As filed with the Securities and Exchange Commission on January 29, 1997
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
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
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=======================================================================================================================
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 3,996,468 $5.44 $21,740,786 $7,497.00
=======================================================================================================================
<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
January 27, 1997, 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
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<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 JANUARY 29, 1997
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.
3,996,468 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 (1,769,703 shares or approximately 14% of the outstanding
stock as of January 27, 1997) 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 3,996,468 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 $13,618,000. 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 January 27, 1997, the last
sale price of Common Stock, as reported on the New York Stock Exchange was
$5.375 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, along with its wholly-owned subsidiary, Fill-Mor Holding, Inc.
("Fill-Mor"), also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"), consisting of 1,769,703 shares or approximately 14% of the
outstanding common stock of COMFORCE as of January 27, 1997. 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 January 27, 1997, the last reported sale price for the
Common Stock of COMFORCE was $9.69 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 3,996,468
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 ............ 3,996,468 shares*
Common Stock Outstanding as of January 27, 1997.............. 7,868,620 shares
Common Stock Issuable Under Options as of January 27, 1997... 923,850 shares
Common Stock Issuable Under Warrants as of January 27, 1997.. 1,696,032 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
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<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
January 27, 1997 and September 26, 1996, the Company owned 1,769,703 and
1,813,036 shares, or approximately 14% and 19%, respectively 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>
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<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 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.
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<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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Indebtedness
As of January 27, 1997, the Company had outstanding short-term
indebtedness of approximately $16,000,000, of which $3,150,000 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 January 27, 1997, Bagcraft, the Company's operating subsidiary, had
borrowings of $28,700,000 outstanding under its Credit Agreement. Effective
December 30, 1996, Bagcraft's Credit Agreement was amended to provide for a
$20,000,000 term loan payable in varying quarterly installments through maturity
on September 30, 2002 and a revolving credit loan, subject to a borrowing base,
with maximum borrowings of $18,000,000. Term loan installments totaling
$2,000,000 are payable in 1997. At January 27, 1997, the revolving credit loan
had outstanding borrowings of $8,700,000 due September 30, 2002. Initial
borrowings under Bagcraft's Credit Agreement in December 1993 refinanced
borrowings under a previous bank loan agreement. Bagcraft also had approximately
$712,000 in 1997, on loans from the City of Baxter Springs, Kansas, the
aggregate principal amount of which was $10,681,000 as of January 27, 1997.
Proceeds from the Baxter Springs, Kansas loans financed the construction of
Bagcraft's 265,000 sq. ft. production facility.
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 6% of ARTRA's outstanding Common Stock (including the
stock issuable upon the exercise of warrants) as of January 27, 1997, 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 these
loans 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 1996 and 1997 RCK
received cash payments of approximately $390,000 representing interest due
through December, 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 383,750 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 warrantholders have the right to put these warrants back to ARTRA at
any time during the period April 15, 1997 to October 15, 1997, at a price of
$2.00 per share. The cost of this obligation ($837,500 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period April 15, 1996 (the commencement date
of the private placement) through April 15, 1997 (the maturity date of the notes
as well as the date the warrantholders have the right to put their warrants back
to ARTRA). 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 currently collateralized by 960,000 shares of COMFORCE common
- 7 -
<PAGE>
stock. In the event of a default, 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. Effective
December 19, 1996, ARTRA and COMFORCE entered into a Settlement Agreement
pursuant to which COMFORCE agreed to include in its Registration Statement on
Form S-1 380,000 shares of COMFORCE common stock held by ARTRA and its Fill-Mor
susidiary. The proceeds of sale are to be used principally to discharge this
loan and certain other ARTRA debt obligations collateralized by COMFORCE common
stock.
In August, 1996, ARTRA borrowed $500,000 from Howard Conant, then 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, Mr. Conant received a warrant, expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share. The proceeds
of the loan were used for working capital. At the Company's annual meeting of
shareholders, held August 29, 1996, Mr. Conant was elected to the Company's
board of directors. In December, 1996, the loan was extended until April 23,
1997 and Mr. Conant received, as additional compensation, a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.
In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by a short-term note, due December 23, 1996, bearing interest at 8%.
The loan is collateralized by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan, Mr.
Conant received a warrant, expiring in 2002, to purchase 25,000 ARTRA common
shares at a price of $5.75 per share. As of January 27, 1997, borrowings from
Mr. Conant totaled $800,000.
ARTRA also has outstanding short-term borrowings from other unrelated
parties aggregating approximately $2,100,000, of which $150,000 is past due. The
remaining amounts come due at various times in 1997. The notes were issued at
various times during the period May, 1991 to January, 1997, and the interest
rates vary between 8 and 15 percent. The proceeds of these loans were used for
working capital.
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 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. Prior to the issuance of the
ARTRA Series E Preferred Stock, ARTRA and CIPKA S.A. mutually agreed to
renegotiate the settlement of ARTRA's obligations to CIPKA S.A. In January 1997,
ARTRA received notice that its obligations to CIPKA were sold to PRESTWOOD
LIMITED, an unrelated company registered in Tortola, BVI. ARTRA anticipates that
it will settle this obligation in the short-term through the issuance of ARTRA
common stock.
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Status of Debt Agreements and Operating Plan."
Potential Volatility in Market Price of COMFORCE Common Stock
ARTRA, along with its wholly owned Fill-Mor subsidiary, owns a
significant minority interest in COMFORCE, consisting of 1,769,703 shares or
approximately 14% of the outstanding common stock of COMFORCE as of January 27,
1997, with an aggregate value as of that date of approximately $17,144,000
(value at December 26, 1996 was $25,719,000). The value of COMFORCE stock has
fluctuated substantially in recent periods. The high per share for the twelve
month period ending December 26, 1996 was $34.12, and the per share low during
the same period was $6.00. 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.
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<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.
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. Effective December 19, 1996, ARTRA
and COMFORCE entered into a Settlement Agreement pursuant to which COMFORCE
agreed to include in its Registration Statement on Form S-1 380,000 shares of
COMFORCE common stock held by ARTRA and its Fill-Mor susidiary and ARTRA agreed
to a Lock-up agreement which limits its ability to sell its remaining COMFORCE
common shares for a period of 360 days after the effective date of COMFORCE's
Registration Statement. The sale of 1,410,000 COMFORCE common shares held by
ARTRA and Fill-Mor is restricted because the shares are collateral for various
short-term loans (359,703 shares held by ARTRA and Fill-Mor remain unencumbered
at January 27, 1997). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Investment in COMFORCE Corporation."
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 January 27, 1997, options were outstanding that, if exercised,
would require ARTRA to repurchase 72,984 shares of its Common Stock for an
aggregate of $2,979,000. 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." See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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
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<PAGE>
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
demanded warrants as additional consideration for agreeing to extend credit to
the Company. Warrants to purchase approximately 1,696,032 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Status of Debt
Agreements and Operating Plan."
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 December 26, 1996 (the end of ARTRA's most recent fiscal year),
ARTRA has outstanding total amounts due from Peter R. Harvey, including accrued
interest, of $8,117,000. The advances bear interest at the prime rate plus 2%,
which was 10.25% at December 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 January 27,1997,
the closing market price of PureTec on the NASDAQ National Market was $1.969 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. See Note 1 to "Consolidated Financial Statements."
Dilution and Depression of Market Price from Issuance of Additional
Common Stock
As of January 27, 1997, there were 7,868,620 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
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<PAGE>
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
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 "Description of the Company's
Securities." See also "Risk Factors - Limited Trading Activity."
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 taken 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. See "Management -- Information Regarding Directors."
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 December 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
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<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 December 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
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<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. See "Business and Properties
- -- Legal Proceedings."
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. See
"Description of the Company's Securities."
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. 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."
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<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
===========
Obligation expected to be settled by
the issuance of common stock $ 2,250
===========
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
===========
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
===========
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<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
===========
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<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 along with
ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,769,703 shares or
approximately 14% of the outstanding common stock of COMFORCE as of January 27,
1997. 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 January 27, 1997, the last
reported sale price for the Common Stock of COMFORCE was $9.69 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. The
sale of Arcar resulted from an unsolicited offer from an unrelated entity for an
amount that management believed would exceed the long-term appreciation of
Arcar's assets.
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. The Assumption
Agreement also provided for ARTRA to exchange its interest in 100% of Lori's
Series C cumulative preferred stock for 100,000 newly issued shares of COMFORCE
common stock.
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<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 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.
Effective December 19, 1996, ARTRA and COMFORCE agreed to settle
various differences in the interpretation of certain agreements relating to the
Global acquisition, whereby, among other things:
(a) COMFORCE delivered to ARTRA 100,000 shares of COMFORCE common
stock in consideration of ARTRA's guarantee of the Global purchase
price to the seller and 100,000 shares of COMFORCE common stock
for the cancellation of the Series C Preferred Stock. ARTRA's
financial statements have reflected the issuance of these 200,000
COMFORCE common shares to ARTRA since the fourth quarter of 1995.
(b) ARTRA delivered to COMFORCE certificates evidencing its ownership
of 100% of the Lori Series C Preferred Stock.
(c) COMFORCE agreed to include in its Registration Statement on Form
S-1 to register for resale 380,000 shares of COMFORCE common stock
held by ARTRA and its Fill-Mor subsidiary. Sales proceeds will be
used principally to discharge the Manufacturers Bank loan and
certain other ARTRA debt obligations.
(d) ARTRA agreed to a Lock-up Agreement which limits its ability to
sell its remaining COMFORCE common shares for a period of 360 days
after the effective date of COMFORCE's Registration Statement on
Form S-1.
(e) ARTRA deposited 125,000 shares of its COMFORCE common stock into
an escrow account to collateralize its remaining obligations
under the Assumption Agreement.
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<PAGE>
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.
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
Continuing Operations
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 discharges of bank
indebtedness in the fourth quarter of 1995 and the first quarter of 1996.
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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.
Discontinued Operations
The 1995 loss from discontinued operations of $9,156,000 consists of a
charge to operations of $6,430,000 to write-off the remaining goodwill of Lori's
fashion costume jewelry operations, a provision of $1,000,000 for loss on
disposal of Lori's fashion costume jewelry operations and operating losses of
Lori's fashion costume jewelry operations, partially offset by operating
earnings of Bagcraft's Arcar subsidiary.
Year Ended December 28, 1995 vs. Year Ended December 29, 1994
Continuing Operations
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.
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<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.
Discontinued Operations
Earnings from discontinued operations of $10,000 for the year ended
December 28, 1995 consisted of a charge to operations of $6,430,000 to write-off
the remaining goodwill of Lori's fashion costume jewelry operations, a provision
of $1,000,000 for loss on disposal of Lori's fashion costume jewelry operations
and operating losses of Lori's fashion costume jewelry operations, offset by a
gain on sale of Bagcraft's Arcar subsidiary of $8,483,000 and operating earnings
of Bagcraft's Arcar subsidiary.
The loss from discontinued operations of $15,906,000 for the year ended
December 29, 1994 consisted principally of a charge to operations of $10,800,000
to write-off goodwill of Lori's former New Dimensions subsidiary and operating
losses of Lori's fashion costume jewelry operations.
Year Ended December 29, 1994 vs. Year Ended December 30, 1993
Continuing Operations
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.
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<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.
Discontinued Operations
The loss from discontinued operations of $15,906,000 for the year ended
December 29, 1994 consisted principally of a charge to operations of $10,800,000
to write-off goodwill of Lori's former New Dimensions subsidiary and operating
losses of Lori's fashion costume jewelry operations.
The loss from discontinued operations of $216,000 for the year ended
December 30, 1994 consisted principally of operating losses of Lori's fashion
costume jewelry operations.
The increased 1994 operating losses of Lori's fashion costume jewelry
operations was principally attributable to the combination of a soft retail
environment, a planned reduction of in-store inventory levels by certain major
customers in 1994 and a shift in the buying patterns of certain mass
merchandisers from participation in Lori's service program to purchases of
costume jewelry and accessories directly from manufacturers.
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 from investing activities of $20,639,000 exceeded
cash flows used by operating activities of $5,943,000 and cash flows used by
financing activities of $14,419,000. Cash flows from investing activities
represent proceeds from the October 26, 1995 sale of Arcar. 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.
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 classification
of borrowings under Bagcraft's credit agreement as long-term liabilities at
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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 December 26, 1996 and 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 January 27, 1997, the Company had outstanding short-term
indebtedness of approximately $16,000,000, of which $3,150,000 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 6% of ARTRA's
outstanding Common Stock (including the stock issuable upon the exercise of
warrants) as of December 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 1996 and 1997 RCK received cash
payments of approximately $390,000 representing past due interest through
December, 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 383,750 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 warrantholders have the right to put these warrants back to ARTRA at
any time during the period April 15, 1997 to October 15, 1997, at a price of
$2.00 per share. The cost of this obligation ($837,500 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period April 15, 1996 (the commencement date
of the private placement) through April 15, 1997 (the maturity date of the notes
as well as the date the warrantholders have the right to put their warrants back
to ARTRA). 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 currently collateralized by 960,000 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. Effective
December 19, 1996, ARTRA and COMFORCE entered into a Settlement Agreement
pursuant to which COMFORCE agreed to include in its Registration Statement on
Form S-1 380,000 shares of COMFORCE common stock held by ARTRA and its Fill-Mor
susidiary. The proceeds of sale are to be used principally to discharge this
loan and certain other ARTRA debt obligations collateralized by COMFORCE common
stock.
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In August, 1996, ARTRA borrowed $500,000 from Howard Conant,then 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, Mr. Conant received a warrant, expiring in 2001, to purchase 25,000
ARTRA common shares at a price of $5.00 per share. The proceeds of the loan were
used for working capital. At the Company's annual meeting of shareholders, held
August 29, 1996, Mr. Conant was elected to the Company's board of directors. In
December, 1996, the loan was extended until April 23, 1997 and Mr. Conant
received, as additional compensation, a warrant , expiring in 2001, to purchase
25,000 ARTRA common shares at a price of $5.875 per share. In January, 1997,
ARTRA borrowed an additional $300,000 from Mr. Conant evidenced by an short-term
note, due December 23, 1996, bearing interest at 8%. The loan is collateralized
by 100,000 shares of COMFORCE common stock owned by the Company's Fill-Mor
subsidiary. As additional compensation for the loan, Mr. Conant received a
warrant, expiring in 2002, to purchase 25,000 ARTRA common shares at a price of
$5.75 per share. As of January 27, 1997, borrowings from Mr. Conant totaled
$800,000.
ARTRA also has outstanding short-term borrowings from other unrelated
parties aggregating approximately $2,100,000, of which $150,000 is past due. The
remaining amounts come due at various times in 1997. The notes were issued at
various times during the period May, 1991 to January, 1997, and the interest
rates vary between 8 and 15 percent.
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 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. Prior to the issuance of the
ARTRA Series E Preferred Stock, ARTRA and CIPKA S.A. mutually agreed to
renegotiate the settlement of ARTRA's obligations to CIPKA S.A. In January 1997,
ARTRA received notice that its obligations to CIPKA were sold to PRESTWOOD
LIMITED, an unrelated company registered in Tortola, BVI. ARTRA anticipates that
it will settle this obligation in the short-term through the issuance of ARTRA
common stock.
In May, 1996, ARTRA borrowed $100,000 from Edward A. Celano, then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997, bearing interest at 10%. The proceeds of the
loan were used for working capital. At the Company's annual meeting of
shareholders, held August 29, 1996, Mr. Celano was elected to the Company's
board of directors. Effective January 17, 1997, Mr. Celano exercised his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.
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 215,000 shares of COMFORCE common stock
owned by the Company's Fill-Mor subsidiary. The proceeds of the loan were used
for working capital. In January, 1997, the loan was repaid with proceeds from
other short-term borrowings.
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
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<PAGE>
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."
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.
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<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."
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 January 27, 1997, options were outstanding that, if exercised,
would require ARTRA to repurchase 72,984 shares of its Common Stock for an
aggregate of $2,979,000. 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.
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. As of December 26, 1996 (the end of
ARTRA's most recent fiscal year(, amounts due from Peter R. Harvey, including
accrued interest, totaled $8,117,000.
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.
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Bagcraft
Bagcraft entered into a Credit Agreement, dated as of December 17, 1993
(the "Credit Agreement") that provided 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,
in December 1993, the lender received a detachable warrant ("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
was required to repurchase the Warrant from the lender. The determination of the
repurchase price of the Warrant was 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.
Effective December 30, 1996, the Credit Agreement was amended and
restated whereby, among other things, the maturity date of the Credit Agreement
was extended to September 30, 2002 and certain loan covenants were amended. The
amount of Term Loan A was increased to $20,000,000 and Term Loan B was satisfied
and consolidated into Term Loan A. The interest rate on Term Loan A was reduced
to the lender's index rate plus .25%. Principal payments under Term Loan A were
modified to provide for annual principal payments (payable in quarterly
installments) in the amount of $2,000,000 in 1997 through 1999; $3,000,000 in
2000 and 2001; and $8,000,000 in 2002. The interest on the revolving credit loan
was reduced to the lender's index rate. Bagcraft was also provided with a
$3,00,000 capital expenditures line of credit with interest at the lender's
index rate plus .25%.
Borrowings under the Credit Agreement are collateralized by the common
stock and 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 December 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 December 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 December 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 December 26, 1996 Bagcraft had
outstanding borrowings of $231,000 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
ircumstances, 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 anticipates that its 1997 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.
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.
- 27 -
<PAGE>
Investment In COMFORCE Corporation
ARTRA, along with its wholly owned Fill-Mor subsidiary, owns a
significant minority interest in COMFORCE, consisting of 1,769,703 shares or
approximately 14% of the outstanding common stock of COMFORCE as of January 27,
1997, with an aggregate value as of that date of approximately $17,144,000
(value at December 26, 1996 was $25,719,000). The value of COMFORCE stock has
fluctuated substantially in recent periods. The high per share for the twelve
month period ending December 26, 1996 was $34.12, and the per share low during
the same period was $6.00. 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.
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. Effective December 19, 1996, ARTRA
and COMFORCE entered into a Settlement Agreement pursuant to which COMFORCE
agreed to include in its Registration Statement on Form S-1 380,000 shares of
COMFORCE common stock held by ARTRA and its Fill-Mor susidiary and ARTRA agreed
to a Lock-up agreement which limits its ability to sell its remaining COMFORCE
common shares for a period of 360 days after the effective date of COMFORCE's
Registration Statement. The sale of 1,410,000 COMFORCE common shares held by
ARTRA and Fill-Mor is restricted because the shares are collateral for various
short-term loans (359,703 shares held by ARTRA and Fill-Mor remain unencumbered
at January 27, 1997).
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
- 28 -
<PAGE>
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 January 27,
1997 , no options to acquire any of the 200,000 COMFORCE common shares had been
exercised.
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 January 27, 1997 ARTRA's remaining investment in COMFORCE (1,769,703
shares, or approximately a 14% common stock ownership interest) was classified
in the Company's condensed consolidated balance sheet in noncurrent assets as
"Available-for-sale securities."
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 December 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.
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<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
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<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
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<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.
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<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.
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<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
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<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 December 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, Illinois. Although Bagcraft has denied liability for the
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<PAGE>
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 according to proofs of claim
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<PAGE>
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
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<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. A.G. Holding's motion for summary judgment was granted
on September 19, 1996.
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. This liability was paid
in September 1996.
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<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 December
26, 1996 the approximate number of holders of its common stock was 2,500.
The high and low sales prices for ARTRA's common stock, as reported in
the NYSE Quarterly Market Statistics reports, during the past two fiscal years
were as follows:
1996 1995
-------------------- ---------------------
High Low High Low
-------- -------- -------- ---------
First quarter 6 - 3/4 4 - 5/8 5 - 3/4 3 - 1/2
Second quarter 9 - 1/4 5 - 3/4 5 - 1/2 3 - 1/4
Third quarter 8 - 3/8 4 - 3/4 6 4 - 1/8
Fourth quarter 6 - 3/4 5 5 - 1/8 3 - 5/8
No dividends were paid in 1996 or 1995 nor are any anticipated in 1997.
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 1997 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.
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<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 7,868,620 shares have been
issued and are outstanding as of January 27, 1997, 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. As of the date hereof,
there were approximately 2,500 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.
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<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.
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.
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<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).
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<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.
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 January 27, 1997, private investors held in the aggregate 72,984 shares of
the Common Stock subject to put options requiring the Company to repurchase
shares for $2,979,000 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 January 27, 1997, investors held warrants to purchase 1,696,032 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 and 1996
Stock Option Plan to purchase 923,850 shares in the aggregate of Common Stock.
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<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 14% 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 14% 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 14%
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 60 Vice President, Treasurer and Chief Financial
Officer of ARTRA
John Conroy 52 Vice President - Corporate Administration of
ARTRA
Lawrence D. Levin 45 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
- 46 -
<PAGE>
July 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 26, 1996, December 28, 1995 and
December 29, 1994, 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 26, 1996 and whose compensation exceeded
$100,000 in 1996.
- 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, 1996 $137,811 $ -0- $ -0- 141,000 $5,456(4)
Chairman and Chief 1995 126,200 -0- -0- -0- 2,520(5)
Executive Officer 1994 126,200 -0- -0- -0- 2,520(5)
James D. Doering, 1996 133,600 -0- -0- 57,500 6,000(4)
Vice President and 1995 49,900 83,500 -0- -0- 3,470(5)
Chief Financial Officer 1994 111,133 22,267 -0- -0- 3,000(5)
John G. Hamm, 1996 133,600 -0- -0- 101,250 6,000(4)
Executive 1995 49,900 83,500 -0- -0- 3,470(5)
Vice President 1994 111,133 22,267 -0- -0- 3,000(5)
Robert S. Gruber, 1996 110,400 -0- -0- 97,750 6,000(4)
Vice President 1995 92,000 69,000 -0- -0- 3,000(5)
Corporate Relations 1994 -0- 18,400 -0- -0- 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 1996 (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 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 1996 Stock Option Plan at an exercise price of $5.25 per
share, being the closing price of the Company's common stock on the New
York Stock Exchange on the date of grant (October 4, 1996). These
options expire October 4, 2006.
(4) These amounts include the Company's contributions to the 401(k) plan
during 1996 and 1995 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) 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. Effective August 1, 1995, the Company
terminated the ESOP and subsequently distributed the related Employee
accounts to participants.
</FN>
</TABLE>
- 48 -
<PAGE>
The following table sets forth information concerning the aggregate
number and potential realizable values of options granted to the Chief Executive
Officer and the other executive officers of the Company listed in the Summary
Compensation Table during the fiscal year ended December 26, 1996. The Board of
Directors authorized the issuance of options on October 5, 1996 at a per share
exercise price of $5.25 (being the closing price on October 4, 1996).
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Appreciation for
Individual Grants Option Term (1)
----------------------------------------------------------------- -------------------------
Number of % of Total Options
Options Granted to Exercise Price Expiration
Name Granted Employees in 1996 ($ per share) Date 5% 10%
- ------------------- -------- ----------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Harvey 141,000 26.5% $ 5.25 10-04-06 $ 466,710 $1,184,400
James D. Doering 57,500 10.8% $ 5.25 10-04-06 $ 190,325 $ 784,875
John G. Hamm 101,250 19.0% $ 5.25 10-04-06 $ 335,138 $ 850,500
Robert S. Gruber 97,750 18.3% $ 5.25 10-04-06 $ 323,553 $ 821,100
</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 26, 1996 which were granted to such officers in consideration of their
services as officers or directors of the Company. No other options held by the
Chief Executive Officer or any other executive officers of the Company listed in
the Summary Compensation Table were exercised in 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION VALUES AS OF DECEMBER 26, 1996
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at 12-26-96 Options at 12-26-96
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable(1) Unexercisable(2)
- ------------------ --------------- --------- ------------------- ------------------
<S> <C> <C> <C> <C>
John Harvey 0 $ 0 221,000/ $321,000/None
0
James D. Doering 8,500 18,000 111,000/ 180,000/None
0
John G. Hamm 0 0 140,450/ 184,000/None
0
Robert S. Gruber 0 0 118,750/ 136,000/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 $5.25 per share. The market price of Common Stock as
of the close of trading on December 26, 1996 on the New York Stock
Exchange was $6.125 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
1996. 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 January 27, 1997, there were 7,868,620 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
January 27, 1997 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 January 27, 1997, 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.
Number
of Shares
Beneficially
Name of Beneficial Owner Owned Percent
- ------------------------ ----- -------
Research Center of Kabbalah(1) 447,250 5.6%
Peter R. Harvey(2) Common 440,243 5.6%
Preferred 1,523 40.6%
John Harvey(3) 523,796 6.4%
Gerard M. Kenny(4) 240,048 3.0%
Maynard K. Louis(5) 121,000 1.5%
Howard R. Connant(6) 205,000 2.6%
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) 2,168,567 24.0%
* 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 361,000 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 $83.45 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 $21.19 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 121,000 shares of ARTRA
common stock at prices of $4.50 to $8.00 per share which warrants expire on
various dates commencing in 1997 and ending June 13, 2001.
(6) Mr. Conant holds 140,000 ARTRA common shares directly, Mrs. Conant holds
5,000 ARTRA common shares and Mr. Conant holds warrants to acquire 60,000
shares of ARTRA common stock at prices of $5.00 to $5.75 per share which
warrants expire on various dates in 2001 and 2002.
- 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
10,500 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,
22,500 shares issuable under an option which expires December 19, 2000 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.
Effective December 19, 1996, ARTRA and COMFORCE agreed to settle
various differences in the interpretation of certain agreements relating to the
Global acquisition, whereby, among other things:
(a) COMFORCE delivered to ARTRA 100,000 shares of COMFORCE common
stock in consideration of ARTRA's guarantee of the Global purchase
price to the seller and 100,000 shares of COMFORCE common stock
for the cancellation of the Series C Preferred Stock. ARTRA's
financial statements have reflected the issuance of these 200,000
COMFORCE common shares to ARTRA since the fourth quarter of 1995.
(b) ARTRA delivered to COMFORCE certificates evidencing its ownership
of 100% of the Lori Series C Preferred Stock.
- 54 -
<PAGE>
(c) COMFORCE agreed to include in its Registration Statement on Form
S-1 to register for resale 380,000 shares of COMFORCE common stock
held by ARTRA and its Fill-Mor subsidiary. Sales proceeds will be
used principally to discharge the Manufacturers Bank loan and
certain other ARTRA debt obligations.
(d) ARTRA agreed to a Lock-up Agreement which limits its ability to
sell its remaining COMFORCE common shares for a period of 360 days
after the effective date of COMFORCE's Registration Statement on
Form S-1.
(e) ARTRA deposited 125,000 shares of its COMFORCE common stock into
an escrow account to collateralize its remaining obligations
under the Assumption Agreement.
During 1995, ARTRA received $399,000 of advances from COMFORCE. In
1996, COMFORCE advanced ARTRA an additional $54,000. During 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."
- 55 -
<PAGE>
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 December 26, 1996 (the end of ARTRA's most recent fiscal year)
was $8,117,000. ARTRA has accrued interest in the sum of $1,699,000 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
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).
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.
- 56 -
<PAGE>
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.
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.
- 57 -
<PAGE>
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
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.
- 58 -
<PAGE>
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.
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 6% of ARTRA's outstanding Common Stock (including the stock
issuable upon the exercise of warrants) as of December 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 these loans 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 1996 and 1997 RCK received cash
payments of approximately $390,000 representing interest due through December,
1996. Payment on the loans was due March 31, 1994.
In May, 1996, ARTRA borrowed $100,000 from Edward A. Celano, then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997, bearing interest at 10%. The proceeds of the
loan were used for working capital. At the Company's annual meeting of
shareholders, held August 29, 1996, Mr. Celano was elected to the Company's
board of directors. Effective January 17, 1997, Mr. Celano exercised his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.
- 59 -
<PAGE>
In August, 1996, ARTRA borrowed $500,000 from Howard Conant, then 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, Mr. Conant received a warrant, expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share. The proceeds
of the loan were used for working capital. At the Company's annual meeting of
shareholders, held August 29, 1996, Mr. Conant was elected to the Company's
board of directors. In December, 1996, the loan was extended until April 23,
1997 and Mr. Conant received, as additional compensation, a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.
In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1996, bearing interest at 8%.
The loan is collateralized by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan, Mr.
Conant received a warrant, expiring in 2002, to purchase 25,000 ARTRA common
shares at a price of $5.75 per share. As of January 27, 1997, borrowings from
Mr. Conant totaled $800,000.
SELLING SHAREHOLDERS
The following table sets forth certain information, as of January 27,
1997, when 7,868,620 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
Alltech Associates (42) 10,000 * 10,000
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
Nora Baker (4) 5,000 * 5,000
Julius Berman (24) 6,250 * 6,250
Evelyn Bishop, Trustee (5) 168,051 2.1% 168,051
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) 18,182 * 18,182
Woodrow Chamberlain (4) 10,000 * 10,000
Cipka S.A. (6) 192,790 2.5% 192,790
Clinton Industries (7) 75,001 * 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) 205,000 2.6% 170,000
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) 15,000 * 15,000
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
Robert Haney (38) 1,000 * 1,000
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 6.4% 82,206
Peter R. Harvey (21) 440,243 5.6% 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) 30,373 * 30,373
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) 22,687 * 22,687
Kwiatt, Silverman & Ruben, Ltd.
Profit Sharing Plan (38) 15,000 * 15,000
Michael Laundrie (44) 9,733 * 9,733
R. D. Levy (22) 5,364 * 5,364
Steven M. Levy (29) 17,877 * 17,877
Robert Lofblad (22) 16,154 * 16,154
Frank N. Magid (4) 2,500 * 2,500
Maynard K. Louis (13) 121,000 1.5% 121,000
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 * 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>
R & J Lucas Revocable Trust (43) 10,000 * 10,000
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) 447,250 5.6% 212,250
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 (38) 20,687 * 20,687
Barry Rymer (35) 113,481 1.4% 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 (38) 16,687 * 16,687
Lloyd Singer (22) 4,724 * 4,724
Alfred Slatin (22) 3,276 * 3,276
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) 136,355 1.7% 136,355
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) 50,000 * 50,000
Ronald Tarrson (37) 40,000 * 40,000
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) 301,599 3.7% 301,599
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 2.2% 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 5,244,664 52.2% 3,996,468
========= ==== =========
<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 56,394
shares issuable to the trustee upon the exercise of the following warrants:
Number of Shares Exercise Price Per Share Expiration Date of Warrant
4,244 6.000 05-17-98
6,367 6.000 05-29-98
6,685 6.000 11-29-98
4,457 6.000 11-17-98
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 192,790 shares of Common Stock owned of record by Cipka
S.A.
(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 27,500 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
12,500 5.625 08-04-98
(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 18,182 shares of Common Stock owned of record by Mr.
Celano, a director of the Company.
(13) Consists of 121,000 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
11,000 6.000 03-09-98
Mr. Louis is a director of the Company.
(14) Consists of 361,000 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 136,355 shares of Common Stock owned of record by Mr.
Strahammer. These shares consist of 20,812 issued to Mr. Strahammer in lieu of
interest on certain borrowings and 115,543 shares issued to Mr. Strahammer in
payment of a $678,000 demand note.
-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 65,284 shares of Common Stock owned of record by Mr.
Verde and 236,315 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 5.000 08-09-97
37,258 3.750 02-09-98
36,651 4.125 08-09-98
35,555 5.000 02-09-99
10,464 5.000 08-09-99
39,907 5.000 02-09-98
(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 140,000 shares of Common Stock owned of record by Mr.
Conant, 5,000 shares held by Mrs. Conant and 60,000 shares of Common Stock
issuable to Mr. Conant upon the exercise of the following warrants:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
25,000 5.000 08-26-01
25,000 5.875 12-22-01
10,000 5.750 01-15-02
(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.
- 71 -
<PAGE>
(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 15,000 shares of Common Stock owned of record by
Mr.Calabrese.
(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 17,877 shares of Common Stock owned of record by Mr.
Levy.
(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.
(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 owned of record by Mr.
Schuster.
(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.
- 72 -
<PAGE>
(36) Consists of:
(a) 12,500 shares of Common Stock issuable to Mr.Tarrson upon the
exercise of a warrant at an exercise price of $5.00 per share, which warrant
expires September 12, 2001 and 12,500 shares of Common Stock issuable to
Mr.Tarrson upon the exercise of a warrant at an exercise price of $6.125 per
share, which warrant expires December 22, 2001 . The warrants were 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.Tarrson upon the
exercise of a warrant at an exercise price of $5.00 per share, which warrant
expires September 12, 2001 and 12,500 shares of Common Stock issuable to
Mr.Tarrson upon the exercise of a warrant at an exercise price of $6.125 per
share, which warrant expires December 22, 2001 . The warrants were 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 shares of Common Stock originally issued to Kwiatt,
Silverman & Ruben, Ltd. in payment of professional fees and shares of Common
Stock issued to Ozite as consideration for the March 1990 acquisition of
Bagcraft. See note (22) to this listing of Selling Shareholders.
(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.
(42) Consists of 10,000 shares of Common Stock issuable to Alltech
Associates upon the exercise of a warrant at an exercise price of $6.00 per
share, which warrant expires July 1, 1998.
(43) Consists of 10,000 shares of Common Stock issuable to R&M Lucas
upon the exercise of a warrant at an exercise price of $6.00 per share, which
warrant expires January 15, 2002.
(44) Consists of 9,733 shares of record owned by Mr. Laundrie.
- 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. through certain
members of the firm and its Profit Sharing Plan own 76,061 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 January 29, 1997
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
Obligation expected to be settled by
the issuance of common stock 2,250
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
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. These Lori liabilities consist
principally of accounts payable incurred by Lori's discontinued jewelry
operations. The Assumption Agreement also provided for ARTRA to exchange its
interest in 100% of Lori's Series C cumulative preferred stock for 100,000 newly
issued shares of COMFORCE common stock.
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.
Effective December 19, 1996, ARTRA and COMFORCE agreed to settle
various differences in the interpretation of certain agreements relating to the
Global acquisition, whereby, among other things:
(a) COMFORCE delivered to ARTRA 100,000 shares of COMFORCE common
stock in consideration of ARTRA's guarantee of the Global purchase
price to the seller and 100,000 shares of COMFORCE common stock
for the cancellation of the Series C Preferred Stock. ARTRA's
financial statements have reflected the issuance of these 200,000
COMFORCE common shares to ARTRA since the fourth quarter of 1995.
(b) ARTRA delivered to COMFORCE certificates evidencing its ownership
of 100% of the Lori Series C Preferred Stock.
(c) COMFORCE agreed to include in its Registration Statement on Form
S-1 to register for resale 380,000 shares of COMFORCE common stock
held by ARTRA and its Fill-Mor subsidiary. Sales proceeds will be
used principally to discharge certain ARTRA and Fill-Mor debt
obligations.
(d) ARTRA agreed to a Lock-up Agreement which limits its ability to
sell its remaining COMFORCE common shares for a period of 360 days
after the effective date of COMFORCE's Registration Statement on
Form S-1.
(e) ARTRA deposited 125,000 shares of its COMFORCE common stock into
an escrow account to collateralize its remaining obligations
under the Assumption Agreement.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Arcar and COMFORCE's discontinued
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 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.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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. The remaining 638,036 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary are
unencumbered at September 26, 1996. As of January 27, 1997, 1,410,000 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary have been
pledged as collateral for various short-term borrowings and 359,703 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary remain
unencumbered.
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 418,750 ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1997, at a price of $2.00 per share. The cost of
this obligation ($837,500 if all warrants are put back to the Company) is being
accrued in the Company's financial statements as a charge to interest expense
over the period April 15, 1996 (the commencement date of the private placement)
through April 15, 1997 (the maturity date of the notes as well as the date the
warrantholders have the right to put their warrants back to ARTRA). 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, in
December 1993, the lender received a detachable warrant, expiring in December
1998, allowing the holder to purchase up to 10% of the fully diluted common
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 the common stock and
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
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.
15. OBLIGATION EXPECTED TO BE SETTLED BY THE ISSUANCE OF COMMON STOCK
ARTRA was the obligor under two demand notes, issued to an unrelated foreign
company, in the amount of $1,811,000. The notes were issued in October, 1990
with interest at 15 percent. In September, 1996, the noteholder agreed to
exchange its notes and the amounts due under other ARTRA obligations for 2,250
shares of ARTRA Series E Preferred Stock. Prior to the issuance of the ARTRA
Series E Preferred Stock, ARTRA and the unrelated foreign company mutually
agreed to renegotiate the settlement of ARTRA's obligations. In January 1997,
ARTRA received notice that its obligations to the unrelated foreign company were
sold to a second unrelated foreign company. ARTRA anticipates that it will
settle this obligation in the short-term through the issuance of ARTRA common
stock.
<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 in 1995 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 discontinued jewelry operations 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. 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.
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. These Lori liabilities consist
principally of notes and other payables incurred by Lori's discontinued jewelry
operations. The Assumption Agreement also provided for ARTRA to exchange its
interest in 100% of Lori's Series C cumulative preferred stock for 100,000 newly
issued shares of COMFORCE common stock.
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%.
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated financial statements
and ARTRA's investment in COMFORCE was accounted for under the equity method
through the end of fiscal 1995. See Note 6 for a further discussion of and the
accounting treatment of the Company's investment in COMFORCE at December 28,
1995.
Other
During 1995 the Company was dismissed as party to certain litigation relating to
the former Welch subsidiary. Accordingly, the Company reversed $700,000 of
excess liability accruals originally provided in 1989 to complete the disposal
of Welch.
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 the common stock and
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, in
December, 1993, 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
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1968 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. The Company has filed counterclaims against
Sherwin-Williams and cross claims against other former owners of the property.
The Company also is vigorously defending this action and has raised numerous
defenses. Currently, the case is in its early stages of discovery and the
Company cannot determine what, if any, its liability may be in this matter.
ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process.
ARTRA entered into a consent decree with the EPA in which it agreed to pay
$85,000 for one phase of the clean-up costs for this site; however, ARTRA
defaulted on its payment obligation. ARTRA is presently unable to estimate the
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>
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 FEBRUARY 10, 1991 (AS OF JANUARY 27, 1997)
Issuance Number of Exercise
Warrant Holder Date Shares Price
- ----------------------------------- ---------- -------- -------
Alltech Associates 07-01-98 10,000 $6.000
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 $6.000
Evelyn Bishop, Trustee 11-17-91 4,457 $6.000
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 06-13-96 10,911 $8.000
Evelyn Bishop, Trustee 05-17-91 4,244 $6.000
Evelyn Bishop, Trustee 05-29-91 6,367 $6.000
Alexander Verde 02-10-91 39,907 $5.000
Alexander Verde 08-09-92 76,480 $5.000
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 $5.000
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
Austin Iodice 08-05-91 12,500 $5.750
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 15,000 $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 15,000 $6.000
Charles Reeder 04-15-96 20,000 $6.000
William G. Reynolds, Jr. 04-15-96 1,250 $6.000
Nora Baker 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
Howard Conant 12-23-96 25,000 $5.875
Howard Conant 01-15-97 10,000 $5.750
Emanuel Tarson 09-12-96 12,500 $5.000
Emanuel Tarson 12-23-96 12,500 $6.125
Ronald Tarson 09-12-96 12,500 $5.000
Ronald Tarson 12-23-96 12,500 $6.125
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
R & J Lucas Revocable Trust 0-15-97 10,000 $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
Richard Dolan 09-18-96 7,500 $6.000
Michael Laundrie 01-17-97 9,773 $5.500
Edward A. Celano 01-17-97 18,182 $5.500
Josef Strahammer 01-17-97 115,543 $5.875
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 JANUARY 27, 1997) OF CERTAIN
DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
SINCE APRIL 20, 1990
Note Holder Date of Note (2) Note Amount (3)
- ------------------------------ ---------------- ---------------
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
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>
Nora Baker 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
Howard Conant 01/15/97 300,000
R & J Lucas Revocable Trust 01/15/97 300,000
(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.
II-9
<PAGE>
(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
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.
** 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.
II-11
<PAGE>
** 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 AMENDED AND RESTATED CREDIT AGREEMENT, Dated
as of December 30, 1996, by and among
BAGCRAFT CORPORATION OF AMERICA, as Borrower
and GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent and as Lender.
10.2 AMENDED AND RESTATED WARRANT To Purchase
Common Stock of BAGCRAFT CORPORATION OF
AMERICA (Warrant No. 2).
10.3 SETTLEMENT AND RELEASE AGREEMENT, dated as
of December 19, 1996, by and among ARTRA
GROUP Incorporated, Fill-Mor Holding, Inc.
and Peter R. Harvey, COMFORCE Corporation,
James L. Paterek, Michael Ferrentino,
Christopher P. Franco and Kevin W. Kiernan
and Kwiatt, Silverman & Ruben, Ltd.
10.4 LOCK-UP AGREEMENT, dated December 19, 1996,
re. sale of COMFORCE common stock.
** 10.5 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.
** 10.6 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.
** 10.7 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.
** 10.8 Registration Rights Agreement dated February
20, 1996 by and among ARTRA Group
Incorporated and Norton Herrick re: Purchase
of a Secured Convertible Promissory Note.
** 10.9 Form Of Promissory Note re: December 1995,
Private Placement of twelve percent (12%)
convertible subordinated promissory notes.
** 10.10 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.
** 10.11 Form Of Promissory Note re: July, 1996
Private Placement of twelve percent (12%)
promissory notes due April 15, 1997.
II-12
<PAGE>
** 10.12 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.
** 10.13 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.
** 10.14 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.
** 10.15 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.
** 10.16 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.
** 10.17 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.
** 10.18 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.
** 10.19 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.
** 10.20 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>
** 10.21 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.
** 10.22 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.
** 10.23 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.
** 10.24 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.
** 10.25 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.
** 10.26 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.
** 10.27 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.
** 10.28 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.
** 10.29 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>
** 10.30 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.
** 10.31 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.
** 10.32 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.
** 10.33 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.
** 10.34 Pledge and Security Agreement between
Fill-Mor Holding, Inc. and IBJ Schroder Bank
& Trust Company dated as of August 18, 1994
filed as an exhibit to Registrant's Form
10-Q for the quarterly period ended June 30,
1994, dated August 19, 1994.
** 10.35 Subordinated Promissory Note dated December
31, 1993 in the original principal amount of
$3,000,000 from Registrant to the Research
Center of Kabbalah.
23.1 Consent of Kwiatt, Silverman & Ruben, Ltd.
23.2 Consent of Coopers & Lybrand L.L.P.
** 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.
II-16
<PAGE>
** 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.
** 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 29, 1997.
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 January 29, 1997
<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)
January 29, 1997
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 3,996,468 shares of Common Stock, no 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 3,996,468 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
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 30, 1996
by and between
BAGCRAFT CORPORATION OF AMERICA
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION
as Agent and as Lender
<PAGE>
TABLE OF CONTENTS
1. AMOUNT AND TERMS OF CREDIT...........................................1
1.1 Revolving Credit Advances...................................1
-------------------------
1.2 Term Loan...................................................2
---------
1.3 Capital Expenditure Loan....................................3
------------------------
1.4 Letters of Credit...........................................4
-----------------
1.5 Prepayment..................................................4
----------
1.6 Single Loan.................................................6
-----------
1.7 Use of Proceeds.............................................6
---------------
1.8 Interest....................................................6
--------
1.9 Eligible Accounts...........................................9
-----------------
1.10 Eligible Inventory..........................................9
------------------
1.11 Fees........................................................9
----
1.12 Cash Management Systems....................................10
-----------------------
1.13 Receipt of Payments........................................10
-------------------
1.14 Application and Allocation of Payments.....................10
--------------------------------------
1.15 Loan Account and Accounting................................10
---------------------------
1.16 Indemnity..................................................11
---------
1.17 Access.....................................................12
------
1.18 Taxes......................................................13
-----
1.19 Capital Adequacy and Other Adjustments.....................13
--------------------------------------
1.20 Amendment and Restatement..................................15
-------------------------
2. CONDITIONS PRECEDENT................................................15
2.1 Conditions to the Initial Revolving Credit Advance,
Initial Letter of Credit Obligations, the Term Loan
and the Capital Expenditure Advance........................15
-----------------------------------
2.2 Further Conditions to Each Revolving Credit Advance,
Each Letter of Credit Obligation, Each Term Loan and
each Capital Expenditure Advance...........................17
--------------------------------
2.3 Further Conditions to Each Capital Expenditure Advance.....18
------------------------------------------------------
3. REPRESENTATIONS AND WARRANTIES......................................19
3.1 Corporate Existence; Compliance with Law...................19
----------------------------------------
3.2 Executive Offices..........................................19
-----------------
3.3 Corporate Power Authorization, Enforceable Obligations.....20
------------------------------------------------------
3.4 Financial Statements and Projections.......................20
------------------------------------
3.5 Collateral Reports.........................................20
------------------
3.6 Material Adverse Effect....................................20
-----------------------
3.7 Ownership of Property; Liens...............................20
----------------------------
3.8 Restrictions; No Default...................................21
------------------------
3.9 Labor Matters..............................................21
-------------
3.10 Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness.........................22
----------------------------------
3.11 Government Regulation......................................22
---------------------
-i-
<PAGE>
3.12 Margin Regulations.........................................22
------------------
3.13 Taxes......................................................23
-----
3.14 ERISA......................................................23
-----
3.15 No Litigation..............................................24
-------------
3.16 Brokers....................................................25
-------
3.17 Employment Matters.........................................25
------------------
3.18 Patents, Trademarks, Copyrights and Licenses...............25
--------------------------------------------
3.19 Full Disclosure............................................25
---------------
3.20 Hazardous Materials........................................26
-------------------
3.21 Insurance Policies.........................................26
------------------
3.22 Deposit and Disbursement Accounts..........................26
---------------------------------
3.23 Government Contracts.......................................26
--------------------
3.24 Customer and Trade Relations...............................26
----------------------------
3.25 Agreements and Other Documents.............................26
------------------------------
3.26 Kansas Indebtedness........................................27
-------------------
4. FINANCIAL STATEMENTS AND INFORMATION................................27
4.1 Reports and Notices........................................27
-------------------
4.2 Communication with Accountants.............................27
------------------------------
5. AFFIRMATIVE COVENANTS...............................................27
5.1 Maintenance of Existence and Conduct of Business...........27
------------------------------------------------
5.2 Payment of Obligations.....................................28
----------------------
5.3 Books and Records..........................................28
-----------------
5.4 Litigation.................................................28
----------
5.5 Insurance..................................................28
---------
5.6 Compliance with Laws.......................................30
--------------------
5.7 Agreements.................................................30
----------
5.8 Supplemental Disclosure....................................30
-----------------------
5.9 Employee Plans.............................................30
--------------
5.10 Environmental Matters......................................30
---------------------
5.11 Landlords' Agreements, Bailee Letters
and Mortgagee Agreements...................................31
------------------------
5.12 Leased Locations of Collateral.............................31
------------------------------
5.13 Subsidiaries...............................................31
------------
5.14 Maintenance of Equipment and Fixtures......................31
-------------------------------------
5.15 Purchase Offers............................................32
---------------
5.16 Board of Directors.........................................32
------------------
6. NEGATIVE COVENANTS..................................................32
6.1 Mergers, Etc...............................................32
------------
6.2 Investments; Loans and Advances............................32
-------------------------------
6.3 Indebtedness...............................................32
------------
6.4 Employee Loans and Transactions............................32
-------------------------------
6.5 Capital Structure and Business.............................33
------------------------------
6.6 Guaranteed Indebtedness....................................33
-----------------------
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<PAGE>
6.7 Liens......................................................33
-----
6.8 Sale of Assets.............................................34
--------------
6.9 Events of Default..........................................34
-----------------
6.10 ERISA......................................................34
-----
6.11 Financial Covenants........................................34
-------------------
6.12 Hazardous Materials........................................34
-------------------
6.13 Sale-Leasebacks............................................35
---------------
6.14 Cancellation of Indebtedness...............................35
----------------------------
6.15 Restricted Payments........................................35
-------------------
6.16 Leases.....................................................35
------
6.17 Composition................................................35
-----------
6.18 Fiscal Year................................................36
-----------
6.19 Change of Corporate Name...................................36
------------------------
6.20 Sale of Stock..............................................36
-------------
6.21 Cash Management............................................36
---------------
6.22 No Impairment of Upstreaming...............................36
----------------------------
6.23 No Amendment...............................................36
------------
6.24 No Change in Management....................................36
-----------------------
6.25 Management Agreements......................................36
---------------------
6.26 Overriding Agreements......................................36
---------------------
7. TERM................................................................37
7.1 Termination................................................37
7.2 Survival of Obligations Upon Termination
of Financing Arrangements..................................37
-------------------------
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES..............................37
8.1 Events of Default..........................................37
-----------------
8.2 Remedies...................................................40
--------
8.3 Waivers by Borrower........................................40
-------------------
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT.................41
9.1 Assignments and Participations.............................41
------------------------------
9.2 Appointment of Agent.......................................42
--------------------
9.3 Set-Off and Sharing of Payments............................43
-------------------------------
9.4 Disbursement of Funds......................................44
---------------------
9.5 Disbursements of Advances, Payments and Information........44
---------------------------------------------------
10. MISCELLANEOUS.......................................................47
10.1 Successors and Assigns.....................................47
----------------------
10.2 Complete Agreement; Modification of Agreement..............47
---------------------------------------------
10.3 Amendments and Waivers.....................................47
----------------------
10.4 Fees and Expenses..........................................48
-----------------
10.5 No Waiver..................................................50
---------
10.6 Remedies...................................................50
--------
10.7 Severability...............................................50
------------
-iii-
<PAGE>
10.8 Conflict of Terms..........................................50
-----------------
10.9 Authorized Signature.......................................50
--------------------
10.10 GOVERNING LAW..............................................50
-------------
10.11 Notices....................................................51
-------
10.12 Section Titles.............................................52
--------------
10.13 Counterparts...............................................52
------------
10.14 MUTUAL WAIVER OF JURY TRIAL................................52
---------------------------
10.15 Confidentiality............................................53
---------------
-iv-
<PAGE>
INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
----------------------------------------
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Term Loan Note
Exhibit E - Form of Notice of Capital Expenditure Advance
Exhibit F - Form of Capital Expenditure Advance Compliance Certificate
Exhibit G - Form of Capital Expenditure Loan Note
Exhibit H - Form of Notice of Conversion/Continuation
Schedule 3.2 - Executive Offices
Schedule 3.7 - Real Estate and Leases
Schedule 3.9 - Labor Matters
Schedule 3.10 - Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness
Schedule 3.13 - Tax Matters
Schedule 3.14 - ERISA Plans
Schedule 3.15 - Litigation
Schedule 3.17 - Employment Matters
Schedule 3.18 - Intellectual Property
Schedule 3.20 - Hazardous Materials
Schedule 3.21 - Insurance Policies
Schedule 3.22 - Deposit and Disbursement Accounts
Schedule 3.23 - Government Contracts
Schedule 5.1 - Trade Names
Schedule 6.3 - Indebtedness
Schedule 6.4 - Affiliate and Employee Loans, Transactions and Employment
Agreements
Schedule 10.8 - Authorized Signatures
Annex A - Definitions
Annex B - Letters of Credit
Annex C - Cash Management Systems
Annex D - Schedule of Documents
Annex E - Responsible Individual
Annex F - Eligible Accounts
Annex G - Eligible Inventory
Annex H - Insurance Standards
Annex I - Financial Statements and Projections -- Reporting
Annex J - Collateral Reports
Annex K - Financial Covenants
Annex L - Notice Addresses
-v-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
December 30, 1996, is by and between BAGCRAFT CORPORATION OF AMERICA, a Delaware
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (in its individual capacity, "GE Capital"), for itself, as Lender,
and as Agent for Lenders.
