capital
obligations.
(25) Consists of 45,000 shares of Common Stock issuable to Mr. Werner
upon the exercise of a warrant at an exercise price of $4.88 per share, which
warrant expires December 24, 1999 and 45,000 shares of Common Stock issuable to
Mr. Werner upon the exercise of a warrant at an exercise price of $4.125 per
share, which warrant expires August 16, 2000. These warrants were issued as
additional compensation for short-term loans.
(26) Consists of 5,000 shares of Common Stock issuable to Manufacturers
Indemnity and Insurance Co. of America upon the exercise of a warrant at an
exercise price of $6.00 per share, which warrant expires April 15, 1999. The
warrant was issued as additional compensation for a short-term loan.
(27) Consists of:
(a) 5,000 shares of Common Stock owned of record by Mr.Calabrese.
(b)10,000 shares of Common Stock issuable to Mr.Calabrese upon
the exercise of a warrant at an exercise price of $6.00 per
share, which warrant expires September 18, 2001. The warrant
was issued as additional compensation for a short-term loan.
(28) Consists of:
(a) 10,000 shares of Common Stock owned of record by Mr.
Blackmore.
(b) 7,500 shares of Common Stock issuable to Mr. Blackmore upon
the exercise of a warrant at an exercise price of $6.00 per
share, which warrant expires September 18, 2001. The warrant
was issued as additional compensation for a short-term loan.
(29) Consists of 12,500 shares of Common Stock issuable to Mr. Levy
upon the exercise of a warrant at an exercise price of $4.50 per share, which
warrant expires December 29, 2000. The warrant was issued as additional
compensation for a short-term loan.
(30) Consists of 5,000 shares of Common Stock issuable to Mr. Gunderson
upon the exercise of a warrant at an exercise price of $6.00 per share, which
warrant expires May 28, 2001. The warrant was issued as additional compensation
for a short-term loan.
(31) Consists of 3,321 shares of Common Stock owned of record by Mr.
Jones and 5,000 shares of Common Stock issuable to Mr. Jones upon the exercise
of a warrant at an exercise price of $6.75 per share, which warrant expires May
28, 2001.
- 72 -
<PAGE>
(32) Consists of 5,000 shares of Common Stock issuable to Mr. Foster
upon the exercise of a warrant at an exercise price of $6.00 per share, which
warrant expires May 28, 2001. The warrant was issued as additional compensation
for a short-term loan.
(33) Consists of 25,000 shares of Common Stock issuable to Mr.
Schuster upon the exercise of a warrant at an exercise price of $4.00 per share,
which warrant expires June 13, 2001.
(34) Consists of shares of record issued in payment of notes and
accrued interest thereon.
(35) Consists of shares of Common Stock of record issued as
consideration for guarantees of ARTRA bank borrowings.
(36) Consists of:
(a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
exercise of a warrant at an exercise price of $5.00 per
share, which warrant expires September 12, 2001. The warrant
was issued as additional compensation for a short-term loan.
(b) 25,000 shares of Common Stock issuable upon the exercise of a
warrant at an exercise price of $6.00 per share and expiring
April 15, 1999. These warrants were issued under the
Company's 1996 Private Placement of 12% Secured Promissory
Notes.
(37) Consists of:
(a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
exercise of a warrant at an exercise price of $5.00 per
share, which warrant expires September 12, 2001. The warrant
was issued as additional compensation for a short-term loan.
(b) 15,000 shares of Common Stock issuable upon the exercise of a
warrant at an exercise price of $6.00 per share and expiring
April 15, 1999. These warrants were issued under the
Company's 1996 Private Placement of 12% Secured Promissory
Notes.
(38) Consists of 40,000 shares of Common Stock owned of record by
Kwiatt, Silverman & Ruben, Ltd. issued in payment of profession fees.
(39) Consists of 30,000 shares of Common Stock owned of record by Mr.
Tannenberg.
(40) Consists of shares of Common Stock owned of record by the selling
shareholder. These 100,000 shares of the Company's Common Stock were loaned to
the Company by its president, Peter R. Harvey, in June 1996. In September 1996,
after the Company's shareholders approved an increase in the number of
authorized common shares, the Company repaid this loan. At Mr. Harvey's
direction, the 100,000 shares of the Company's Common Stock were issued to the
following individuals:
Kim Eliabeth Harvey 25,000 shares
Julie Harvey Valeriote 25,000 shares
Lori Ann Harvey 25,000 shares
Kim Eliabeth Harvey 25,000 shares
Kim Eliabeth Harvey, Julie Harvey Valeriote, Lori Ann Harvey and Kim Eliabeth
Harvey are the daughters of the Company's Chairman of the Board, John Harvey.
John Harvey and Peter Harvey are brothers.
(41) Consists of 6,084 shares of Common Stock issuable upon the
exercise of a warrant at an exercise price of $4.00 per share and 12,100 shares
of Common Stock issuable upon the warrant at an excercise price of $5.75 per
share. These warrants expire September 20, 2001.
- 73 -
<PAGE>
PLAN OF DISTRIBUTION
The manner in which the Common Stock covered by this Prospectus are to
be distributed is set forth on the cover page hereof. Any sales effected through
securities brokers or dealers will be on an "agency" basis, unless as a result
of a privately negotiated transaction a broker or dealer enters into an
agreement with a Selling Shareholder to purchase shares for its own account. At
the date of this Prospectus, none of the Selling Shareholders contemplate
entering into such a contractual relationship with a broker or dealer, although
one or more of them may decide to do so in the future.
To comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such states only through brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless they have
been registered or qualify for sale in such states or an exemption from
registration or qualification is available and is complied with. From time to
time, to the extent required by the rules of the Securities and Exchange
Commission, the Company will distribute Prospectus Supplements.
The Selling Shareholders and any broker-dealers who participate in a
sale of their shares of Common Stock may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them, and proceeds of any such sales as principal, may be deemed to be
underwriting discounts and commissions under the Securities Act.
All expenses of the registration of Common Stock offered hereby,
estimated to be approximately $225,000 will be borne by the Company. As and when
the Company is required to update this Prospectus, it may incur additional
expenses in excess of this estimated amount. Normal commission expenses and
brokerage fees, as well as any applicable transfer taxes, are payable
individually by the Selling Shareholders.
Since the Selling Shareholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and 10b-7,
in connection with transactions in the Common Stock during the effectiveness of
the Registration Statement of which this Prospectus is a part, the Company
advised the Selling Shareholders to consult competent securities counsel prior
to initiating any such transaction. The Company will notify each Selling
Shareholder of the Commission's rules and, as a condition to agreeing the
register the shares of a Selling Shareholder, will require that such Selling
Shareholder agree to comply with such rules.
The Company will not receive any proceeds from the sale of the Common
Shares offered hereby by the Selling Shareholders. However, insofar as the
holders of options or warrants to purchase shares of the Common Stock are
expected to exercise their warrants or options in order to sell the underlying
shares (which are registered hereby), the Company will receive the amount of the
exercise prices of any warrants or options so exercised. The Company cannot
predict when or if it will receive proceeds from the exercise of warrants or
options, or the amount of any such proceeds. The Company intends to use the
proceeds, if any, received from the exercise of warrants or options to retire or
reduce indebtedness, to pay certain expenses of the offering and for working
capital purposes. The offering is being conducted to satisfy certain contractual
obligations to holders of options, as well as to provide a vehicle for certain
of its officers, directors and advisors to exercise their options to purchase
the Company's stock (at exercise prices which are currently lower than the
market price of the Company's stock) and sell the stock acquired upon such
exercise. See "Selling Shareholders."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's By-laws provide that the Company will indemnify an
officer or director, and may indemnify any other employee or agent, in
connection with any pending or threatened suit or administrative proceeding
against
- 74 -
<PAGE>
any such person by reason of such person serving as a director, officer,
employee or agent of the Company, or, at the request of the Company, in such
capacity for another entity. However, no indemnification will be made if the act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. In addition, the By-laws provide
that the above indemnification provisions are not exclusive of any other rights
to indemnification any such person may have under any contract or vote of
shareholders or disinterested shareholders or as determined by a court. The
By-laws expressly provide that it is the Company's policy to permit
indemnification to the fullest extent permitted by law. The By-laws further
provide that the indemnification provisions will be deemed to be amended upon
any amendment of the BCL, which expands or enlarges the powers of corporations
to indemnify.
The BCL provides that a corporation will have the power to indemnify
any representative of a corporation, or of any other entity at the request of
the corporation, if such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
The BCL further provides that indemnification is mandatory where the
representative is "successful on the merits or otherwise" in defense of an
action or proceeding, and in addition, the BCL provides that the method of
indemnification provided by the act is not exclusive of rights under any by-law,
vote of shareholders or disinterested shareholders or otherwise, unless the act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
EXPERTS
The consolidated balance sheets of ARTRA GROUP Incorporated and
Subsidiaries as of December 28, 1995 and December 29, 1994, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 28, 1995 included
in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their report appearing herein which includes an
explanatory paragraph referring to an uncertainty concerning the Company's
abilitiy to continue as a going concern.
The above-referenced financial statements of ARTRA GROUP Incorporated
have been included in reliance upon the report of Coopers & Lybrand L.L.P. given
upon the authority of that firm as experts in accounting and auditing.
- 75 -
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities in any jurisdiction in which such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of the Company since the date hereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby will be
passed upon for the Company by Kwiatt, Silverman & Ruben, Ltd., Northfield,
Illinois. The law firm of Kwiatt, Silverman & Ruben, Ltd. own 40,000 shares of
Common Stock of the Company this represents less than one (1%) percent of the
total shares outstanding.
TABLE OF CONTENTS
Heading Page
Additional Information 2
Prospectus Summary 3
Risk Factors 7
Capitalization 14
Management's Discussion and Analysis 16
of Financial Condition and Results of
Operations
Business and Properties 30
Legal Proceedings 36
Market Price of the Company's 40
Common Stock
Description of the Company's 41
Securities
Management 45
Executive Compensation 47 ARTRA GROUP Incorporated
Principal Shareholders 51
Transactions with Management and 54 PROSPECTUS
Others
Selling Shareholders 60 November 26, 1996
Plan of Distribution 74
Indemnification of Officers 74
and Directors
Experts 75
Index to Financial Statements F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheet as of
September 26, 1996 (Unaudited)
Condensed Consolidated Statements of Operations
Nine Months Ended September 26, 1996 and
September 28, 1995 (Unaudited)
Condensed Consolidated Statement of Changes in
Shareholders' Equity (Deficit)
Nine Months Ended September 26, 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 26, 1996
and September 28, 1995 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Report of Independent Accountants
Consolidated Balance Sheets as of December 28, 1995
and December 29, 1994
Consolidated Statements of Operations
for each of the three fiscal years
in the period ended December 28, 1995
Consolidated Statements of Changes in
Shareholders' Equity (Deficit)
for each of the three fiscal years
in the period ended December 28, 1995
Consolidated Statements of Cash Flows
for each of the three fiscal years
in the period ended December 28, 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules:
I. Condensed Financial Information of Registrant
II. Valuation and Qualifying Accounts
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>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited in thousands)
September 26,
1996
--------
ASSETS
Current assets:
Cash and equivalents $ 99
Restricted cash and equivalents --
Receivables, less allowance for doubtful
accounts of $301 9,071
Inventories 15,211
Other 1,108
--------
Total current assets 25,489
--------
Property, plant and equipment 45,645
Less accumulated depreciation and amortization 19,795
--------
25,850
--------
Other assets:
Available -for-sale securities 31,728
Excess of cost over net assets acquired,
net of accumulated amortization of
$2,007 3,029
Other 35
--------
34,792
--------
$86,131
========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited in thousands)
September 26,
1996
--------
LIABILITIES
Current liabilities:
Notes payable, including amounts due to related
parties of $3,600 $15,518
Current maturities of long-term debt 2,407
Accounts payable 7,645
Accrued expenses 9,667
Income taxes 367
Liabilities of discontinued operations 764
-------
Total current liabilities 36,368
-------
Long-term debt 34,541
Other noncurrent liabilities 1,750
Commitments and contingencies
Redeemable common stock,
issued 98,734 shares 3,565
ARTRA redeemable preferred stock:
Series A, $1,000 par value,
6% cumulative payment-in-kind, including
accumulated dividends, net of unamortized
discount of $1,349; redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,750 shares 4,157
Series E, $1,000 par value, 10% cumulative,
liquidation preference equal to $1,000
or 200 shares of common stock per
share, plus accrued dividends;
convertible, at the holder's option into
200 shares of common stock per share 2,250
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; issued 8,650 shares 1,978
BCA Holdings preferred stock:
Series A, $1.00 par value, 6% cumulative,
including accumulated dividends;
liquidation preference of $1,000 per share;
10,000 shares authorized;
issued 3,675 shares 4,308
Series B payable to a related party,
$1.00 par value, 13.5% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
8,135 shares authorized and issued 8,818
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares 5,777
Additional paid-in capital 40,140
Unrealized appreciation of investments 34,960
Receivable from related party,
including accrued interest (5,861)
Accumulated deficit (86,568)
--------
(11,552)
Less treasury stock (7,628 shares), at cost 52
--------
(11,604)
--------
$86,131
========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
Nine Months Ended
----------------------
Sept 26, Sept 28,
1996 1995*
--------- --------
Net sales $ 90,162 $ 90,703
-------- --------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 71,710 76,871
Selling, general and administrative 10,967 15,972
Depreciation and amortization 2,954 3,306
-------- --------
85,631 96,149
-------- --------
Operating earnings (loss) 4,531 (5,446)
-------- --------
Other income (expense):
Interest expense (5,370) (6,392)
Realized gain on disposal
of available-for-sale securities 4,823 --
Other income (expense), net (205) 1
-------- --------
(752) (6,391)
-------- --------
Earnings (loss) from continuing operations
before income taxes and minority interest 3,779 (11,837)
Provision for income taxes (87) (35)
Minority interest (169) (671)
-------- --------
Earnings (loss) from continuing operations 3,523 (12,543)
Loss from discontinued operations -- (9,156)
-------- --------
Earnings (loss) before extraordinary credit 3,523 (21,699)
Extraordinary credit, net discharge of indebtedness 9,424 9,113
-------- --------
Net earnings (loss) 12,947 (12,586)
Dividends applicable to
redeemable preferred stock (463) (422)
Reduction of retained earnings
applicable to redeemable common stock (297) (246)
-------- --------
Earnings (loss) applicable to common shares $ 12,187 ($13,254)
======== ========
Earnings (loss) per share:
Continuing operations $ 0.32 ($ 1.96)
Discontinued operations -- (1.36)
-------- --------
Earnings (loss) before extraordinary credit 0.32 (3.32)
Extraordinary credit 1.23 1.35
-------- --------
Net earnings (loss) $ 1.55 ($ 1.97)
======== ========
Weighted average number of shares of common stock and
common stock equivalents outstanding 7,870 6,712
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- --------------------
* As reclassified for discontinued operations.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT 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 28, 1995 7,102,979 $5,540 $38,526 $ 21,047 ($4,318) ($98,755) 57,038 ($ 805) ($ 38,765)
Net earnings -- -- -- -- -- 12,947 -- -- 12,947
Common stock issued
to pay liabilities 125,012 94 362 -- -- -- (120,554) 818 1,274
Common stock as
additional consideration
for short-term borrowings 50,544 38 (398) -- -- -- (99,456) 1,021 661
Increase in receivable from
related party,
including accrued interest -- -- -- -- (1,543) -- -- -- (1,543)
Common stock loaned
by related party -- -- -- -- 587 -- 100,000 (587) --
Repay common stock
loaned by related party 100,000 75 512 -- (587) -- -- -- --
Increase in unrealized
appreciation of investments -- -- -- 13,913 -- -- -- -- 13,913
Exercise of stock options
and warrants 40,000 30 142 -- -- -- (16,900) 109 281
Common stock received
as consideration
for short-term note -- -- -- -- -- -- 87,500 (608) (608)
Reclassification of
redeemable common stock 185,231 -- 996 -- -- -- -- -- 996
Redeemable common
stock accretion -- -- -- -- -- (297) -- -- (297)
Redeemable preferred
stock dividends -- -- -- -- -- (463) -- -- (463)
--------- ------ ------- --------- ------- -------- --------- ------- ---------
Balance at September 26, 1996 7,603,766 $5,777 $40,140 $ 34,960 ($5,861) ($86,568) 7,628 ($ 52) $ (11,604)
========= ====== ======= ========= ======= ========= ========= ======== =========
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Nine Months Ended
-------------------------
September 26, September 28,
1996 1995
--------- ---------
Net cash flows used by operating activities, ($ 4,516) ($ 284)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (1,797) (1,892)
Retail fixtures -- (631)
Proceeds from collection of Welch notes 342 3,000
Proceeds from sale of COMFORCE common stock 3,717 --
Investment in COMFORCE Global -- (753)
Payment of liabilites with restricted cash -- 550
Decrease in unexpended plant construction funds 552 224
Other 91 --
--------- ---------
Net cash flows from investing activities 2,905 498
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term debt (577) 1,564
Proceeds from long-term borrowings 99,497 101,406
Reduction of long-term debt (99,327) (104,813)
Exercise of stock options and warrants 281 --
Redeemable common stock options exercised (510) (70)
Other (1) (289)
--------- ---------
Net cash flows used by financing activities (637) (2,202)
--------- ---------
Decrease in cash and cash equivalents (2,248) (1,988)
Cash and equivalents, beginning of period 2,347 2,070
--------- ---------
Cash and equivalents, end of period $ 99 $ 82
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 4,388 $ 4,793
Income taxes paid, net 8 18
Supplemental schedule of noncash
investing and financing activities:
ARTRA Series E redeemable preferred stock
issued for payment of short-term notes 2,250 --
BCA Holdings redeemable preferred stock
issued in exchange for Bagcraft
redeemable preferred stock 8,135 --
Issue common stock
to pay down current liabilities 1,274 208
Issue common stock as additional
consideration for short-term borrowings 661 --
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND FINANCIAL RESTRUCTURING
ARTRA GROUP Incorporated's ("ARTRA" or the "Company") condensed 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. In the opinion of the Company, the accompanying condensed
consolidated financial statements reflect all normal recurring adjustments
necessary to present fairly the financial position as of September 26, 1996, and
the results of operations and changes in cash flows for the nine month periods
ended September 26, 1996 and September 28, 1995. In recent years, 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 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
7 Notes Payable, and Note 8 Long Term Debt, for further discussion of the status
of credit arrangements and restrictions on the ability of the Company's
operating subsidiary to fund ARTRA corporate obligations. Due to its limited
ability to receive operating funds from its operating subsidiary, 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 majority owned subsidiary, COMFORCE Corporation ("COMFORCE",
formerly The Lori Corporation "Lori"), operated as a designer and distributor of
popular-priced fashion costume jewelry and accessories. In September 1995
COMFORCE adopted a plan to discontinue its jewelry business.
On October 17, 1995, COMFORCE acquired all of the capital stock of COMFORCE
Global Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD
Global. 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.
Effective July 4, 1995, COMFORCE 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 COMFORCE. After the issuance of
the COMFORCE common shares, plus the effects of the issuance of COMFORCE common
shares sold by private placements and other COMFORCE 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. At September 26, 1996 ARTRA's common stock
ownership interest in COMFORCE common stock was reduced to approximately 19%.
See Notes 2 and 5 for a further discussion of ARTRA's investment in COMFORCE.
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 February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey, resulting in a gain to ARTRA on the discharge of
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
this indebtedness of $9,424,000 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 in
conjunction with the issuance of BCA Holdings, Inc. ("BCA" the parent of
Bagcraft) preferred stock. See Notes 6, 7 and 10 for further discussions of
these transactions.
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 certain
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.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
The Company has adopted a 52/53 week fiscal year ending the last Thursday of
December.
2. 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. 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.
COMFORCE
In September, 1995, COMFORCE adopted a plan to discontinue its jewelry business
and recorded a provision of $1,000,000 for the estimated costs to complete the
disposal of its jewelry business.
Effective October 17, 1995, COMFORCE acquired all of the capital stock of
COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a
YIELD Global, for consideration of approximately $6.4 million, net of cash
acquired. This consideration consisted of cash to the seller of approximately
$5.1 million, fees of approximately $700,000, including a fee of $500,000 to a
related party, and 500,000 shares of COMFORCE common stock valued at $843,000
(at a price per share of $1.68) issued as consideration for various fees and
guarantees associated with the transaction. The 500,000 shares of COMFORCE
common stock consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing the purchase price to the seller, (ii) 100,000 shares issued to
ARTRA, then the majority stockholder of the Company, in consideration of its
guaranteeing the purchase price to the seller and agreeing to enter into the
Assumption Agreement, as discussed below, (iii) 150,000 issued to two unrelated
parties for advisory services in connection with the acquisition, and (iv)
150,000 shares issued to Peter R. Harvey, then a Vice President and director of
COMFORCE for guaranteeing the
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
payment of the $6.4 million purchase price to the seller. Additionally, in
conjunction with the Global acquisition, ARTRA entered into an Assumption
Agreement whereby it agreed to assume substantially all pre-existing Lori
liabilities and indemnify COMFORCE in the event any future liabilities arise
concerning pre-existing environmental matters and business related litigation.
Accordingly, at September 26, 1996, $764,000 of such pre-existing Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.
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.
Effective July 4, 1995, Lori's management agreed to issue up to a 35% common
stock interest in COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications and computer technical staffing business. COMFORCE
recognized a non-recurring charge of $3,425,000 related to this stock since
these stock awards were 100% vested when issued, and were neither conditioned
upon these individuals' service to the Company as employees nor the consummation
of the COMFORCE Global acquisition. Accordingly, this compensation charge was
fully recognized in 1995. The shares of COMFORCE common stock issued in
accordance with the above agreements were valued at $.93 per share. COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors, taking into account (i) that the Jewelry Business, which was
discontinued at the end of the second quarter of 1995, had a negligible value,
and (ii) the value of COMFORCE was principally related to the potential effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE common stock. COMFORCE's management believes this value of
$.93 per share to be a fair and appropriate value based upon COMFORCE's
financial condition as of the date COMFORCE became obligated to issue these
shares. After the issuance of the COMFORCE common shares, plus the effects of
other transactions, ARTRA's common stock ownership interest in COMFORCE common
stock was reduced to approximately 19% and 25% at September 26, 1996 and
December 28, 1995, respectively. Accordingly, in October 1995, the accounts of
COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's
consolidated financial statements. See Note 5 for a further discussion of the
accounting treatment of ARTRA's investment in COMFORCE.
A disagreement has arisen between ARTRA and COMFORCE regarding interpretations
of the July 4, 1995 agreement, as amended, to issue up to a 35% common stock
interest in COMFORCE to certain individuals to manage COMFORCE's entry into the
telecommunications and computer technical staffing business; the Global
acquisition agreement; and the Assumption Agreement whereby ARTRA agreed to
assume substantially all pre-existing Lori liabilities and indemnify COMFORCE in
the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. The disputed issues include (i) the
number of COMFORCE common shares issued to the above individuals to manage
COMFORCE's entry into the telecommunications and computer technical staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's Annual Meeting of Stockholders held on October 28, 1996;
(ii) the number of COMFORCE common stock options issued to COMFORCE's current
management group subsequent to the Global acquisition; (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in consideration of its guaranteeing the
Global purchase price to the seller and agreeing to assume certain pre-existing
Lori liabilities; (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain stock options granted in 1993 under provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above disagreements, ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation value of
$19.5 million for 100,000 COMFORCE common shares, as required by the Assumption
Agreement, and will not consummate the exchange until all of the disputes are
resolved. ARTRA's financial statements have reflected the exchange of the Lori
Series C preferred stock for 100,000 COMFORCE common shares in accordance with
the Assumption Agreement. Based on the above disputed matters, ARTRA is
withholding delivery of the Lori Series C preferred shares and is seeking
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
appropriate resolution in conformity with the Assumption Agreement and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA will seek to rescind this aspect of the agreement. Additionally,
ARTRA's financial statements have reflected the issuance of 100,000 COMFORCE
common shares to ARTRA as compensation for guaranteeing the Global purchase
price to the seller and entering into the Assumption Agreement. COMFORCE is
withholding issuance of such shares to ARTRA, in violation of the Global
acquisition agreement. ARTRA has aggressively attempted to resolve its dispute
with COMFORCE without success and at this point, ARTRA can not predict the
ultimate resolution, nor whether such dispute can be resolved without
litigation.
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Arcar and COMFORCE's discontinued
jewelry business prior to the deconsolidation of COMFORCE and its majority-owned
subsidiaries effective October 1995. The operating results (in thousands) of
Bagcraft's discontinued Arcar subsidiary and COMFORCE's discontinued jewelry
business and the provision for loss on disposal of COMFORCE's discontinued
jewelry business for the nine months ended September 28, 1995 consist
of:
Net sales $ 16,932
========
Loss from discontinued operations
before income taxes $ (8,151)
(Provision) credit for income taxes (5)
--------
Loss from operations $ (8,156)
========
Provision for disposal of COMFORCE's
jewelry business (1,000)
Provision for income taxes --
--------
Provision for disposal of business (1,000)
--------
Loss from discontinued operations $ (9,156)
==========
3. CONCENTRATION OF RISK
The accounts receivable of the Company's Bagcraft subsidiary at September 26,
1996 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 September 26, 1996, Bagcraft had 10 customers with
accounts receivable balances that aggregated approximately 29% of the Company's
total trade accounts receivable. In fiscal year 1995 no single customer
accounted for 10% or more of Bagcraft's sales.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. INVENTORIES
Inventories at September 26, 1996, (in thousands) consist of:
Raw materials and supplies $ 5,762
Work in process 302
Finished goods 9,147
-------
$15,211
=======
5. INVESTMENT IN COMFORCE CORPORATION
In prior years and until October 1995, COMFORCE was a majority-owned subsidiary
of ARTRA and, accordingly, the accounts of COMFORCE and its majority-owned
subsidiaries were included in the consolidated financial statements of ARTRA. As
discussed in Note 2, primarily 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% 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 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 and Peter R.
