SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3916
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1095978
-------------------------------- -----------------
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
500 Central Avenue, Northfield, IL 60093
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (847) 441-6650
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
------------------------------- ------------------------------
Common stock, without par value 7,932,912
<PAGE>
ARTRA GROUP INCORPORATED
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 26, 1997 and December 26, 1996 2
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
Ended June 26, 1997 and June 27, 1996 4
Condensed Consolidated Statement of Changes
in Shareholders' Equity (Deficit)
Six Months Ended June 26, 1997 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 26, 1997
and June 27, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25
PART II OTHER INFORMATION
Item 1. LegalProceedings 38
Item 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
June 26, December 26,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and equivalents $226 $171
Receivables, less allowance for doubtful
accounts of $205 in 1997 and $512 in 1996 10,589 8,267
Inventories 18,241 14,967
Available-for-sale securities 10,438 22,564
Other 2,777 931
----------- -----------
Total current assets 42,271 46,900
----------- -----------
Property, plant and equipment 48,305 45,414
Less accumulated depreciation and amortization 22,469 20,480
----------- -----------
25,836 24,934
----------- -----------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of
$2,235 in 1997 and $2,083 in 1996 2,702 2,995
Other 1,795 2,550
----------- -----------
4,497 5,545
----------- -----------
$72,604 $77,379
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
June 26, December 26,
1997 1996
----------- -----------
LIABILITIES
Current liabilities:
Notes payable, including amounts
due to related parties of
$6,300 in 1997 and $3,600 in 1996 $15,233 $18,631
Current maturities of long-term debt 10,137 2,712
Accounts payable 7,983 5,129
Accrued expenses 11,354 10,394
Income taxes 205 478
Bagcraft detachable put warrant - 1,500
Redeemable preferred stock 11,707 11,100
Liabilities of discontinued operations 271 348
----------- -----------
Total current liabilities 56,890 50,292
----------- -----------
Long-term debt 34,528 34,207
Bagcraft detachable put warrant 4,358 1,450
Other noncurrent liabilities 1,940 685
Commitments and contingencies
Redeemable common stock,
issued 72,984 shares in 1997
and 98,734 shares in 1996 3,175 3,657
Redeemable preferred stock 9,124 8,678
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares;
issued 7,820,064 shares in 1997
and 7,624,766 shares in 1996 5,920 5,793
Additional paid-in capital 41,155 40,211
Unrealized appreciation of investments 13,539 25,719
Receivable from related party,
including accrued interest (6,806) (6,468)
Accumulated deficit (91,167) (86,793)
----------- -----------
(37,359) (21,538)
Less treasury stock, 7,628 shares, at cost 52 52
----------- -----------
(37,411) (21,590)
----------- -----------
$72,604 $77,379
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 26, June 27, June 26, June 27,
1997 1996 1997 1996
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $31,813 $32,363 $60,274 $60,765
---------- --------- ---------- ----------
Costs and expenses:
Cost of goods sold, exclusive of
depreciation and amortization 25,719 25,715 48,113 48,856
Selling, general and administrative 4,083 4,172 8,032 7,972
Depreciation and amortization 1,091 983 2,152 1,959
---------- --------- ---------- ----------
30,893 30,870 58,297 58,787
---------- --------- ---------- ----------
Operating earnings 920 1,493 1,977 1,978
---------- --------- ---------- ----------
Other income (expense):
Interest expense (2,315) (1,667) (4,143) (3,404)
Amortization of debt discount (676) (70) (1,351) (80)
Realized gain on disposal of
available-for-sale securities 42 3,452 255 4,495
Other income (expense), net 141 (79) 178 (210)
---------- --------- ---------- ----------
(2,808) 1,636 (5,061) 801
---------- --------- ---------- ----------
Earnings (loss) before income taxes,
minority interest and extraordinary credit (1,888) 3,129 (3,084) 2,779
Provision for income taxes (242) (50) (41) (50)
Minority interest (359) (363) (717) 190
---------- --------- ---------- ----------
Earnings (loss) before extraordinary credit (2,489) 2,716 (3,842) 2,919
Extraordinary credit, net discharge of indebtedness 9,424
---------- --------- ---------- ----------
Net earnings (loss) (2,489) 2,716 (3,842) 12,343
Dividends applicable to redeemable preferred stock (174) (158) (336) (306)
Reduction of retained earnings applicable
to redeemable common stock (101) (119) (196) (205)
---------- --------- ---------- ----------
Earnings (loss) applicable to common shares ($2,764) $2,439 ($4,374) $11,832
========== ========= ========== ==========
Earnings (loss) per share:
Earnings (loss) before extraordinary credit ($0.35) $0.29 ($0.56) $0.28
Extraordinary credit - - - 1.23
---------- --------- ---------- ----------
Net earnings (loss) ($0.35) $0.29 ($0.56) $1.51
========== ========= ========== ==========
Weighted average number of shares of common stock and
common stock equivalents outstanding 7,885 8,003 7,859 7,834
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited 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 26, 1996 7,624,766 $5,793 $40,211 $25,719 ($6,468) ($86,793) 7,628 ($52) ($21,590)
Net earnings - - - - - (3,842) - - (3,842)
Common stock issued
to pay liabilities 39,955 30 184 - - - - - 214
Increase in receivable
from related party,
including accrued interest - - - - (338) - - - (338)
Decrease in unrealized
appreciation of investments - - - (12,180) - - - - (12,180)
Exercise of stock options
and warrants 39,800 30 148 - - - - - 178
Redeemable common stock
obligation paid by the issuance
of additional common shares 115,543 67 612 - - - - - 679
Redeemable common
stock accretion - - - - - (196) - - (196)
Redeemable preferred
stock dividends - - - - - (336) - - (336)
---------- ------- ------- --------- -------- -------- ------ ----- ----------
Balance at June 26, 1997 7,820,064 $5,920 $41,155 $13,539 ($6,806) ($91,167) 7,628 ($52) ($37,411)
========== ======= ======= ========= ======== ======== ====== ===== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Six Months Ended
---------------------
June 26, June 27,
1997 1996
-------- --------
Net cash flows used by operating activities ($ 1,980) ($ 1,971)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,636) (1,275)
Acquisition of AB Specialty, net of deposit (1,131) --
Proceeds from sale of COMFORCE common stock 33 3,717
Proceeds from collection of Welch notes -- 342
Decrease in unexpended plant construction funds -- 552
Other -- 89
-------- --------
Net cash flows from (used by) investing activities (2,734) 3,425
-------- --------
Cash flows from financing activities:
Net decrease in short-term debt (3,245) (4,060)
Proceeds from long-term borrowings 70,915 67,753
Reduction of long-term debt (61,612) (66,676)
Redemption of detachable put warrants (1,600) --
Exercise stock options and warrants 178 169
Other 133 --
-------- --------
Net cash flows from (used by) financing activities 4,769 (2,814)
-------- --------
Increase (decrease) in cash and cash equivalents 55 (1,360)
Cash and equivalents, beginning of period 171 2,347
-------- --------
Cash and equivalents, end of period $ 226 $ 987
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $3,407 $ 2,579
Income taxes paid, net 175 8
Supplemental schedule of noncash investing
and financing activities:
BCA Holdings redeemable preferred stock
issued in exchange for Bagcraft
redeemable preferred stock -- 8,135
Issue common stock to pay down liabilities 214 848
Issue common stock to pay redeemable
common stock put obligation 679 --
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA GROUP Incorporated ("ARTRA" or the "Company"), 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.
The Company's 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 June 26, 1997, and the results of operations and
changes in cash flows for the three and six month periods ended June 26, 1997
and June 27, 1996. 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 credit arrangements and to fund its debt service and liquidity
requirements in 1997. 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
6, Notes Payable, and Note 7, 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 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 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. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 26,
1996, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 26, 1996 was derived from
the audited consolidated financial statements 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. CONCENTRATION OF RISK
The accounts receivable of the Company's Bagcraft subsidiary at June 26, 1997
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 June 26, 1997, Bagcraft had 10 customers with accounts
receivable balances that aggregated approximately 39% of the Company's total
trade accounts receivable. In fiscal year 1996 no single customer accounted for
10% or more of Bagcraft's sales.
7
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. INVENTORIES
Inventories (in thousands) consist of:
June 26, December 26,
1997 1996
------- -------
Raw materials and supplies $ 6,298 $ 5,582
Work in process 318 287
Finished goods 11,625 9,098
------- -------
$18,241 $14,967
======= =======
4. INVESTMENT IN COMFORCE CORPORATION
At June 26, 1997 ARTRA's investment in COMFORCE Corporation ("COMFORCE",
formerly the Lori Corporation, "Lori"), 1,739,703 shares held by the Company and
its Fill-Mor Holding, Inc. ("Fill-Mor") subsidiary, represented approximately
13% of COMFORCE's outstanding common shares. The investment in COMFORCE common
stock is accounted for under the provisions of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Under this statement ARTRA's
investment in COMFORCE is classified as available for sale securities and is
stated at fair value. The Company's operating plan for the remainder of fiscal
year 1997 anticipates the sale of these marketable securities, with proceeds to
be used principally to pay down Corporate debt obligations and fund working
capital requirements. Accordingly, ARTRA's investment in COMFORCE common stock
is classified in the Company's condensed consolidated balance as a current
asset. At June 26, 1997 the gross unrealized gain relating to ARTRA's investment
in COMFORCE, reflected as a separate component of shareholders' equity, was
$13,539,000.
