SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 28, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _____________ to ______________
Commission file number 1-3916
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1095978
------------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
500 Central Avenue, Northfield, IL 60093
- ---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- ------------------------
Common stock, without par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 29, 1996: $34,356,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 29, 1996
- ------------------------------- --------------------------------
Common stock, without par value 7,477,418
Documents Incorporated by Reference: None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information Regarding Directors
The following table lists the name and age of each director and nominee
for director of ARTRA, his business experience during the past five (5) years,
his positions with ARTRA and certain directorships.
<TABLE>
<CAPTION>
Name Age Position and Experience
------------- --- ---------------------------
Term Expiring at Next Shareholders' Meeting at which Directors are Elected
<S> <C> <C>
John Harvey (1) 64 Chairman of the Board of Directors and Chief Executive Officer of ARTRA;
Director since 1968; Chairman of the Board of Directors, 1985 to December
1995 and the Chief Executive Officer from 1990 to April 1993 of COMFORCE
Corporation (temporary professional employment, formerly The Lori
Corporation), currently a 21% owned equity investment of ARTRA
("COMFORCE"); a Director of Plastic Specialties and Technologies, Inc.
("PST") (textiles, hose and tubing); and Director of Ozite Corporation
("Ozite"), the majority parent of PST (textiles, hose and tubing).
Director of Pure Tech International, Inc., the successor by merger to
Ozite.
Peter R. Harvey (2) 61 President and Chief Operating Officer and a Director since 1968; Director
from 1985 to December 1995 and a vice president through January 1996 of
COMFORCE (temporary professional employment, formerly The Lori
Corporation), currently a 21% owned equity investment of ARTRA; 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) (textiles, hose and
tubing). Director of Pure Tech International, Inc., the successor by
merger to Ozite. Former Director of Rymer Foods Inc., (portion control
meat products and seafood)
Gerard M. Kenny (3) 44 Director since 1988; Executive Vice President and Director of Kenny
Construction Company since 1982 (diversified heavy construction); General
Partner of Clinton Industries (investments), a limited partnership since
1972.
</TABLE>
<PAGE>
Directors are elected in three classes to serve for terms of three years
(or the balance of the term of the class) and until their successors have been
elected and qualified. The Articles of Incorporation require that six persons
serve on the Board of Directors for staggered terms, with two directors elected
annually. Three vacancies presently exist due to the failure of the Company to
identify persons qualified and willing to fill these vacancies. The Company has
been unable to identify candidates due to various factors, including the severe
financial difficulties the Company has experienced in recent years, its
inability to obtain directors liability insurance coverage and the risks of
personal liability that would be faced by any person serving on the Board.
John Harvey and Peter R. Harvey are brothers. COMFORCE was a 64.3%
subsidiary of ARTRA and ARTRA now owns 21% of that Company. Pure Tech
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 as of April 25, 1996.
Name Age Position
- ----------------- --- ----------------
John Harvey 64 Chairman of the Board
and Chief Executive Officer
Peter R. Harvey 61 President and Chief Operating Officer
John G. Hamm 57 Executive Vice President
Robert S. Gruber 62 Vice President - Corporate Relations
James D. Doering 59 Vice President, Treasurer
and Chief Financial Officer
John Conroy 52 Vice President - Corporate Administration
Lawrence D. Levin 44 Controller
Edwin G. Rymek 66 Secretary
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.
<PAGE>
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 June 1990 until July 1994, and as a Director, from 1984 until July
1994, of Ozite Corporation. Mr. Hamm also serves as a Director of SoftNet
Systems, Inc. since 1985 and of PST from 1987 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.
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, of ARTRA. Mr. Doering has also served as Vice President and Chief
Financial Officer of COMFORCE (formerly Lori) 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, of ARTRA. Mr. Levin has also served
as Controller of COMFORCE (formerly Lori) since December 1989 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 Secretary 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.
<PAGE>
Item 11. 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.
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- 4,000 2,520(5)
Executive Officer 1993 126,200 -0- -0- -0- 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.
<PAGE>
(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 represent the Company's contributions to the 401(k) plan
amounts contributed to ARTRA GROUP Incorporated Employee Stock
Ownership Plan (the "ESOP"). 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. During 1995, 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 and 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. 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>
No options to purchase capital stock of the Company or other stock
appreciation rights were granted by the Company in 1995 pursuant to the
Company's 1985 Stock Option Plan to any other executive officers of the Company
named in the Summary Compensation Table. On December 15, 1995, the Company's
board of directors approved the grant to the Chief Executive Officer and to
certain executive officers of the Company of options to purchase an aggregate of
505,000 shares of the Company's common stock at $3.65 per share (being the
closing price of the Company's common stock as reported on the New York Stock
Exchange on December 14, 1995). The issuance of these options is subject to
approval of the proposed 1996 Stock Option Plan by the Company's shareholders.