Harvey resigned as a vice president 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 no longer
was able to exercise any 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
at December 28, 1995 would have been reduced to less than 20%. In the opinion of
the Company, effective December 28, 1995, ARTRA's investment in COMFORCE ceased
to conform to the requirements of APB Opinion No. 18. Accordingly, ARTRA adopted
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
Under this statement, at December 28, 1995, ARTRA's investment in COMFORCE was
reclassified as available for sale and was 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 January 1996, the Company's Board of Directors approved the sale of 200,000
of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable resale waiting period under Securities Act
Rule 144. Additionally, the noteholders have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their notes. Based upon
the preceding factors, the Company has concluded that, for reporting purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE common shares have been removed from the Company's portfolio of
"Available-for-sale securities" and are classified in the Company's condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate value of $400,000, based upon the value of proceeds to be
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
received upon future exercise of the options. The disposition of these 200,000
COMFORCE common shares will result in a gain which has been deferred and will
not be recognized in the Company's financial statements until the options to
purchase these 200,000 COMFORCE common shares are exercised. As of September 26,
1996, no options to acquire any of the 200,000 COMFORCE common shares had been
exercised.
As additional consideration for a February 1996 short-term loan (see Notes 6 and
7) a lender received 25,000 COMFORCE common shares held by ARTRA. In March 1996,
ARTRA sold 93,000 COMFORCE shares in the market, with the proceeds of
approximately $630,000 used for working capital. The above mentioned 118,000
COMFORCE common shares were classified in the Company's consolidated balance
sheet at December 28, 1995 in current assets as "Available-for-sale securities."
The disposition of these 118,000 COMFORCE shares during the quarter ended March
28, 1996 resulted in realized gains of $1,043,000, with cost determined by
average cost.
In June 1996, ARTRA sold 100,000 COMFORCE shares in the market, with the
proceeds of approximately $3,100,000 used principally to pay down debt
obligations. As additional consideration for two short-term loans, in April 1996
the lenders received 20,000 COMFORCE common shares held by ARTRA. The
disposition of these 120,000 COMFORCE shares during the quarter ended June 27,
1996 resulted in additional realized gains of $3,452,000, with cost determined
by average cost.
As additional consideration for a short-term loan, in September 1996 the lender
received 50,000 COMFORCE common shares held by ARTRA resulting in an additional
realized gain of $328,000, with cost determined by average cost.
At September 26, 1996 ARTRA's remaining investment in COMFORCE (1,813,036
shares, currently a common stock ownership interest of approximately 19%) was
classified in the Company's condensed consolidated balance sheet in noncurrent
assets as "Available-for-sale securities." At September 26, 1996 the gross
unrealized gain relating to ARTRA's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $34,960,000.
As discussed in Note 7, at September 26, 1996, 1,175,000 shares of COMFORCE
common stock owned by the Company's Fill-Mor subsidiary have been pledged as
collateral for various short-term borrowings.
6. EXTRAORDINARY GAINS
ARTRA Debt Restructuring
In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. ARTRA recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock along with proceeds received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. See Notes 7
and 10 for further discussions of these transactions. As additional compensation
for its loan and for participating in the above discharge of indebtedness the
unaffiliated company received 150,000 shares of ARTRA common stock (with a then
fair market value of $661,000 after a discount for restricted marketability) and
25,000 shares of COMFORCE common stock held by ARTRA (with a then fair market
value of $200,000).
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The extraordinary gain resulting from the discharge of bank debt is calculated
(in thousands) as follows:
Amounts due the bank:
ARTRA notes $ 12,063
Accrued interest 2,656
--------
14,719
Cash payment to the bank $ 5,050
Less amount applicable to
Peter R. Harvey indebtedness (1,089)
--------
(3,961)
--------
Bank debt discharged 10,758
Less fair market value of ARTRA
common stock issued as consideration
for a loan used in par to fund
the discharge of bank debt (661)
Less fair market value of COMFORCE
common stock issued as consideration
for a loan used in par to fund
the discharge of bank debt (200)
Other fees and expenses (473)
--------
Net extraordinary gain $ 9,424
========
COMFORCE Debt Restructuring
Per terms of a debt settlement agreement, borrowings due a bank under the loan
agreements of COMFORCE and its discontinued jewelry business 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 COMFORCE's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). As a result of the reduction of amounts due
the bank, in December 1994, the Company recognized an extraordinary gain of
$8,965,000 ($1.57 per share) in December 1994.
On March 31, 1995, the bank was paid $750,000 and the remaining indebtedness of
COMFORCE 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.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
7. NOTES PAYABLE
Notes payable at September 26, 1996, (in thousands) consist of:
ARTRA bank notes payable,
at various interest rates $ 2,500
ARTRA 12% secured promissory notes 7,575
ARTRA 12% convertible
subordinated promissory notes -
Amounts due to related parties,
interest principally at 10% 3,600
Other, interest from 10% to 20% 1,843
--------
$ 15,518
========
Bank Notes Payable
On August 15, 1996, ARTRA and its 100% owned Fill-Mor subsidiary entered into a
$2,500,000 term loan agreement with a bank. The loan, payable by Fill-Mor in 90
days, bears interest, payable monthly, at the bank's reference rate (8.25% at
September 26, 1996). Fill-Mor has an option to extend the loan for an additional
90 days. The loan, guaranteed by ARTRA, is collateralized by 800,000 shares of
COMFORCE common stock owned by Fill-Mor. If an Event of Default (as defined in
the loan agreement) shall occur, the bank has the right to sell all of its
rights and interest in the loan to an unaffiliated individual for an aggregate
price equal to the outstanding principal balance of the loan plus accrued
interest. The proceeds of the loan were used for working capital.
At December 28, 1995, $12,063,000 of ARTRA notes, plus accrued interest and
fees, 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, a secondary position on
the assets of BCA and 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 Acquisition Corporation ("Emerald") for breaches of fiduciary duty by
the directors of Emerald, induced by Salomon and Kelly, in connection with the
reorganization of Envirodyne Industries, Inc. ("Envirodyne") as discussed in
Note 13. Additionally, the bank notes were collateralized by a $5,500,000
personal guaranty of a private investor. As additional compensation, the private
investor received 1,833 shares of ARTRA common stock for each month the guaranty
was outstanding. Among other things, the bank notes prohibited the payment of
cash dividends by ARTRA.
In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note, and ARTRA discharged $2,150,000 of Mr. Harvey's
prior advances. ARTRA recognized a gain on the discharge of this indebtedness of
$9,424,000 ($1.23 per share) in the first quarter of 1996 and recorded a
receivable for Mr. Harvey's prorata share ($1,089,000) of the debt discharge
funded by the Company. The cash
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock (see Note 10) along with proceeds received from a
short-term loan agreement with an unaffiliated company. As collateral for this
advance and other previous advances (see Note 14), Mr. Harvey provided ARTRA a
$2,150,000 security interest in certain real estate, subordinated to the bank's
$850,000 security interest in this real estate.
Secured Promissory Notes
In April 1996, ARTRA commenced a private placement of $7,575,000 of 12% secured
promissory notes due April 15, 1997. As additional consideration the noteholders
received warrants to purchase an aggregate of 413,750 ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. These promissory
notes are collateralized by ARTRA's interest in all of the common stock of BCA
(the parent of Bagcraft). The proceeds from the private placement, completed in
July 1996, were used principally to pay down other debt obligations.
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. The proceeds from the private placement, held in
escrow at December 28, 1995, were used to pay down other debt obligations in
January, 1996. In March and April 1996 the notes were repaid, principally with
proceeds from the private placement of the secured promissory notes discussed
above.
Amounts Due To Related Parties
At September 26, 1996 and December 28, 1995, ARTRA had outstanding borrowings of
$3,000,000 from an unaffiliated company currently holding approximately 7% of
ARTRA's outstanding common stock. The loans are evidenced by unsecured
short-term notes bearing interest at 10%. As additional compensation for the
above loans, the lender received five year warrants expiring in 1998 to purchase
an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00
per share. In December 1995 the unaffiliated company received 126,222 shares of
ARTRA common in payment of past due interest through October 31, 1995.
In May, 1996, ARTRA borrowed $100,000 from a private investor, evidenced by an
unsecured short-term note, due August 7, 1996 renewed to January 6, 1997,
bearing interest at 10%. At the Company's annual meeting of shareholders, held
August 29, 1996, the private investor was elected to the Company's board of
directors. At September 26, 1996, the $100,000 loan was outstanding.
In August, 1996, ARTRA borrowed $500,000 from a private investor, evidenced by a
short-term note, due December 23, 1996, bearing interest at 10%. The loan is
collateralized by 125,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation for the loan, the lender
received a warrant, expiring in 2001, to purchase 25,000 ARTRA common shares at
a price of $5.00 per share. At the Company's annual meeting of shareholders,
held August 29, 1996, the private investor was elected to the Company's board of
directors. At September 26, 1996, the $500,000 loan was outstanding.
At December 28, 1995, the Company had outstanding borrowings from its Chairman,
John Harvey, of $175,000. John Harvey's borrowings were evidenced by unsecured
short-term notes bearing interest at 12%. As additional compensation
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
the loans provided for the issuance of warrants to purchase ARTRA common shares,
the number of which was determined by the number of days the loans were
outstanding. The warrants expire five years from the date of issuance. John
Harvey received warrants to purchase an aggregate of 66,045 shares of ARTRA
common stock at prices ranging from $3.75 to $6.125 per share as additional
compensation for his loans to ARTRA. In May 1996, ARTRA repaid all borrowings
from John Harvey.
On March 31, 1994, ARTRA entered into a series of agreements with its bank
lender and with a private corporation that had guaranteed $2,500,000 of the
ARTRA bank notes discharged in February 1996 as noted above. A major shareholder
and executive officer of the private corporation is an ARTRA director. Per terms
of the agreements, the private corporation purchased $2,500,000 of ARTRA notes
from ARTRA's bank 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.
As additional consideration, the private corporation 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
($20.063 per share at September 26, 1996). The $2,500,000 note payable to the
private corporation was reflected in the above table at December 28, 1995 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.
Other
In conjunction with the discharge of bank debt discussed above, the Company
entered into a $1,900,000 short-term loan agreement, due May 26, 1996, with an
unaffiliated company. The loan, with interest at 12%, was collateralized by,
among other things, the common stock of ARTRA's BCA subsidiary. As additional
compensation for its loan and for participating in the above discharge of
indebtedness the unaffiliated company received 150,000 shares of ARTRA common
stock (with a then fair market value of $661,000 after a discount for restricted
marketability) and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000). Additionally, for consideration of
$500,000, the lender purchased an option to acquire up to 40% of the common
stock of Bagcraft for nominal consideration. The borrowings under this
short-term loan agreement were repaid in April, 1996 and, per terms of the loan
agreement, ARTRA repurchased the option for a cash payment of $550,000.
In October 1996 the Company and its Fill-Mor subsidiary entered into a margin
loan agreement with a financial institution under which provided for borrowings
of $600,000, with interest approximating the prime rate. Borrowings under the
loan agreement are collateralized by 125,000 shares of COMFORCE common stock
owned by the Company's Fill-Mor subsidiary.
At September 26, 1996 and December 28, 1995, other notes payable includes
short-term borrowings of $1,843,000 and $5,062,000, respectively, payable under
various short-term loan agreements with unaffiliated companies and private
investors. These loans bear interest at varying rates from 10% to 20%. Certain
of these loans, aggregating $500,000 in outstanding, are collateralized by
125,000 shares of COMFORCE common stock owned by the Company's Fill-Mor
subsidiary.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
8. LONG-TERM DEBT
Long-term debt at September 26, 1996, (in thousands) consists of:
Bagcraft Credit Agreement:
Term loan A,
interest at the prime rate plus 1.75% $ 12,000
Term loan B,
interest at the prime rate plus 3% 2,800
Revolving credit loan,
interest at the prime rate plus 1.5% 12,311
Unamortized discount (847)
Bagcraft
City of Baxter Springs,
Kansas loan agreements,
interest at varying rates 10,684
--------
36,948
Current scheduled maturities (2,407)
--------
$ 34,541
========
Bagcraft
Bagcraft's Credit Agreement that provides for a revolving credit loan and two
separate term loans. The term loans are separate 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. At September 26, 1996,
interest rates on Term Loan A and Term Loan B were 10 % and 11.25% 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
September 26, 1996, approximately $1,900,000 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 September 26, 1996 the interest rate on the revolving credit loan
was 9.75%.
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, in conjunction
with a preferred stock exchange agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's 13.5% cumulative redeemable preferred
stock, the lender consented to an advance to Bagcraft of $4,135,000 under the
revolving credit loan to be transferred to ARTRA as a dividend (see Note 10).
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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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. At September 26, 1996 Bagcraft was in compliance with
the provisions of its Credit Agreement.
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 September 26, 1996, Bagcraft had outstanding
borrowings of $5,600,000 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 September 26, 1996, Bagcraft had outstanding borrowings of
$4,850,000 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 September 26, 1996, Bagcraft had
outstanding borrowings of $234,000 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 was reflected in the
condensed consolidated balance sheet in current assets as restricted cash and
equivalents. These funds, invested in interest bearing cash equivalents and
restricted for expenditures associated with the Baxter Springs, Kansas project
were expended during the first quarter of 1996.
9. 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.
At September 26, 1996 and December 28, 1995 options are outstanding that, if
exercised, would require ARTRA to
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
repurchase 98,734 and 283,965 shares of its common stock for an aggregate amount
of $3,565,000 and $4,774,000, respectively. In September 1996, the Company
settled an obligation that would have required ARTRA to repurchase 66,113 common
shares for a total of $897,000. The option holder received cash payments of
$510,000 and retained the 66,113 ARTRA common shares in settlement of all
obligations due under the option agreement. Additionally, during 1996, the
holder of 100,000 ARTRA common shares with an option that would have required
the Company to repurchase these shares for $500,000 sold these shares in a
private transaction. Accordingly, these 166,113 shares of ARTRA common stock
were removed from redeemable common stock and reclassified to shareholders'
equity.
10. REDEEMABLE PREFERRED STOCK
ARTRA
Effective September 26, 1996, in payment of principal and interest due on ARTRA
notes, the noteholder received 2,250 shares of ARTRA Series E redeemable
preferred stock ($1,000 par value, 10% cumulative, liquidation preference equal
to $1,000 or 200 shares of common stock per share, plus accrued dividends). Each
share of the Series E redeemable preferred stock is convertible, at the holder's
option, into 200 shares of ARTRA common 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 $1,756,000 were accrued at
September 26, 1996.
Bagcraft/BCA Holdings
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. Accumulated dividends of $633,000 were accrued
at September 26, 1996.
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 condensed 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 were accrued at December 28, 1995. After giving effect to the
preferred stock exchange discussed below, 8,650 shares of Bagcraft redeemable
preferred stock with accumulated dividends of $1,113,000 were outstanding at
September 26, 1996.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Effective February 15, 1996, BCA, Bagcraft and Ozite entered into an agreement
to exchange certain preferred stock between the Companies. Per terms of the
exchange agreement BCA issued 8,135 shares of BCA Series B preferred stock
(13.5% cumulative, redeemable preferred stock with a liquidation preference
equal to $1,000 per share, or a total carrying value of $8,135,000) to Ozite in
exchange for 41,350 shares of Bagcraft redeemable preferred stock (with a
liquidation preference equal to $100 per share plus accumulated dividends of
$4,838,000, or a total carrying value of $8,973,000). The preferred stock
exchange resulted in a gain of $838,000 which was reflected in the Company's
condensed consolidated statement of operations as minority interest.
The BCA Series B preferred stock is redeemable on June 1, 1997. Accumulated
dividends of $683,000 were accrued at September 26, 1996.
In conjunction with the preferred stock exchange agreement, Bagcraft's lender
consented to advance of $4,135,000 under Bagcraft's revolving credit to be
transferred to ARTRA as a dividend. ARTRA used the funds from this dividend plus
funds from a short-term loan agreement to fund a payment to its bank lender in
accordance with provisions of its debt discharge agreement as discussed in Notes
6 and 7.
11. INCOME TAXES
The 1996 and 1995 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 and from the Company's 1996
earnings from continuing operations due to the utilization of tax loss
carryforwards.
At September 26, 1996, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $33,000,000 available to be applied against
future taxable income, if any. ARTRA's tax loss carryforwards of approximately
$22,000,000 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
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.
12. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss), less
dividends applicable to redeemable preferred stock 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
are not presented since the result is equivalent to primary earnings per share.
13. LITIGATION
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At September 26, 1996, the Company had
accrued $1,900,000 for business-related litigation and environmental
liabilities. While these litigation and environmental matters involve wide
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 November 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 relating to the acquisition of
Envirodyne in 1989. Envirodyne subsequently filed a Chapter 11 bankruptcy which
provided ARTRA with no value in Envirodyne's parent's stock. 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.
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 cash at closing, $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.
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
June 1996 the note was paid in accordance with terms of the settlement agreement
at its present value and ARTRA received proceeds of $342,000.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 condensed consolidated financial statements at September 26, 1996.
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 EPA that it is a potentially responsible party
for the disposal of hazardous substances at the Ninth Avenue site in Gary,
Indiana. This site is listed on the EPA's National Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site. This Group subsequently sued numerous third
party defendants, including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary evidence, and
no documentary evidence, linking Bagcraft to this site, and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised, that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is probable that the Company will have any liability for the costs of the
clean-up of this site. The Company intends to vigorously defend itself in this
case.
Bagcraft is presently undertaking a soil remediation project for
solvent-contaminated soil at its Chicago manufacturing facility. The
environmental firm responsible for implementing the remediation has recommended
that a soil vapor extraction process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation costs will not exceed this
estimate, in the opinion of management, no material additional costs are
anticipated.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
14. RELATED PARTY TRANSACTIONS
At September 26, 1996, advances to Peter R. Harvey, ARTRA's president,
classified in the condensed consolidated balance sheet as a reduction of common
shareholders' equity, (in thousands) consist of:
Total advances, including accrued interest $ 7,232
Less interest for the period
January 1, 1993 to date,
accrued and fully reserved (1,371)
--------
Net advances $ 5,861
========
ARTRA has total advances due from its president, Peter R. Harvey, of which
$7,232,000, including accrued interest, remained outstanding at September 26,
1996. The advances bear interest at the prime rate plus 2% (10.25% at September
26). This receivable from Peter R. Harvey has been classified as a reduction of
common shareholders' equity. See Note 6 for an additional 1996 advance for Mr.
Harvey's prorata share of debt discharged by a bank funded by ARTRA. Per terms
of the debt discharge agreement, as partial consideration, the bank also
received Mr. Harvey's $3,000,000 note payable to the bank. The bank assigned
ARTRA a $2,150,000 interest in the Mr. Harvey's note, subordinated to the bank's
$850,000 interest in Mr. Harvey's note, and ARTRA discharged $2,150,000 of Mr.
Harvey's prior advances.
In June 1996, Peter R. Harvey loaned the Company 100,000 shares of ARTRA common
stock with (a then fair market value of $587,000). The Company principally
issued these common shares to certain lenders as additional consideration for
short-term loans. In September 1996, after the Company's shareholders approved
an increase in the number of authorized common shares, the Company repaid this
loan. At Peter R. Harvey's direction, the 100,000 shares of the Company's common
stock were issued in blocks of 25,000 shares to the four daughters of the
Company's Chairman of the Board, John Harvey. John Harvey and Peter R. Harvey
are brothers.
In May 1991, ARTRA's Fill-Mor subsidiary made advances to Peter R. Harvey. The
advances, made out of a portion of the proceeds of a short-term bank loan,
provided for interest at the prime rate plus 2%. The amount of these advances at
March 30, 1995 was $1,540,000 (including $398,000 of accrued interest). 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 the 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 nine months ended September 26, 1996 and
September 28, 1995 totaled $320,000 and $325,000, 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 and 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. Additionally, since
December 31, 1986, Peter R. Harvey has guaranteed approximately $40,000,000 of
ARTRA obligations to private and institutional lenders (John Harvey also was a
co-guarantor of a $26,700,000 loan included in that total with Peter R. Harvey)
and has also hypothecated personal assets as security for certain ARTRA
obligations.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 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 Pure Tech International,
Inc., a publicly traded corporation. Per terms of a February discharge of bank
indebtedness (see Note 6), ARTRA received additional collateral from Mr. Harvey
consisting of a $2,150,000 security interest in certain real estate,
subordinated to the bank's $850,000 security interest in this real estate.
In conjunction with Lori's October 1995 acquisition of Global (see Note 2),
ARTRA agreed to assume substantially all pre-existing Lori liabilities and
indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. Accordingly,
at September 26, 1996 and December 28, 1995, respectively, $764,000 and
$4,500,000 of such pre-existing Lori liabilities were classified in ARTRA's
condensed consolidated balance at as current liabilities of discontinued
operations.
For a discussion of certain other related party debt obligations see Note 7.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois
We have audited the consolidated balance sheets of ARTRA GROUP Incorporated and
Subsidiaries as of December 28, 1995 and December 29, 1994, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 28, 1995. We also
have audited the financial statement schedules listed in the index of this Form
S-1. 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
November 26, 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
========= ========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
_______________________________________________
* 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)
========= ====== ======== ======= ======== ========= ======= ====== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<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)
--------- ---------- --------
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<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
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<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 Notes 3 and 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 fees) and certain obligations of Mr.
Harvey. 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, COMFORCE acquired all of the capital stock of
COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a
YIELD Global, for consideration of approximately $6.4 million, net of cash
acquired. This consideration consisted of cash to the seller of approximately
$5.1 million, fees of approximately $700,000, including a fee of $500,000 to a
related party, and 500,000 shares of COMFORCE Common Stock valued at $843,000
(at a price per share of $1.68) issued as consideration for various fees and
guarantees associated with the transaction. The 500,000 shares of COMFORCE
Common Stock consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing the purchase price to the seller, (ii) 100,000 shares issued to
ARTRA, then the majority stockholder of the Company, in consideration of its
guaranteeing the purchase price to the seller and agreeing to enter into the
Assumption Agreement, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the acquisition, and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller. The shares issued
to Peter R. Harvey and ARTRA are subject to ratification by COMFORCE's
stockholders. Such shares have the same rights and privileges as other common
stock shareholders. While the shareholders of these new shares will vote on this
issue, the vote is a ratification of the transaction. Failure to ratify this
transaction would have no impact on the outcome of the transaction as
ratification is being performed to meet American Stock Exchange listing
requirements. These transactions have been approved by COMFORCE's current
management personnel and ARTRA, which together own a majority of the outstanding
shares of COMFORCE's Common Stock and, therefore, such ratification is expected.
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 agreed to assume substantially
all 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's management agreed to issue up to a 35% common
stock interest in the COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications and computer technical staffing business. COMFORCE
recognized a non-recurring charge of $3,425,000 related to this stock since
these stock awards were 100% vested when issued, and were neither conditioned
upon these individuals' service to the Company as employees nor the consumation
of the COMFORCE Global acquisition. Accordingly, this compensation charge was
fully recognized in 1995. The shares of COMFORCE common stock issued in
accordance with the above agreements were valued at $.93 per share. COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors, taking into account (i) that the Jewelry Business, which was
discontinued at the end of the second quarter of 1995, had a negligible value,
and (ii) the value of COMFORCE was principally related to the potential effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE common stock. COMFORCE's management believes this value of
$.93 per share to be a fair and appropriate value based upon COMFORCE's
financial condition as of the date COMFORCE became obligated to issue these
shares. 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.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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 January 1996, the Company's Board of Directors approved the sale of 200,000
of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable resale waiting period under Securities Act
Rule 144. Additionally, the noteholders have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their notes. Based upon
the preceding factors, the Company has concluded that, for reporting purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, in 1996,
these 200,000 COMFORCE common shares will be removed from the Company's
portfolio of "Available-for-sale securities" and will classified in the
Company's consolidated balance sheet as other current assets with an aggregate
value of $400,000, based upon the value of proceeds to be received upon future
exercise of the options. The disposition of these 200,000 COMFORCE common shares
will result in a gain which will not be recognized in the Company's financial
statements until the options to purchase these 200,000 COMFORCE common shares
are exercised.
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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 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.
<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
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 EPA that it is a potentially responsible party
for the disposal of hazardous substances at the Ninth Avenue site in Gary,
Indiana. This site is listed on the EPA's National Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site. This Group subsequently sued numerous third
party defendants, including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary evidence, and
no documentary evidence, linking Bagcraft to this site, and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised, that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is probable that the Company will have any liability for the costs of the
clean-up of this site. The Company intends to vigorously defend itself in this
case.
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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
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
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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 PureTec
Corporation, 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 -
<FN>
The accompanying notes are an integral part of the condensed financial
information.
</FN>
</TABLE>
<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
======== ======== ======== ========
<FN>
(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.