At June 26, 1997, 700,00 shares of COMFORCE common stock owned by the Company
and its Fill-Mor subsidiary have been pledged as collateral for various debt
obligations. Additionally, the Company and a lender are currently negotiating
the form of collateral for certain promissory notes issued in June 1997 with an
aggregate principal amount of $2,950,000. The collateral is anticipated to be
substantially all of it the Company's otherwise unencumbered COMFORCE common
shares (approximately 1,000,000 shares).
In conjunction with COMFORCE's 1995 acquisition of its COMFORCE Telecom
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 June 26, 1997 and
December 26, 1996, $271,000 and $348,000, respectively, of such pre-existing
Lori liabilities were classified in ARTRA's consolidated balance as current
liabilities of discontinued operations. ARTRA has deposited 125,000 shares of
its COMFORCE common stock into an escrow account to collateralize its remaining
obligations under the Assumption Agreement.
Effective December 19, 1996, ARTRA and COMFORCE agreed to settle various
differences in the interpretation of certain agreements relating to the COMFORCE
Telecom acquisition pursuant to which COMFORCE agreed to include in a proposed
underwritten public offering 380,000 shares of COMFORCE common stock held by
ARTRA and its Fill-Mor subsidiary 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 proposed underwritten public
offering. COMFORCE did not retain an underwriter for the proposed underwritten
public offering and, accordingly, effective April 30, 1997 ARTRA was released
from the provisions of the Lock-up Agreement.
8
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In June 1997, ARTRA sold 5,000 COMFORCE shares in the market for
proceeds of approximately $33,000. The disposition of these 5,000 COMFORCE
shares during the quarter ended June 26, 1997 resulted in a realized gain of
$42,000, with cost determined by average cost.
In March 1997, a lender received 25,000 COMFORCE common shares held by ARTRA as
additional consideration for a short-term loan. The disposition of these 25,000
COMFORCE common shares resulted in a realized gain of $213,000, with cost
determined by average cost.
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 June 26, 1997 and December 26, 1996 as other
receivables 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 resulted 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
June 26, 1997, no options to acquire any of the 200,000 COMFORCE common shares
had been exercised.
As additional consideration for a February 1996 short-term loan 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 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.
5. 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
9
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
with the issuance of BCA (the parent of Bagcraft) preferred stock (see Note 9)
along with proceeds received from a short-term loan agreement with an
unaffiliated company that was subsequently repaid in April 1996. 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).
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
========
6. NOTES PAYABLE
Notes payable (in thousands) consist of:
June 26, December 26,
1997 1996
------- -------
ARTRA 12% secured promissory notes -
1997 private placement $ 4,950
ARTRA 12% secured promissory notes -
1996 private placement $ 7,675
Amounts due to related parties,
interest principally at 10% 6,300 3,600
ARTRA bank notes payable,
interest at the lender's index rate -- 2,500
Other, interest from 10% to 20% 3,983 4,856
------- -------
$15,233 $18,631
======= =======
10
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Secured Promissory Notes
1997 Private Placements
In June 1997, ARTRA completed private placements of $4,950,000 of 12% secured
promissory notes due in December 1997. As additional consideration the
noteholders received warrants to purchase an aggregate of 227,500 ARTRA common
shares at a price of $5.00 per share. The warrants expire in June 1999. The
warrantholders have the right to put these warrants back to ARTRA at any time
during a six month period commencing in December 1997, at a price of $2.00 per
share. The cost of this obligation ($455,000 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 June 1997 (the commencement date of the private
placement) through December 1997 (the maturity date of the notes). The proceeds
from the private placement were used principally to pay down other debt
obligations. The secured promissory notes are collateralized principally as
follows:
Promissory notes with an aggregate principal amount of $2,000,000 are
collateralized by a 25% interest in the common stock of ARTRA's BCA
subsidiary (the parent of Bagcraft).
The Company and the lender are currently negotiating the form of
collateral for certain promissory notes with an aggregate principal
amount of $2,950,000, which is anticipated to be substantially all of
the Company's otherwise unencumbered COMFORCE common shares
(approximately 1,000,000 shares).
In July 1997, ARTRA completed private placements of $7,475,000 of 12% secured
promissory notes due in January 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 199,311 ARTRA common
shares at a price of $4.50 per share. The warrants expire in July 1998. The
warrantholders have the right to put these warrants back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the maturity date of the notes, at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company) will be accrued in the Company's financial statements as a charge to
interest expense over the period July 1997 (the date of the private placement)
through January (the scheduled maturity date of the notes). In the event of a
default, as defined in the note agreements, the secured promissory notes will
bear interest at 37%. The proceeds from the private placement were used
principally to pay down other debt obligations. The secured promissory notes are
collateralized principally as follows:
A $4,000,000 note is collateralized by 575,000 shares of COMFORCE
common stock owned by the Company's Fill-Mor subsidiary and a secondary
interest in the common stock of ARTRA's BCA subsidiary (the parent of
Bagcraft).
Promissory notes with an aggregate principal amount of $3,475,000 are
collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
17.4% interest), 1,784.02 shares of BCA Series A redeemable preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable
preferred stock (a 79.8% interest).
The proceeds from the July 1997 private placement were advanced to Peter R.
Harvey as discussed in Note 13.
1996 Private Placement
In April 1996, ARTRA commenced a private placement of $7,675,000 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, 1998, at a price of $2.00 per share. The cost of
this obligation ($837,500 if all warrants are put back to the Company) was
accrued in the Company's financial
11
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 were 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. During the second quarter of
1997, the Company repaid these secured promissory notes with the proceeds of
additional short-term borrowings and with funds received from the Company's
Bagcraft subsidiary in accordance with a May 1997 amendment to its credit
agreement (see Note 7).
Amounts Due To Related Parties
At December 26, 1996, 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. The
proceeds of this loan were used to pay down various ARTRA short-term loans and
other debt obligations. In December 1995 the unaffiliated company received
126,222 shares of ARTRA common in payment of past due interest through October
31, 1995. Interest on the loans has been paid through March, 1997. Payment on
the loans was due March 31, 1994, however, the lender has not demanded payment.
In February 1997, the lender received a warrant to purchase an additional
100,000 ARTRA common shares at $5.625 per share as consideration for not
demanding payment of this obligation. In April 1997, the lender received a
warrant to purchase an additional 100,000 ARTRA common shares at $5.00 per share
as consideration for not demanding payment of this obligation. In June 1997
outstanding borrowings to the unaffiliated company were reduced to $300,000 with
the proceeds from other short-term borrowings. In July 1997 ARTRA repaid all
remaining obligations under these loans.
At December 26, 1996, ARTRA outstanding borrowings of $500,000 from an outside
director of the Company evidenced by a short-term note bearing interest at 10%.
The loan was collateralized by 125,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan and a
December 1996 extension, the director received five year warrants to purchase an
aggregate of 50,000 ARTRA common shares at a prices ranging from $5.00 to $5.875
per share. The proceeds of the loan were used for working capital.
In January 1997, ARTRA borrowed an additional $300,000 from this lender
evidenced by an short-term note, due December 23, 1997, bearing interest at 8%.
The loan was collateralized by 100,000 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 2002, to purchase 25,000 ARTRA common
shares at a price of $5.75 per share.
In March 1997, ARTRA borrowed an additional $1,000,000 from this lender
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary. As additional compensation, the lender received
an option to purchase 25,000 shares of COMFORCE common stock, owned by the
Company's Fill-Mor subsidiary, at a price of $4.00 per share. The proceeds from
this loan were used in part to repay the ARTRA/Fill-Mor $2,500,000 bank term
loan described below.
In April 1997, ARTRA borrowed $5,000,000 from the above director evidenced by a
note, due April 20, 1998, bearing interest at 10%. As additional compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The warrantholder has the right to put this warrant back to
ARTRA at any time during the period April 21, 1998 to April 20, 2000, for a
total purchase price of $1,000,000. The cost of this obligation will be accrued
in the Company's financial statements as a charge to interest expense over the
period April 21, 1997 (the date of the loan) through April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA). The proceeds
from this loan were used to repay $1,800,000 of borrowings from this lender
outstanding at March 27, 1997 and pay down other ARTRA debt obligations.
12
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In June 1997, ARTRA borrowed an additional $1,000,000 from the above director
evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the lender received a warrant to purchase 40,000 ARTRA
common shares at a price of $5.00 per share. The warrantholder has the right to
put this warrant back to ARTRA at any time during the period December 10, 1997
to June 10, 1998, for a total purchase price of $80,000. The cost of this
obligation will be accrued in the Company's financial statements as a charge to
interest expense over the period June 10, 1997 (the date of the loan) through
December 10, 1997 (the date the warrantholder has the right to put the warrant
back to ARTRA). The proceeds from this loan were used to pay down other ARTRA
debt obligations. As of June 26, 1997, ARTRA had total outstanding borrowings of
$6,000,000 from this director collaterallized by a 75% interest in the common
stock of ARTRA's BCA subsidiary (the parent of Bagcraft). In July 1997,
borrowings from this lender were reduced to $3,000,000 with proceeds advanced to
ARTRA from a Bagcraft term loan as discussed in Note 7.
In May 1996, ARTRA borrowed $100,000 from 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, private
investor was elected to the Company's board of directors. Effective January 17,
1997, private investor exercised his conversion rights and received 18,182
shares of ARTRA common stock as payment of the principal balance of his note.