RECITALS
A. The parties hereto are parties to a Credit Agreement dated as of December 17,
1993 (as amended, supplemented or otherwise modified, the "Prior Credit
Agreement") pursuant to which Lenders provided to Borrower aggregate commitments
of up to Thirty-Eight Million Dollars ($38,000,000), subject to the terms and
conditions set forth therein.
B. The parties hereto desire to amend and restate the Prior Credit Agreement and
the "Obligations" (as defined therein) to reflect continued aggregate
commitments of up to Thirty-Eight Million Dollars ($38,000,000) provided by
Lenders to Borrower, subject to the terms and conditions set forth herein.
C. Capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the meanings ascribed to them in Annex A. All Schedules,
Exhibits, Annexes and other attachments hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together with this
Agreement, shall constitute but a single agreement. These Recitals shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Revolving Credit Advances. (a) Upon and subject to the
terms and conditions hereof, each Lender agrees to make available, from time to
time, until the Commitment Termination Date, for Borrower's use and upon the
request of Borrower therefor, advances (each, a "Revolving Credit Advance")
against Eligible Accounts and Eligible Inventory in an aggregate amount
outstanding which, pursuant to Section 1.1(b), shall not at any given time
exceed the lesser at such time of (i) the Maximum Revolving Credit Loan
(Eighteen Million Dollars ($18,000,000) (as such amount may be adjusted from
time to time in accordance with the terms of this Agreement) minus the sum of
outstanding Letter of Credit Obligations, and (ii) an amount equal to the
Borrowing Base minus the sum of outstanding Letter of Credit Obligations
("Borrowing Availability"), in any case less such reserves as Agent may deem
appropriate from time to time in its sole and absolute discretion. Until all
amounts outstanding in respect of the Revolving Credit Loan shall become due and
payable on the Commitment Termination Date, Borrower may from time to time
borrow, repay and reborrow under this Section 1.1(a). Each Revolving Credit
Advance shall be made on notice by Borrower to the individual responsible for
Borrower as identified on Annex E at the address specified thereon, given no
later than (1) 11:30 a.m. (Chicago time) on the Business Day of the
-1-
<PAGE>
proposed Revolving Credit Advance, in the case of an Index Rate Loan and (2)
11:30 a.m. (Chicago time) on the date which is three Business Days prior to the
proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice
(a "Notice of Revolving Credit Advance") shall be substantially in the form of
Exhibit A, specifying therein the requested date, the amount of such Revolving
Credit Advance, and such other information as may be required by Agent and shall
be given in writing (by telecopy, telex or cable) or by telephone confirmed
immediately in writing. If Borrower desires to have the Revolving Credit Advance
bear interest by reference to a LIBOR Rate, it must comply with Section 1.8(f).
Agent shall be entitled to rely upon, and shall be fully protected under this
Agreement in relying upon, any Notice of Revolving Credit Advance believed by
Agent to be genuine and to assume that each Person executing and delivering the
same was duly authorized unless the responsible individual, or a designee
thereof, acting thereon for Agent shall have, at the time of reliance thereon,
actual knowledge to the contrary.
(b) Borrower shall execute and deliver to each Lender an
amended and restated note to evidence the Revolving Credit Loan, such note to be
in the principal amount of the Restated Revolving Loan Commitment of such
Lender, dated the Closing Date and substantially in the form of Exhibit C (each,
as executed and as it may be amended, restated, supplemented or otherwise
modified from time to time, a "Revolving Credit Note" and, collectively, the
"Revolving Credit Notes"). The Revolving Credit Notes shall represent the
obligation of Borrower to pay the amount of the Maximum Revolving Credit Loan
or, if less, the aggregate unpaid principal amount of all Revolving Credit
Advances made by Lenders to Borrower and all other Obligations with interest
thereon as prescribed in Section 1.8. The date and amount of each Revolving
Credit Advance and each payment of principal with respect thereto shall be
recorded on the books and records of Agent, which books and records shall
constitute prima facie evidence of the accuracy of the information therein
recorded. The entire unpaid balance of the Revolving Credit Loan shall be
immediately due and payable on the Commitment Termination Date.
1.2 Term Loan. (a) Upon and subject to the terms and
conditions hereof, each Lender agrees to provide its Pro Rata Share of a term
loan to Borrower on the Closing Date, in the amount of Eight Million Dollars
($8,000,000), which shall be consolidated with the principal balance of "Term
Loan A" (as defined in the Prior Credit Agreement) outstanding under the Prior
Credit Agreement in the amount of Twelve Million Dollars ($12,000,000) and
amended and restated as set forth below as a Term Loan Commitment in the
aggregate amount of Twenty Million Dollars ($20,000,000) (the "Term Loan").
Amounts repaid under the Term Loan may not thereafter be reborrowed.
(b) Borrower shall pay the principal amount of the Term Loan
in consecutive installments on the respective dates (each, a "Payment Date"),
and in the corresponding amounts, set forth below:
Payment Installment
Date Amount
---- ------
March 31, 1997 $ 500,000
June 15, 1997 $ 500,000
-2-
<PAGE>
September 15, 1997 $ 500,000
December 15, 1997 $ 500,000
March 15, 1998 $ 500,000
June 15, 1998 $ 500,000
September 15, 1998 $ 500,000
December 15, 1998 $ 500,000
March 15, 1999 $ 500,000
June 15, 1999 $ 500,000
September 15, 1999 $ 500,000
December 15, 1999 $ 500,000
March 15, 2000 $ 750,000
June 15, 2000 $ 750,000
September 15, 2000 $ 750,000
December 15, 2000 $ 750,000
March 15, 2001 $ 750,000
June 15, 2001 $ 750,000
September 15, 2001 $ 750,000
December 15, 2001 $ 750,000
March 15, 2002 $2,000,000
June 15, 2002 $2,000,000
September 15, 2002 $2,000,000
September 30, 2002 $2,000,000
Notwithstanding anything to the contrary contained herein or in the Term Loan
Notes, the then entire unpaid balance of the Term Loan shall be immediately due
and payable upon the first to occur of the (i) Commitment Termination Date and
(ii) acceleration of the Revolving Credit Loan.
(c) Borrower shall execute and deliver to each Lender an
amended and restated note to evidence the Term Loan, such note to be in a
principal amount equal to the amount of the Term Loan provided by such Lender,
dated the Closing Date and substantially in the form of Exhibit D (each, as
executed and as it may be amended, restated, supplemented or otherwise modified
and in effect from time to time, a "Term Loan Note" and, collectively, the "Term
Loan Notes"). The Term Loan Notes shall represent the obligation of Borrower to
pay the amount of the Term Loan and all other obligations with interest thereon
as prescribed in Section 1.8. The date and amount of each payment of principal
and interest on the Term Loan shall be recorded on the books and records of
Agent, which books and records shall constitute prima facie evidence of the
accuracy of the information therein recorded.
1.3 Capital Expenditure Loan. (a) Subject to the terms and
conditions hereof, each Lender agrees to make available from time to time, until
the Commitment Termination Date, in connection with the financing of Capital
Expenditures constituting the acquisition cost of Equipment, its Pro Rata Share
of advances (each, a "Capital Expenditure Advance"). The aggregate Capital
Expenditure Advances incurred during the term of this Agreement shall not exceed
the Capital Expenditure Loan Commitment (Three Million Dollars ($3,000,000)). In
addition, each Capital Expenditure Advance shall not exceed the lesser of (x)
the Maximum Capital Expenditure
-3-
<PAGE>
Advance Amount or (y) Capital Expenditure Loan Availability as of the date of
such Capital Expenditure Advance. Amounts from time to time borrowed under this
Section 1.3(a) and repaid may not be reborrowed. Each Capital Expenditure
Advance must be in a minimum amount of $500,000 and integral multiples of
$500,000 in excess of such amount. Subject to the additional advance notice
requirements set forth in Section 2.3, each Capital Expenditure Advance shall be
made on notice by Borrower to the individual responsible for Borrower as
identified on Annex E at the address specified thereon, given no later than (1)
11:30 a.m. (Chicago time) on the Business Day of the proposed Capital
Expenditure Advance, in the case of an Index Rate Loan and (2) 11:30 a.m.
(Chicago time) on the date which is two Business Days prior to the proposed
Capital Expenditure Advance, in the case of a LIBOR Loan. Each such notice (a
"Notice of Capital Expenditure Advance") shall be substantially in the form of
Exhibit E, specifying therein the requested date, the amount of such Capital
Expenditure Advance, and such other information as may be required by Agent and
shall be given in writing (by telecopy, telex or cable) or by telephone
confirmed immediately in writing. If Borrower desires to have the Capital
Expenditure Advance bear interest by reference to a LIBOR Rate, it must comply
with Section 1.8(f). Agent shall be entitled to rely upon, and shall be fully
protected under this Agreement in relying upon, any Notice of Capital
Expenditure Advance believed by Agent to be genuine and to assume that each
Person executing and delivering the same was duly authorized unless the
responsible individual, or a designee thereof, acting thereon for Agent shall
have, at the time of reliance thereon, actual knowledge to the contrary.
(b) Borrower shall execute and deliver to each Lender a note
to evidence the Capital Expenditure Loan, such note to be in the maximum
principal amount of the Capital Expenditure Loan Commitment of such Lender,
dated the Closing Date and substantially in the form of Exhibit G (each, as
executed and as it may be amended, restated, supplemented or otherwise modified
from time to time, a "Capital Expenditure Loan Note" and, collectively, the
"Capital Expenditure Loan Notes"). The Capital Expenditure Loan Notes shall
represent the obligation of Borrower to pay the amount of the Capital
Expenditure Loan Commitment or, if less, the aggregate unpaid principal amount
of the Capital Expenditure Loan made by Lenders to Borrower and all other
Obligations with interest thereon as prescribed in Section 1.8. Borrower shall
pay the principal amount of each Capital Expenditure Advance in equal
installments on twelve (12) consecutive Payment Dates, commencing with the first
Payment Date to occur after the making of such Capital Expenditure Advance. The
date and amount of each Capital Expenditure Advance and each payment of
principal with respect thereto shall be recorded on the books and records of
Agent, which books and records shall constitute prima facie evidence of the
accuracy of the information therein recorded. Notwithstanding the foregoing, the
entire unpaid balance of the Capital Expenditure Loan shall be immediately due
and payable on the Commitment Termination Date, if not sooner paid in full.
1.4 Letters of Credit. Subject to the terms and conditions of
this Agreement, including Annex B, Borrower shall have the right to request, and
each Lender agrees to incur its Pro Rata Share of, Letter of Credit Obligations
in accordance with Annex B.
1.5 Prepayment. (a) In the event that the outstanding balance
of the Revolving Credit Loan shall, at any time, exceed the lesser at such time
of (i) the Maximum Revolving Credit Loan minus the sum of Letter of Credit
Obligations then outstanding and (ii) the Borrowing Base
-4-
<PAGE>
minus the sum of Letter of Credit Obligations then outstanding, Borrower shall
immediately repay the Revolving Credit Loan in the amount of such excess.
(b) Borrower shall have the right at any time on thirty (30)
days' prior written notice to Agent to terminate and prepay the entire Revolving
Credit Loan. Upon any such termination and prepayment, Borrower's right to
receive Revolving Credit Advances and to request the incurrence of Letter of
Credit Obligations shall simultaneously terminate and, notwithstanding anything
to the contrary contained herein, the Term Loan Notes or the Capital Expenditure
Loan Notes, the entire outstanding balances of the Term Loan and the Capital
Expenditure Loan shall be immediately due and payable. Each such prepayment and
termination shall be accompanied by the payment of all accrued and unpaid
interest and all Fees and other remaining Obligations, including the Letter of
Credit Obligations and the then outstanding balances of the Term Loan and the
Capital Expenditure Loan. Any prepayment made pursuant hereto shall be
accompanied by the payment of Fees in accordance with Section 1.11(c) and LIBOR
funding breakage costs in accordance with Section 1.16(b).
(c) Borrower shall have the right at any time on thirty (30)
days' prior written notice to Agent to voluntarily prepay all or any portion of
the Term Loan or the Capital Expenditure Loan. Any prepayments of less than all
of the outstanding balance of the Term Loan shall be applied to the then
remaining installments of the Term Loan in the inverse order of maturity until
paid in full. Any prepayments of less than all of the outstanding balance of the
Capital Expenditure Loan shall be applied to the then remaining installments of
the Capital Expenditure Loan in the inverse order of maturity until paid in
full. Any prepayment made pursuant hereto shall be accompanied by the payment of
Fees in accordance with Section 1.11(c) and LIBOR funding breakage costs in
accordance with Section 1.16(b).
(d) Immediately upon receipt by Borrower of Net Proceeds of
any Asset Disposition, Borrower shall apply all of such Net Proceeds in the
following order: (i) to the then remaining installments of the Term Loan in the
inverse order of their maturity, (ii) to the then remaining installments of the
Capital Expenditure Loan in the inverse order of their maturity and (iii) to the
Revolving Credit Loan, in which case the aggregate Revolving Loan Commitments
shall be permanently reduced on a pro rata basis by the amount of such
prepayment; provided, however, that (A) the foregoing shall not apply to an
Asset Disposition to the extent the Net Proceeds thereof are (1) used to refund
or fund Borrower's purchase within sixty (60) days prior to such Asset
Disposition of capital assets for use in its business or (2) used by Borrower
within one-hundred eighty (180) days following such Asset Disposition to
purchase capital assets for use in its business (and to the extent such Net
Proceeds exceed the costs of any of the foregoing purchases, such excess Net
Proceeds shall be governed by this Section 1.5(d)) and (B) in no event shall
Asset Dispositions exceed One Million Five Hundred Thousand Dollars ($1,500,000)
in the aggregate per annum. All sales or purchases of assets referred to herein
(i) shall be subject to the provisions of Section 6.8 and (ii) shall be, or
shall have been, as the case may be, offered or sold to, or purchased from, a
Person that is not an Affiliate of Borrower or any of its Subsidiaries on an
arms' length basis.
(e) Within sixty (60) days following the end of Fiscal Year
1997 and each Fiscal Year thereafter, Borrower shall prepay the Term Loan in an
amount equal to fifty percent (50%) of
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Excess Cash Flow for such Fiscal Year calculated on the basis of Borrower's
financial statements for such Fiscal Year delivered to Agent pursuant to Section
4.1. All such prepayments from Excess Cash Flow shall be applied in the
following order: (i) to the then remaining installments of the Term Loan in the
inverse order of their maturity, (ii) to the then remaining installments of the
Capital Expenditure Loan in the inverse order of their maturity and (iii) to the
Revolving Credit Loan, in which case the aggregate Revolving Loan Commitments
shall be permanently reduced on a pro rata basis by the amount of such
prepayment. Concurrently with the making of any such payment, Borrower shall
deliver to Agent a certificate of its chief executive officer or chief financial
officer demonstrating its calculation of the amount required to be paid.
1.6 Single Loan. The Revolving Credit Loan, all Revolving
Credit Advances, the Term Loan, the Capital Expenditure Loan, all Capital
Expenditure Advances, all Letter of Credit Obligations and all other Obligations
of Borrower under this Agreement and the other Loan Documents shall constitute
one (1) secured obligation of Borrower secured, until repaid in full and
Commitments therefor are terminated, by all of the Collateral.
1.7 Use of Proceeds. Borrower shall utilize the proceeds of
all Revolving Credit Advances and the Term Loan for the financing of ordinary
working capital needs and Capital Expenditures to the extent permitted
hereunder; provided that Borrower shall utilize the proceeds of Revolving Credit
Advance made as of the Closing Date for the satisfaction in full of "Term Loan
B" (as defined in the Prior Credit Agreement) and Borrower may use the proceeds
of the Revolving Loan (i) to redeem 50% of the shares issuable under the Warrant
for $1,500,000 and (ii) subject to the terms hereof, to redeem the preferred
stock of Borrower held by PST for up to $2,100,000. Borrower shall utilize the
proceeds of the Capital Expenditure Loan for the financing of Capital
Expenditures to the extent permitted hereunder.
1.8 Interest. (a) Borrower shall pay interest to Agent, for
the ratable benefit of Lenders, in arrears (i) as to any Index Rate Loan, on the
first day of each calendar month to occur while such Loan is outstanding, (ii)
as to any LIBOR Loan, on the last day of the LIBOR Period applicable thereto,
(iii) on the Commitment Termination Date, and (iv) if any interest accrues or
remains payable after the Commitment Termination Date, upon demand by Agent.
(b) If any interest or other payment on any Loan becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day (except as set forth in the
definition of LIBOR Period) and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
(c) Borrower shall be obligated to pay interest to Agent, for
the ratable benefit of Lenders, at a rate equal to (i) the Index Rate plus the
applicable per annum rate (the "Index Margin") set forth in the following grid
or (ii) at Borrower's election in accordance with Section 1.8(f), the applicable
LIBOR Rate plus the applicable per annum rate (the "LIBOR Margin"; the Index
Margin and LIBOR Margin, each a "Margin"), in each case based on the amounts
outstanding from time to time under the applicable Loan.
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<TABLE>
<CAPTION>
Term Loan and
Ratio of EBITDA to Revolving Loan Capital Expenditure Loan
Fixed Charges plus ----------------------------- ------------------------------
Capital Expenditures LIBOR Margin Index Margin LIBOR Margin Index Margin
- -------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Less than 1.5 2.50 0.00 3.00 0.25
Less than 1.5
but
greater than 1.75 2.25 0.00 2.75 0.00
Less than 1.75 2.00 0.00 2.50 0.00
</TABLE>
Initially, the applicable Margin for each Loan shall be the highest rates set
forth in the foregoing grid for such Loan. Thereafter, all determinations of
each Margin will be based on the ratio of (1) EBITDA to (2) the sum of (A) Fixed
Charges plus (B) the greater of (I) actual Capital Expenditures and (II)
$2,500,000, all as determined for Borrower and its Subsidiaries on a
consolidated basis as of the last day of each Fiscal Quarter for the trailing
twelve (12) Fiscal Months then ended. All adjustments (up or down) in the
Margins will be implemented prospectively on a quarterly basis, effective on the
first day of the first Fiscal Quarter that occurs more than five (5) days after
delivery of Borrower's quarterly Financial Statements for the preceding Fiscal
Quarter to Lenders, commencing with Financial Statements delivered for the
fourth Fiscal Quarter of 1996. Concurrently with the delivery of such Financial
Statements, Borrower shall deliver to Agent and Lenders a certificate, signed by
its chief financial officer, setting forth in reasonable detail the basis for
the determination of each Margin. If a Default or an Event of Default shall have
occurred or be continuing at the time, the applicable Margin for each Loan shall
be the highest rate set forth in the foregoing grid for such Loan until the
first day of the first calendar month following the date on which such Default
or Event of Default is waived or cured. Thereafter, each Margin shall be as
determined based on the foregoing grid.
(d) All computations of interest shall be made by Agent on the
basis of a three hundred and sixty (360) day year, in each case for the actual
number of days occurring in the period for which such interest is payable. The
Index Rate applicable during each calendar month shall be determined on the last
day of the preceding calendar month, and the interest rate applicable during
each calendar month shall be calculated based on the Index Rate as in effect for
that calendar month. Each determination by Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error or bad
faith.
(e) So long as any Default or Event of Default shall have
occurred and be continuing, the interest rate applicable to the Revolving Credit
Loan, the Term Loan, the Capital Expenditure Loan and any other Obligations
shall be increased by two percent (2%) per annum above the rates of interest
otherwise applicable hereunder ("Default Rate").
(f) So long as no Default or Event of Default shall have
occurred and be continuing, and subject to the additional conditions precedent
set forth in Section 2.2, Borrower shall have the option to (i) request that any
Revolving Credit Advances be made as a LIBOR Loan, (ii) convert at any time all
or any part of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii)
convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.16(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Loan as a LIBOR Loan upon the
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expiration of the applicable LIBOR Period, in which case the succeeding LIBOR
Period of that continued Loan shall commence on the last day of the LIBOR Period
of the Loan to be continued. Any Loan to be made or continued as, or converted
into, a LIBOR Loan must be in a minimum amount of $500,000 and integral
multiples of $500,000 in excess of such amount. Any such election must be made
by 11:30 a.m. (Chicago time) on the third (3rd) Business Day prior to (1) the
date of any proposed Advance which is to bear interest at the LIBOR Rate, (2)
the end of each LIBOR Period with respect to any LIBOR Loans to be continued as
such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to
a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no
election is received with respect to a LIBOR Loan by 11:30 a.m. (Chicago time)
on the third (3rd) Business Day prior to the end of the LIBOR Period with
respect thereto (or if a Default or an Event of Default shall have occurred and
be continuing or the additional conditions precedent set forth in Section 2.2 or
2.3, as applicable, shall not have been satisfied), that LIBOR Loan shall be
converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must
make such election by notice to Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/Continuation") in the
form of Exhibit H.
(g) Notwithstanding anything to the contrary set forth in this
Section 1.8, if, at any time until payment in full of all of the Obligations,
any rate of interest payable hereunder exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, such
rate of interest payable hereunder shall be reduced to be equal to the Maximum
Lawful Rate; provided, however, that if at any time thereafter the rate of
interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall
continue to pay interest hereunder at the Maximum Lawful Rate until such time as
the total interest received by Agent, on behalf of Lenders, from the making of
such advances hereunder is equal to the total interest which would have been
received had the interest rate payable hereunder been (but for the operation of
this paragraph) the interest rate payable since the Closing Date, as otherwise
provided in this Agreement. Thereafter, the interest rate payable hereunder
shall be the applicable rate of interest provided in Section 1.8(c) or (e) of
this Agreement, unless and until the rate of interest again exceeds the Maximum
Lawful Rate, in which event this paragraph shall again apply. In no event shall
the total interest received by any Lender pursuant to the terms hereof exceed
the amount which such Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof at the Maximum Lawful Rate.
In the event the Maximum Lawful Rate is calculated pursuant to this paragraph,
such interest shall be calculated at a daily rate equal to the Maximum Lawful
Rate divided by the number of days in the year in which such calculation is
made. In the event that a court of competent jurisdiction, notwithstanding the
provisions of this Section 1.8 (g), shall make a final determination that a
Lender has received interest hereunder or under any of the other Loan Documents
in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by
applicable law, promptly apply such excess in the following order: (i) to any
interest due and not yet paid hereunder in respect of the Term Loan, (ii) to any
interest due and not yet paid hereunder in respect of the Capital Expenditure
Loan, (iii) to any interest due and not yet paid hereunder in respect of the
Revolving Credit Loan, (iv) to the then remaining installments of the Term Loan
in the inverse order of maturity, (v) to the then remaining installments of the
Capital Expenditure Loan in the inverse order of maturity, (vi) to the
outstanding principal of
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the Revolving Credit Loan, (vii) to Fees and any other unpaid Obligations and
(viii) thereafter with respect to any excess, to Borrower or as a court of
competent jurisdiction may otherwise order.
1.9 Eligible Accounts. Based on the most recent Schedule of
Accounts delivered by Borrower to Agent and on other information available to
Agent, Agent shall at its sole discretion determine which Accounts shall be
deemed to be "Eligible Accounts" for purposes of determining the amounts, if
any, to be advanced to Borrower under the Revolving Credit Loan. In determining
whether a particular Account constitutes an Eligible Account, Agent shall not
include any such Account which is excluded by the criteria set forth on Annex F.
1.10 Eligible Inventory. Based on the most recent Schedule of
Inventory delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its sole discretion determine which Inventory shall be
deemed to be "Eligible Inventory" for purposes of determining the amounts, if
any, to be advanced to Borrower under the Revolving Credit Loan. In determining
whether any particular Inventory constitutes Eligible Inventory, Agent shall not
include Inventory which is excluded by the criteria set forth on Annex G.
1.11 Fees. (a) Borrower shall pay to GE Capital, individually,
the fees specified in that certain Fee Letter, dated as of the Closing Date (the
"GE Capital Fee Letter"), at the times specified for payment therein. Borrower
shall pay to GE Capital, individually, the fees specified in any other fee
letter hereafter executed between GE Capital and Borrower, at the respective
times specified for payment in each such letter.
(b) As additional compensation for Lenders' costs and risks in
making the Revolving Credit Loan available to Borrower, Borrower agrees to pay
to Agent, for the ratable benefit of Lenders, in arrears, on the first Business
Day of each month prior to the Commitment Termination Date and on the Commitment
Termination Date, a fee for Borrower's non-use of available funds (the "Non-use
Fee") in an amount equal to three-eighths of one percent (.375%) per annum
(calculated on the basis of a three hundred and sixty (360) day year and actual
days elapsed) of the difference between the respective daily averages of (i) the
Maximum Revolving Credit Loan (as it may be adjusted and in effect from time to
time hereunder) and (ii) the amount of the Revolving Credit Loan plus Letter of
Credit Obligations outstanding during the period for which the Non-Use Fee is
due. Notwithstanding the foregoing, in the event Agent, in its sole discretion,
establishes a reserve based upon its determination that an Event of Default or a
Material Adverse Effect is likely to occur, then (but only for so long as such
reserve is in effect) the Non-Use Fee shall not apply to that amount by which
such reserve reduces the Maximum Revolving Credit Loan.
(c) If Borrower prepays all or any portion of the Term Loan or
the Capital Expenditure Loan, or prepays the Revolving Loan and terminates the
Revolving Loan Commitment, whether voluntarily or involuntarily and whether
before or after acceleration of the Obligations, Borrower shall pay to Agent,
for the benefit of Lenders as liquidated damages and compensation for the costs
of being prepared to make funds available hereunder an amount equal to (i)
$500,000, in the case of a prepayment on or prior to the January 1, 1998, (ii)
$350,000, in the case of a prepayment after January 1, 1998 but on or prior to
January 1, 1999 and (iii) $250,000, in the case of a prepayment after January 1,
1999 but on or prior to January 1, 2000. Notwithstanding the
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foregoing, no prepayment fee shall be payable by Borrower upon a mandatory
prepayment made pursuant to Section 1.5(d) or (e) or 1.19(c) or (d); provided
that Borrower does not permanently reduce the Revolving Loan Commitment upon any
such prepayment and, in the case of prepayments made pursuant to Section 1.5(d)
or (e), the transaction giving rise to the applicable prepayment is expressly
permitted under Section 6.
1.12 Cash Management Systems. Prior to the Closing Date,
Borrower shall have established and will at all times maintain the cash
management systems described on Annex C.
1.13 Receipt of Payments. Borrower shall make each payment
under this Agreement not later than 12:00 noon (Chicago time) on the day when
due in lawful money of the United States of America in immediately available
funds to the Collection Account. For purposes of computing interest and fees and
determining the amount of funds available for borrowing pursuant to Section
1.1(a) and 1.3(a), (a) all payments (including cash sweeps) consisting of cash,
wire or electronic transfers in immediately available funds shall be deemed
received on the date of deposit thereof in the Collection Account and notice to
Agent of such deposit, and (b) all payments consisting of checks, drafts, or
similar non-cash items shall be deemed received one (1) Business Day after the
date of receipt of good funds following deposit of any such payment in the
Collection Account and notice to Agent of such deposit.
1.14 Application and Allocation of Payments. (a) Borrower
hereby irrevocably waives the right to direct the application of any and all
payments at any time or times hereafter received from or on behalf of Borrower
and Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply any and all such payments against the then due and
payable Obligations of Borrower and in repayment of the Revolving Credit Loan,
Letter of Credit Obligations, the Term Loan and the Capital Expenditure Loan, as
Agent may deem advisable notwithstanding any previous entry by Agent upon the
Loan Account or any other books and records. In the absence of a specific
determination by Agent with respect thereto, the same shall be applied in the
following order: (i) to then due and payable Fees and expenses; (ii) to then due
and payable interest payments on the Term Loan, the Capital Expenditure Loan and
on the Revolving Credit Loan; (iii) to Obligations other than Fees, expenses and
interest and principal payments; and (iv) to then due and payable principal
payments on the Term Loan, the Capital Expenditure Loan and the Revolving Credit
Loans, and (v) to all other then due and payable Obligations. Agent is
authorized to, and, upon the expiration of the applicable time period, if any,
set forth in Section 8.1, at its option may, make or cause to be made Revolving
Credit Advances on behalf of Borrower for payment of all Fees, expenses,
Charges, costs, principal, interest, or other Obligations owing by Borrower
under this Agreement or any of the other Loan Documents if and to the extent
Borrower fails to promptly pay any such amounts as and when due, even if such
Revolving Credit Advance would cause total Revolving Credit Advances to exceed
Borrowing Availability or the Maximum Revolving Credit Loan amount. At Agent's
option and to the extent permitted by law, any advances so made shall be deemed
Revolving Credit Advances constituting part of the Revolving Credit Loan
hereunder.
1.15 Loan Account and Accounting. Agent shall maintain a loan
account (the "Loan Account") on its books to record: (a) all Revolving Credit
Advances and payments made under Letter of Credit Obligations, (b) all payments
made by Borrower and (c) all other appropriate
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debits and credits as provided in this Agreement with respect to the
Obligations. All entries in the Loan Account shall be made in accordance with
Agent's customary accounting practices as in effect from time to time. Borrower
shall pay all Obligations as such amounts become due or are declared due
pursuant to the terms of this Agreement.
The balance in the Loan Account, as recorded on Agent's most
recent printout or other written statement, shall be presumptive evidence of the
amounts due and owing to Agent and Lenders by Borrower; provided, that, any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's obligations to pay the Obligations. Agent shall render to
Borrower a monthly accounting of transactions under the Revolving Credit Loan,
Term Loan and Capital Expenditure Loan, setting forth the balance of the Loan
Account. Each and every such accounting shall (absent manifest error) be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein, unless Borrower, within thirty (30) days after the date any
such accounting is rendered, shall notify Agent in writing of any objection
which Borrower may have to any such accounting, describing the basis for such
objection with specificity. In that event, only those items expressly objected
to in such notice shall be deemed to be disputed by Borrower. Agent's
determination, based upon the facts available, of any item objected to by
Borrower in such notice shall be presumptively correct, unless Borrower shall
further object to such determination within a reasonable period of time
thereafter.
1.16 Indemnity. (a) Borrower shall indemnify and hold each of
Agent, Lenders and their respective Affiliates, officers, directors, employees,
attorneys, agents and representatives (each, an "Indemnified Person"), harmless
from and against any and all suits, actions, proceedings, claims, damages,
losses, liabilities and expenses (including attorneys' fees and disbursements
and other costs of investigation or defense, including those incurred upon any
appeal) which may be instituted or asserted against or incurred by any such
Indemnified Person as the result of credit having been extended under this
Agreement and the other Loan Documents or in connection with or arising out of
the transactions contemplated hereunder and thereunder, including any and all
Environmental Liabilities and costs; provided, that Borrower shall not be liable
for any indemnification to such Indemnified Person to the extent that any such
suit, action, proceeding, claim, damage, loss, liability or expense results
solely from such Indemnified Person's gross negligence or willful misconduct, as
finally determined by a court of competent jurisdiction after all possible
appeals have been exhausted. NEITHER AGENT, ANY LENDER NOR ANY OTHER INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(b) To induce Lenders to provide the LIBOR Rate option on the
terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether that repayment is
made pursuant to any provision of this Agreement or any other Loan Document or
is the result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in payment when due of the principal amount of or interest on any
LIBOR Loan; (iii)
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Borrower shall default in making any borrowing of, conversion into or
continuation of LIBOR Loans after Borrower has given notice requesting the same
in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a
LIBOR Loan after Borrower has given a notice thereof in accordance herewith,
Borrower shall indemnify and hold harmless each Lender from and against all
losses, costs and expenses resulting from or arising from any of the foregoing.
Such indemnification shall include any loss (including loss of margin) or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate deposits from which such funds were obtained. For the
purpose of calculating amounts payable to a Lender under this Section 1.16(b),
each Lender shall be deemed to have actually funded its relevant LIBOR Loan
through the purchase of a deposit bearing interest at the LIBOR Rate in an
amount equal to the amount of that LIBOR Loan and having a maturity comparable
to the relevant Interest Period; provided, however, that each Lender may fund
each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this Section
1.16(b). This covenant shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder. As promptly as
practicable under the circumstances, each Lender shall provide Borrower with its
written calculation of all amounts payable pursuant to this Section 1.16(b), and
such calculation shall be binding on the parties hereto unless Borrower shall
object in writing within ten (10) Business Days of receipt thereof, specifying
the basis for such objection in detail.
(c) Borrower hereby acknowledges and agrees that Agent (i) is
not now, and has not ever been, in control of any of the Real Estate or of
Borrower's affairs, and (ii) does not have the capacity through the provisions
of the Loan Documents to influence Borrower's conduct with respect to the
ownership, operation or management of any of its real property, including any of
its Real Estate.
1.17 Access. Borrower shall (i) provide full access during
normal business hours, from time to time upon five (5) Business Days' prior
notice, to Agent and any of its officers, employees and agents, as frequently as
Agent determines, in its sole discretion, to be appropriate (unless a Default or
Event of Default shall have occurred and be continuing, in which event Agent and
its officers, employees, designees, agents and representatives shall have access
at any and all times and without any notice), to the properties, facilities,
books, records, suppliers, customers, advisors and employees (including
officers) of Borrower and its Subsidiaries, to the Collateral, to the
accountants of Borrower and its Subsidiaries and to the work papers of such
accountants. Without limiting the generality of the foregoing, Borrower shall
permit Agent, and any of its officers, employees, agents and representatives, on
two (2) separate occasions per annum (unless a Default or an Event of Default
has occurred and is continuing, then, in such case, at any and all times)
determined by Agent in its sole discretion, to (i) inspect, audit and make
extracts from all of Borrower's and its Subsidiaries' records, files and books
of account and (ii) inspect, review and evaluate the Accounts, Inventory at
Borrower's and its Subsidiaries' locations and at premises not owned by or
leased to Borrower or any Subsidiary of Borrower. Borrower shall make available
to Agent, its counsel and advisors, immediately upon Agent's request therefor,
originals or copies of all books, records, board minutes, contracts, insurance
policies, environmental audits, business plans, files, financial statements
(actual and pro forma), filings with federal, state and local regulatory
agencies, and other instruments and documents which Agent may request. Borrower
shall deliver any document or instrument necessary for Agent, as it may from
time to time request, to obtain
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records from any service bureau or other Person which maintains records for
Borrower, and shall maintain duplicate records or supporting documentation on
media, including computer tapes and discs owned by Borrower. Borrower shall
instruct its certified public accountants and its banking and other financial
institutions to make available to Agent such information and records as Agent
may request. Confidential information obtained by Agent and Lenders pursuant to
this Section 1.17 shall be subject to Section 10.14. A fee of $500 per day per
individual (plus all out-of-pocket costs and expenses) in connection with each
field audit conducted by Agent pursuant to this Agreement and the other Loan
Documents shall be due and payable by Borrower (and, in Agent's sole and
absolute discretion, charged against the Revolving Credit Facility).
1.18 Taxes. (a) Any and all payments by Borrower hereunder or
under any Term Loan Note, Capital Expenditure Loan Note or Revolving Credit Note
shall be made, in accordance with this Section 1.18, free and clear of and
without deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Term Loan Note, Capital Expenditure Loan Note or
Revolving Credit Note, (i) the sum payable shall be increased as much as shall
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 1.18) Agent or Lenders,
as applicable, receive an amount equal to the sum they would have received had
no such deductions been made, (ii) Borrower shall make such deductions, and
(iii) Borrower shall pay the full amount deducted to the relevant taxing or
other authority in accordance with applicable law.
(b) Borrower shall indemnify and pay, within ten (10) days of
demand therefor, Agent and each Lender for the full amount of Taxes (including
any Taxes imposed by any jurisdiction on amounts payable under this Section
1.18) paid by Agent or such Lender, as appropriate, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
(c) Within thirty (30) days after the date of any payment of
Taxes, Borrower shall furnish to Agent, at its address referred to in Section
10.10, the original or a certified copy of a receipt evidencing payment thereof.
1.19 Capital Adequacy and Other Adjustments.
(a) In the event that any Lender shall have determined that
the adoption after the Closing Date of any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by any
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from any central
bank or governmental agency or body having jurisdiction does or would have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time within fifteen (15) days after notice and demand from
such Lender (together with the certificate referred to in the next sentence and
with a copy to Agent) pay to Agent, for the account of such Lender, additional
amounts
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sufficient to compensate such Lender for such reduction; provided, however,
that, notwithstanding the foregoing, Borrower shall have no obligation to make
any such payment in the event, if any, that such notice and demand was sent by
such Lender more than ninety (90) days after it became aware of such law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order. A certificate as to the amount of such cost and showing the basis of the
computation of such cost submitted by such Lender to Borrower and Agent shall,
absent manifest error, be final, conclusive and binding for all purposes.
(b) Each Lender organized under the laws of a jurisdiction
outside the United States (a "Foreign Lender") as to which payments to be made
under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001
or other applicable form, certificate or document prescribed by the IRS or the
United States certifying as to such Foreign Lender's entitlement to such
exemption (a "Certificate of Exemption"). Prior to becoming a Lender under this
Agreement and within fifteen (15) days after a reasonable written request of
Agent or Borrower from time to time thereafter, each Foreign Lender that becomes
a Lender under this Agreement shall provide a Certificate of Exemption to
Borrower and Agent. No foreign Person may become a Lender hereunder if such
Person is unable to deliver a Certificate of Exemption. If a Foreign Lender does
not provide a Certificate of Exemption to Agent and Borrower within the time
periods set forth above, Borrower shall withhold taxes from payments to such
Foreign Lender at the applicable statutory rate and Borrower shall not be
required to pay any additional amounts as a result of such withholding;
provided, that all such withholding shall cease upon delivery by such Foreign
Lender of a Certificate of Exemption to Agent and Borrower.
(c) In the event Borrower shall be required to pay any
increased cost to any Lender pursuant to Section 1.19(a), Borrower shall be
entitled, by so notifying Agent and such Lender within thirty (30) days after
such Lender notifies Borrower of any such increased cost, to arrange for the
substitution of a new lender for such Lender within sixty (60) days thereafter
pursuant to the relevant provisions of Section 9.1, whereupon, upon the
effectiveness of such substitution, all of such Lender's Pro Rata Share shall be
assigned to such new lender; provided, however, that:
(i) such Lender shall be entitled to withdraw its notice of
increased costs within a period of thirty (30) days from the date of Borrower's
notice of substitution, whereupon Borrower shall no longer be entitled to
substitute for such Lender as described above;
(ii) in no event shall Borrower be entitled to substitute for
any Lender unless the net present value of the additional cost to Borrower
(including closing costs) of such substitution is less than the net present
value of the additional cost referred to in this Section 1.19 to Borrower of
maintaining such Lender's Pro Rata Share; and
(iii) in all events (other than those described in clause (i)
above), Borrower shall remain liable for the increased costs of such Lender for
the period prior to the actual repayment of such Lender's Pro Rata Share.
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(d) Notwithstanding anything to the contrary contained herein,
if the introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to make
or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is
able to make or to continue to fund or to maintain such LIBOR Loan at another
branch or office of that Lender without, in that Lender's opinion, adversely
affecting it or its Loans or the income obtained therefrom, on notice thereof
and demand therefor by such Lender to Borrower through Agent, (i) the obligation
of such Lender to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR
Loans owing to such Lender, together with interest accrued thereon, unless
Borrower, within five (5) Business Days after the delivery of such notice and
demand, converts all such Loans into a Loan bearing interest based on the Index
Rate.
1.20 Amendment and Restatement. (a) This Agreement amends and
restates in its entirety the Prior Credit Agreement and, upon effectiveness of
this Agreement, the terms and provisions of the Prior Credit Agreement shall,
subject to this Section 1.20, be superseded hereby. All references to "Credit
Agreement" contained in the Loan Documents delivered in connection with the
Prior Credit Agreement shall be deemed to refer to this Agreement.
Notwithstanding the amendment and restatement of the Prior Credit Agreement by
this Agreement, the Obligations outstanding under the Prior Credit Agreement as
of the Closing Date (except to the extent repaid in accordance herewith) shall
remain outstanding and constitute continuing Obligations hereunder and shall
continue to be secured by the Collateral. Such outstanding Obligations and the
Liens securing payment thereof shall in all respects be continuing, and this
Agreement shall not be deemed to evidence or result in a novation or repayment
and re-borrowing of such Obligations. In furtherance of and without limiting the
foregoing, from and after the Closing Date and except as expressly specified
herein, the terms, conditions, and covenants governing the Obligations
outstanding under the Prior Credit Agreement shall be solely as set forth in
this Agreement, which shall supersede the Prior Credit Agreement in its
entirety.
(b) This is the final expression of a credit agreement among
Borrower, Agent and Lenders. This Agreement cannot be contradicted by evidence
of any prior oral credit agreement or of a contemporaneous oral credit agreement
among Borrower, Agent and Lenders. Borrower and Agent affirm that they have no
oral agreement or agreement by course of dealing with respect to the subject
matter hereof.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Revolving Credit Advance,
Initial Letter of Credit Obligations, the Term Loan and the Capital Expenditure
Advance. Notwithstanding any other provision of this Agreement and without
affecting in any manner the rights of Agent and Lenders hereunder, Borrower
shall have no rights under this Agreement (but shall have all applicable
obligations hereunder), and no Lender shall be obligated to make any Revolving
Credit Advance or Capital Expenditure Advance, incur any Letter of Credit
Obligation, make the Term Loan, or to take, fulfill, or perform any other action
hereunder, until the following conditions have been satisfied, in Agent's sole
and reasonable discretion, or waived in writing by Agent:
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(a) This Agreement or counterparts hereof shall have been duly
executed by, and delivered to, Borrower, Agent and Lenders.
(b) Agent shall have received such guaranties, documents,
instruments, agreements and amendments thereto and legal opinions as Agent shall
request in connection with the transactions contemplated by this Agreement and
the other Loan Documents, including all guaranties, documents, instruments,
agreements and legal opinions listed in Annex D, each in form and substance
satisfactory to Agent.
(c) "Term Loan B" (as defined in the Prior Credit Agreement)
will have been repaid in full as of the Closing Date.
(d) Agent shall have received evidence satisfactory to it that
Borrower has obtained consents and acknowledgments of all Persons whose consents
and acknowledgments may be required, including, but not limited to, all
requisite Governmental Authorities, to the terms, and to the execution and
delivery, of this Agreement, the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby.
(e) Borrower shall have paid to GE Capital all Fees required
to be paid at or prior to the Closing Date under the terms of the GE Capital Fee
Letter.