</FN>
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
ARTRA GROUP Incorporated on Form S-1 (File No. ) 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.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
November 26, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses estimated to be incurred (other than the fees of the
Commission which are actual) in connection with the offering, all of which are
payable by the Registrant, are as follows:
Description Amount
- --------------------------------------------- ----------
SEC Registration Fee $ 8,685
Printing Costs 0
Legal Fees 150,000*
Accounting Fees 50,000*
Blue Sky Fees and Expenses 1,625
Miscellaneous 14,690*
-------
Total $ 225,000*
=======
-----------
* Estimate
Item 14. Indemnification of Directors and Officers.
Reference is made to the discussion in Part I of this Registration
Statement under "Indemnification of Officers and Directors," which discussion is
incorporated herein by reference.
Item 15. Recent Sales of Unregistered Securities.
Kwiatt, Silverman & Ruben, Ltd., Northfield, Illinois, has advised
Registrant as to the availability of the exemptions from registration under the
Securities Act of 1993 described in this Item 15. This firm has also advised
Registrant that shares of Registrant's Common Stock issued upon the exercise of
options issued under Registrant's 1985 Incentive Stock Option Plan are
registered pursuant to a Registration Statement on Form S-8 of Registrant.
Accordingly, such shares are not described below.
Set forth below is a list of the Warrants issued by Registrant since
November 1, 1991. Registrant relied upon the exemption afforded by Section 4(2)
of the Securities Act of 1933 in issuing these Warrants, principally as
additional consideration in connection with the extension of credit by the
Warrantholder or, in certain cases, other transactions. Each Warrant provides
for the purchase of shares of Common Stock at a stated exercise price, which was
the date Registrant and the holder agreed to the transaction for which the
Warrant was awarded as additional consideration. No underwriting fees or
commissions were paid in connection with the issuance of these Warrants.
II-1
<PAGE>
LIST OF WARRANTS ISSUED SINCE NOVEMBER 10, 1992 (AS OF SEPTEMBER 26, 1996)
Issuance Number of Exercise
Warrant Holder Date Shares Price
- ----------------------------------- ---------- -------- -------
Clinton Industries 11-10-92 75,001 $5.000
John Harvey 02-01-94 4,700 $5.500
John Harvey 03-30-94 1,500 $5.625
John Harvey 01-19-95 6,000 $4.750
John Harvey 04-28-95 11,667 $3.750
John Harvey 04-28-95 7,800 $4.750
John Harvey 07-27-95 8,426 $4.250
John Harvey 09-30-95 4,019 $4.625
John Harvey 10-31-95 4,019 $4.875
John Harvey 11-30-95 4,019 $4.375
John Harvey 12-31-95 8,038 $6.125
John Harvey 02-29-96 4,019 $6.125
John Harvey 03-31-96 4,019 $6.250
John Harvey 04-30-96 4,019 $6.000
Maynard K. Louis 04-02-92 3,000 $7.000
Maynard K. Louis 09-29-92 15,000 $5.625
Maynard K. Louis 04-01-93 15,000 $4.500
Maynard K. Louis 10-01-93 15,000 $5.125
Maynard K. Louis 10-01-93 1,500 $5.375
Maynard K. Louis 10-08-93 2,250 $5.375
Maynard K. Louis 10-15-93 3,750 $5.375
Maynard K. Louis 02-16-94 2,500 $6.000
Maynard K. Louis 04-01-94 15,000 $5.375
Maynard K. Louis 10-01-94 15,000 $5.125
Maynard K. Louis 06-13-96 22,000 $8.000
Evelyn Bishop, Trustee 11-29-91 6,685 $8.625
Evelyn Bishop, Trustee 11-17-91 4,457 $8.375
Evelyn Bishop, Trustee 05-16-92 1,560 $5.375
Evelyn Bishop, Trustee 05-29-92 7,023 $5.000
Evelyn Bishop, Trustee 11-29-92 7,383 $4.750
Evelyn Bishop, Trustee 05-29-93 7,764 $3.750
Evelyn Bishop, Trustee 06-13-01 10,911 $8.000
Alexander Verde 08-09-92 76,480 $6.000
Alexander Verde 02-09-93 37,258 $3.750
Alexander Verde 08-09-93 36,651 $4.125
Alexander Verde 02-09-94 35,555 $5.500
Alexander Verde 08-09-94 10,464 $6.625
Carol M. Jacobsohn 01-28-92 5,500 $9.875
Carol M. Jacobsohn 12-02-92 2,750 $5.000
D.R. Zaccone 07-05-92 10,000 $6.250
II-2
<PAGE>
D.R. Zaccone 09-03-92 600 $6.250
D.R. Zaccone 09-01-93 11,333 $5.125
D.R. Zaccone 09-93-02 10,600 $6.250
D.R. Zaccone 12-17-92 16,800 $7.750
D.R. Zaccone 03-31-93 17,000 $7.000
D.R. Zaccone 10-31-92 17,000 $5.375
D.R. Zaccone 01-30-93 17,000 $3.750
D.R. Zaccone 05-01-93 17,000 $4.000
D.R. Zaccone 07-31-93 5,667 $3.500
D.R. Zaccone 09-16-93 25,667 $3.500
D.R. Zaccone 10-26-93 25,333 $5.875
John Tull 09-09-91 1,500 $6.375
Austin Iodice 09-30-98 3,000 $5.375
Austin Iodice 10-07-95 4,500 $5.375
Austin Iodice 10-14-95 7,500 $5.375
Research Center Of Kabbalah 10-29-93 21,250 $6.000
Research Center Of Kabbalah 12-31-93 65,000 $7.000
Mark L. Werner 12-24-94 45,000 $4.880
Mark L. Werner 08-16-95 45,000 $4.125
Manufacturers Indemnity And
Insurance Co. Of America 04-15-96 5,000 $6.000
Howard R. Conant 02-01-95 10,000 $4.750
Richard Blacmore 04-24-95 10,000 $3.750
Stephen M. Levy 12-29-95 12,500 $4.500
D. L. Arends Psp 05-08-96 2,200 $8.000
Clark Gunderson 05-08-96 5,000 $6.000
Robert Jones 05-08-96 5,000 $6.000
William F. Foster, Jr. 05-08-96 5,000 $6.000
Field Container Corp 05-15-92 150,943 $5.375
Harvey Schuster 06-13-96 25,000 $4.000
Woodrow Chamberlain 04-15-96 10,000 $6.000
James A. Belushi Declaration Of Trust 04-15-96 5,000 $6.000
John Bramsen 04-15-96 10,000 $6.000
Lenore M. Schnick Trust 04-15-96 15,000 $6.000
Morris Belzberg 04-15-96 25,000 $6.000
David J. Doerge Trust 04-15-96 10,000 $6.000
Mark Dorian 04-15-96 5,000 $6.000
Howard Grafman 04-15-96 5,000 $6.000
Ilse W. Grafman 04-15-96 5,000 $6.000
Thomas Kigin 04-15-96 2,500 $6.000
James L. Mcgill 04-15-96 5,000 $6.000
Johanna B. Mcgill 04-15-96 5,000 $6.000
D. Michael Meyer 04-15-96 10,000 $6.000
Leonard Feldman 04-15-96 10,000 $6.000
Charles Reeder 04-15-96 20,000 $6.000
William G. Reynolds, Jr. 04-15-96 1,250 $6.000
Berkshire Capital/Partners, Ltd 04-15-96 5,000 $6.000
Stephen N. Engberg 04-15-96 10,000 $6.000
II-3
<PAGE>
Martha T. Seelbach 04-15-96 3,750 $6.000
William Seelbach 04-15-96 5,000 $6.000
Paul Smeets 04-15-96 10,000 $6.000
Henry M. Staley Trust 04-15-96 7,500 $6.000
Eva Staley Residual Trust 04-15-96 5,000 $6.000
Avery J. Stone 04-15-96 20,000 $6.000
Shephard C. Swift 04-15-96 10,000 $6.000
Emanuel Tarrson 04-15-96 25,000 $6.000
Ronald E. Tarrson 04-15-96 15,000 $6.000
Steven Tarrson 04-15-96 10,000 $6.000
James F. Beedie 04-15-96 5,000 $6.000
Thomas Whitney 04-15-96 10,000 $6.000
Staley Family Agency 04-15-96 20,000 $6.000
Jim Scott 04-15-96 5,000 $6.000
David J. Doerge Trust 04-15-96 35,000 $6.000
William Belzberg 04-15-96 25,000 $6.000
Frank N. Magid 04-15-96 2,500 $6.000
Evan D. Ritchie Living Trust
U/A/D 12/23/92 04-15-96 2,500 $6.000
Paul Farmer Ira 04-15-96 2,500 $6.000
Dr. John H. Muehlstein Ira 04-15-96 5,000 $6.000
Diane Wilson 04-15-96 1,250 $6.000
Ravinia Investors Llc 04-15-96 2,500 $6.000
William J. Mirch 04-15-96 5,000 $6.000
K. Reed Berkey 04-15-96 2,500 $6.000
Jerry Michelson Ira 04-15-96 1,250 $6.000
James Mchugh 04-15-96 5,000 $6.000
Jerry Michelson 04-15-96 3,750 $6.000
Thomas Philipsborn Ira 04-15-96 5,000 $6.000
Gibralt Holdings, Ltd. 04-15-96 5,000 $6.000
Howard Conant 08-26-96 25,000 $5.000
Emanuel Tarson 09-12-96 12,500 $5.000
Ronald Tarson 09-12-96 12,500 $5.000
Robert A. Calabrese 09-18-96 10,000 $5.000
Richard Blackmore 09-18-96 7,500 $5.000
Marshall Rodin 09-20-96 6,084 $4.000
Marshall Rodin 09-20-96 12,100 $5.750
Set forth below is a list of persons who exchanged debt securities
(promissory notes) of Registrant for Registrant's Common Stock. In each case,
Registrant relied upon the exemption afforded by Section 3(a)(9) of the
Securities Act of 1933 in effecting these transactions. The price per share
shown represents the amount of principal and interest due under the obligation
exchanged (on a per share basis).
Date of Number of Price Per
Holder Exchange Shares Share
- ------------------- --------- -------- -----
Maynard K. Louis 3/92 68,198 $8.00
Howard Jacobsohn 3/92 35,714 $7.00
Carol Jacobsohn 3/92 35,714 $7.00
Martin Goldberg 6/92 36,315 $7.10
R. Cooper 6/92 18,750 $8.00
Franklin Bishop 7/92 78,169 $5.53
Marty Nadler 12/92 61,420 $5.24
Carol Jacobsohn 12/92 50,000 $5.00
Ray Cosgrove 3/93 4,000 $3.96
Ray Cosgrove 6/93 2,000 $4.33
II-4
<PAGE>
Ray Cosgrove 12/93 7,286 $3.56
Franklin Bishop 12/93 121,132 $5.63
Austin Iodice 7/94 58,333 $6.00
Alexander Verde 01-11-95 25,000 $4.480
Maynard K. Louis 03-24-95 21,622 $4.625
Alexander Verde 12-20-95 8,000 $4.480
Maynard K. Louis 02-24-96 5,000 $5.250
Carol Jacobsohn 03-12-96 38,000 $5.822
Thomas J. Carol 04-25-96 17,211 $3.000
Cipka, S.A. 09-18-96 450,000 $5.000
Richard Dolan 09-18-96 7,500 $6.000
Set forth below is a list of persons who received Registrant's Common
Stock in satisfaction of interest due under promissory notes of Registrant or of
other obligations of Registrant (such as fees for services). In each case,
Registrant relied upon the exemption afforded by Section 4(2) of the Securities
Act of 1933 in effecting these transactions. The price per share shown
represents the amount of interest or of the other obligation discharged (on a
per share basis).
Date of Number of Price Per
Holder Exchange Shares Share
- ------------------- --------- -------- -----
Altech Employee Pension Plan 3/92 25,000 $8.00
Maynard K. Louis 6/92 500 $5.75
Altech Employee Pension Plan 6/92 9,280 $5.75
R. Cooper 10/92 2,349 $8.00
Schmeltzer, Aptaker 12/92 60,000 $5.00
Martin Nadler 3/93 20,950 $4.25
Martin Nadler 6/93 1,285 $3.62
Robert P. Lofblad 11/93 14,857 $3.88
Cipka, S.A. 12/93 112,738 $6.38
Josefh Strahammer 12/93 8,748 $3.88
Donahue-Note Holder 4/94 6,000 $7.50
Bard-Note Holder 4/94 6,000 $7.50
Josefh Strahammer 7/94 4,876 $7.00
Cipka, S.A. 8/94 13,030 $6.38
John Tull 3/95 6,898 $5.00
Josef Strahammer 3/95 5,657 $6.00
Austin Iodice 3/95 10,000 $4.00
Josef Strahammer 6/95 5,903 $3.75
Research Center of Kabbalah 11/95 126,222 $4.38
Richard A. Dolan 12/95 7,246 $3.19
Schmeltzer, Aptaker 12/95 25,000 $3.00
Josef Strahammer 12/95 9,252 $3.75
Kwiatt, Silverman & Ruben, Ltd. 9/96 40,000 $5.00
Dieter E.A. Tannenberg 9/96 30,000 $6.00
Set forth below is a list of persons who received Registrant's Common
Stock as additional consideration for agreeing to extend credit to Registrant,
to guaranty (or continue to guaranty) other indebtedness of Registrant or, in
one instance, to forbear in exercising a put option. Registrant relied upon the
exemption afforded by Section 4(2) of the Securities Act of 1933 in issuing this
stock. The price per share shown is the market price of Registrant's Common
Stock on the date such Common Stock was issued.
II-5
<PAGE>
Date of Number of Price Per
Holder Issuance Shares Share
- ---------------------------------- --------- -------- --------
Martin Goldberg 3/92 449 $9.96
Martin Nadler 3/92 449 $9.86
Kenny Construction Company 6/92 17,493 $5.13
Bruce Slovitt 2/93 5,114 $4.63
Barry Rymer 12/93 73,320 $4.88
Kenny Construction Company 5/94 18,326 $5.00
Alexander Verde 01-11-95 25,000 $4.480
Maynard K. Louis 03-24-95 21,622 $4.625
Alexander Verde 12-20-95 8,000 $4.480
John E. Mcconnaughy 12-27-95 75,000 $3.375
Richard Richter, IRA 12-27-95 22,500 $3.375
Joann Timbanard 12-27-95 3,750 $3.375
Martin Weinstein, Ira 12-27-95 15,000 $3.375
Barry, M,. Ferrigno & B. Allen 12-27-95 7,500 $3.375
P/S Plan
Baytree Associates, Inc. 12-27-95 15,000 $3.375
Billy Walker Enterprises 12-27-95 7,500 $3.375
Barry W. Blank 12-27-95 75,000 $3.375
Thomas J. Carroll 12-27-95 11,250 $3.375
Marilyn Cohen 12-27-95 3,750 $3.375
Leo Denslow 12-27-95 7,500 $3.375
Kelly Erickson 12-27-95 7,500 $3.375
Bucky W. F. Fong 12-27-95 3,750 $3.375
Joseph Giamanco 12-27-95 30,000 $3.375
Myron & Donna Goldstein 12-27-95 11,250 $3.375
Dane Johnson, Ira 12-27-95 3,750 $3.375
Ronald Di Martino 12-27-95 15,000 $3.375
MH Capital Partners, L.P. 12-27-95 7,500 $3.375
Pollack Family L.L. C. 12-27-95 3,750 $3.375
GHM, Inc. 12-27-95 3,750 $3.375
Maser Sosinski & Assoc. P.A. 12-27-95 7,500 $3.375
Sherwood Securities Corp. 12-27-95 15,000 $3.375
Violet M. Blank Living Trust 12-27-95 7,500 $3.375
Leo Denslow 12-27-95 1,500 $3.375
Janet M. Portelly 12-27-95 6,000 $3.375
Roger D. And Gail L. Williams 12-27-95 7,500 $3.375
Arabella S.A. 02-26-96 91,166 $4.406
Alba Ltd. 02-26-96 8,834 $4.406
Arabella S.A. 04-26-96 45,583 $4.406
Alba Ltd. 04-26-96 4 ,417 $4.406
Westminster Capital 06-14-96 41,333 $5.000
Norton Herrick 06-14-96 41,333 $5.000
II-6
<PAGE>
Set forth below is a list of transactions or series of transactions
involving the exchange of Registrant's Common Stock for shares of Registrant's
Ratex Resources Incorporated subsidiary (in the case of John Harvey) or shares
of its Sargent-Welch Scientific Company subsidiary held by certain shareholders.
Registrant relied upon the exemption afforded by Section 4(2) of the Securities
Act of 1933 in effecting these exchanges. The price per share shown is the
market price of Registrant's Common Stock on the date such Common Stock was
issued.
Date of Number of Price Per
Holder Issuance Shares Share
- ----------------------- -------- --------- -------
John Harvey 7/94 700 $6.00
Northworthy & Co. 1/94 1,506 $7.00
Robert Grady 1/94 944 $6.88
Joan McCue 1/94 944 $6.88
Morgan Stanley, Inc. 3/94 730 $5.75
Rachelle Kremer 8/94 377 $6.75
In November 1991, Howard Jacobsohn purchased 29,851 shares of
Registrant's Common Stock for a purchase price of $8.37 per share, the market
price of the Common Stock on the date of purchase. The stock was purchased
subject to a put option that required Registrant to repurchase the stock held by
Mr. Jacobsohn at a higher price. Registrant relied upon the exemption afforded
by Section 4(2) of the Securities Act of 1933 in effecting this transaction. No
commissions or fees were paid to any underwriter or broker in connection with
this transaction.
In August 1994, The Lori Corporation, then a majority owned subsidiary
of Registrant, and IBJ Schroder Bank & Trust Company ("Schroder") entered into a
settlement agreement described under "Business and Properties - Jewelry Segment"
in the Prospectus to discharge certain indebtedness owned by The Lori
Corporation and its subsidiaries to IBJ Schroder Bank & Trust Company in
consideration of, inter alia, Registrant's issuance to such lender of 400,000
shares of Registrant's Common Stock. The market price of Registrant's Common
Stock on August 18, 1994 (the date this transaction was effected) was $6.25 per
share. Registrant relied upon the exemption afforded by Section 4(2) of the
Securities Act of 1933 in issuing this Common Stock. As described under
"Business and Properties - Jewelry Segment," in December 1994, the parties
negotiated an amendment to the settlement agreement and, in this connection, the
Registrant borrowed $1,850,000 from McGoodwin James & Co. In connection with
these transactions, 300,000 of the 400,000 shares of the Registrant's common
stock issued to Schroder were transferred to McGoodwin James & Co.
In August 1994, the Registrant sold 133,333 shares of its Common Stock
to The Alana Group Ltd. and 266,667 shares of its Common Stock to Salcott
Holdings Limited at a purchase price of $3.75 per share. Of the $1,500,000 of
proceeds realized, the Registrant paid $50,000 as a placement fee to M. L.
Werner and $15,000 for the legal fees of purchaser's counsel. Registrant relied
upon the exemption from registration afforded by Regulation S of the Rules of
the Commission in effecting these sales to foreign investors located outside of
the United States.
In August 1994, the Registrant raised $1,700,000 through the private
placement of 425,000 shares of Common Stock at a selling price of $4.00 per
share. In addition, in September 1994, Registrant sold 80,000 additional shares
to a single individual for $3.75 per share, raising an additional $300,000.
II-7
<PAGE>
Registrant relied upon the exemption afforded by Section 4(2) of the Securities
Act of 1933 in effecting these sales to the investors, each of whom was an
accredited investor. No underwriting fees or commissions were paid in connection
with this private placement.
Set forth below is a list of certain debt securities (promissory notes)
issued by Registrant since April 20, 1990. Registrant relied upon the exemption
afforded by Section 4(2) of the Securities Act of 1933 in issuing these notes.
LIST (AS OF SEPTEMBER 26, 1996) OF CERTAIN
DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
SINCE APRIL 20, 1990
Note Holder Date of Note (2) Note Amount (3)
- ------------------------------ ---------------- ---------------
Michael Laundrie 03/08/96 53,750
Morton J. Harris Trust 03/01/95 200,000
Research Center of Kabbalah 12/31/93 3,000,000
Richard Blackmore 04/24/95 22,500
Austin Iodice 05/29/96 465,820
California Investment Counsel 07/01/93 50,000
Edward E. Celano 05/09/96 100,000
William F. Foster 05/28/96 100,000
Clark Gunderson 05/28/96 100,000
Robert Jones 05/28/96 100,000
Anthon J. Giglio 05/29/96 62,500
Austin Iodice 05/29/96 188,333
Woodrow Chamberlain 04/15/96 200,000
James A. Belushi
Declaration Of Trust 04/15/96 100,000
John Bramsen 04/15/96 200,000
Lenore M. Schnick Trust 04/15/96 300,000
Semamor Enterprises 04/15/96 500,000
David J. Doerge Trust 04/15/96 200,000
Mark Dorian 04/15/96 100,000
Howard Grafman 04/15/96 100,000
Ilse W. Grafman 04/15/96 100,000
Thomas Kigin 04/15/96 50,000
James L. Mcgill 04/15/96 100,000
Johanna B. Mcgill 04/15/96 100,000
D. Michael Meyer 04/15/96 200,000
Leonard Feldman 04/15/96 200,000
Charles Reeder 04/15/96 400,000
William G. Reynolds, Jr. 04/15/96 25,000
II-8
<PAGE>
Berkshire Capital/Partners, Ltd 04/15/96 100,000
Stephen N. Engberg 04/15/96 200,000
Martha T. Seelbach 04/15/96 75,000
William Seelbach 04/15/96 100,000
Paul Smeets 04/15/96 200,000
Henry M. Staley Trust 04/15/96 150,000
Eva Staley Residual Trust 04/15/96 100,000
Avery J. Stone 04/15/96 400,000
Shephard C. Swift 04/15/96 200,000
Emanuel Tarrson 04/15/96 500,000
Ronald E. Tarrson 04/15/96 300,000
Steven Tarrson 04/15/96 200,000
James F. Beedie 04/15/96 100,000
Thomas Whitney 04/15/96 200,000
Staley Family Agency 04/15/96 400,000
James L. Scott 04/15/96 100,000
William Belzberg 05/17/96 500,000
Frank N. Magid 05/20/96 50,000
Evan D. Ritchie Living Trust
U/A/D 12/23/92 05/23/96 50,000
Paul Farmer Ira 05/30/96 50,000
Dr. John H. Muehlstein Ira 06/05/96 100,000
Diane Wilson 06/05/96 25,000
Ravinia Investors Llc 06/13/96 50,000
William J. Mirch 06/21/96 100,000
K. Reed Berkey 06/26/96 50,000
Jerry Michelson Ira 06/27/96 25,000
James Mchugh 07/03/96 100,000
Jerry Michelson 06/27/96 75,000
Thomas Philipsborn Ira 06/25/96 100,000
Gibralt Holdings, Ltd. 07/05/96 100,000
Howard Conant 08/27/96 500,000
Emanuel Tarson 09/13/96 250,000
Ronald Tarson 09/13/96 250,000
(1) This table shows promissory notes which the Registrant treats as debt
securities. Notes issued to banks or other commercial lending
institutions are excluded.
(2) Certain of these notes have been amended, restated, or consolidated to,
inter alia, (i) extend the maturity date and, in this connection,
provide for the issuance of warrants to purchase shares of Registrant's
Common Stock as consideration therefor, (ii) modify the interest rate
or other terms of the note, (iii) capitalize unpaid interest or (iv)
consolidate two ore more separate notes previously issued. The date
shown, if the subject note has been amended, restated or consolidated,
is the date the subject note was most recently amended, restated or
consolidated. In such instances, the date that the subject note was
originally issued is not shown.
(3) This amount represents the principal amount of the subject note
(included capitalized interest, if any) as of the date issued, amended,
restated or consolidated as shown in the prior column. Certain of these
II-9
<PAGE>
notes have been repaid or retired, including through the exchange of
stock or other securities of Registrant.
The Registrant contributed 100,000 shares, 65,000 shares, 15,000 shares
and 8,750 shares of its Common Stock to the ARTRA GROUP Incorporated Employee
Stock Ownership Plan (the "ESOP") effective as of December 31, 1992, 1993, 1994
and 1995 respectively. Insofar as the ESOP is a noncontributory plan, the
Registrant has relied upon releases and no action letters of the Commission that
provide that the issuance by a registrant of its stock in such circumstances
does not constitute a "sale" subject to registration under the Securities Act of
1933. Effective August 1, 1995, the Company terminated the ESOP and completed
the distribution of its ARTRA common shares to the participants in 1996.
II-10
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
** 2.1 Debtor's Amended Chapter 11 Plan of New
Dimensions Accessories, Ltd. filed on
February 16, 1993 in the United States
Bankruptcy Court for the Southern District
of New York filed as an exhibit to
Registrant's Form 8-K dated February 18,
1993 and incorporated by reference herein.
** 2.2 Voluntary Petition of New Dimensions
Accessories, Ltd. (for reorganization under
Chapter 11 of the Bankruptcy Code) filed
February 5, 1993 in the United States
Bankruptcy Court for the Southern District
of New York filed as an exhibit to
Registrant's Form 8-K dated February 18,
1993 and incorporated by reference herein.
** 2.3 Debtor's Amended Chapter 11 Plan, As
Modified, of New Dimensions Accessories,
Ltd. dated March 9, 1993 With Proposed
Modifications dated March 26, 1993, as filed
in the United States Bankruptcy Court for
the Southern District of New York, filed as
an exhibit to Registrant's Form 8-K dated
May 17, 1993 and incorporated by reference
herein.
** 2.4 Second Amended Disclosure Statement Pursuant
to Section 1125 of the Bankruptcy Code of
New Dimensions Accessories, Ltd. filed as an
exhibit to Registrant's Form 8-K dated May
17, 1993 and incorporated by reference
herein.