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, which provided for
interest payable monthly at the bank's reference rate, was guaranteed by ARTRA
and was collateralized by 1,265,000 shares of COMFORCE common stock. Proceeds of
the loan were used for working capital. In March 1997, the loan was repaid with
proceeds from other short-term borrowings.
Other
At June 26, 1997 and December 26, 1996, ARTRA was the obligor under two demand
notes issued to an unaffiliated company, in the amount of $2,266,000, including
accrued interest. The notes were issued in October, 1990 with interest at 15
percent. ARTRA is currently negotiating with the noteholder to extend or
refinance this obligation.
At June 26, 1997 and December 26, 1996, ARTRA also had outstanding short-term
borrowings from other unrelated parties aggregating $1,717,000 and $1,990,000.
The notes, issued at various times during the period June 1994 to June 1997,
with interest rates varying between 8 % and 15% mature at various times in 1997
and 1998.
In March 1997, ARTRA borrowed $1,000,000 from an unaffiliated corporation
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary. As additional compensation, the lender received
an option to purchase 25,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary at a price of $4.00 per share, with the right to
put the option back to ARTRA on or before May 30, 1997 for a put price of
$50,000. Under certain circumstances, ARTRA has the right to repurchase the
option for $50,000. In May 1997, ARTRA repurchased the option for $50,000 and
repaid this loan. The proceeds from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.
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 were 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.
13
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
7. LONG-TERM DEBT
Long-term debt (in thousands) consists of:
June 26, December 26,
1997 1996
-------- --------
Bagcraft:
Credit Agreement:
Term Loan A, interest at the
lender's index rate plus .25% $ 19,000 $ 20,000
Term Loan B, interest at the
lender's index rate plus .75% 5,000 --
Revolving credit loan,
interest at the lender's index rate 13,300 7,990
Unamortized discount (3,309) (1,752)
City of Baxter Springs,
Kansas loan agreements,
interest at varying rates 10,674 10,681
-------- --------
44,665 36,919
Current scheduled maturities (10,137) (2,712)
-------- --------
$ 34,528 $ 34,207
======== ========
Bagcraft entered into a credit agreement, dated as of December 17, 1993 (the
"Credit Agreement") that initially provided for a revolving credit loan with
interest at the lender's index rate plus 1.5% and two separate term loans. The
term loans were 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. The Credit Agreement, as amended, had been extended
to mature on September 30, 1997.
In December 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. Term Loan A and Term
Loan B, as previously defined in the Credit Agreement were consolidated into a
new $20,000,000 term loan with interest at the lender's index rate plus .25%
(8.75% at June 26, 1997 and 8.5% at December 26, 1996). Principal payments under
the term loan 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 amended and restated
Credit Agreement reduced the interest on the revolving credit loan to the
lender's index rate and also provided for a $3,000,000 capital expenditures line
of credit with interest at the lender's index rate plus .25%.
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 June 26, 1997 and December 26, 1996, approximately $3,800,000
and $6,200,000, respectively, was available and unused by Bagcraft under the
revolving credit loan. Borrowings under the revolving credit loan are payable
upon maturity of the Credit Agreement, unless accelerated under terms of the
Credit Agreement. At June 26, 1997 and December 26, 1996, the interest rate on
the revolving credit loan was 8.5% and 8.25%, respectively.
14
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 limit future 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 June 26, 1997 Bagcraft
was in compliance with the provisions of its Credit Agreement.
Effective May 5, 1997, the Credit Agreement was amended to provide for a
$5,000,000 term loan (Term Loan B) with interest at the lender's index rate plus
.75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms of
the Credit Agreement. The proceeds of Term Loan B were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on May 8, 1998. ARTRA used the
proceeds of this loan to repay certain ARTRA debt obligations.
Effective July 17, 1997, the Credit Agreement was amended to provide for a
$7,500,000 term loan (Term Loan C) with interest at the lender's index rate plus
1%. Term Loan C is payable on July 15, 2000, unless accelerated under terms of
the Credit Agreement. The proceeds of Term Loan C were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on July 15, 1998. ARTRA used
the proceeds of this loan to repay certain ARTRA debt obligations.
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
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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement, Bagcraft repurchased
50% of the Warrant (6.5% of the fully diluted common equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the Warrant's pro rata share of the
highest of book value, appraised value or market value of Bagcraft as noted
above. In accordance with the May 5, 1997 and July 17, 1997 amendments to the
Credit Agreement the Warrant was amended. In the event there is a change in
Bagcraft's ownership through July 15, 2000, the lender is entitled to receive an
amount equal to 6.5% of the fully diluted common equity of Bagcraft, based upon
the fair value of Bagcraft at the date of a change of ownership, less the
$1,500,000 the lender received in January 1997 when Bagcraft repurchased 50% of
the Warrant.
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 June 26, 1997 and 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:
$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 June 26, 1997
and December 26, 1996, Bagcraft had outstanding borrowings of
$4,850,000 under this loan agreement.
15
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED 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 June 26, 1997 and December 26, 1996,
Bagcraft had outstanding borrowings of $224,000 and $231,000,
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.
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.
8. REDEEMABLE COMMON STOCK
In recent years 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 at a premium over the initial sales price.
The increment in the option price over the initial sales price of redeemable
common stock is reflected in the Company's financial statements by a charge to
retained earnings. At June 26, 1997 and December 26, 1996 options were
outstanding that, if exercised, would require ARTRA to repurchase 72,984 and
98,734 shares of its common stock for an aggregate amount of $3,175,000 and
$3,657,000, respectively.
During 1987, ARTRA entered into an agreement with a private corporation under
which it sold its common shares along with a put option that required ARTRA to
repurchase these shares at the option of the holder. A major shareholder and
executive officer of the private corporation is an ARTRA director. The put
option agreement has been extended from time to time, most recently in November
1992. The private corporation received the right to sell to ARTRA 23,004 shares
of ARTRA common stock at an initial put price of $56.76 pre share. The option
price increases by 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. At
June 26, 1997, the option price was $89.52 per share.
As additional consideration for its guaranty of $2,500,000 of ARTRA bank notes
during the period March 1989 through March 1994, the private corporation noted
above received 49,980 ARTRA common shares. On March 31, 1994, ARTRA entered into
a series of agreements with its bank lender and with the above private
corporation. 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
ARTRA note payable and an option to put back to ARTRA its 49,980 shares of ARTRA
common stock at a price of $15.00 per share. The option price increases by $2.25
per share annually ($22.31 per share at June 26, 1997). During the first quarter
of 1996 the ARTRA bank notes were discharged (see Note 5) and the $2,500,000
note payable to the private corporation and related accrued interest was paid in
full principally with proceeds from additional short-term borrowings.
In January 1997, the Company settled an obligation that would have required
ARTRA to repurchase 25,750 common shares for a total of $679,000. The option
holder retained the 25,750 ARTRA common shares subject to the option agreement
and received an additional 89,793 ARTRA common shares in settlement of all
obligations due under the option agreement. Accordingly, the 25,750 shares of
ARTRA common stock subject to the option agreement were removed from redeemable
common stock and reclassified to shareholders' equity.
16
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock (in thousands) consists of:
<TABLE>
<CAPTION>
June 26, December 26,
1997 1996
------- -------
<S> <C> <C>
Currently payable:
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 $ 2,065 $ 2,007
BCA Holdings preferred stock, Series B,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
8,135 shares authorized and issued 9,642 9,093
------- -------
$ 11,707 $ 11,100
======= =======
Noncurrent:
ARTRA redeemable preferred stock,
Series A, $1,000 par value,
6% cumulative payment-in-kind,
including accumulated dividends,
net of unamortized discount
of $1,271 in 1997 and $1,271 in 1996;
redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,750 shares $ 4,651 $ 4,315
BCA Holdings preferred stock, Series A,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
10,000 shares authorized; issued 3,675 shares 4,473 4,363
------- -------
$ 9,124 $ 8,678
======= =======
</TABLE>
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 $2,002,000 and $1,836,000 were
accrued at June 26, 1997 and December 26, 1996, respectively.
17
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 Series A preferred stock
having a liquidation value of $3,000,000. Accumulated dividends of $798,000 and
$688,000 were accrued at June 26, 1997 and December 26, 1996, 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 $1,200,000 and
$1,142,000 were accrued at June 26, 1997 and December 26, 1996, respectively.
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
consolidated statement of operations as minority interest.
The BCA Series B preferred stock is redeemable on June 1, 1997. Accumulated
dividends of $1,507,000 and $958,000 were accrued at June 26, 1997 and December
26, 1996, respectively.
In conjunction with the preferred stock exchange agreement, Bagcraft's lender
consented to an advance of $4,135,000 under Bagcraft's revolving credit loan 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
Note 5.
10. INCOME TAXES
No income tax benefit was recognized in connection with the Company's 1997
pre-tax loss due to the Company's tax loss carryforwards and the uncertainty of
future taxable income. The 1996 extraordinary credit represents a net gain from
discharge of indebtedness. No income tax expense is reflected in the Company's
financial statements resulting from the 1996 extraordinary credit due to the
utilization of tax loss carryforwards.
At June 26, 1997, the Company and its subsidiaries had Federal income tax loss
carryforwards of approximately $36,000,000, expiring principally in 2002 - 2010,
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
18
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
11. 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.