(f) Since December 31, 1995, there shall have been: (i) no
Material Adverse Effect on the business, operations, financial condition,
prospects or projections of Borrower, the industries in which it operates, the
Collateral, or any of its Subsidiaries; (ii) no litigation will have commenced
which, if successful, could have any such Material Adverse Effect or could
challenge any of the transactions contemplated by this Agreement and the other
Loan Documents; (iii) except for (A) the redemption of preferred stock of
Borrower owned by PST in accordance with the Prior Credit Agreement and (B)
payments made pursuant to the Tax Sharing Agreement in accordance with Section
6.15 of the Prior Credit Agreement, no dividends, distributions, payments,
loans, contributions, fees or other transfers of cash, property or other assets
to any stockholders or Affiliate of Borrower, including ARTRA or its employees,
directors, officers or Affiliates; and (iv) no material increase in liabilities,
liquidated or contingent, and no material decrease in assets of Borrower or any
of its Subsidiaries.
(g) Agent shall have completed its business and legal due
diligence with respect to Borrower and its Subsidiaries and the legal and
corporate structure thereof and the results of such due diligence shall be
satisfactory to Agent, in its sole discretion.
(h) Agent shall have received Borrower's duly executed
acknowledgment to the Notice and Conditional Waiver of Events of Default
addressed by Agent to Borrower on December 16, 1996, and each of the conditions
referred to therein shall have been satisfied in full in accordance with the
terms thereof.
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(i) Agent shall have received such other documents as Agent or
any Lender may reasonably request in connection with the transactions
contemplated by this Agreement and the other Loan Documents.
2.2 Further Conditions to Each Revolving Credit Advance, Each
Letter of Credit Obligation, Each Term Loan and each Capital Expenditure
Advance. It shall be a further condition to the making of each Revolving Credit
Advance and Capital Expenditure Advance, the incurrence of each Letter of Credit
Obligation and the continuance of the Term Loan, that the following statements
shall be true on the date of each such advance, incurrence or funding (or any
conversion or continuation of any Loan into or as a LIBOR Loan), as the case may
be:
(a) All of Borrower's representations and warranties contained
herein or in any of the other Loan Documents shall be true and correct on and as
of the Closing Date and the date on which each such Revolving Credit Advance is
made or such Letter of Credit Advance is incurred, as though made on and as of
such date, except to the extent that any such representation or warranty
expressly relates to an earlier date and except for changes therein expressly
permitted or expressly contemplated by this Agreement.
(b) Borrower and each of its Subsidiaries shall be in
compliance in all material respects with all of the covenants and other
agreements contained herein or in any of the other Loan Documents.
(c) No event shall have occurred and be continuing, or would
result from the making of any Revolving Credit Advance or Capital Expenditure
Advance, the incurrence of any Letter of Credit Obligation or the funding of the
Term Loan, as the case may be, which constitutes or would constitute a Default
or an Event of Default.
(d) After giving effect to such Revolving Credit Advance or
the incurrence of such Letter of Credit Obligation, as the case may be, the
aggregate principal amount of the Revolving Credit Loan shall not exceed the
maximum amount permitted by Section 1.5(a) without requiring that a payment be
made to Agent or any Lender in an amount equal to the excess of the then
outstanding aggregate principal amount of the Revolving Credit Loan over such
maximum amount permitted by Section 1.5(a).
(e) After giving effect to such Capital Expenditure Advance,
the aggregate principal amount of the Capital Expenditure Loan shall not exceed
the maximum amount permitted by Section 1.3(a).
(f) Each of the conditions set forth in Section 2.1 shall
continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance or any Term Loan or Capital Expenditure Advance, or the request by
Borrower for the incurrence by Lenders of any Letter of Credit Obligation, or
the conversion or continuation of any Loan into, or as, a LIBOR Loan, as the
case may be, shall be deemed to constitute, as of the date of such request
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or acceptance, (i) a representation and warranty by Borrower that the conditions
in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of
the granting and continuance of Agent's Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.
2.3 Further Conditions to Each Capital Expenditure Advance. It
shall be a further condition to the initial and each subsequent Capital
Expenditure Advance that each of the following conditions shall have been
satisfied:
(a) Capital Expenditure Advance Compliance Certificate. At
least five (5) Business Days prior to the funding of any such Capital
Expenditure Advance, Borrower shall deliver to Agent a Capital Expenditure
Advance Compliance Certificate, fully executed by the chief financial officer or
chief executive officer of Borrower. Such Certificate must be in the form of
Exhibit F and must describe the nature and amount of Equipment proposed to be
acquired in connection with a Capital Expenditure Advance and certify that (i)
the proceeds of such Capital Expenditure Advance shall be used solely to fund
Capital Expenditures constituting the Hard Costs of such Equipment, (ii) the
aggregate amount of such Capital Expenditure Advance does not exceed the lesser
of (x) the Maximum Capital Expenditure Advance Amount or (y) Capital Expenditure
Loan Availability as of such date, (iii) after giving effect to such Capital
Expenditure Advance, the aggregate principal amount of the Capital Expenditure
Advances made during the term of this Agreement shall not exceed the Capital
Expenditure Loan Commitment and (iv) such Equipment can and shall be used by
Borrower in the ordinary course of its business consistent with past practices.
(b) Additional Requirements. Concurrently with the delivery of
each Capital Expenditure Advance Compliance Certificate (or, in the case of
clause (iv) below, promptly upon receipt by Borrower), Borrower shall deliver to
Agent:
(i) to the extent necessary or requested by Agent, evidence
of the proper filing in all required filing offices of duly executed Code
financing statements or amendments to existing financing statements with respect
to the Equipment acquired with the proceeds of such Advance (and termination or
partial release statements, as required to terminate or release any Liens on
such Equipment at the time of the acquisition thereof by Borrower), and such
other documents, instruments and agreements as Agent may request, including duly
endorsed certificates of title for all titled Equipment, all in form
satisfactory to Agent and perfecting first priority security interests of Agent
on behalf of Lenders in such Equipment.
(ii) if requested by Agent, copies of policies of insurance
and loss payable endorsements in form and substance satisfactory to Agent
regarding the Equipment acquired with the proceeds of such Capital Expenditure
Advance, duly executed, and evidence of the payment of the premiums therefor;
(iii) duly executed originals of a letter of direction from
Borrower addressed to Agent with respect to the disbursement on the applicable
funding date of the proceeds of such Capital Expenditure Advance, which
disbursement shall be made by Agent directly to the seller of the Equipment;
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(iv) stamped invoices, delivery and acceptance certificates
and other documentary evidence satisfactory to Agent evidencing the acceptance
and purchase of the applicable Equipment by Borrower; and
(v) such other documents as Agent or any Lender may reasonably
request in connection with such Capital Expenditure Advance.
The request and acceptance by Borrower of the proceeds of any Capital
Expenditure Advance shall be deemed to constitute, as of the date of such
request, (i) a representation and warranty by Borrower that the conditions in
this Section 2.3 have been satisfied and (ii) a reaffirmation by Borrower of the
granting and continuance of Agent's Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Revolving Credit Loan, the Term
Loan and the Capital Expenditure Loan, and to incur the Letter of Credit
Obligations, Borrower makes the following representations and warranties to
Agent and each Lender, each and all of which shall be true and correct as of the
date of execution and delivery of this Agreement, and shall survive the
execution and delivery of this Agreement:
3.1 Corporate Existence; Compliance with Law. Borrower and
each of its Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
been duly qualified to conduct business and is in good standing in each other
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, where failure to so qualify could have a
Material Adverse Effect; (ii) has the requisite corporate power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease and to conduct its
business as now, heretofore and proposed to be conducted; (iii) has all
licenses, permits, consents or approvals from or by, and has made all filings
with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct,
where failure to do so could have a Material Adverse Effect; (iv) is in
compliance with its certificate or articles of incorporation and by-laws; and
(v) is in compliance with all applicable provisions of law, where failure to so
comply could have a Material Adverse Effect.
3.2 Executive Offices. The current location of Borrower's
executive office and principal place of business is set forth on Schedule 3.2
and, except as set forth on Schedule 3.2, none of such locations have changed
within the past six (6) months.
3.3 Corporate Power Authorization, Enforceable Obligations.
The execution, delivery and performance by Borrower of the Loan Documents and
all instruments and documents to be delivered by Borrower, to the extent it is a
party thereto, hereunder and thereunder and the creation of all Liens provided
for herein and therein: (i) are within Borrower's corporate power; (ii) have
been duly authorized by all necessary or proper corporate and shareholder
action; (iii) are not
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in contravention of any provision of Borrower's certificate or articles or
incorporation or bylaws; (iv) will not violate any law or regulation, or any
order or decree of any court or governmental instrumentality; (v) will not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which Borrower is a party or
by which Borrower or any of its property is bound, including, without
limitation, the Kansas Loan documents; (vi) will not result in the creation or
imposition of any Lien upon any of the property of Borrower other than those in
favor of Agent, on behalf of itself and Lender, all pursuant to the Loan
Documents; and (vii) do not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in Section 2.1(d), all
of which will have been duly obtained, made or complied with prior to the
Closing Date. At or prior to the Closing Date, each of the Loan Documents shall
have been duly executed and delivered for the benefit of or on behalf of
Borrower and each shall then constitute a legal, valid and binding obligation of
Borrower, to the extent it is a party thereto, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the rights of creditors
generally or by application of general principles of equity.
3.4 Financial Statements and Projections. Borrower has
delivered to Agent the Financial Statements and Projections most recently
required to be delivered to Agent as of the Closing Date pursuant to the Prior
Credit Agreement.
3.5 Collateral Reports. Borrower has delivered to Agent all
Collateral Reports most recently required to be delivered to Agent as of the
Closing Date pursuant to the Prior Credit Agreement.
3.6 Material Adverse Effect. Neither Borrower nor any of its
Subsidiaries, as of December 31, 1995, had any obligations, contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the audited Financial
Statements of Borrower and its Subsidiaries as of such date and which could,
alone or in the aggregate, have or result in a Material Adverse Effect. There
has been no material adverse change in the business, assets, operations,
prospects, projections or financial or other condition of Borrower or any of its
Subsidiaries since December 31, 1995. Except as otherwise permitted hereunder or
for the redemption of preferred stock of Borrower owned by PST in accordance
with this Agreement and the Prior Credit Agreement, (a) no dividends, advances
or other distributions have been declared, paid or made upon any Stock of
Borrower or any of its Subsidiaries and (b) since December 31, 1995, no shares
of Stock of Borrower have been, or are required to be, redeemed, retired,
purchased or otherwise acquired for value.
3.7 Ownership of Property; Liens. (a) Except as described on
Schedule 3.7, the real estate listed on Schedule 3.7 constitutes all of the real
property owned, leased, or used in its business by Borrower or its Subsidiaries.
Borrower and each of its Subsidiaries own good and marketable fee simple title
to: (i) all of its Real Estate, subject to no Liens other than Permitted
Encumbrances, and has valid and marketable leasehold interests in all of its
Leases (both as lessor and lessee, sublessee or assignee), all as described on
Schedule 3.7, and (ii) good and marketable title to, or valid leasehold
interests in, all of its other properties and assets, and none of the properties
and
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assets of Borrower or any of its Subsidiaries are subject to any Liens, except
Permitted Encumbrances; and Borrower or such Subsidiary has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and duly effected all recordings,
filings and other actions necessary to perfect and, in all material respects,
establish and protect, Borrower's or such Subsidiary's right, title and interest
in and to all such real estate and other assets or property. Neither Borrower,
any of its Subsidiaries nor any other party to any such Lease described on
Schedule 3.7 is in any material default of its obligations thereunder or has
delivered or received any notice of default under any such Lease, and no event
has occurred which, with the giving of notice, the passage of time or both,
would constitute a default under any such Lease. Except as described on Schedule
3.7, (i) neither Borrower nor any of its Subsidiaries owns or holds or is
obligated under or a party to, any option, right of first refusal or any other
contractual right to purchase, acquire, sell, assign or dispose of any real
property owned or leased by Borrower or such Subsidiary; and (ii) no portion of
any real property owned or leased by Borrower or any of its Subsidiaries has
suffered any material damage by fire or other casualty loss or a Release which
has not heretofore been completely repaired and restored to its original
condition or is being remedied. To the best of Borrower's knowledge after good
faith and diligent investigation, except as disclosed on Schedule 3.20 as
required pursuant to Section 3.20, all permits, including environmental air and
waste permits, required to have been issued or appropriate to enable the real
property owned or leased by Borrower or such Subsidiary to be lawfully occupied
and used for all of the purposes for which they are currently occupied and used,
have been lawfully issued and are, as of the Closing Date, in full force and
effect.
3.8 Restrictions; No Default. No contract, lease, agreement or
other instrument to which Borrower or any of its Subsidiaries is a party or by
which it or any of its properties or assets is bound or affected and no
provision of applicable law or governmental regulation has or results in a
Material Adverse Effect, or could have or result in a Material Adverse Effect.
Neither Borrower nor any of its Subsidiaries is in default, and to Borrower's or
such Subsidiary's knowledge no third party is in default, under or with respect
to any contract, agreement, lease or other instrument to which it is a party. No
Default or Event of Default has occurred and is continuing.
3.9 Labor Matters. There are no strikes or other labor
disputes against Borrower or any of its Subsidiaries that are pending or
threatened. Hours worked by and payment made to employees of Borrower and its
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable federal, state, local or foreign law dealing with such matters.
All payments due from Borrower or any of its Subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of Borrower. Except as set forth on Schedule 3.9, neither Borrower nor any
of its Subsidiaries has any obligation under any collective bargaining agreement
or any employment agreement. There is no organizing activity involving Borrower
or any of its Subsidiaries pending or threatened by any labor union or group of
employees. Except as set forth on Schedule 3.9, there are no representation
proceedings pending or threatened with the National Labor Relations Board, and
no labor organization or group of employees of Borrower or any of its
Subsidiaries has made a pending demand for recognition. There are no complaints
or charges against Borrower or any of its Subsidiaries pending or threatened to
be filed with any federal, state, local or foreign court, governmental agency or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any
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individual by Borrower or any of its Subsidiaries. Neither Borrower nor any of
its Subsidiaries is a contractor or subcontractor and, except as set forth on
Schedule 3.9, neither Borrower nor any Subsidiary has a legal obligation to
engage in affirmative action.
3.10 Ventures, Subsidiaries and Affiliates; Outstanding Stock
and Indebtedness. Except as set forth on Schedule 3.10, (i) Borrower has no
subsidiaries, is not engaged in any joint venture or partnership with any other
Person, and or an Affiliate of any other Person, (ii) there are no outstanding
rights to purchase options, warrants or similar rights or agreements pursuant to
which any Person may be required to issue or sell any Stock or other equity
security of Borrower and (iii) Borrower is the sole direct or indirect
beneficial owner of all of the outstanding capital stock of its Subsidiaries.
All of the issued and outstanding Stock of Borrower is owned by each of the
Stockholders named on Schedule 3.10. Except as set forth on Schedule 3.10, there
are no outstanding rights to purchase options, warrants or similar rights or
agreements pursuant to which any Person may be required to issue or sell any
Stock or other equity security of any Subsidiary of Borrower. As of the Closing
Date, all outstanding Indebtedness and all Liens of Borrower and its
Subsidiaries are described in Section 6.3 (including Schedule 6.3) and 6.7,
respectively.
3.11 Government Regulation. Neither Borrower nor any of its
Subsidiaries is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940 as amended. Neither
Borrower nor any of its Subsidiaries is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or any other federal or state statute that restricts or limits its
ability to incur Indebtedness or to perform its obligations hereunder, and the
making of the Revolving Credit Advances, the Term Loan and the Capital
Expenditure Loan and the incurrence of Letter of Credit Obligations, in each
case by Lenders, the application of the proceeds and repayment thereof by
Borrower or such Subsidiary and the consummation of the transactions
contemplated by this Agreement and the other Loan Documents will not violate any
provision of any such statute or any rule, regulation or order issued by the
Securities and Exchange Commission.
3.12 Margin Regulations. Neither Borrower nor any of its
Subsidiaries is engaged, nor will it engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin security" within the respective meanings
of each of the quoted terms under Regulation U or G of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") as now and from time to
time hereafter in effect. Neither Borrower nor any of its Subsidiaries owns any
"margin security", as that term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve Board, and none of the proceeds of the
Revolving Credit Advances, the Term Loan, the Capital Expenditure Loan nor any
Letter of Credit will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the loans or
other extensions of credit under this Agreement to be considered a "purpose
credit" within the meaning of Regulation G, T, U or X of the Federal Reserve
Board. Neither Borrower nor any of its Subsidiaries will take or permit any
agent acting on its behalf to take any action which
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might cause this Agreement or any other Loan Document or any document or
instrument delivered pursuant hereto to violate any regulation of the Federal
Reserve Board.
3.13 Taxes. All federal, state, local and foreign tax returns,
reports and statements, including, but not limited to, information returns (Form
1120-S) required to be filed by Borrower or any of its Subsidiaries, have been
filed with the appropriate Governmental Authority and all Charges and other
impositions shown thereon to be due and payable have been paid prior to the date
on which any fine, penalty, interest or late charge may be added thereto for
nonpayment thereof, or any such fine, penalty, interest, late charge or loss has
been paid; provided, that, Borrower may in good faith contest, by proper legal
action or proceedings, the validity or amount of any such Charges or claims, so
long as, at the time of commencement of any such action or proceeding, and
during the pendency thereof (i) adequate reserves with respect thereto are
maintained on the books of Borrower, in accordance with GAAP, (ii) such contest
operates to suspend collection of such Charges or claims and such contest is
maintained and prosecuted continuously and with diligence, and (iii) Agent has
not advised Borrower in writing that Agent reasonably believes that nonpayment
or nondischarge thereof could have or result in a Material Adverse Effect.
Borrower and each of its Subsidiaries has paid when due and payable all Charges
required to be paid by it. Proper and accurate amounts have been withheld by
Borrower and its Subsidiaries from its respective employees for all periods in
full compliance in all material respects with the tax, social security and
unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. Schedule 3.13 sets forth those taxable years for which
Borrower's tax returns are currently being audited by the IRS or any other
applicable Governmental Authority and any assessments or threatened assessments
in connection with such audit, or otherwise currently outstanding. Except as
described on Schedule 3.13, neither Borrower nor any of its Subsidiaries has
executed or filed with the IRS or any other Governmental Authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. Neither Borrower nor any of its
Subsidiaries has filed a consent pursuant to IRC Section 341(f) or agreed to
have IRC Section 341(f) (2) apply to any dispositions of subsection (f) assets
(as such term is defined in IRC Section 341(f)(4)). None of the property owned
by Borrower or any of its Subsidiaries is property which Borrower or such
Subsidiary is required to treat as being owned by any other Person pursuant to
the provisions of IRC Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of the IRC Section
168 (h). Neither Borrower nor any of its Subsidiaries has agreed or been
requested to make any adjustment under IRC Section 481(a) by reason of a change
in accounting method or otherwise. Neither Borrower nor any of its Subsidiaries
have any obligation under any written tax sharing agreement, except, subject to
Section 6.15, the Tax Sharing Agreement.
3.14 ERISA. (a) Neither Borrower nor any of its Subsidiaries
has now, or has ever had, any Pension Plans and neither Borrower nor any of its
Subsidiaries has any liabilities with respect to any Pension Plans. Schedule
3.14 lists all Plans maintained or contributed to by Borrower or any of its
Subsidiaries and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. Each Qualified Plan has been
determined by the IRS to qualify under Section 401 of the IRC,
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and the trusts created thereunder have been determined to be exempt from tax
under the provisions of Section 501 of the IRC, and to the best knowledge of
Borrower nothing has occurred which would cause the loss of such qualification
or tax-exempt status. Each Plan is in compliance with the applicable provisions
of ERISA and the IRC, including the filing of reports required under the IRC or
ERISA which are true and correct as of the date filed, and with respect to each
Plan, other than a Qualified Plan, all required contributions and benefits have
been paid in accordance with the provisions of each such Plan. With respect to
any Qualified Plan, neither Borrower, any of its Subsidiaries nor any ERISA
Affiliate has failed to make any contribution or pay any amount due as required
by Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
With respect to all Retiree Welfare Plans, the present value of future
anticipated expenses pursuant to the latest actuarial projections of liabilities
does not exceed Fifty Thousand Dollars ($50,000), and copies of such latest
projections have been provided to Agent. Neither Borrower nor any of its
Subsidiaries has engaged in a prohibited transaction, as defined in Section 4975
of the IRC or Section 406 of ERISA, in connection with any Plan, which would
subject Borrower or such Subsidiary (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975 of the IRC or
any other material liability.
(b) Except as set forth on Schedule 3.14: (i) no Title IV Plan
has any Unfunded Pension Liability; (ii) No ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
Borrower or any of its Subsidiaries, threatened claims, actions or lawsuits
(other than claims for benefits in the normal course), asserted or instituted
against (x) any Plan or its assets, (y) any fiduciary with respect to any Plan
or (z) Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to
any Plan; (iv) neither Borrower, any of its Subsidiaries, nor any ERISA
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (v) within
the last five years neither Borrower, any of its Subsidiaries, nor any ERISA
Affiliate has engaged in a transaction which resulted in a Title IV Plan with
Unfunded Liabilities being transferred outside of the "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) Borrower,
each of its Subsidiaries and each ERISA Affiliate have complied with the notice
and continuation coverage requirements of Section 4980B of the IRC and the
regulations thereunder except where the failure to comply could not have or
result in any Material Adverse Effect; and (vii) no liability under any Plan has
been funded, nor has such obligation been satisfied, with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation and the equivalent by each other nationally recognized rating
agency.
3.15 No Litigation. Except as set forth on Schedule 3.15, no
action, claim or proceeding is now pending or, to the knowledge of Borrower or
any of its Subsidiaries, threatened against Borrower or such Subsidiary, at law,
in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, local or foreign government or of any
agency or subdivision thereof, or before any arbitrator or panel of arbitrators,
(i) which challenges Borrower's or such Subsidiary's right, power or competence
to enter into or perform any of its obligations under the Loan Documents, or the
validity or enforceability of any Loan Document or
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any action taken thereunder, or (ii) which if determined adversely, could have
or result in a Material Adverse Effect, nor to the best knowledge of Borrower or
such Subsidiary does a state of facts exist which is reasonably likely to give
rise to such proceedings.
3.16 Brokers. No broker or finder acting on behalf of Borrower
or any of its Subsidiaries brought about the obtaining, making or closing of the
loans made pursuant to this Agreement or the transactions contemplated by the
Loan Documents and neither Borrower nor any of its Subsidiaries has any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.17 Employment Matters. Except as set forth on Schedule 3.17,
there are no (i) employment, consulting or management agreements covering
management of Borrower or any of its Subsidiaries, or (ii) collective bargaining
agreements or other labor agreements covering any employees of Borrower or any
of its Subsidiaries. Except as furnished pursuant to the Prior Credit Agreement,
a true and complete copy of each such agreement has been furnished to Agent as
of the Closing Date.
3.18 Patents, Trademarks, Copyrights and Licenses. Except as
otherwise set forth on Schedule 3.18, Borrower and each of its Subsidiaries owns
all material licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, and trade names necessary to continue to
conduct its business as heretofore conducted by it, now conducted by it and
proposed to be conducted by it, each of which is listed, together with Copyright
Office or Patent and Trademark Office application or registration numbers, where
applicable, on Schedule 3.18. Schedule 3.18 lists all tradenames or other names
under which Borrower and each of its Subsidiaries conducts business. Borrower
and each of its Subsidiaries conducts (or has within the past six (6) years
conducted) its business without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of others. There is no infringement or claim
of infringement by others of any license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property right of
Borrower or any of its Subsidiaries.
3.19 Full Disclosure. No information contained in this
Agreement, any of the other Loan Documents, the Projections, the Financial
Statements, the Collateral Reports or any written statement furnished by or on
behalf of Borrower or any of its Subsidiaries pursuant to the terms of this
Agreement, which has previously been, or is currently being, delivered to Agent,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they were made. The Liens granted to
Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents are
fully perfected first priority Liens in and to the Collateral described therein
and the Liens granted to Agent, on behalf of itself and Lenders, pursuant to the
Mortgages are fully perfected first priority Liens in and to the Mortgaged
Property described therein, subject only to Permitted Encumbrances then
existing. Since December 31, 1995, no event has occurred and is continuing which
has had or could have or result in a Material Adverse Effect.
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3.20 Hazardous Materials. Except as set forth on Schedule
3.20, the Real Property is free of contamination from any Hazardous Material. In
addition, Schedule 3.20 discloses potential material environmental liabilities
of Borrower or any of its Subsidiaries of which any of them have knowledge (i)
related to noncompliance with the Environmental Laws, or (ii) associated with
the Real Estate. Neither Borrower nor any of its Subsidiaries has caused or
suffered to occur any Release with respect to any Hazardous Material at, under,
above or within any real property which it owns or leases. Neither Borrower nor
any of its Subsidiaries is involved in operations which could lead to the
imposition of any liability or Lien on it, or any owner of any premises which it
occupies, under any Environmental Law, and neither Borrower nor any of its
Subsidiaries has permitted any tenant or occupant of such premises to engage in
any such activity. Borrower has provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities and Costs, in each case
relating to Borrower and each of its Subsidiaries.
3.21 Insurance Policies. Schedule 3.21 lists all insurance of
any nature maintained for current occurrences by Borrower and its Subsidiaries,
as well as a summary of the terms of such insurance. Borrower covenants that
such Insurance complies with and shall at all times comply with the standards
set forth on Annex H.
3.22 Deposit and Disbursement Accounts. Schedule 3.22 lists
all banks and other financial institutions at which Borrower or its Subsidiaries
maintains deposits and/or other accounts, including any disbursement accounts,
and such Schedule correctly identifies the name, address and telephone number of
each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number.
3.23 Government Contracts. Except as set forth on Schedule
3.23, neither Borrower nor any of its Subsidiaries is a party to any contract or
agreement with the federal government and none of the Accounts are subject to
the Federal Assignment of Claims Act (31 U.S.C. Section 3727) relative to the
assignment of such Accounts.
3.24 Customer and Trade Relations. There exists no actual or
threatened termination or cancellation of, or any material adverse modification
or change in: (a) the business relationship of Borrower or any of its
Subsidiaries with any customer or group of customers whose purchases
individually or in the aggregate are material to the operations of Borrower,
such Subsidiary, or Borrower and its Subsidiaries taken as a whole; or (b) the
business relationship of Borrower or any of its Subsidiaries with any supplier
material to the operations of Borrower, such Subsidiary, or Borrower and its
Subsidiaries taken as a whole.
3.25 Agreements and Other Documents. As of the Closing Date,
Borrower has provided (except as provided under the Prior Credit Agreement) to
Agent, on behalf of Lenders, accurate and complete copies (or summaries) of all
of the following agreements or documents to which Borrower or any of its
Subsidiaries is subject: (a) each Plan; (b) supply agreements not terminable by
Borrower or such Subsidiary, as appropriate, within sixty (60) days following
written notice issued by Borrower or such Subsidiary; (c) purchase agreements
not terminable by Borrower or such Subsidiary, as appropriate, within sixty (60)
days following written notice issued by
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Borrower or such Subsidiary; (d) leases of real property; (e) any lease of
equipment having a remaining term of one (1) year or longer and requiring
aggregate rental and other payments in excess of Fifty Thousand Dollars
($50,000) per annum; (f) licenses and permits necessary for the conduct of
Borrower's or such Subsidiary's businesses; (g) employment, consulting,
severance, "golden parachute" and other similar agreements with any officer of
Borrower or such Subsidiary; (h) instruments or documents evidencing
Indebtedness of Borrower or such Subsidiary and any security interest granted by
Borrower or such Subsidiary with respect thereto; and (i) instruments and
agreements evidencing the issuance of any equity securities, warrants, rights or
options to purchase equity securities of Borrower or such Subsidiary.
3.26 Kansas Indebtedness. No default or event of default has
occurred and is continuing under the Kansas Loan Documents.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Borrower covenants and agrees
that from and after the Closing Date and until the Commitment Termination Date,
it shall deliver to Agent and/or Lenders, as required, the Financial Statements,
notices and Projections at the times, to the Persons and in the manner set forth
on Annex I.
(b) Borrower covenants and agrees that from and after the
Closing Date, it shall deliver to Agent and/or Lenders, as required, the various
Collateral Reports at the times, to the Persons and in the manner set forth on
Annex J.
4.2 Communication with Accountants. Borrower authorizes Agent
to communicate directly with its independent certified public accountants and
tax advisors, including Coopers & Lybrand, and authorizes those accountants and
advisors to disclose to Agent any and all financial statements and other
supporting financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other affairs of
Borrower or any of its Subsidiaries. To permit Borrower's attendance thereat,
Agent shall provide one (1) day's prior notice to Borrower of any such
communications between Agent and the foregoing persons.
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, unless Agent shall
otherwise consent in writing, from and after the Closing Date and until the
Commitment Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Borrower
shall, and shall cause each of its Subsidiaries to: (a) do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and its rights and franchises; (b) continue to conduct its business
substantially as now conducted or as otherwise permitted hereunder; (c) at all
times maintain, preserve and protect all of its copyrights, patents, trademarks,
trade names and all other intellectual property and rights as licensee or
licensor thereof in use or useful in the conduct of its business, preserve all
the remainder of its property, in use or useful in the conduct of its business
and keep each of the same in good repair, working order and condition (taking
into consideration
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ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
and (d) transact business only in such names as are set forth on Schedule 5.1.
5.2 Payment of Obligations. (a) Borrower shall: (i) pay and
discharge or cause to be paid and discharged all Obligations; and (ii) prior to
an Event of Default, pay and discharge, or cause to be paid and discharged, its
Indebtedness other than the Obligations at the time such amounts are due and
payable, and, subject to Section 5.2(b), pay and discharge or cause to be paid
and discharged promptly all (A) Charges imposed upon it, its income and profits,
or any of its property (real, personal or mixed), and (B) lawful claims for
labor, materials, supplies and services or otherwise, before any thereof shall
become in default.
(b) Borrower may in good faith contest, by proper legal action
or proceedings, the validity or amount of any Charges or claims arising under
Section 5.2 (a) (ii); provided, that, at the time of commencement of any such
action or proceeding, and during the pendency thereof (i) no Default or Event of
Default shall have occurred, (ii) adequate reserves with respect thereto are
maintained on the books of Borrower, in accordance with GAAP, (iii) such contest
operates to suspend collection of the contested Charges or claims and such
contest is maintained and prosecuted continuously and with diligence, (iv) none
of the Collateral would be subject to forfeiture or loss or any Lien by reason
of the institution or prosecution of such contest, (v) no Lien shall exist, be
imposed or be attempted to be imposed for such Charges or claims during such
action or proceeding, (vi) Borrower shall promptly pay or discharge such
contested Charges and all additional charges, interest, penalties and expenses,
if any, and shall deliver to Agent evidence acceptable to Agent of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to Borrower, and (vii) Agent has not advised Borrower in writing that
Agent reasonably believes that nonpayment or nondischarge thereof could have or
result in a Material Adverse Effect.
5.3 Books and Records. Borrower shall keep adequate records
and books of account with respect to Borrower's and each of its Subsidiaries'
business activities, in which proper entries, reflecting all financial
transactions, are made in accordance with GAAP and on a basis consistent with
the Financial Statements referred to in Section 3.4.
5.4 Litigation. Borrower shall notify Agent in writing,
promptly upon learning thereof, of any litigation commenced or threatened
against Borrower or any of its Subsidiaries, and of the institution against it
of any suit or administrative proceeding that (a) may involve an amount in
excess of One Hundred Thousand Dollars ($100,000) or (b) seeks injunctive relief
or could have or result in a Material Adverse Effect if adversely determined.
5.5 Insurance. (a) Borrower shall maintain the policies of
insurance described on Schedule 3.21 in form and with insurers recognized as
adequate by Agent. Except to the extent permitted under Section 6.15, Borrower
shall maintain such policies at its sole cost and expense. Such policies shall
be in such amounts as are set forth on Schedule 3.21 and, in no event, less than
the amounts maintained on the Closing Date, except for appropriate changes in
such amounts resulting from acquisitions or dispositions made in accordance with
this Agreement. Borrower shall
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notify Agent promptly of any occurrence causing a material loss or decline in
value of any real or personal property and the estimated (or actual, if
available) amount of such loss or decline. Except as otherwise specified on
Schedule 3.21, Borrower hereby directs all present and future insurers under its
"All Risk" policies of insurance to pay all proceeds payable thereunder directly
to Agent, on behalf of itself and Lenders. Borrower irrevocably makes,
constitutes and appoints Agent (and all officers, employees or agents designated
by Agent) as Borrower's true and lawful agent and attorney-in-fact for the
purpose, upon the occurrence and during the continuance of a Default or an Event
of Default, of making, settling and adjusting claims under the "All Risk"
policies of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such "All Risk" policies
of insurance, and for making all determinations and decisions with respect to
such "All Risk" policies of insurance. Unless a Default or an Event of Default
shall have occurred and be continuing, at Borrower's request, Agent shall
release casualty insurance proceeds to Borrower necessary to pay for the repair,
replacement or reconstruction of the assets subject to such casualty, provided
that Agent reasonably believes that, in the event that the reasonably
anticipated costs of such repair, replacement or reconstruction will exceed the
amount of such insurance proceeds, Borrower is and will be able to meet such
additional cost. In the event Borrower at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required above or to pay
any premium in whole or in part relating thereto, Agent, without waiving or
releasing any Obligations or Default or Event of Default hereunder, may at any
time or times thereafter (but shall not be obligated to) obtain and maintain
such policies of insurance and pay such premium and take any other action with
respect thereto which Agent deems advisable. All sums so disbursed, including
attorneys, fees, court costs and other charges related thereto, shall be
payable, on demand, by Borrower to Agent and shall be additional Obligations
hereunder secured by the Collateral, provided, that, if and to the extent
Borrower fails to promptly pay any of such sums upon demand therefor, Agent is
authorized to, and at its option may, make or cause to be made Revolving Credit
Advances on behalf of Borrower for payment thereof.
(b) Agent reserves the right at any time, upon review of
Borrower's risk profile, to require additional forms and limits of insurance to,
in Agent's sole opinion, adequately protect both Agent and Lenders' interests in
all or any portion of the Collateral and to ensure that Borrower and each of its
Subsidiaries is protected by insurance in amounts and with coverage customary
for businesses engaged in their businesses. Upon the occurrence and during the
continuance of any Default or Event of Default, Agent reserves the right at any
time, upon review of Borrower's and/or any of its Subsidiaries' risk profile, to
require additional forms and limits of insurance to, in Agent's sole opinion,
adequately protect Agent's and Lenders' interests, including, but not limited
to, their interests in the Collateral. Borrower shall, if so requested by Agent,
deliver to Agent, from time to time upon request of Agent, a report of a
reputable insurance broker, satisfactory to Agent, with respect to its insurance
policies.
(c) On the Closing Date and from time to time thereafter, as
requested by Agent, Borrower shall deliver to Agent endorsements (i) to all "All
Risk" and business interruption insurance naming Agent, on behalf of itself and
Lenders, as loss payee, and (ii) to all general liability and other liability
policies naming Agent, on behalf of itself and Lenders, as additional insured.
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5.6 Compliance with Laws. Borrower and each of its
Subsidiaries shall comply in all material respects with all federal, state and
local laws, regulations, orders and agreements (including conciliation
agreements) applicable to it, including those relating to licensing,
environmental, consumer credit, truth-in-lending, ERISA and labor matters.
5.7 Agreements. Borrower and each of its Subsidiaries shall
perform in all material respects, within all required time periods (after giving
effect to any applicable grace periods), all of its obligations and enforce all
of its rights under each agreement to which it is a party, including any lease
or customer contracts to which it is a party. Borrower or any of its
Subsidiaries may terminate or modify any provision of any agreement to which it
is a party, so long as such termination or modification could not have or result
in a Material Adverse Effect.
5.8 Supplemental Disclosure. On the request of Agent (in the
event that such information is not otherwise delivered by Borrower to Agent
pursuant to this Agreement), so long as there are Obligations outstanding
hereunder, and with reasonable frequency (unless a Default or an Event of
Default has occurred and is continuing, then, in such case, as frequently as
requested by Agent), Borrower will supplement each schedule or representation
herein with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such schedule or as an exception to such representation or
which is necessary to correct any information in such schedule or representation
which has been rendered inaccurate thereby; provided, however, that such
supplement to such schedule or representation shall not be deemed an amendment
thereof unless expressly consented to in writing by Agent and Requisite Lenders,
and no such supplements, except as the same may be consented to in a writing
which expressly includes a waiver, shall be or be deemed a waiver of any Default
or Event of Default disclosed therein.
5.9 Employee Plans. Borrower shall notify Agent of (i) any and
all claims, actions, or lawsuits asserted or instituted, and of any threatened
litigation or claims, against Borrower, any of its Subsidiaries, or against any
ERISA Affiliate in connection with any Plan or Qualified Plan or/and against any
such Plan itself, or against any fiduciary of or service provided to any such
Plan and (ii) the occurrence of any Reportable Event with respect to any Pension
Plan.
5.10 Environmental Matters. Borrower shall, and shall cause
all of its Subsidiaries to, (i) comply in all respects with the Environmental
Laws applicable to it, (ii) notify Agent promptly after Borrower or such
Subsidiary becomes aware of any Release upon any premises owned or occupied by
it, and (iii) promptly forward to Agent a copy of any order, notice, permit,
application, or any communication or report received by Borrower or such
Subsidiary in connection with any such Release or any other matter relating to
the Environmental Laws that may affect such premises or Borrower or such
Subsidiary. The provisions of this Section 5.10 shall apply whether or not the
Environmental Protection Agency, any other federal agency or any state, local or
foreign environmental agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.
5.11 Landlords' Agreements, Bailee Letters and Mortgagee
Agreements. Borrower shall have obtained as of the Closing Date a landlord's
agreement in form and substance acceptable
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to Agent from the lessor of each leased premise currently being used by Borrower
or any of its Subsidiaries and shall obtain such an agreement from the lessor of
each premise leased after the Closing Date, in each case where Collateral is
currently or may be located. Borrower shall have obtained as of the Closing Date
a bailee letter in form and substance acceptable to Agent with respect to any
warehouse currently being used by Borrower or any of its Subsidiaries and shall
obtain such a letter with respect to each warehouse established after the
Closing Date, in each case where Collateral is currently or may be located.
Borrower shall have obtained as of the Closing Date a mortgagee's agreement in
form and substance acceptable to Agent from the mortgagee of each owned property
currently being used by Borrower or any of its Subsidiaries and shall obtain
such an agreement from the mortgagee of each property mortgaged after the
Closing Date, in each case where Collateral is currently or may be located. No
real property shall be leased, established as a warehouse or acquired by
Borrower or any of its Subsidiaries after the Closing Date, unless and until a
landlord agreement, bailee letter or mortgagee agreement, as appropriate, shall
first have been obtained in form and substance acceptable to Agent with respect
to such location.
5.12 Leased Locations of Collateral. Borrower shall timely and
fully pay and perform in all material respects its obligations under all leases
and other agreements with respect to each leased location or public warehouse
where any Collateral is or may be located. Borrower shall promptly deliver to
Agent copies of (a) any and all default notices received under or with respect
to any such leased location or public warehouse and (b) any and all other
notices received under or with respect to any such lease or other agreement.
Upon Agent's request, Borrower shall promptly deliver to Agent copies of (i) all
invoices received by Borrower for the payment of rent or other obligations with
respect to any such leased location or warehouse and (ii) all cancelled checks
evidencing payment of such rent and other obligations.
5.13 Subsidiaries. Prior to forming any Subsidiary, Borrower
shall (a) provide not less than thirty (30) days prior written notice to Agent,
(b) receive the prior written consent of Agent, (c) enter into a pledge
agreement with Agent, for the benefit of Agent and Lenders, pledging the capital
stock of such Subsidiary as additional security for the Obligations and (d)
cause such Subsidiary to enter into a guaranty, security agreement and all other
mortgages, deeds of trust and other documents, instruments and agreements as
Agent may request with Agent, for the benefit of Agent and Lenders, securing all
of the assets of such Subsidiary as additional security for the Obligations.
5.14 Maintenance of Equipment and Fixtures. Borrower shall
keep and maintain its Equipment and Fixtures in good operating condition
sufficient for the continuation of Borrower's business conducted on a basis
consistent with past practices, and Borrower shall provide or arrange for all
maintenance and service and all repairs necessary for such purpose.
5.15 Purchase Offers. Promptly upon Borrower's receipt of any
offer by any Person to acquire all or substantially all of Borrower's capital
stock or assets, prior to execution or delivery of any document in response to
such offer Borrower shall deliver a copy of such offer, together with all
supporting documentation received by Borrower with respect thereto, to Agent for
its review. Confidential information received by Agent and Lenders from Borrower
pursuant to this Section 5.15 shall be subject to Section 10.14.
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5.16 Board of Directors. Immediately upon any change in the
composition of Borrower's board of directors, Borrower shall notify Agent of the
same.
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, without Agent's prior
written consent, from and after the Closing Date until the Commitment
Termination Date:
6.1 Mergers, Etc. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, directly or indirectly, by operation of law
or otherwise, merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with, any Person or, except
as otherwise permitted by Section 5.13, form any Subsidiary.
6.2 Investments; Loans and Advances. Except as otherwise
permitted by Sections 6.3 or 6.4, or by the Security Agreement, Borrower shall
not, nor shall Borrower permit any of its Subsidiaries to, make any investment
in, or make or accrue loans or advances of money to any Person, through the
direct or indirect lending of money, holding of securities or otherwise.
6.3 Indebtedness. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except (i) Indebtedness secured by Liens permitted under Section
6.7, (ii) the Revolving Credit Loan, the Term Loan, the Capital Expenditure
Loan, the Letter of Credit Obligations and the other Obligations, (iii) deferred
taxes, (iv) unfunded pension fund and other employee benefit plan obligations
and liabilities not to exceed One Million Five Hundred Thousand Dollars
($1,500,000) in the aggregate and then only to the extent they are permitted to
remain unfunded under applicable law, (v) the Kansas Indebtedness, and (vi)
subordinated Indebtedness incurred solely to redeem the preferred stock of
Borrower owned by PST in accordance with this Agreement, provided, that, such
Indebtedness is (a) subordinated in all respects to the indefeasible payment in
full in immediately available funds of all Obligations and other payments owing
to Agent and Lenders under or pursuant to this Agreement or any other Loan
Document and (b) on terms and conditions, and in form and substance, acceptable
to Agent in its sole and absolute discretion.
6.4 Employee Loans and Transactions. Borrower shall not, nor
shall Borrower permit any of its Subsidiaries to, except as otherwise expressly
permitted hereunder, enter into any lending, borrowing or other commercial
transaction with any of its employees, officers, directors, Subsidiaries,
Affiliates or related parties without the prior written consent of Agent,
including (i) downstreaming or upstreaming of cash or intercompany advances or
guarantees and (ii) payment of any management consulting, advisory or similar
fee based on or related to Borrower's or such Subsidiary's operating performance
or income or any percentage thereof other than full-time employment agreements
and incentive compensation programs with current employees in accordance with
the agreements described on Schedule 6.4, and (iii) payment of all or a portion
of the salaries or compensation to any Person employed by any Affiliate of
Borrower, including ARTRA and its Affiliates; provided, that in the case of the
foregoing clause (iii) Borrower may make payments on behalf of ARTRA in respect
of "BMS Healthcare" (or a replacement primary health care insurance provider)
premiums and claims so long as the amount of such payments is fully reimbursed
as an
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offset against payments (to the fullest extent of such payments in the
consecutive order of their occurrence) owing by Borrower to ARTRA pursuant to
the Tax Sharing Agreement. Borrower shall not: (a) permit the direct and
indirect compensation of its ten (10) most highly compensated employees to
exceed, in the aggregate, during any Fiscal Year one hundred twenty-five percent
(125%) of the amount of such compensation during the immediately preceding
Fiscal Year; or (b) amend, alter or otherwise modify Borrower's incentive or
other compensation plans, or establish other such plans, except as required in
accordance with Borrower's 1996 Bonus Incentive Program, as amended as of the
Closing Date, provided that such program shall not permit Borrower to increase
the amount of such compensation provided to its ten (10) highest paid employees
above the amounts otherwise permitted in accordance with the foregoing clause
(a). Notwithstanding the foregoing, ARTRA shall be permitted to offer
compensation to directors or employees of Borrower pursuant to an equity
incentive plan, in form and substance reasonably satisfactory to Agent.
6.5 Capital Structure and Business. Borrower shall not, nor
shall Borrower permit any of its Subsidiaries to: (i) make any changes in any of
its business objectives, purposes or operations which could in any way
materially adversely affect the repayment of the Revolving Credit Loan, the Term
Loan, the Capital Expenditure Loan, the Letter of Credit Obligations, or any of
the other Obligations or could have or result in a Material Adverse Effect, (ii)
make or permit to exist any change in its capital structure as described on
Schedule 3.10 (including the issuance of any shares of Stock, options, warrants
or other securities or agreements convertible into Stock or any revision of the
terms of its outstanding Stock other than pursuant to the Warrant), or (iii)
amend its certificate or articles of incorporation or bylaws. Neither Borrower
nor any of its Subsidiaries shall engage in any business other than the
businesses currently engaged in by Borrower or such Subsidiary or businesses in
industries related to the businesses currently engaged in by Borrower or such
Subsidiary
6.6 Guaranteed Indebtedness. Borrower shall not, nor shall
Borrower permit any of its Subsidiaries to, incur any Guaranteed Indebtedness
except (a) by endorsement of instruments or items of payment for deposit to the
general account of Borrower, and (b) for Guaranteed Indebtedness incurred for
the benefit of Borrower or such Subsidiary if the primary obligation is
expressly permitted by this Agreement.
6.7 Liens. Borrower shall not, nor shall Borrower permit any
of its Subsidiaries to, create, incur, assume or permit to exist any Lien on or
with respect to any properties or assets (including any documents or instrument
with respect to Goods or Accounts) of Borrower or any of its Subsidiaries,
whether now owned or hereafter acquired, or any income or profits therefrom,
except Permitted Encumbrances. In addition, neither Borrower nor any of its
Subsidiaries shall become a party to any agreement, note, indenture or
instrument, or take any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favor of Agent, on behalf of
itself and Lenders, as additional collateral for the Obligations.
6.8 Sale of Assets. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, sell, transfer, convey, assign or otherwise
dispose of any of its properties or other assets, including the capital stock of
any Subsidiary or any of its Accounts; provided, however, that the foregoing
shall not prohibit: (a) the sale of Inventory in the ordinary course of
business; (b) the
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disposition for fair market value of the New Jersey or Georgia Facilities after
the operations thereof shall have been transferred to the Kansas Facility; or
(c) the disposition of other assets (excluding dispositions of Accounts and
dispositions of Inventory not sold in the ordinary course of Business) which are
no longer in use or useful to Borrower or such Subsidiary in the conduct of its
business in an amount or amounts not exceeding One Million Five Hundred Thousand
Dollars ($1,500,000) in the aggregate per annum.