** 2.5 Notice of Entry of Order Confirming Second
Amended Plan of Reorganization as Modified
dated April 9, 1993 filed as an exhibit to
Registrant's Form 8-K dated May 17, 1993 and
incorporated by reference herein.
** 2.6 Amended Disclosure Statement dated as
February 16, 1993, of New Dimensions
Accessories, Ltd.. Pursuant to Section 1125
of the Bankruptcy Code filed as an exhibit
to Registrant's Form 8-K dated February 18,
1993 and incorporated by reference herein.
** 3.1 Amended and Restated Articles of
Incorporation of the Registrant as filed in
the Department of State of Pennsylvania on
December 21, 1990 filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1990 and incorporated herein by
reference.
** 3.2 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 and incorporated by
reference herein.
II-11
<PAGE>
** 3.3 Statement with Respect to Shares of Series A
Preferred Stock of Registrant, filed as an
exhibit to Registrant's Form 10-K for the
year ended December 30, 1993 and
incorporated by reference herein.
** 3.4 Statement with Respect to Rights and
Preferences Series B Preferred Stock of
Registrant, filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993 and incorporated by
reference herein.
** 4.1 Form of Registrant's Common Stock
Certificate.
** 4.2 Form of Registrant's Warrant.
5.1 Opinion of Kwiatt, Silverman & Ruben, Ltd.
10.1 Note Purchase Agreement dated February 20,
1996 by and among ARTRA Group Incorporated
Fill-Mor Holding, Inc. and Westminster
Capital, Inc. in the amount of $1,200,000.
10.2 Note Purchase Agreement dated February 20,
1996 by and among ARTRA Group Incorporated,
Fill-Mor Holding, Inc. and Norton Herrick in
the amount of $1,200,000.
10.3 Registration Rights Agreement dated February
20, 1996 by and among ARTRA Group
Incorporated and Westminster Capital, Inc.
re: Purchase of a Secured Convertible
Promissory Note.
10.4 Registration Rights Agreement dated February
20, 1996 by and among ARTRA Group
Incorporated and Norton Herrick re: Purchase
of a Secured Convertible Promissory Note.
10.5 Form Of Promissory Note re: December 1995,
Private Placement of twelve percent (12%)
convertible subordinated promissory notes.
10.6 Form Of Warrant To Purchase Common Stock re:
July, 1996 Private Placement of twelve
percent (12%) promissory notes due April 15,
1997 for 378,750 ARTRA common shares.
10.7 Form Of Promissory Note re: July, 1996
Private Placement of twelve percent (12%)
promissory notes due April 15, 1997.
II-12
<PAGE>
** 10.8 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, filed as an exhibit to Registrant's
Form 10-K, for the year ended December 28,
1995.
** 10.9 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"), filed as
an exhibit to Registrant's Form 10-K, for
the year ended December 28, 1995.
** 10.10 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"), filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995.
** 10.11 Amended and Restated Promissory Note, dated
February 26, 1996 made by BCA Holdings, Inc.
in favor of Arabella S.A., filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995.
** 10.12 Option to Purchase Shares of Common Stock of
Bagcraft Corporation of America sold by BCA
Holdings, Inc. to Arabella S.A., filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995.
** 10.13 Preferred Stock Agreement made by and
between BCA Holdings Inc. and Bagcraft
Corporation of America, filed as an exhibit
to Registrant's Form 10-K, for the year
ended December 28, 1995.
** 10.14 Preferred Stock Exchange Agreement, dated as
of January 31, 1996 by and between Ozite
Corporation, BCA Holdings Inc. and Bagcraft
Corporation of America, filed as an exhibit
to Registrant's Form 10-K, for the year
ended December 28, 1995.
** 10.15 Limited Consent and Sixth Amendment to
Credit Agreement, dated as of February 1,
1996 between Bagcraft Corporation of America
and General Electric Capital Corporation,
filed as an exhibit to Registrant's Form
10-K, for the year ended December 28, 1995.
** 10.16 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.
II-13
<PAGE>
** 10.17 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.
** 10.18 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.
** 10.19 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.
** 10.20 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.
** 10.21 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.
** 10.22 Amended Settlement Agreement by and among
The Lori Corporation, Lawrence Jewelry Co.,
Lawrence Jewelry Corporation, New Dimensions
Accessories Ltd. (formerly known as R.N.
Koch, Inc.), Rosecraft, Inc., Fill- Mor
Holding, Inc., ARTRA Group Incorporated and
IBJ Schroder Bank & Trust Company, dated as
of December 23, 1994 filed as an exhibit to
Registrant's Form 8-K, dated January 3,
1995.
** 10.23 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.
** 10.24 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.
** 10.25 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.
II-14
<PAGE>
** 10.26 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.
** 10.27 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.
** 10.28 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.
** 10.29 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.
** 10.30 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.
23.1 Consent of Kwiatt, Silverman & Ruben, Ltd.
23.2 Consent of Coopers & Lybrand L.L.P.
** 10.31 Subordinated Promissory Note dated December
31, 1993 in the original principal amount of
$3,000,000 from Registrant to the Research
Center of Kabbalah.
** 11.1 Computation of earnings per share and
equivalent share of common stock for each of
the three years in the period ended December
28, 1995.
** 21.1 Subsidiaries.
II-15
<PAGE>
** 24.1 Powers of Attorney (included on page II-14
of this Registration Statement.)
** 99.2 Fourth Amended Complaint filed July 18, 1995
in the case of ARTRA GROUP Incorporated v.
Salomon Brothers Holding Company Inc., et
al. in the Circuit Court of the Eighteenth
Judicial Circuit for the State of Illinois.
** 99.3 Joint Memorandum of Points and Authorities
of Salomon Defendants sent to the Honorable
Michael Galasso of the Circuit Court of the
Eighteenth Judicial Circuit for the State of
Illinois in the case of ARTRA GROUP
Incorporated v. Salomon Brothers Holding
Company Inc., et al.
** 99.4 Complaint filed September 24, 1991 in the
case of The Sherwin-Williams Company v.
ARTRA GROUP Incorporated, et al. in the
United States District Court for the
District of Maryland.
** 99.5 Answer, Counterclaim and Crossclaim of
Registrant filed June 3, 1992 in the case of
The Sherwin-Williams Company v. ARTRA GROUP
Incorporated, et al.
** 99.6 Second Amended Verified Complaint filed
August 7, 1995 in the Supreme Court of New
York in the case of Philip Elghanian v.
Peter Harvey, Jeffrey Newman, Artra Group
Inc., et al.
** 99.7 Complaint dated June 14, 1995 filed in the
United States District Court for the
Northern District of Illinois in the case of
Tartan Resources v. A. G. Holding Corp., et
al.
** 99.8 Complaint filed in the Circuit Court of Cook
County, Illinois in the case of City of
Chicago v. NL Industries, Inc. and ARTRA
GROUP Incorporated.
** 99.9 March 17, 1993 Judgment against ARTRA GROUP
Inc. in the case SW Assoc. Limited
Partnership v. ARTRA GROUP Inc.
** 99.10 Third-Party Complaint and Counterclaim of
Registrant in the case of City of Chicago v.
NL Industries, Inc. and ARTRA GROUP
Incorporated.
** 99.11 Complaint filed in the Circuit Court of Cook
County, Illinois in the case of People of
the State of Illinois v. NL Industries, Inc.
and ARTRA GROUP Inc., et al.
** 99.12 Notice of Potential Liability dated November
17, 1995 sent to ARTRA GROUP Inc. by the
United States Environmental Protection
Agency regarding the Dutch Boy facility in
Chicago, Illinois.
** 99.13 Notice of Potential Liability dated
September 30, 1993 sent by the United States
Environmental Protection Agency to James
Doering, President of Fill- Mor Holdings
Inc., regarding Harvel Industries Corp.
disposal of waste to a PSC Resources Site in
Palmer, Massachusetts.
** 99.14 Subsequent Notice of Potential Liability
regarding Harvel Industries Corp. dated
April 18, 1994 and sent by the United States
Environmental Protection Agency to John
Conroy, Vice President of Registrant.
II-16
<PAGE>
** 99.15 Complaint filed December 6, 1994 in the U.S.
District Court for the Northern District of
Indiana (Ninth Ave Remedial Group v.
Bagcraft et al).
** 99.16 Notice of Violation dated November, 1995
issued by the U.S. EPA against Bagcraft
regarding alleged violations of the Clean
Air Act and related regulations at the
Chicago Facility.
----------------------
* To be filed by amendment.
** Previously filed
(b) Financial Statement Schedules. Set forth
below is a list of the Financial Statement
Schedules included as part of the
Registration Statement. 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. See
"Index to Financial Statements" in the
Prospectus.
I. Condensed Financial Information
of Registrant
II. Valuation and Qualifying Accounts
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such
information in this Registration Statement;
II-17
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Northfield, State of Illinois, on January 26, 1995.
ARTRA GROUP Incorporated
(Registrant)
By: /s/ Peter R. Harvey
___________________________________
Peter R. Harvey
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act, this Amendment No.
1 to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name/Signature Title Date
*
______________________ Chairman and Chief Executive Officer
John Harvey (Principal Executive Officer); Director
*
______________________ Vice President and Chief Financial Officer
James D. Doering (Principal Financial Officer)
*
______________________
Lawrence D. Levin Controller (Principal Accounting Officer)
*
______________________
Peter R. Harvey Director
*
______________________
Gerard M. Kenny Director
* By: /s/ Lawrence D. Levin
______________________________
Lawrence D. Levin
Attorney-in-fact ________________, 1996
<PAGE>
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
EXHIBITS
Filed With
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------------
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
November 26, 1996
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, IL 60093
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
You have requested our opinion with respect to the offering and sale of
Common Stock pursuant to a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), of up to
an aggregate of 4,629,972 shares of Common Stock, $.01 par value per share (the
"Common Stock") of ARTRA GROUP Incorporated (the "Corporation").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed relevant and necessary to
form a basis for the opinions hereinafter expressed. In conducting such
examination, we have assumed (i) that all signatures are genuine, (ii) that all
documents and instruments submitted to us as copies conform with the originals,
and (iii) the due execution and delivery of all documents where due execution
and delivery are a prerequisite to the effectiveness thereof. As to any facts
material to this opinion, we have relied upon statements and representations of
officers and other representatives of the Corporation and certificates of public
officials and have not independently verified such facts.
Based upon the foregoing, it is our opinion that the Common Stock, when
issued, and the consideration for the options and/or warrants is received, will
be legally issued, fully paid and non-assessable.
We express no opinion as to the laws of any jurisdiction other than the
State of Illinois; the United States of America. Insofar as the foregoing
opinion relates to matters that would be controlled by the substantive laws of
any jurisdiction other than the United States of America or the State of
Illinois, we have assumed that the substantive laws of such jurisdiction conform
in all respects to the internal laws of the State of Illinois.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement relating to the registration of 4,629,972 shares of
Common Stock and to the use of our name under the caption "Legal Matters" in
connection with the Registration Statement and in the Prospectus forming a part
thereof.
Very truly yours,
Kwiatt, Silverman & Ruben, Ltd.
EXHIBIT 10.1
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this "Agreement") is made this 20th day
of February, 1996, by and between ARTRA GROUP Incorporated, a Pennsylvania
corporation ("ARTRA"), Fill-Mor Holding, Inc., a Delaware corporation
("Fill-Mor") and Westminster Capital, Inc. ("Westminster").
WHEREAS, in consideration of a payment of $1,000,000.00 from
Westminster to ARTRA, ARTRA is willing to issue to Westminster a 10% Secured
Convertible Promissory Note of even date herewith in the principal amount of
$1,200,000.00 (the "Note"); and
WHEREAS, the parties desire to enter into certain other agreements
related to the issuance of the Note.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises and agreements hereinafter set forth, the parties agree as follows:
1. Transaction.
(i) In consideration for the delivery by Westminster to ARTRA
of the sum of $1,000,000.00 in good and immediately available funds, ARTRA
hereby agrees to issue to Westminster the Note. The Note shall bear interest at
the rate of 10% per annum and shall be due and payable 120 days from the date of
issuance. Payment by ARTRA of the Note shall be guaranteed by ARTRA's
wholly-owned subsidiary, Fill-Mor and such guaranty shall be evidenced by a
guaranty of even date herewith (the "Guaranty") duly executed by Fill-Mor. The
Guaranty shall be secured by 990,000 shares of common stock of COMFORCE
Corporation owned by Fill-Mor, and such security interest shall be evidenced by
a Pledge Agreement of even date herewith (the "Pledge Agreement") entered into
by Fill-Mor and Westminster. The Note shall also have a conversion feature which
shall allow Westminster to convert up to $200,000.00 of the Note's principal
balance, plus related accrued and unpaid interest, into shares of ARTRA common
stock (the "Conversion Shares") at the conversion price of $5.00 per share. The
registration rights of Westminster in regard to the Conversion Shares shall be
evidenced by a Registration Rights Agreement of even date herewith (the
"Registration Rights Agreement") entered into by the parties. This Agreement,
the Note, and the Registration Rights Agreement are sometimes collectively
referred to hereafter as the "Transaction Documents".
(ii) In further consideration for the delivery by Westminster
to ARTRA of the sum of $1,000,000.00, ARTRA hereby agrees to cause the delivery
to Westminster of 10,000 shares of common stock of COMFORCE Corporation owned by
Fill-Mor (the "Payment Shares").
<PAGE>
2. Closing. The Closing shall take place on even date herewith (the
"Closing Date") at the offices of ARTRA's counsel, Kwiatt, Silverman & Ruben,
Ltd., 500 Central Avenue, Northfield, Illinois, or at such other time and place
as mutually agreed upon by the parties. The effectiveness of the Closing shall
be conditioned upon the occurrence of the events specified in Section 6 hereof.
At the Closing ARTRA will deliver to Westminster the Note to be
purchased by Westminster dated as of the Closing Date, against delivery by
Westminster to ARTRA of the purchase price therefor by wire transfer of
immediately available funds in the amount of such purchase price into the
Kwiatt, Silverman & Ruben, Ltd. Escrow Account # GL3080823 at Manufacturers Bank
in Chicago, Illinois. At the Closing Fill-Mor shall deliver to Westminster the
Payment Shares, as well as the collateral pursuant to the Pledge Agreement. If
at the Closing ARTRA shall fail to tender such Note, or if Fill-Mor shall fail
to deliver such Payment Shares and such collateral to Westminster as provided in
this Section 2, or if any of the conditions specified in Section 6 hereof shall
not have been fulfilled to its satisfaction, Westminster shall, at its election,
be relieved of all further obligations under this Agreement, without thereby
waiving any other rights it may have by reason of such failure or
nonfulfillment.
3. Representations and Warranties of ARTRA. ARTRA and Fill-Mor
represent and warrant to Westminster as follows:
3.1 Organization.
(i) ARTRA is a corporation duly organized, validly
existing, and in good standing in the State of Pennsylvania, has full corporate
power to own and lease its properties, to carry on its businesses and to
execute, deliver and perform the transactions contemplated by, the Transaction
Documents and is duly qualified to do business and in good standing in each
jurisdiction in which the character of its properties or transactions material
to its business makes such qualification necessary, except that ARTRA is not in
good standing in the State of Illinois.
(ii) COMFORCE Corporation ("COMFORCE") is a
corporation duly organized, validly existing, and in good standing in the State
of Delaware, has full corporate power to own its properties, to carry on its
businesses and is duly qualified to do business and in good standing in each
jurisdiction in which the character of its properties or transactions material
to its business makes such qualification necessary.
<PAGE>
3.2 Authority.
(i) The execution, delivery and performance by ARTRA
of this Agreement, the Note, the Registration Rights Agreement, and all other
related undertakings of ARTRA have been duly authorized by all requisite
corporate action of ARTRA, do not require the approval of the stockholders of
ARTRA, do not require the consent or approval of any governmental authority,
will not violate any law or regulation (including, without limitation,
Regulation G, U or X of the Federal Reserve Board and all applicable state
securities laws) will not violate the certificate of incorporation or by-laws of
ARTRA, and will not violate or constitute (with due notice or lapse of time or
both) a default under any indenture, agreement, license or other contract to
which ARTRA is a party or by which it or its properties are bound.
(ii) The execution, delivery and performance by
Fill-Mor of this Agreement, the Guaranty, the Pledge Agreement, and all other
related undertakings of Fill-Mor have been duly authorized by all requisite
corporate action of Fill-Mor, do not require the approval of the stockholders of
Fill-Mor, do not require the consent or approval of any governmental authority,
will not violate any law or regulation (including, without limitation,
Regulation G, U or X of the Federal Reserve Board and all applicable state
securities laws) will not violate the certificate of incorporation or by-laws of
Fill-Mor, and will not violate or constitute (with due notice or lapse of time
or both) a default under any indenture, agreement, license or other contract to
which Fill-Mor is a party or by which it or its properties are bound.
3.3 Enforcement. Each of the Transaction Documents will be,
when executed and delivered by ARTRA, a valid, legal and binding obligation of
ARTRA, enforceable against ARTRA in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditor's rights generally.
3.4 Financial Statements.
(i) ARTRA's financial statements , included in
ARTRA's Form 10-K for the fiscal year ended December 29, 1994 and in ARTRA's
Form 10-Q for the quarterly period ended September 28, 1995, present fairly, in
all material respects, the financial condition and the results of operations and
cash flows of ARTRA in accordance with generally accepted accounting principles.
(ii) COMFORCE's financial statements , included in
COMFORCE's Form 10-K for the fiscal year ended December 31, 1994 and in
COMFORCE's Form 10-Q for the quarterly period ended September 30, 1995, present
fairly, in all material respects, the financial condition and the results of
operations and cash flows of COMFORCE in accordance with generally accepted
accounting principles.
<PAGE>
3.5 Litigation. No litigation, or governmental proceedings are
pending or threatened against ARTRA or COMFORCE, nor do any other circumstances
exist, the results of which might materially and adversely affect the financial
condition or results of operations of each company, except those disclosed in
the respective financial statements of each referenced in subsection 3.4 hereof.
3.6 Authorization of Conversion Shares. The issuances of the
Conversion Shares under the circumstances described in, and pursuant to the
terms of, the Note have been duly authorized and, when issued and delivered in
accordance with the provisions of the Note, the Conversion Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. The
Conversion Shares are not subject to the preemptive rights of any security
holder of ARTRA.
3.7 Authorization of COMFORCE Shares. The Payment Shares
received by Westminster from Fill-Mor, and the common shares of COMFORCE pledged
by Fill-Mor pursuant to the Pledge Agreement have been duly authorized and
validly issued, are fully paid and nonassessable, and the holders thereof will
not be subject to personal liability solely by reason of being such holders.
Fill-Mor has good and marketable title to the Payment Shares and the shares of
common stock of COMFORCE pledged under the Pledge Agreement free and clear of
all liens, claims, encumbrances, restrictions and covenants, except the security
interest which will be released concurrently with the Closing. The Payment
Shares and the COMFORCE shares pledged under the Pledge Agreement are not
subject to the preemptive rights of any security holder of COMFORCE.
3.8 Noncontravention. Neither ARTRA nor COMFORCE is in any
violation of, or in default under, nor will the execution and delivery and
performance of the Transaction Documents result in the violation of (i) any term
or provision of its respective Articles of Incorporation or By-Laws, as amended;
(ii) except as may be otherwise disclosed in the financial statements of ARTRA
and COMFORCE, referred to in Section 3.4 hereof, any material term or provision,
or any financial covenants, of any indenture, mortgage, contract, commitment or
other agreement or instrument to which either is a party or by which either or
any of the respective properties or businesses of either is or may be bound or
affected; or (iii) any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over ARTRA or COMFORCE, as applicable, or any of the properties or
businesses of either, as applicable. ARTRA or COMFORCE, as applicable, own,
possess or have obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other authorizations
("Permits") necessary to own or lease, as the case may be, and to operate its
respective properties and to conduct its respective businesses or operations as
currently conducted and all such Permits are outstanding and in good standing,
and there are no proceedings pending or, to ARTRA's knowledge, threatened, nor
is there any basis therefor, seeking to cancel, terminate or limit such Permits.
<PAGE>
3.9 Reg D Qualification; Offering Documents. Assuming the
representations and warranties of Westminster contained herein are true and
correct, the offer and sale of the Note by ARTRA has satisfied and on the
Closing Date will have satisfied all of the requirements of Regulation D under
the Securities Act of 1933, as amended, ("Reg D") and ARTRA is not disqualified
from the exemption under Rule 505 contained in Reg D by virtue of the
disqualifications contained in Rule 505(b)(2)(iii), or the exemption under Reg D
by virtue of the disqualification contained in Rule 507.
3.10 Intangibles. Each of ARTRA and COMFORCE own or possess
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of the respective business of each (collectively the "Intangibles"); to
ARTRA's knowledge, neither ARTRA or COMFORCE has infringed or is infringing upon
the rights of others with respect to the respective Intangibles of each and
neither ARTRA or COMFORCE has received any notice that it has or may have
infringed or is infringing upon the rights of others with respect to the
Intangibles; and neither ARTRA or COMFORCE has received any notice of conflict
with the asserted rights of others with respect to the respective Intangibles of
each which could, singly or in the aggregate, materially adversely affect the
respective business, financial condition or results of operations of each and
ARTRA does not know of any basis therefor; and, to ARTRA's knowledge, no others
have infringed upon the respective Intangibles of each of ARTRA and COMFORCE.
3.11 Labor Relations. To the best of ARTRA's knowledge, no
labor problem exists with ARTRA's employees or is imminent which could adversely
affect ARTRA, nor do labor problem exists with COMFORCE's employees or is
imminent which could adversely affect COMFORCE
3.12 Insurance. Each of ARTRA and COMFORCE has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in amounts which it deems, in good faith, to be adequate, such other
insurance, including but not limited to, liability insurance, as is usually
maintained by companies engaged in the same or similar businesses.
3.13 Taxes. ARTRA and COMFORCE have filed all tax returns
which are required by law to have been filed and have paid all taxes,
assessments, fees and charges of each governmental body shown to be due and
payable on such returns to the extent the same have become due and payable and
before they have become delinquent other than those presently payable without
penalty or interest and those being contested in good faith by appropriate
proceedings as to which adequate reserves have been established in accordance
with generally accepted accounting principles ("GAAP") with respect thereto. In
the opinion of ARTRA, all tax liabilities are adequately provided for on the
books of ARTRA and COMFORCE in accordance with GAAP.
<PAGE>
3.14 No Adverse Change. Since the respective dates, referenced
in Section 3.4 hereof, as of which information is given in ARTRA's and
COMFORCE's financial statements as referenced in section 3.4, neither has
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction, whether or not in the ordinary course of
business, nor sustained any material loss or interference with its business from
fire, storm, explosion, flood or other casualty, nor experienced any labor
dispute, nor incurred any court or governmental action, order or decree, which
would have a material adverse change in the respective financial conditions of
each of ARTRA and COMFORCE.
3.15 Investment Company Act. ARTRA is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
nor is subject to regulation under such act.
4.Representations and Warranties of Westminster. Westminster represents
and warrants to ARTRA as follows:
4.1 Westminster represents and warrants to ARTRA that it has
full corporate power to own its properties, to carry on its businesses and to
execute, deliver and perform this Agreement.
4.2 Each of the Transaction Documents will be, when executed
and delivered by Westminster, a legal, valid and binding obligation of
Westminster enforceable against Westminster, in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally or general equity principles.
4.3 The execution, delivery and performance by Westminster of
the Transaction Documents will not violate any law or regulation, violate or
constitute (with due notice or lapse of time or both), a material default under
any indenture, agreement, license or other instrument or contract to which
Westminster is a party or by which its properties are bound, and do not require
any filing or registration, permit, license, consent or approval of any
governmental agency.
<PAGE>
4.4 Westminster represents that it is purchasing the Note
for investment purposes only and that in all respects Westminster
acknowledges its understanding that ARTRA is relying on the exemptions
contained in Section 4(2) of the Securities Act of 1933 and
Section 4(Q) of the Illinois Securities Law of
1953 in making the sale contemplated under this
Agreement.
5. Covenants of ARTRA. ARTRA hereby covenants as follows:
5.1 Upon an exercise by Westminster of its conversion rights
under the Note, ARTRA covenants that it shall issue the requisite number of
Conversion Shares, which shares shall be duly authorized, validly issued, fully
paid and non-assessable, and issued free and clear of all liens and defects to
title.
5.2 ARTRA agrees to include the Conversion Shares in the Form
S-1 Registration Statement presently being prepared, in accordance with the
terms of the Registration Agreement, and to keep such registration statement
effective in accordance with the terms of the Registration Rights Agreement.
5.3 ARTRA agrees to provide anti-dilution protection to
Westminster in regard to the Conversion Shares, in accordance with the
anti-dilution provisions of the Note.
5.4 Within 10 days after the date of this Agreement, ARTRA
agrees to cause to be paid or forgiven at least $13 million of its presently
outstanding bank indebtedness.
6. Conditions To Effectiveness. The parties do not intend to be bound
by this Agreement unless the actions listed in this section 6 have occurred at
the Closing; such actions shall be deemed to have occurred concurrently with the
execution of this Agreement. Any party has the right to withdraw any signed
Transaction Document and not to close the transaction until the following
actions have occurred:
6.1 Delivery of Funds. Westminster shall have delivered to
ARTRA the sum of $1,000,000.00 in good and immediately available funds by wire
transfer, or in such other manner as mutually agreed upon by the parties.