12. LITIGATION
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At June 26, 1997 and December 26, 1996,
the Company had accrued current liabilities of $1,900,000 for potential
business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management does not believe the outcome of these matters will have a material
adverse effect on the Company's financial statements. However, ARTRA may not
have available funds to pay liabilities arising out of these business-related
litigation and environmental matters or, in certain instances, to provide for
its legal defense.
In 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 by 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 and junior debentures 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.
19
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
In January, 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary 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 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 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against seventeen parties for alleged
involvement with the Cross Brothers site. The complaint alleged Bagcraft was
responsible for the costs of cleanup incurred and to be incurred. Although
Bagcraft has denied liability for the site, it has entered into a settlement
agreement with the State, along with the other potential responsible parties, to
resolve all claims associated with the site. In July, 1997 Bagcraft paid
approximately $150,000 to formally extinguish the state claim.
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'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.
20
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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. In April 1997, the EPA filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.
Bagcraft reported a release associated with solvent tanks located in a vault at
its Chicago manufacturing facility. After seeking approval from the Illinois
Environmental Protection Agency ("IEPA"), Bagcraft installed and is currently
operating a soil vapor gas extraction system designed to achieve remedial
objectives which the IEPA has determined to be appropriate to the site. Bagcraft
has since received a No Further Recommendation Letter from the IEPA.
Bagcraft has been notified that it may have responsibility with respect to a
clean-up site on Basket Creek Road, Georgia. Bagcraft presently has no
indication of its liability, if any or whether it is a responsible party.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1968 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. The Company has filed counterclaims against
Sherwin-Williams and cross claims against other former owners of the property.
The Company also is vigorously defending this action and has raised numerous
defenses. Currently, the case is in its early stages of discovery and the
Company cannot determine what, if any, its liability may be in this matter.
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
21
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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 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.
13. RELATED PARTY TRANSACTIONS
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:
June 26, December 26,
1997 1996
--------- ---------
Total advances, including accrued interest $ 8,677 $ 7,998
Less interest for the period January 1,
1993 to date, accrued and fully reserved (1,871) (1,530)
--------- ---------
Net advances $ 6,806 $ 6,468
========= =========
22
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ARTRA has total advances due from its president, Peter R. Harvey, of which
$8,677,000 and $7,998,000, including accrued interest, remained outstanding at
June 26, 1997 and December 26, 1996, respectively. The advances bear interest at
the prime rate plus 2% (10.5% at June 26, 1997 and 10.25% December 26, 1996,
respectively). This receivable from Peter R. Harvey has been classified as a
reduction of common shareholders' equity.
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%. In April 1995 advances from
ARTRA's Fill-Mor subsidiary to Peter R. Harvey totaling $1,540,000 (including
$398,000 of accrued interest) 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 six months ended June 26, 1997 and June 27,
1996 totaled $341,000 and $205,000, 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.
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 1996 discharge of
bank indebtedness (see Note 5), 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
March 1997, the bank sold its interest in Mr. Harvey's note and the related
collateral to a private investor. ARTRA retained its $2,150,000 security
interest the real estate, subordinated to the noteholder's $850,000 security
interest in this real estate.
In July 1997, ARTRA advanced an additional $7,475,000 to Peter R. Harvey. Mr.
Harvey provided ARTRA with additional collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 17.4% interest), 1,784.02
shares of BCA Series A redeemable preferred stock (a 48.5% interest) and 6,488.8
shares of BCA Series B redeemable preferred stock (a 79.8% interest). As of June
26, 1997, this additional collateral had a carrying value in ARTRA's condensed
consolidated balance sheet of approximately $10,700,000. The advances were
funded with the proceeds from the July 1997 private placement of ARTRA notes as
discussed in Note 6.
23
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In conjunction with COMFORCE's October 1995 acquisition of COMFORCE Telecom,
ARTRA agreed to assume substantially all pre-existing COMFORCE liabilities and
indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. Accordingly,
at June 26, 1997 and December 26, 1996, respectively, $271,000 and $348,000 of
such pre-existing Lori liabilities were classified in ARTRA's consolidated
balance sheet at as current liabilities of discontinued operations.
For a discussion of certain other related party debt obligations see Note 6.
14. OTHER INFORMATION
Effective January 2, 1997, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration consisting of cash of approximately $2.4 million. The
purchased assets consisted principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement, has been accounted
for by the purchase method and, accordingly, the assets and liabilities of AB
were included in the Company's financial statements at their estimated fair
market value at the date of acquisition. The results of operations of AB are not
considered material to the Company's consolidated financial statements. The
acquisition of AB is expected to enhance Bagcraft's specialty bag business. At
December 26, 1996, other noncurrent assets included a deposit of approximately
$1.2 million related to the acquisition of AB.
24
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion supplements the information found in the financial
statements and related notes:
Results of Operations
The Company, through its wholly-owned Bagcraft subsidiary, currently operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry. Bagcraft 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.
The following table presents, as a percentage of net sales, operating expenses
and other income (expense) included the Company's earnings (loss) from
continuing operations for the three and six month periods ended June 26, 1997
and 27, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
June 26, June 27, June 26, June 27,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 80.8% 79.5% 79.8% 80.4%
Selling, general and administrative 12.8% 12.9% 13.3% 13.1%
Depreciation and amortization 3.4% 3.0% 3.6% 3.2%
------ ------ ------ ------
97.0% 95.4% 96.7% 96.7%
------ ------ ------ ------
Operating earnings 3.0% 4.6% 3.3% 3.3%
------ ------ ------ ------
Other income (expense):
Interest expense -7.3% -5.2% -6.9% -5.6%
Amortization of debt discount -2.1% -.2% -2.2% -.1%
Realized gain on disposal of
available-for-sale securities .1% 10.7% .4% 7.4%
Other income (expense), net .4% -.2% .3% -.3%
------ ------ ------ ------
-8.9% 5.1% 8.4% 1.4%
------ ------ ------ ------
Earnings (loss) before income taxes,
minority interest and extraordinary credit -5.9% 9.7% -5.1% 4.7%
Provision for income taxes -.8% -.2% -.1% -.1%
Minority interest -1.1% -1.1% 1.2% -.3%
------ ------ ------ ------
Earnings (loss) before extraordinary credit -7.8% 8.4% -6.4% 4.9%
====== ====== ====== ======
</TABLE>
25
<PAGE>
Three Months Ended June 26, 1997 vs. Three Months Ended June 27, 1996
Net sales of $31,813,000 for the three months ended June 26, 1997 were $550,000,
or 1.7%, lower than net sales for the three months ended June 27, 1996. A
decrease in 1997 food services sales combined with increased June 1996 shipments
due to a July 1996 planned temporary plant shutdown, was partially offset by
incremental 1997 sales attributable to Bagcraft's January 1997 acquisition of
the business assets of AB Specialty. The 1997 decrease in food service sales is
attributable to customer deferrals of certain key promotions in 1997 and to 1996
sales to a former food service customer.
The Company's cost of sales of $25,719,000 for the three months ended June 26,
1997 decreased $4,000 as compared to the three months ended June 27, 1996. Cost
of sales for the three months ended June 27, 1996 was 80.8% of net sales
compared to a cost of sales percentage of 79.5% for the three months ended June
27, 1996. The increase in cost of sales percentage is primarily attributable to
increased employee benefit costs and a slightly less favorable product mix in
1997.
Selling, general and administrative expenses were $4,083,000 for the three
months ended June 26, 1997 as compared to $4,172,000 for the three months ended
June 27, 1996. Selling, general and administrative expenses were 12.8% of net
sales for the three months ended June 26, 1997 as compared to 12.9% of net sales
for the three months ended June 27, 1996. The 1997 decrease in selling, general
and administrative expenses is primarily attributable to costs accrued in June
1996 to consolidate Bagcraft's distribution facilities, partially offset by
Bagcraft's January 1997 acquisition of the business assets of AB Specialty.
Depreciation and amortization expense was $1,091,000 for the three months ended
June 26, 1997 as compared to $983,000 for the three months ended June 27, 1996.
Depreciation and amortization expense was 3.4% of net sales for the three months
ended June 26, 1997 as compared to 3.0% of net sales for the three months ended
June 27, 1996. The 1997 increase in depreciation and amortization is primarily
attributable to Bagcraft's January 1997 acquisition of the business assets of AB
Specialty.
The Company had operating earnings in the three months ended June 26, 1997 of
$920,000 as compared to operating earnings of $1,493,000 in the three months
ended June 27, 1996. The 1997 decrease in operating earnings is attributable to
decreased 1997 net sales and operating margins as noted above.
Interest expense for the three months ended June 26, 1997 increased $648,000 as
compared to the three months ended June 27, 1996. The 1997 increase is
principally attributable to an increased level of borrowings at the Corporate
level and related loan fees incurred.
Amortization of debt discount was $676,000 for the three months ended June 26,
1997 as compared to $70,000 for the three months ended June 27, 1996. The 1997
increase is attributable to the December 1996 amendment and restatement of
Bagcraft's Credit Agreement.
No income tax benefit was recognized in connection with the Company's 1997
pre-tax loss due to the Company's tax loss carryforwards and the uncertainty of
future taxable income.
Six Months Ended June 26, 1997 vs. Six Months Ended June 27, 1996
Net sales of $60,274,000 for the six months ended June 26, 1997 were $491,000,
or .8%, lower than net sales for the six months ended June 27, 1996. A decrease
in 1997 food services sales combined with increased June 1996 shipments due to a
July 1996 planned temporary plant shutdown, was partially offset by incremental
1997 sales attributable to Bagcraft's January 1997 acquisition of the business
assets of AB Specialty. The 1997 decrease in food service sales is attributable
to customer deferrals of certain key promotions in 1997 and to 1996 sales to a
former food service customer.