6.9 Events of Default. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, take any action or omit to take any action,
which act or omission would constitute (a) a Default or an Event of Default
under, pursuant to, or noncompliance with any of, the terms of this Agreement or
any of the other Loan Documents or (b) a default or an event of default which
could cause or result in a Material Adverse Effect pursuant to, or noncompliance
with, any other contract, lease, mortgage, deed of trust or instrument to which
it is a party or by which it or any of its property is bound, or any document
creating a Lien.
6.10 ERISA. Neither Borrower, any of its Subsidiaries, nor any
ERISA Affiliate shall without Agent's prior written consent acquire any new
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an "accumulated funding deficiency", as defined in Section
302 of ERISA, or any "unfunded vested benefits", as defined in Section
4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a Multiemployer
Plan, and in Section 4211 of ERISA in the case of a Multiemployer Plan.
Additionally, neither Borrower, any of its Subsidiaries, nor any ERISA Affiliate
shall, without Agent's prior written consent, permit or suffer any condition set
forth on Schedule 3.13 to cease to be met and satisfied at any time; terminate
any Pension Plan that is subject to Title IV of ERISA where such termination
could reasonably be anticipated to result in liability to such Person; permit
any accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to
be incurred with respect to any Pension Plan; fail to make any contributions or
fail to pay any amounts due and owing as required by the terms of any Plan
before such contributions or amounts become delinquent; make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
Multiemployer Plan; or at any time fail to provide Agent with copies of any Plan
documents or governmental reports or filings, if requested by Agent.
6.11 Financial Covenants. Borrower shall not breach or fail to
comply with any of the Financial Covenants (the "Financial Covenants") set forth
on Annex K.
6.12 Hazardous Materials. Except as set forth on Schedule
3.20, Borrower shall not, nor shall Borrower permit any of its Subsidiaries or
any other Person within its control to, cause or permit a Release or the
presence, use, generation, manufacture, installation, Release, discharge,
storage or disposal of any Hazardous Materials on, under, in, above or about any
of its real estate or the transportation of any Hazardous Materials to or from
any real estate where such Release or such presence, use, generation,
manufacture, installation, Release, discharge, storage or disposal would violate
or form the basis for liability under any Environmental Laws. If a Default or
Event of Default shall have occurred and be continuing, Borrower, at its own
expense, shall cause the performance of such environmental audits and
preparation of such environmental reports as Agent may from time
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to time request as to any location at which Collateral is then located, by
reputable environmental consulting firms acceptable to Agent, and in form and
substance acceptable to Agent.
6.13 Sale-Leasebacks. Neither Borrower nor any of its
Subsidiaries shall engage in any sale-leaseback or similar transaction involving
any of its assets.
6.14 Cancellation of Indebtedness. Neither Borrower nor any of
its Subsidiaries shall cancel any claim or debt owing to it, except for
reasonable consideration negotiated on an arm's-length basis and in the ordinary
course of its business.
6.15 Restricted Payments. (a) Borrower shall not, nor shall
Borrower cause or permit any of its Subsidiaries to, make any Restricted
Payment; provided, however, that, so long as no Default or Event of Default has
occurred and is continuing or would result therefrom, Borrower may: (a) make
payments pursuant to the Tax Sharing Agreement (provided that such Restricted
Payments shall be prohibited to the extent ARTRA does not repay Borrower the
amounts described in Section 8.1(q) in accordance with the terms thereof) and
the Services Agreement, in each case not to exceed the lesser of (i) Borrower's
allocated portion of the items respectively covered by each such agreement and
(ii) the actual cost which Borrower would incur for each such respective item
independently of Borrower's affiliation with ARTRA or any other Person party to
either such agreement; (b) transfer the Harvey Receivable to ARTRA, provided,
that, all of such Indebtedness shall be evidenced by one (1) note which shall
duly pledged and delivered to Agent and (c) redeem against surrender of
certificates therefor all of the shares of its outstanding preferred stock held
by PST for an amount which does not exceed $2,100,000 in the aggregate
(inclusive of all fees, costs and expenses incurred in connection therewith, and
all distributions or other transfers of assets made in respect thereof).
6.16 Leases. Borrower shall not, nor shall Borrower cause or
permit any of its Subsidiaries to, enter into any lease of real property or
similar agreement or arrangement; provided, that, in the event of the disposal
of either or both of the New Jersey or Georgia Facilities, Borrower may enter
into a lease of real property or similar agreement or arrangement for the
purpose of continuing the applicable business of Borrower, so long as the rents
under all of such leases, agreements or arrangements do not exceed Five Hundred
Thousand Dollars ($500,000) in the aggregate for any successive twelve (12)
month period.
6.17 Composition. Borrower shall not, nor shall Borrower cause
or permit any of its Subsidiaries to, cause or suffer the occurrence of any
change in the composition of its Stockholders as of the Closing Date.
6.18 Fiscal Year. Borrower shall not, nor shall Borrower cause
or permit any of its Subsidiaries to, change its Fiscal Year.
6.19 Change of Corporate Name. Borrower shall not, nor shall
Borrower cause or permit any of its Subsidiaries to, change its corporate name.
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6.20 Sale of Stock. Borrower shall not, nor shall Borrower
cause or permit any of its Subsidiaries to, sell (whether in a public or private
offering or otherwise) or otherwise provide rights to any Person (other than
rights provided to Borrower or Parent as of the Closing Date which are not
otherwise prohibited by any Loan Document) with respect to any of its Stock,
except pursuant to the exercise of the Warrant.
6.21 Cash Management. Except for petty cash accounts not to
exceed Twenty Five Thousand Dollars ($25,000) in the aggregate, collectively, at
any and all times, Borrower shall not, nor shall Borrower cause or permit any of
its Subsidiaries to, accumulate or maintain cash in disbursement or payroll
accounts as of any date of determination.
6.22 No Impairment of Upstreaming. Borrower shall not, nor
shall Borrower permit or cause any of its Subsidiaries to, directly or
indirectly, enter into or become bound by any agreement, instrument, indenture
or other obligation which could directly or indirectly restrict, prohibit or
require the consent of any Person with respect to the payment of dividends or
distributions or the making of Intercompany Loans by any Subsidiary to Borrower.
6.23 No Amendment. Borrower shall not, nor shall Borrower
permit or cause any of its Subsidiaries to, directly or indirectly, amend,
restate, supplement or otherwise modify the Tax Sharing Agreement, the Services
Agreement or that certain Employment Agreement dated as of January 1, 1994
between Borrower and Marshall E. Rodin. None of the Kansas Loan Documents shall
be amended, restated, supplemented or otherwise modified.
6.24 No Change in Management. Borrower shall not cause or
suffer the occurrence of any change in its senior management (including its
chief executive officer, chief financial officer and chief operating officer) as
of the Closing Date; provided, that, in the event of the resignation, retirement
or death of any of the foregoing, Borrower shall replace the same with a Person
reasonably acceptable to Agent.
6.25 Management Agreements. Except to the extent that the
annual payments under all management consulting, advisory or other similar
agreements of Borrower do not exceed $250,000 in the aggregate, Borrower shall
not enter into any such agreement or amend, alter or otherwise modify, or renew
or extend, any such agreement to which it is a party as of the Closing Date,
including the consulting agreement between Borrower and Institute of Management
Resources.
6.26 Overriding Agreements. Except as expressly specified in
this Agreement, Borrower shall not pay, make, declare or guaranty or become
obligated to pay, make, declare or guaranty, whether directly or indirectly, any
dividend, distribution, payment, loan or advance, contribution, investment,
Restricted Payment or other transfer of cash, property or other assets to or in
respect of Parent, ARTRA, any Subsidiary of any of the foregoing, Peter R.
Harvey or any of his family members, or any stockholder, employee, director,
officer or Affiliate of any of the foregoing.
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7. TERM
7.1 Termination. The financing arrangements contemplated
hereby shall be in effect until, and the Revolving Loan, Letters of Credit, Term
Loan, Capital Expenditure Loan and all other Obligations shall be automatically
due and payable in full on, the Commitment Termination Date; provided, however,
that in the event of a prepayment of any part of the Obligations prior to the
Commitment Termination Date with funds borrowed from any Person other than
Lenders pursuant to this Agreement, Borrower shall simultaneously therewith pay
to Agent, in full, in immediately available funds the Revolving Credit Loan, the
Term Loan, the Capital Expenditure Loan, the Letter of Credit Obligations, and
all other Obligations arising under this Agreement or any of the other Loan
Documents.
7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of Borrower or the rights of Agent and
Lenders relating to any unpaid portion of the Revolving Credit Loan, the Term
Loan, the Capital Expenditure Loan, the Letter of Credit Obligations or any
other Obligation, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is not required until after the Commitment
Termination Date. Except as otherwise expressly provided herein or in any other
Loan Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon Borrower, and all rights of Agent and
Lenders, all as contained in the Loan Documents shall not terminate or expire,
but rather shall survive such termination or cancellation and shall continue in
full force and effect until such time as the Revolving Credit Loan, the Term
Loan, the Capital Expenditure Loan, the Letter of Credit Obligations and all of
the other Obligations have been indefeasibly paid in full in accordance with the
terms of the agreements creating such Obligations.
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) (i) Borrower shall fail to make any payment hereunder or
under any of the other Loan Documents when due and payable or declared due and
payable any payment of principal of, interest on or Fees with respect to the
Revolving Credit Loan, the Term Loan or the Capital Expenditure Loan, or any
payment of Fees with respect to the Letter of Credit Obligations.
(ii) Borrower shall fail to make any payment, other than with
respect to Obligations, required by the terms hereof or of any other Loan
Document, when due and payable and the same shall remain unremedied for a period
ending on the first to occur of three (3) Business Days after Borrower shall (A)
receive written notice of such failure from Agent or (B) become aware of such
failure.
(b) Borrower shall fail or neglect to perform, keep or observe
any of the provisions of Section 1.12 or Section 6, including any of the
provisions set forth on Annexes C and K, respectively, or there shall exist any
agreement or other document accomplishing or purporting
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to accomplish (whether on a conditional basis or otherwise) any event, condition
or other occurrence prohibited by any Loan Document.
(c) Borrower shall fail or neglect to perform, keep or observe
any term or provision of this Agreement (other than any such term or provision
referred to in other paragraphs of this Section 8.1) or of any of the other Loan
Documents, and the same shall remain unremedied for a period ending on the first
to occur of thirty (30) days after Borrower shall (i) receive written notice of
any such failure from Agent or (ii) become aware thereof.
(d) Borrower shall, or shall cause or permit any of its
Subsidiaries to, fail to timely and fully pay and perform its obligations in all
material respects under all leases and other agreements with respect to each
leased location or public warehouse, if any, at which Collateral is located or
shall fail or neglect to perform, keep or observe any of the provisions of
Section 5.12; provided, that, Borrower may in good faith contest, by proper
legal action or proceedings, the validity, amount or enforcement of any such
obligation or provision, so long as, at the time of commencement of any such
action or proceeding, and during the pendency thereof (i) no Default or Event of
Default shall have occurred, (ii) adequate reserves with respect thereto are
maintained on the books of Borrower, in accordance with GAAP, (iii) such contest
operates to suspend collection of the contested obligations, or enforcement of
the contested provisions, and such contest is maintained and prosecuted
continuously and with diligence, and (iv) Agent has not advised Borrower in
writing that Agent reasonably believes that nonpayment or nondischarge thereof
could have or result in a Material Adverse Effect.
(e) A default shall occur under any other agreement, document
or instrument to which Borrower is a party or by which Borrower or Borrower's
property is bound and such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise) due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) in respect of
any Indebtedness of Borrower in an aggregate amount exceeding One Hundred
Thousand Dollars ($100,000) or (ii) causes (or permits any holder of such
Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in
an aggregate amount exceeding One Hundred Thousand Dollars ($100,000) to become
due prior to its stated maturity or prior to its regularly scheduled dates of
payment.
(f) Any representation or warranty herein or in any other Loan
Document or in any written statement pursuant thereto or hereto, or any report,
financial statement or certificate made or delivered to Agent or any Lenders by
Borrower shall be untrue or incorrect in any material respect, as of the date
when made or deemed made (including those made or deemed made pursuant to
Section 2.2).
(g) Any material amount of the assets of Borrower or any of
its Subsidiaries shall be attached, seized, levied upon or subjected to a writ
or distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of Borrower or such
Subsidiary, as the case may be, and shall remain unstayed or undismissed for
sixty (60) consecutive days; or any Person other than Borrower shall apply for
the appointment of a receiver, trustee or custodian for any of Borrower's assets
and shall remain unstayed or undismissed for sixty
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(60) consecutive days; or Borrower or such Subsidiary, as the case may be, shall
have concealed, removed or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any of them
or made or suffered a transfer of any of its property or the incurring of an
obligation which may be fraudulent under any bankruptcy, fraudulent conveyance
or other similar law.
(h) A case or proceeding shall have been commenced against
Borrower or any of its Subsidiaries in a court having competent jurisdiction
seeking a decree or order (i) 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, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of Borrower
or any of its Subsidiaries or of any substantial part of any of their
properties, or (iii) ordering the winding up or liquidation of the affairs of
Borrower or such Subsidiary and such case or proceeding shall remain undismissed
or unstayed for thirty (30) consecutive days or such court shall enter a decree
or order granting the relief sought in such case or proceeding.
(i) Borrower or any of its Subsidiaries shall (i) 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, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Borrower or any of
its Subsidiaries or of any substantial part of any of their properties, (iii)
fail generally to pay its debts as such debts become due, or (iv) take any
corporate action in furtherance of any such action.
(j) A final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment of money in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate shall be rendered against Borrower
or any of its Subsidiaries unless the same shall be (i) fully covered by
insurance in accordance with Section 5.5 or (ii) vacated, stayed, bonded, paid
or discharged within a period of thirty (30) days from the date of such
judgment.
(k) Any event not specified in this Section 8 shall have
occurred which Agent reasonably believes could have or could result in a
Material Adverse Effect and Agent shall have given Borrower at least ten (10)
days notice thereof.
(l) Any provisions of any Collateral Document, including the
Security Agreement or any Mortgage, after delivery thereof pursuant to Section
2.1, shall for any reason cease to be valid, binding and enforceable in
accordance with its terms in a manner which, in Agent's sole and absolute
discretion, could adversely affect Agent, Lenders or the Collateral, or any
security interest created under any Collateral Document, including the Security
Agreement or any Mortgage, shall cease to be a valid and perfected security
interest or Lien having the first priority in any of the Collateral purported to
be covered thereby (subject only to Permitted Encumbrances).
(m) Without Agent's prior written consent, (i) there shall
occur any Change in Control.
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(n) Without Agent's prior written consent, there shall occur
any (i) merger, acquisition or consolidation transaction involving Borrower or
(ii) sale of all or substantially all of the assets of Borrower.
(p) Any determination or notice is received by Borrower from
the United States (or any department or agency thereof) with respect to a claim
or other assertion for damages or any other amounts resulting from any violation
of the Davis-Bacon Act by Borrower in the construction of its Kansas Facility,
which claim or other assertion could, in the sole and absolute discretion of
Agent, result in a Material Adverse Affect or otherwise adversely affect
Borrower's ability to repay the Obligations pursuant to the Loan Documents or
the rights and privileges of Agent or Lenders thereunder.
(q) ARTRA shall fail to repay in full to Borrower as soon as
possible and, in any event, in individual increments of at least $50,000 not
later than March, June, September and December of 1997 and 1998, the $400,000
Loan advanced by Borrower to ARTRA pursuant to the Acknowledgment and Consent
dated as of December 28, 1994 between Borrower and Agent.
8.2 Remedies. If any Default or Event or Default shall have
occurred and be continuing, Agent may, without notice, take any one or more of
the following actions: (a) increase the rate of interest applicable to the
Revolving Credit Loan and/or Term Loan and/or the Capital Expenditure Loan to
the Default Rate, as provided in Section 1.8(e); or (b) terminate this facility
with respect to further Revolving Credit Advances, Capital Expenditure Advances,
and/or Letter of Credit Obligations, whereupon any further Revolving Credit
Advances or Letter of Credit Obligations shall be made or incurred in Agent's
sole discretion. If any Event of Default shall have occurred and be continuing,
Agent may, without notice, (x) declare all or any portion of the Obligations,
including all or any portion of the Revolving Credit Loan and/or the Term Loan
and/or the Capital Expenditure Loan and/or the Letter of Credit Obligations, to
be forthwith due and payable without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by Borrower; and (y)
exercise any rights and remedies provided to Agent under the Loan Documents
and/or at law or equity, including all remedies provided under the Code;
provided, however, that upon the occurrence of an Event of Default specified in
Section 8.1(g), (h) or (i), all of the Obligations, including the Revolving
Credit Loan, the Letter of Credit Obligations, the Term Loan and the Capital
Expenditure Loan, shall become immediately due and payable without declaration,
notice or demand by Agent.
8.3 Waivers by Borrower. Except as otherwise provided for in
this Agreement or by applicable law, Borrower waives: (i) presentment, demand
and protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Agent on which Borrower may in any way be liable, and hereby
ratifies and confirms whatever Agent may do in this regard, (ii) all rights to
notice and a hearing prior to Agent's taking possession or control of, or to
Agent's replevy, attachment or levy upon, the Collateral or any bond or security
which might be required by any court prior to allowing Agent to exercise any of
its remedies, and (iii) the benefit of all valuation, appraisal and exemption
laws. Borrower
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acknowledges that it has been advised by counsel of its choice with respect to
this Agreement, the other Loan Documents and the transactions evidenced by this
Agreement and the other Loan Documents and understands fully the terms,
conditions and implications of each of the foregoing.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignments and Participations. GE Capital may assign its
rights and delegate its obligations as a Lender under this Agreement and,
further, may assign, or sell participations in, all or any part of its Revolving
Credit Advances, its Commitments, its portion of the Letter of Credit
Obligations, the Term Loan and the Capital Expenditure Loan or any other
interest herein or in its Revolving Credit Note, in its Term Loan Notes or in
its Capital Expenditure Loan Notes to an Affiliate or to any other Person.
Unless Agent shall have otherwise agreed in writing, no other
Lender shall assign any of its rights or delegate any of its obligations under
this Agreement or any of the other Loan Documents or assign, or sell any
participation in, all or any part of its Revolving Credit Advances, its
Commitments, its portion of the Letter of Credit Obligations, Term Loan or
Capital Expenditure Loan or any other interest herein or in its Revolving Credit
Note, in its Term Loan Notes or in its Capital Expenditure Loan Notes to any
Affiliate or other Person.
In the case of an assignment by GE Capital under this Section
9.1, (or in the event, if any, that Agent shall so agree in writing, an
assignment by another Lender) (a) prior to such assignment, the proposed
assignee shall have complied with the then applicable provisions of Section
1.19(b) and (b) the assignee shall have, to the extent of such assignment, the
same rights, benefits and obligations as it would if it were a Lender hereunder.
The assigning Lender shall be relieved of its obligations hereunder with respect
to its Commitment or portion of the Term Loan or Capital Expenditure Loan or
assigned portion of any thereof. After the consummation of any assignment
hereunder, Agent shall notify Borrower of the same within a reasonable period of
time. Borrower hereby acknowledges and agrees that any assignment will give rise
to a direct obligation of Borrower to the assignee and that the assignee shall
be considered to be a "Lender". In all instances, each Lender's liability to
make Revolving Credit Advances, fund the Term Loan or the Capital Expenditure
Loan or incur Letter of Credit Obligations hereunder shall be several and not
joint and shall be limited to such Lender's Pro Rata Share.
GE Capital may (or, in the event, if any, that Agent shall so
agree in writing, another Lender may) sell participations in all or any part of
any Revolving Credit Advances made, any funding of the Term Loan or Capital
Expenditure Loan made, or any Letter of Credit Obligations incurred, by it as a
Lender to an Affiliate or any other Person; provided that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation and the holder of any such participation shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (a) any reduction in the principal amount, interest rate or
fees payable with respect to any Revolving Credit Advances or portion of the
Term Loan or Capital Expenditure Loan in which such holder participates, (b) any
extension of the final scheduled maturity date of the principal amount of the
Revolving Credit Advances or portion of the Term Loan or Capital Expenditure
Loan in which such holder participates, and (c) any release of any
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Collateral with a value in excess of Fifty Thousand Dollars ($50,000) in the
aggregate (other than in accordance with the terms of this Agreement, the
Collateral Documents or the other Loan Documents). Borrower hereby acknowledges
and agrees that any participation will give rise to a direct obligation of
Borrower to the participant and the participant shall for purposes of Sections
1.16, 1.17 and 9.3 be considered to be a "Lender".
Unless Agent shall have otherwise agreed in writing, no
Lender, other than GE Capital, shall sell any participation in all or any part
of any Revolving Credit Advances made, any funding of the Term Loan or Capital
Expenditure Loan made, or any Letter of Credit Obligations incurred, by it to
any Affiliate or other Person.
Except as otherwise provided in this Section 9.1, no Lender
shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the
Revolving Credit Advances, the Revolving Credit Notes, the Term Loan, the Term
Loan Notes, the Capital Expenditure Loan, the Capital Expenditure Loan Notes,
the Letter of Credit Obligations, or other Obligations owed to such Lender. Any
Lender permitted to sell assignments and participations under this Section 9.1
may furnish any information concerning Borrower and its Subsidiaries in the
possession of that Lender from time to time to assignees and participants
(including prospective assignees and participants).
Borrower shall assist any Lender permitted to sell assignments
or participations under this Section 9.1 in whatever manner reasonably necessary
in order to enable or effect any such assignment or participation, including the
execution and delivery of any and all agreements, notes and other documents and
instruments as shall be requested and the preparation of informational materials
for, and the participation of relevant management in meetings with, potential
assignees or participants; provided, that, aside from nominal expenses, Borrower
shall not be responsible for the due diligence expenses or attorney's fees or
expenses of any such prospective assignee or participant, except as otherwise
required herein and, without limiting the foregoing, in Section 1.19(c).
Borrower shall certify the correctness, completeness and accuracy of all
descriptions of Borrower and its affairs contained in any selling materials and
all information provided by Borrower and included in such materials.
9.2 Appointment of Agent. GE Capital is hereby appointed Agent
hereunder to act on behalf of all Lenders as Agent under this Agreement and the
other Loan Documents. The provisions of this Section 9.2 are solely for the
benefit of Agent and Lenders and neither Borrower, any of its Subsidiaries nor
any other Person shall have any rights as a third party beneficiary of any of
the provisions hereof. In performing its functions and duties under this
Agreement and the other Loan Documents, Agent shall act solely as an agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrower, any
Subsidiary of Borrower or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Neither Agent nor any of its officers, directors,
employees,
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agents or representatives shall be liable to any Lender for any action taken or
omitted to be taken by it hereunder or under any other Loan Document, or in
connection herewith or therewith, unless caused by its or their own gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction after all possible appeals have been exhausted.
The agency hereby created shall in no way impose any of the
rights and powers of, or impose any duties or obligations upon, Agent in its
individual capacity as a Lender hereunder. Agent shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not performing the duties and functions delegated to it hereunder. Agent may
resign at any time by giving thirty (30) days prior written notice thereof to
Lenders and Borrower. Upon any such resignation, Requisite Lenders shall have
the right, upon five (5) days notice to Borrower, to appoint a successor Agent.
Upon acceptance of appointment, the successor Agent shall succeed to and become
vested with all rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from all of its duties and obligations
under this Agreement and the other Loan Documents.
If Agent shall request instructions from Requisite Lenders
with respect to any act or action (including failure to act) in connection with
this Agreement or any other Loan Document, then Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from Requisite Lenders, and Agent shall not incur
liability to any Person by reason of so refraining. Agent shall be fully
justified in failing or refusing to take any action hereunder or under any other
Loan Document (a) if such action would, in the opinion of Agent, be contrary to
law or the terms of this Agreement or any other Loan Document or (b) if Agent
shall not first be indemnified to its satisfaction against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Agent as a result of Agent acting or
refraining from acting hereunder or under any other Loan Document in accordance
with the instructions of Requisite Lenders.
Except where this Agreement requires that the written consent
of Lenders, or a Lender, be presented to Borrower, Borrower may rely on the
signature of Agent as presumptive evidence of the consent of Lenders or such
Lender.
9.3 Set-Off and Sharing of Payments. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence and during the continuance of any Event of
Default, each Lender and each holder of any Revolving Credit Note is hereby
authorized at any time or from time to time, without notice to Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all balances held by it at any of its
offices for the account of Borrower (regardless of whether such balances are
then due to Borrower) and any other properties or assets any time held or owing
by that Lender or that holder to or for the credit or for the account of
Borrower against and on account of any of the Obligations which are not paid
when due. Any Lender or holder of any Revolving Credit Note, Term Loan Note or
Capital Expenditure Loan Note having a right to set off shall, to the extent the
amount of any such set off exceeds its Pro Rata Share of the Obligations,
purchase for cash (and the other Lenders or holders shall sell) such
participations in each such other
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Lender's or holder's Pro Rata Share of the Obligations as would be necessary to
cause such Lender to share such excess with each other Lender or holder in
accordance with their respective Pro Rata Shares. Borrower agrees, to the
fullest extent permitted by law, that (a) any Lender or holder may exercise its
right to set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such excess to other Lenders and
holders and (b) any Lender or holders so purchasing a participation in the
Revolving Credit Advances or funding of the Term Loan or the Capital Expenditure
Loan made or other Obligations held by other Lenders or holders may exercise all
rights of set-off, bankers' lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender or holder were a direct holder of
Revolving Credit Advances, the Term Loan, the Capital Expenditure Loan and other
Obligations in the amount of such participation.
9.4 Disbursement of Funds. Agent may, on behalf of Lenders,
disburse funds to Borrower for Revolving Credit Advances requested. Each Lender
shall reimburse Agent on demand for all funds disbursed on its behalf by Agent,
or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of
any Revolving Credit Advance before Agent disburses same to Borrower. If any
Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's
demand, Agent shall promptly notify Borrower and Borrower shall immediately
repay such amount to Agent. Nothing in this Section 9.4 or elsewhere in this
Agreement or the other Loan Documents shall be deemed to require Agent to
advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its Commitments hereunder or to prejudice any rights that
Borrower may have against any Lender as a result of any default by such Lender
hereunder.
9.5 Disbursements of Advances, Payments and Information.
(a) Revolving Credit Advances and Payments; Fee
Payments.
(i) The Revolving Credit Loan balance and
Capital Expenditure Loan balance may fluctuate from day to day through Agent's
disbursement of funds to, and receipt of funds from, Borrower. In order to
minimize the frequency of transfers of funds between Agent and each Lender,
Revolving Credit Advances and payments in respect thereof will be settled
according to the procedures described in Section 9.5(a)(ii) and 9.5(a)(iii).
Notwithstanding these procedures, each Lender's obligation to fund its portion
of any Advances made by Agent to Borrower will commence on the date such
Advances are made by Agent. Such payments will be made by each Lender without
setoff, counterclaim or reduction of any kind.
(ii) On the second Business Day of each week,
or more frequently (including daily) if Agent so elects (each such day being a
"Settlement Date"), Agent will advise each Lender by telephone, telex or
telecopy of the amount of such Lender's Pro Rata Share of the Revolving Credit
Loan balance and Capital Expenditure Loan balance as of the close of business on
the second Business Day immediately preceding the Settlement Date. In the event
that payments are necessary to adjust the amount of such Lender's portion of the
Revolving Credit Loan or Capital Expenditure Loan to such Lender's Pro Rata
Share of the Revolving Credit Loan or Capital Expenditure Loan as of any
Settlement Date, the party from which such payment is due will pay the other, in
same day funds, by wire transfer to the other's account not later than 12:00
noon (Chicago time) on the first Business Day following the Settlement Date.
Notwithstanding the foregoing, if
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Agent so elects, Agent may require that each Lender make its Pro Rata Share of
any requested Revolving Credit Advance or Capital Expenditure Advance available
to Agent for disbursement prior to the funding of such Revolving Credit Advance
or Capital Expenditure Advance. If Agent elects to require that such funds be so
made available, Agent shall advise each Lender by telephone, telex or telecopy
of the amount of such Lender's Pro Rata Share of the requested Revolving Credit
Advance or Capital Expenditure Advance no later than 11:00 a.m. (Chicago time)
on the date of funding thereof, and each such Lender shall pay Agent such
Lender's Pro Rata Share of such requested Revolving Credit Advance or Capital
Expenditure Advance, in same day funds, by wire transfer to Agent's account not
later than 12:00 noon (Chicago time) on the date of funding such Revolving
Credit Advance or Capital Expenditure Advance
(iii) For purposes of this Section 9.5(a)(iii),
the following terms and conditions will have the following meanings:
(A) "Daily Loan Balance" means an amount
calculated as of the end of each calendar day by subtracting (i) the cumulative
principal amount paid by Agent to a Lender with respect to the Revolving Credit
Loan and Capital Expenditure Loan from the Closing Date through and including
such calendar day, from (ii) the cumulative principal amount of the Revolving
Credit Loan and Capital Expenditure Loan advanced by such Lender to Agent from
the Closing Date through and including such calendar day.
(B) "Daily Interest Rate" means an amount
calculated by dividing the interest rate payable to a Lender on the Revolving
Credit Loan and Capital Expenditure Loan (as set forth in Section 1.8) as of
each calendar day by three hundred sixty (360) days.
(C) "Daily Interest Amount" means an amount
calculated by multiplying the Daily Loan Balance of the Revolving Credit Loan
and Capital Expenditure Loan by the associated Daily Interest Rate on the
Revolving Credit Loan and Capital Expenditure Loan.
(D) "Interest Ratio" means a number
calculated by dividing the total amount of interest on the Revolving Credit Loan
and Capital Expenditure Loan received by Agent during the immediately preceding
month by the total amount of interest on the Revolving Credit Loan and Capital
Expenditure Loan due from Borrower during the immediately preceding month.
On the first Business Day of each calendar month (an "Interest Settlement
Date"), Agent will advise each Lender by telephone, telex or telecopy of the
amount of such Lender's Pro Rata Share of interest paid and Fees paid for the
benefit of Lenders on the Revolving Credit Loan, interest paid on the Term Loan
and the Capital Expenditure Loan and Fees paid pursuant to Annex B in respect of
Letter of Credit Obligations, each as of the end of the last day of the
immediately preceding month. Provided that such Lender has made all payments
required to be made by it under this Agreement and the other Loan Documents,
Agent will pay to such Lender, by wire transfer to such Lender's account (as
specified by such Lender on its signature page to this Agreement or the
applicable Lender Addition Agreement, as amended by such Lender from time to
time after the Closing Date pursuant to the notice provisions contained herein
or in the applicable Lender Addition Agreement)
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not later than 12:00 noon (Chicago time) on the next Business Day following the
Interest Settlement Date, such Lender's Pro Rata Share of interest paid and Fees
paid for the benefit of Lenders on the Revolving Credit Loan, interest paid on
the Term Loan and the Capital Expenditure Loan and Fees paid pursuant to Annex B
in respect of Letter of Credit Obligations. Such Lender's Pro Rata Share of
interest on the Revolving Credit Loan and Capital Expenditure Loan will be
calculated by adding together the Daily Interest Amounts for each calendar day
of the prior month for the Revolving Credit Loan and Capital Expenditure Loan
and multiplying the total thereof by the Interest Ratio for the Revolving Credit
Loan and Capital Expenditure Loan.
(b) Availability of Lender's Pro Rata Share.
(i) Agent may assume that each Lender will make its Pro Rata
Share of each Revolving Credit Advance and Capital Expenditure Advance available
to Agent on the first Business Day following the next Settlement Date. If such
Pro Rata Share is not, in fact, paid to Agent by such Lender when due, Agent
will be entitled to recover such amount on demand from such Lender without
set-off, counterclaim or deduction of any kind.
(ii) Nothing contained in this Section 9.5(b) will be deemed
to relieve any Lender of its obligation to fulfill its Commitments or to
prejudice any rights Agent or Borrower may have against any Lender as a result
of any default by such Lender under this Agreement.
(iii) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any Revolving Credit
Advance made after any acceleration of the Obligations with respect to any
Letter of Credit Obligations.
(c) Return of Payments.
(i) If Agent pays an amount to a Lender under this Agreement
in the belief or expectation that a related payment has been or will be received
by Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender on demand without
set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(d) Dissemination of Information.
Agent will use reasonable efforts to provide Lenders with any
information received by Agent from Borrower which is required to be provided to
Lenders hereunder, with any notice of Default or Event of Default received by
Agent from Borrower, with any notice of Default or Event
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of Default delivered by Agent to Borrower, with notice of any Default or Event
of Default of which Agent has become aware and with notice of any action taken
by Agent following any Default or Event of Default; provided, however, that
Agent shall not be liable to any Lender for any failure to do so, except to the
extent that such failure is attributable to Agent's gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction after all
possible appeals have been exhausted.
10. MISCELLANEOUS
10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of Borrower, Agent,
Lenders and their respective successors and assigns, except as otherwise
provided herein or therein. Borrower may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Agent and Requisite Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by Borrower without the prior express written
consent of Agent shall be null and void, as if the same shall have never
occurred. The terms and provisions of this Agreement are for the purpose of
defining the relative rights and obligations of Borrower, Agent and Lenders with
respect to the transactions contemplated hereby and there shall be no third
party beneficiaries of any of the terms and provisions of this Agreement or any
of the other Loan Documents.
10.2 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 10.2. Any Letter of Interest, Commitment Letter, proposal
or other similar letter or understanding between Borrower and Agent or any of
its affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be merged with and into and
superseded by this Agreement.
10.3 Amendments and Waivers. (a) Except as otherwise provided
herein, no amendment, modification, termination or waiver of any provision of
this Agreement or any of the Revolving Credit Notes, Term Loan Notes or Capital
Expenditure Loan Notes or consent to any departure by Borrower or any of its
Subsidiaries therefrom, shall in any event be effective unless the same shall be
in writing and signed by Agent and/or Requisite Lenders (as required by the
terms hereof) and Borrower.
(b) In furtherance of and without limiting the foregoing, no
amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement which (i) increases the percentage advance rates set
forth in the definition of Borrowing Base or (ii) makes less restrictive the
nondiscretionary criteria for exclusion from Eligible Accounts and Eligible
Inventory set forth in Annex F and G shall be effective unless the same shall be
in writing and signed by Requisite Lenders and Borrower.
(c) Notwithstanding the foregoing, except to the extent
permitted by any applicable Lender Addition Agreement, no amendment,
modification, termination or waiver shall, unless in writing and signed by each
affected Lender, do any of the following: (a) increase the
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principal amount of the Commitment of any affected Lender; (b) reduce the
principal of, rate of interest on or Fees payable with respect to any Revolving
Credit Advance, interest payable with respect to the Term Loan or Capital
Expenditure Loan or Fees payable with respect to any Letter of Credit
Obligation; (c) extend the final scheduled maturity date of the principal amount
of the Revolving Credit Loan, the Term Loan or the Capital Expenditure Loan; (d)
waive, forgive, defer, extend or postpone any payment required hereunder; (e)
release any Guarantor; (f) except as otherwise contemplated herein or in one of
the other Loan Documents, permit Borrower to sell or otherwise dispose of any
Collateral with a value exceeding Fifty Thousand Dollars ($50,000) in the
aggregate; (g) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Revolving Credit Loan which shall be required for
Lenders or any of them to take any action hereunder; (h) release Collateral with
a value exceeding Fifty Thousand Dollars ($50,000) in the aggregate (except if
the sale or other disposition of such Collateral is permitted under the
Agreement or one of the other Loan Documents); and (i) amend or waive this
Section 10.2 or the definitions of the terms used in this Section 10.2 insofar
as the definitions affect the substance of this Section 10.2; and provided,
further, that no amendment, modification, termination or waiver affecting the
rights or duties of Agent under this agreement or any other Loan Document shall
in any event be effective, unless in writing and signed by Agent, in addition to
Lenders required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Revolving Credit Note, Term Loan Note or Capital
Expenditure Loan Note shall be effective without the written concurrence of the
holder of such Note. No notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 10.2 shall be binding upon each holder
of the Revolving Credit Notes, the Term Loan Notes and the Capital Expenditure
Loan Notes at the time outstanding and each future holder of the Revolving
Credit Notes, the Term Loan Notes and the Capital Expenditure Loan Notes.
10.4 Fees and Expenses. Borrower shall reimburse Agent for all
reasonable out-of-pocket expenses reasonably incurred in connection with (a) the
preparation of the Loan Documents (including the reasonable fees and expenses of
all of its special loan counsel, advisors, consultants and auditors retained in
connection with the Loan Documents and the transactions contemplated thereby and
advice in connection therewith), (b) wire transfers to the account of Borrower
and (c) Letter of Credit Obligations. Borrower shall reimburse Agent for all
reasonable fees, costs and expenses reasonably incurred, including the fees,
costs and expenses of counsel or other advisors (including environmental and
management consultants) for advice, assistance, or other representation in
connection with:
(a) the forwarding to Borrower or any other Person on behalf
of Borrower by Lender of the proceeds of the Revolving Credit Advances, the Term
Loan and the Capital Expenditure Loan;
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(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its rights hereunder or
thereunder;
(c) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, Borrower or any other Person)
in any way relating to the Collateral, any of the Loan Documents or any other
agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to Agent by virtue of the Loan Documents;
(d) any attempt to enforce any rights of Agent or any Lender
against Borrower or any other Person that may be obligated to Agent or any
Lender by virtue of any of the Loan Documents;
(e) any attempt to (i) monitor the Revolving Credit Loan,
Letter of Credit Obligations, the Term Loan, the Capital Expenditure Loan or any
of the other Obligations, (ii) evaluate, observe, assess Borrower, any of its
Subsidiaries or their respective affairs, and (iii) verify, protect, evaluate,
assess, appraise, collect, sell, liquidate or otherwise dispose of any of the
Collateral;
including all the attorneys' and other professional and service providers' fees
arising from such services, including those in connection with any appellate
proceedings; and all expenses, costs, charges and other fees incurred by such
counsel and others in any way or respect arising in connection with or relating
to any of the events or actions described in this Section 10.3 shall be payable,
on demand, by Borrower to Agent. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: fees, costs and
expenses of accountants, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplication expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal or other advisory
services. Notwithstanding the foregoing (a) Agent shall charge Borrower
according to Agent's policy in effect from time to time and on the same basis
that Agent charges other Borrowers with respect to fees, costs and expenses of
photocopying and duplication, long distance telephone charges, air express
charges, telegram charges, and secretarial overtime charges and (b) all fees,
costs and expenses incurred in connection with any valuation performed pursuant
to the Warrant shall be governed by the terms of the Warrant.
10.5 No Waiver. Agent's or any Lender's failure, at any time
or times, to require strict performance by Borrower of any provision of this
Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default under this Agreement or any of the other Loan Documents shall not
suspend, waive or affect any other Event of Default under this Agreement and any
of the other Loan Documents whether the
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same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the other Loan
Documents and no Default or Event of Default by Borrower under this Agreement
and no defaults by Borrower under any of the other Loan Documents shall be
deemed to have been suspended or waived by Agent or any Lender, unless such
waiver or suspension is by an instrument in writing signed by an officer of or
other authorized employee of Agent and Requisite Lenders and directed to
Borrower specifying such suspension or waiver.
10.6 Remedies. Agent's and Lenders' rights and remedies under
this Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Agent or any Lender may have under any other agreement, including
the other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
10.7 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10.8 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
10.9 Authorized Signature. Until Agent shall be notified by
Borrower to the contrary, the signature upon any document or instrument
delivered pursuant hereto of an officer of Borrower listed on Schedule 10.8
shall bind Borrower and be deemed to be the act of Borrower affixed pursuant to
and in accordance with resolutions duly adopted by Borrower's Board of
Directors.
10.10 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. BORROWER, AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, CITY OF CHICAGO, ILLINOIS,
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWER, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
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PROVIDED, THAT AGENT, LENDERS AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
COOK, CITY OF CHICAGO, ILLINOIS AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF AGENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
BORROWER HEREBY AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE UPON CT CORPORATION SYSTEM, 208 SOUTH LASALLE STREET,
CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH ACTION OR SUIT, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON ANNEX L OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT
SERVICE, BORROWER HEREBY AGREES THAT THE FOREGOING SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.11 Notices. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
either of the parties by the other party, or whenever either of the parties
desires to give or serve upon the other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (ii)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by
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delivery of a copy by personal delivery or United States Mail as otherwise
provided in this Section 10.10), (iii) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated on Annex L or to
such other address (or facsimile number) as may be substituted by notice given
as herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to any Person (other than Borrower or Agent) designated
on Annex L to receive copies shall in no way adversely affect the effectiveness
of such notice, demand, request, consent, approval, declaration or other
communication.
10.12 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
10.13 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.
10.14 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND BORROWER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. BORROWER WAIVES ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING
SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
10.15 Confidentiality. So long as no Default or Event of
Default has occurred, Agent and each Lender agrees to exercise reasonable
efforts to keep any non-public information delivered or made available to it
pursuant to this Agreement or any other Loan Document, which Borrower has
identified as confidential information, confidential from all Persons other than
(a) officers, employees, agents, designees, representatives or affiliates of
Agent or Lenders, (b) bona fide prospective or actual assignees, transferees or
participants of Agent or Lenders pursuant to Section 1.19(b) or 9.1, (c)
consultants or advisors that have agreed to comply with this Section 10.14 on
terms and conditions conforming to Agent's policy in effect from time to time,
or (d) as required or
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requested by any Governmental Authority or representative thereof or pursuant to
a legal process or as required in connection with the exercise of any remedy
under this Agreement or any of the other Loan Documents.
[signature page follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
BAGCRAFT CORPORATION OF AMERICA
By: ________________________________
Title: _____________________________
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and as Lender
By: _______________________________
Title: Duly Authorized Signatory
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ANNEX A
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
DEFINITIONS
Capitalized terms used in the Agreement shall have (unless
otherwise provided elsewhere in the Agreement) the following respective meanings
and all section references in the following definitions shall refer to sections
of the Agreement:
"Account Debtor" shall mean any Person who may become
obligated to Borrower, or any of its Subsidiaries under, with respect to, or on
account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined
in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, and, in any event, including (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by chattel paper, documents or instruments) now owned or
hereafter received or acquired by or belonging or owing to Borrower or any of
its Subsidiaries, whether arising out of goods sold or services rendered by it
or from any other transaction (including any such obligations which may be
characterized as an account or contract right under the Code), (b) all of
Borrower's and each of its Subsidiaries' rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or services,
(c) all of Borrower's and each of its Subsidiaries' rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all monies due or to become due
to Borrower, or any of its Subsidiaries, under all purchase orders and contracts
for the sale of goods or the performance of services or both by Borrower or any
of its Subsidiaries or in connection with any other transaction (whether or not
yet earned by performance on the part of Borrower or such Subsidiary, as
appropriate) now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing.
"Advance" shall mean any Revolving Credit Advance or Capital
Expenditure Advance, as the context may require.
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean GE Capital or its successor appointed
pursuant to Section 9.2.
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"Agreement" shall mean the Amended and Restated Credit
Agreement dated as of the Closing Date by and among Borrower, Agent and Lenders,
including all restatements and modifications thereof and amendments and
supplements thereto and any appendices, exhibits, schedules or annexes to any of
the foregoing, and shall refer to the Agreement as the same may be in effect at
any and all times such reference becomes operative.
"ARTRA" shall mean ARTRA GROUP Incorporated, a Pennsylvania
corporation.
"Asset Disposition" shall mean the sale, transfer, conveyance,
assignment, sale and leaseback or other disposition or the pledge, mortgage or
other encumbrance by Borrower of any of its properties or other assets,
including the capital stock of any Subsidiary or any of its Accounts, except for
the sale of inventory in the ordinary course pursuant to the terms of the
Agreement.
"Borrower" shall mean Bagcraft Corporation of America, a
Delaware corporation.
"Borrowing Availability" shall have the meaning assigned to it
in Section 1.1(a).
"Borrowing Base" shall mean at any time an amount determined
by Agent from time to time, equal to the sum at such time of:
(a) Up to eighty-five percent (85%) of Eligible Accounts; and
(b) up to (i) fifty-five percent (55%) of Eligible Inventory
not consisting of Min- Max Inventory and (ii) sixty percent (60%) of
Eligible Inventory consisting of Min-Max Inventory, valued, in each
case, on a first-in, first-out basis (at the lower of cost or market).
"Borrowing Base Certificate" shall mean a certificate in the
form attached to the Agreement as Exhibit B.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York or the State of Illinois and in reference to LIBOR Loans shall
mean any such day that is also a LIBOR Business Day.
"Capital Expenditure Advance" shall have the meaning assigned
to it in Section 1.3(a).
"Capital Expenditure Loan" shall mean the aggregate amount of
Capital Expenditure Advances outstanding at any time.
"Capital Expenditure Loan Availability" shall mean, as of any
date of determination, the lesser of (a) the Capital Expenditure Loan Commitment
as of such date less the aggregate amount of all Capital Expenditure Advances
made under this Agreement through such date of determination and (b) $20,000,000
less the sum of (i) aggregate amount of all Capital Expenditure Advances made
under this Agreement through such date of determination and (ii) the then
outstanding aggregate principal amount of the Term Loan, all of the foregoing
calculated without giving effect to any
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payments or prepayments of principal in respect of the Capital Expenditure Loan
which may have been made at any time or from time to time on or prior to such
date of determination.
"Capital Expenditure Loan Commitment" shall mean (a) as to any
Lender with a Capital Expenditure Loan Commitment, the aggregate commitment of
such Lender to make the Capital Expenditure Advances as set forth on the
signature page to the Agreement or in the most recent Lender Addition Agreement
executed by such Lender and (b) as to all Lenders with a Capital Expenditure
Loan Commitment, the aggregate commitment of all Lenders to make Capital
Expenditure Advances, which aggregate commitment shall be the lesser of (i)
Three Million Dollars ($3,000,000) and (ii) eighty percent (80%) of the
aggregate Hard Costs of all Equipment acquired with proceeds of the Capital
Expenditure Loan.
"Capital Expenditure Loan Note" shall have the meaning
assigned to it in Section 1.3(b).
"Capital Expenditures" shall mean all payments (including all
payments under Capital Leases, installment purchase agreements and other similar
purchase money financing arrangements) for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one (1) year and that are required to be capitalized under GAAP, to
the extent so required.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet, other than, with respect
to such Person, any such lease under which such Person is the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Change in Control" shall mean any event, transaction or
occurrence as a result of which (a) after the Closing Date, any Person or
"group" shall acquire "beneficial ownership" (as such terms are defined under
Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934,
as amended), either directly or indirectly, of more than twenty-five percent
(25%) of the outstanding shares of Stock of ARTRA having the right to vote for
the election of directors of ARTRA under ordinary circumstances, (b) ARTRA shall
cease to own and control all of the economic and voting rights associated with
all outstanding shares of each class of capital Stock of Parent on a fully
diluted basis, (c) other than the shares of Borrower's preferred stock owned by
PST as of the Closing Date, Parent shall cease to own and control all of the
economic and voting rights associated with all outstanding shares of each class
of capital Stock of Borrower on a fully diluted basis or (d) the existence of
any agreement or other document accomplishing or purporting to accomplish
(whether on a conditional basis or otherwise) any of the foregoing.