6.2 Corporate Authority ARTRA shall have delivered to
Westminster, in form and substance satisfactory to Westminster:
(i) copies, certified by ARTRA's secretary or
assistant secretary, of its Articles of Incorporation,
By-laws, and resolutions of its Board of Directors authorizing
the execution and delivery of this Note and all other
documents to be delivered by ARTRA hereunder; and
<PAGE>
(ii) a certificate by the secretary or assistant
secretary of ARTRA certifying the names of its officers
authorized to sign this Agreement and all other documents to
be delivered by ARTRA hereunder, together with true signatures
of such officers.
6.3 Opinion of Counsel ARTRA shall have delivered to
Westminster an opinion of counsel dated as of the date hereof, which opinion
shall be in form and substance satisfactory to Westminster.
6.4 Other Documents ARTRA shall have delivered to Westminster
the following documents, in form and substance satisfactory to Westminster:
(i) the Note, duly executed by ARTRA;
(ii) the Registration Rights Agreement, duly executed
by ARTRA and Westminster.
6.5 Payment Shares. ARTRA shall have delivered to Westminster
certificates evidencing the Payment Shares, accompanied by stock powers
appropriately executed in blank.
6.6 Corporate Authority of Fill-Mor. Fill-Mor shall have
delivered to Westminster:
(i) a copy, certified by Fill-Mor's secretary or
assistant secretary, of resolutions of its Board of Directors
authorizing the execution, delivery and performance of the
Guaranty and the Pledge Agreement.
(ii) a certificate by the secretary or assistant
secretary of Fill-Mor certifying the names of its officers
authorized to sign the Guaranty and the Pledge Agreement,
together with true signatures of such officers.
6.7 Delivery of Guaranty and Pledge Agreement. Fill-Mor shall
have delivered to Westminster:
(i) the Guaranty, duly executed by Fill-Mor; and
<PAGE>
(ii) the Pledge Agreement duly executed by Fill-Mor
and Westminster, including delivery of one or more
certificates evidencing the Pledged Securities accompanied by
separate stock powers appropriately executed in blank to
Westminster as contemplated therein
6.8 Concurrent Closing of Other Loan. The loan being made to
ARTRA by Norton Herrick in the amount of $1,000,000 on substantially the same
terms as the loan contemplated by this Agreement shall have closed concurrently
with the closing of the transactions contemplated by this Agreement.
7. [Intentionally Deleted]
8. No Waiver; Cumulative Remedies. Westminster shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be void unless in writing, signed by
Westminster and then only to the extent therein set forth. A waiver by
Westminster of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Westminster would otherwise have
had on any future occasion. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the parties.
9. Assignment. This Agreement may not be assigned by a party to one or
more third parties without the prior written consent of the other party, but
nothing herein shall limit or affect the assignment of the Note or the other
Transaction Documents.
10. Successors and Assigns. This Agreement inures to the benefit of the
parties and binds each party, and its respective successors and permitted
assigns.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made by parties resident in, and to be
performed in said state (not including the provisions of conflict of laws).
12. Notices. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party, sent by
telecopier (with original timely mailed), or sent by certified, registered or
express mail, return receipt requested, to such party at its address set forth
below:
<PAGE>
(a) ARTRA
ARTRA GROUP Incorporated
500 N. Central Ave.
Northfield, IL 60093
Attn: Peter R. Harvey
Fax #: (847) 441-6959
(b) Westminster
Westminster Capital, Inc.
9665 Wilshire Blvd., Suite M-10
Beverly Hills, CA 90212
Attn: William Belzberg
Fax #: (310) 271-6274
13. Entire Agreement. This Agreement, the other Transaction Documents,
the Guaranty and the Pledge Agreement entered into concurrently herewith embody
the entire agreement and understanding between ARTRA, Fill-Mor and Westminster
and supersede all prior agreements and understandings relating to the subject
matter hereof and thereof. This Agreement and the transactions contemplated
hereby are not contingent upon, and shall not be affected by, any other
transaction on similar terms being entered into by ARTRA with any person or
entity concurrently or substantially concurrently with the transactions
contemplated by this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts which shall, collectively and separately, constitute one agreement.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
ARTRA GROUP INCORPORATED
By: ____________________________________
Title: ____________________________________
FILL-MOR HOLDING, INC.
By: ____________________________________
Title: ____________________________________
WESTMINSTER CAPITAL, INC.
By: ____________________________________
Title: ____________________________________
EXHIBIT 10.2
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this "Agreement") is made this 20th day
of February, 1996, by and between ARTRA GROUP Incorporated, a Pennsylvania
corporation ("ARTRA"), Fill-Mor Holding, Inc., a Delaware corporation
("Fill-Mor") and Norton Herrick ("Herrick").
WHEREAS, in consideration of a payment of $1,000,000.00 from Herrick to
ARTRA, ARTRA is willing to issue to Herrick a 10% Secured Convertible Promissory
Note of even date herewith in the principal amount of $1,200,000.00 (the
"Note"); and
WHEREAS, the parties desire to enter into certain other agreements
related to the issuance of the Note.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises and agreements hereinafter set forth, the parties agree as follows:
1. Transaction.
(i) In consideration for the delivery by Herrick to ARTRA of
the sum of $1,000,000.00 in good and immediately available funds, ARTRA hereby
agrees to issue to Herrick the Note. The Note shall bear interest at the rate of
10% per annum and shall be due and payable 120 days from the date of issuance.
Payment by ARTRA of the Note shall be guaranteed by ARTRA's wholly-owned
subsidiary, Fill-Mor and such guaranty shall be evidenced by a guaranty of even
date herewith (the "Guaranty") duly executed by Fill-Mor. The Guaranty shall be
secured by 990,000 shares of common stock of COMFORCE Corporation owned by
Fill-Mor, and such security interest shall be evidenced by a Pledge Agreement of
even date herewith (the "Pledge Agreement") entered into by Fill-Mor and
Herrick. The Note shall also have a conversion feature which shall allow Herrick
to convert up to $200,000.00 of the Note's principal balance, plus related
accrued and unpaid interest, into shares of ARTRA common stock (the "Conversion
Shares") at the conversion price of $5.00 per share. The registration rights of
Herrick in regard to the Conversion Shares shall be evidenced by a Registration
Rights Agreement of even date herewith (the "Registration Rights Agreement")
entered into by the parties. This Agreement, the Note, and the Registration
Rights Agreement are sometimes collectively referred to hereafter as the
"Transaction Documents".
<PAGE>
(ii) In further consideration for the delivery by Herrick to
ARTRA of the sum of $1,000,000.00, ARTRA hereby agrees to cause the delivery to
Herrick of 10,000 shares of common stock of COMFORCE Corporation owned by
Fill-Mor (the "Payment Shares").
2. Closing. The Closing shall take place on even date herewith (the
"Closing Date") at the offices of ARTRA's counsel, Kwiatt, Silverman & Ruben,
Ltd., 500 Central Avenue, Northfield, Illinois, or at such other time and place
as mutually agreed upon by the parties. The effectiveness of the Closing shall
be conditioned upon the occurrence of the events specified in Section 6 hereof.
At the Closing ARTRA will deliver to Herrick the Note to be purchased
by Herrick dated as of the Closing Date, against delivery by Herrick to ARTRA of
the purchase price therefor by wire transfer of immediately available funds in
the amount of such purchase price into the Kwiatt, Silverman & Ruben, Ltd.
Escrow Account # GL3080823 at Manufacturers Bank in Chicago, Illinois. At the
Closing Fill-Mor shall deliver to Herrick the Payment Shares, as well as the
collateral pursuant to the Pledge Agreement. If at the Closing ARTRA shall fail
to tender such Note, or if Fill-Mor shall fail to deliver such Payment Shares
and such collateral to Herrick as provided in this Section 2, or if any of the
conditions specified in Section 6 hereof shall not have been fulfilled to its
satisfaction, Herrick shall, at its election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights it
may have by reason of such failure or nonfulfillment.
3. Representations and Warranties of ARTRA. ARTRA and Fill-Mor
represent and warrant to Herrick as follows:
3.1 Organization.
(i) ARTRA is a corporation duly organized, validly
existing, and in good standing in the State of Pennsylvania, has full corporate
power to own and lease its properties, to carry on its businesses and to
execute, deliver and perform the transactions contemplated by, the Transaction
Documents and is duly qualified to do business and in good standing in each
jurisdiction in which the character of its properties or transactions material
to its business makes such qualification necessary, except that ARTRA is not in
good standing in the State of Illinois.
(ii) COMFORCE Corporation ("COMFORCE") is a
corporation duly organized, validly existing, and in good standing in the State
of Delaware, has full corporate power to own its properties, to carry on its
businesses and is duly qualified to do business and in good standing in each
jurisdiction in which the character of its properties or transactions material
to its business makes such qualification necessary.
<PAGE>
3.2 Authority.
(i) The execution, delivery and performance by ARTRA of this
Agreement, the Note, the Registration Agreement, and all other related
undertakings of ARTRA have been duly authorized by all requisite corporate
action of ARTRA, do not require the approval of the stockholders of ARTRA, do
not require the consent or approval of any governmental authority, will not
violate any law or regulation (including, without limitation, Regulation G, U or
X of the Federal Reserve Board and all applicable state securities laws) will
not violate the certificate of incorporation or by-laws of ARTRA, and will not
violate or constitute (with due notice or lapse of time or both) a default under
any indenture, agreement, license or other contract to which ARTRA is a party or
by which it or its properties are bound.
(ii) The execution, delivery and performance by Fill-Mor of
this Agreement, the Guaranty, the Pledge Agreement, and all other related
undertakings of Fill-Mor have been duly authorized by all requisite corporate
action of Fill-Mor, do not require the approval of the stockholders of Fill-Mor,
do not require the consent or approval of any governmental authority, will not
violate any law or regulation (including, without limitation, Regulation G, U or
X of the Federal Reserve Board and all applicable state securities laws) will
not violate the certificate of incorporation or by-laws of Fill-Mor, and will
not violate or constitute (with due notice or lapse of time or both) a default
under any indenture, agreement, license or other contract to which Fill-Mor is a
party or by which it or its properties are bound.
3.3 Enforcement. Each of the Transaction Documents will be,
when executed and delivered by ARTRA, a valid, legal and binding obligation of
ARTRA, enforceable against ARTRA in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditor's rights generally.
3.4 Financial Statements.
(i) ARTRA's financial statements , included in
ARTRA's Form 10-K for the fiscal year ended December 29, 1994 and in ARTRA's
Form 10-Q for the quarterly period ended September 28, 1995, present fairly, in
all material respects, the financial condition and the results of operations and
cash flows of ARTRA in accordance with generally accepted accounting principles.
<PAGE>
(ii) COMFORCE's financial statements , included in
COMFORCE's Form 10-K for the fiscal year ended December 31, 1994 and in
COMFORCE's Form 10-Q for the quarterly period ended September 30, 1995, present
fairly, in all material respects, the financial condition and the results of
operations and cash flows of COMFORCE in accordance with generally accepted
accounting principles.
3.5 Litigation. No litigation, or governmental proceedings are
pending or threatened against ARTRA or COMFORCE, nor do any other circumstances
exist, the results of which might materially and adversely affect the financial
condition or results of operations of each company, except those disclosed in
the respective financial statements of each referenced in subsection 3.4 hereof.
3.6 Authorization of Conversion Shares. The issuances of the
Conversion Shares under the circumstances described in, and pursuant to the
terms of, the Note have been duly authorized and, when issued and delivered in
accordance with the provisions of the Note, the Conversion Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. The
Conversion Shares are not subject to the preemptive rights of any security
holder of ARTRA.
3.7 Authorization of COMFORCE Shares. The Payment Shares
received by Herrick from Fill-Mor, and the common shares of COMFORCE pledged by
Fill-Mor pursuant to the Pledge Agreement have been duly authorized and validly
issued, are fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. Fill-Mor
has good and marketable title to the Payment Shares and the shares of common
stock of COMFORCE pledged under the Pledge Agreement free and clear of all
liens, claims, encumbrances, restrictions and covenants, except the security
interest which will be released concurrently with the Closing. The Payment
Shares and the COMFORCE shares pledged under the Pledge Agreement are not
subject to the preemptive rights of any security holder of COMFORCE.
3.8 Noncontravention. Neither ARTRA nor COMFORCE is in any
violation of, or in default under, nor will the execution and delivery or
performance of the Transaction Documents result in the violation of (i) any term
or provision of its respective Articles of Incorporation or By-Laws, as amended;
(ii) except as may be otherwise disclosed in the financial statements of ARTRA
and COMFORCE, referred to in Section 3.4 hereof, any material term or provision,
or any financial covenants, of any indenture, mortgage, contract, commitment or
other agreement or instrument to which either is a party or by which either or
any of the respective properties or businesses of either is or may be bound or
affected; or (iii) any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over ARTRA or COMFORCE, as applicable, or any of the properties or
businesses of either, as applicable. ARTRA or COMFORCE, as applicable, own,
possess or have obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other authorizations
("Permits") necessary to own or lease, as the case may be, and to operate its
respective properties and to conduct its respective businesses or operations as
currently conducted and all such Permits are outstanding and in good standing,
and there are no proceedings pending or, to ARTRA's knowledge, threatened, nor
is there any basis therefor, seeking to cancel, terminate or limit such Permits.
<PAGE>
3.9 Reg D Qualification; Offering Documents. Assuming the
representations and warranties of Herrick contained herein are true and correct,
the offer and sale of the Note by ARTRA has satisfied and on the Closing Date
will have satisfied all of the requirements of Regulation D under the Securities
Act of 1933, as amended, ("Reg D") and ARTRA is not disqualified from the
exemption under Rule 505 contained in Reg D by virtue of the disqualifications
contained in Rule 505(b)(2)(iii), or the exemption under Reg D by virtue of the
disqualification contained in Rule 507.
3.10 Intangibles. Each of ARTRA and COMFORCE own or possess
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of the respective business of each (collectively the "Intangibles"); to
ARTRA's knowledge, neither ARTRA or COMFORCE has infringed or is infringing upon
the rights of others with respect to the respective Intangibles of each and
neither ARTRA or COMFORCE has received any notice that it has or may have
infringed or is infringing upon the rights of others with respect to the
Intangibles; and neither ARTRA or COMFORCE has received any notice of conflict
with the asserted rights of others with respect to the respective Intangibles of
each which could, singly or in the aggregate, materially adversely affect the
respective business, financial condition or results of operations of each and
ARTRA does not know of any basis therefor; and, to ARTRA's knowledge, no others
have infringed upon the respective Intangibles of each of ARTRA and COMFORCE.
3.11 Labor Relations. To the best of ARTRA's knowledge, no
labor problem exists with ARTRA's employees or is imminent which could adversely
affect ARTRA, nor do labor problem exists with COMFORCE's employees or is
imminent which could adversely affect COMFORCE
3.12 Insurance. Each of ARTRA and COMFORCE has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in amounts which it deems, in good faith, to be adequate, such other
insurance, including but not limited to, liability insurance, as is usually
maintained by companies engaged in the same or similar businesses.
<PAGE>
3.13 Taxes. ARTRA and COMFORCE have filed all tax returns
which are required by law to have been filed and have paid all taxes,
assessments, fees and charges of each governmental body shown to be due and
payable on such returns to the extent the same have become due and payable and
before they have become delinquent other than those presently payable without
penalty or interest and those being contested in good faith by appropriate
proceedings as to which adequate reserves have been established in accordance
with generally accepted accounting principles ("GAAP") with respect thereto. In
the opinion of ARTRA, all tax liabilities are adequately provided for on the
books of ARTRA and COMFORCE in accordance with GAAP.
3.14 No Adverse Change. Since the respective dates, referenced
in Section 3.4 hereof, as of which information is given in ARTRA's and
COMFORCE's financial statements as referenced in section 3.4, neither has
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction, whether or not in the ordinary course of
business, nor sustained any material loss or interference with its business from
fire, storm, explosion, flood or other casualty, nor experienced any labor
dispute, nor incurred any court or governmental action, order or decree, which
would have a material adverse change in the respective financial conditions of
each of ARTRA and COMFORCE.
3.15 Investment Company Act. ARTRA is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
nor is subject to regulation under such act.
4. Representations and Warranties of Herrick. Herrick
represents and warrants to ARTRA as follows:
4.1 Herrick represents and warrants to ARTRA that he has full
power to own his properties, to carry on his businesses and to execute, deliver
and perform this Agreement.
4.2 Each of the Transaction Documents will be, when executed
and delivered by Herrick, a legal, valid and binding obligation of Herrick
enforceable against Herrick, in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally or general equity principles.
<PAGE>
4.3 The execution, delivery and performance by Herrick of the
Transaction Documents will not violate any law or regulation, violate or
constitute (with due notice or lapse of time or both), a material default under
any indenture, agreement, license or other instrument or contract to which
Herrick is a party or by which its properties are bound, and do not require any
filing or registration, permit, license, consent or approval of any governmental
agency.
4.4 Herrick represents that it is purchasing the Note for
investment purposes only and that in all respects Herrick acknowledges its
understanding that ARTRA is relying on the exemptions contained in Section 4(2)
of the Securities Act of 1933 and Section 4(Q) of the Illinois Securities Law of
1953 in making the sale contemplated under this Agreement.
5. Covenants of ARTRA. ARTRA hereby covenants as follows:
5.1 Upon an exercise by Herrick of its conversion rights under
the Note, ARTRA covenants that it shall issue the requisite number of Conversion
Shares, which shares shall be duly authorized, validly issued, fully paid and
non-assessable, and issued free and clear of all liens and defects to title.
5.2 ARTRA agrees to include the Conversion Shares in the Form
S-1 Registration Statement presently being prepared, in accordance with the
terms of the Registration Agreement, and to keep such registration statement
effective in accordance with the terms of the Registration Rights Agreement.
5.3 ARTRA agrees to provide anti-dilution protection to
Herrick in regard to the Conversion Shares, in accordance with the anti-dilution
provisions of the Note.
5.4 Within 10 days after the date of this Agreement, ARTRA
agrees to cause to be paid or forgiven at least $13 million of its presently
outstanding bank indebtedness.
6. Conditions To Effectiveness. The parties do not intend to
be bound by this Agreement unless the actions listed in this section 6 have
occurred at the Closing; such actions shall be deemed to have occurred
concurrently with the execution of this Agreement. Any party has the right to
withdraw any signed Transaction Document and not to close the transaction until
the following actions have occurred:
6.1 Delivery of Funds. Herrick shall have delivered to ARTRA
the sum of $1,000,000.00 in good and immediately available funds by wire
transfer, or in such other manner as mutually agreed upon by the parties.
<PAGE>
6.2 Corporate Authority ARTRA shall have delivered to Herrick,
in form and substance satisfactory to Herrick:
(i) copies, certified by ARTRA's secretary or
assistant secretary, of its Articles of Incorporation,
By-laws, and resolutions of its Board of Directors authorizing
the execution and delivery of this Note and all other
documents to be delivered by ARTRA hereunder; and
(ii) a certificate by the secretary or assistant
secretary of ARTRA certifying the names of its officers
authorized to sign this Agreement and all other documents to
be delivered by ARTRA hereunder, together with true signatures
of such officers.
6.3 Opinion of Counsel ARTRA shall have delivered to Herrick
an opinion of counsel dated as of the date hereof, which opinion shall be in
form and substance satisfactory to Herrick.
6.4 Other Documents ARTRA shall have delivered to Herrick the
following documents, in form and substance satisfactory to Herrick:
(i) the Note, duly executed by ARTRA;
(ii) the Registration Rights Agreement, duly executed
by ARTRA and Herrick.
6.5 Payment Shares. ARTRA shall have delivered to Herrick
certificates evidencing the Payment Shares, accompanied by stock powers
appropriately executed in blank.
6.6 Corporate Authority of Fill-Mor. Fill-Mor shall have
delivered to Herrick:
(i) a copy, certified by Fill-Mor's secretary or
assistant secretary, of resolutions of its Board of Directors
authorizing the execution, delivery and performance of the
Guaranty and the Pledge Agreement.
(ii) a certificate by the secretary or assistant
secretary of Fill-Mor certifying the names of its officers
authorized to sign the Guaranty and the Pledge Agreement,
together with true signatures of such officers.
<PAGE>
6.7 Delivery of Guaranty and Pledge Agreement. Fill-Mor shall
have delivered to Herrick:
(i) the Guaranty, duly executed by Fill-Mor; and
(ii) the Pledge Agreement duly executed by Fill-Mor
and Herrick, including delivery of one or more certificates
evidencing the Pledged Securities accompanied by separate
stock powers appropriately executed in blank to Herrick as
contemplated therein.
6.8 Concurrent Closing of Other Loan. The loan being made to
ARTRA by Westminster Capital, Inc. in the amount of $1,000,000 on substantially
the same terms as the loan contemplated by this Agreement shall have closed
concurrently with the closing of the transactions contemplated by this
Agreement.
7. [Intentionally Deleted]
8. No Waiver; Cumulative Remedies. Herrick shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be void unless in writing, signed by Herrick and
then only to the extent therein set forth. A waiver by Herrick of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Herrick would otherwise have had on any future occasion.
The rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by the parties.
9. Assignment. This Agreement may not be assigned by a party to one or
more third parties without the prior written consent of the other party, but
nothing herein shall limit or affect the assignment of the Note or the other
Transaction Documents.
10. Successors and Assigns. This Agreement inures to the benefit of the
parties and binds each party, and its respective successors and permitted
assigns.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made by parties resident in, and to be
performed in said state (not including the provisions of conflict of laws).
<PAGE>
12. Notices. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party, sent by
telecopier (with original timely mailed), or sent by certified, registered or
express mail, return receipt requested, to such party at its address set forth
below:
(a) ARTRA
ARTRA GROUP Incorporated
500 N. Central Ave.
Northfield, IL 60093
Attn: Peter R. Harvey
Fax #: (847) 441-6959
(b) Herrick
Norton Herrick
c/o Herrick Co.
2295 Corporate Blvd., Suite 222
P.O. Box 5010
Boca Raton, Florida 33431
Fax #: (407) 241-9887
13. Entire Agreement. This Agreement, the other Transaction Documents,
the Guaranty and the Pledge Agreement entered into concurrently herewith embody
the entire agreement and understanding between ARTRA, Fill-Mor and Herrick and
supersede all prior agreements and understandings relating to the subject matter
hereof and thereof. This Agreement and the transactions contemplated hereby are
not contingent upon, and shall not be affected by, any other transaction on
similar terms being entered into by ARTRA with any person or entity concurrently
or substantially concurrently with the transactions contemplated by this
Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts which shall, collectively and separately, constitute one agreement.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
ARTRA GROUP INCORPORATED
By: ____________________________________
Title: ____________________________________
FILL-MOR HOLDING, INC.
By: ____________________________________
Title: ____________________________________
NORTON HERRICK
_______________________________________
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of the ____ day of February, 1996, by and among ARTRA GROUP
Incorporated, a Pennsylvania corporation (the "Company") and Westminster
Capital, Inc., a Delaware corporation ("Purchaser").
RECITALS
A. The Company and the Purchaser are entering into the Securities
Purchase Agreement dated the same date as this Agreement (the "Purchase
Agreement") concurrently with entering into this Agreement pursuant to which the
Purchaser has agreed to purchase from the Company a Secured Convertible
Promissory Note in the principal amount of $1,200,000 (the "Convertible Note")
on the terms and subject to the conditions set forth in the Purchase Agreement.
B. The parties now desire to provide for the registration under the
Securities Act of 1933 of the shares of Common Stock of the Company issuable
upon conversion of the Convertible Note or any other securities of the Company
which became issuable upon such conversion in accordance with the terms of the
Convertible Note.
AGREEMENT
NOW, THEREFORE, based on the preceding Recitals, and in consideration
of the mutual covenants set forth below, the parties to this Agreement agree as
follows:
1. Definitions. For the purposes of this
Agreement, the following words shall have the meanings set
forth below:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Company's Common Stock, Par
Value $-01 Per Share"
"Conversion Securities" means (i) any Common Stock issued or issuable
upon conversion of the Convertible Note, and (ii) any securities of the Company
issued or issuable with respect to the shares referred in clauses (i) of this
paragraph by reason of a stock dividend or stock split or in connection with a
combination of securities, recapitalization, merger, consolidation or other
reorganization.
"Convertible Note" shall have the meaning set forth
in Paragraph B of the Recitals.
<PAGE>
"Purchase Agreement" shall have the meaning set forth
in Paragraph A of the Recitals.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Securities Act" means the Securities Act of 1933, as
amended.
2. Required Registrations.
(a) Initial Registration. The Company agrees to include the
Conversion securities in a registration statement to be filed with the
Commission on or before June 1, 1996 and to use its best efforts to cause said
registration statement to become effective.
(b) Piggyback Registration. The Company agrees that if the
Conversion Securities are not registered under the registration statement
referred to in (a) above and the Company proposes to file a new or different
registration statement under the Securities Act at any time prior to the
expiration of two years after the date of this Agreement, then the Company shall
give notice to the then holders of record of the Conversion Securities (the
"Prospective Sellers") at least 20 days before the filing of such proposed
registration statement. The notice shall offer to include in such filing, to the
extent then permissible under the Securities Act, all of the Conversion
Securities. The Prospective Sellers shall then have a period of up to ten (10)
days after the date of the mailing of such notice to advise the Company of its
election to include all or part of the Conversion Securities in such
registration statement. The Company shall thereupon include such Conversion
Securities in the registration statement and shall use its best efforts to cause
such registration statement to become effective except that the Company shall
have no such obligation if aggregate amount of conversion securities to be
included in the registration statement is less than 25% of all outstanding
Conversion Securities.