26
<PAGE>
The Company's cost of sales of $48,113,000 for the six months ended June 26,
1997 decreased $743,000 as compared to the six months ended June 27, 1996. Cost
of sales for the six months ended June 26, 1997 was 79.8% of net sales compared
to a cost of sales percentage of 80.4% for the six months ended June 27, 1996.
The decrease in cost of sales and cost of sales percentage is primarily
attributable to improved production efficiencies in 1997.
Selling, general and administrative expenses were $8,032,000 for the six months
ended June 26, 1997 as compared to $7,972,000 for the six months ended June 27,
1996. Selling, general and administrative expenses were 13.3% of net sales for
the six months ended June 26, 1997 as compared to 13.1% of net sales for the six
months ended June 27, 1996. The 1997 increase in selling, general and
administrative expenses is primarily attributable to Bagcraft's January 1997
acquisition of the business assets of AB Specialty and increased employee
compensation costs, partially offset by costs accrued in June 1996 to
consolidate Bagcraft's distribution facilities.
Depreciation and amortization expense was $2,152,000 for the six months ended
June 26, 1997 as compared to $1,959,000 for the six months ended June 27, 1996.
Depreciation and amortization expense was 3.6 % of net sales for the six months
ended June 26, 1997 as compared to 3.2% of net sales for the six months ended
June 27, 1996. The 1997 increase in depreciation and amortization is primarily
attributable to Bagcraft's January 1997 acquisition of the business assets of AB
Specialty.
The Company had operating earnings in the six months ended June 26, 1997 of
$1,977,000 as compared to operating earnings of $1,978,000 in the six months
ended June 27, 1996. Slightly improved 1997 operating margins were offset by
increased selling, general and administrative expenses and increased
depreciation and amortization, as noted above,.
Interest expense for the six months ended June 26, 1997 increased $739,000 as
compared to the six months ended June 27, 1996. The 1997 increase is principally
attributable to an increased level of borrowings at the Corporate level and
related loan fees incurred.
Amortization of debt discount was $1,351,000 for the six months ended June 26,
1997 as compared to $80,000 for the six months ended June 27, 1996. The 1997
increase is attributable to the December 1996 amendment and restatement of
Bagcraft's Credit Agreement.
No income tax benefit was recognized in connection with the Company's 1997
pre-tax loss due to the Company's tax loss carryforwards and the uncertainty of
future taxable income. The 1996 extraordinary credit represents a net gain from
discharge of indebtedness. No income tax expense is reflected in the Company's
financial statements resulting from the 1996 extraordinary due to the
utilization of tax loss carryforwards.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents increased $55,000 during the six months ended June 26,
1997. Cash flows from financing activities of $4,769,000 exceeded cash flows
used by operating activities of $1,980,000 and cash flows used by investing
activities of $2,734,000. Cash flows from financing activities were principally
attributable to a net increase in long-term borrowings. Cash flows used by
operating activities were principally attributable to a net investment in
receivables and inventory at the Company's Bagcraft subsidiary. Cash flows from
investing activities principally represent funds expended to complete Bagcraft's
acquisition of the business assets of AB Specialty and capital expenditures.
The Company's consolidated working capital deficiency increased $11,227,000 to
$14,619,000 during the six months ended June 26, 1997. The increase in working
capital deficiency is principally attributable to unrealized depreciation of
available-for-sale securities (COMFORCE common stock).
27
<PAGE>
Status of Debt Agreements and Operating Plan
ARTRA Corporate
As of June 26, 1997, the Company's corporate entity had outstanding short-term
indebtedness of approximately $15,233,000 as discussed below.
Secured Promissory Notes
1997 Private Placements
In June 1997, ARTRA completed private placements of $4,950,000 of 12% secured
promissory notes due in December 1997. As additional consideration the
noteholders received warrants to purchase an aggregate of 227,500 ARTRA common
shares at a price of $5.00 per share. The warrants expire in June 1999. The
warrantholders have the right to put these warrants back to ARTRA at any time
during a six month period commencing in December 1997, at a price of $2.00 per
share. The cost of this obligation ($455,000 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 June 1997 (the commencement date of the private
placement) through December 1997 (the maturity date of the notes). The proceeds
from the private placement were used principally to pay down other debt
obligations. The secured promissory notes are collateralized principally as
follows:
Promissory notes with an aggregate principal amount of $2,000,000 are
collateralized by a 25% interest in the common stock of ARTRA's BCA
subsidiary (the parent of Bagcraft).
The Company and the lender are currently negotiating the form of
collateral for certain promissory notes with an aggregate principal
amount of $2,950,000, which is anticipated to be substantially all of
the Company's otherwise unencumbered COMFORCE common shares
(approximately 1,000,000 shares).
In July 1997, ARTRA completed private placements of $7,475,000 of 12% secured
promissory notes due in January 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 199,310 ARTRA common
shares at a price of $4.50 per share. The warrants expire in July 1998. The
warrantholders have the right to put these warrants back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the maturity date of the notes, at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company) will be accrued in the Company's financial statements as a charge to
interest expense over the period July 1997 (the date of the private placement)
through January (the scheduled maturity date of the notes). In the event of a
default, as defined in the note agreements, the secured promissory notes will
bear interest at 37%. The proceeds from the private placement were used
principally to pay down other debt obligations. These promissory notes are
collateralized principally as follows:
A $4,000,000 note is collateralized by 575,000 shares of COMFORCE
common stock owned by the Company's Fill-Mor subsidiary and a secondary
interest in the common stock of ARTRA's BCA subsidiary (the parent of
Bagcraft).
Promissory notes with an aggregate principal amount of $3,475,000 are
collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
17.4% interest), 1,784.02 shares of BCA Series A redeemable preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable
preferred stock (a 79.8% interest).
The proceeds from the July 1997 private placement were advanced to Peter R.
Harvey as discussed in Note 13 to the condensed consolidated financial
statements.
1996 Private Placement
In April 1996, ARTRA commenced a private placement of $7,675,000 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
28
<PAGE>
warrants back to ARTRA at any time during the period April 15, 1997 to October
15, 1998, at a price of $2.00 per share. The cost of this obligation ($837,500
if all warrants are put back to the Company) was 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 were
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. During the second
quarter of 1997, the Company repaid these secured promissory notes with the
proceeds of additional short-term borrowings and with funds received from the
Company's Bagcraft subsidiary in accordance with a May 1997 amendment to its
credit agreement.
Amounts Due To Related Parties
At December 26, 1996, ARTRA outstanding borrowings of $500,000 from an outside
director of the Company evidenced by a short-term note bearing interest at 10%.
The loan was collateralized by 125,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan and a
December 1996 extension, the director received five year warrants to purchase an
aggregate of 50,000 ARTRA common shares at a prices ranging from $5.00 to $5.875
per share. The proceeds of the loan were used for working capital.
In January 1997, ARTRA borrowed an additional $300,000 from this lender
evidenced by an short-term note, due December 23, 1997, bearing interest at 8%.
The loan was collateralized by 100,000 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 2002, to purchase 25,000 ARTRA common
shares at a price of $5.75 per share.
In March 1997, ARTRA borrowed an additional $1,000,000 from this lender
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary. As additional compensation, the lender received
an option to purchase 25,000 shares of COMFORCE common stock, owned by the
Company's Fill-Mor subsidiary, at a price of $4.00 per share. The proceeds from
this loan were used in part to repay the ARTRA/Fill-Mor $2,500,000 bank term
loan described below.
In April 1997, ARTRA borrowed $5,000,000 from the above director evidenced by a
note, due April 20, 1998, bearing interest at 10%. As additional compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The warrantholder has the right to put this warrant back to
ARTRA at any time during the period April 21, 1998 to April 20, 2000, for a
total purchase price of $1,000,000. The cost of this obligation will be accrued
in the Company's financial statements as a charge to interest expense over the
period April 21, 1997 (the date of the loan) through April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA). The proceeds
from this loan were used to repay $1,800,000 of borrowings from this lender
outstanding at March 27, 1997 and pay down other ARTRA debt obligations.
In June 1997, ARTRA borrowed an additional $1,000,000 from the above director
evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the lender received a warrant to purchase 40,000 ARTRA
common shares at a price of $5.00 per share. The warrantholder has the right to
put this warrant back to ARTRA at any time during the period December 10, 1997
to June 10, 1998, for a total purchase price of $80,000. The cost of this
obligation will be accrued in the Company's financial statements as a charge to
interest expense over the period June 10, 1997 (the date of the loan) through
December 10, 1997 (the date the warrantholder has the right to put the warrant
back to ARTRA). The proceeds from this loan were used to pay down other ARTRA
debt obligations. As of June 26, 1997, ARTRA had total outstanding borrowings of
$6,000,000 from this director collaterallized by a 75% interest in the common
stock of ARTRA's BCA subsidiary (the parent of Bagcraft). In July 1997,
borrowings from this lender were reduced to $3,000,000 with proceeds advanced to
ARTRA from a Bagcraft term loan as discussed below.