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"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental taxes (including taxes owed to
the PBGC at the time due and payable), levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) the Collateral, (ii) the
Obligations, (iii) the employees, payroll, income or gross receipts of Borrower
or any of its Subsidiaries, (iv) Borrower's or any of its Subsidiaries'
ownership or use of any of its properties or other assets, or (v) any other
aspect of Borrower's or any of its Subsidiaries' businesses.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by Borrower or any of
its Subsidiaries, wherever located.
"Closing Date" shall mean the date of execution of the
Agreement.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of Illinois; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Agent's or any Lender's security interest
in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Illinois, the term "Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction solely for
purposes of the provisions of the Loan Documents relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
"Collateral" shall mean the property covered by the Collateral
Documents and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired, that may at any time be or become subject to a
security interest or Lien in favor of Agent, on behalf of itself and Lenders, to
secure the Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Pledge Agreement, the Mortgages, the Copyright Assignments, the Patent and
Trademark Assignments and any other agreement or other document pursuant to
which a security interest or Lien is granted in favor of Agent, on behalf of
itself and Lenders, to secure the Obligations.
"Collateral Reports" shall mean the reports with respect to
the Collateral referred to in Section 3.5.
"Collection Account" shall mean that certain account of Agent,
account number 502 328 54 in the name of General Electric Capital Corporation,
Commercial Finance Group, at Bankers Trust Company, 17 Wall Street, New York,
New York ABA number 021 001 033.
"Commitment" or "Commitments" shall mean (a) as to any Lender,
the aggregate of such Lender's Revolving Loan Commitment, Term Loan Commitment
and Capital Expenditure Loan Commitment as set forth on the signature page to
the Agreement or in the most recent Assignment Agreement executed by such Lender
and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan
Commitments, Term Loan Commitments and Capital Expenditure Loan Commitments,
which aggregate commitment shall not exceed Thirty Eight Million Dollars
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($38,000,000) on the Closing Date, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.
"Commitment Termination Date" shall mean the earliest of (i)
September 30, 2002, (ii) the date of termination of Lenders' obligations to
advance funds or permit existing advances to remain outstanding pursuant to
Section 8.2, and (iii) the date of indefeasible prepayment in full by Borrower
of the Revolving Credit Loan, the Term Loan and the Capital Expenditure Loan in
accordance with the provisions of Section 1.5 and discharge of all Letter of
Credit Obligations and all other Obligations under the Agreement and the other
Loan Documents.
"Concentration Account" shall have the meaning assigned to it
in Annex C.
"Contracts" shall mean all "contracts," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, and, in any event, including all contracts, undertakings, or
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower or any of its Subsidiaries may now or
hereafter have any right, title or interest, including any agreement relating to
the terms of payment or the terms of performance of any Account.
"Copyright Assignments" shall mean the Copyright Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by Borrower
and its Subsidiaries, as each may be amended, restated, supplemented or
otherwise modified from time to time.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by Borrower or any of its Subsidiaries under any written
agreement granting any right to use any Copyright or Copyright registration, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Copyrights" shall mean all of the following now owned or
hereafter acquired by Borrower or any of its Subsidiaries: (i) all copyrights
and general intangibles of like nature (whether registered or unregistered), now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.
"Current Assets" shall mean all current assets, less cash, of
Borrower and its Subsidiaries, all as determined in accordance with GAAP.
"Current Liabilities" shall mean all current liabilities, less
current maturities of regularly scheduled payments of principal on Funded Debt,
of Borrower and its Subsidiaries, all as determined in accordance with GAAP.
"Default" shall mean any event which, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
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"Default Rate" shall have the meaning assigned to it in Section 1.8(e).
"Disbursement Account" shall have the meaning assigned to it
in Annex C.
"Distributable Cash" shall mean, for any Fiscal Year of
Borrower, an amount equal to EBITDA minus the sum of (i) Interest Expense, (ii)
Capital Expenditures incurred (but not in excess of Capital Expenditures
permitted for such Fiscal Year under the Loan Documents), (iii) current
maturities of regularly scheduled payments of principal on Funded Debt actually
paid, and (iv) taxes paid in cash by Borrower or any of its Subsidiaries,
including payments made under the Tax Sharing Agreement pursuant to Section 6.15
of the Agreement.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Documents" shall mean any "documents," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located.
"EBITDA" shall mean for any fiscal period of Borrower, income
before interest, taxes, depreciation, amortization and, to the extent recognized
in determining such income, extraordinary items.
"Eligible Accounts" shall have the meaning assigned to it in
Annex F.
"Eligible Inventory" shall have the meaning assigned to it in
Annex G.
"Environmental Laws" shall mean all federal, state, local and
foreign laws, statutes, ordinances and regulations, now or hereafter in effect,
and in each case as amended or supplemented from time to time, and any
applicable judicial or administrative interpretation thereof, including any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable real estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 et
seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49
U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. ss.ss. 136 et seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. ss.ss. 6901 et seq.) ("RCRA"); the Toxic
Substance Control Act, as amended (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air
Act, as amended (42 U.S.C. ss.ss. 740 et seq.); the Federal Water Pollution
Control Act, as amended (33 U.S.C. ss.ss. 1251 et seq.); the Occupational Safety
and Health Act, as amended (29 U.S.C. ss.ss. 651 et seq.) ("OSHA"); and the Safe
Drinking Water Act, as amended (42 U.S.C. ss.ss. 300(f) et seq.), and any and
all regulations promulgated thereunder, and all analogous state, local and
foreign counterparts or equivalents and any transfer of ownership notification
or approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, removal actions,
losses, damages, punitive damages, consequential
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damages, treble damages, costs and expenses (including all fees, disbursements
and expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim, suit, action or demand by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute or common law (including any thereof arising under any
Environmental Law, permit, order or agreement with any Governmental Authority)
and which relate to any health or safety condition regulated under any
Environmental Law or in connection with any other environmental matter or
Release, threatened Release or the presence of a Hazardous Material or
threatened Release of a Hazardous Material.
"Equipment" shall mean all "equipment," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located and, in any event, including all Borrower's and
each of its Subsidiaries' machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment with
software and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks, forklifts, molds, dies,
stamps, motor vehicles, rolling stock and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, all
whether now owned or hereafter acquired, and wherever situated, together with
all additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Borrower or any
of its Subsidiaries, any trade or business (whether or not incorporated) under
common control with Borrower or such Subsidiary, as appropriate, and which,
together with Borrower or such Subsidiary, as appropriate, are treated as a
single employer within the meaning of Sections 414(b), (c), (m) or (o) of the
IRC.
"ERISA Event" shall mean, with respect to Borrower, any of its
Subsidiaries or any ERISA Affiliate, (i) a Reportable Event with respect to a
Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of Borrower, any of
its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal
of Borrower, any of its Subsidiaries or any ERISA Affiliate from any
Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title
IV Plan or the treatment of a plan amendment as a termination under Section 4041
of ERISA; (v) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (vi) the failure to make required contributions
to a Qualified Plan; or (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
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Title IV Plan or Multiemployer Plan or the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under Section
4007 of ERISA.
"Event of Default" shall have the meaning assigned to it in
Section 8.1.
"Excess Cash Flow" shall mean the total of the following
(without duplication) (i) Distributable Cash, plus (ii) the net after-tax gains
arising from extraordinary items, as defined by GAAP, (iii) plus non-income cash
receipts (including proceeds of the Kansas Indebtedness), (vi) plus non-cash
decreases in working capital (or minus non-cash increases in working capital)
other than cash and current maturities of Funded Debt and (v) minus income
attributable to Asset Dispositions (other than sales of inventory in the
ordinary course).
"Federal Reserve Board" shall have the meaning assigned to it
in Section 3.11.
"Fees" shall mean any and all fees due to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the financial statements
referred to in Section 3.4.
"Fiscal Month" shall mean any of the monthly accounting
periods of Borrower ending on the Saturday occurring closest to the last day of
each calendar month, except that the last such period occurring in each calendar
year shall end on the last Saturday of such calendar year.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Borrower.
"Fiscal Year" shall mean any of the annual fiscal accounting
periods of Borrower.
"Fixed Charges" shall mean, for any fiscal period of Borrower,
the sum of (i) cash interest expense (whether paid or accrued) in respect of
Funded Debt (excluding, with respect to the Obligations, the difference between
interest charged at the normal rates set forth in the Agreement and interest
charged at the Default Rate), plus (ii) regularly scheduled payments of
principal (whether paid or accrued) on Funded Debt for such fiscal period.
"Funded Debt" shall mean, with respect to Borrower and its
Subsidiaries, on a consolidated and consolidating basis, all of its Indebtedness
which by the terms of the agreement governing or instrument evidencing such
Indebtedness matures more than one (1) year from, or is directly or indirectly
renewable or extendible at its option under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year from the date of creation thereof, including current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and shall also include the
Revolving Credit Loan, the Term Loan, the Capital Expenditure Loan, the Letter
of Credit Obligations and the other Obligations.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, consistently
applied.
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"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation having an office at 201 High Ridge Road, Stanford,
Connecticut 06927-5100.
"GE Capital Fee Letter" shall mean that certain letter, dated
as of the Closing Date, between GE Capital and Borrower with respect to certain
fees to be paid by Borrower to GE Capital.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by Borrower or
any of its Subsidiaries and, in any event, including all right, title and
interest which Borrower or any of its Subsidiaries may now or hereafter have in
or under any Contract, all customer lists, Copyrights, Trademarks, Patents,
service marks, trade names, business names, corporate names, trade styles, logos
and other source or business identifiers, and all applications therefor and
reissues, extensions or renewals thereof, rights in intellectual property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark license), all
rights and claims in or under insurance policies (including insurance for fire,
damage, loss and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments and rights of indemnification.
"Georgia Facility" shall mean Borrower's facility in Forest
Park, Georgia.
"Goods" shall mean all "goods" as such term is defined in the
Code, now owned or hereafter acquired by Borrower or any of its Subsidiaries,
wherever located.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
(i) to purchase or repurchase any such primary obligation, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet condition
of the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (iv) to indemnify the owner of such primary obligation against
loss in respect thereof.
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"Hard Costs" shall mean the aggregate cash purchase price paid
or payable by Borrower for the Equipment to which a Capital Expenditure Advance
relates, excluding amounts paid or payable in connection with such assets in
respect of insurance, taxes, tariffs, levies, freight, delivery, crating,
installation, packing, service, maintenance or similar contracts or
arrangements, warranties, software, financing costs, and/or similar costs or
charges so paid or payable.
"Harvey Receivable" shall mean that certain account receivable
in the aggregate amount of One Million Seven Hundred Seventy-Three Thousand
Eight Hundred Twenty-Four Dollars ($1,773,824), due from Peter R. Harvey and
maintained on the books of Borrower in accordance with GAAP.
"Hazardous Material" shall mean any substance, material or
waste, the generation, handling, storage, treatment or disposal of which is
regulated by or forms the basis of liability now or hereafter under, any
Government Authority in any jurisdiction in which Borrower or any of its
Subsidiaries has owned, leased, or operated real property or disposed of
hazardous materials, or by any Federal government authority, including any
material or substance which is (i) defined as a "solid waste" (other than
non-hazardous waste which is routinely disposed of in the ordinary course of
Borrower's business), "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste" or other
similar term or phrase under any Environmental Laws, (ii) petroleum or any
fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), any
radioactive substance, methane, volative hydrocarbons or any industrial solvent,
(iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. ss.ss. 1251 et seq. (33 U.S.C. ss.ss. 1321) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq. (42 U.S.C. ss. 6903),
or (v) defined as a "hazardous substance" pursuant to Section 1012 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq. (42 U.S.C. ss. 9601).
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured, but excluding obligations to trade creditors incurred in the ordinary
course of business), (ii) all obligations evidenced by notes, bonds, debentures
or similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iv) all Capital Lease Obligations, (v) all
Indebtedness referred to in clause (i), (ii), (iii) or (iv) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property or other assets
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness,
(vi) the Obligations, and (vii) all liabilities under Title IV of ERISA.
"Index Margin" shall have the meaning assigned to it in
Section 1.8(c).
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"Index Rate" shall mean a variable rate of interest per annum
equal to the highest of the "prime rate," "base rate" or other similar rate most
recently published or announced from time to time by any of the five (5) largest
member banks of the New York Clearing House Association (whether or not such
rate is actually charged by such bank).
"Index Rate Loan" shall mean a Loan or portion thereof bearing
interest by reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located, and, in any event, including all certificated
securities, all certificates of deposit, including all notes and other evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
"Interest Expense" shall mean, for any fiscal period of
Borrower, cash interest expense of Borrower for such period paid in respect of
Funded Debt.
"Inventory" shall mean any "inventory," as such term is
defined in the Code, now or hereafter owned or acquired by, Borrower or any of
its Subsidiaries, wherever located, and, in any event, including inventory,
merchandise, goods and other personal property which are held by or on behalf of
Borrower or any of its Subsidiaries, for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Borrower's or any of its Subsidiaries' businesses or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
"Kansas Collateral" shall mean that certain (a) second Lien in
favor of the Kansas Lender on all of Borrower's business machinery, equipment,
furnishings and fixtures located, or to be located, at the Kansas Facility,
which Lien is fully subordinated to Agent's first priority Lien pursuant to the
terms of the Kansas Loan Documents and (b) first Lien in favor of the Kansas
Lender on the Real Estate constituting the Kansas Facility.
"Kansas Developer" shall mean JFB Developments, Inc., a
Missouri corporation, the developer of the Kansas Facility.
"Kansas Facility" shall mean Borrower's facility to be
acquired and constructed in Baxter Springs, Kansas.
"Kansas Indebtedness" shall mean, collectively, the
subordinated secured loans made by the Kansas Lender to Borrower, consisting of
(a) two (2) term loans made by the City of Baxter
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Springs, Kansas, each in the original maximum principal amount of Two Hundred
Fifty Thousand Dollars ($250,000), (b) a six (6) year term loan made by the City
of Baxter Springs, Kansas in an original maximum principal amount of Five
Million Dollars ($5,000,000) and (c) a minimum five (5) year term loan made by
the City of Baxter Springs, Kansas in an original maximum principal amount of
Seven Million Dollars ($7,000,000) and guaranteed by the State of Kansas and the
United States Department of Housing and Urban Development, all of the foregoing
in form and substance satisfactory to Agent in its sole discretion.
"Kansas Guaranteed Indebtedness" shall mean the Indebtedness
of Borrower referred to in clause (c) of the definition of Kansas Indebtedness.
"Kansas Lender" shall mean the City of Baxter Springs, Kansas.
"Kansas Loan Documents" shall mean the loan agreements,
security agreements, guarantees, notes and other instruments, documents,
certificates and agreements executed by Borrower and evidencing or relating to
the Kansas Indebtedness and the Kansas Collateral, including the subordination
provisions contained therein and the Kansas Intercreditor Agreements, as each of
the same may be amended, restated, supplemented or otherwise modified and in
effect from time to time, all of the foregoing in form and substance
satisfactory to Agent in its sole discretion.
"Kansas Restructuring" shall mean the relocation of the
Missouri Facility after the operations thereof are transferred to the Kansas
Facility.
"Kansas Intercreditor Agreements" shall mean the Intercreditor
Agreements entered into among Agent, on behalf of itself and Lenders (as senior
lenders), Kansas Lender (as subordinated lender), and Borrower, including all
amendments, modifications and supplements thereto, all in form and substance
satisfactory to Agent in its sole discretion, and shall refer to the
Intercreditor Agreements as the same may be in effect at the time such reference
becomes operative.
"Leases" shall mean all leasehold estates in real property now
owned or hereafter acquired by Borrower or any of its Subsidiaries, as lessee,
as each may be amended, restated, supplemented or otherwise modified from time
to time.
"Lenders" shall mean GE Capital and, if at any time GE Capital
shall decide to assign or syndicate all or any portion of the Obligations, such
term shall include such assignee or such other members of the syndicate.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance or guarantee, by Lenders or another, of letters of credit. The amount
of Letter of Credit Obligations outstanding at any time shall equal the maximum
amount which may be payable by Lenders thereupon or pursuant thereto at such
time.
"Letters of Credit" shall mean commercial or standby letters
of credit issued at the request and for the account of Borrower for which
Lenders have incurred Letter of Credit
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Obligations, as each may be amended, restated, supplemented or otherwise
modified from time to time.
"LIBOR Business Day" shall mean a Business Day on which banks
in the city of London are generally open for interbank or foreign exchange
transactions.
"LIBOR Loan" shall mean a Loan or any portion thereof bearing
interest by reference to the LIBOR Rate.
"LIBOR Margin" shall have the meaning assigned to it in
Section 1.8(c).
"LIBOR Period" shall mean, with respect to any LIBOR Loan,
each period commencing on a LIBOR Business Day selected by Borrower pursuant to
the Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.8(f); provided
that the foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if any LIBOR Period would otherwise end on a day that is
not a LIBOR Business Day, such LIBOR Period shall be extended to the
next succeeding LIBOR Business Day unless the result of such extension
would be to carry such LIBOR Period into another calendar month in
which event such LIBOR Period shall end on the immediately preceding
LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date shall end two (2) LIBOR Business Days prior
to such date;
(c) any LIBOR Period pertaining to a LIBOR Loan that begins on
the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such LIBOR Period) shall end on the last LIBOR Business Day of a
calendar month;
(d) Borrower shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be
no more than three (3) separate LIBOR Loans in existence at any one
time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of
interest determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for
the applicable LIBOR Period which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the second full LIBOR Business Day next
preceding the first day of each LIBOR Period (unless such date is not a
Business Day, in which event the next succeeding Business Day will be
used); divided by
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(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve system or other
governmental authority having jurisdiction with respect thereto, as now
and from time to time in effect) for Eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board
which are required to be maintained by a member bank of the Federal
Reserve System (such rate to be adjusted to the nearest one sixteenth
of one percent (1/16th of 1%) or, if there is not a nearest one
sixteenth of one percent (1/16th of 1%), to the next highest one
sixteenth of one percent (1/16th of 1%).
If such interest rates shall cease to be available from
Telerate News Service, the LIBOR Rate shall be determined from such
financial reporting service or other information as shall be mutually
acceptable to Agent and Borrower.
"License" shall mean any Copyright License, Patent License,
Trademark License or other license of rights or interests now held or hereafter
acquired by Borrower or any of its Subsidiaries.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction), any right of any Person
(other than Agent or Lenders) with respect to Collateral not expressly permitted
in accordance with the specific terms of the Loan Documents, or the existence of
any agreement or other document accomplishing or purporting to accomplish
(whether on a conditional basis or otherwise) any of the foregoing.
"Loan Account" shall have the meaning assigned to it in
Section 1.15.
"Loan Documents" shall mean the Agreement, the Revolving
Credit Notes, the Term Loan Notes, the Capital Expenditure Loan Notes, the
Collateral Documents, the Warrant and all other agreements, instruments,
documents and certificates identified in Annex D in favor of Agent and/or
Lenders and including all other pledges, powers of attorney, consents,
assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of Borrower or any of its
Affiliates, or any employee of Borrower, or any of its Affiliates, and delivered
to Agent or any Lender in connection with the Agreement or the transactions
contemplated hereby, together with all documents delivered in connection with
the Prior Credit Agreement, to the extent not amended and restated pursuant to
the Agreement, as each may be amended, restated, supplemented or otherwise
modified from time to time.
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"Loans" shall mean the Revolving Credit Loan, the Term Loan
and the Capital Expenditure Loan collectively.
"Lock Box Account" shall have the meaning assigned to it in
Annex C.
"Margins" means collectively the Index Margin and the LIBOR
Margin.
"Material Adverse Effect" shall mean (a) a material adverse
effect on (i) the business, assets, operations or financial or other condition
of Borrower or Borrower and its Subsidiaries considered as a whole, (ii)
Borrower's ability to pay the Revolving Credit Loan, the Term Loan, the Capital
Expenditure Loan, the Letter of Credit Obligations or any of the other
Obligations in accordance with the terms thereof, (iii) the Collateral or
Agent's Liens, on behalf of itself and Lenders, on the Collateral or the
priority of any such Lien, or (iv) Agent's or any Lender's rights and remedies
under the Agreement and the other Loan Documents or (b) except as otherwise
permitted under the Agreement or the other Loan Documents, the incurrence by
Borrower of any material liability, contingent or liquidated.
"Maximum Capital Expenditure Advance Amount" shall mean, with
respect to any Capital Expenditure Advance, an amount not in excess of 80% of
the Hard Costs of the Equipment to be acquired with the proceeds of such
Advance.
"Maximum Lawful Rate" shall have the meaning assigned to it in
Section 1.8(g).
"Maximum Revolving Credit Loan" shall mean, at any particular
time, an amount equal to Eighteen Million Dollars ($18,000,000) as such amount
may be adjusted, if at all, from time to time in accordance with the Agreement.
"Min-Max Contract" shall mean a written agreement between
Borrower and a customer of Borrower containing a firm obligation of such
customer to purchase an amount of Inventory which is not less than the minimum
amount specified therein and not more than the maximum amount specified therein.
"Min-Max Inventory" shall mean Eligible Inventory which is the
subject of a Min- Max Contract, but only to the extent not exceeding the maximum
amount prescribed by the relevant Min-Max Contract.
"Missouri Facility" shall mean Borrower's facility in Joplin,
Missouri.
"Mortgaged Properties" shall mean all Real Estate owned by
Borrower.
"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by Borrower to Agent, with
respect to the Mortgaged Properties, all in form and substance satisfactory to
Agent, as each may be amended, restated, supplemented or otherwise modified from
time to time.
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"Multiemployer Plan" shall mean a "multiemployer plan", as
defined in Section 4001(a)(3) of ERISA, to which Borrower, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to make, or within
the last six (6) years has made or been obligated to make, contributions on
behalf of participants who are or were employed by any of them.
"Net Income" shall mean for any period Borrower's consolidated
net income (or loss) after income and franchise taxes and shall have the meaning
given such term by GAAP; provided, that, there shall be specifically excluded
therefrom the net after-tax gains and losses arising from extraordinary items,
as defined by GAAP.
"Net Proceeds" shall mean all cash proceeds received by
Borrower from any Asset Disposition (including insurance proceeds and awards of
compensation and all payments in respect of any promissory notes or other
non-cash consideration taken as consideration), net of the direct taxes and
reasonable costs and expenses of such Asset Disposition and amounts, if any,
required to be applied to repayment of Indebtedness (other than the Obligations)
secured by any lien, security interest, claim or encumbrance on the asset or
assets so disposed of.
"New Jersey Facility" shall mean Borrower's vacant land in
Carteret, New Jersey.
"Non-use Fee" shall have the meaning assigned to it in Section
1.11(b).
"Notes" shall mean the Revolving Credit Notes, the Term Loan
Notes and the Capital Expenditure Loan Notes, collectively.
"Notice of Capital Expenditure Advance" shall have the meaning
assigned to it in Section 1.3(a).
"Notice of Revolving Credit Advance" shall have the meaning
assigned to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts,
liabilities and obligations, for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or amounts are liquidated or determinable) owing by
Borrower to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest, Fees,
Charges, expenses, attorneys' fees and any other sum chargeable to Borrower
under the Agreement or any of the other Loan Documents.
"Other Taxes" shall have the meaning assigned to it in Section
1.18.
"Parent" shall mean BCA Holdings, Inc., a Delaware
corporation.
"Patent and Trademark Assignments" shall mean the patent and
trademark assignments made in favor of Agent, on behalf of itself and Lenders,
by Borrower and its
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Subsidiaries, as each may be amended, restated, supplemented or otherwise
modified from time to time.
"Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by Borrower or any of its Subsidiaries granting
any right with respect to any invention on which a Patent is in existence, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Patents" shall mean all of the following in which Borrower or
any of its Subsidiaries now holds or hereafter acquires any interest: (i) all
letters patent of the United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of the United States
or any other country, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any State or Territory thereof, or any other country, and
(ii) all reissues, continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not
an individual account plan, as defined in Section 3(34) of ERISA, and which
Borrower or any of its Subsidiaries or, if a Title IV Plan, any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"Permitted Encumbrances" shall mean the following
encumbrances: (i) Liens for taxes or assessments or other governmental Charges
or levies, either not yet due and payable or to the extent that nonpayment
thereof is permitted by the terms of Section 5.2(b); (ii) pledges or deposits
securing obligations under workmen's compensation, unemployment insurance,
social security or public liability laws or similar legislation; (iii) pledges
or deposits securing bids, tenders, contracts (other than contracts for the
payment of money) or leases to which Borrower is a party as lessee made in the
ordinary course of business; (iv) deposits securing public or statutory
obligations of Borrower; (v) inchoate and unperfected workers', mechanics',
suppliers' or similar Liens arising in the ordinary course of business; (vi)
carriers', warehousemen's or other similar possessory liens arising in the
ordinary course of business and securing indebtedness not yet due and payable in
an outstanding aggregate amount not in excess of Ten Thousand Dollars ($10,000)
at any time; (vii) deposits securing, or in lieu of, surety, appeal or customs
bonds in proceedings to which Borrower is a party; (viii) any attachment or
judgment Lien, unless the judgment it secures shall not, within thirty (30) days
after the entry thereof, have been discharged or execution thereof stayed
pending appeal, or shall not have been discharged within thirty (30) days after
the expiration of any such stay; (ix) zoning restrictions, easements, licenses,
or other restrictions on the use of real property or other minor irregularities
in title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property, lease
or leasehold estate; (x) purchase money Liens with respect to Equipment acquired
in the ordinary course of business in accordance with past practice (subject to
the limitations on Capital Expenditures set forth in the Agreement,
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including Annex K thereto), so long as such liens attach only to the Equipment
so acquired without the proceeds of any Loan or Advance; (xi) Liens on the Real
Estate constituting the Kansas Facility; and (xii) Liens, other than those
referred to in clause (xi) above, on the Kansas Collateral securing the Kansas
Indebtedness, provided, however, that such Liens are subordinated in full to the
Liens of Agent securing the Obligations.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, county, city, municipal,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof).
"Plan" shall mean an employee benefit plan, as defined in
Section 3(3) of ERISA, which Borrower or any of its Subsidiaries, on behalf of
participants who are or were employed by any of them (a) currently maintains,
contributes to or has an obligation to contribute to or (b) within the last six
(6) years has maintained, contributed to or had an obligation to contribute to.
"Pledge Agreement" shall mean the Pledge Agreement made by
Parent in favor of Agent, on behalf of itself and Lenders, including all
amendments, restatements and modifications thereof and supplements thereto, and
shall refer to the Pledge Agreement as the same may be in effect at the time
such reference becomes operative.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code and, in any event, shall include (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Borrower or any of its
Subsidiaries from time to time with respect to any of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to Borrower or
any of its Subsidiaries from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (iii) any claim of Borrower or
any of its Subsidiaries against third parties (a) for past, present or future
infringement of any Patent or Patent License, (b) for past, present or future
infringement or dilution of any Copyright or Copyright License or (c) for past,
present or future infringement or dilution of any Trademark or Trademark License
or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License, (iv) any
recoveries by Borrower or any of its Subsidiaries against third parties with
respect to any litigation or dispute concerning any of the Collateral, and (v)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral, upon disposition or otherwise.
"Projections" shall mean any and all projections delivered
pursuant to or in connection with the Agreement.
"Pro Rata Share" shall mean with respect to matters relating
to (a) a Lender's portion of the Term Loan, the percentage obtained by dividing
(i) the portion of the Term Loan held by such Lender, by (ii) the outstanding
amount of the Term Loan, (b) a Lender's portion of the Capital Expenditure Loan,
the percentage obtained by dividing (i) the portion of the Capital Expenditure
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Loan held by such Lender, by (ii) the outstanding amount of the Capital
Expenditure Loan, and (c) a Lender's Commitment with respect to Revolving Credit
Advances and Letter of Credit Obligations (including the making or repayment of
Revolving Credit Advances and incurrence of Letter of Credit Obligations
pursuant to those Commitments) and, with respect to all other matters, the
percentage obtained by dividing (i) the Revolving Loan Commitment of that Lender
by (ii) the aggregate Revolving Loan Commitments of all Lenders, as each of the
foregoing percentages may be adjusted by assignments permitted pursuant to
Section 9.1.
"PST" shall mean Plastic Specialties and Technologies, Inc., a
Delaware corporation.
"Qualified Plan" shall mean an employee pension benefit plan,
as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under
Section 401(a) of the IRC, and which Borrower, any of its Subsidiaries or any
ERISA Affiliate, on behalf of participants who are or were employed by any of
them (a) currently maintains, contributes to or has an obligation to contribute
to or (b) within the last six (6) years has maintained, contributed to or had an
obligation to contribute to.
"Real Estate" shall mean all of the real estate of Borrower
listed in Schedule 3.7.
"Release" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Reportable Event" shall mean any of the events described in
Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Requisite Lenders" shall mean (a) Lenders having more than
sixty-six and two-thirds percent (66 2/3%) of the total Commitments of all
Lenders, or (b) if all Commitments have been terminated, more than sixty-six and
two-thirds percent (66 2/3%) of the aggregate outstanding amount of all
outstanding Loans and Letter of Credit Obligations.
"Restricted Payment" shall mean (i) the declaration or payment
of any dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(ii) any payment on account of the purchase, redemption, defeasance or other
retirement of a Person's Stock or any other payment or distribution made in
respect thereof, either directly or indirectly, (iii) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Person, (iv) any dividend, distribution, payment, loan, contribution, fee
or other transfer of cash, property or other assets to any stockholder or
Affiliate of Borrower, including ARTRA or any of its employees, officers,
directors or Affiliates, including Peter R. Harvey or any of his family members
or Affiliates or (v) the existence of any agreement or other document
accomplishing or purporting to accomplish (whether on a conditional basis or
otherwise) any of the foregoing.
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"Retiree Welfare Plan" shall mean any Welfare Plan providing
for continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to
it in Section 1.1(a).
"Revolving Credit Loan" shall mean the aggregate amount of
Revolving Credit Advances outstanding at any time.
"Revolving Credit Note" shall have the meaning assigned to it
in Section 1.1(b).
"Revolving Loan Commitment" shall mean (a) as to any Lender
with a Revolving Loan Commitment, the aggregate commitment of such Lender to
make Revolving Credit Advances and incur Letter of Credit Obligations as set
forth on the signature page to the Agreement or in the most recent Lender
Addition Agreement executed by such Lender and (b) as to all Lenders with a
Revolving Loan Commitment, the aggregate commitment of all Lenders to make
Revolving Credit Advances and incur Letter of Credit Obligations, which maximum
aggregate commitment shall be Eighteen Million Dollars ($18,000,000).
"Schedule of Accounts" shall mean the schedules of Accounts to
be delivered by Borrower to Agent pursuant to Annex F.
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits, schedules or annexes thereto, listing certain documents
and information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached as Annex D to the Agreement.
"Schedule of Inventory" shall mean the schedules of Inventory
to be delivered by Borrower to Agent pursuant to Annex G of the Agreement,
including Borrower's internal reports classifying and valuing Inventory.
"Security Agreement" shall mean the Security Agreement entered
into among Agent, on behalf of itself and Lenders and Borrower, including all
amendments, restatements and modifications thereof and supplements thereto, and
shall refer to the Security Agreement as the same may be in effect at the time
such reference becomes operative.
"Services Agreement" shall mean the agreement pursuant to
which Borrower and ARTRA each share certain costs and expenses of insurance,
including all amendments, modifications and supplements thereto, all in form and
substance satisfactory to Agent in its sole discretion, and shall refer to such
agreement as the same may be in effect at the time such reference becomes
operative.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests or other equivalents (regardless of how
designated) of or in a corporation, partnership or
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equivalent entity whether voting or nonvoting, including common stock, preferred
stock or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).
"Stockholder" shall mean each holder of Stock of Borrower or
any of its Subsidiaries, as the context may require.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of fifty percent (50%) or more of such Stock
whether by proxy, agreement, operation of law or otherwise and (ii) any
partnership in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than fifty percent (50%) or of which
any such Person is a general partner or may exercise the powers of a general
partner.
"Tangible Net Worth" shall mean the (a) total assets of
Borrower on a consolidated basis (less applicable reserves and other properly
deductible items), after deducting therefrom organizational expenses, General
Intangibles, goodwill, covenants not to compete, research and development costs,
training costs, and all unamortized debt discount, deferred charges (other than
prepaid insurance and deferred financing fees relating to the Obligations and
the Kansas Indebtedness) and all receivables from Affiliates, including Peter R.
Harvey and ARTRA, less (b) total liabilities of Borrower on a consolidated
basis, which, in the case of all of the foregoing items, would be reflected on a
consolidated balance sheet of Borrower and its Subsidiaries under GAAP.
"Tax Sharing Agreement" shall mean, collectively, each of
those certain Tax Sharing Agreements by and between ARTRA, Borrower and Parent
dated as of January 1, 1991 and March 7, 1991, respectively, including all
amendments, modifications and supplements thereto, all in form and substance
satisfactory to Agent in its sole discretion, and shall refer to the Tax Sharing
Agreement as the same may be in effect at the time such reference becomes
operative.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges
or withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Agent or a Lender by the
jurisdictions under the laws of which Agent and Lenders are organized or any
political subdivision thereof.
"Term Loan" shall have the meaning assigned to it in Section
1.2(a).
"Term Loan Note" shall have the meaning assigned to it in
Section 1.2(c).
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"Term Loan Commitment" shall mean (a) as to any Lender with a
Term Loan Commitment, the aggregate commitment of such Lender to make the Term
Loan as set forth on the signature page to the Agreement or in the most recent
Lender Addition Agreement executed by such Lender and (b) as to all Lenders with
a Term Loan Commitment, the aggregate commitment of all Lenders to make the Term
Loan, which maximum aggregate commitment shall be Twenty Million Dollars
($20,000,000) including the consolidation of the $12,000,000 principal balance
of Term Loan A outstanding under the Prior Credit Agreement.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by Borrower or any of its Subsidiaries
granting any right to use any Trademark or Trademark registration, as the same
may be amended, restated, supplemented or otherwise modified from time to time.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by Borrower or any of its Subsidiaries: (i) all trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, prints and labels on which any of
the foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; and (ii) all reissues,
extensions or renewals thereof.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (i) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions in
effect under such Title IV Plan, and (ii) for a period of five (5) years
following a transaction reasonably likely to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by
Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of such
transaction.
"Warrant" shall mean the Warrant issued as of December 17,
1993 by Borrower in favor of GE Capital, as heretofore amended, and as
substituted as of the Closing Date, including all other amendments,
restatements, substitutions and modifications thereof and supplements thereto,
all in form and substance satisfactory to Agent in its sole discretion, and
shall refer to the Warrant as the same may be in effect at the time such
reference becomes operative.
"Welfare Plan" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Borrower or any
of its Subsidiaries.
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"Withdrawal Liability" shall mean, at any time, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA, with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain items or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. In the event that any "Accounting Changes" (as defined below)
occur and such changes result in a change in the calculation of the financial
covenants, standards or terms used in the Agreement or any other Loan Document,
then Borrower, Agent and Lenders agree to enter into negotiations in order to
amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, further, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (a) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), and (b)
changes in accounting principles concurred in by Borrower's certified public
accountants. In the event, if any, that Agent, Borrower and Requisite Lenders
shall have agreed upon the required amendments, then after such agreement has
been evidenced in writing and the underlying Accounting Change with respect
thereto has been implemented, any reference to GAAP contained in this Agreement
or in any other Loan Document shall, only to the extent of such Accounting
Change, refer to GAAP, consistently applied after giving effect to the
implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within sixty (60) days
following the date of implementation of any Accounting Change, then all
financial statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the underlying
Accounting Change.
All other undefined terms contained in the Agreement or any of
the other Loan Documents shall, unless the context indicates otherwise, have the
meanings provided for by the Code as in effect in the State of Illinois to the
extent the same are used or defined therein. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole,
including the Exhibits, Schedules and Annexes thereto, as the same may from time
to time be amended, modified or supplemented, and not to any particular section,
subsection or clause contained in the Agreement.
Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. The words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to Persons include their respective successors and
assigns (to the extent and
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only to the extent permitted by the Loan Documents) or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations.
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ANNEX B
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
LETTERS OF CREDIT
(a) Subject to the terms and conditions of this Agreement, the
Revolving Credit Loan Commitment may, in addition to Revolving Credit Loan
Advances, be utilized, upon the request of Borrower, for the issuance of Letters
of Credit or guaranties thereof by Agent so long as GE Capital is Agent, on
behalf of each Lender (severally and not jointly) according to such Lender's Pro
Rata Share of the Revolving Loan Commitment to guaranty payment to banks
(whether or not such banks are Lenders) which issue Letters of Credit for the
account of Borrower; provided, however, that the aggregate amount of all Letter
of Credit Obligations incurred by Agent and Lenders pursuant to this paragraph
(a) shall not exceed Three Million Dollars ($3,000,000) and, provided, further,
that (1) no such Letter of Credit shall have an expiry date which is more than
one year following the date of issuance thereof and (2) Agent and Lenders shall
be under no obligation to incur Letter of Credit Obligations in respect of any
Letter of Credit having an initial or extended expiry date, or extension option,
which is later than the Commitment Termination Date. It is understood that the
bank or other legally authorized Person (including any Lender) which shall issue
any Letter of Credit contemplated by this paragraph (a) shall be selected by
Borrower and acceptable to Agent, in its sole discretion.
(b) In the event that any Lender shall make any payment on or
pursuant to any Letter of Credit Obligation, such payment shall then be deemed
automatically to constitute a Revolving Credit Advance under Section 1.1(a) of
the Agreement.
(c) In the event that any Letter of Credit Obligation, whether
or not then due and payable, shall for any reason be outstanding on the
Commitment Termination Date, Borrower will pay to Agent for the benefit of
Lenders cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an
amount equal to the maximum amount then available to be drawn under the
applicable Letter of Credit plus all outstanding fees and expenses relating
thereto. Such funds or Cash Equivalents shall be held by Agent in a cash
collateral account (the "Cash Collateral Account") maintained at Bankers Trust
Company, 17 Wall Street, New York, New York, ABA#: 021 001 033, in the name of
General Electric Capital Corporation, Commercial Finance Group, Acct.#: 502 328
54. The Cash Collateral Account shall be in the name of Agent (as a cash
collateral account), and shall be under the sole dominion and control of Agent
and subject to the terms of this Annex B. Borrower hereby pledges, and grants to
Lender a security interest in, all such funds and Cash Equivalents held in the
Cash Collateral Account from time to time and all proceeds thereof, as security
for the payment of all amounts due in respect of the Letter of Credit
Obligations, whether or not then due. This Agreement shall constitute a security
agreement under applicable law.
From time to time after funds are deposited in the Cash
Collateral Account, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Lenders with respect to such Letter of Credit Obligations.
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Neither Borrower nor any Person claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrower to Lenders in respect thereof, any funds remaining in the
Cash Collateral Account in excess of the then remaining Letter of Credit
Obligations shall be returned to Borrower.
Agent shall not have any obligation to invest the funds in the
Cash Collateral Account or deposit such funds in an interest bearing account,
and interest and earnings thereon, if any, shall be the property of Lenders.
(d) In the event that Lenders shall incur any Letter of Credit
Obligation pursuant hereto at the request or on behalf of Borrower, Borrower
agrees to pay to Agent for the benefit of Lenders, as compensation to Lenders
for such Letter of Obligation, (i) all costs and expenses incurred by any Lender
on account of such Letter of Credit Obligation and (ii) commencing with the
month in which such Letter of Credit Obligation is incurred by Lenders and
monthly thereafter for each month during which such Letter of Credit Obligation
shall remain outstanding, a fee in an amount equal to two percent (2.0%) per
annum of the maximum amount available from time to time to be drawn under the
applicable Letter of Credit, calculated on the basis of a 360-day year and the
actual number of days elapsed; provided, however, that during any period while
an Event of Default has occurred and is continuing such fee shall be increased
to four percent (4.0%) per annum, calculated on the basis of a 360-day year and
the actual number of days elapsed. Fees payable in respect of Letter of Credit
Obligations shall be paid to Agent for the benefit of Lenders in arrears, on the
first day of each month. The fees, costs and expenses provided for in this
paragraph (d) are in addition to any fees, costs and expenses payable to the
issuers of the Letters of Credit, all of which are solely for the account of
Borrower.
(e) Request for Lender Guaranties. Borrower shall give Agent
at least two (2) days prior written notice as to the issuance of a Letter of
Credit or letter credit guaranty, specifying the date such Letter of Credit or
guaranty is to be issued, identifying the beneficiary and describing the nature
of the transactions proposed to be supported thereby. The notice shall be
accompanied by the form of the Letter of Credit to be guarantied.
(f) The obligation of Borrower to reimburse Lenders for
payments made with respect to any Letter of Credit Obligation shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances including the following circumstances:
(1) any lack of validity or enforceability of any Letter of
Credit or any other agreement;
(2) the existence of any claim, set-off, defense or other
right which Borrower or any of its Affiliates or any Lender may at any time have
against a beneficiary or any transferee of any Letter of Credit (or any persons
or entities for whom any such transferee may be acting), any Lender, or any
other Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between Borrower or any of its Affiliates and the beneficiary for
which the Letter of Credit was procured);
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(3) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by Agent, any Lender, or the issuing bank under
any Letter of Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of Credit,
provided that, in the case of any payment by Agent or any Lender under any
Letter of Credit, Agent or such Lender has not acted with gross negligence or
willful misconduct (as finally determined by a court of competent jurisdiction)
in determining that the demand for payment under such Letter of Credit or
guaranty thereof complies on its face with any applicable requirements for a
demand for payment under such Letter of Credit or guaranty thereof;
(5) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lenders' Duties. In addition to
amounts payable as elsewhere provided in this Agreement, Borrower hereby agrees
to protect, indemnify, pay and save Agent and each Lender harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) which Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (1) the issuance of any Letter of Credit or
guaranty thereof, other than as a result of the gross negligence or willful
misconduct of Agent or such Lender as finally determined by a court of competent
jurisdiction or (2) the failure of Agent or any Lender to honor a demand for
payment under any Letter of Credit or guaranty thereof as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority.
As between Agent and Borrower and any Lender and Borrower,
Borrower assumes all risks of the acts and omissions of, or misuse of any Letter
of Credit by beneficiaries of any Letter of Credit. In furtherance and not in
limitation of the foregoing, neither Agent nor any Lender shall be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document issued by any party in connection with the application for and
issuance of any Letter of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided that, in the case of any payment
by Agent under any Letter of Credit or guaranty thereof, Agent has not acted
with gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such Letter of Credit or guaranty
thereof; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by
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mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) for errors in interpretation of technical terms; (vi) for any loss or delay
in the transmission or otherwise of any document required in order to make a
payment under any Letter of Credit or guaranty thereof or of the proceeds
thereof; (vii) for the credit of the proceeds of any drawing under any Letter of
Credit or guaranty thereof; and (viii) for any consequences arising from causes
beyond the control of Agent or any Lender. None of the above shall affect,
impair, or prevent the vesting of any of Agent's or any Lender's rights or
powers hereunder.
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ANNEX C
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
CASH MANAGEMENT SYSTEMS
The Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:
(a) Prior to the Closing Date and for so long as the Revolving
Credit Loan, any of the Term Loans or any other Obligations are outstanding,
Borrower shall deposit and shall cause its Subsidiaries to deposit or cause to
be deposited promptly, and in any event no later than the first Business Day
after the date of receipt thereof, all cash, checks, drafts or other similar
items of payment relating to or constituting payments made in respect of any and
all Collateral into bank accounts in Borrower's name or such Subsidiary's name
(collectively, the "Borrower Accounts") at banks set forth on Schedule 3.22.
Prior to the Closing Date, Borrower shall have established a concentration
account in Borrower's name (the "Concentration Account") at LaSalle National
Bank, which shall be designated as the Concentration Account bank on Schedule
3.22, in accordance with a blocked account agreement in form and substance
satisfactory to Agent, in its sole discretion.
(b) Prior to the Closing Date, LaSalle National Bank, as
Concentration Account bank, and all of the banks set forth on Schedule 3.22 with
which Borrower or any Subsidiary thereof has any relationship other than as the
holder of a deposit account, including by way of example any mortgage or other
lending relationship (each such bank a "Relationship Bank"), shall have entered
into triparty blocked account agreements with Agent, for the benefit of itself
and Lenders, and Borrower and/or each such Subsidiary, as applicable, in form
and substance acceptable to Agent, which shall become operative prior to the
Closing Date at LaSalle National Bank, as the bank where the Concentration
Account is maintained, and all Relationship Banks at which Borrower Accounts are
maintained. Borrower shall clearly designate each bank which is a Relationship
Bank as such on Schedule 3.22. Each such blocked account agreement shall
provide, among other things, that:
(i) all items of payment deposited in such Borrower Account
and proceeds thereof deposited in such Concentration Account are held
by such bank as agent or bailee-in- possession for Agent;
(ii) the bank executing such agreement has no rights of setoff
or recoupment or any other claim against such Borrower Account or
Concentration Account, as the case may be, other than for payment of
its service fees and other charges directly related to the
administration of such account and for returned checks or other items
of payment; and
(iii) prior to the Closing Date (A) with respect to each bank
at which a Borrower Account is located, such bank agrees to forward
immediately all amounts in Borrower Account to the Concentration
Account and to commence the process of daily sweeps from such Borrower
Account into the Concentration Account and (B) with respect to the bank
at which the Concentration Account is located, such bank agrees to
forward immediately all
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amounts received in the Concentration Account to the Collection Account
through daily sweeps from such Concentration Account into the
Collection Account.
(c) Prior to the Closing Date, Borrower shall cause each and
every bank at which any Borrower Account is located, including each Relationship
Bank and each of the other banks at which any Borrower Account is located, to
(i) forward immediately, and in no event less frequently than once each Business
Day, all amounts in Borrower Accounts at such bank to the Concentration Account
and (ii) commence, and continue each Business Day, the process of daily sweeps
from each such Borrower Account into the Concentration Account. Prior to the
Closing Date, Borrower shall cause LaSalle National Bank, as the bank where the
Concentration Account is located, to forward immediately all amounts received in
the Concentration Account to the Collection Account through daily sweeps from
such Concentration Account into the Collection Account.
(d) So long as no Default or Event of Default has occurred and
is continuing, Borrower may amend Schedule 3.22 to add or replace a Borrower
Account or replace the Concentration Account; provided, however, that (i) Agent
shall have consented in writing to the opening of such account with the relevant
bank, and (ii) prior to the time of the opening of such account, Borrower and/or
the Subsidiaries thereof, as applicable, and such bank shall have executed and
delivered to Agent a triparty blocked account agreement, in form and substance
satisfactory to Agent.
(e) The Borrower Accounts and the Concentration Account shall
be cash collateral accounts, with all cash, checks and other similar items of
payment in such accounts securing payment of the Revolving Credit Loan, each of
the Term Loans and all other Obligations, and in which Borrower or such
Subsidiary shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.