3. Registration Procedures.
(a) If and when the Company is required by the provisions of
this Agreement to use its best efforts to cause a registration statement with
respect to Conversion Securities to become effective, the Company shall:
(i) use its best efforts to cause such registration
statement to become and remain effective until such time when Purchaser is able
to sell the Convertible securities without registration pursuant to Rule 144;
(ii) prepare and file with the commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
covered by such
<PAGE>
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition from time to time of the
Prospective Sellers who have requested that any of their securities be sold or
otherwise disposed of in connection with the registration;
(iii) furnish to each Prospective Seller such number
of copies of each prospectus, including preliminary prospectuses, in conformity
with the requirements of the Securities Act, and such other documents, as the
Prospective Seller may reasonably request in order to facilitate the public sale
or other disposition of the securities owned by it;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky or other applicable laws of such jurisdictions as each Prospective
Seller shall reasonably request to enable such seller to consummate the public
sale or other disposition of the securities owned by such seller; provided that,
the Company shall not be required in connection therewith to qualify to do
business or to file a general consent to service of process in any such
jurisdiction;
(v) cause all such securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(vi) maintain a transfer agent and registrar for all
such securities;
(vii) enter into such customary agreements and take
all such other customary actions as the holders of a majority of the securities
being sold reasonably request in order to expedite or facilitate the disposition
of such securities; and
(viii) make available for inspection by any
Prospective Seller, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with the preparation of such registration statement.
(b) Each Prospective Seller of such securities shall furnish to the
Company such information as the Company may reasonably require from the
Prospective Seller for inclusion in the registration statement (and the
prospectus included therein).
<PAGE>
(c) The Prospective Sellers shall not (until further notice) effect
sales of the Conversion Securities covered by the registration statement after
receipt of written notice from the Company to suspend sales to permit the
company to correct or update a registration statement or prospectus.
4. Expenses of Registration. All registration and filing fees, printing
expenses, expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Company and expenses of any audits incidental to or required by
any such registration pursuant to Section 2 hereof ("Registration Expenses")
shall be borne by the Company.
5. Indemnification.
(a) In the event of any registration of any of its securities
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless each holder of Conversion Securities included in a
registration of such securities, each underwriter (as defined in the Securities
Act) and each controlling person of any holder or underwriter, if any, (within
the meaning of the Securities Act) against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which such
holder, underwriter or controlling person may be subject under the Securities
Act, under any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement (or alleged untrue statement) of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any other document, or (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 violation by the Company of the
Securities Act or any Blue Sky law, or any rule or regulation promulgated under
the Securities Act or any Blue Sky law, or any other law, applicable to the
Company in connection with any such registration, qualification or compliance
((i), (ii) and (iii) are each referred to hereafter as a "Violation"), and shall
reimburse each such holder of Conversion Securities, underwriter or controlling
person for any legal or other expenses reasonably incurred by such holder,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to any holder of Conversion securities, underwriter
or controlling person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
omission made in such registration statement, preliminary prospectus, summary
prospectus, prospectus, or amendment or supplement thereto, or any other
document, in reliance upon and in conformity with written information furnished
to the Company by such holder, underwriter or controlling person, respectively,
specifically for use therein.
(b) In the event of any registration of any of its securities
under the Securities Act pursuant to this Agreement, each holder of Conversion
Securities requesting or joining in a registration of such securities shall
<PAGE>
indemnify and hold harmless the Company, each underwriter (as defined in the
Securities Act) and each controlling person of the Company or underwriter, if
any, (within the meaning of the Securities Act) against any losses, claims,
damages or liabilities, joint or several (or actions in respect thereof), to
which the Company, underwriter or controlling person may be subject under the
Securities Act, under any other statute or at common law insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon written information
furnished by the holder of the Conversion Securities expressly for use in
connection with such registration, and shall reimburse the Company, underwriter
or controlling person for any legal or other expenses reasonably incurred by the
Company, underwriter or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the holder of the Conversion Securities shall not be liable to the Company,
underwriter or controlling person in any such case to the extent that any such
loss, claim, damage or liability exceeds the gross proceeds from the offering
received by such holder. The indemnity provided for herein shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company, underwriter or controlling person.
(c) If the indemnification provided for in Section 5(a) or
5(b) above is unavailable to an indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then the indemnifying party
in lieu of indemnifying such indemnified party thereunder shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities, in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 5(c) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim.
<PAGE>
Notwithstanding the provisions of this Section 5(c), no holder
of Conversion Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Conversion Securities sold by
it exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) Promptly after receipt by an indemnified party under
Section 5(a) or 5(b) above of notice of the commencement of any action, such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such Sections or to the extent that it has not been
prejudiced as a proximate result of such failure. In case any such action shall
be brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties). Upon the permitted assumption by
the indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under this Section 5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time, (iii) the indemnifying party and its
counsel do not actively and vigorously pursue the defense of such action or (iv)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
6. Rights Which May Be Granted to Other Persons. The Company shall not
grant any person registration rights which shall in any way whatsoever impair
the priority of the registration rights granted to the Purchaser in this
Agreement.
7. Rule 144 Requirements. Immediately after the date on which a
registration statement filed by the Company under the Securities Act becomes
effective, the Company shall undertake to make and keep publicly available, and
available to the holders of conversion securities, such information as is
necessary to enable the holders of Conversion Securities to make sales of such
securities pursuant to Rule 144 of the Commission under the Securities Act. The
Company shall furnish to any such holder, upon request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirements of Rule 144.
<PAGE>
8. Assignment of Registration Rights. The rights to cause the Company
to register conversion Securities pursuant to this Agreement may be assigned
(but only with all related obligations) by the Purchasers to one or more
transferees or assignees of the Convertible Note or Conversion Securities,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of each such transferee or assignee
and the securities with respect to which such registration rights are being
assigned.
9. Miscellaneous.
(a) Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors of the parties, but
(except as otherwise specifically provided for herein) neither party will have
the right to assign its rights under this Agreement to any other person or
entity without the prior written consent of the other party, which consent can
be withheld for any reason or without reason. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Illinois as applied to agreements among
Illinois residents entered into and to be performed entirely within Illinois.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided herein, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or three (3) days after deposit in the United States mail, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party in the Convertible Note, or at such other
address as such party may designate by written notice to the other parties.
<PAGE>
(f) Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
(g) Entire Agreement. This Agreement the Convertible Note, the
Purchase Agreement and the Pledge Agreement referred to in the Convertible Note
and the Secured Promissory Note referred to in the Recitals to this Agreement
constitute the entire understanding and agreement between the parties with
regard to the specific subject matter hereof and no party shall be liable or
bound by any representation, warranty, covenant or agreement except as
specifically set forth herein. Any previous agreement (whether written, oral or
implied) among the parties relative to the specific subject matter hereof is
superseded by this Agreement and the other documents specifically referred to in
the preceding sentence.
(h) Amendments and Waivers. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated orally or in
writing, except that any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of the Conversion Securities then in
existence; provided, however, that no such amendment or waiver shall affect the
provisions of this Section, no such waiver shall extend to or affect any other
obligation not expressly waived.
(i) Specific Performance. The parties hereto agree
that because of the restrictions of the Securities Act the Conversion Securities
cannot be purchased or sold in the open market and that, for these reasons,
among others, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforceable. Accordingly, in the event of any
controversy concerning the Conversion Securities which are the subject of this
Agreement, or any right or obligation to register such securities, such right or
obligation shall be enforceable in a court of equity by specific performance.
The rights granted in this Section shall be cumulative and not exclusive and
shall be in addition to any and all other rights which the parties hereto may
have hereunder, at law or in equity.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above-written.
"COMPANY" ARTRA GROUP Incorporated,
a Pennsylvania corporation
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
"PURCHASER" WESTMINSTER CAPITAL, INC.
a Delaware corporation
By:
------------------------------
Name:
------------------------------
Its: Chairman and President
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of the ____ day of February, 1996, by and among ARTRA GROUP
Incorporated, a Pennsylvania corporation (the "Company") and Norton Herrick
("Purchaser").
RECITALS
A. The Company and the Purchaser are entering into the Securities
Purchase Agreement dated the same date as this Agreement (the "Purchase
Agreement") concurrently with entering into this Agreement pursuant to which the
Purchaser has agreed to purchase from the Company a Secured Convertible
Promissory Note in the principal amount of $1,200,000 (the "Convertible Note")
on the terms and subject to the conditions set forth in the Purchase Agreement.
B. The parties now desire to provide for the registration under the
Securities Act of 1933 of the shares of Common Stock of the Company issuable
upon conversion of the Convertible Note or any other securities of the Company
which became issuable upon such conversion in accordance with the terms of the
Convertible Note.
AGREEMENT
NOW, THEREFORE, based on the preceding Recitals, and in consideration
of the mutual covenants set forth below, the parties to this Agreement agree as
follows:
1. Definitions. For the purposes of this Agreement, the following words
shall have the meanings set forth below:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Company's Common Stock, Par Value $.01 Per
Share.
"Conversion Securities" means (i) any Common Stock issued or issuable
upon conversion of the Convertible Note, and (ii) any securities of the Company
issued or issuable with respect to the shares referred in clauses (i) of this
paragraph by reason of a stock dividend or stock split or in connection with a
combination of securities, recapitalization, merger, consolidation or other
reorganization.
"Convertible Note" shall have the meaning set forth in Paragraph B of
the Recitals.
<PAGE>
"Purchase Agreement" shall have the meaning set forth in Paragraph A of
the Recitals.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Securities Act" means the Securities Act of 1933, as amended.
2. Required Registrations.
(a) Initial Registration. The Company agrees to include the
Conversion Securities in a registration statement to be filed with the
Commission on or before June 1, 1996 and to use its best efforts to cause said
registration statement to become effective.
(b) Piggyback Registration. The Company agrees that if the
Conversion Securities are not registered under the registration statement
referred to in (a) above and the Company proposes to file a new or different
registration statement under the Securities Act at any time prior to the
expiration of two years after the date of this Agreement, then the Company shall
give notice to the then holders of record of the Conversion Securities (the
"Prospective Sellers") at least 20 days before the filing of such proposed
registration statement. The notice shall offer to include in such filing, to the
extent then permissible under the Securities Act, all of the Conversion
Securities. The Prospective Sellers shall then have a period of up to ten (10)
days after the date of the mailing of such notice to advise the Company of its
election to include all or part of the Conversion Securities in such
registration statement. The Company shall thereupon include such Conversion
Securities in the registration statement and shall use its best efforts to cause
such registration statement to become effective except that the Company shall
have no such obligation if aggregate amount of Conversion Securities to be
included in the registration statement is less than 25% of all outstanding
conversion Securities.
3. Registration Procedures.
(a) If and when the company is required by the provisions of
this Agreement to use its best efforts to cause a registration statement with
respect to Conversion Securities to become effective, the Company shall:
(i) use its best efforts to cause such registration
statement to become and remain effective until such time when Purchaser
is able to sell the Convertible securities without registration either
pursuant to Rule 144 or;
(ii) prepare and file with the Commission such
<PAGE>
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
covered by such registration statement, including such amendments and
supplements as may be necessary to reflect the intended method of disposition
from time to time of the Prospective Sellers who have requested that any of
their securities be sold or otherwise disposed of in connection with the
registration;
(iii) furnish to each Prospective Seller such number of copies of each
prospectus, including preliminary prospectuses, in conformity with the
requirements of the Securities Act, and such other documents, as the
Prospective Seller may reasonably request in order to facilitate the
public sale or other disposition of the securities owned by it;
(iv) use its best efforts to register or qualify the securities covered
by such registration statement under such other securities or blue sky
or other applicable laws of such jurisdictions as each Prospective
Seller shall reasonably request to enable such seller to consummate the
public sale or other disposition of the securities owned by such
seller; provided that, the Company shall not be required in connection
therewith to qualify to do business or to file a general consent to
service of process in any such jurisdiction;
(v) cause all such securities to be listed on each securities exchange
on which similar securities issued by the Company are then listed;
(vi) maintain a transfer agent and registrar for all such securities;
(vii) enter into such customary agreements and take all such other
customary actions as the holders of a majority of the securities being
sold reasonably request in order to expedite or facilitate the
disposition of such securities; and
(viii) make available for inspection by any Prospective Seller, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with the preparation of
such registration statement.
<PAGE>
(b) Each Prospective Seller of such securities shall furnish
to the Company such information as the Company may reasonably require from the
Prospective Seller for inclusion in the registration statement (and the
prospectus included therein).
(c) The Prospective Sellers shall not (until further notice)
effect sales of the conversion Securities covered by the registration statement
after receipt of written notice from the Company to suspend sales to permit the
company to correct or update a registration statement or prospectus.
4. Expenses of Registration. All registration and filing fees, printing
expenses, expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Company and expenses of any audits incidental to or required by
any such registration pursuant to Section 2 hereof ("Registration Expenses")
shall be borne by the Company.
5. Indemnification.
(a) In the event of any registration of any of its securities
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless each holder of Conversion Securities included in a
registration of such securities, each underwriter (as defined in the Securities
Act) and each controlling person of any holder or underwriter, if any, (within
the meaning of the Securities Act) against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which such
holder, underwriter or controlling person may be subject under the Securities
Act, under any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement (or alleged untrue statement) of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any other document, or (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 violation by the Company of the
Securities Act or any Blue Sky law, or any rule or regulation promulgated under
the Securities Act or any Blue Sky law, or any other law, applicable to the
Company in connection with any such registration, qualification or compliance
((i), (ii) and (iii) are each referred to hereafter as a "Violation"), and shall
reimburse each such holder of Conversion Securities, underwriter or controlling
person for any legal or other expenses reasonably incurred by such holder,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to any holder of Conversion Securities, underwriter
or controlling person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
omission made in such registration statement, preliminary prospectus, summary
prospectus, prospectus, or amendment or supplement thereto, or any other
document, in reliance upon and in conformity with written information furnished
to the Company by such holder, underwriter or controlling person, respectively,
specifically for use therein.
(b) In the event of any registration of any of its securities
under the Securities Act pursuant to this Agreement, each holder of Conversion
<PAGE>
Securities requesting or joining in a registration of such securities shall
indemnify and hold harmless the Company, each underwriter (as defined in the
Securities Act) and each controlling person of the Company or underwriter, if
any, (within the meaning of the Securities Act) against any losses, claims,
damages or liabilities, joint or several (or actions in respect thereof), to
which the Company, underwriter or controlling person may be subject under the
Securities Act, under any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such violation occurs in reliance upon written information
furnished by the holder of the Conversion Securities expressly for use in
connection with such registration, and shall reimburse the Company, underwriter
or controlling person for any legal or other expenses reasonably incurred by the
Company, underwriter or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the holder of the Conversion Securities shall not be liable to the Company,
underwriter or controlling person in any such case to the extent that any such
loss, claim, damage or liability exceeds the gross proceeds from the offering
received by such holder. The indemnity provided for herein shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company, underwriter or controlling person.
(c) If the indemnification provided for in Section 5(a) or
5(b) above is unavailable to an indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then the indemnifying party
in lieu of indemnifying such indemnified party thereunder shall contribute to
the amount paid or payable by such indemnified party as a result of such to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assert such legal defenses (in which
case the indemnifying party shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties). Upon the permitted
assumption by the indemnifying party of the defense of such action, and approval
by the indemnified party of counsel, the indemnifying party shall not be liable
to such indemnified party under this Section 5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time, (iii) the indemnifying party and its
counsel do not actively and vigorously pursue the defense of such action or (iv)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 5(c) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
<PAGE>
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5(c), no holder
of Conversion Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Conversion Securities sold by
it exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) Promptly after receipt by an indemnified party under
Section 5(a) or 5(b) above of notice of the commencement of any action, such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such Sections or to the extent that it has not been
prejudiced as a proximate result of such failure. In case any such action shall
be brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties). Upon the permitted assumption by
the indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under this Section 5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time, (iii) the indemnifying party and its
counsel do not actively and vigorously pursue the defense of such action or (iv)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
6. Rights Which May Be Granted to Other Persons. The Company shall not
grant any person registration rights which shall in any way whatsoever impair
the priority of the registration rights granted to the Purchaser in this
Agreement.
7. Rule 144 Requirements. Immediately after the date on which a
registration statement filed by the Company under the Securities Act becomes
effective, the Company shall undertake to make and keep publicly available, and
available to the holders of conversion Securities, such information as is
necessary to enable the holders of Conversion securities to make sales of such
securities pursuant to Rule 144 of the Commission under the Securities Act. The
Company shall furnish to any such holder, upon request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirements of Rule 144.
<PAGE>
8. Assignment of Registration Rights. The rights to cause the Company
to register Conversion Securities pursuant to this Agreement may be assigned
(but only with all related obligations) by the Purchasers to one or more
transferees or assignees of the Convertible Note or Conversion Securities,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of each such transferee or assignee
and the securities with respect to which such registration rights are being
assigned.
9. Miscellaneous.
(a) Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors of the parties, but
(except as otherwise specifically provided for herein) neither party will have
the right to assign its rights under this Agreement to any other person or
entity without the prior written consent of the other party, which consent can
be withheld for any reason or without reason. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement except as expressly provided in
this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Illinois as applied to agreements among
Illinois residents entered into and to be performed entirely within Illinois.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided herein, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or three (3) days after deposit in the United States mail, by registered or
certified mail,' postage prepaid and addressed to the party to be notified at
the address indicated for such party in the Convertible Note, or at such other
address as such party may designate by written notice to the other parties.
<PAGE>
(f) Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
(g) Entire Agreement. This Agreement the Convertible Note, the
Purchase Agreement and the Pledge Agreement referred to in the Convertible Note
and the Secured Promissory Note referred to in the Recitals to this Agreement
constitute the entire understanding and agreement between the parties with
regard to the specific subject matter hereof and no party shall be liable or
bound by any representation, warranty, covenant or agreement except as
specifically set forth herein. Any previous agreement (whether written, oral or
implied) among the parties relative to the specific subject matter hereof is
superseded by this Agreement and the other documents specifically referred to in
the preceding sentence.
(h) Amendments and Waivers. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated orally or in
writing, except that any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of the Conversion Securities then in
existence; provided, however, that no such amendment or waiver shall affect the
provisions of this Section, no such waiver shall extend to or affect any other
obligation not expressly waived.
(i) Specific Performance. The parties hereto agree that
because of the restrictions of the Securities Act the Conversion Securities
cannot be purchased or sold in the open market and that, for these reasons,
among others, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforceable. Accordingly, in the event of any
controversy concerning the Conversion Securities which are the subject of this
Agreement, or any right or obligation to register such securities, such right or
obligation shall be enforceable in a court of equity by specific performance.
The rights granted in this Section shall be cumulative and not exclusive and
shall be in addition to any and all other rights which the parties hereto may
have hereunder, at law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above-written.
"COMPANY" ARTRA GROUP Incorporated,
a Pennsylvania corporation
By: ______________________________
Name: ______________________________
Its: ______________________________
"PURCHASER"
______________________________
NORTON HERRICK
EXHIBIT 10.5
Registered #
ARTRA GROUP Incorporated
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$100,000.00 December , 1995
---
THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT") AND QUALIFICATION
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS. IT CANNOT BE SOLD, HYPOTHECATED
OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED
UNDER APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO MAKER, AN EXEMPTION
THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, the undersigned, ARTRA GROUP Incorporated, a Pennsylvania
corporation with offices at 500 Central Avenue, Northfield, Illinois 60093
("Maker"), promises to pay to __________________ with an address at
__________________ ("Payee"), on March , 1996 except as otherwise provided
herein (the "Maturity Date"), the principal amount of One Hundred Thousand
($100,000.00) Dollars in lawful money of the United States of America (the
"Principal) together with all accrued interest.
This Note bears simple interest (the "Interest") at the annual rate of twelve
percent (12%), which is payable, in arrears, until the Principal and all accrued
Interest thereon shall be paid in full, on the Maturity Date. The Note is
subordinated to certain of Maker's indebtedness and, if not paid in full at the
Maturity Date, is convertible into Maker's common stock (the "Common Stock"),
all as set forth below.
This Note is one of a series of notes (the "Notes"), all with the same terms and
conditions as those set forth herein, which may be issued by Maker up to the
aggregate principal amount of Three Million Three Hundred Thousand ($3,300,000)
Dollars. Each Note is included in a unit (the "Unit") which is part of an
offering of 33 Units (the "Offering") being conducted by Maker on a ten Unit or
none best efforts basis. The Offering will terminate on the sooner of the sale
of all of the Units or December 26, 1995. Each Unit consists of one Note in the
principal amount of One Hundred Thousand ($100,000) Dollars and 15,000 shares
(the "Unit Shares") of Common Stock. Accordingly, in connection with the
acquisition of this Note, Payee has also received 15,000 Unit Shares.
<PAGE>
1. Interest.
Maker will pay Interest on the Maturity Date. Interest on the Note will
accrue from the date of delivery of the Note. Interest will be computed on the
basis of a 360-day year of twelve 30 day months.
2. Method of Payment.
Maker will pay Principal and Interest in money of the United States
that at the time of payment is legal tender for the payment of public and
private debts. However, Maker may pay Principal and Interest by its check,
subject to collection, payable in such money. Payee must surrender this Note to
Maker to collect Principal payments.
3. Conversion.
(a) Payee's right to Convert. In the event that the Principal and all
accrued Interest thereon are not paid in full on the Maturity Date, Payee shall
have the right, at any time thereafter until the Principal and Interest are paid
in full, to cause the conversion of all or any portion (if such portion is One
Thousand [$1,000] Dollars or a whole multiple of One Thousand [$1,000] Dollars)
of the Principal outstanding and accrued but unpaid Interest at the time such
conversion is effected into shares of Common Stock (the "Underlying Shares").
The price for conversion, subject to adjustment as provided below, shall be
Three ($3.00) Dollars per share. Maker will round to the nearest share for any
fractional share.
(b) Manner of Conversion. Payee may exercise his conversion right by
giving notice thereof to Maker setting forth the amount of Principal and
Interest to be converted. Within 15 days after the giving of such notice Maker
shall issue the number of Underlying Shares into which the Principal and
Interest are to be converted in accordance with the conversion price and deliver
to Payee a certificate or certificates therefor, registered in his name,
representing such Shares against delivery to Maker of this Note marked paid in
full. If only a portion of the Principal and/or Interest then outstanding is
converted, Maker shall deliver to Payee, together with the aforesaid
certificate(s), a new promissory note, in form and substance identical to this
Note, except that the principal amount thereof shall equal that portion of the
Principal and accrued but unpaid Interest then outstanding which has not been
converted. Payee shall represent in writing to Maker prior to the receipt of the
Underlying Shares that such Shares will be acquired by him for investment only
and not for resale or with a view to the distribution thereof, and shall agree
that any certificates representing the Shares may bear a legend, conspicuously
noting such restriction, as Maker shall deem reasonably necessary or desirable
to enable it to comply with any applicable federal or state laws or regulations.
<PAGE>
4. Adjustment in Conversion Price.
(a) Adjustment for Change in Capital Stock. Except as provided in
Paragraph 4 (m) below, if Maker shall (i) declare a dividend on its outstanding
Common Stock in shares of its capital stock, (ii) subdivide its outstanding
Common Stock, (iii) combine its outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger in which Maker is the continuing corporation), then in
each such case the conversion privilege and the conversion price in effect
immediately prior to such action shall be adjusted so that if the Note is
thereafter converted Payee may receive the number and kind of shares which he
would have owned immediately following such action if he had converted the Note
immediately prior to such action. Such adjustment shall be made successively
whenever such event shall occur. The adjustment shall become effective
immediately after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision, combination
or reclassification. If after an adjustment Payee upon conversion of this Note
may receive shares of two or more classes of capital stock of Maker, Maker's
Board of Directors shall determine the allocation of the adjusted conversion
price between the classes of capital stock. After such allocation, the
conversion privilege and conversion price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 4.
(b) Adjustment for Certain Issuances of Common Stock. If Maker shall at
any time or from time to time issue any shares of Common Stock (other than
shares issued as a dividend or distribution as provided in Paragraph 4 (a)
above) for a consideration per share less than the conversion price in effect on
the date of such issue or less than the Current Market Price per share of Common
Stock, then, forthwith upon such issue, the conversion price in effect
immediately prior to such action (the "Existing Conversion Price") shall be
reduced by dividing the number of shares so issued by the total number of shares
outstanding after such issuance, multiplying the quotient by the difference
between the Existing Conversion Price and the price of the shares so issued and
subtracting the result from the Existing Conversion Price. In the case of an
issue of additional shares of Common Stock for cash, the consideration received
by Maker therefor shall be deemed to be the net cash proceeds received for such
shares, excluding cash received on account of accrued interest or accrued
dividends and after deducting therefrom any and all commissions and expenses
paid or incurred by Maker for any underwriting of, or otherwise in connection
with, the issue of such shares. The term "issue" shall be deemed to include the
sale or other disposition of shares held in Maker's treasury. The number of
shares outstanding at any given time shall not include shares in Maker's
treasury.