At December 26, 1996, 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. The
proceeds of this loan were used to pay down various ARTRA short-term loans and
other debt obligations. In December 1995 the
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unaffiliated company received 126,222 shares of ARTRA common in payment of past
due interest through October 31, 1995. Interest on the loans has been paid
through March, 1997. Payment on the loans was due March 31, 1994, however, the
lender has not demanded payment. In February 1997, the lender received a warrant
to purchase an additional 100,000 ARTRA common shares at $5.625 per share as
consideration for not demanding payment of this obligation. In April 1997, the
lender received a warrant to purchase an additional 100,000 ARTRA common shares
at $5.00 per share as consideration for not demanding payment of this
obligation. In June 1997 outstanding borrowings to the unaffiliated company were
reduced to $300,000 with the proceeds from other short-term borrowings. In July
1997 ARTRA repaid all remaining obligations under these loans.
In May 1996, ARTRA borrowed $100,000 from 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, private
investor was elected to the Company's board of directors. Effective January 17,
1997, private investor exercised his conversion rights and received 18,182
shares of ARTRA common stock as payment of the principal balance of his note.
Other
At June 26, 1997 and December 26, 1996, ARTRA was the obligor under two demand
notes issued to an unaffiliated company, in the amount of $2,266,000, including
accrued interest. The notes were issued in October, 1990 with interest at 15
percent. ARTRA is currently negotiating with the noteholder to extend or
refinance this obligation.
At June 26, 1997 and December 26, 1996, ARTRA also had outstanding short-term
borrowings from other unrelated parties aggregating $1,717,000 and $1,990,000.
The notes, issued at various times during the period June 1994 to June 1997,
with interest rates varying between 8 % and 15% mature at various times in 1997
and 1998.
In March 1997, ARTRA borrowed $1,000,000 from an unaffiliated corporation
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary. As additional compensation, the lender received
an option to purchase 25,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary at a price of $4.00 per share, with the right to
put the option back to ARTRA on or before May 30, 1997 for a put price of
$50,000. Under certain circumstances, ARTRA has the right to repurchase the
option for $50,000. In May 1997, ARTRA repurchased the option for $50,000 and
repaid this loan. The proceeds from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.
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 were 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.
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, which provided for
interest payable monthly at the bank's reference rate, was guaranteed by ARTRA
and was collateralized by 1,265,000 shares of COMFORCE common stock. Proceeds of
the loan were used for working capital. In March 1997, the loan was repaid with
proceeds from other short-term borrowings.
At December 28, 1995, $12,063,000 in ARTRA notes, plus accrued interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
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
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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 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 9 to the Company's condensed consolidated financial
statements) along with proceeds received from a short-term loan agreement with
an unaffiliated company.
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.
Peter R. Harvey Advances
As discussed in Note 13 to the Company's condensed consolidated financial
statements, ARTRA has total advances due from its president, Peter R. Harvey, of
which $8,677,000 and $7,998,000, including accrued interest, remained
outstanding at June 26, 1997 and December 26, 1996, respectively. The advances
bear interest at the prime rate plus 2% (10.5% at June 26, 1997 and 10.25%
December 26, 1996, respectively). This receivable from Peter R. Harvey has been
classified as a reduction of common shareholders' equity.
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%. In April 1995 advances from
ARTRA's Fill-Mor subsidiary to Peter R. Harvey totaling $1,540,000 (including
$398,000 of accrued interest) 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 six months ended June 26, 1997 and June 27,
1996 totaled $341,000 and $205,000, 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.
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.
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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 1996 discharge of
bank indebtedness , 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
March 1997, the bank sold its interest in Mr. Harvey's note and the related
collateral to a private investor. ARTRA retained its $2,150,000 security
interest the real estate, subordinated to the noteholder's $850,000 security
interest in this real estate.
In July 1997, ARTRA advanced an additional $7,475,000 to Peter R. Harvey. Mr.
Harvey provided ARTRA with additional collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 17.4% interest), 1,784.02
shares of BCA Series A redeemable preferred stock (a 48.5% interest) and 6,488.8
shares of BCA Series B redeemable preferred stock (a 79.8% interest). As of June
26, 1997, this additional collateral had a carrying value in ARTRA's condensed
consolidated balance sheet of approximately $10,700,000. The advances were
funded with the proceeds from the July 1997 private placement of ARTRA notes as
discussed in Note 6 to the Company's condensed consolidated financial
statements.
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 at a premium over the initial sales price. The increment in
the option price over the initial sales price of redeemable common stock is
reflected in the Company's financial statements by a charge to retained
earnings. At June 26, 1997, options were outstanding that, if exercised, would
require ARTRA to repurchase 72,984 shares of its common stock for an aggregate
amount of $3,175,000. ARTRA does not have available funds to satisfy its
obligations if these options were exercised. However the holders of redeemable
common stock have the option to sell their shares in the market subject to the
limitations of Securities Act Rule 144. At its discretion and subject to its
financial ability, ARTRA could reimburse the optionholders for any short-fall
resulting from such sale.
Redeemable Preferred Stock
As discussed in Note 9 to the condensed consolidated financial statements,
ARTRA, Bagcraft and Bagcraft's parent BCA have various redeemable preferred
stock issues with an aggregate carrying value of $20,831,000 at June 26, 1997.
Redeemable preferred stock issues with an aggregate carrying value of
$11,707,000 at June 26, 1997, mature in 1997. The Bagcraft redeemable preferred
stock, with a carrying value of $2,065,000 at June 26, 1997, is payable in June
1997. Bagcraft anticipates it will fund this payment with funds available under
its revolving credit loan. The BCA Series B redeemable preferred stock, with a
carrying value of $9,642,000 at June 26, 1997, is also payable in June 1997.
ARTRA does not have available funds to satisfy this obligation. The Company is
currently negotiating with the redeemable preferred shareholders to restructure
or extend the maturity date of this obligation beyond 1997.
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 1997. Due to its limited ability to receive operating funds from
its operating subsidiaries, ARTRA historically has met its operating
expenditures with funds generated by such alternative sources as private
placements of ARTRA common stock and notes, sales of ARTRA common stock with put
options, loans from officers/directors and private investors, as well as through
sales of assets and/or other equity infusions. ARTRA plans to continue to seek
such alternative sources of funds to meet its future operating expenditures.
ARTRA does not currently have available funds to repay amounts due under various
loan arrangements, principally with private investors, some of which are
currently past due. ARTRA is currently negotiating with several potential
lenders to refinance certain outstanding debt obligations. However, there can be
no assurance that ARTRA will be able to successfully refinance the above
referenced indebtedness. The Company will continue to have significant levels of
indebtedness in the future. The level of indebtedness may affect the rate at
which or the ability of ARTRA to effectuate the refinancing or restructuring of
debt. ARTRA also continues to negotiate with its creditors to extend due dates
to allow ARTRA to maximize value from possible sale of assets and to explore
various other sources of funding to meet its future operating expenditures. If
ARTRA is unable to negotiate extensions with its creditors and complete the
above mentioned transactions, ARTRA could suffer severe adverse consequences,
and as a result, ARTRA may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
ARTRA's corporate entity has no material commitments for capital expenditures.
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Bagcraft
Bagcraft entered into a credit agreement, dated as of December 17, 1993 (the
"Credit Agreement") that initially provided for a revolving credit loan with
interest at the lender's index rate plus 1.5% and two separate term loans. The
term loans were 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. The Credit Agreement, as amended, had been extended
to mature on September 30, 1997.
In December 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. Term Loan A and Term
Loan B, as previously defined in the Credit Agreement were consolidated into a
new $20,000,000 term loan with interest at the lender's index rate plus .25%
(8.75% at June 26, 1997 and 8.5% at December 26, 1996). Principal payments under
the term loan 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 amended and restated
Credit Agreement reduced the interest on the revolving credit loan to the
lender's index rate and also provided for a $3,000,000 capital expenditures line
of credit with interest at the lender's index rate plus .25%.
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 June 26, 1997 and December 26, 1996, approximately $3,800,000
and $6,200,000, respectively, was available and unused by Bagcraft under the
revolving credit loan. Borrowings under the revolving credit loan are payable
upon maturity of the Credit Agreement, unless accelerated under terms of the
Credit Agreement. At June 26, 1997 and December 26, 1996, the interest rate on
the revolving credit loan was 8.5% and 8.25%, respectively.
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 limit future 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 June 26, 1997 Bagcraft was in
compliance with the provisions of its Credit Agreement.
Effective May 5, 1997, the Credit Agreement was amended to provide for a
$5,000,000 term loan (Term Loan B) with interest at the lender's index rate plus
.75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms of
the Credit Agreement. The proceeds of Term Loan B were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on May 8, 1998. ARTRA used the
proceeds of this loan to repay certain ARTRA debt obligations.
Effective July 17, 1997, the Credit Agreement was amended to provide for a
$7,500,000 term loan (Term Loan C) with interest at the lender's index rate plus
1%. Term Loan C is payable on July 15, 2000, unless accelerated under terms of
the Credit Agreement. The proceeds of Term Loan C were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on July 15, 1998. ARTRA used
the proceeds of this loan to repay certain ARTRA debt obligations.
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
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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement, Bagcraft repurchased
50% of the Warrant (6.5% of the fully diluted common equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the Warrant's pro rata share of the
highest of
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book value, appraised value or market value of Bagcraft as noted above. In
accordance with the May 5, 1997 and July 17, 1997 amendments to the Credit
Agreement the Warrant was amended. In the event there is a change in Bagcraft's
ownership through July 15, 2000, the lender is entitled to receive an amount
equal to 6.5% of the fully diluted common equity of Bagcraft, based upon the
fair value of Bagcraft at the date of a change of ownership, less the $1,500,000
the lender received in January 1997 when Bagcraft repurchased 50% of the
Warrant.