(f) All amounts deposited in the Collection Account shall be
deemed received by Agent in accordance with Section 1.13 of the Agreement and
shall be applied (and allocated) by Agent in accordance with Section 1.14 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the Collection
Account.
(g) The Borrower may maintain, in its name, an account (the
"Disbursement Account") at a bank acceptable to Agent into which, Agent shall,
from time to time, deposit proceeds of Revolving Credit Advances made pursuant
to Section 1.1 of the Agreement for use by Revolver Borrower solely in
accordance with the provisions of Section 1.7 of the Agreement. The Disbursement
Account shall be a cash collateral account, with all cash, checks and other
similar items of payment in such account securing payment of the Revolving
Credit Loan, each of the Term Loans and all other Obligations, and in which
Borrower shall have granted a Lien to Agent, for the benefit of itself and
Lenders, pursuant to the Security Agreement. The Disbursement Account shall be
subject to a triparty blocked account agreement identical to the agreement
governing Borrower Accounts and the Concentration Account; provided, however,
that, according to the terms thereof, such agreement shall become effective upon
the occurrence of a default or an Event of Default.
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<PAGE>
(h) The Borrower shall and shall cause its Subsidiaries to (i)
hold in trust for Agent, for the benefit of itself and Lenders, all checks, cash
and other items of payment received by Borrower or any such Subsidiary, and (ii)
within one (1) Business Day after receipt by Borrower or any such Subsidiary of
any checks, cash or other items or payment, deposit the same into a Borrower
Account. The Borrower and its Subsidiaries acknowledge and agree that all cash,
checks or items of payment constituting proceeds of Collateral are the property
of Lenders. All proceeds of the sale or other disposition of any Collateral,
other than sales of Inventory by Borrower in the ordinary course of business,
shall be deposited directly into the Concentration Account.
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<PAGE>
ANNEX D
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
SCHEDULE OF DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(b) of the Agreement, the following
items must be received by Agent in form and substance satisfactory to Agent on
or prior to the Closing Date (each capitalized term used but not otherwise
defined herein shall have the meaning ascribed thereto in Annex A to the
Agreement):
(a) Exhibits, Schedules and Annexes. All Exhibits, Schedules and
Annexes to the Agreement, in form and substance satisfactory to Agent.
(b) Revolving Credit Notes. For each Lender, one (1) duly executed
original Revolving Credit Note, dated the Closing Date.
(c) Term Loan Notes. For each Lender, one (1) duly executed original
Term Loan Note, dated the Closing Date.
(d) Capital Expenditure Loan Notes. For each Lender, one (1) duly
executed original Capital Expenditure Loan Note, dated the Closing Date.
(e) Warrant. A duly executed Warrant, dated the Closing Date, signed by
Borrower, in form and substance satisfactory to Agent, and all instruments,
documents and agreements executed pursuant thereto.
(f) Loan Documents. Evidence satisfactory to Agent that all other Loan
Documents are in full force and effect as of the Closing Date.
(g) Initial Notice of Revolving Credit Advance. Duly executed originals
of a Notice of Revolving Credit Advance, dated on or prior to the Closing Date,
with respect to the initial Revolving Credit Advance to be requested by Borrower
on the Closing Date.
(h) Financial Statements and Collateral Reports. All Financial
Statements and Collateral Reports required to be delivered prior to the Closing
Date pursuant to the Prior Credit Agreement.
(i) Officer's Certificate. Duly executed originals of a certificate of
the chief executive officer and chief financial officer of Borrower, dated the
Closing Date, stating that since December 31, 1995, there has been: (i) no
Material Adverse Effect on the business, operations, financial condition,
prospects or projections of Borrower, the industries in which it operates, the
Collateral, or any of its Subsidiaries; (ii) no litigation will has commenced
which, if successful, could have any such Material Adverse Effect or could
challenge any of the transactions contemplated by this Agreement and the other
Loan Documents; (iii) except for the redemption of preferred stock of Borrower
owned by PST in accordance with this Agreement and the Prior Credit Agreement,
no dividends, distributions, payments, loans, contributions, fees or other
transfers of cash, property or
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<PAGE>
other assets to any stockholders or Affiliate of Borrower, including ARTRA or
its employees, directors, officers or Affiliates; and (iv) no material increase
in liabilities, liquidated or contingent, and no material decrease in assets of
Borrower or any of its Subsidiaries.
(j) Charter and Good Standing. For Parent, Borrower and each of its
Subsidiaries, such Person's (a) certificate or articles of incorporation and all
amendments thereto, (b) good standing certificates (including verification of
tax status) in its state of incorporation and (c) good standing certificates
(including verification of tax status) and certificates of qualification to
conduct business in each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, each of the
foregoing dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized governmental entity.
(k) Bylaws and Resolutions. For Parent, Borrower and each of its
Subsidiaries (a) such Person's bylaws, together with all amendments thereto, and
(b) resolutions of such Person's Board of Directors and, as required,
stockholders, approving and authorizing the execution, delivery and performance
of the Loan Documents to which such Person is a party and the transactions to be
consummated in connection therewith, each of the foregoing certified as of the
Closing Date by such Person's corporate secretary or an assistant secretary as
being in full force and effect without any modification or amendment.
(l) Incumbency Certificates. For Parent, Borrower and each of its
Subsidiaries, signature and incumbency certificates of the officers of each such
Person executing any of the Loan Documents, certified as of the Closing Date by
such Person's corporate secretary or an assistant secretary as being true,
accurate, correct and complete.
(m) Opinions of Counsel. Duly executed originals of an opinion of
Kwiatt, Silverman and Ruben, Ltd., General Counsel for Parent, Borrower and its
Subsidiaries, in form and substance satisfactory to Agent and its counsel, dated
the Closing Date, and accompanied by a letter addressed to such counsel from
Parent, Borrower and its Subsidiaries, authorizing and directing such counsel to
address its opinion to Agent, on behalf of Lenders, and to include in such
opinion an express statement to the effect that Agent and Lenders are authorized
to rely on such opinion.
(n) Other Documents. Such other certificates, documents and agreements
respecting Borrower or any of its Subsidiaries, as Agent may request in its sole
discretion, including the GE Capital Fee Letter.
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<PAGE>
ANNEX E
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
RESPONSIBLE INDIVIDUAL
Telephone #
Name and Title Notice Address Telecopy #
-------------- -------------- ----------
Robert T. Battle General Electric 203-316-7500
Vice President, Capital Corporation 203-316-7893
Portfolio Commercial Finance, Inc.
201 High Ridge Road
Stamford, CT 06927-5100
<PAGE>
ANNEX F
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
ELIGIBLE ACCOUNTS
In determining whether an account constitutes an Eligible
Account, Agent shall not include any Account:
(a) which does not arise from the sale of goods or the
performance of services by Borrower in the ordinary course of its business;
(b) upon which (i) Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) against which is asserted any defense, counterclaim,
setoff or dispute, but only to the full extent of such defense, counterclaim,
setoff or dispute;
(d) that is not a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise sold and
accepted by the Account Debtor obligated upon such Account;
(e) with respect to which an invoice, acceptable to Agent in
form and substance, has not been sent;
(f) that (i) is not owned by Borrower or (ii) is subject to
any right, claim, security interest or other interest of any other Person, other
than the Lien in favor of Agent, on behalf of itself and Lenders;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of Borrower or any Subsidiary thereof, or to any entity
which has any common officer or director with Borrower or any Subsidiary
thereof;
(h) that is the obligation of an Account Debtor that is the
United States government or a political subdivision thereof, unless Agent, in
its sole discretion, has agreed to the contrary in writing and Borrower, if
necessary or desirable as determined by Agent, has complied with the Federal
Assignment of Claims Act of 1940, and any amendments thereto, with respect to
such obligation;
(i) that is the obligation of an Account Debtor located in a
foreign country, other than (i) Canada, provided, that, such obligation is
denominated entirely in United States dollars and is fully payable within the
United States or (ii) a foreign country, provided, that, such obligation is
backed by a letter of credit or other credit enhancement in form and substance
acceptable to Agent in its sole discretion and the same has been delivered to
Agent and, provided, further, that, if any Default or Event of Default shall
have occurred and be continuing, Borrower shall notify the issuer
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<PAGE>
of such letter of credit or other credit enhancement that the same has been
assigned to Agent, on behalf of Agent and Lenders, in accordance with Section
5-116(2)(b) of the Code;
(j) that is the obligation of an Account Debtor to whom
Borrower or any Subsidiary thereof is liable for goods sold or services rendered
by the Account Debtor to Borrower or any Subsidiary thereof, but only to the
full extent of all such liabilities in the aggregate with respect to such
Account Debtor;
(k) that arises with respect to goods which are delivered on a
cash-on-delivery basis or placed on consignment, guaranteed sale or other terms
by reason of which the payment by the Account Debtor is or may be conditional;
(l) that is in default; provided, further, that, without
limiting the generality of the foregoing, an Account shall be deemed in default
upon the occurrence of any of the following:
(i) the Account is not paid within the earlier of: sixty (60)
days past its due date or ninety (90) days past its original invoice date;
(ii) if any Account Debtor obligated upon such Account
suspends business, makes a general assignment for the benefit of
creditors or fails to pay its debts generally as they come due; or
(iii) if any petition is filed by or against any Account
Debtor obligated upon such Account under any bankruptcy law or any
other federal, state or foreign (including any provincial)
receivership, insolvency relief or other law or laws for the relief of
debtors;
(m) which is the obligation of an Account Debtor that has
failed to make a payment within sixty (60) days past the applicable due date on
fifty percent (50%) or more of the dollar amount of Accounts upon which such
Account Debtor is obligated (Borrower shall be entitled to notify Agent
regarding the circumstances of such payment failure, and, thereafter, Agent, in
its sole and absolute discretion, may choose to include all or a portion, if
any, of such account as an Eligible Account);
(n) which is due more than ninety (90) days from the date of
determination of eligibility thereof;
(o) which arises from any bill-and-hold or other sale of goods
which remain in Borrower's or any Subsidiary thereof's possession or under
Borrower's or any such Subsidiary's control, but only to the fullest extent of
that portion of such goods not actually billed and shipped at the time of
Agent's determination thereof;
(p) as to which Agent's interest, on behalf of itself and
Lenders, therein is not a first priority perfected security interest;
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<PAGE>
(q) as to which any of the representations or warranties
pertaining to Accounts set forth in the Agreement or any of the other Loan
Documents is untrue;
(r) to the extent such Account exceeds any credit limit
established by Agent, in its reasonable discretion;
(s) to the extent such Account is evidenced by any note; or
(t) which is otherwise unacceptable to Agent in its sole
discretion.
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<PAGE>
ANNEX G
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
ELIGIBLE INVENTORY
In determining whether Inventory constitutes Eligible Inventory, Agent
shall not include Inventory which:
(a) is not owned by Borrower free and clear of all Liens and
rights of any other Person, except the Liens in favor of Agent, on behalf of
itself and Lenders, and encumbrances set forth in clause (v) or (vi) of the
definition of Permitted Encumbrances;
(b) except as set forth in clause (c) below with respect to
goods which are "in transit," is not located on premises owned, operated or
leased by Borrower;
(c) consists of goods which are "in transit", but only to the
full extent the same are not shipped (i) F.O.B. point of shipment and/or (ii) on
vehicles owned by Borrower or common carriers employed by, or subject to the
direction of, Borrower; provided, that, Borrower maintains (A) appropriate and
adequate casualty insurance with respect to goods shipped on such common
carriers, in form and with insurers recognized as adequate by Agent, together
with appropriate evidence showing loss payable clauses or endorsements in favor
of Agent, on behalf of Lenders, in form and substance satisfactory to Agent and
(B) adequate reserves on its books, in accordance with GAAP, with respect to all
amounts charged by, and all other fees and expenses associated with, such common
carriers;
(d) is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory has been
delivered to Agent;
(e) in Agent's reasonable credit judgement, is obsolete,
unsalable, shopworn, damaged or unfit for sale;
(f) consists of display items or shipping materials;
(g) consists of packing materials, but only to the full extent
that the same are (i) customized or specialized for or on behalf of Borrower or
(ii) not maintained in "full pallets" or are otherwise maintained in broken or
incomplete packages or sets;
(h) consists of goods which have been returned by the buyer;
(i) consists of discontinued or slow-moving items or finished
goods of substandard quality;
(j) is placed by Borrower on consignment;
(k) is not of a type held for sale in the ordinary course of
Borrower's business;
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<PAGE>
(l) as to which Agent's interest, on behalf of itself and
Lenders, therein is not a first priority perfected security interest;
(m) as to which any of the representations or warranties
pertaining to Inventory set forth in the Agreement or any of the other Loan
Documents is untrue;
(n) is located at a public warehouse, unless Agent has
received therefrom a copy of a duly executed bailee letter, in form and
substance acceptable to Agent in its sole discretion;
(o) consists of supplies or work-in-process;
(p) is otherwise unacceptable to Agent in its sole discretion.
In addition, Inventory located at an owned or leased location
shall be subject to the provisions set forth in Section 5.11 and 5.12 of the
Agreement.
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<PAGE>
ANNEX H
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
Insurance Standards
1. Borrower shall, and shall cause each of its Subsidiaries
to, at its sole cost and expense, maintain "All Risk" physical damage insurance
on all real and personal property, including fire and extended coverage, boiler
and machinery coverage, flood, earthquake, liquids, theft, explosion, collapse
and all other hazards and risks ordinarily insured against by owners or users of
such properties in similar businesses. All policies of insurance on such
property shall contain an endorsement, in form and substance satisfactory to
Agent, showing loss payable to Agent as its interests appear.
2. Borrower shall, at its sole cost and expense, maintain
commercial general liability insurance on an "occurrence basis" (unless such
insurance cannot be reasonably obtained at commercially reasonable rates, in
which case such insurance shall be on a "claims made" basis) against claims for
personal injury, bodily injury and property damage with a minimum limit of
$1,000,000 per occurrence and $2,000,000 in the aggregate. Such coverage shall
include, but not be limited to, premises/operations, broad form contractual
liability, underground, explosion and collapse hazard, independent contractors,
broad form property coverage, products and completed operations liability.
Borrower shall, at its sole cost and expense, maintain workers' compensation
insurance including employer's liability in the amount of $500,000 for each
accident, $500,000 disease-policy limit, and $500,000 disease-each employee.
3. Borrower shall, at its sole cost and expense, maintain
automobile liability insurance for all owned, non-owned or hired automobiles
against claims for personal injury, bodily injury and property damage with a
minimum combined single limit of $1,000,000 per occurrence.
4. Borrower shall, at its sole cost and expense, maintain
umbrella policies of insurance in form and substance substantially similar to
each of the umbrella policies which it maintains on the Closing Date, with, in
any event, a minimum combined limit of $25,000,000 in the aggregate.
5. All policies of insurance required to be maintained under
this Agreement shall (i) include Agent as an additional insured, (ii) contain a
30-day advance notice of alteration or cancellation, (iii) provide that no act
or default by Borrower, any Subsidiary or any other Person shall affect the
right of Agent to recover under such policy or policies of insurance in case of
loss or damage, (iv) be in form substantially similar to those in effect on the
Closing Date and be with insurers rated at least A by A.M. Best and (v) be in
not less than the amounts set forth herein.
<PAGE>
ANNEX I
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrower shall deliver or cause to be delivered to Agent (with
adequate copies for each Lender), the following:
(a) To Agent (with adequate copies for each Lender), within
thirty (30) days after the end of each Fiscal Month, consolidated and
consolidating financial and other information regarding Borrower and its
Subsidiaries, certified by the chief financial officer of Borrower, including
(i) unaudited balance sheets as of the close of such Fiscal Month and the
related statements of income and cash flow for that portion of the Fiscal Year
ending as of the close of such Fiscal Month and (ii) unaudited statements of
income and cash flows for such Fiscal Month, in each case setting forth in
comparative form the figures for the corresponding period in the prior year and
the figures contained in the budget, all prepared in accordance with GAAP
(subject to normal year-end adjustments), except for the absence of footnotes
and except as otherwise disclosed therein in reasonable detail, and accompanied
by (A) a statement in reasonable detail showing the calculations used in
determining compliance with the financial covenants set forth on Annex K and (B)
the certification of the chief executive officer or chief financial officer of
Borrower that all of such financial and other information is true, complete and
correct and presents fairly in accordance with GAAP (subject to normal year-end
adjustments), except for the absence of footnotes and except as otherwise
disclosed therein in reasonable detail, the financial position, results of
operations and statements of cash flows of Borrower and its Subsidiaries, on
both a consolidated and consolidating basis, as at the end of such Fiscal Month
and for the period then ended, and that there was no Default or Event of Default
in existence as of such time or, if a Default or Event of Default shall have
occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default.
In addition, Borrower shall deliver to Agent (with adequate
copies for each Lender), within thirty (30) days after the end of each Fiscal
Month, a management discussion and analysis which includes a comparison to
budget for that Fiscal Month and a comparison of performance for that Fiscal
Month to the corresponding period in the prior year;
(b) To Agent (with adequate copies for each Lender), within
sixty (60) days after the end of each Fiscal Year, an operating plan, approved
by the Board of Directors of Borrower, for such applicable Fiscal Year, which
will include a complete statement of the assumptions on which such plan is
based, will include monthly balance sheets and a monthly budget for such
applicable Fiscal Year and will integrate sales, gross profits, operating
expenses, operating profit, cash flow projections and borrowing availability
projections all prepared on the same basis as that on which operating results
are reported, and plans for personnel, capital expenditures (with a separate
description for Capital Expenditures constituting the acquisition cost of
Equipment to be financed with proceeds of the Capital Expenditure Loan) and
facilities; all of which shall be in detail acceptable to Agent in its sole
discretion;
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<PAGE>
(c) To Agent (with adequate copies for each Lender),
contemporaneously with ARTRA's filing thereof with the Securities and Exchange
Commission, audited financial statements, for Borrower and its Subsidiaries, on
a consolidated basis, consisting of balance sheets and statements of income and
retained earnings and cash flows, setting forth in comparative form in each case
the figures for the previous Fiscal Year and the figures contained in the
budget, which financial statements shall be prepared in accordance with GAAP,
certified (only with respect to the consolidated financial statements) without
qualification, by an independent certified public accounting firm of national
standing or otherwise acceptable to Agent, and accompanied by (i) a statement
prepared in reasonable detail showing the calculations used in determining
compliance with each of the financial covenants set forth on Annex K, (ii) a
report from such accounting firm to the effect that, in connection with their
audit examination, nothing has come to their attention to cause them to believe
that a Default or Event of Default has occurred (or specifying those Defaults
and Events of Default that they became aware of), (iii) a letter addressed to
Agent, on behalf of itself and Lenders, in form and substance reasonably
satisfactory to Agent, signed by such accounting firm acknowledging that Agent
and Lenders are entitled to rely upon such accounting firm's certification of
such audited financial statements, (iv) the annual letters to such accountants
in connection with their audit examination detailing contingent liabilities and
material litigation matters and (v) the certification of the chief executive
officer or chief financial officer of Borrower that all such financial
statements are true, complete and correct and present fairly in accordance with
GAAP the financial position, results of operations and statements of cash flows
of Borrower and its Subsidiaries, on a consolidated basis, as at the end of such
year and for the period then ended, and that there was no Default or Event of
Default in existence as of such time or, if a Default or Event of Default shall
have occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default;
(d) To Agent (with adequate copies for each Lender), within
five (5) Business Days after receipt thereof by Borrower, copies of all
management letters, exception reports or similar letters or reports, if any,
received by Borrower from its independent certified public accountants;
(e) To Agent (with adequate copies for each Lender), as soon
as practicable, and in any event within five (5) Business Days after Borrower
becomes aware of the existence of any Default or Event of Default, or any
development or other information which could have or result in a Material
Adverse Effect, telephonic or telecopied notice specifying the nature of such
Default or Event of Default or development or information, including the
anticipated effect thereof, which notice, if given telephonically, shall be
promptly confirmed in writing on the next Business Day; and
(f) To Agent (with adequate copies for each Lender), as soon
as reasonably practicable after Agent's request therefor, such other financial
and other information respecting Borrower's or its Subsidiaries', businesses,
financial condition or prospects as Agent (or any Lender through Agent) shall
request from time to time with reasonable frequency (unless a Default or Event
of Default shall have occurred and be continuing, in which event Agent or
Lenders may make requests at any and all times).
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<PAGE>
ANNEX J
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
COLLATERAL REPORTS
(a) To Agent, upon its request, and in no event less
frequently than for each Fiscal Month received within fifteen (15) days after
the end of such Fiscal Month, a Borrowing Base Certificate, in each case
accompanied by such supporting detail and documentation as shall be requested by
Agent in its sole discretion.
(b) To Agent, on a weekly basis (but, in any event, daily, if
Agent, in its sole discretion, shall so request), collateral reports, including
all additions and reductions (cash and non-cash) with respect to Accounts, in
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its sole discretion;
(c) To Agent, upon its request, and in no event less
frequently than fifteen (15) days after the last day of each Fiscal Month, and,
in the event, if any, that Borrowing Availability less the then outstanding
balance of the Revolving Credit Loan falls below $1,000,000, no less frequently
than fifteen (15) days after both the fifteen (15th) day and the last day of
each Fiscal Month, a summary of Inventory by location and type with a supporting
perpetual Inventory report, in each case accompanied by such supporting detail
and documentation as shall be requested by Agent in its sole discretion;
(d) To Agent, within twenty (20) days of the end of each
Fiscal Month, (i) a monthly trial balance showing Accounts outstanding aged from
invoice due date as follows: current, 1 to 30 days, 31 to 60 days, 61 to 90 days
and 91 days or more, and (ii) a complete Inventory report in detail satisfactory
to Agent; in each case accompanied by such supporting detail and documentation
as shall be requested by Agent in its sole discretion;
(e) To Agent, at the time of delivery of each of the monthly
financial statements delivered pursuant to Annex I, a reconciliation of the
Accounts trial balance and month-end Inventory reports to Borrower's general
ledger and monthly financial statements delivered pursuant to such Annex I, in
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its sole discretion; and
(f) Such other reports, statements and reconciliations with
respect to the Borrowing Base or Collateral as Agent shall from time to time
request in its sole discretion.
<PAGE>
ANNEX K
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied:
(a) EBITDA. Borrower and its Subsidiaries on a consolidated
basis shall have, measured for the trailing twelve (12) Fiscal Month
period ended on the last day of each Fiscal Quarter set forth below,
EBITDA equal to or greater than the amounts set forth opposite each of
such periods:
Trailing 12 Fiscal
Month Period Ended Amount
------------------ ------
September, 1996 $ 7,815,000
December, 1996 $ 8,800,000
March, 1997 $ 9,400,000
June, 1997 $ 9,360,000
September, 1997 $ 9,350,000
December, 1997 $10,525,000
March, 1998 $10,750,000
June, 1998 $10,975,000
September, 1998 $11,200,000
December, 1998 and each Fiscal $12,600,000
Quarter thereafter
(b) EBITDA to Interest Expense. Borrower and its Subsidiaries
on a consolidated basis shall have, measured for the trailing twelve
(12) Fiscal Month period ended on the last day of each Fiscal Quarter
set forth below, a ratio of (i) EBITDA to (ii) Interest Expense equal
to or greater than the ratios set forth opposite each of such periods:
Trailing 12 Fiscal
Month Period Ended Ratio
------------------ -----
September, 1996 2.20 to 1.00
December, 1996 2.60 to 1.00
March, 1997 2.75 to 1.00
June, 1997 2.80 to 1.00
September, 1997 2.80 to 1.00
December, 1997 and each Fiscal 4.00 to 1.00
Quarter thereafter
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<PAGE>
(c) EBITDA to the sum of Fixed Charges and Capital
Expenditures. Borrower and its Subsidiaries on a consolidated basis
shall have, measured for the trailing twelve (12) Fiscal Month period
ended on the last day of each Fiscal Quarter set forth below, a ratio
of (i) EBITDA to (ii) the sum of (x) Fixed Charges and (y) Capital
Expenditures equal to or greater than the ratios set forth opposite
each of such periods:
Trailing 12 Fiscal
Month Period Ended Ratio
------------------ -----
September, 1996 0.85 to 1.00
December, 1996 1.00 to 1.00
March, 1997 1.05 to 1.00
June, 1997 1.05 to 1.00
September, 1997 1.05 to 1.00
December, 1997 and each Fiscal 1.15 to 1.00
Quarter thereafter
(d) Consolidated Tangible Net Worth. Borrower, its
Subsidiaries on a consolidated basis shall have, measured as of the end
of the trailing twelve (12) Fiscal Month period ended on the last day
of each Fiscal Quarter set forth below, Tangible Net Worth equal to or
greater than the amounts set forth opposite each of such dates:
Trailing 12 Fiscal
Month Period Ended Amount
------------------ ------
September, 1996 ($5,654,000)
December, 1996 ($5,076,000)
March, 1997 ($4,700,000)
June, 1997 ($4,400,000)
September, 1997 ($4,000,000)
December, 1997 ($3,236,000)
March, 1998 ($2,464,000)
June, 1998 ($1,690,000)
September, 1998 ($ 921,000)
December, 1998 ($ 150,000)
March, 1999 $ 0
June, 1999 $ 100,000
September, 1999 $ 200,000
December, 1999 $ 300,000
March, 2000 $ 400,000
June, 2000 $ 500,000
September, 2000 and each Fiscal $ 600,000
Quarter thereafter
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<PAGE>
(e) Maximum Capital Expenditures. Borrower and its
Subsidiaries on a consolidated basis shall not make Capital
Expenditures that exceed in the aggregate $3,000,000 during any Fiscal
Year.
(f) Notwithstanding anything contained in the Agreement or any
other Loan Document to the contrary, for purposes of calculating
compliance with (i) clauses (a), (b) and (c) above, in calculating
EBITDA for any period of determination there shall be included therein
non-cash ESOP and 401K expenses for such period, as reflected on the
books of Borrower in accordance with GAAP, (ii) clauses (c) and (e)
above, in calculating Capital Expenditures for any period of
determination there shall be excluded therefrom Capital Expenditures
made during such period pursuant to Section 1.5(d) of the Agreement,
and (iii) clause (d) above, in calculating Tangible Net Worth for any
period of determination there shall be excluded therefrom any
write-downs taken by Borrower or its Subsidiaries with respect to
machinery or equipment used to manufacture Inventory consisting of
popcorn containers, to the extent properly classified as such on the
consolidated financial statements of Borrower and its Subsidiaries in
accordance with GAAP.
-3-
<PAGE>
ANNEX L
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
NOTICE ADDRESSES*
(a) If to Borrower:
Bagcraft Corporation of America
3900 West 43rd Street
Chicago, Illinois 60632
Attention: Chief Financial Officer
Telecopy No.: (773) 254-5216
With copies to:
Kwiatt, Silverman and Ruben, Ltd.
500 North Central Avenue
Northfield, Illinois 60093
Attention: Philip E. Ruben
Telecopy No.: (847) 441-7696
(b) If to Agent or GE Capital:
General Electric Capital Corporation
Commercial Finance, Inc.
201 High Ridge Road
Stamford, CT 06927-5100
Attention: Vice President, Portfolio
Telecopy No.: (203) 316-7893
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel
Telecopy No.: (203) 316-7889
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: David G. Crumbaugh
Telecopy No.: (312) 558-5700
* Each Loan Document in which a notice address appears for Agent or
Borrower is hereby amended as set forth above.
<PAGE>
EXHIBIT A
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF NOTICE OF REVOLVING CREDIT ADVANCE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of December 30, 1996 by and among the undersigned
("Borrower"), General Electric Capital Corporation ("Agent") and all Lenders
named therein (including all annexes, exhibits or schedules thereto, as from
time to time amended, restated, supplemented or otherwise modified, the "Credit
Agreement"). Capitalized terms used herein without definition are so used as
defined in the Credit Agreement.
Borrower hereby gives irrevocable notice, pursuant to Section
1.1(a) of the Credit Agreement, of Borrower's request hereby for a Revolving
Credit Advance in the aggregate amount of $[___________] to be made on
[____________, ____] as a(n) [________] Loan and, in the case of a LIBOR Loan,
having an interest period of [_____] month(s).
Borrower hereby certifies that all of the statements contained
in Section 2.2 of the Credit Agreement and in Section 4 of the Security
Agreement are true and correct on the date hereof, and will be true and correct
on the date of the Advance(s) requested hereby, before and after giving effect
thereto and to the application of the proceeds therefrom.
IN WITNESS WHEREOF, Borrower has caused this Notice of
Revolving Credit Advance to be executed and delivered by its duly authorized
officer as of ____________, ____.
BAGCRAFT CORPORATION OF AMERICA
By:_____________________________
Title:
<PAGE>
EXHIBIT B
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF BORROWING BASE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of
December 30, 1996 by and among the undersigned ("Borrower"), General Electric
Capital Corporation ("Agent") and all Lenders named therein (including all
annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms
used herein without definition are so used as defined in the Credit Agreement.
The undersigned, being the chief financial officer or chief executive officer of
Borrower, hereby certifies that the Borrowing Base calculated herein is true and
correct in all respects and, without limiting the generality of the foregoing,
with respect to the information supporting the determination of Eligible
Accounts and Eligible Inventory.
1. Gross Accounts Receivable (per attached Accounts
Receivable Roll Forward Report) $----------
2. Less: Accounts Receivable Ineligibles
a) Over 60 Days Past Due -----------
b) 50% Rule Account -----------
c) Credit Balances Over 60 Days -----------
d) Foreign Accounts -----------
e) Government Accounts -----------
f) Contra Accounts -----------
g) Freight Claims Receivable -----------
h) Customers in Bankruptcy -----------
i) Additional Sales Accrual -----------
j) Miscellaneous Sales -----------
k) Other -----------
3. Total Ineligible Accounts Receivable $----------
4. Total Eligible Accounts Receivable $----------
5. 85% of Eligible Accounts Receivable $---------
6. Total Inventory per G/L Inventory Record $----------
7. Less: Inventory under min./max. contracts $----------
8. Less: Inventory Ineligibles
a) Raw Materials/In-transit other than goods
insured and shipped F.O.B. shipping point on
Bagcraft operated vehicles or common carriers
directed by Bagcraft -----------
<PAGE>
b) Cartons other than those not customized and in
complete packages or sets -----------
c) Raw Materials - Roll Press -----------
d) Raw Materials - Pre Printed -----------
e) Work-in-Process -----------
f) Finished Goods - Roll Press -----------
g) Reserve for Deficit Adjustment -----------
h) Excess/Obsolete Inventory not covered under
min./max. contracts -----------
i) Reserve for Cost Conversion Factor -----------
j) Other -----------
9. Total Inventory Ineligibles (excluding Inventory
covered under min/max contracts) $----------
10. Total Eligible Inventory (excluding Inventory
covered under min/max contracts) $----------
11. 55% of Eligible Inventory (excluding Inventory
covered under min/max contracts) $---------
12. Common carrier shipping charges $---------
13. Total Inventory covered under min/max contracts $----------
14. Less: Inventory Ineligibles
a) 4 Digit Excess/Obsolete Inventory under
min/max contracts $----------
b) Other $----------
15. Total Ineligible Inventory for inventory covered
under min/max contracts $----------
16. Total Eligible Inventory for inventory covered
under min/max contracts $----------
17. 60% of Eligible Inventory covered under min/max
contracts $---------
18. Loan value of collateral (line 5 plus line 11 less line
12 plus line 17) $----------
19. Outstanding Revolving Credit Loan $----------
<PAGE>
20. Reserves $----------
21. Letter of Credit obligations $----------
22. Collateral Availability (line 18 less lines 19, 20,
and 21) $---------
23. Maximum Revolving Credit Loan $18,000,000
24. Unused Revolving Credit Loan (line 23, less lines
19, 20 and 21) $---------
25. Loan Formula (lesser of line 22 or line 24) $---------
IN WITNESS WHEREOF, the undersigned duly authorized officer of
Borrower has executed and delivered this Borrowing Base Certificate as of
____________, ____.
BAGCRAFT CORPORATION OF AMERICA
By:__________________________
Title:_______________________
<PAGE>
EXHIBIT C
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF AMENDED AND RESTATED REVOLVING CREDIT NOTE
Chicago, Illinois
$__________.00 ___________, ____
FOR VALUE RECEIVED, the undersigned, BAGCRAFT CORPORATION OF AMERICA,
a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of
_________________________________ ("Lender"), at the address of General Electric
Capital Corporation, as Agent for Lenders, 201 High Ridge Road, Stamford, CT
06927-5100, or at such other place as Agent may designate from time to time in
writing, in lawful money of the United States of America and in immediately
available funds, the amount of ________ MILLION DOLLARS AND NO CENTS
($__________.00) or, if less, the aggregate unpaid amount of all Revolving
Credit Loans under the "Credit Agreement" (as hereinafter defined). Capitalized
terms, unless otherwise defined herein, shall have the respective meanings
assigned to such terms in the Credit Agreement and Schedule A thereof.
This Amended and Restated Revolving Credit Note (this "Note") is
issued pursuant to that certain Amended and Restated Credit Agreement, dated as
of December 30, 1996, by and between Borrower, GE Capital, as Agent, and the
Lenders named therein (as amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), and is entitled to the benefit and
security of the Credit Agreement, the Security Agreement and all of the other
Loan Documents referred to therein. Reference is hereby made to the Credit
Agreement for a statement of all of the terms and conditions under which the
loans evidenced hereby were made and are to be repaid.
The principal amount of the indebtedness evidenced hereby shall be
payable in the amounts and on the dates specified in the Credit Agreement, the
terms of which are hereby incorporated herein by reference. Interest thereon
shall be paid until such principal amount is paid in full at such interest rates
and at such times as are specified in the Credit Agreement.
If any payment on this Note becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of any Event of Default, this Note may,
as provided in the Credit Agreement, and without demand, notice or legal process
of any kind, be declared, and immediately shall become, due and payable.
<PAGE>
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
THIS NOTE HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT CHICAGO,
ILLINOIS AND SHALL BE INTERPRETED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) AND DECISIONS OF
THE STATE OF ILLINOIS.
This Note is issued in replacement of the Revolving Credit Note dated
December 17, 1993 and not in repayment of the Obligations evidenced thereby,
which Obligations are continuing and evidenced by this Note.
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT D
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF AMENDED AND RESTATED TERM LOAN NOTE
Chicago, Illinois
$__________.00 ___________, ____
FOR VALUE RECEIVED, the undersigned,
BAGCRAFT CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), HEREBY
PROMISES TO PAY to the order of __________________________________ ("Lender"),
at the address of General Electric Capital Corporation, as Agent for Lenders,
201 High Ridge Road, Stamford, CT 06927-5100, or at such other place as Agent
may designate from time to time in writing, in lawful money of the United States
of America and in immediately available funds, the amount of ______ MILLION
DOLLARS AND NO CENTS ($__________.00). Capitalized terms, unless otherwise
defined herein, shall have the respective meanings assigned to such terms in the
Credit Agreement (as hereinafter defined) and Schedule A thereof.
This Amended and Restated Term Loan Note
(this "Note") is issued pursuant to that certain Amended and Restated Credit
Agreement, dated as of December 30, 1996, by and between Borrower, GE Capital,
as Agent, and the Lenders named therein (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), and is entitled
to the benefit and security of the Credit Agreement, the Security Agreement and
all of the other Loan Documents referred to therein. Reference is hereby made to
the Credit Agreement for a statement of all of the terms and conditions under
which the loan evidenced hereby was made and is to be repaid.
The principal amount of the indebtedness
evidenced hereby shall be payable in the amounts and on the dates specified in
the Credit Agreement, the terms of which are hereby incorporated herein by
reference. Interest thereon shall be paid until such principal amount is paid in
full at such interest rates and at such times as are specified in the Credit
Agreement.
If any payment on this Note becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
Upon and after the occurrence of any
Event of Default, this Note may, as provided in the Credit Agreement, and
without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
<PAGE>
Demand, presentment, protest and notice
of nonpayment and protest are hereby waived by Borrower.
THIS NOTE HAS BEEN EXECUTED, DELIVERED
AND ACCEPTED AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS.
This Note is issued in replacement of the
Term Loan A Note dated December 17, 1993 and not in repayment of the Obligations
evidenced thereby, which Obligations are continuing and evidenced by this Note.
BAGCRAFT CORPORATION OF AMERICA
By:_____________________________
Title:__________________________
<PAGE>
EXHIBIT E
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF NOTICE OF CAPITAL EXPENDITURE ADVANCE
Reference is made to that certain Amended
and Restated Credit Agreement dated as of December 30, 1996 by and among the
undersigned ("Borrower"), General Electric Capital Corporation ("Agent") and all
Lenders named therein (including all annexes, exhibits or schedules thereto, as
from time to time amended, restated, supplemented or otherwise modified, the
"Credit Agreement"). Capitalized terms used herein without definition are so
used as defined in the Credit Agreement.
Borrower hereby gives irrevocable notice,
pursuant to Section 1.3(a) of the Credit Agreement, of Borrower's request hereby
for a Capital Expenditure Advance in the aggregate amount of $[___________] to
be made on [____________, ____] as a(n) [________] Loan and, in the case of a
LIBOR Loan, having an interest period of [_____] month(s).
Borrower hereby certifies that all of the
statements contained in Sections 2.2 and 2.3 of the Credit Agreement and in
Section 4 of the Security Agreement are true and correct on the date hereof, and
will be true and correct on the date of the Advance requested hereby, before and
after giving effect thereto and to the application of the proceeds therefrom.
IN WITNESS WHEREOF, Borrower has caused
this Notice of Capital Expenditure Advance to be executed and delivered by its
duly authorized officer as of ________, _____.
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT F
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF CAPITAL EXPENDITURE ADVANCE COMPLIANCE CERTIFICATE
Reference is made to that certain Amended
and Restated Credit Agreement dated as of December 30, 1996 by and among the
undersigned ("Borrower"), General Electric Capital Corporation ("Agent") and all
Lenders named therein (including all annexes, exhibits or schedules thereto, as
from time to time amended, restated, supplemented or otherwise modified, the
"Credit Agreement"). Capitalized terms used herein without definition are so
used as defined in the Credit Agreement.
The undersigned, being the chief
financial officer or chief executive officer of Borrower, hereby certifies that
(a) the proceeds of the Capital Expenditure Advance (the "Current Advance")
requested in connection with the Capital Expenditures to which this certificate
relates shall be used solely to fund Capital Expenditures constituting the Hard
Cost of Equipment, (b) on the date of the Current Advance, the aggregate amount
of the Current Advance and all prior Capital Expenditure Advances shall not
exceed the lesser of (i) the Maximum Capital Expenditure Advance Amount or (ii)
Capital Expenditure Loan Availability as of such date, (c) after giving effect
to the Current Advance, the aggregate principal amount of the Capital
Expenditure Advances made during the term of this Agreement shall not exceed the
Capital Expenditure Loan Commitment, (d) attached hereto is a description of the
nature and amount of Equipment to be acquired in connection with the Current
Advance and (e) such Equipment can and shall be used by Borrower in the ordinary
course of its business consistent with past practices.
IN WITNESS WHEREOF, the undersigned duly
authorized officer of Borrower has executed and delivered this Capital
Expenditure Advance Compliance Certificate as of __________, ____.
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT G
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF CAPITAL EXPENDITURE LOAN NOTE
Chicago, Illinois
$__________.00 ___________, ____
FOR VALUE RECEIVED, the undersigned,
BAGCRAFT CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), HEREBY
PROMISES TO PAY to the order of ________________________________ ("Lender"), at
the address of General Electric Capital Corporation, as Agent for Lenders, 201
High Ridge Road, Stamford, CT 06927-5100, or at such other place as Agent may
designate from time to time in writing, in lawful money of the United States of
America and in immediately available funds, the amount of ________ MILLION
DOLLARS AND NO CENTS ($__________.00) or, if less, the aggregate unpaid amount
of all Capital Expenditure Loans under the "Credit Agreement" (as hereinafter
defined). Capitalized terms, unless otherwise defined herein, shall have the
respective meanings assigned to such terms in the Credit Agreement and Schedule
A thereof.
This Capital Expenditure Loan Note (this
"Note") is issued pursuant to that certain Amended and Restated Credit
Agreement, dated as of December 30, 1996, by and between Borrower, GE Capital,
as Agent, and the Lenders named therein (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), and is entitled
to the benefit and security of the Credit Agreement, the Security Agreement and
all of the other Loan Documents referred to therein. Reference is hereby made to
the Credit Agreement for a statement of all of the terms and conditions under
which the loans evidenced hereby were made and are to be repaid.
The principal amount of the indebtedness
evidenced hereby shall be payable in the amounts and on the dates specified in
the Credit Agreement, the terms of which are hereby incorporated herein by
reference. Interest thereon shall be paid until such principal amount is paid in
full at such interest rates and at such times as are specified in the Credit
Agreement.
If any payment on this Note becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
Upon and after the occurrence of any
Event of Default, this Note may, as provided in the Credit Agreement, and
without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
<PAGE>
Demand, presentment, protest and notice
of nonpayment and protest are hereby waived by Borrower.
THIS NOTE HAS BEEN EXECUTED, DELIVERED
AND ACCEPTED AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS.
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT H
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF NOTICE OF CONVERSION/CONTINUATION
Reference is made to that certain Amended
and Restated Credit Agreement dated as of December 30, 1996 by and among the
undersigned ("Borrower"), General Electric Capital Corporation ("Agent") and all
Lenders named therein (including all annexes, exhibits or schedules thereto, as
from time to time amended, restated, supplemented or otherwise modified, the
"Credit Agreement"). Capitalized terms used herein without definition are so
used as defined in the Credit Agreement.
Borrower hereby gives irrevocable notice,
pursuant to Section 1.8(f) of the Credit Agreement, of Borrower's request hereby
to:
(a)convert $[________]of the
aggregate outstanding principal amount
of the [_______] Loan, bearing interest
at the [________] Rate, into a(n)
[________] Loan and, in the case of a
LIBOR Loan, having an interest period of
[_____] month(s)
(b)continue $[________]of the
aggregate outstanding principal amount
of the [_______] Loan, bearing interest
at the LIBOR Rate, as a LIBOR Loan
having an interest period of [_____]
month(s)
Borrower hereby certifies
that all of the statements contained in Section 2.2 (and 2.3, in the case of a
conversion/continuation of a Capital Expenditure Loan) of the Credit Agreement
and in Section 4 of the Security Agreement are true and correct on the date
hereof, and will be true and correct on the date of the conversion/continuation
requested hereby, before and after giving effect thereto.
IN WITNESS WHEREOF, Borrower has caused
this Notice of Conversion/ Continuation to be executed and delivered by its duly
authorized officer as of ____________, ____.
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
EXHIBIT 10.2
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
TIES WARRANT.
WARRANT NO. 2
To Purchase Common Stock of
BAGCRAFT CORPORATION OF AMERICA
Warrant No. 2
No. of Shares of Common Stock: 1419.54
<PAGE>
TABLE OF CONTENTS
Section
1. DEFINITIONS
2. EXERCISE OF WARRANT
2.1. Manner of Exercise
2.2. Payment of Taxes
2.3. Fractional Sham
2.4. Continued Validity
3. TRANSFER, DIVISION AND COMBINATION
3. 1. Transfer
3.2. Division and Combination
3.3. Expenses
3 4. Maintenance of Books
4. ADJUSTMENTS
4.1. Stock Dividends, Subdivisions and Combinations
4.2. Certain Other Distributions
4.3. Issuance of Additional Shares of Common Stock
44. Issuance of Warrants or Other Rights
4.5. Issuance of Convertible Securities
4.6. Superseding Adjustment
4.7 Other Provisions Applicable to Adjustments under this Section
4.8 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
4.9 Other Action Affecting Common Stock
4.10. Certain Limitations
5. NOTICES TO WARRANT HOLDERS
5.1 Notice of Adjustments
5.2. Notice of Corporate Action
6. NO IMPAIRMENT
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS
9. RESTRICTIONS ON TRANSFERABILITY
9.1. Restrictive Legend
9.2. Notice of Proposed Transfers, Request for Registration
- i -
<PAGE>
9.3. Required Registration
9.4. Incidental Registration
9.5. Registration Procedures
9.6. Expenses
9.7. Indemnification and Contribution
9.8. Termination of Restrictions
9.9. Listing on Securities Exchange
9.10. Certain Limitations on Registration Rights
9.11. Selection of Manning Underwriters
10. SUPPLYING INFORMATION
11. LOSS OR MUTILATION
13. FINANCIAL AND BUSINESS INFORMATION
13.1. Monthly and Quarterly Information
13.2. Annual Information
13.3 Filings
14. REPURCHASE BY COMPANY OF WARRANT
14.1. Obligation to Repurchase Warrant
14.2. Option to Repurchase Warrant
14.3. Subsequent Value Transactions
14.4. Determination and Payment of Repurchase Price
15. APPRAISAL
16. LIMITATION OF LIABILITY
17. PARTICIPATION IN CORPORATE DISTRIBUTIONS AND
TAKE-ALONG RIGHTS
18. MISCELLANEOUS
18.1. Nonwaiver and Expenses
18.2. Notice Generally
18.3. Indemnification
18.4. Remedies
18.5. Successors and Assigns
18.6. Amendment
18.7. Severability
18.8. Headings
18.9. Governing Law
- ii -
<PAGE>
EXHIBITS AND ANNEXES
Exhibit A - Subscription Form
Exhibit B - Assignment Form
Annex A - Take-Along Letter Agreement
- iii -
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 1419.54 Warrant No. 2
AMENDED AND RESTATED
WARRANT
To Purchase Common Stock of
BAGCRAFT CORPORATION OF AMERICA
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION, or
registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from BAGCRAFT COMPANY OF AMERICA, a Delaware
corporation ("Company"), 1419.54 shares of Common Stock (as hereinafter defined
and subject to adjustment as provided herein), in whole or in part, including
fractional parts, at a purchase price of $0.001 per share, all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
This Warrant No. 2 is given in substitution for Warrant No. I which was
issued by Company to General Electric Capital Corporation on December 17, 1993
for 1055.6 shares of Warrant Stock. increased to 1,419.54 shares of Warrant
Stock by that First Amendment to Warrant dated as of February 1, 1996, and
surrendered for cancellation on the date hereof concurrently with the issuance
of this Warrant No. 2.
1. DEFINITIONS
As used in this Warrant, the following -terms have the respective
meanings set forth "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by Company after the Closing Date, other than Warrant Stock.