(c) Subscription Offerings. In case Maker shall issue rights, options,
or warrants entitling the holders thereof to subscribe for or purchase Common
Stock (or securities
<PAGE>
convertible into or exchangeable for Common Stock) at a price per share (or
having a conversion price per share, in the case of a security convertible into
or exchangeable for Common Stock) less than the Existing Conversion Price or the
Current Market Price per share of Common Stock on the record date for the
determination of stockholders entitled to receive such rights or the granting
date if such holders are not stockholders, then in each such case the conversion
price shall be adjusted by multiplying the conversion price in effect
immediately prior to such record or granting date by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on such
record or granting date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so to be
offered (or the aggregate initial conversion price of the convertible securities
so to be offered) would purchase at such Existing Conversion Price or Current
Market Price, as the case may be, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record or granting date
plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or exchangeable
securities so to be offered are initially convertible or exchangeable). Such
adjustment shall become effective at the close of business on such record or
granting date; provided, however, that, to the extent the shares of Common Stock
(or securities convertible into or exchangeable for shares of Common Stock) are
not delivered, the conversion price shall be readjusted after the expiration of
such rights, options, or warrants (but only to the extent that this Note is not
converted after such expiration), to the conversion price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into or exchangeable for shares of Common
Stock) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by Maker's Board of
Directors. Shares of Common Stock owned by or held for the account of Maker or
any majority-owned subsidiary shall not be deemed outstanding for the purpose of
any such computation.
(d) Other Rights to Acquire Common Stock. In case Maker shall
distribute to all holders of Common Stock (including any such distribution made
to the stockholders of Maker in connection with a consolidation or merger in
which Maker is the continuing corporation) evidences of its indebtedness or
assets (other than cash dividends or distributions and dividends payable in
shares of Common Stock), or options or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding those referred to in Paragraph 4 (c) above), then in each such
case the conversion price shall be adjusted by multiplying the conversion price
in effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction, of which the
numerator shall be the Current Market Price per share of Common Stock on such
record date, less the fair market value (as determined in good faith by Maker's
Board of Directors) of the
<PAGE>
portion of the evidences of indebtedness or assets so to be distributed, or of
such subscription rights, options, or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, applicable to one share, and of which the denominator shall be such
Current Market Price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of such distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(e) Current Market Price. For the purpose of any computation under
Paragraphs 4 (b), (c) and (d) above, the "Current Market Price" per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 30 consecutive trading days commencing 45 trading days before
such date. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
closing bid price regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the highest reported bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar organization
if NASDAQ is no longer reporting such information, or by the National Daily
Quotation Bureau or similar organization if the Common Stock is not then quoted
on an inter-dealer quotation system. If on any such date the Common Stock is not
quoted by any such organization, the fair value of the Common Stock on such
date, as determined by Maker's Board of Directors, shall be used.
(f) Minimum Adjustment. No adjustment in the conversion price shall be
required if such adjustment is less than $0.05; provided, however, that any
adjustments which by reason of this Paragraph 4 (f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(g) Referral of Adjustment. In any case in which this Section 4 shall
require that an adjustment in the conversion price be made effective as of a
record date for a specified event, if the Note shall have been converted after
such record date Maker may elect to defer until the occurrence of such event
issuing to Payee the shares, if any, issuable upon such conversion over and
above the shares, if any, issuable upon such conversion on the basis of the
conversion price in effect prior to such adjustment; provided, however, that
Maker shall deliver to Payee a due bill or other appropriate instrument
evidencing Payee's right to receive such additional shares upon the occurrence
of the event requiring such adjustment.
(h) Number of Shares. Upon each adjustment of the conversion price as a
result of the calculations made in Paragraphs 4 (a) through (d) above, the Note
shall thereafter evidence the right to purchase, at the adjusted conversion
price, that number of shares (calculated to the
<PAGE>
nearest thousandth) obtained by dividing (i) the product obtained by multiplying
the number of shares purchasable upon conversion of the Note prior to adjustment
of the number of shares by the conversion price in effect prior to adjustment of
the conversion price by (ii) the conversion price in effect after such
adjustment of the conversion price.
(i) When No Adjustment Required. No adjustment need be made for a
transaction referred to in Paragraphs 4 (a) through (d) above if Payee is
permitted to participate in the transaction on a basis no less favorable than
any other party and at a level which would preserve Payee's percentage equity
participation in the Common Stock upon conversion of the Note. No adjustment
need be made for sales of Common Stock pursuant to a Company plan for
reinvestment of dividends or interest, the granting of options and/or the
exercise of options outstanding under any of Maker's currently existing stock
option plans, or the exercise of any other of Maker's currently outstanding
options. No adjustment need be made for a change in the par value or no par
value of the Common Stock. If the Note becomes convertible solely into cash, no
adjustment need be made thereafter. Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the conversion price is adjusted,
Maker shall promptly mail to Payee a notice of the adjustment together with a
certificate from Maker's independent public accountants briefly stating the
facts requiring the adjustment and the manner of computing it. The certificate
shall be evidence that the adjustment is correct, absent manifest error.
(k) Voluntary Reduction. Maker from time to time may reduce the
conversion price by any amount for any period of time if the period is at least
20 days and if the reduction is irrevocable during the period. Whenever the
conversion price is reduced, Maker shall mail to Payee a notice of the
reduction. Maker shall mail the notice at least 15 days before the date the
reduced conversion price takes effect. The notice shall state the reduced
conversion price and the period it will be in effect. A reduction of the
conversion price does not change or adjust the conversion price otherwise in
effect for purposes of Paragraphs 4 (a) through (d) above.
(l) Notice of Certain Transactions. If (i) Maker takes any action that
would require an adjustment in the conversion price pursuant to this Section 4;
or (ii) there is a liquidation or dissolution of Maker, Maker shall mail to
Payee a notice stating the proposed record date for a distribution or effective
date of a reclassification, consolidation, merger, transfer, lease, liquidation
or dissolution. Maker shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the validity of
the transaction.
(m) Reorganization of Company. If Maker is a party to a merger,
consolidation or a transaction in which it transfers or leases substantially all
of its assets which reclassifies or
<PAGE>
changes its outstanding Common Stock, the person obligated to deliver
securities, cash or other assets upon conversion of the Note shall assume the
terms of this Note. If the issuer of securities deliverable upon conversion of
the Note is an affiliate of the surviving, transferee or lessee corporation,
that issuer shall join in such assumption. The assumption agreement shall
provide that the Payee may convert this Note into the kind and amount of
securities, cash or other assets which he would have owned immediately after the
consolidation, merger, transfer or lease if he had converted the Note
immediately before the effective date of the transaction. The assumption
agreement shall provide for adjustments which shall be as nearly equivalent as
may be practical to the adjustments provided for in this Section 4. The
successor company shall mail to Payee a notice briefly describing the assumption
agreement. If this Paragraph applies, Paragraph 4 (a) above does not apply.
(n) Maker Determination Final. Any determination that Maker or its
Board of Directors must make pursuant to this Section 4 shall be conclusive,
absent manifest error.
5. Inclusion of Securities in Registration Statement; Right to
Registration.
(a) Payee's Right to Registration. Upon receipt of notice (the
"Registration Request Notice") requesting registration of Unit Shares and any
Underlying Shares from the holders of the majority of such Shares, on only one
occasion, immediately after the date hereof and before December 31, 1998, Maker
will offer to Payee the opportunity to include his Unit Shares and Underlying
Shares (the Registerable Shares) in such registration. Maker will use its best
efforts to file with the Securities and Exchange Commission (the Commission) as
promptly as practicable, a registration statement (the "Demand Registration
Statement"), utilizing year end audited financial statements, and will use its
best efforts to have the Demand Registration Statement declared effective and
remain effective until the earlier of two years or the date all the Registerable
Shares registered thereby have been sold. Maker will also use its best efforts
to qualify the Registrable Shares under the securities laws of the state where
Payee resides. This offer to Payee shall be made within 20 days after Maker
receives the Registration Request Notice. This demand registration right may be
exercised one time only. If Payee elects to include his Registrable Shares in
the Demand Registration Statement, he will, in a timely fashion, provide Maker
and its counsel with such information and execute such documents as Maker's
counsel may reasonably require to prepare and process the registration
statement.
(b) "Piggy Back" Registration Rights. If at any time after the
date hereof, Maker proposes to file a Registration Statement under the Act with
respect to any of its securities (except one relating to employee benefit
plans), Maker shall give written notice of its intention to effect such filing
to Payee at least 30 days prior to filing such Registration Statement (the
OPiggy-Back registration Statement). If Payee desires to include his Registrable
Shares in the Piggy-Back Registration Statement, he shall notify Maker in
writing within 15 days after receipt of such notice from Maker, in which event
Maker shall include Payee's Registrable Shares in the
<PAGE>
Piggy-Back Registration Statement. If Payee elects to include his Registrable
Shares in the Piggy-Back Registration Statement as set forth herein, he shall,
in a timely fashion, provide Maker and its counsel with such information and
execute such documents as its counsel may reasonably require to prepare and
process the Piggy-Back Registration Statement.
(c) Copies of Registration Statements and Prospectuses. Maker
will provide Payee with a copy of the Demand Registration Statement or
Piggy-Back Registration Statement, as the case may be, and any amendments
thereto, and copies of the final prospectus included therein in such quantities
as may reasonably be required to permit Payee to sell his Registrable Shares
after the Demand Registration Statement or Piggy-Back Registration Statement, as
the case may be, is declared effective by the Commission.
(d) Maker's Obligation to Bear Expenses of Registration. Maker
will bear all expenses (except underwriting discounts and commission, if any,
and the legal fees and expenses, if any, of counsel to Payee) necessary and
incidental to the performance of its obligations under this Section 5.
(e) Indemnification. Maker and Payee, if Payee's Registrable
Shares are included in a Registration Statement pursuant to this Section 5,
shall provide appropriate cross indemnities to each other covering the
information supplied by the indemnifying party for inclusion in the Registration
Statement.
6. Subordination; Pari Passu with other Notes.
The Note is subordinated to Senior Debt, which is the principal of and
premium, if any, and interest (including post-petition interest, if any) on, and
any other payment due pursuant to the terms of instruments creating or
evidencing Indebtedness of Maker outstanding on the date of this Note or
Indebtedness thereafter created, incurred, assumed or guaranteed by Maker and
all renewals, extensions and refundings thereof, which is payable to banks or
other traditional long-term institutional lenders such as insurance companies
and pension funds, unless in the instrument creating or evidencing such
Indebtedness, it is not provided that such Indebtedness is senior in right of
payment to this Note. Notwithstanding the foregoing, Senior Debt with respect to
Maker or any subsidiary thereof shall not include (i) any Indebtedness of Maker
to any such subsidiary for money borrowed or advanced from such subsidiary, and
(ii) any Indebtedness representing the redemption price of any preferred stock.
"Indebtedness," as applied to any entity means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such entity or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or representing the balance deferred and unpaid of the
purchase price of any property or interest
<PAGE>
therein, except any such balance that constitutes a trade payable, if and to the
extent that such indebtedness would appear as a liability upon a balance sheet
of such entity prepared on a consolidated basis in accordance with generally
accepted accounting principles. Senior Debt must be paid before the Note may be
paid. This Note shall be paid on a pari passu basis with all other Notes. Upon
request of Maker Payee shall execute such subordination agreements with holders
of Senior Debt as shall be reasonably requested.
7. Covenants of Maker.
Maker covenants and agrees that from and after the date hereof and
until the date of repayment in full of the Principal and Interest, it shall
comply with the following conditions:
(a) Maintenance of Existence and Conduct of Business. Maker shall, and
shall cause each of its subsidiaries to (i) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and rights; and (ii) continue to conduct its business so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
(b) Books and Records. Maker shall, and shall cause each of its
subsidiaries to use its reasonable efforts to keep adequate books and records of
account with respect to its business activities.
(c) Insurance. Maker shall use its reasonable efforts to maintain
insurance policies insuring such risks as are customarily insured against by
companies engaged in businesses similar to those operated by Maker. All such
policies are to be carried with reputable insurance carriers and shall be in
such amounts as are customarily insured against by companies with similar assets
and properties engaged in a similar business.
(d) Compliance with Law. Maker shall use its reasonable efforts to
comply in all material respects with all federal, state and local laws and
regulations applicable to it which if breached would have a material adverse
effect on Maker's business or financial condition.
<PAGE>
8. Representations and Warranties of Maker.
Maker represents and warrants that it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania and has all requisite corporate power to carry on its business as
now conducted and to own its properties and assets it now owns; (ii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions in which ownership of property or the conduct of its
business requires such qualification except jurisdictions in which the failure
to qualify to do business will have no material adverse effect on its business,
prospects, operations, properties, assets or condition (financial or otherwise);
(iii) has full power and authority to execute and deliver this Note, and that
the execution and delivery of this Note will not result in the breach of or
default under, with or without the giving of notice and/or the passage of time,
any other agreement, arrangement or indenture to which it is a party or by which
it may be bound, or the violation of any law, statute, rule, decree, judgment or
regulation binding upon it; and (iv) has taken and will take all acts required,
including but not limited to authorizing the signatory hereof on its behalf to
execute this Note, so that upon the execution and delivery of this Note, it
shall constitute the valid and legally binding obligation of Maker enforceable
in accordance with the terms thereof.
9. Defaults and Remedies.
(a) Events of Default. The occurrence or existence of any one or more
of the following events or conditions (regardless of the reasons therefor) shall
constitute an "Event of Default" hereunder:
(i) Maker shall fail to make any payment of Principal or
Interest when due and payable or declared due and payable pursuant to the terms
hereof;
(ii) Maker shall fail at any time to be in material compliance
with any of the covenants set forth in Section 7 of this Note, or shall fail at
any time to be in material compliance with or neglect to perform, keep or
observe any of the provisions of this Note to be complied with, performed, kept
or observed by Maker and such failure shall remain uncured for a period of 15
days after notice thereof has been given by Payee to Maker;
(iii) Any representation or warranty made in this Note by
Maker shall be untrue or incorrect in any material respect as of the date when
made or deemed made;
(iv) A case or proceeding shall have been commenced against
Maker, or any of its subsidiaries, in a court having competent jurisdiction
seeking a decree or order in respect of Maker, or any of its subsidiaries, (A)
under Title 11 of the United States Code, as now
<PAGE>
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law; (B) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of Maker, or
any of its subsidiaries, or any of their respective properties; or (C) ordering
the winding-up or liquidation of the affairs of Maker, or any of its
subsidiaries,, and such case or proceeding shall remain unstayed or undismissed
for a period of 90 consecutive days or such court shall enter a decree or order
granting the relief sought in such case or proceeding; or
(v) Maker, or any of its subsidiaries, shall (A) file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law; or (B) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or the taking of possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Maker, or any of its
subsidiaries, or any of their respective properties.
(b) Remedies. If an Event of Default occurs and is continuing, the
holders of at least 25% in principal amount of the Notes may declare all of the
Notes to be due and payable immediately by notice to Maker.
10. Maker's Right to Prepay.
Maker may prepay this Note or any portion thereof at any time without
incurring any penalty.
11. Acknowledgment of Payee's Investment Representations.
By accepting this Note Payee acknowledges that this Note has not been
and will not be registered under the Act or qualified under any state securities
laws and that the transferability thereof is restricted by the registration
provisions of the Act as well as such state laws. Based upon the representations
and agreements being made by him herein, this Note is being issued to him
pursuant to an exemption from such registration provided by Section 4 (2) of the
Act and applicable state securities law qualification exemptions. Payee
represents that he is acquiring the Note for his own account, for investment
purposes only and not with a view to resale or other distribution thereof, nor
with the intention of selling, transferring or otherwise disposing of all or any
part of it for any particular event or circumstance, except selling,
transferring or disposing of it only upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934, the Rules and
Regulations promulgated by the Commission thereunder, and any applicable state
securities laws. Payee further understands and agrees that no transfer of this
Note shall be valid unless made in compliance with the restrictions set forth on
the front of this Note, effected on Maker's books by the registered holder
hereof, in person or by an attorney duly
<PAGE>
authorized in writing, and similarly noted hereon. Maker may charge Payee a
reasonable fee for any re registration, transfer or exchange of this Note.
12. Limitation of Liability.
A director, officer, employee or stockholder, as such, of Maker shall
not have any liability for any obligations of Maker under this Note or for any
claim based on, in respect or by reason of such obligations or their creation.
Payee, by accepting this Note, waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of this Note.
13. Miscellaneous.
(a) Effect of Forbearance. No forbearance, indulgence, delay or failure
to exercise any right or remedy by Payee with respect to this Note shall operate
as a waiver or as an acquiescence in any default.
(b) Effect of Single or Partial Exercise of Right. No single or partial
exercise of any right or remedy by Payee shall preclude any other or further
exercise thereof or any exercise of any other right or remedy by Payee.
(c) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
(d) Headings. The headings and captions of the various paragraphs
herein are for convenience of reference only and shall in no way modify any of
the terms or provisions of this Note.
(e) Loss, Theft, Destruction or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Note, Maker shall make and deliver or caused to be made and delivered to
Payee a new Note of like tenor in lieu of this Note.
(f) Modification of Note or Waiver of Terms Thereof Relating to Payee.
No modification or waiver of any of the provisions of this Note shall be
effective unless in writing and signed by Payee and then only to the extent set
forth in such writing, nor shall any such modification or waiver be applicable
except in the specific instance for which it is given. This Note may not be
discharged orally but only in writing duly executed by Payee.
<PAGE>
(g) Notice. All offers, acceptances, notices, requests, demands and
other communications under this Note shall be in writing and, except as
otherwise provided herein, shall be deemed to have been given only when
delivered in person, via facsimile transmission if receipt thereof is confirmed
by the recipient, or, if mailed, when mailed by certified or registered mail
prepaid, to the parties at their respective addresses first set forth above, or
at such other address as may be given in writing in future by either party to
the other.
(h) Successors and Assigns. This Note shall be binding upon Maker, its
successors, assigns and transferees, and shall inure to the benefit of and be
enforceable by Payee and its successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be executed on its
behalf by an officer thereunto duly authorized as of the date set forth above.
ARTRA GROUP Incorporated
a Pennsylvania corporation
[SEAL]
By: _________________________
Peter R. Harvey, President
ATTEST: __________________________
Edwin G. Rymek Secretary
EXHIBIT 10.6
Registered # ____
ARTRA GROUP INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
(No Par Value)
April 15, 1996
THIS WARRANT IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS
OF THE SECURITIES ACT OF 1933 (THE "ACT") AND QUALIFICATION PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS. IT CANNOT BE SOLD, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER APPLICABLE
STATE LAW OR, IN THE OPINION OF COUNSEL TO MAKER, AN EXEMPTION THEREFROM IS
AVAILABLE.
FOR VALUE RECEIVED, Avery J. Stone Trust (the "Holder") is entitled to purchase,
subject to the provisions of this Warrant, from ARTRA GROUP Incorporated, a
Pennsylvania corporation ("ARTRA" or the "Company"), at a price of $6.00 per
share (the "Exercise Price") of no par common stock of the Company, ("Common
Stock"), at any time from August 15, 1996 to the time of expiration of this
Warrant at 5:00 p.m., Chicago, Illinois time, on April 15, 1999 (the "Expiration
Date"), 20,000 shares of Common Stock, and the Holder shall be governed and
bound by all of the covenants, terms and conditions contained herein. The number
of shares of Common Stock to be received upon the exercise of this Warrant and
the price to be paid for a share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise and as adjusted from time to time are hereinafter sometimes referred to
as "Warrant Shares", and the exercise price of a share of Common Stock in effect
at any time and as adjusted from time to time is hereinafter sometimes referred
to as the "Exercise Price".
This Warrant is one of a series of warrants (the "Warrants"), all with the same
terms and conditions as those set forth herein, which may be granted by Maker up
to the aggregate number of 350,000 Warrant Shares. Each Warrant is included in a
unit (the "Unit") which is part of an offering of seventy (70) Units (the
"Offering") being conducted by Maker on a 50 Unit or none best efforts basis.
The Offering will terminate on the sooner of the sale of all of the Units or
April 25, 1996. Each Unit consists of one Warrant and one 12% Secured Promissory
Note in the principal amount of one hundred thousand ($100,000.00) Dollars.
Accordingly, in connection with the acquisition of this Warrant, the Holder has
also received the Note.
<PAGE>
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time on or before the above-stated time of expiration of this
Warrant, or if such day is a day on which banking institutions are authorized by
law to close in Chicago, Illinois, then on the next succeeding business day, by
presentation and surrender hereof to the Company at its office at 500 Central
Avenue, Northfield, Illinois, with the purchase form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock specified in such form. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder to purchase the balance of the Warrant Shares purchasable hereunder. Upon
receipt by the Company of this Warrant at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
2. Reservation of Shares, Fractional Shares.
(a) ARTRA hereby agrees that at all times it shall reserve for issue
and delivery upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issue and delivery upon exercise of this Warrant.
(b) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon exercise hereof, ARTRA shall pay to the Holder an amount
in cash equal to such fraction multiplied by the then current market value of a
share of Common Stock, determined as follows:
(i)If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for such
day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last reported bid
and ask prices reported by the National Quotation Bureau, Inc., on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not so reported, the current value
shall be an amount, not less than book value, determined in such reasonable
manner as may be prescribed by the Board of Directors of the ARTRA.
3. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the ARTRA for other Warrants of
<PAGE>
different denominations entitling the Holder hereof to purchase in the aggregate
the same number of shares of Common Stock purchasable hereunder. Any such
exchange shall be made by surrender of this Warrant to ARTRA or at the office of
its agent, if any, with the assignment form annexed duly executed. Subject to
compliance with the provisions of applicable law, ARTRA, without charge to the
Holder, shall execute and deliver a new Warrant in the name of any assignee
named in such instrument or assignment, and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of ARTRA or at the
office of its agent, if any, together with a written notice specifying the names
and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by ARTRA of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, ARTRA will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of ARTRA whether or not this
Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable
by anyone.
4. Rights of the Holder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of ARTRA. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of ARTRA, whether such liability is
asserted by ARTRA or by creditors of ARTRA. The rights of the Holder are limited
to those expressed in this Warrant and are not enforceable against ARTRA except
to the extent set forth herein.
5. Stock Dividends; Reclassification, Reorganization, Anti-Dilution
Provisions, etc. This Warrant is subject to the following further provisions:
(a) In case, prior to the expiration of this Warrant by
exercise or by its terms, ARTRA shall issue any shares of Common Stock as a
stock dividend or subdivide the number of outstanding shares of Common Stock
into a greater number of shares, then in either of such cases, the Exercise
Price per share of the Warrant Shares purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately reduced, and the
number of Warrant Shares at that time purchasable pursuant to this Warrant shall
be proportionately increased; and conversely, in the event ARTRA shall contract
the number of outstanding shares of Common Stock by combining such shares into a
smaller number of shares, then, in such case, the Exercise Price per share of
the Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased, and the number of Warrant Shares
at the time purchasable pursuant to this Warrant shall be proportionally
decreased. Any dividend paid or distributed upon the Common Stock in stock of
any other class or securities convertible into shares of Common Stock shall be
treated as a dividend paid in Common Stock to the extent that shares of Common
Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by
exercise or by its terms, ARTRA shall be recapitalized by reclassifying its
<PAGE>
Common Stock into stock without par value, or the Company or a successor
corporation shall consolidate or merge with or convey all or substantially all
of its or of any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within the
meaning of the term "successor corporation" in the event of any consolidation or
merger of any such corporation with, or the sale of all or substantially all of
the property of any such corporation to another corporation or corporations), in
exchange for stock or securities of a successor corporation, the Holder of this
Warrant shall thereafter have the right to purchase, upon the terms and
conditions and during the time specified in this Warrant, in lieu of the Warrant
Shares theretofore purchasable upon the exercise of this Warrant, the kind and
number of shares of stock and other securities receivable upon such
recapitalization or consolidation, merger or conveyance by a holder of the
number of shares of Common Stock which the Holder of this Warrant might have
purchased immediately prior to such recapitalization or consolidation, merger or
conveyance.
(c) Upon the occurrence of each event requiring an adjustment
of the Exercise Price and of the number of Warrant Shares purchasable pursuant
to this Warrant in accordance with and as required by, the terms of subdivision
(a) of this Section 5, ARTRA shall compute the adjusted Exercise Price and the
adjusted number of Warrant Shares purchasable at such adjusted Exercise Price by
reason of such event in accordance with the provisions of subdivision (a) and
shall prepare an officer's certificate setting forth such adjusted Exercise
Price and the adjusted number of Warrant Shares and showing in detail the facts
upon which such conclusions are based. ARTRA shall forthwith mail a copy of such
certificate to each Holder of this Warrant at the Holder's address shown in the
Company's Warrant Registry, and thereafter such certificate shall be conclusive
and binding upon such Holder unless contested by such Holder by written notice
to ARTRA ten (10) days after receipt of the certificate.
(d) In case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock, including shares held in the
Company's treasury and shares of Common Stock issued upon the exercise of any
options, rights or warrants to subscribe for shares of Common Stock and shares
of Common Stock issued upon the direct or indirect conversion or exchange of
securities for shares of Common Stock, for a consideration per share less than
the "Market Price" (as defined hereafter) per share of Common Stock, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (A) an amount equal to the sum
of (X) the product of (a) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale, multiplied by (b) per share of
Common Stock on the date immediately prior to the issuance or sale of such
shares, plus, (Y) the aggregate of the amount of all consideration, if any,
received by the Company upon such issuance or sale, by (B) the total number of
shares of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price adjusted pursuant
to this computation to an amount in excess of the Exercise Price in effect
immediately prior to such computation.
For the purposes of any computation to be made in accordance with this
Section 5(d), the following provisions shall be applicable:
<PAGE>
(i)The number of shares of Common Stock, at any time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of outstanding options, rights, warrants and upon the conversion or
exchange of outstanding convertible or exchangeable securities.
(ii)As used herein, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed.
(e) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price, in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, then forthwith
upon such issuance or sale, the Exercise Price shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
5(d) hereof, adapted as follows:
(i)the aggregate consideration received by the Company for the
issue of such options, rights, warrants or securities equal to the minimum
purchase price per share provided for in the options, rights, warrants or
securities at the time of issuance, plus the consideration, if any, received by
the Company for the options, rights or warrants.