<PAGE>
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>
<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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Securities Ownership of Certain Beneficial Owners
As of April 25, 1996, there were 7,482,418 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 March
20, 1995 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 April 25, 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.
<PAGE>
Number of Shares Percent of Shares
Name of Beneficially Beneficially
Beneficial Owner Owned Owned
---------------- ------------ ------------
Research Center of Kabbalah(1) 600,772 8.0%
Peter R. Harvey(2) 398,176 5.3%
John Harvey(3) 227,565 3.0%
Gerard M. Kenny(4) 240,048 3.2%
John G. Hamm(5) 42,248 0.6%
Robert S. Gruber(6) 40,481 0.5%
James D. Doering(7) 66,620 0.9%
All directors and
executive officers as
a group (9 persons) 1,123,221 14.2%
(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.
(2) Mr. Peter R. Harvey's business address is 500 Central Avenue,
Northfield, Illinois 60093. The shares beneficially owned by Mr. Harvey
consist of 331,548 shares held directly by him (of which 300,725 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 ESOP account, 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.
<PAGE>
(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 ESOP account, 5,746 shares held in his individual
retirement account, 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, 4,700 shares issuable under a warrant which expires, February 1,
1999, at an exercise price of $5.50 per share, 1,500 shares issuable
under a warrant which expires March 30, 1999 at an exercise price of
$5.625 per share 6,000 shares issuable under a warrant which expires
January 20, 2000 at an exercise price of $4.75 per share and an
aggregate of 52,007 shares issuable under warrants expiring at various
dates in 2000 received in 1995 as additional compensation for 1995
short-term loans at exercise prices of $3.75 per share to $6.125 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) 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, 1,639 shares held in his 401(k) plan, 1,266 shares held in his
ESOP account, 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, and 13,200 shares issuable under an
option which expires January 8, 2003 at an exercise price of $3.75 per
share.
<PAGE>
(6) The shares of Common Stock beneficially owned by Mr. Gruber consist of
17,317 shares held directly by him, 943 shares held in his ESOP
account, 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, and 12,000 shares issuable under an option which expires
January 8, 2003 at an exercise price of $3.75 per share.
(7) 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 ESOP account, 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, and 31,000 shares issuable
under an option which expires January 8, 2003 at an exercise price of
$3.75 per share.
<PAGE>
Item 13. Certain Relationships And Related Transactions
1. On August 5, 1982, ARTRA acquired 36.6% of the issued and
outstanding common shares of COMFORCE (formerly Lori) plus preferred shares for
$2,250,000 (the "Investment"). The Investment was carried at cost plus equity in
undistributed earnings (loss) since the date of acquisition, less the
amortization over a 25-year period of the excess of cost over the equity in
COMFORCE's net assets at the date of acquisition.
On February 8, 1985, COMFORCE acquired in an arms-length transaction
negotiated by management of ARTRA, through a wholly-owned subsidiary, all of the
issued and outstanding shares of New Dimensions, a creator and distributor of
fashion jewelry, for consideration of $28,500,000 including cash of $21,850,000,
a $3,000,000 9% promissory note due February 8, 1990 (which was prepaid), an
earnout equal to 20% of New Dimension's pre-tax earnings during the calendar
years 1985 through 1989 and 200,000 shares of ARTRA's common stock delivered
from its treasury with an agreed fair market value of $20.00 per share or
$4,000,000. The delivery of ARTRA's shares to the former shareholders of New
Dimensions was approved by ARTRA's shareholders at their July 18, 1985 annual
meeting.
In exchange for the 200,000 shares of its common stock, ARTRA received
534,878 shares of COMFORCE's common stock (thereby increasing its ownership of
COMFORCE from 36.6% to 55.9%) and 10,000 shares of COMFORCE's Series B Preferred
stock convertible into additional COMFORCE common shares. In exchange for the
cancellation of advances by ARTRA to COMFORCE, amounting to $6,457,000 as of
January 31, 1985, and an additional cash advance by ARTRA to COMFORCE of
$7,300,000, which latter sum was used by COMFORCE to acquire New Dimensions,
ARTRA received 10,000 shares of COMFORCE Series A Preferred stock.
On August 13, 1985, COMFORCE stockholders approved a 1-for-30 reverse
split of all authorized, issued, outstanding and reserved shares of common
stock, increased the number of resulting authorized shares of COMFORCE common
stock from 1,833,333 to 6 million and approved a 1-for-10 reverse split of all
issued, outstanding and reserved shares of its preferred stock. ARTRA then
converted its shares of COMFORCE Series B Preferred stock into 1,099,108 shares
of COMFORCE common stock, thereby increasing its ownership interest in COMFORCE
to 72.8%.