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 June 26, 1997 and 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:
$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 June 26, 1997
and 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 June 26, 1997 and December 26, 1996,
Bagcraft had outstanding borrowings of $224,000 and $231,000,
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.
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.
As discussed in Note 14 to the condensed consolidated financial statements
effective January 2, 1997, Bagcraft completed the purchase of the business
assets, subject to buyer's assumption of certain liabilities, of AB Specialty
Holding Company, Inc. ("AB"). The consideration consisted of cash of
approximately $2.4 million, funded through borrowings under Bagcraft's Credit
Agreement, of which approximately $1.2 million was paid as a deposit in December
1996. The acquisition of AB, is expected to enhance Bagcraft's specialty bag
business.
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.
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Investment In COMFORCE Corporation
ARTRA, along with its wholly owned Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE, consisting of 1,739,703 shares or approximately
13% of the outstanding common stock of COMFORCE as of June 26, 1997 with an
aggregate value as of that date of $10,438,000.
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 (two
years as of April 29, 1997) 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 and COMFORCE believe 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 a proposed underwritten public offering 380,000 shares of COMFORCE common
stock held by ARTRA and its Fill-Mor subsidiary 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 proposed
underwritten public offering. COMFORCE did not retain an underwriter for the
proposed underwritten public offering and, accordingly, effective April 30, 1997
ARTRA was released from the provisions of the Lock-up Agreement.
The Company's operating plan for the remainder of fiscal year 1997 anticipates
the sale of these marketable securities, with proceeds to be used principally to
pay down Corporate debt obligations and fund working capital requirements.
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 June 26, 1997 and December 26, 1996 as other
receivables 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 June 26, 1997, no options to acquire any of the 200,000 COMFORCE common
shares had been exercised.
35
<PAGE>
In June 1997, ARTRA sold 5,000 COMFORCE shares in the market for proceeds of
approximately $33,000. The disposition of these 5,000 COMFORCE shares during the
quarter ended June 27, 1996 resulted in a realized gain of $42,000, with cost
determined by average cost.
In March 1997, a lender received 25,000 COMFORCE common shares held by ARTRA as
additional consideration for a short-term loan. The disposition of these 25,000
COMFORCE common shares resulted in a realized gain of $213,000, with cost
determined by average cost.
As additional consideration for a February 1996 short-term loan 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 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.
At June 26, 1997 ARTRA's remaining investment in COMFORCE (1,739,703 shares,
currently a common stock ownership interest of approximately 13%) was classified
in the Company's consolidated balance sheet in current assets as
"Available-for-sale securities." At June 26, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $13,539,000.
Litigation
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Note 12 to the Company's condensed
consolidated financial statements. At June 26, 1997 and December 26, 1996, the
Company had accrued $1,900,000 for potential business-related litigation and
environmental liabilities. However, as discussed above ARTRA may not have
available funds to pay liabilities arising out of these business-related
litigation and environmental matters or, in certain instances, to provide for
its legal defense. ARTRA could suffer severe adverse consequences in the event
of an unfavorable judgment in any of these matters.
Net Operating Loss Carryforwards
At June 26, 1997, the Company and its subsidiaries had Federal income tax loss
carryforwards of approximately $36,000,000, expiring principally in 2002 - 2010,
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.
36
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Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy; however, to the
extent permitted by competition, the Company generally passes increased costs to
its customers by increasing sales prices over time.
Recently Issued Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", SFAS No.
129, "Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income Summary," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information".
SFAS No. 128 establishes standards for the computation, presentation, and
disclosure requirements for earnings per share. SFAS No. 129 consolidates the
existing requirements relating to the disclosure of certain information about an
entity's capital structure. SFAS No. 130 establishes standards for reporting
comprehensive income to present a measure of all changes in equity that result
from renegotiated transactions and other economic events of the period other
than transactions with owners in their capacity as owners. Comprehensive income
is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes net income. SFAS No. 131 specifies revised guidelines for determining
an entity's operating segments and the type and level of financial information
to be disclosed. This standard requires that management identify operating
segments based on the way that management disaggregates the entity for making
internal operating decisions.
SFAS No. 128 and SFAS No. 129 are effective for the Company's fiscal year ending
December 25, 1997. SFAS No. 130 and SFAS No. 131 are effective for the Company's
fiscal year ending December 31, 1998. Management has not determined what impact
these standards, when adopted, will have on the Company's financial statements.
37
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information required by Part II, Item 1 of Form 10-Q is hereby
incorporated by reference to Note 12 to the Company's condensed
consolidated financial statements for the quarter ended March 27, 1997
included in Part I, Item 1 of this Form 10-Q.
Item 6. Exhibits and Reports On Form 8-K
(a) Exhibits:
EXHIBIT 10 Material contracts
10.1 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of July 17, 1997, by and between
BAGCRAFT CORPORATION OF AMERICA, as Borrower and
GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and as
Lender.
10.2 FOURTH AMENDMENT TO WARRANT dated as of July 17, 1997,
by and between BAGCRAFT CORPORATION OF AMERICA and
GENERAL ELECTRIC CAPITAL CORPORATION.
10.3 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of July 25, 1997, by and between
BAGCRAFT CORPORATION OF AMERICA, as Borrower and
GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and as
Lender.
10.4 TERM PROMISSORY NOTE , dated as of June 10, 1997,
between ARTRA GROUP Incorporated and Howard R. Conant.
10.5 WARRANT TO PURCHASE COMMON STOCK of ARTRA GROUP
Incorporated, dated June 10, 1997, issued to Howard R.
Conant.
EXHIBIT 11
Computation of earnings per share and equivalent share of common stock
for the six months ended June 26, 1997 and June 27, 1996.
(b) Reports on Form 8-K:
None.
38
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ARTRA GROUP INCORPORATED
------------------------
Registrant
Dated: August 15, 1997 JAMES D. DOERING
- ------------------------ -----------------------
Vice President and
Chief Financial Officer
39
Exhibit 10.1
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") dated as of July 17, 1997 is by and between BAGCRAFT
CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual
capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders.
R E C I T A L S:
WHEREAS, Borrower, Agent and Lenders are parties to an Amended
and Restated Credit Agreement dated as of December 30, 1996 (as from time to
time amended, restated, supplemented or otherwise modified, the "Credit
Agreement"), pursuant to which Lenders have agreed to make loans and other
extensions of credit to Borrower in accordance with the terms thereof;
WHEREAS, Borrower wishes, and Agent and Lenders are willing,
to amend the Credit Agreement, subject the terms and conditions of this
Amendment; and
WHEREAS, this Amendment shall constitute a Loan Document,
these Recitals shall be construed as part of this Amendment and capitalized
terms used but not otherwise defined in this Amendment shall have the meanings
ascribed to them in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
agreements, promises and covenants set forth below, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment The Credit Agreement is hereb amended as
follows:
(a) The following text is inserted as subsections 1.2(g) through
(i) of the Credit Agreement:
"(g) 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 Second Effective Date, in the amount of Seven Million Five
Hundred Thousand Dollars ($7,500,000) ("Term Loan C"). Amounts repaid
under Term Loan C may not thereafter be reborrowed.
(h) Borrower shall pay the entire unpaid balance of Term Loan
C upon the first to occur of (i) July 15, 2000, (ii) the Commitment
Termination Date and (iii) the acceleration of the Revolving Credit
Loan.
(i) Borrower shall execute and deliver to each Lender a note
to evidence Term Loan C, such note to be in a principal amount equal to
the amount of Term Loan C provided by such Lender, dated the Second
Effective Date and substantially in the form of Exhibit D-2 (each, as
executed and as it may be amended, restated, supplemented or otherwise
modified and in effect from time to time, a "Term Loan
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C Note" and, collectively, the "Term Loan C Notes"). The Term Loan C
Notes shall represent the obligation of Borrower to pay the amount of
Term Loan C 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 Term Loan C 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."
(b) The text "(including, in the Agent's sole discretion, the Preferred
Stock Reserve)" is inserted immediately the text "reserves" contained in the
first sentence of subsection 1.1(a) of the Credit Agreement.
(c) The following text is inserted as the fourth sentence of subsection
1.5(c) of the Credit Agreement:
"Any prepayments of less than all of the outstanding balance of Term
Loan C shall be applied to the then remaining outstanding balance of
Term Loan C until paid in full."
(d) The initial set of clauses (iii) and (iv) of subsection 1.5(d) of
the Credit Agreement are renamed clauses (iv) and (v) respectively, and the
following text is inserted as initial clause (iii) of such subsection:
"(iii) to the then remaining outstanding balance of Term Loan C,"
(e) Clauses (iii) and (iv) of subsection 1.5(e) of the Credit Agreement
are renamed clauses (iv) and (v) respectively, and the following text is
inserted as clause (iii) of such subsection:
"(iii) to the then remaining outstanding balance of Term Loan C,"
(f) The following text is inserted as the final sentence of Section 1.7
of the Credit Agreement:
"Borrower shall utilize the proceeds of Term Loan C to finance an
intercompany demand loan to ARTRA on the Second Effective Date in an
aggregate amount not in excess of $7,500,000, which loan shall be
payable in full not later than July 15, 2000 and shall be evidenced by
a demand promissory note in the form of Appendix B to the Third
Amendment (the "Second ARTRA Note") and pledged to Agent as additional
Collateral securing the Obligations."