(ii)the total number of shares of Common Stock outstanding
immediately after the issuance of such options, rights, warrants or securities
shall be deemed to include the aggregate number of shares issued or issuable
upon the exercise of such options, right or warrants, or the conversion or
exchange of such securities.
(f) In case:
(i) ARTRA shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or any other
distribution in respect of the Common Stock (including cash) pursuant to,
without limitation, any spin-off, split-off or distribution of ARTRA's assets;
or
(ii) ARTRA shall take a record of the holders of its Common
Stock for the purpose of entitling them to subscribe for or purchase any shares
of stock of any class or to receive any other rights; or
<PAGE>
(iii) of a classification, reclassification or other
reorganization of the capital stock of ARTRA, consolidation or merger of ARTRA
with or into another corporation or conveyance of all or substantially all of
the assets of ARTRA; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of ARTRA,
then, and in any such case, ARTRA shall mail to the Holder of this Warrant at
the Holder's address shown in ARTRA's Warrant Registry a notice stating the date
or expected date (the "Record Date") on which a record is to be taken for the
purpose of such dividend, distribution or rights, on which such classification,
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, as the case may be.
Such notice shall then specify the date or expected date, if any is to be fixed,
as of which holders of Common Stock of record shall be entitled to participate
in said dividend, distribution or rights, or shall be entitled to exchange
shares of Common Stock for securities or other property deliverable upon such
liquidation or winding up, as the case may be. Such notice shall be provided at
least fifteen (15) days prior to the Record Date.
(g) In case ARTRA at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder of this Warrant may receive, upon exercise hereof prior to the Record
Date, in lieu of each share of Common Stock of ARTRA which it would have been
entitled to receive, the same number of any securities or assets as may be
issuable, distributable or payable upon any such dissolution, liquidation or
winding up with respect to each share of Common Stock of ARTRA.
(h) In case ARTRA, at any time while this Warrant (or a
portion hereof) remains unexpired and unexercised, l declares a dividend or
distribution on its common stock payable in shares of common stock of COMFORCE
Corporation (the "COMFORCE Common"), ARTRA shall set aside, for a period of time
up to the Expiration Date, the number of shares of COMFORCE Common such Holder
would have been entitled to receive if such Holder had been a common stockholder
of ARTRA as of the Record Date of such dividend or distribution, and such Holder
shall be entitled to receive such set-aside shares of the COMFORCE Common upon
his due exercise of this Warrant.
6."Put" Right of Holder. ARTRA agrees that the Holder shall have the
option to sell his unexercised purchase rights under this Warrant to ARTRA, at
any time and from time to time from April 15, 1997 to October 15, 1997. The
repurchase price to be paid by ARTRA shall be based on a price of $2.00 per
share. The number of purchase rights to be purchased by ARTRA under this "put"
option and the repurchase price therefor are subject to the adjustments set
forth in Section 5 hereof.
7.Restriction on Transferability. (a) This Warrant and the shares of
ARTRA issuable upon the exercise of this Warrant have not been registered under
the Securities Act of 1933, as amended (the "Act"). By acceptance hereof, the
Holder covenants, agrees and represents that:
<PAGE>
(i) This Warrant has been acquired for, and such shares, if
acquired upon the exercise of this Warrant, shall be acquired for, investment
and may not be sold, offered for sale, pledged, hypothecated or otherwise
transferred, in the absence of an effective registration statement for such
securities under the Act or an opinion of counsel reasonably satisfactory to
ARTRA to the effect that registration is not required under the Act, and the
Holder has the capacity to protect his interests in connection with the purchase
of this Warrant.
(ii) The Holder has had the opportunity to ask questions and
receive answers from ARTRA about the ARTRA's business and the purchase by him of
these securities, and he has been given the opportunity to make any inquiries
that he may desire of any personnel of ARTRA concerning the proposed operation
of ARTRA and has been furnished with all of the information he has requested. No
advertisement has been used in connection with the offer or sale of this Warrant
to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage,
assign or otherwise dispose of this Warrant or the shares of Common Stock
issuable upon the exercise of this Warrant except pursuant to a registration
statement under the Act and qualification under applicable state securities laws
or pursuant to an opinion of counsel reasonably satisfactory to ARTRA that such
registration and qualification are not required, and that the transaction (if it
involves a sale in the over-the-counter market or on a securities exchange) does
not violate any provision of the Act. The Holder understands that a
stop-transfer order will be placed on the books of ARTRA respecting this Warrant
and any certificates representing the shares of Common Stock issuable upon the
exercise of this Warrant and that this Warrant and any such certificates shall
bear a restrictive legend and a stop transfer order shall be placed with the
transfer agent prohibiting any such transfer until such time as the securities
represented by such certificates shall have been registered under the Act or
shall have been transferred in accordance with an opinion of counsel reasonably
satisfactory to ARTRA that such registration is not required; and
(iv) The Holder understands that he must hold the shares
issuable upon the exercise of this Warrant indefinitely unless they are
registered under the Act or an exemption from registration becomes available.
Although ARTRA files reports pursuant to the Securities Act of 1934 and
accordingly makes available to the public the information required by Rule 144,
nothing contained in this Warrant shall require ARTRA to continue to make
available to the public such information.
(b) Each certificate for the shares issued upon the exercise
of the Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933, as amended (the "Act") and may not be
sold, offered for sale, pledged, hypothecated or otherwise
transferred except pursuant to a registration statement under
the Act or an exemption from registration under the Act or the
rules and regulations thereunder."
<PAGE>
8.Registration of Warrant Shares for Distribution. ARTRA hereby
covenants and agrees with the Holder that the Holders of a majority of the
Warrants will have the right, as of the date hereof through the Expiration Date,
to, on one occasion only, to demand that ARTRA register the Warrants and the
Warrant Shares with the Securities and Exchange Commission (the "SEC").
Furthermore, ARTRA hereby covenants and agrees with the Holder that if, at any
time before the time this Warrant expires, ARTRA proposes to file with the SEC
on its own behalf and/or on behalf of any of the holders of its Common Stock, a
Registration Statement under the Act, on any form permitting the resale of
Warrant Shares under a "shelf registration" or on any other form for the general
registration of the Common Stock of ARTRA for cash, then ARTRA shall give notice
to the Holder, at least 20 days before the filing, with the SEC, of such
proposed Registration Statement. The notice shall offer to include in such
filing, to the extent then permissible under the Act, all of the Warrant Shares
on behalf of Holders of such shares. The Holder shall then have a period of up
to 10 days after the date of the mailing of such notice by ARTRA within which to
advise ARTRA of his election to include all or any part of his Warrant Shares in
such Registration Statement, setting forth the number of Warrant Shares for
which registration is being requested. ARTRA shall thereupon include in such
filing, subject to the limitation hereinafter referred to, such Warrant Shares
proposed to be offered for sale and shall use its best efforts to effect
registration under the Act of such Warrant Shares. The Holder may elect to
include Warrant Shares in such Registration Statement which have not yet been
acquired by exercise of the Warrants, provided, however, that in such event, the
Holder shall exercise the Warrants with respect to such shares, and shall pay
the Exercise Price of such Warrant Shares in the manner provided in Section 1
hereof, prior to any sale of such shares.
The right of the Holder to include such Warrant Shares in a Registration
Statement provided for herein shall be subject to the following conditions:
(a) ARTRA, in its sole discretion, shall select the
underwriter or underwriters, if any, who are to undertake the sale and
distribution of the Warrant Shares to be included in a Registration Statement
filed under the provisions of this Section 7; and
(b) ARTRA shall have the right to require, in any offering to
be made solely, or in part, for its own account, that the Holder delay any
offering of Warrant Shares to be included on behalf of the Holder for a period
of ninety (90) days after the first effective date of such Registration
Statement, upon ARTRA first having delivered to the Holder the written opinion
of its underwriter to the effect that the inclusion of such securities in the
Registration Statement may have an adverse effect on the marketing of such
offering; provided, however, that in the event of such delay, ARTRA shall
maintain the effectiveness of the Registration Statement, for which purpose
ARTRA shall prepare and file such amendments and supplements to the Registration
Statement and Prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective for a period of ninety (90) days after
the effective date of the post-effective amendment pursuant to which the Holder
is entitled to sell the Warrant Shares.
<PAGE>
The Holder agrees to cooperate with ARTRA in the preparation and filing
of any Registration Statement hereunder and shall promptly provide to ARTRA 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. ARTRA shall bear the legal, accounting and printing expenses in
connection with the preparation and filing of any Registration Statement
provided herein, together with all other expenses incidental thereto, except (i)
the expense of the underwriter or underwriters selected by the Holder (if other
than the underwriters selected by ARTRA), (ii) the legal fees and expenses of
the Holder's counsel, (iii) brokerage commissions and transfer taxes, if any, in
connection with the sale or distribution of the Shares by the Holder; and (iv)
the expense of registering, or obtaining (or determining the availability of) an
exemption from the registration of shares of ARTRA's Common Stock for sale in
any state or other jurisdiction other than New York, California, Illinois or
such other jurisdiction in which ARTRA registers Shares or obtains an exemption
from registration at the request of another holder or other holders of warrants,
provided that, if the Holder and another holder or other holders of warrants
each request that ARTRA register Shares or obtain an exemption in such other
jurisdiction, the expense thereof may be allocated on an equitable basis between
or among the Holder and such other holder or holders who make such request.
ARTRA shall furnish to the Holder, without charge, 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 statements, but excluding exhibits, as the Holder may reasonably
request.
ARTRA shall furnish to the Holder, as soon as possible after the
effective date of such Registration Statement or post-effective Amendment
thereto and thereafter, from time to time, during the period or ninety (90)
days, as many copies of the prospectus (and of any amended or supplemental
prospectus) as the 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, ARTRA shall forthwith notify
the Holder thereof and at the request of Holder, prepare and furnish to the
Holder, in such quantity as the Holder may reasonably request, an amendment or
supplement which shall correct such statement or omission or cause the
prospectus to comply with the law and with said rules and regulations.
ARTRA shall use its best efforts to cause such Registration Statement
to become effective and shall promptly advise the Holder (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 by the nature and substance thereof, and (iii) 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 ARTRA's 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.
<PAGE>
ARTRA, when and as requested by the Holder, shall take all action
necessary to permit the offering of the Warrant Shares as contemplated hereby
under the securities laws of such states as the Holder shall designate at the
sole expense of the Holder (except that ARTRA shall pay all costs for Illinois,
New York and California); provided, however, that ARTRA 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 Holder's agreement to pay the costs thereof.
Except as set forth below, ARTRA, on the one hand, and the Holder, on
the other hand, shall each indemnify and hold harmless the other and any
officer, director, employee, agent or attorney thereof from and against any
losses, claims, actions, damages or liabilities to which the other may become
subject, under the Act or any State Act (as hereinafter defined) or otherwise,
insofar as such losses, claims, damages or liabilities arise out of, or are
based upon, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any Prospectus, whether final
or preliminary, forming a part thereof, or any amendment or supplement thereto,
or any blue sky application or other document filed in any state or other
jurisdiction in order to qualify any shares for offer or sale under the laws of
any such state or other jurisdiction ("State Act") (all of the foregoing
referred to herein as "Registration Material"), or the omission or alleged
omission of any material fact required to be stated therein or necessary to make
the statements therein not misleading, or in breach, or non-compliance with, any
duty of disclosure imposed upon such party under the Act or any State Act in
connection with such Registration Material; provided, however, that the Holder's
obligation to indemnify ARTRA and any officer, director, employee, agent or
attorney thereof shall be limited to any losses, claims, actions, damages or
liabilities which are based on written information supplied to ARTRA by the
Holder (or the failure of the Holder to supply material information requested by
ARTRA) specifically for inclusion in the Registration Material, and ARTRA's
obligation to indemnify the Holder shall be discharged to the extent of the
foregoing.
The Holder further agrees to indemnify and hold harmless ARTRA and any
officer, director, employee, agent or attorney thereof from and against any
losses, claims, damages, fines, penalties, costs, expenses or liabilities
arising out of or based on the offer or sale or alleged offer or sale by the
Holder of any shares in, or to any person residing in any state in which the
shares have not been qualified for offer or sale, or otherwise in violation of
the Act or any State Act or of the terms and conditions of this Warrant.
Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof may be made against any indemnifying party pursuant to this Agreement,
notify each indemnifying party in writing of the commencement thereof; and the
omission so to notify each indemnifying party will relieve such party from any
liability pursuant to this Agreement as to the particular item for which
indemnification is then being sought. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel who shall be reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation. An indemnifying party shall not be liable to any indemnified
party on account of any settlement of any claim or action effected without the
consent of an indemnifying party.
<PAGE>
The Holder shall execute and deliver to the underwriter or underwriters
an indemnification agreement in such form as may reasonably be requested and
refusal of a Holder to comply with this obligation shall nullify ARTRA's
obligation to register the Warrant shares. The inclusion of the Warrant Shares
in any Registration Statement shall not be required if counsel of ARTRA shall
render an opinion, in writing, that all of the Holder's Warrant Shares, proposed
to be included in such Registration Statement, may be publicly distributed by
the Holder without registration under the Act in which case the restrictive
legend and stop transfer shall be removed.
9. Registration on the Books of ARTRA. ARTRA shall keep, or cause to be
kept, at its office at 500 Central Avenue, Northfield, Illinois, a register in
which ARTRA shall register this Warrant. No transfer of this Warrant shall be
valid unless made at such office and noted on the Warrant register upon
satisfaction of all conditions for transfer. When presented for transfer or
payment, this Warrant shall be accompanied by a written instrument or
instruments of transfer or surrender, in form satisfactory to ARTRA, duly
executed by the registered Holder or by his duly authorized attorney. ARTRA may
deem and treat the registered Holder hereof as the absolute owner of this
Warrant for all purposes, and ARTRA shall not be affected by any notice to the
contrary.
10. Governing Law. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the internal laws of
the State of Illinois, and not its conflict of laws provisions.
* * *
<PAGE>
IN WITNESS WHEREOF, ARTRA has caused this Warrant to be executed by
its duly authorized officer.
ARTRA GROUP Incorporated
By: __________________________
Title: __________________________
Agreed to and accepted.
HOLDER
__________________________
Name:
Date:
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED _________________________________________ hereby sells,
assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________ the right to
purchase Common Stock, represented by this Warrant, to the extent of
______________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________________ attorney, to
transfer the same on the books of ARTRA with full power of substitution in the
premises.
Signature__________________________
Date:__________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
<PAGE>
PURCHASE FORM
Dated_________________, 19__
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing __________ shares of Common Stock and hereby makes payment
of $__________ in payment of the exercise price thereof.
-----------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Social Security or other Taxpayer Identification Number__________
Signature_______________________________
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
EXHIBIT 10.7
Registered #
ARTRA GROUP INCORPORATED
12% SECURED PROMISSORY NOTE
$200,000.00 April 15, 1996
THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT") AND QUALIFICATION
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS. IT CANNOT BE SOLD, HYPOTHECATED
OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED
UNDER APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO MAKER, AN EXEMPTION
THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, the undersigned, ARTRA GROUP Incorporated, a Pennsylvania
corporation with offices at 500 Central Avenue, Northfield, Illinois 60093
("Maker"), promises to pay to David J. Doerge Trust on April 15, 1997 (the
"Maturity Date"), the principal amount of Two Hundred Thousand and no/100
($200,000.00) Dollars in lawful money of the United States of America (the
"Principal) together with all accrued interest.
This Note bears simple interest ("Interest") at the annual rate of twelve
percent (12%), which is payable semi-annually, in arrears, until the Principal
and all accrued Interest thereon shall be paid in full, on the Maturity Date.
Upon the ocurence of an Event of Default, as defined hereunder, this Note shall
bear interest at a rate per annum of fifteen percent (15%) from the date of the
Event of Default until the Default is cured.
This Note is one of a series of notes (the "Notes"), all with the same terms and
conditions as those set forth herein, which may be issued by Maker up to the
aggregate principal amount of Seven Million ($7,000,000) Dollars. Each Note is
included in a unit (the "Unit") issued by the Maker pursuant and subject to the
terms of that certain Unit Purchase Agreement of even date herewith (the "Unit
Purchase Agreement") between the Maker and the purchasers of the Units, and is
part of an offering of up to 70 Units (the "Offering") being conducted by Maker
on a 50 Unit or none best efforts basis. The Offering will terminate on the
sooner of the sale of all of the Units or April 25, 1996. Each Unit consists of
<PAGE>
one Note in the principal amount of one hundred thousand ($100,000.00) Dollars
and one warrant (the "Warrant") granting to the holder the right to purchase up
to 5,000 shares of no par common stock of Maker at any time and from time to
time from August 15, 1996 to April 15, 1999. Accordingly, in connection with the
acquisition of this Note, Payee has also received the Warrant.
1. Interest.
Maker will pay Interest semi-annually, on October 15, 1996 and on the
Maturity Date. Interest on the Note will accrue from the date of delivery of the
Note. Interest will be computed on the basis of a 360-day year of twelve 30 day
months.
2. Method of Payment.
Maker will pay Principal and Interest in money of the United States
that at the time of payment is legal tender for the payment of public and
private debts. However, Maker may pay Principal and Interest by its check,
subject to collection, payable in such money. Payee must surrender this Note to
Maker to collect Principal payments.
3. Security.
This Note is secured by all of the outstanding shares of common stock
of Maker's wholly-owned subsidiary, BCA Holdings, Inc., and such security is
evidenced by a Pledge Agreement of even date herewith (the "Pledge Agreement")
executed by Maker in favor of Doerge Capital Management, as collateral agent for
holders of all the Notes. This Note is further secured by a Guaranty of even
date herewith (the "Guaranty"), executed by BCA Holdings, Inc in favor of Doerge
Capital Management, as escrow agent for holders of all the Notes.
4. Covenants of Maker.
Maker covenants and agrees that from and after the date hereof and
until the date of repayment in full of the Principal and Interest, it shall
comply with the following conditions:
(a) Maintenance of Existence and Conduct of Business. Maker shall, and
shall cause each of its subsidiaries to (i) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and rights; and (ii) continue to conduct its business so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
<PAGE>
(b) Books and Records. Maker shall, and shall cause each of its
subsidiaries to use its reasonable efforts to keep adequate books and records of
account with respect to its business activities.
(c) Insurance. Maker shall use its reasonable efforts to maintain
insurance policies insuring such risks as are customarily insured against by
companies engaged in businesses similar to those operated by Maker. All such
policies are to be carried with reputable insurance carriers and shall be in
such amounts as are customarily insured against by companies with similar assets
and properties engaged in a similar business.
(d) Compliance with Law. Maker shall use its reasonable efforts to
comply in all material respects with all federal, state and local laws and
regulations applicable to it which if breached would have a material adverse
effect on Maker's business or financial condition.
5. Representations and Warranties of Maker.
Maker represents and warrants that it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania and has all requisite corporate power to carry on its business as
now conducted and to own its properties and assets it now owns; (ii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions in which ownership of property or the conduct of its
business requires such qualification except jurisdictions in which the failure
to qualify to do business will have no material adverse effect on its business,
prospects, operations, properties, assets or condition (financial or otherwise);
(iii) has full power and authority to execute and deliver this Note, and that
the execution and delivery of this Note will not result in the breach of or
default under, with or without the giving of notice and/or the passage of time,
any other agreement, arrangement or indenture to which it is a party or by which
it may be bound, or the violation of any law, statute, rule, decree, judgment or
regulation binding upon it; and (iv) has taken and will take all acts required,
including but not limited to authorizing the signatory hereof on its behalf to
execute this Note, so that upon the execution and delivery of this Note, it
shall constitute the valid and legally binding obligation of Maker enforceable
in accordance with the terms thereof.
6. Defaults and Remedies.
(a) Events of Default. The occurrence or existence of any one or more
of the following events or conditions (regardless of the reasons therefor) shall
constitute an "Event of Default" hereunder:
<PAGE>
(i) Maker shall fail to make any payment of Principal or
Interest when due and payable or declared due and payable pursuant to the terms
hereof;
(ii) Maker shall fail at any time to be in material compliance
with any of the covenants set forth in Section 4 of this Note, or shall fail at
any time to be in material compliance with or neglect to perform, keep or
observe any of the provisions of this Note to be complied with, performed, kept
or observed by Maker and such failure shall remain uncured for a period of 15
days after notice thereof has been given by Payee to Maker;
(iii) Any representation or warranty made in this Note by
Maker shall be untrue or incorrect in any material respect as of the date when
made or deemed made;
(iv) A case or proceeding shall have been commenced against
Maker, or any of its subsidiaries, in a court having competent jurisdiction
seeking a decree or order in respect of Maker, or any of its subsidiaries, (A)
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law; (B) appointing a custodian, receiver, liquidator, assignee, trustee
or sequestrator (or similar official) of Maker, or any of its subsidiaries, or
any of their respective properties; or (C) ordering the winding-up or
liquidation of the affairs of Maker, or any of its subsidiaries,, and such case
or proceeding shall remain unstayed or undismissed for a period of 90
consecutive days or such court shall enter a decree or order granting the relief
sought in such case or proceeding;
(v) Maker, or any of its subsidiaries, shall (A) file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law; or (B) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or the taking of possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Maker, or any of its
subsidiaries, or any of their respective properties; or
(vi) the occurence of an event of default under the terms of
(A) the Unit Purchase Agreement; (B) the Warrant; (C) the Pledge Agreement; and
(D) the Guaranty.
(b) Remedies. If an Event of Default occurs and is continuing, the
holders of at least 25% in principal amount of the Notes may declare all of the
Notes to be due and payable immediately by notice to Maker.
7. Maker's Right to Prepay.
Maker may prepay this Note or any portion thereof at any time without
incurring any penalty.
<PAGE>
8. Acknowledgment of Payee's Investment Representations.
By accepting this Note Payee acknowledges that this Note has not been
and will not be registered under the Act or qualified under any state securities
laws and that the transferability thereof is restricted by the registration
provisions of the Act as well as such state laws. Based upon the representations
and agreements being made by him herein, this Note is being issued to him
pursuant to an exemption from such registration provided by Section 4 (2) of the
Act and applicable state securities law qualification exemptions. Payee
represents that he is acquiring the Note for his own account, for investment
purposes only and not with a view to resale or other distribution thereof, nor
with the intention of selling, transferring or otherwise disposing of all or any
part of it for any particular event or circumstance, except selling,
transferring or disposing of it only upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934, the Rules and
Regulations promulgated by the Commission thereunder, and any applicable state
securities laws. Payee further understands and agrees that no transfer of this
Note shall be valid unless made in compliance with the restrictions set forth on
the front of this Note, effected on Maker's books by the registered holder
hereof, in person or by an attorney duly authorized in writing, and similarly
noted hereon. Maker may charge Payee a reasonable fee for any re registration,
transfer or exchange of this Note.
9. Limitation of Liability.
A director, officer, employee or stockholder, as such, of Maker shall
not have any liability for any obligations of Maker under this Note or for any
claim based on, in respect or by reason of such obligations or their creation.
Payee, by accepting this Note, waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of this Note.
10. Miscellaneous.
(a) Effect of Forbearance. No forbearance, indulgence, delay or failure
to exercise any right or remedy by Payee with respect to this Note shall operate
as a waiver or as an acquiescence in any default.
(b) Effect of Single or Partial Exercise of Right. No single or partial
exercise of any right or remedy by Payee shall preclude any other or further
exercise thereof or any exercise of any other right or remedy by Payee.
<PAGE>
(c) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of Illinois applicable to contracts made and to be
performed entirely within such State.
(d) Headings. The headings and captions of the various paragraphs
herein are for convenience of reference only and shall in no way modify any of
the terms or provisions of this Note.
(e) Loss, Theft, Destruction or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Note, Maker shall make and deliver or caused to be made and delivered to
Payee a new Note of like tenor in lieu of this Note.
(f) Modification of Note or Waiver of Terms Thereof Relating to Payee.
No modification or waiver of any of the provisions of this Note shall be
effective unless in writing and signed by Payee and then only to the extent set
forth in such writing, nor shall any such modification or waiver be applicable
except in the specific instance for which it is given. This Note may not be
discharged orally but only in writing duly executed by Payee.
(g) Notice. All offers, acceptances, notices, requests, demands and
other communications under this Note shall be in writing and, except as
otherwise provided herein, shall be deemed to have been given only when
delivered in person, via facsimile transmission if receipt thereof is confirmed
by the recipient, or, if mailed, when mailed by certified or registered mail
prepaid, to the parties at their respective addresses first set forth above, or
at such other address as may be given in writing in future by either party to
the other.
(h) Successors and Assigns. This Note shall be binding upon Maker, its
successors, assigns and transferees, and shall inure to the benefit of and be
enforceable by Payee and its successors and assigns.
* * *
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be executed on its
behalf by an officer thereunto duly authorized as of the date set forth above.
ARTRA GROUP Incorporated
a Pennsylvania corporation
By: _________________________
Title: ________________________
ATTEST: ______________________________
Philip E. Ruben, Assistant Secretary
November 26, 1996
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, IL 60093
RE: Registration Statement on Form S-1
Ladies and Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in connection with the Registration Statement of the Company on Form
S-1 and in the Prospectus forming a part thereof and to the reference to our
firm in Item 15 of Part II of the aforementioned Registration Statement of the
Company on Form S-1.
Very truly yours,
Kwiatt, Silverman & Ruben, Ltd.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
ARTRA GROUP Incorporated on Form S-1 (File No. ) 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.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
November 26, 1996