"Appraised Value" shall mean, in respect of any share of Common Stock
on any date of determination, the fair market value of such share of Common
Stock determined (a) without giving effect to the discount for (i) a minority
interest or (h) any lack of liquidity of the Common Stock or to the fact that
Company may have no class of equity registered under the Exchange Act, and (b)
assuming that any and all then outstanding shares of preferred stock of the
Company and accrued dividends thereon were canceled and permanently retired as
of any date of determination without any requirement of payment by the Company
in respect thereof and assuming that any unpaid interest on any Qualified
Subordinated Debt accrued for periods after the Closing Date was then forgiven,
except that Appraised Value as of any date of determination shall be calculated
without giving effect to, without duplication (A) then outstanding PST-Held
<PAGE>
Shares, (B) the redemption of PST-Held Shares in accordance with the
"Redemption" (as defined in the Limited Consent and Sixth Amendment to Credit
Agreement dated February 1, 1996 between Company and Holder), (C) then
outstanding dividends which were accrued as of the Closing Date on PST-Held
Shares, (D) the repurchase (but not the forgiveness) of dividends which were
accrued as of the Closing Date on PST-Held Shares in accordance With the
Redemption and (E) the then outstanding aggregate principal amount of Qualified
Subordinated Debt issued pursuant to a Qualified Transaction. Such fair market
per share of Common Stock shall be based on the value of Company in a sale as a
whole and on a going concern basis between a willing buyer and a willing seller,
neither acting under compulsion, as determined by an investment banking firm
selected in accordance with the terms of Section 15, divided by the number of
Fully Diluted Outstanding shares of Common Stock.
"Book Value" shall mean, in respect of any share of Common Stock on any
date of determination. the consolidated book value of Company as of the last day
of any month immediately preceding, such date of determination, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP by Coopers & Lybrand or any other firm of independent
certified public accountants of recognized national standing selected by Company
and reasonable acceptable to the Majority Holders, provided that, for purposes
of any such determination it shall be assumed that any and all then outstanding
shares of preferred stock of the Company and accrued dividends thereon were then
canceled and permanently retired without any requirement of payment by the
Company in respect thereof and assuming that any unpaid interest on any
Qualified Subordinated Debt accrued for periods after the Closing Date was then
forgiven, except that Book Value as of any date of determination shall be
calculated without giving effect to, without duplication (a) then outstanding
PST-Held Shares, (b) the redemption of PST-Held Shares in accordance with the
Redemption, (c) then outstanding dividends which were accrued as of the Closing
Date on PST-Held Shares, (d) the repurchase (but not the forgiveness) of
dividends which were accrued as of the Closing Date on PST-Held Shares in
accordance with the Redemption and (e) the then outstanding aggregate principal
amount of Qualified Subordinated Debt issued pursuant to a Qualified
Transaction.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of
Illinois.
"Closing Date" shall mean December 17, 1993.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, S.001 par value, of Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as
<PAGE>
defined in Section 4.8) received by or distributed to the holders of Common
Stock of Company in the circumstances contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date of determination, the highest of:
(a) the Book Value per share of Common Stock at such date;
(b) the Appraised Value per share of Common Stock as at such date,
and
(c) if there shall then be a public market for the Common Stock,
an amount determined in accordance with (i) and (ii) of this
definition.
(i) The average of the daily market prices for 30
consecutive Business Days commencing 45 days before such date
shall be determined in accordance with (ii) below (the
"Unadjusted Price Per Share"). The Unadjusted Price Per Share
shall then be multiplied the number of shares of Common Stock
Fully Diluted Outstanding (the result being referred to as the
"Unadjusted Gross Value"). The Unadjusted Gross Value shall
then be increased by an amount equal to the aggregate amount
which would then be payable by the Company if it then redeemed
and permanently retired all shares of its outstanding
preferred stock, including accrued dividends and paid all
unpaid interest on Qualified Subordinated Debt accrued for
periods after the Closing Date, (collectively, the "Gross-Up
Amount"), except that the Gross-Up Amount as of any date of
determination shall be calculated without giving effect to,
without duplication (A) then outstanding PST-Held Shares, (B)
the redemption of PST-Held Shares in accordance with the
Redemption, (C) then outstanding dividends which were accrued
as of the Closing Date on PST-Held Shares, (D) the repurchase
(but not the forgiveness) of dividends which were accrued as
of the Closing Date on PST-Held Shares in accordance with the
Redemption and (E) the then outstanding aggregate principal
amount of Qualified Subordinated Debt issued pursuant to a
Qualified Transaction. The sum of the Unadjusted Gross Amount
and the Gross-Up Amount is herein referred to as the "Adjusted
Gross Amount". The Adjusted Gross Amount shall then be divided
by the number of shares of Common Stock Fully Diluted
Outstanding to yield a per share amount.
(ii) For purposes of clause (i) of this definition, the
daily market price for each such usiness Day shall be (A) the
last sale price on such day on the principal stock exchange on
<PAGE>
which such Common Stock is then listed or admitted to trading,
(B) if no sale takes place on such day on any such exchange,
the average of the last reported closing bid and asked prices
on such day as officially quoted on any such exchange, (C) if
the Common Stock is not then listed or admitted to trading on
any stock exchange, the average of the last reported closing
bid and asked prices on such day in the over-the-counter
market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation
Bureau, Inc., (D) if neither such corporation at the time is
engaged in the business of reporting such prices, as furnished
by any similar firm then engaged in such business, or (E) if
there is no such firm, as furnished by any member of the NASD
selected mutually by the Majority Holders and Company or, if
they cannot agree upon such selection, as selected by two such
members of the NASD, one of which shall be selected by the
Majority Holders and one of which shall be selected by
Company.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date.
"Deferral Notice" shall have the meaning set forth in Section 14.1 (a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean the sixth anniversary of the Closing Date,
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, and other options or warrants to
purchase, or securities convertible into, shares of Common Stock outstanding on
such date which would be deemed outstanding in accordance with GAAP for purposes
of determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"GE Capital" shall mean General Electric Capital Corporation, a New
York corporation.
"Holder" shall mean the Person in whose name the Warrant set forth
herein is registered on the books of Company maintained for such purpose.
<PAGE>
"Initial Holder" shall mean GE Capital.
"Liabilities" shall mean the "Obligations" as defined in the Loan
Agreement.
"Loan Agreement" shall mean the Amended and Restated Credit Agreement
dated as of December 30, 1996 by and between Company and GE Capital as Agent and
Lender, or any successor agreement between such parties, as the same may be
amended, restated, modified or supplemented and in effect from time to time.
"Majority Holders" shall mean the holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all Warrants, whether or not then exercisable.
"NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.
"Notes" shall mean the Revolving Note and the Term Notes and "Note"
shall mean any such note.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust. incorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"PST" shall mean Plastic Specialties and Technologies, Inc., a Delaware
corporation.
"Qualified Subordinated Debt" shall mean indebtedness of the Company
incurred or arising after the Closing Date, which:
(a) is issued in exchange for shares of preferred
stock of the Company held by PST on the Closing Date on a
dollar-for-dollar basis such that the aggregate principal amount of
such subordinated debt at the time of issuance is equal to the
aggregate redemption value (including accrued dividends thereon as of
the Closing Date but excluding any dividends accruing thereon for
periods after the Closing Date) of the shares of preferred stock then
being redeemed; and
<PAGE>
(b) is subordinated to a obligations of the Company
to GE Capital on terms and conditions satisfactory to GE Capital
pursuant to agreements, instruments and documents which are reasonably
satisfactory in all other respects to GE Capital.
"Qualified Transaction" shall mean a transaction in which Qualified
Subordinated Debt is issued by the Company in exchange for shares of preferred
stock held by PST which were outstanding on the Closing Date and accrued
dividends thereon for periods through the Closing Date and in which no other
consideration is granted or issued by the Company and, following such
redemption, all such shares of preferred stock are permanently canceled and
retired by the Company.
"Repurchase Price" shall have the meaning set forth in Section 14.4.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Revolving Note" shall mean the "Revolving Note" as defined in the Loan
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute. and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Term Notes" shall mean the "Term Notes" as defined in the Loan
Agreement.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2. 1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
<PAGE>
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Closing Date and until 5:00
P.M., New York time, on the Expiration Date, Holder may exercise this Warrant,
on any Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder. -
In order to exercise this Wan-ant, in whole or in part, Holder shall
deliver to Company at its principal office at 3900 West 43rd Street, Chicago,
Illinois 60632 or at the office or agency designated by Company pursuant to
Section 12:
(i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common
Stock to be purchased;
(ii) payment of the Warrant Price applicable with respect
to the shares being purchased; and
(iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, Company shall. as promptly as
practicable, and in any event within five (5) Business Days thereafter, execute
or cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of Holder or. subject to Section 9, such other name as
shall be designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other Person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the notice and the Warrant Price and this Warrant are received by
Company as described above and all taxes required to be paid by Holder, if any,
pursuant to Section 2.2 prior to the issuance of such shares have been paid If
this Warrant shall have been exercised in part, Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the contrary,
Company shall not be required to register shares in the name of any Person who
acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in
accordance with this Warrant.
<PAGE>
At the option of the holder hereof, payment of the Warrant Price shall be made
by:
(a) wire transfer of funds to an account in a bank located
in the United States designated by the Company for such purpose;
(b) certified or official bank check payable to the order
of the Company;
(c) deducting from the shares delivered upon exercise
hereof a number of shares having an aggregate Current Market Price on
the date of exercise equal to the aggregate purchase price for all
shares as to which this Warrant is then being exercised (and so
directing the Company in the notice);
(d) by application of the Liabilities as provided in
Section 2.5 hereof, or
(e) by any combination of such methods.
If a Holder surrenders any Note having an aggregate value which exceeds
the aggregate Warrant Price, a new Note shall be issued in the principal amount
equal to that portion of such surrendered principal amount not applied to the
Warrant Price not paid in cash to the Holder; provided, however, that such Note
shall be in a principal amount equal to the next lowest integral multiple of
$1,000 and the Company shall pay in cash to the Holder the difference between
the Warrant Price and such in next lowest integral multiple of $1,000.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this, Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive fights. Company shall
pay all expenses in connection with, and all taxes and other Governmental
charges that may be imposed with respect to, the issue or delivery thereof
(other than any income taxes imposed on Holder in connection herewith), unless
such tax or charge is imposed by law upon Holder, in which case such taxes or
charges shall be paid by Holder and (except with respect to any such income
taxes) reimbursed to Holder by Company.
2.3. Fractional Shares. Company shall not be required to issue a
fractional share of Common Stock upon exercise o: any Warrant. As to any
fraction of a share which the Holder of
one or more Warrants, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Current Market Price per share of Common Stock on
the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10, 13
and 17 of this Warrant. Company will, at the time of each exercise of this
Warrant, in whole or in part, upon the request of the holder of the shares of
Common Stock issued upon such exercise hereof,
<PAGE>
acknowledge in writing, in form reasonably satisfactory to such holder, its
continuing obligation to afford to such holder all such rights; provided,
however, that if such holder shall fail to make any such request, such failure
shall not affect the continuing obligation of Company to afford to such holder
all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Sections 9 and 14, transfer
of this Warrant and all fights hereunder, in whole or in part, shall be
registered on the books of Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of Company referred to in
Section 2.1 or the office or agency designated by Company pursuant to Section
12, together with a written assignment of this Warrant substantially in the form
of Exhibit B hereto duly executed by Holder or its agent or attorney and if such
transfer is not to be made pursuant to Section 14, funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant may
be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of , Company. top-ether with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
<PAGE>
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable 'a or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then: (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event-, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time Company shall take
a record of the holders of its Common Stock for the purpose of entitling them
to receive any dividend or other distributed of:
(a) cash (other than a cash distribution or dividend payable out
of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of
Company),
(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other fights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then:
(i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of
shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction; \
<PAGE>
(A) the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record, and
(B) the denominator of which shall be such Current Market Price
per share of Common Stock minus the amount allocable to one share of
Common Stock of
(x) any such cash so distributable, plus
(y) the fair value (as determined in good faith by the
Board of Directors of Company and supported by an opinion from an
investment banking firm of recognized national standing
acceptable to the Majority Holders) of any and all such evidences
of indebtedness, shares of stock, other securities or property
or warrants or other subscription or purchase rights so
distributable; and
(ii) the Current Warrant Price shall be adjusted to equal (A) the
Current Warrant Price multiplied by the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant
is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4. 1.
4.3. Issuance of Additional Shares of Common Stock.
(a) If at any time Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock in exchange for
consideration in an amount per Additional Share of Common Stock less than the
Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then:
(i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced
to a price determined by multiplying the Current Warrant Price then in
effect by a fraction:
(A) the numerator of which is an amount equal to (x) the
number of shares of Common Stock Outstanding immediately
prior to such issue or sale multiplied by the then
existing Current Warrant Price, plus (y) the
consideration, if any, received by Company upon such
issue or sale, and
<PAGE>
(B) the denominator of which is the total number of shares
of Common Stock Outstanding immediately after such issue
or sale; and
(ii) the number of shares of Common Stock for which this Warrant
is exercisable shall be adjusted to equal the product obtained by
multiplying the Current Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or sale and
dividing the product thereof by the Current Warrant Price resulting
from the adjustment made pursuant to clause (i) above.
[Example: Assume Current Warrant Price is $1.00 per share, 90,000 shares
outstanding and Warrant is for 10,000 shares. Company issues 10,000 shares for
$.10 per share or $1,000 total. Current Warrant Price is adjusted by multiplying
$1.00 by the following fraction:
numerator = (90,000 x $1.00) + S1,002 = $ 91,000
-------------------------
denominator = 90,000 + 10,000 = 100,000
Resulting Current Warrant Price = $0.91 per share.
Number of Warrant Shares is then adjusted by multiplying 10,000 by $1.00 and
dividing the result (which is $10,000) by the new Current Warrant Price of
$0.91. $10,000/$0.91 = 10,989. So the adjusted number of shares for which
Warrant may be exercised is 10,989.]
(b) If at any time Company shall (except as hereinafter provided)
at any time issue or sell any Additional Shares of Common Stock for
consideration in an amount per Additional Share of Common Stock less than the
Current Market Price, then:
(i) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the product
obtained by multiplying the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or sale by
a fraction (A) the numerator of which shall be the number of shares of
Common Stock Outstanding immediately after such issue or sale, and (B)
the denominator of which shall be the number of shares of Common Stock
Outstanding immediately prior to such issue or sale plus the number of
shares which the aggregate offering price of the total number of such
Additional Shares of Common Stock would purchase at the then Current
Market Price; and
(ii) the Current Warrant Price as to the number of
shares for which this Warrant is exercisable prior to such adjustment
shall be adjusted by multiplying such Current Warrant Price by a
fraction (X) the numerator of which shall be the number of shares for
which this Warrant is exercisable immediately prior to such issue or
sale; and (Y) the denominator of which shall be the number of shares of
Common Stock purchasable immediately after such issue or sale.
<PAGE>
[Example: Assume Current Market Price is $10.00 per share, 90,000 shares
outstanding, Warrant is for I 0,000 shares and Current Warrant Price is $1.00
per share. Company issues 10,000 shares for $.10 per share or $10,000 total.
Current Warrant Price is adjusted by multiplying $1.00 by the following
fraction:
numerator = (90,000 + 10,000) = $100,000
-------
denominator = 90,000 + $10,000 divided by $10) = 91,000
10,000 x (100,000/91,000) = 10,989. So the adjusted number of shares for which
Warrant may be exercised is 10,989.]
Current Warrant Price is then adjusted by multiplying $1.00 by the following
fraction:
numerator = 10,000
------
denominator = 10,989
(c) If at any time Company (except as hereinafter provided) shall issue
or sell any Additional Shares of Common Stock in exchange for consideration in
an amount per Additional Shares of Common Stock which is less than the Current
Wan-ant Price and less than the Current Market Price (as defined above) at the
time the Additional Shares of Common Stock are issued, the adjustment required
under Section 4.3 shall be made in accordance with the formula in paragraph (a)
or (b) above which results in the lower Current Warrant Price Mowing such
adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 4.1 or 4.2. No adjustment of the number of
shares of Common Stock for which this Warrant shall be exercisable shall be made
under paragraph (a) or (b) of Section 4.3 upon the issuance of any Additional
Shares of Common Stock which are issued pursuant to the exercise of any warrants
or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section 4.4 or
Section 4.5.
(d) If any Additional Shares of Common Stock are issued or sold in
exchange for consideration in an amount per Additional Share of Common Stock
equal to or greater than the Current Warrant Price and the Current Market Price
at the time the Additional Shares are issued, then.
(i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such adjustment by a fraction (A)
the numerator of which shall be the number of shares of Common Stock
Outstanding immediately after the issuance of such Additional Shares of
<PAGE>
Common Stock, and (B) the denominator of which shall be the number of
shares of Common Stock Outstanding immediately prior to the issuance
of such Additional Shares of Common Stock, and
(ii) the Current Warrant Price as to the number of shares of
Common Stock for which this Warrant is exercisable prior to such
adjustment shall not change but the Current Warrant Price for each of
the incremental number of shares of Common Stock for which this Warrant
becomes exercisable after such adjustment shall be equal to the fair
value of such consideration per Additional Share of Common Stock.
[Example: Assume Current Market Price is $10.00 per share, 90,000 shares
outstanding, Warrant is for 10,000 shares and Current Warrant Price is $1.00 per
share. Company issues 10,000 shares for $20.00 per share or $200,000 total.
Number of Warrant Shares is adjusted by multiplying 10,000 by the following
fraction:
numerator = (90,000 + 10,000) = 100,000
----------------- -------
denominator = 90,000 = 90,000
10,000 x (100,000/90,000) = 11,111. This equals 10% on a fully-diluted basis.
Current Warrant Price for the original 10,000 Warrant Shares remains $1.00 per
share. Current Warrant Price for the additional 1, I I I Warrant Shares is equal
to the fair value of the consideration received for the shares sold by the
Company, in this case $20.00 per share. The effect is to give the Holder a
pre-emptive right to maintain the I 0% by acquiring the additional shares at the
sale price.]
4.4. Issuance of Warrants or Other Rights. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
warrants or other rights or upon conversion or exchange of such Convertible
Securities shall be less than either the Current Warrant Price or the Current
Market Price in effect immediately prior to the time of such issue or sale, then
the number of shares for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the
maximum number of Additional Shares of Common Stock issuable pursuant to all
such warrants or other fights or necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and Company shall have received all of the consideration payable
therefor, if any, as of the date of the actual issuance of the number of Shares
for which this Warrant is exercisable and such warrants or other rights.
No further adjustments of the Current Warrant
<PAGE>
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such warrants or other rights or upon
the actual issue of such Common Stock upon such conversion or exchange of such
Convertible Securities.
4.5 Issuance of Convertible Securities. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which Company is the surviving corporations issue
or sell, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than either the Current Warrant Price or Current Market Price in effect
immediately prior to the time of such issue or sale, then the number of Shares
for which this Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section 4.5
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. No further adjustments of the
number of Shares for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and, if any issue or sale of such
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of Shares for which this Warrant is exercisable and
the Current Warrant Price have been or are to be made pursuant to other
provisions of this Section 4, no further adjustments of the number of Shares for
which this Warrant is exercisable and the Current Warrant Price shall be made by
reason of such issue or sale.
4.6 Superseding Adjustment. (a) If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable and
the Current Warrant Price shall have been made pursuant to Section 4.4 or
Section 4.5 as the result of any issuance of warrants, rights or Convertible
Securities, such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire or be rescinded or canceled or
be determined to be illegal, and all or a portion of such warrants or rights, or
the right of conversion or exchange with respect to all or a portion of such
other Convertible Securities, as the case may be, shall not have been exercised
(because they have expired, been rescinded or canceled or determined to be
illegal), then, for each outstanding Warrant:
(i) such previous adjustment to the Warrant made with respect to
the issuance of such warrants, rights or Convertible Securities shall
be rescinded and annulled and any Additional Shares of Common Stock
which were deemed to have been issued (but not in fact issued) by
virtue of the computation made in connection with the adjustment so
<PAGE>
rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation; and
(ii) a new adjustment of the number of shares of Common Stock for
which this Warrant is exercisable and the Current Warrant Price shall
be made on the basis of:
(A) treating any Additional Shares of Common Stock which
were in fact issued pursuant to such warrants, rights or
Convertible Securities as having been issued for the
consideration per share which was received; and
(B) treating any such warrants or rights or Convertible
Securities (if any) which then remain outstanding and are not
expired, rescinded, canceled or declared illegal as having
been newly granted or issued immediately after the time of
such expiration, rescinding, cancellation or declaration of
illegality and treating the number of Additional Shares of
Common Stock or other property issuable pursuant to such
warrants, rights or Convertible Securities as having been
issued on such date for the consideration receivable therefor
thereunder on such date.
(b) If, at any time after any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable and the Current Warrant Price
shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities, the consideration per
share for which shares of Common Stock are issuable pursuant to such warrants or
fights or Convertible Securities shall be increased solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event then, for each
outstanding Warrant:
(i) such previous adjustment made with respect to the issuance of
such warrants, rights or Convertible Securities shall be rescinded and
annulled and any Additional Shares of Common Stock which were deemed to
have been issued (but not in fact issued) by virtue of the computation
made in connection with the adjustment so rescinded and annulled shall
no longer be deemed to have been issued by virtue of such computation;
and
(ii) a new adjustment of the number of shares of Common Stock for
which this Warrant is exercisable and the Current Warrant Price shall
be made on the basis of:
(A) treating the number of Additional Shares of Common
Stock or other property, I if any, theretofore actually issued
pursuant to the previous exercise of any such warrants or
rights or Convertible Securities as having been issued on the
date or dates of any such exercise and for the consideration
actually received therefor; and
(B) treating any such warrants or rights or Convertible
Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase
of the consideration per share for which shares of Common
<PAGE>
Stock or other property are issuable under such warrants or
rights or other Convertible Securities and treating the number
of Additional Shares of Common Stock or other property
issuable pursuant to such warrants, rights or Convertible
Securities as having been issued on such date for the
consideration receivable therefor after giving effect to such
increase in the consideration per share.
4.7. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other fights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be
issued for cash consideration, the consideration received by Company
therefor shall be the amount of the cash received by Company therefor,
or, if such Additional Shares of Common Stock or Convertible Securities
are offered by Company for subscription, the subscription price, or, if
such Additional Shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by Company for and in the
underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided,
the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of Company. In case any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection
with any merger in which Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such
portion of the assets and business of the non-surviving corporation as
such Board in good faith shall determine to be attributable to such
Additional Shares of Common Stock, Convertible Securities, warrants or
other fights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration
received by Company for issuing such warrants or other fights plus the
additional consideration payable to Company upon exercise of such
warrants or other fights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to
<PAGE>
Company upon the exercise of the right of conversion or exchange in
such Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividends upon any class of stock other than
Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable
that would otherwise be required may be postponed (except in the case
of a subdivision or combination of shares of the Common Stock, as
provided for in Section 4.1) up to, but not beyond the date of exercise
if such adjustment either by itself or with other adjustments not
previously made adds or subtracts less than 1% of the shares of Common
Stock for which this Warrant is exercisable immediately prior to the
making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall
be carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 4 and not previously made,
would result in a minimum adjustment or on the date of exercise. For
the purpose of any adjustment, any specified event shall be deemed to
have occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and
any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, and Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last shares of Common
Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property
shall be held in escrow for Holder by Company to be issued to Holder
upon and to the extent that the event actually takes place, upon
payment of the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares
shall be canceled by Company and escrowed property returned.
<PAGE>
(f) Challenge to Good Faith Determination. Whenever the Board of
Directors of Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by Company and acceptable to the
Majority Holders.
4.8. Reorganization. Reclassification, Merger, Consolidation or
Disposition of Assets. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of Company, then
each Holder shall have the right thereafter to receive, upon exercise of such
Holder's Warrant, the number of shares of common stock of the successor or
acquiring corporation or of Company, if it is the surviving corporation, and
Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company
acting in good faith) in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of Ns Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time Company shall take any action in respect of its Common Stock, other
than the payment of dividends permitted by Section 4.2(a) or any other action
described in this Section 4, then, unless such action will not have a materially
adverse effect upon the rights of the Holders, the number
<PAGE>
of shares of Common Stock or other stock for which this Warrant is exercisable
and/or the purchase price thereof shall be adjusted in such manner as may be
equitable in the circumstances.
4.10 Certain Limitations. Notwithstanding anything herein to the
contrary, Company agrees not to enter into any transaction which, by reason of
any adjustment hereunder, would cause the Current Warrant Price to be less than
the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock - may be purchased upon exercise of the Warrants,
shall be adjusted pursuant to Section 4, Company shall forthwith prepare a
certificate to be executed by the chief financial officer of Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board of Directors of Company determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2 or
4.7(a)), specifying the number of shares of Common Stock for which this Warrant
is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. Company shall
promptly cause a signed copy of such certificate to be delivered to each Holder
in accordance with Section 17.2. Company shall keep at its office or agency
designated pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
5.2. Notice of Corporate Action. If at any time
(a) Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences
of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or
any consolidation or merger of Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least ten (10) days' prior written notice of the date on which a record date
shall be selected for such dividend distribution or right or for determining
rights to vote in respect of any such reorganization,
<PAGE>
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least ten (10) days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
r1uht, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or rip-ht, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of Company and delivered in accordance with Section 17.2.
6. NO IMPAIRMENT
Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, Company
will (a) not increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any Public regulatory body having
jurisdiction thereof as may be necessary to enable Company to perform its
obligations under this Warrant.
Upon the request of Holder, Company will at any time during the period
this Warrant is outstanding (but not more often than twice in any year)
acknowledge in writing, in form reasonably satisfactory to Holder, the
continuing validity of this Warrant and the obligations of Company hereunder
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares available of Common Stock as will be sufficient
to permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any
<PAGE>
Warrant and payment therefor in accordance with the terms of such Warrant, shall
be duly and validly issued and fully paid and non-assessable, and not subject to
pre-emptive rights.
Before taking any action which would cause an adjustment reducing the
current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, Company shall take any corporate
action which may be necessary in order that Company may validly and legally
issue fully paid and non-assessable shares of such Common Stock at such adjusted
Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any governmental
authority or other governmental approval or filing under any federal or state
law (otherwise than as provided in Section 9) before such shares may be so
issued, Company will in good faith and as expeditiously as possible and at its
expense endeavor to cause such shares to be duly registered or qualified.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, Company will in each such case
take such a record and will take such record as of the close of business on a
Business Day. Company will not at any time, except upon dissolution, liquidation
or winding up of Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9 1. Restrictive Legend. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
are subject to the conditions specified in a certain Warrant
No. 2 dated December 30, 1996, originally issued by Bagcraft
<PAGE>
Corporation of America. No transfer of the shares represented
by this certificate shall be valid or effective until such
conditions have been fulfilled. A copy of the form of said
Warrant is on file with the Secretary of Bagcraft Corporation
of America. The holder of this certificate, by acceptance of
this certificate, agrees to be bound by the provisions of such
Warrant "
(b) Except as otherwise provided in this Section 9, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, and may
not be transferred in violation of such Act, the rules and
regulations thereunder or the provisions of this Warrant."
9.2. Notice of Proposed Transfers; Request for Registration. Prior to
any Transfer or attempted Transfer of any Warrants or any shares of Restricted
Common Stock, the holder of such Warrants or Restricted Common Stock shall give
ten (10) days' prior written notice (a "Transfer Notice") to Company of such
holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to such holder
who shall be reasonably satisfactory to Company, an opinion that the proposed
Transfer of such Warrants or such Restricted Common Stock may be effected
without registration under the Securities Act. After receipt of the Transfer
Notice and opinion, Company shall, within five days thereof, notify the holder
of such Warrants or such Restricted Common Stock as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9. 1 (a), and each Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.l(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. The holder of the Warrants or the Restricted
Common Stock, as the case may be, giving the Transfer Notice shall not be
entitled to Transfer such Warrants or such Restricted Common Stock until receipt
of notice from Company under this Section 9.2(a) that such opinion is reasonably
satisfactory.
The holders of Warrants and War-rant Stock shall have the right to
request registration of such Warrant Stock pursuant to Sections 9.3 and 9.4.
9.3. Required Registration. After receipt of a written request from the
holder of Warrants and/or Warrant Stock representing at least an aggregate of
fifty percent (50%) of the total of (1) all shares of Warrant Stock then subject
to purchase upon exercise of all warrants and (ii) all shares of Warrant Stock
then outstanding, and which are Restricted Common Stock requesting that Company
effect the registration of Warrant Stock issuable upon the exercise of such
holder's Warrants or of any of such holder's Warrant Stock under the Securities
<PAGE>
Act and specifying the intended method or methods of disposition thereof (which
the Company shall be reasonably satisfied in writing, of the receipt of such
request and each such holder, in addition to any rights under Section 9.4, may
elect (by written notice sent to Company within ten (10) Business Days from the
date of such holder's receipt of the aforementioned Company's notice) to have
its shares of Warrant Stock included in such registration thereof pursuant to
this Section 9.3. Thereupon Company shall, as expeditiously as is possible, use
its best efforts to effect the registration under the Securities Act of ail
shares of Warrant Stock which Company has been so requested to register by such
holders for sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof as aforesaid) of the
Warrant Stock so registered; provided, however, that Company shall not be
required to effect more than two (2) registrations of any Warrant Stock pursuant
to this Section 9.3, unless Company shall be eligible to file a registration
statement on Form S-3 (or other comparable short form) under the Securities Act,
in which event there shall be no limit on the number of such registrations
pursuant to this Section 9.3.
If the managing underwriter advises the prospective sellers in writing
that the aggregate number of shares of Warrant Stock and other shares of Common
Stock, if any, requested to be registered by other holders of registration
rights or proposed to be included in such registration by the Company should be
less than the number of shares of Warrant Stock and other shares of Common Stock
requested or proposed to be registered, the number of shares of Warrant Stock
and other shares of Common Stock to be sold by each prospective seller
(including the Company) shall be reduced as follows: first, the number of shares
of Common Stock proposed to be registered by the holders of Common Stock
possessing registration rights granted by the Company other than under or
arising from this Warrant shall be reduced to zero, if necessary; second, the
number of shares of Common Stock proposed to be registered by the Company shall
be reduced to zero, if necessary; second the the number of shares of Warrant
Stock proposed to be included in such registration shall be reduced pro rata
among the prospective sellers of shares of Warrant Stock to be sold in the
proposed distribution.
If such underwriter determines that the number of shares of Common Stock
proposed to be sold is insufficient to proceed with such registration or
qualification, the Company shall immediately recapitalize its Common Stock to
enable such registration and qualification to be completed as such underwriter
advises.
9.4. Incidental Registration. If Company at any time proposes to file
on its behalf and/or on behalf of any of its security holders (the "demanding
security holders") a Registration Statement under the Securities Act on any form
(other than a Registration Statement on Form S-4 or S-8 or any successor form
for securities to be offered in a transaction of the type referred to in Rule
145 under the Securities Act or to employees of Company pursuant to any employee
benefit plan, respectively) for the general registration of securities to be
sold for cash with respect to its Common Stock or any other class of equity
security (as defined in Section 3(a)(1 1) of the Exchange Act) of Company, it
will give written notice to all holders of Warrants or Warrant Stock at least 60
days before the initial filing with the Commission of such Registration
Statement, which notice shall set forth the intended method of disposition of
the securities proposed to be registered by Company. The notice shall offer to
include in such filing any or all of the aggregate number of shares of Warrant
Stock then outstanding and any or all of the shares of Common Stock for which
this Warrant is then exercisable, as such holders may request.
<PAGE>
Each holder of any such Warrants or any such Warrant Stock desiring to
have Warrant Stock registered under this Section 9.4 shall advise Company in
writing within 30 days after the date of receipt of such offer from Company,
setting forth the amount of such Warrant Stock for which registration is
requested. Company shall thereupon include in such filing the number of shares
of Warrant Stock for which registration is so requested, subject to the next
sentence, and shall use its best efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a proposed public
offering shall advise Company in writing that, in its opinion, the distribution
of the Warrant Stock requested to be included in the registration concurrently
with the securities being registered by Company or such demanding security
holder would materially and adversely affect the distribution of such securities
by Company or any selling stockholders, then the Company and each prospective
seller may sell that proportion of the shares of Common Stock to be sold in the
proposed distribution which the number of shares of Common Stock proposed to be
sold by such prospective seller bears to the aggregate number of Common Stock
proposed to be sold by all prospective sellers including the Company. Except as
otherwise provided in Section 9.6, all expenses of such registration shall be
borne by Company.
9.5. Registration Procedures. If Company is required by the provisions
of this Section 9 to use its best efforts to effect the registration of any of
its securities under the Securities Act, Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of
time required for the disposition of such securities
by the holders thereof, but not to exceed 90 days;
(b) 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 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 until the earlier of such time
as all of such securities have been disposed of in a public offering or
the expiration of 90 days;
(c) furnish to such selling security holders such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents, as such selling security holders may
reasonably request;
(d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto
Rico as each holder of such securities shall reasonably request or as
shall be required by the managing underwriter (provided, however, that
Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it is not then
qualified or to file any general consent to service or process), and do
such other reasonable acts and things as may be required of it to
enable such holder to consummate the disposition in such jurisdiction
of the securities covered by such Registration Statement;
<PAGE>
(e) furnish, at the request of any holder requesting registration
of Warrant Stock pursuant to Section 9.3), on the date that such shares
of Warrant Stock are delivered to the underwriters for sale pursuant to
such registration or, if such Warrant Stock is not being sold through
underwriters, on the date that the Registration Statement with respect
to such shares of Warrant Stock becomes effective, (1) an opinion,
dated such date, of the independent counsel representing Company for
the purposes of such registration, addressed to the underwriters, if
any, and if such Warrant Stock is not being sold through underwriters,
then to the holders making such request, in customary form and covering
matters of the type customarily covered in such legal opinions; and (2)
a comfort letter dated such date, from the independent certified public
accountants of Company, addressed to the underwriters, if any, and if
such Warrant Stock is not being sold through underwriters, then to the
holder making such request and, if such accountants refuse to deliver
such letter to such holder, then to Company in a customary form and
covering matters of the type customarily covered by such comfort
letters as the underwriters or such holders shall reasonably request.
Such opinion of counsel shall additionally cover such other legal
matters with respect to the registration in respect of which such
opinion is being given as such holders holding a majority of the
Warrant Stock being so registered may reasonably request. Such letter
from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the
period ending not more than five (5) Business Days prior to the date of
such letter) with respect to the registration in respect of which such
letter is being given as the holders holding a majority of the Warrant
Stock being so registered may reasonably request;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities; and
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than
18 months after the effective date of the Registration Statement, an
earnings statement covering the period of at least twelve (12) months
beginning with the first full month after the effective date of such
Registration Statement. which earnings statements shall satisfy the
provisions of Section II (a) of the Securities Act
It shall be a condition precedent to the obligation of Company to take
any action pursuant to this Section 9 in respect of the securities which are to
be registered at the request of any holder of Warrants or Warrant Stock that
such holder shall furnish to Company such information regarding the securities
held by such holder and the intended method of disposition thereof as Company
shall reasonably request, and as shall be required in connection with the action
taken
<PAGE>
by Company, and, if such registration is pursuant to an underwriting, such
holder shall enter into an underwriting agreement customary for such
transactions.
9.6 Expenses. All expenses incurred in complying with Section 9,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for Company, the reasonable fees and expenses of one
firm acting as counsel for the selling security holders (selected by those
holding a majority of the shares being registered), expenses of any special
audits incident to or required by any 91such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 9.5(d), shall be paid by Company, except that:
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed more than
90 days after the effective date of such Registration Statement because
any holder of Warrant Stock has not effected the disposition of the
securities requested to be registered shall be paid by such holder; and
(b) Company shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel
for any underwriter in respect of the securities sold by such holder of
Warrant Stock except to the same extent that the Company has agreed to
pay fees, discounts or commissions to any underwriter and/or fees and
disbursements of counsel for any underwriter in respect of the
securities being sold by any other selling stockholder of the Company.
9.7. Indemnification and Contribution. (a) In the event of any
registration of any of the Warrant Stock under the Securities Act pursuant to
this Section 9, Company shall indemnify and hold harmless the holder of such
Warrant Stock, such holder's directors and officers, and each other Person
(including each underwriter) who participated in the offering of such Warrant
Stock and each other Person, if any, who controls such holder or such
participating Person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such holder
or any such director or officer or participating Person or controlling Person
may become subject under the Securities Act or 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 alleged untrue statement of any material fact
contained, on the effective date thereof in any Registration
Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or
(ii) any alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and s hall reimburse such
holder or such director, officer or participating Person or
controlling Person for any legal or any other expenses
reasonably incurred by such holder or such director, officer or
participating Person or controlling Person
<PAGE>
in connection with investigating or defending any such loss,
claim. damage, liability or action;
provided; however, that Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any alleged untrue statement or alleged omission made in such Registration
Statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to Company by
such holder specifically for use therein or (in the case of any registration
pursuant to Section 9.3) so furnished for such purposes by any underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such securities
by such holder.
(b) Each holder of any Warrant Stock, by acceptance thereof,
agrees to indemnify, and hold harmless Company, its directors and
officers and each other Person, if any, who controls Company within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, Joint or several, to which Company or any such director or
officer or any such Person may become subject under the Securities Act
or 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 information in writing provided to Company by such
holder of such Warrant Stock specifically for use in the following
documents and contained, on the effective date thereof- any
Registration Statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto.
(c) If the indemnification provided for in this Section 9 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
<PAGE>
The parties hereto agree that it would not be just and equitable
if contribution . pursuant to this Section 9.7(c) were determined by
pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. No Person guilty of fraudulent
misrepresentation (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.
9.8. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock and the legend requirements of Section 9.1 shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common Stock:
(a) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto;
or
(b) when Company shall have received an opinion of counsel
reasonably satisfactory to it that such shares may be transferred
without registration thereof under the Securities Act.
Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from Company, at the expense of Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________, 199_,
AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from
Company, at Company's expense, a new certificate representing such Common Stock
not bearing the restrictive legend set forth in Section 9. 1 (a).
9.9. Listing on Securities Exchange. If Company shall list any shares
of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
<PAGE>
9.10. Certain Limitations on Registration Rights. Notwithstanding the
other provisions of Section 9:
(a) Company shall not be obligated to register the Warrant Stock
of any holder if, in the opinion of counsel to Company reasonably
satisfactory to the holder and its counsel (or. if the holder has
engaged an investment banking firm, to such investment banking firm and
its counsel), the sale or other disposition of such holder's Warrant
Stock, in the manner proposed by such holder (or by such investment
banking firm), may be effected without registering such Warrant Stock
under the Securities Act; and
(b) if Company has had a registration statement under which a
holder had a fight to have its Warrant Stock included pursuant to
Sections 9.3 or 9.4 declared effective within one year prior to the
date of any request pursuant to Section 9.3, then, until such one year
period has expired, Company shall not be obligated to register the
Warrant Stock of any holder pursuant to Section 9.31 provided, however,
that if any holder elected to have shares of its Warrant Stock included
under such registration statement but some or all of such shares were
excluded pursuant to the penultimate sentence of Section 9.4, then such
one-year period shall be reduced to six months
9.11. Selection of Managing Underwriters. The managing underwriter or
underwriters for any offering of Warrant Stock to be registered pursuant to
Section 9.3 shall be selected by the holders of a majority of the shares being
so registered (other than any shares being registered pursuant to Section 9.4)
and shall be reasonably acceptable to Company. The managing underwriter or
underwriters for any offering of Warrant Stock to be registered pursuant to
Section 9.4 shall be selected by the Company but shall be reasonably acceptable
to holders of a majority of the shares of Warrant Stock being registered in such
registration.
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant and each holder
of Restricted Common Stock in supplying such information as may be reasonably
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of GE Capital shall be sufficient
indemnity, so long as GE Capital is not then the subject of a bankruptcy or
insolvency proceeding and has not made an assignment for the benefit of its
creditors), and in case of mutilation upon surrender and cancellation hereof,
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
such Holder; provided, in the case of mutilation, no
<PAGE>
indemnity shall be required if this Warrant in identifiable form is surrendered
to Company for cancellation.
12. OFFICE OF COMPANY
As long as any of the Warrants remain outstanding, Company shall
maintain an office or agency (which may be the principal executive offices of
Company) where the Warrants may be . presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. FINANCIAL AND BUSINESS INFORMATION
13.1. Monthly and Quarterly Information. (a) While the Loan Agreement
is in effect, the Company will deliver to each Holder copies of the monthly
financial statements required to be delivered to the agent under the Loan
Agreement (the 'Agent"), as and when the same are delivered to the Agent.
Thereafter, until such time (if ever) as the Company shall become a reporting
company under the Exchange Act, the Company will deliver to each Holder, within
thirty (30) days after the end of each fiscal month of the Company (a "Fiscal
Month"), consolidated and consolidating financial and other information
regarding the Company and its Subsidiaries, certified by the chief financial
officer of the Company, including (1) unaudited balance sheets as of the close
of such Fiscal Month and the related statements of income and cash flow for that
portion of the Fiscal Year ending as of the close of such Fiscal Month and (ii)
unaudited statements of income and cash flows for such Fiscal Month, in each
case setting forth in comparative form the figures for the corresponding period
in the prior year and the figures contained in the budget, all prepared in
accordance with GAAP (subject to normal year-end adjustments and except for the
absence of footnotes and except as otherwise disclosed therein in reasonable
detail), and accompanied by the certification of the chief executive officer or
chief financial officer of the Company that all of such financial and other
information is true, complete and correct and presents fairly in accordance with
GAAP (subject to normal year-end adjustments and except for the absence of
footnotes and except as otherwise disclosed therein in reasonable detail), the
financial position, results of operations and statements of cash flows of the
Company and its Subsidiaries, on both a consolidated and consolidating basis, as
at the end of such Fiscal Month and for the period then ended.
(b) From and after the date, if ever, upon which the Company shall
become a reporting company under the Exchange Act, the Company shall provide to
each Holder, as and when required to be filed with the Commission, copies of all
quarterly financial statements and other financial reports required to be filed
with the Commission or which the Company elects to file with the Commission or
otherwise to publicly disclose.
13.2. Annual Information. (a) While the Loan Agreement is in effect,
the Company will deliver to each Holder copies of the annual financial
statements required to be delivered to the Agent as and when the same are
delivered to the Agent. Thereafter, until such time (if ever) as the Company
shall become a reporting 'company under the Exchange Act, for each fiscal year
of the Company (a "Fiscal Year"), the Company will deliver to each Holder
<PAGE>
audited financial statements for the Company and its Subsidiaries, on a
consolidated and consolidating basis, consisting of balance sheets as of the end
of such Fiscal Year and statements of income and retained earnings and cash
flows for such Fiscal Year, setting forth in comparative form in each case the
figures for the previous Fiscal Year, which financial statements shall be
prepared in accordance with GAAP, certified (only with respect to the
consolidated financial statements) without qualification, by an independent
certified public accounting firm of national standing and accompanied by: (i)
the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and material litigation matters,
and (@) the certification of the chief executive officer or chief financial
officer of the Company that all such financial statements are true, complete and
correct and present fairly in accordance with GAAP the financial position,
results of operations and statements of cash flows of the Company and its
Subsidiaries, on a consolidated basis, as at the end of such year and for the
period then ended. Such annual financial statements shall be delivered to each
Holder contemporaneously with filing thereof with the Commission by the
Company's parent corporation, ARTRA Group, Incorporated ("ARTRA") so long as
ARTRA shall be a reporting company under the Exchange Act, but within one
hundred twenty (120) days after the end of each Fiscal Year for any period
occurring after the date (if ever) upon which ARTRA shall cease to be a
reporting company under the Exchange Act.
(b) From and after the date, if ever, upon which the Company shall
become a reporting company under the Exchange Act, the Company shall provide to
each Holder, as and when required to be filed with the Commission, copies of all
annual financial statements, annual reports to stockholders and proxy statements
required to be filed with the Commission.
13.3. Filings. Company will file on or before the required date au
regular or periodic reports (pursuant to the Exchange Act) required to be filed
with the Commission and will deliver to Holder promptly upon their becoming
available one copy of each report, notice or proxy statement sent by Company or
ARTRA to the Company's or ARTRA's stockholders generally, and of each regular or
periodic report (pursuant to the Exchange Act) and any Registration Statement,
prospectus or written communication (other than transmittal letters) (pursuant
to the Securities Act), filed by Company or ARTRA with (i) the Commission or
(ii) any securities exchange on which shares of Common Stock or any class of
securities of ARTRA are listed.
14. REPURCHASE BY COMPANY OF WARRANT
14.1. Obligation to Repurchase Warrant.
(a) From time to time during the period ending on the Expiration
Date and commencing on the earliest to occur of
(i) the fourth anniversary of the Closing Date;
(ii) the occurrence of a merger (other than where Company is
the surviving corporation and there is no change in or
distribution with respect to its Common Stock), sale of
substantially all of the assets or sale of the majority of the
outstanding shares of Common Stock of Company;
<PAGE>
(iii) repayment of a material portion of the indebtedness
evidenced by the Notes with funds derived from any source other
than (A) operating income of the Company, or (B) additional
capital contributed by the Company's stockholders and obtained by
them without any direct or indirect credit support (by guaranty or
otherwise) from the Company;
(iv) the date upon which a public offering of any class of
the Company's securities becomes effective; and
(v) the acceleration of the maturities of the Notes pursuant
to the occurrence of an Event of Default under the Loan Agreement;
(the "Repurchase Period"), upon written notice from any Holder, Company shall
repurchase, on the date and in the manner set forth in Section 14.4 below, from
such Holder all or the portion of this Warrant designated in such notice for an
amount determined by multiplying (x) the number of shares of Common Stock
subject to this Warrant or portion thereof being repurchased by (y) the
difference between the Current Market Price per share of Common Stock as of the
date of such notice and the Current Warrant Price per share of Common Stock as
of the date of such notice; provided, however, that if no Event of Default under
the Loan Agreement shall have occurred and then be continuing, Company shall
have the fight, upon delivery of a written notice (the "Deferral Notice") to the
Holder within thirty (30) days following its receipt of the repurchase notice,
to satisfy its obligations under this Section 14.1 to repurchase this Warrant or
a portion thereof by effecting, at Company's expense, within one hundred twenty
(120) days after the date of the Deferral Notice, an underwritten public
offering on a firm commitment basis of the shares of Common Stock subject to the
Warrant requested to be repurchased, the net proceeds (after underwriting
discounts and commissions) of which shall not be less than the amount required
for such repurchase, in which event such repurchase of the Warrant shall be
deferred and such underlying Common Stock shall be sold pursuant to such public
offering. Nothing herein shall preclude the exercise by Holder of any portion of
this Warrant exercisable at any time prior to such repurchase.
(b) Notwithstanding the provisions of Section 14. 1 (a), if, at
any time during the period between the date on which any Holder shall
have exercised its rights under Section 14.1 to cause Company to
repurchase all or a portion of such Holder's Warrant and, on or prior
to the date of such repurchase, Company shall consolidate or merge
with, or sell all or substantially all of its property and assets to,
any Person and the consideration received by stockholders in connection
with such merger, consolidation or sale shall consist solely of cash,
then such Holder shall (whether or not such Holder shall have
previously surrendered such Holder's Warrant for repurchase by Company
pursuant to this Section 14) be entitled to receive, on the date of
such repurchase, the higher of (i) the amount payable to such Holder as
determined pursuant to Section 14.1 (a) and (ii) an amount equal to the
amount of cash such Holder would have received upon such consolidation,
merger or sale had such Holder's Warrant (or t he portion thereof being
repurchased) been fully exercised immediately prior thereto less the
aggregate Current Warrant Price payable at such time for the purchase
of the shares of Common Stock then subject to such Holder's Warrant (or
the portion thereof being repurchased).