In December 1985, ARTRA purchased, 50,000 COMFORCE common stock
purchase warrants (14.4% of the 347,600 outstanding common stock purchase
warrants) for $391,000. The warrants were issued in conjunction with a 1985 New
Dimensions bond offering. The warrants, as adjusted, provided for the purchase
of 75,000 COMFORCE shares at $12.00 per share and were convertible into COMFORCE
common stock at the rate of 0.375 shares of COMFORCE common stock for each
warrant. In September 1990, ARTRA converted such warrants and received 18,750
shares of COMFORCE common stock therefor. Although the conversion of these
warrants increased the number of shares of COMFORCE common stock
<PAGE>
owned by ARTRA, the conversion of warrants by others at the same time resulted
in a decrease of ARTRA's ownership of COMFORCE common stock from 68% to 66.7%.
As of December 30, 1993 and November 2, 1995, ARTRA's ownership of COMFORCE
common stock was 66.7% and 64.3%, respectively.
ARTRA and a wholly-owned subsidiary of ARTRA held notes from COMFORCE
at December 31, 1992 in the amount of $16,025,000 which were due April 1, 1994.
Due to the limited ability of COMFORCE to receive funds from its operating
subsidiaries, effective July 1, 1989 ARTRA placed an indefinite moratorium on
the accrual of interest on its COMFORCE note and declaration of dividends on its
COMFORCE preferred stock. The terms of the notes provided that the maturity date
would be automatically extended at the end of each quarter to fifteen months
beyond the current quarter until ARTRA provides written notice to establish the
due date at such fifteen month maturity. A bank lender is the pledgee of the
COMFORCE preferred stock owned of record by ARTRA as collateral for ARTRA and
New Dimensions bank loans. In February 1993, ARTRA and its wholly-owned
subsidiary transferred these notes to COMFORCE's capital account.
During 1994, ARTRA made net advances to COMFORCE of $2,531,000. The
advances consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to a bank in
conjunction with a debt settlement agreement with COMFORCE's bank lender, and
certain non-interest bearing advances used to fund COMFORCE working capital
requirements.
Effective December 29, 1994, ARTRA exchanged $2,242,000 of its notes
and advances for additional COMFORCE Series C preferred stock. Additionally, the
debt settlement agreement required ARTRA to contribute cash of $1,500,000 and
ARTRA common stock with a fair market value of $2,500,000 to COMFORCE's capital
account.
Effective October 17, 1995, COMFORCE acquired one hundred percent of
the capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global
Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. for consideration of approximately $6.4 million,
net of cash acquired, consisting of cash of approximately $5.6 million and
500,000 shares of COMFORCE common stock issued as consideration for various fees
and guarantees associated with the transaction. The cash consideration included
net cash payments to the selling shareholders of approximately $5.2 million. The
500,000 shares of COMFORCE common stock issued as consideration for the Global
transaction included 150,000 shares issued to Peter R. Harvey, then a vice
president and director of COMFORCE and 100,000 COMFORCE common shares issued to
ARTRA for their guarantees to the selling shareholder of the payment of the
Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA
are subject to approval by the issuer's shareholders. Additionally, in
conjunction with the COMFORCE Global acquisition, ARTRA has agreed to assume
substantially all pre-existing COMFORCE liabilities and indemnify COMFORCE in
the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation.
<PAGE>
In the fourth quarter of 1995, ARTRA exchanged its interest in the
entire issue of COMFORCE Series C cumulative preferred stock for 100,000 shares
of COMFORCE common stock. The issuance of these COMFORCE common shares to ARTRA
are subject to approval by the COMFORCE's shareholders. During 1995, ARTRA
received $399,000 of advances from COMFORCE. In 1996, the COMFORCE advanced
ARTRA an additional $54,000. ARTRA repaid the above advances and paid down
$647,000 of the pre-existing COMFORCE liabilities it assumed in conjunction with
the COMFORCE Global acquisition.
John Harvey was the chief executive officer and the chairman of the
board of COMFORCE until November 1995. Peter R. Harvey was a vice president and
a director 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.
2. In November 1989, ARTRA borrowed $500,000 from John Harvey, on a
short-term basis, with an interest rate of 15% per annum. The loan was repaid in
April 1990. In July 1990, ARTRA borrowed additional funds from John Harvey which
were repaid in June 1992. During 1992 and 1994, ARTRA borrowed additional funds
from John Harvey, payable on demand. As of November 2, 1994, $42,000 of such
borrowed amounts (including accrued interest) remained outstanding.