<PAGE>
(c) Notwithstanding any provision contained in this Warrant to the
contrary, should Company for any reason fail to perform its obligations
arising under Section 14.1 hereof, such obligations shall in all
respects continue until Company has fulfilled such obligations.
14.2. Option to Repurchase Warrant.
(a) From time to time on or after the fourth anniversary of
the Closing Date until the Expiration Date, and, with respect to any
shares of Warrant Stock requested to be registered pursuant to Section
9.3 hereof, Company shall have the right, upon written notice to any
Holder, to repurchase from such Holder, from any source of funds
legally available therefor, on the date and in the manner set forth in
Section 14.4 below, all or any part of the Warrant then held by such
Holder for an amount (subject to the adjustment provided in Section
14.3 below) determined by multiplying the number of shares of Common
Stock subject to such Warrant or portion thereof being repurchased by
the difference between the Current Market Price per share of Common
Stock as of the date of such notice and the Current Warrant Price per
share of Common Stock as of the date of such notice, provided, however,
that nothing herein shall preclude the exercise by Holder of any
portion of this Warrant exercisable at any time prior to such
repurchase.
(b) In addition to the repurchase rights granted in clause (a)
above, Company shall have the right, upon written notice to Holder, to
repurchase from such Holder, from any source of funds legally available
therefor, 709.77 shares of Warrant Stock for $1,500,000 in immediately
available funds during the period of January 15, 1997 through January
31, 1997. If such repurchase rights are not exercised and the
repurchase of those shares of Warrant Stock is not consummated during
that period, the repurchase price of $1,500,000 shall not be deemed to
be indicative of the Appraised Value of any Warrant Stock for purposes
of any subsequent repurchase of Warrant Stock hereunder.
14.3. Subsequent Value Transactions. If Company exercises its
repurchase right pursuant to Section 14.2(b) hereof and at any time on or prior
December 17, 1997, (i) 5% or more of Company's Fully Diluted Outstanding Common
Stock is sold, transferred or otherwise disposed of, (ii) 5% or more of the
capital stock of BCA Holdings, Inc. ("BCA") outstanding on a fully diluted basis
is sold, transferred or otherwise disposed of, (iii) 5% or more of ARTRA's
capital stock outstanding on a fully diluted basis is sold, transferred or
otherwise disposed of by Peter R. Harvey or any of his Affiliates, collectively,
(iv) Company, BCA or ARTRA is merged with or into, acquired by or otherwise
combined with, any other Person and, in the case of ARTRA, the practical effect
of which is equivalent to a disposition referred to in clause (iii) above, or
(v) 5% or more of the assets or business of Company or BCA is sold, transferred
or otherwise disposed of, in each of the foregoing cases whether directly or
indirectly, in a single transaction or a series of related transactions, then a
"Value Transaction" shall be deemed to have occurred. Notwithstanding the
foregoing, a Value Transaction also shall be deemed to have occurred if any of
the transactions described in the preceding sentence occurs at any time pursuant
to or otherwise in connection with any agreement or other document in existence
on or prior to December 17, 1997.
<PAGE>
If the value of a share of Common Stock indicated or determinable by
reference to any Value Transaction exceeds the price per share of Common Stock
paid in any repurchase under Section 14.2(b), then on the date on which that
Value Transaction is consummated, Company shall pay to Holder in immediately
available funds that excess value per share multiplied by the number shares of
Warrant Stock previously repurchased under Section 14.2(b).
14.4 Determination and Payment of Repurchase Price. (a) The purchase
price for any repurchase pursuant to this Section 14 other than pursuant to
Section 14.2(b) (the "Repurchase Price") shall be determined within ninety (90)
days of the date of the repurchase notice received or Oven by Company pursuant
to Section 14.1 or 14.2(a), and shall be payable in cash within twenty (20) days
following the date of such determination of the Repurchase Price. On the date of
any repurchase of Warrants pursuant to this Section 14, each Holder shall assign
to Company such Holder's Warrant or portion thereof being repurchased, as the
case may be, without any representation or warranty (other than customary
representations and warranties as to ownership, absence of liens and due
authority to consummate such transaction), by the surrender of such Holder's
Warrant at the principal office of Company referred to in Section 2.1 against
payment therefor of the Repurchase Price by, at the option of such Holder, (i)
wire transfer to an account in a bank located in the United States designated by
such Holder for such purpose or (ii) a certified or official bank check drawn on
a member of the New York Clearing House payable to the order of such Holder. If
less than all of any Holder's War-rant is being repurchased, Company shall,
pursuant to Section 3, cancel such Warrant and issue in the name of, and deliver
to, such Holder a new Warrant for the portion not being repurchased.
(b) Each Holder shall have the fight at any time to object to the
determination of Current Market Value pursuant to this Section 14 by specifying
in writing to Company the nature of its objection and, unless such objection is
resolved by agreement of Company and such Holder, Company and such Holder shall
each have the night to subject the disputed determination to separate firms of
independent accountants of recognized national standing for a joint resolution
of the objection of such Holder (which firms of independent accountants may, in
either case, be the firms of accountants regularly retained by Company or such
Holder). If such firms cannot jointly resolve the objection of such Holder,
then, unless otherwise directed by agreement of Company and such Holder, such
firms shall in their sole discretion choose another firm of independent
certified public accountants of recognized national standing, which is not the
regular auditor of such Holder or Company, which firm shall resolve such
objection. In either case, for purposes hereof the determination so made shall
be conclusive and binding on Company, such Holder and all Persons claiming under
or through any of them, and any adjustment in the determination of Book Value
and the Repurchase Price per share of Common Stock resulting from such
determination shall be made. The cost of any such determination shall be borne:
(i) by Company if it results in an increase of the aggregate Repurchase Price
for all shares of Common Stock issuable upon the exercise hereof of ten percent
(101/6) or more; (ii) by such Holder if it results in a decrease of the
aggregate Repurchase Price for all shares of Common Stock issuable upon the
exercise hereof of ten percent (10%) or more; and (iii) equally by the Company
and the Holder in any other case.
<PAGE>
(c) Any repurchase by Company of all or any portion of the Warrant
pursuant to Section 14.1 which is delayed by the failure of Company to
determine the Repurchase Price within the time periods required in
Section 14.4(a) shall be consummated within 10 days after, as the case
may be, the determination of the Repurchase Price or the resolution of
such objection.
(d) In the event that the determination of the Repurchase Price
requires an opinion from an investment banking firm or accounting firm,
all costs and fees associated therewith shall be paid by Company.
15. APPRAISAL
The determination of the Appraised Value per share of Common Stock
shall be made by an investment banking firm of nationally recognized standing
selected by Company and acceptable to the Majority Holders. If the investment
banking firm selected by Company is not acceptable to the Majority Holders and
Company and the Majority Holders cannot agree on a mutually acceptable
investment banking firm, then the Majority Holders and Company shall each choose
one such investment banking firm and the respective chosen firms shall agree on
another investment banking firm which shall make the determination. Company
shall retain, at its sole cost, such investment banking firm as may be necessary
for the determination of Appraised Value required by the terms of this Warrant,
except as otherwise provided in Section 14.4(b).
16. LIMITATION OF LIABILITY
No provision hereof in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the fights or
privileges of Holder hereof, shall give rise to any liability of such Holder for
the purchase price of any Common Stock or as a stockholder of Company, whether
such liability is asserted by Company or by creditors of Company.
17. PARTICIPATION IN CORPORATE DISTRIBUTIONS AND TAKE-ALONG RIGHT
17.1 Company's Obligation to Make Payments.
(a) Company shall not declare, make or pay any dividend or
other distribution, whether in cash, securities or other property, with
respect to its Common Stock (a "Distribution") unless it concurrently
makes a cash payment to the holder of this Warrant equal to (1) the
amount of cash plus the fair value of any property or securities
<PAGE>
distributed with respect to each outstanding share of Common Stock at
the time, as determined in good faith by the Board of Directors of Company,
multiplied by (2) the number of shares of Common Stock then issuable upon
exercise of this Warrant.
(b) Except for repurchases of Warrant Shares upon the exercise
of the repurchase options contained in Section 14 hereof, Company shall
not repurchase or redeem any of its equity securities or any securities
convertible into or exchangeable for such equity securities or any
warrants or other rights to purchase such equity securities unless it
concurrently makes a cash payment to the holder of this Warrant equal
to the product of (i) the quotient obtained by dividing (x) the
aggregate amount of cash and the aggregate fair value of any property
paid out by Company in connection with any such repurchase or
redemption at the time, as determined in good faith by the Board of
Directors of Company, by (y) the number of shares of Common Stock
outstanding on a fully diluted (excluding shares of Common Stock then
issuable upon exercise of this Warrant) immediately after such
repurchase or redemption, and (ii) the number of shares of Common Stock
then issuable upon the exercise of this Warrant. Upon any such payment
by the Company, the number of shares of Common Stock then issuable upon
the exercise of this Warrant shall be adjusted by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such payment by a fraction (A) the numerator of
which shall be the number of shares of Common Stock Outstanding
immediately after such repurchase or redemption, and (B) the
denominator of which shall be the number of shares of Common Stock
Outstanding immediately prior to such repurchase or redemption.
Concurrently, the Holder of this Wan-ant shall deliver the same to the
Company for cancellation and the Company shall deliver to Holder a new
Warrant evidencing the adjusted number of unpurchased shares of Common
Stock called for by this Section 17. 1 (b), which new Warrant shall in
all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the
same returned to Holder. [Example: 90 shares are outstanding and
Warrant is for 10 shares (10% on a fully diluted basis). Company
redeems 10 shares for $8 each ($80 total). 80 shares are left
outstanding. $80 divided by 80 shares = $1 per share. 10 x $1 = $10 to
be delivered to Holder. Warrant is then adjusted by multiplying 10
(prepayment number of exercisable shares) by 80/90. Resulting Warrant
is for 8.89 shares or 10% of post-redemption stock on a fully-diluted
basis.]
17.2. Take-Along Rights. Each holder of Warrants or Warrant Shares
shall have the right to be taken along in the sale of any Common Stock by BCA,
the principal stockholder of the Company, or in any sale of capital stock of BCA
by ARTRA, in accordance with the letter addressed to each holder, and any
assignee, transferee or successor, a copy of which is attached as Annex A hereto
and made a part hereof .
18. MISCELLANEOUS
18.1. Non-waiver and Expenses. No course of dealing or any delay or
failure to exercise any fight hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies.
If Company fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its fights, powers or remedies
hereunder.
<PAGE>
18.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration. delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of Company maintained for such purpose.
(b) If to Company, at:
Bagcraft Corporation of America
3900 West 43rd Street
Chicago, Illinois 60632
Attention: Mark Santacrose, Esq.
Telecopy Number: (312) 254-8204
with a copy to:
Philip E. Ruben
Kwiatt, Silverman & Ruben, Ltd.
500 Central Avenue
Northfield, IL 60093
Telecopy: (847) 441-7696
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail, certified, or one (1) Business Day after the same has
been deposited with a reputable overnight courier with instructions to deliver
the same on the next Business Day. Failure or delay in delivering copies of any
notice, demand, request, approval, declaration, delivery or other communication
to the person designated above to receive a copy shall in no way adversely
affect the effectiveness of such notice, demand, request, approval, declaration,
delivery or other communication.
<PAGE>
18.3. Indemnification. Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of (i) Holder's exercise
of this Warrant and/or ownership of any shares of Warrant Stock issued in
consequence thereof, or (ii) any litigation to which Holder is made a party in
its capacity as a stockholder of Company; provided, however, that Company will]
not be liable hereunder to the extent that any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's gross negligence, bad faith or willful
misconduct in its capacity as a stockholder or warrant holder of Company.
18.4. Remedies. Each holder of Warrant and Warrant Stock, in addition
to being entitled to exercise all fights granted by law, including recovery of
damages, will be entitled to specific performance of its fights under Section 9
of this Warrant. Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of Section 9 of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
18.5. Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof holders of Warrant Stock, and shall be enforceable by any such Holder or
holder of Warrant Stock.
18.6. Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of Company and
the Majority Holders, provided that no such Wan-ant may be modified or amended
to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
18.7. Severability. Wherever possible, each provision of this Warrant
shall be prohibited by or invalid under applicable law interpreted in such
manner as to be effective and valid under applicable law, but if any provision,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
18.8. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
<PAGE>
18.9. Governing Law. This Warrant shall be governed by the internal
laws and decisions of the State of Illinois, without regard to the provisions
thereof relating to conflict of laws.
[Balance of page left intentionally blank; signature page follows.]
IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: December 30, 1996
BAGCRAFT CORPORATION OF
AMERICA
By: _____________________________
Name: _____________________________
Title: _____________________________
Attest:
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of Shares of Common Stock of Bagcraft Corporation
of America and herewith makes payment therefor in the amount of $___________ as
follows:
$______________ by wire transfer;
$______________ by certified or official bank check enclosed herewith;
$______________ by deducting from the shares delivered upon exercise hereof
a number of shares having an aggregate Current Market Price on the date of
exercise equal to the aggregate purchase price for all shares as to which this
Warrant is then being exercised;
$_____________ by application of the Liabilities as provided in Section
2.5 of this Warrant;
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to whose address is -
and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned.
--------------------------------------
(Name of Registered Owner)
--------------------------------------
(Signature of Registered Owner)
--------------------------------------
(Street Address)
--------------------------------------
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _____________________
attorney-in-fact to register such transfer on the books of Bagcraft Corporation
of America maintained for the purpose, with full power of substitution in the
premises
Date: _______________ Print Name: ________________________
Signature: ________________________
Witness: ________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any chance whatsoever.
<PAGE>
ANNEX A
December 30, 1996
To Each Holder of a Warrant to Purchase
Common Stock of Bagcraft Corporation of America
and all Assignees, Transferees and
Successors of such Holder:
Reference is made to the Warrant dated as of December 30, 1996 to
purchase the Common Stock of Bagcraft Corporation of America, a Delaware
corporation (the "Company"), issued to General Electric Capital Corporation, a
New York corporation ("GE Capital"), (as from time to time amended, replaced,
refinanced, restated, superseded, supplemented or otherwise modified). All
capitalized terms used in this agreement which are defined in the Warrant are
used as defined in the Warrant unless the context otherwise requires.
The undersigned BCA Holdings, Inc., a Delaware corporation ('BCA') and
ARTRA GROUP Incorporated, a Pennsylvania corporation ("ARTRA"- collectively, BCA
and ARTRA are referred to herein as the "Controlling Stockholders"), warrant,
covenant and agree with the holders of the Warrant and the Warrant Stock, their
assignees, transferees and successors (the "Warrantholders") as follows:
If any Controlling Stockholder proposes any sale (other than pursuant
to a public offering) (a "Sale") of all or a portion of its common stock of the
Company ("Common Stock") or any class of capital stock of BCA ("BCA Stock")
(collectively, Common Stock and BCA Stock are referred to herein as "Controlling
Stock"), the Controlling Stockholders shall provide for such Sale on a basis
which includes a ratable share of all shares which have been issued or then are
issuable under the Warrant (collectively "Warrant Stock") on a pro-rata basis.
1. The Controlling Stockholders shall Live each Warrantholder written
notice of a proposed Sale of Controlling Stock not less than 45 days before such
Sale is to take place. The notice ("Sale Notice") shall set forth:
a. the name and address of the Proposed Purchaser,
b. the name and address of each Warrantholder as shown on the
records of the Company, the number of shares of Warrant Stock held by
or issuable to each Warrantholder;
<PAGE>
c. the number and nature of shares of Controlling Stock proposed
to be transferred by the Controlling Stockholders;
d. the proposed amount and form of consideration and terms and
conditions of payment offered by such Proposed Purchaser; and
e. the signed agreement of the Proposed Purchaser acknowledging
that he has been informed of this letter agreement and has agreed to
purchase Warrant Stock in accordance with the terms hereof.
2. The take-along rights provided in this agreement may be exercised by
any Warrantholder (an "Electing Warrantholder") by delivery of a written notice
(a "Take-Along-Notice") to the Company or ARTRA (with a copy to each other
Warrantholder) within thirty (30) days after receipt of the Sale Notice. A
Take-Along Notice shall state the number of shares of Warrant Stock which the
Warrantholder, wishes to include in such Sale to the Proposed Purchaser.
3. The Warrantholders shall be entitled to sell to the Proposed
Purchaser Warrant Stock at the same price per share as the price per share to be
paid for Controlling Stock and otherwise on the same terms as are to be
applicable to the sale of the Controlling Stock, except as provided in paragraph
5 below. The Warrantholders shall be entitled to sell the same percentage of the
Warrant Stock held by them, as that percentage of the Controlling Stock
ultimately sold by the Controlling Stockholders (after reductions to permit the
sale of the Warrant Stock).
4. Any shares of Warrant Stock purchased from the Warrantholders
pursuant to this . agreement shall be purchased on terms and conditions which do
not include the making of any representations and warranties, indemnities or
other similar agreements other than the representations, warranties and
indemnities as to the ownership of such shares of Warrant Stock and the due
authority to sell such shares.
BCA HOLDINGS, INC. ARTRA GROUP INCORPORATED
By: ___________________________ By: ________________________
Title: ___________________________ Title: ________________________
EXHIBIT 10.3
SETTLEMENT AND RELEASE AGREEMENT
THIS SETTLEMENT AND RELEASE AGREEMENT (this "Agreement") is
entered into as of the 19th day of December, 1996, by and among ARTRA GROUP
Incorporated, a Pennsylvania corporation ("ARTRA"), Fill-Mor Holding, Inc., a
Delaware corporation ("Fill-Mor"), and Peter R. Harvey ("Harvey") (referred to
collectively as the "ARTRA Parties"), and COMFORCE Corporation, a Delaware
corporation formerly known as The Lori Corporation (including any predecessors,
"COMFORCE"), James L. Paterek, Michael Ferrentino, Christopher P. Franco and
Kevin W. Kiernan (such individuals referred to as the "Designated Individuals"
and, together with COMFORCE, referred to collectively as the "COMFORCE
Parties"), and Kwiatt, Silverman & Ruben, Ltd. ("KSR").
WHEREAS, under that certain letter agreement dated June 29,
1995, as amended as of October 6, 1995, among ARTRA and the COMFORCE Parties
(the "Letter Agreement"), the Designated Individuals agreed to, inter alia,
direct COMFORCE's entry into the technical staffing business; and
WHEREAS, pursuant to the Assumption Agreement dated as of
October 17, 1995 between ARTRA and COMFORCE (the "Assumption Agreement"),
COMFORCE agreed to issue to ARTRA 100,000 shares of the common stock of COMFORCE
("Common Stock") in consideration of the cancellation of all issued and
outstanding shares of the Series C Preferred Stock of COMFORCE, all of which
shares were held by ARTRA (the "Series C Preferred Stock"), and ARTRA agreed to
assume substantially all pre-existing liabilities of COMFORCE; and
WHEREAS, as of September 30, 1995, COMFORCE discontinued its
jewelry business and, on October 17, 1995, entered the technical staffing
business upon acquiring all of the capital stock of Spectrum Global Services
Inc. (formerly d/b/a YIELD Global and now known as COMFORCE Telecom, Inc.)
("Global"); and
WHEREAS, in connection with ARTRA's guarantee of certain
obligations in connection with the Global acquisition, COMFORCE issued (but did
not deliver to ARTRA) 100,000 shares of Common Stock; and
WHEREAS, COMFORCE has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (Registration
No. 33-60403) to register for resale certain shares of Common Stock, to be
offered pursuant to Rule 415 of the Commission's Rules (the "Shelf Registration
Statement"), which registration statement has not yet been declared effective by
the Commission, and proposes to file with the Commission a registration
statement on Form S-1 (the "Underwritten Registration Statement") for the
registration of shares to be publicly offered by COMFORCE (the "Underwritten
Offering") and certain selling stockholders, such offering to be underwritten by
PaineWebber Incorporated and Unterberg Harris, and/or such other underwriters as
may agree to participate in such offering (the "Underwriters"); and
1
<PAGE>
WHEREAS, Fill-Mor, a wholly-owned subsidiary of ARTRA, is the
record and beneficial owner of 1,769,703 shares of Common Stock representing
1,769,703 shares held of record for in excess of three years; and
WHEREAS, by unanimous consent in lieu of a meeting dated
October 16, 1995, the Board of Directors of COMFORCE caused certain existing
employee options under COMFORCE's Long-Term Stock Investment Plan (the "Option
Plan") not to terminate in certain circumstances as provided under the Option
Plan, including 90 days after the termination of an employee's employment with
COMFORCE; and
WHEREAS, the ARTRA Parties and the COMFORCE parties desire to
amicably settle various disputes and interpretive questions which have arisen
concerning the Letter Agreement, the Option Plan and other matters; and
WHEREAS, as a part of the transactions contemplated hereby,
the parties have agreed to give to each other mutual releases as set forth
herein.
NOW, THEREFORE, in consideration of the agreements set forth
herein, the parties, intending to be legally bound hereby, agree as follows:
1. ARTRA hereby waives any right it may have under the Letter
Agreement to designate any person for nomination or election to the Board of
Directors (except to the extent such rights, if any, may be exercised by any
stockholder of COMFORCE in accordance with Delaware law or the bylaws of
COMFORCE). COMFORCE agrees not to dispute the claims of Fill-Mor that it is not
an "affiliate" of COMFORCE within the meaning of that term under Rule 144 of the
Rules of the Commission. Subject to Fill-Mor's compliance with the terms of the
Lock-up Agreement in the form attached hereto as Exhibit 3 (the "Lock-up
Agreement"), with respect to any shares of Common Stock held by Fill-Mor for in
excess of three years and presented to COMFORCE's transfer agent either for (a)
removal of the legend thereon restricting the transfer of such shares except
upon registration or an exemption therefrom under the Securities Act of 1933
(the "Restrictive Legend"), or (b) transfer free of the Restrictive Legend,
COMFORCE shall either (i) cause its counsel to issue an opinion permitting the
removal of the Restrictive Legend or the transfer free of the Restrictive Legend
or (ii) cause such shares to be registered under the Shelf Registration
Statement.
2. Simultaneously with the execution of this Agreement, (i)
COMFORCE will deliver to ARTRA certificates evidencing 200,000 shares of Common
Stock in consideration of ARTRA's guarantee of the Global obligations and the
cancellation of the Series C Preferred Stock, and (ii) ARTRA shall deliver to
COMFORCE certificates evidencing 9,701 shares of Series C Preferred Stock,
marked "Canceled."
3. COMFORCE agrees to include in the Underwritten Registration
Statement for registration for resale 200,000 shares of Common Stock held by
ARTRA and 180,000 shares of Common Stock held by Fill-Mor (collectively, the
"Registration Shares"). Simultaneously with the execution of this Agreement,
Fill-Mor and ARTRA shall enter into a Lock-up Agreement in the form
2
<PAGE>
attached hereto as Exhibit 3 with respect to 1,589,703 shares of Common Stock
(the "Lock-up Shares"), being all of the shares of Common Stock held by either
Fill-Mor or ARTRA (including the 125,000 shares held in the escrow account
described in paragraph 11 hereof) other than the 380,000 Registration Shares.
Notwithstanding the foregoing, in the event that the market price of the Common
Stock as reported on the American Stock Exchange is less than $10.00 per share
at the close of trading on the date 10 days prior to the scheduled commencement
date of the road show for the Underwritten Offering, ARTRA and Fill-Mor shall
have the right, upon written notice given to COMFORCE on such date (which notice
may be sent by fax), to withdraw all or any portion of the Registration Shares
from the Underwritten Registration Statement. In such event, COMFORCE shall not
be obligated to register for resale any of the withdrawn Registration Shares,
but the terms of this Agreement shall continue in full force and effect in all
other respects.
4. ARTRA agrees to appoint KSR to serve as the custodian (in
such capacity, referred to as the "Custodian") of (i) the Registration Shares
(on a interim basis pending release to the Underwriters to be held under a
custody agreement among the Underwriters and all of the selling stockholders in
the Underwritten Offering (the "Underwriters Custody Agreement")) and (ii) the
Lock-up Shares (except for Lock-up Shares held in the escrow account described
in paragraph 11 hereof for so long as such shares are held thereunder) pursuant
to the terms of a custody agreement to be negotiated in good faith by ARTRA,
Harvey and COMFORCE and entered into within 15 days after the execution of this
Agreement (the "KSR Custody Agreement"). The KSR Custody Agreement shall provide
that the Lock-up Shares held under the KSR Custody Agreement will not be
released by the Custodian except upon the joint direction of the Custodian and
Doepken Keevican & Weiss ("DKW"), which direction shall not be withheld so long
as the conditions for release of the Lock-up Shares hereunder and under the KSR
Custody Agreement are satisfied (including without limitation to effect any
pledge permitted hereunder so long as the pledgee acknowledges and agrees to the
terms set forth herein).
The KSR Custody Agreement shall also provide that the
Registration Shares shall be held by the Custodian from the date of execution of
this Agreement until 10 days prior to the scheduled commencement date of the
road show for the Underwriters Offering and, thereupon, shall be released to the
custodian under the Underwriters Custody Agreement, except for any Registration
Shares as to which ARTRA or Fill-Mor elect not to include in Underwriters
Registration Statement. Any such shares not included in the Underwriters
Registration Statement shall thereupon be deemed to be Lock-up Shares and shall
continue to be held by the Custodian under the KSR Custody Agreement.
The KSR Custody Agreement shall also provide that the Lock-up
Shares shall be held by the Custodian for as long as such shares continue to be
Lock-up Shares, and neither such shares nor any direct or indirect beneficial
interest therein shall be sold, transferred, pledged, hypothecated, margined or
placed in street name with any broker-dealer or otherwise directly or indirectly
disposed of during the term of the Lock-up Agreement and the KSR Custody
Agreement, except that the Lock-up Shares may be pledged to a lender so long as
(i) the pledgee is not a registered broker-dealer firm, (ii) the pledgee agrees
to be bound by the terms of the Lockup Agreement and (iii) the Lock-up Shares
pledged shall not be placed in street name and shall not
3
<PAGE>
be loaned (or made available to any broker-dealer to be loaned) to any person
who maintains or proposes to maintain a short position in COMFORCE's securities.
5. Effective upon the closing of the offering pursuant to the
Underwritten Registration Statement (the "Offering"), COMFORCE shall direct the
disbursement agent to disburse to Manufacturer's Bank ("Manufacturer's") from
the proceeds of the sale of the Registration Shares an amount equal to the
outstanding principal and accrued, unpaid interest on the loan of Manufacturer's
to Fill-Mor, currently aggregating approximately $2.5 million (the
"Manufacturer's Loan"), with all remaining net proceeds from the sale of the
Registration Shares to be disbursed at the direction of ARTRA.
Simultaneously with the execution of this Agreement, ARTRA
agrees to execute and deliver to Manufacturer's a notice in a form reasonably
acceptable to COMFORCE which directs Manufacturer's, upon repayment of the
Manufacturer's Loan, (i) to deliver directly to the Custodian certificates
evidencing 800,000 shares of Common Stock pledged to collateralize the
Manufacturer's Loan, such certificates to be held pursuant to the terms of the
Custody Agreement and the Lock-up Agreement, and (ii) not to honor any contrary
instructions as to release of such shares except upon its receipt of joint
written instructions from ARTRA and COMFORCE as to the same. Within 10 days
after the execution of this Agreement, ARTRA agrees to take all reasonable steps
to cause Manufacturer's to acknowledge receipt of the notice and to be bound by
the terms thereof.
6. COMFORCE agrees to recognize and honor the action of its
Board of Directors by unanimous written consent dated October 16, 1995 with
respect to the options granted under the Option Plan to certain employees of
COMFORCE named therein (the "Employee Options") (a copy of which consent is
attached hereto as Exhibit 6). The ARTRA Parties acknowledge and understand that
COMFORCE is not required and does not presently intend to register any of the
shares issuable upon the exercise of Employee Options, and that, if any optionee
desires to have option shares held by such optionee registered, such optionee
must individually negotiate with COMFORCE as to the terms under which such
registration will be effected, if at all.
7. The ARTRA Parties agree that the Designated Individuals are
entitled to receive in the aggregate not less than 3,888,084 shares of Common
Stock pursuant to the terms of the Letter Agreement, including not less than
796,782 shares to be issued in respect of the anti-dilution provisions thereof,
and options to purchase in the aggregate ___________ shares of Common Stock
pursuant to the terms of the Letter Agreement and the action of the Board of
Directors of COMFORCE, and shall not hereafter make statements in any regulatory
filings or pleadings or otherwise which question the right of the Designated
Individuals to receive such shares or options.
8. ARTRA agrees to cause its employees and representatives to
deliver or make available to COMFORCE all files and records relating to COMFORCE
and its predecessors not
4
<PAGE>
previously delivered to COMFORCE, provided, however, that COMFORCE agrees to
make available to ARTRA and/or its counsel for review and copying, subject to
any confidentiality agreement in customary form as to information not in the
public domain or as to which the attorney-client privilege obtains, such
information in such files (and all files previously delivered by ARTRA to
COMFORCE) reasonably required (i) to enable ARTRA to determine the nature or
scope of any continuing obligation of ARTRA for liabilities of COMFORCE,
including pursuant to the Assumption Agreement or otherwise, or to defend itself
against any claims therefor, (ii) to enable ARTRA to verify, correct or defend
any of its consolidated tax returns, (iii) to enable ARTRA to prepare or verify
the accuracy of any of its securities law disclosures, (iv) to enable any
prospective underwriter of ARTRA or any prospective lender or acquiror of an
interest in ARTRA to conduct a due diligence review of any matters relating to
any potential continuing obligation of ARTRA for liabilities of COMFORCE, or (v)
for any like proper business purpose.
9. ARTRA hereby represents and warrants to COMFORCE that the
warrant and related put purported to be held by IBJ Schroder Bank & Trust
Company ("Schroder"), a copy of which is attached hereto as Exhibit 9 (the
"Schroder Warrant"), has been terminated pursuant to an agreement of the
parties. ARTRA agrees to assume full responsibility and liability for any loss
or damage suffered or incurred by COMFORCE by reason of the purported exercise
of the Schroder Warrant. ARTRA, at its sole cost and expense, shall indemnify
and hold COMFORCE harmless from and against any losses, damages or claims,
including legal fees and expenses, in connection with the Schroder Warrant. In
the event any legal action is brought or threatened to be brought by Schroder to
enforce the Schroder Warrant or to recover damages for COMFORCE's failure to
honor the same, ARTRA shall defend against such action or claim, at its expense;
provided, however, that COMFORCE shall receive notices of all petitions and
motions filed, and any other actions taken in connection therewith (including
the taking of depositions) and may participate in the defense of the case at its
cost, to the extent it desires, or at ARTRA's cost, if ARTRA fails to diligently
prosecute or defend the action.
10. ARTRA acknowledges and affirms its obligations under the
Assumption Agreement and agrees that (i) it shall assume all liabilities for the
operations of Lawrence Jewelry Corporation, Rosecraft, Inc. and New Dimensions
Accessories Ltd. (the "Jewelry Subsidiaries") that COMFORCE would, absent this
assumption, otherwise be liable for, and (ii) all environmental liabilities of
COMFORCE which have arisen or may arise by reason of any actions occurring prior
to October 17, 1995, including the environmental matters at the Gary, Indiana
site identified in Exhibit 10A attached hereto (the "Gary Site"). COMFORCE
acknowledges and understands that ARTRA does not assume any liabilities for the
Jewelry Subsidiaries which are the obligation of any subsidiary corporation and
not of COMFORCE, as its parent (the "Subsidiary Obligations"). In this
connection, simultaneously with the execution of this Agreement, ARTRA and
COMFORCE shall enter into the Stock Transfer Agreement in the form attached as
Exhibit 10B hereto, and shall execute the stock powers attached thereto. ARTRA
represents to COMFORCE that it has, to its knowledge, satisfied all of the
liabilities of the Jewelry Subsidiaries except for (i) the Subsidiary
Obligations and (ii) $350,000 of obligations
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owed to certain creditors as part of the reorganization in bankruptcy of New
Dimensions Accessories Ltd., which creditors cannot be located by ARTRA (the
"NDA Creditors").
11. To secure its obligations with respect to (i) the Schroder
Warrant, (ii) the Gary Site and (iii) the NDA Creditors, ARTRA agrees to deposit
with Firstar Trust Company, a Wisconsin banking corporation, as escrow agent, or
another mutually acceptable bank or trust company if Firstar Trust Company
declines to serve as escrow agent (the "Escrow Agent"), certificates evidencing
125,000 shares of Common Stock (the "Escrowed Shares"). Such shares shall be
held by the Escrow Agent pursuant to the terms of an escrow agreement to be
negotiated by the parties in good faith and executed within 30 days after the
date this Agreement is executed (the "Escrow Agreement"). ARTRA acknowledges
that its liabilities with respect to (i) the Schroder Warrant, (ii) the Gary
Site and (iii) the NDA Creditors are not limited by the amount held pursuant to
the Escrow Agreement. If any such matter shall now or hereafter be the subject
of legal proceedings, COMFORCE shall receive notices of all petitions and
motions filed, and any other actions taken in connection therewith in any such
matter (including the taking of depositions) and may participate in the defense
of any case at its cost, to the extent it desires, or at ARTRA's cost, if ARTRA
fails to diligently defend any such matter.
The Escrow Agreement shall provide that the Escrowed Shares
shall be held by the Escrow Agent and shall be released only as follows:
(a) Upon the earliest to occur of (i) the final
determination by a court of competent jurisdiction,
and the expiration of all periods of appeal, that the
Schroder Warrant has been extinguished, (ii) the
expiration of the Schroder Warrant by its own terms
without the warrant or put option thereunder being
exercised or (iii) the expiration of all applicable
statutes of limitation under which an action could be
maintained by Schroder with respect to the Schroder
Warrant, 50,000 of the Escrowed Shares shall be
released to ARTRA;
(b) Upon the final determination by a court of competent
jurisdiction, and the expiration of all periods of
appeal, that the Schroder Warrant is effective in
accordance with its terms, such number of the
Escrowed Shares shall be sold by the Escrow Agent as
may be necessary to satisfy the judgment and fully
discharge any liability to Schroder;
(c) In accordance with the terms of any settlement
agreement entered into with Schroder with respect to
the Schroder Warrant, with the Escrow Agent to sell
such number of the Escrowed Shares as may be
necessary to satisfy the terms thereof;
(d) If the number of Escrowed Shares needed to satisfy
any judgment pursuant to subparagraph (b) or the
terms of any settlement agreement pursuant to
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subparagraph (c) (in either case, the "Schroder
Satisfaction Shares") is less than 50,000, the number
of shares determined by subtracting the Schroder
Satisfaction Shares from 50,000 shall thereupon be
released to ARTRA;
(e) Upon the final determination by a court of competent
jurisdiction, and the expiration of all periods of
appeal, that COMFORCE has no liability for any
clean-up costs for or other damages in connection
with the Gary Site, 50,000 of the Escrowed Shares
shall be released to ARTRA;
(f) Upon the final determination by a court of competent
jurisdiction, and the expiration of all periods of
appeal, that COMFORCE has liability for clean-up
costs for or other damages in connection with the
Gary Site, such number of the Escrowed Shares shall
be sold by the Escrow Agent as may be necessary to
satisfy the judgment and fully discharge any
liability therefor;
(g) In accordance with the terms of any settlement
agreement entered into with the plaintiffs in the
case involving the Gary Site, with the Escrow Agent
to sell such number of the Escrowed Shares as may be
necessary to satisfy the terms thereof;
(h) If the number of Escrowed Shares needed to satisfy
any judgment pursuant to subparagraph (f) or the
terms of any settlement agreement pursuant to
subparagraph (g) (in either case, the "Gary
Satisfaction Shares") is less than 50,000, the number
of shares determined by subtracting the Gary
Satisfaction Shares from 50,000 shall thereupon be
released to ARTRA;
(i) In accordance with the terms of any settlement
agreements entered into with any of the NDA
Creditors, with the Escrow Agent to sell such number
of the Escrowed Shares as may be necessary to satisfy
the terms thereof; and
(j) 25,000 of the Escrowed Shares shall be released on
the earliest to occur of (i) 360 days after the
closing of the Underwritten Offering, (ii) the full
satisfaction of all obligations owed to all of the
NDA Creditors or (iii) February 28, 1998.
12. ARTRA agrees to cause to be prepared and delivered to
COMFORCE within 14 days after the execution of this Agreement minutes of the
meeting of the Board of Directors of COMFORCE held on or about October 16, 1995,
at which meeting the Global acquisition was approved; provided, however, that,
if required by the Underwriters, as a condition to the filing of the
Underwritten Registration Statement, ARTRA shall cause the secretary of the
meeting to certify to the Underwriters as to the action taken at the meeting so
as not to delay such filing. ARTRA agrees to deliver to COMFORCE within three
days after the execution of this
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Agreement minutes of the meeting of the Board of Directors of ARTRA approving
the Global acquisition, if any such meeting was held.
13. Within five days after the execution of this Agreement,
KSR shall deliver or make available to COMFORCE any remaining files relating to
COMFORCE or its predecessors not previously delivered to COMFORCE; provided,
however, that COMFORCE agrees to make available to KSR and/or its counsel for
review and copying, subject to any confidentiality agreement in customary form
as to information not in the public domain or as to which the attorney-client
privilege obtain, such information in such files (and all files previously
delivered by KSR to COMFORCE) reasonably required (i) to enable KSR to defend
itself in connection with the claims made by any person in connection with any
legal services performed by KSR on behalf of COMFORCE or (ii) for any other like
purpose. KSR shall hold for the benefit of COMFORCE such files as are listed on
Exhibit 13 attached hereto (except such of those files which have previously
been delivered to COMFORCE or previously destroyed by KSR in accordance with its
customary file retention procedures), to make such files available to COMFORCE
upon request and not to destroy any such files unless first offering to deliver
such files to COMFORCE.
14. To the extent required in connection with the Underwritten
Registration Statement, the Shelf Registration Statement, or any listing
application which may be filed with the American Stock Exchange or Nasdaq, KSR
shall deliver its opinion to the effect that all shares of Common Stock of
COMFORCE issued by COMFORCE on or before December 31, 1995 were issued pursuant
to available exemptions from registration under the Securities Act of 1933, as
amended. COMFORCE agrees to pay the KSR's customary fees for issuing any such
opinions.
15. Within three days after the date of execution of this
Agreement, ARTRA shall cause its margin account with Donaldson, Lufkin &
Jenrette to be fully paid, and the certificates evidencing the shares held
therein to be delivered to and held by the Custodian pursuant to the terms of
the Lock-up Agreement and the Custody Agreement.
16. COMFORCE shall cause to be issued to Harvey simultaneously
with the execution of this Agreement a certificate evidencing 150,000 shares of
Common Stock. COMFORCE agrees to cause 22,500 of such shares to be included in
the Underwritten Registration Statement and the remaining 127,500 of such shares
to be included in the Shelf Registration Statement, subject to Harvey agreeing
to enter into a lock-up agreement in the form attached hereto as Exhibit 16. The
shares to be issued to Harvey that are to be included in the Shelf Registration
Statement shall be held by the Custodian under the KSR Custody Agreement as if
such shares were "Lock-up Shares," as described in paragraph 4 hereof.
17. The COMFORCE Parties and the ARTRA Parties, and their
successors and assigns, each hereby release and discharge the other and their
agents, representatives, officers, directors, employees, successors and assigns,
from and against all claims, demands, damages, attorney's fees and costs,
rights, actions, causes of action, suits, debts, obligations, liabilities and
all other claims of whatsoever nature and kind which such Parties may have, or
could have
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brought, against the other or their representatives, officers, directors,
employees, successors and assigns, from any cause whatsoever arising from any
events arising prior to or on the date hereof relating to any of the matters
which are the subject of this Agreement, including without limitation, any of
the matters described in the Letter Agreement or the Assumption Agreement or
relating to the Global acquisition.
18. COMFORCE hereby acknowledges that it is holding
certificates evidencing 31,667 shares of Common Stock owned of record by
Fill-Mor, which shares shall be delivered to KSR to be held under the KSR
Custody Agreement as Lock-up Shares.
19. Each of the parties hereto hereby certifies that he or it
has carefully read and fully understands all of the provisions of this
Agreement, has thoroughly discussed all aspects of this Agreement with counsel,
has been given a reasonable period of time within which to consider the
settlement proposed herein and knowingly and voluntarily enters into this
Agreement.
20. Should any part, term or provision of this Agreement be
declared or be determined by any court to be illegal or invalid, the validity of
the remaining parts, terms or provisions shall not be affected thereby and the
illegal or invalid part, term or provision shall not be deemed to be a part of
this Agreement.
21. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall be deemed to constitute one agreement.
22. This Agreement sets forth the entire agreement between the
parties hereto, and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
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IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as of the day and year first set forth above.
COMFORCE CORPORATION
BY:___________________________________
___________________________________
James L. Paterek
___________________________________
Michael Ferrentino
___________________________________
Christopher P. Franco
_____________________________________
Kevin W. Kiernan
ARTRA GROUP INCORPORATED
BY:___________________________________
FILL-MOR HOLDING, INC.
BY:___________________________________
_____________________________________
Peter R. Harvey
KWIATT, SILVERMAN & REUBEN, LTD.
BY:___________________________________
10
EXHIBIT 10.4
LOCK-UP AGREEMENT
December 19, 1996
Paine Webber Incorporated COMFORCE Corporation
1285 Avenue of the Americans 2001 Marcus Avenue
New York, N.Y. 10019 Lake Success, 11042
Ladies and Gentlemen:
Each of the undersigned understands that COMFORCE Corporation, a
Delaware corporation (the "Company"), proposes to enter into an underwriting
agreement with Paine Webber Incorporated, as the representative of the several
underwriters as may thereafter be listed in a schedule thereto (collectively,
the "Underwriters") relating to a proposed public offering (the "Public
Offering") of shares of the common stock of the Company, par value $.01 per
share (the "Shares" or the "Common Stock"). In this connection, the Company
intends to file with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-1 (the "Registration Statement") to register
Shares for the Public Offering, including Shares to be issued by the Company and
Shares offered for resale by existing stockholders of the Company.
Subject to the restrictions hereinafter set forth, the Company will
register for resale under the Registration Statement 200,000 shares of the
Company's Common Stock held by Fill-Mor Holding, Inc. and 180,000 shares of the
Company's Common Stock held by ARTRA GROUP Incorporated (collectively, the
"Registration Shares"). In consideration thereof, each of the undersigned hereby
agrees that, without the prior written consent of the Underwriters and the
Company, it will not, during the period from the date hereof until 180 days
after the date of the effective date of the Registration Statement (the
"Effective Date") (1) offer, pledge to sell, announce the intention to sell,
sell, issue, contract to sell, sell any option or contract to purchase, purchase
any option or contact to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, (i) the
Registration Shares except pursuant to the Public Offering or (ii) any shares of
Common Stock of the Company held by it which are not Registration Shares (other
than shares subsequently purchased after the date hereof by either of the
undersigned in open market purchases) (the "Lock-up Shares"), or (2) enter into
any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
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During the period from 181 days to 270 days after the Effective Date,
each of the undersigned may sell up to 33% of the Lock-up Shares. During the
period from 271 days to 360 days after the Effective Date, each of the
undersigned may sell (i) any Lock-up Shares that it was permitted to, but did
not, sell pursuant to the preceding sentence and (ii) 33% of the remaining
Lock-up Shares. From and after 361 days after the Effective Date, each of the
undersigned may sell all remaining Lock-up Shares.
Notwithstanding the preceding paragraph, this lock-up agreement shall
not prohibit any transfer or other disposition by either of the undersigned
involving any of the following: (1) a transfer or disposition of shares of
Common Stock as a bona fide gift; or (2) a pledge of Common Stock as collateral
so long as (i) the pledgee is not a registered broker-dealer and (ii) the
pledged shares shall not be placed in street name, shall not be loaned (or made
available to any broker-dealer to be loaned) to any person who maintains or
proposes to maintain a short position in the Company's securities; provided, in
each case, that the transferee, pledges or other person receiving such shares
shall be subject to all of the restrictions set forth in this lock-up agreement
and, if required by the Company, shall agree in writing to be bound by such
provisions.
Each of the undersigned hereby represents and warrants that it has full
power and authority to enter into this lock-up agreement, and that, upon
request, will execute any additional documents necessary or desirable in
connection with the enforcement hereof. All authority herein conferred or agreed
to be conferred and any obligations of each of the undersigned shall be binding
upon its successors and assigns.
In furtherance of the foregoing, the Company, and any duly appointed
transfer agent for the registration or transfer of the securities described
herein, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this lock-up agreement.
Each of the undersigned further agrees that, if required by the Company, an
appropriate restrictive legend in substantially the form attached hereto as
Exhibit A and a stop transfer order restricting transfer of the shares of Common
Stock in violation of the terms of this lock-up agreement may be imposed with
respect to all shares of Common Stock which are subject to this lock-up
agreement, provided that any such legend shall be removed upon termination of
the restrictions imposed hereby.
Each of the undersigned understands that the Company and the
Underwriters will not enter into an underwriting agreement or proceed with the
Public Offering except in reliance upon this lock-up agreement. Each of the
undersigned understands and agrees that, if an underwriting agreement does not
become effective on or before April 30, 1997, if the Company earlier announces
publicly that the Public Offering has been abandoned, or if an underwriting
agreement shall terminate or be terminated prior to payment for and delivery of
the Registration Shares included for resale in the Registration Statement, each
of the undersigned and the Company shall be released from all obligations under
this lock-up agreement; provided, however, that if the Company enters into an
underwriting agreement with a lead underwriter other than Paine Webber
Incorporated or if the Underwriters do not permit either of the undersigned to
fully
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<PAGE>
include the Registration Shares in the Registration Statement, this lock-up
agreement shall nonetheless continue in effect and shall be enforceable by the
Company and the Underwriters as they may be constituted, except that in no event
shall the number of either of the undersigned's Registration Shares be reduced
(i) except on a proportional basis with all persons whose shares are to be
included in the Registration Statement offer for resale or (ii) by more than 50%
of the number of Registration Shares provided herein for inclusion in the
Registration Statement.
Notwithstanding the foregoing, if an underwriting agreement does not
become effective on or before March 15, 1997, Fill-Mor Holding, Inc. shall be
released from its obligations with respect to this lock-up agreement with
respect to such number of shares as are necessary to be sold to discharge its
obligations to Manufacturer's Bank, currently aggregating approximately $2.5
million (the "Manufacturer's Loan"); provided, however, that no shares shall be
released from this lock-up agreement to pay any amounts then due and payable
(after the expiration of any grace periods) under the Manufacturer's Loan unless
the Company shall have failed, after being given at least five business days'
notice, to purchase (at the then current market price) any shares proposed to be
sold to pay the amounts then due under the Manufacturer's Loan or to otherwise
cause the Manufacturer's Loan not to be in default.
Each of the undersigns agrees that the provisions of this lock-up
agreement shall also be binding upon its successors or assigns, as the case may
be.
3
January 29, 1997
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. 333-16965) of our report, which
includes 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. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
January 28, 1997