In January 1995, ARTRA borrowed an additional $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. As additional compensation the loans provide for the
issuance of 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.
3. 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
<PAGE>
$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 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 advances to Mr. Harvey which remained
outstanding as of March 28, 1996 was $5,112,000 (including $1,220,000 of accrued
interest). Commencing January 1, 1993 to date, interest on these advances to
Peter R. Harvey has been accrued and fully reserved.
Peter R. Harvey has not received other than nominal compensation for his
services as an officer or director of ARTRA or any of its subsidiaries since
October of 1990. Additionally, Mr. Harvey has agreed not to accept any
compensation for his services as an officer or director of ARTRA or any of its
subsidiaries until his obligations to ARTRA, described above, are fully
satisfied. Additionally, in recent years Mr. Harvey has guaranteed various
obligations of ARTRA without compensation.
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).
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 (at
face of $1,523,000) 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
<PAGE>
ARTRA whereby Mr. Harvey pledged additional collateral consisting of 42,067
shares of ARTRA common stock and 707,281 shares of PureTech International, Inc.,
a publicly traded corporation.
In February 1996, a bank agreed to discharge all amounts under its ARTRA
notes ($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey
for consideration of $6,000,000, consisting of a cash payment of $5,150,000 and
Mr. Harvey's $850,000 note payable to the bank. ARTRA recognized a gain on the
discharge of its bank indebtedness in the first quarter of 1996 and recorded a
receivable for Mr. Harvey's prorata share of the debt discharge funded by the
Company. As collateral for this advance and other previous advances, Mr. Harvey
provided ARTRA a $2,150,000 security interest in certain real estate.
4. 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 $38.85 plus an amount equal to 15% per
annum for each day from March 1, 1991 to the date of payment by ARTRA ($75.07 at
March 28, 1996), which option expires December 31, 1997. Gerard M. Kenny, a
director of ARTRA, is the President and Chief Executive Officer and a director
of Kenny and beneficially owns 16.66% of Kenny's capital stock.
5. 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 are collateralized by, among other
things, a $2,500,000 personal guaranty by Kenny (see paragraph 5 above for a
discussion of Mr. Gerard M. Kenny's relationship with Kenny). Kenny received
compensation in the form of 833 shares of ARTRA common stock for each month that
its guaranty remained outstanding. Through November 2, 1994, Kenny had received
49,980 shares of ARTRA common stock as compensation for its guaranty.
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
<PAGE>
$2.25 per share per annum ($19.50 at March 28, 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.
6. On September 27, 1989, ARTRA received a proposal to purchase Bagcraft
from Sage Group, Inc. ("Sage"), a privately-owned corporation. On August 24,
1990, Sage was merged with and into Ozite. 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 indirectly acquired 100% of
the issued and outstanding common shares of BCA Holdings, Inc., which in turn
owns 100% of the stock of Bagcraft, for total consideration which was to be
issued to Sage, upon approval of ARTRA's shareholders, consisting 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 stock and preferred stock as consideration was
approved by ARTRA's shareholders at the December 1990 annual meeting of
shareholders. Upon the August 1990 merger of Sage into Ozite, Ozite became
entitled to receive this consideration. Ozite subsequently transferred the ARTRA
common and preferred stock to its PST subsidiary.
Ozite subsequently reacquired 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. As described in paragraph 4 above, Mr. Harvey pledged these 1,523
shares to ARTRA. In connection with the settlement of debt with its creditors,
Ozite issued 147 shares and 42,067 shares of the ARTRA preferred and common
stock, respectively, to Peter Harvey and 35 shares of the ARTRA preferred and
common stock, respectively, to John Harvey. 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.
7. 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 its 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 to
ARTRA and the noteholder received 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 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.
<PAGE>
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 March 28, 1996, dividends in the amount of $523,000
had cumulated thereon.
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.
8. On March 9, 1990, Maynard K. Louis, a former 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 had not been repaid as of November 2, 1994. As consideration for making or
agreeing to extend these loans, Mr. Louis received the warrants to purchase
ARTRA's common stock described in note 9 to the table under "Principal
Shareholders."
9. 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 December 28, 1995, 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, RCK received 126,222 shares of ARTRA common in payment of past due
interest through October 31, 1995.
<PAGE>
SIGNATURE
The undersigned Registrant hereby files this amendment to it Annual
Report on Form 10-K for the fiscal year ended December 28, 1995 to include the
information required by Part III thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ARTRA GROUP INCORPORATED
------------------------------------
Registrant
Dated: April 26, 1996 JAMES D. DOERING
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JAMES D. DOERING
Vice President/Treasurer
Chief Financial Officer