(g) The following text is inserted as the final column of the grid
contained in subsection 1.8(c) of the Credit Agreement:
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"Term Loan C
LIBOR Margin Index Margin
------------ ------------
3.75 1.00
3.75 1.00
3.75 1.00
provided that each of the foregoing margins
shall be permanently increased by
one-quarter of one percent (.25%) per annum
above the margin in effect pursuant to this
proviso immediately prior to such increase
on the first day of February, May, August
and November of each year, commencing
February 1, 1998."
(h) Clauses (iii), (iv) and (v) of subsection 1.8(g) of the Credit
Agreement are renamed clauses (iv), (v) and (vi) respectively, and the following
text is inserted as new clause (iii) of such subsection:
"(iii) to any interest due and not yet paid hereunder in respect of Term
Loan C,"
(i) Clauses (vii), (viii), (ix) and (x) of subsection 1.8(g) of the
Credit Agreement are renamed clauses (viii), (ix), (x) and (xi) respectively,
and the following text is inserted as new clause (vii) of such subsection:
"(vii) to the then remaining outstanding balance of Term Loan C,"
(j) The following definitions are inserted into Annex A to the Credit
Agreement in appropriate alphabetical order among the definitions contained
therein:
""Preferred Stock Reserve" shall mean, as of any date of
determination, any amount determined by Agent in its sole discretion as
sufficient to redeem or otherwise repurchase that number of shares of
any class of Borrower's preferred stock as Agent in its sole discretion
determines, together with all costs and expenses to be incurred in
connection therewith.
"Second Effective Date" shall have the meaning ascribed
thereto in the Third Amendment.
"Third Amendment" shall mean the Third Amendment to Amended
and Restated Credit Agreement dated as of July 17, 1997 among the
Borrower, the Agent and the Lenders.
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<PAGE>
"Term Loan C" shall have the meaning assigned to it in Section
1.2(g).
"Term Loan C Commitment" shall mean (a) as to any Lender with
a Term Loan C Commitment, the aggregate commitment of such Lender to
make Term Loan C 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 C Commitment, the aggregate
commitment of all Lenders to make Term Loan C, which maximum aggregate
commitment shall be Seven Million Five Hundred Thousand Dollars
($7,500,000).
"Term Loan C Note" shall have the meaning assigned to it in
Section 1.2(i)."
(k) The definition of ""Commitment" or "Commitments"" contained in
Annex A to the Credit Agreement is replaced with the following definition:
""Commitment" or "Commitments" shall mean (a) as to any
Lender, the aggregate of such Lender's Revolving Loan Commitment, Term
Loan Commitment, Term Loan B Commitment, Term Loan C 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, Term Loan B
Commitments, Term Loan C Commitments and Capital Expenditure Loan
Commitments, which aggregate commitment shall not exceed Fifty Million
Five Hundred Thousand Dollars ($50,500,000) on the Second Effective
Date, as such amount may be adjusted, if at all, from time to time in
accordance with the Agreement."
(l) Clauses (c) and (d) of the definition of "Pro Rata Share" contained
in Annex A to the Credit Agreement are renamed clauses (d) and (e) respectively,
and the following text is inserted as new clause (c) of such definition:
"(c) a Lender's portion of Term Loan C, the percentage obtained by
dividing (i) the portion of Term Loan C held by such Lender, by (ii)
the outstanding amount of Term Loan C,"
(m) The text "Term Loan C," "Term Loan C Commitment" and "Term Loan C
Note" is inserted immediately after each respective reference to "Term Loan B,"
"Term Loan B Commitment" and "Term Loan B Note" contained in the Credit
Agreement, any other Loan Document and each Annex, Exhibit or Schedule or other
attachment to any thereof, except (i) as expressly stated otherwise in this
Amendment and (ii) in Agent's determination, as intended otherwise, and all
textual revisions necessary to maintain proper grammatical structure while
accomplishing the foregoing shall be deemed made.
(n) Appendix A to this Amendment is hereby included as Exhibit D-2 to
the Credit Agreement.
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<PAGE>
2. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Second Effective Date") that each of the following
conditions has been satisfied in accordance with its terms, all in a manner
satisfactory to Agent:
(a) Warranties and Representations. All of the warranties and
representations of Borrower contained in the Credit Agreement and in
the other Loan Documents (including, without limitation, this
Amendment) shall be true and correct in all material respects, except
those representations and warranties which expressly relate to an
earlier date.
(b) No Material Adverse Change. No event shall have occurred
(and neither Agent nor Lenders shall have become aware of any facts or
conditions not previously known) or be continuing which Agent shall
determine has, or could be expected to have, a Material Adverse Effect.
(c) No Default or Event of Default. After giving effect to
Section 3 of this Amendment, neither a Default nor an Event of Default
shall have occurred and be continuing or would result herefrom.
(d) No Litigation. No litigation, investigation or proceeding
before any court, governmental agency, or arbitrator shall be pending
or threatened against Borrower, any Subsidiary of Borrower, or any
officer, director, or executive of Borrower or such Subsidiary (A) in
connection with the Credit Agreement or the other Loan Documents or (B)
which, if adversely determined, would, in the sole and absolute opinion
of Agent, have a Material Adverse Effect, and no injunction, writ,
restraining order or other order of any material nature adverse to
Borrower or any of its Subsidiaries shall have been issued or
threatened by any court or governmental agency.
(e) Amendment. Agent shall have received a duly executed
original of this Amendment.
(f) Fourth Amendment to Warrant. Agent shall have received a
duly executed original of a Fourth Amendment to Warrant of even date
herewith between Borrower and GE Capital.
(g) Term Loan C Note. Agent shall have received a duly
executed original of a Term Loan C Note of even date herewith by
Borrower in favor of GE Capital, as a Lender.
(h) Second ARTRA Note. Agent shall have received a duly
executed original of a Second ARTRA Note of even date herewith by ARTRA
in favor of Borrower, duly endorsed by Borrower in favor of Agent as
additional Collateral securing the Obligations.
(i) Officer's Certificate. Agent shall have received a duly
executed original
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<PAGE>
certificate dated as of the date hereof by Borrower's chief financial
officer stating, and Borrower hereby represents and warrants, that (1)
since the Closing Date, there has been (i) no Material Adverse Effect
on the business, operations, financial condition, prospects or
projections of Borrower, the industries in which it operates, or any of
its Subsidiaries, (ii) no litigation which has commenced which could be
expected to have any such Material Adverse Effect or challenge any of
the transactions contemplated by the Agreement and the other Loan
Documents, (iii) except as expressly permitted by the Credit Agreement,
as amended hereby, no dividends, distributions, payments, loans,
contributions, fees or other transfers of cash, property or other
assets to any stockholder or Affiliate of Borrower, including, without
limitation, ARTRA or its employees, directors, officers or Affiliates,
(iv) except as expressly permitted by the Credit Agreement, as amended
hereby, no material increase in liabilities, liquidated or contingent,
and no material decrease in assets of Borrower or any of its
Subsidiaries and (v) after giving effect to Section 3 of this
Amendment, no Event of Default which has occurred and is continuing and
(2) consents and acknowledgments have been obtained from all Persons
whose consents and acknowledgments may be required, including, but not
limited to, Borrower's and Parent's stockholders and all requisite
Governmental Authorities, to the terms, and to the execution and
delivery, of this Amendment and the other documents and agreements
executed in connection herewith or pursuant hereto to which Borrower is
a party, and the transactions to be consummated in connection herewith
and therewith.
(j) Secretary's Certificate. Agent shall have a duly executed
original certificate dated the date hereof by Borrower's corporate
secretary or an assistant secretary stating that (i) since the Closing
Date, there has been no amendment or other modification (nor any
proposal therefor) to Borrower's certificate or articles of
incorporation or bylaws and that each of the foregoing is in full force
and effect, (ii) the resolutions attached thereto are of its Board of
Directors and, as required, stockholders, approving and authorizing the
execution, delivery and performance of this Amendment and the other
documents and agreements executed in connection herewith or pursuant
hereto to which Borrower is a party, and the transactions to be
consummated in connection herewith and therewith and that each of the
foregoing resolutions is in full force and effect without any
modification or amendment, (iii) the officers of Borrower executing
this Amendment and the other documents and agreements executed in
connection herewith or pursuant hereto to which Borrower is a party are
the incumbent officers of the Borrower and, as such, are authorized to
execute each of such documents and (iv) Borrower is in good standing in
its state of incorporation and in good standing and qualified to
conduct business in each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification.
(k) Opinion of Counsel. Agent shall have received a duly
executed opinion of counsel for Borrower and ARTRA with respect to the
transactions contemplated hereby.
(l) Prohibitive Actions. No action has been taken by any
competent authority which restrains, prevents or imposes material
adverse conditions upon the consummation
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<PAGE>
of all or any part of such transactions contemplated by this Amendment,
nor has any judgment, order, injunction or other restraint been issued
or filed, nor is any hearing seeking injunctive relief or other
restraint pending or noticed which prohibits or imposing material
adverse conditions upon all or any part of the transactions
contemplated by this Amendment.
(m) Fees, Costs and Expenses; Amendment Fee. Agent shall have
received payment of all fees, costs and expenses, including, without
limitation, attorney's fees and expenses and as otherwise due pursuant
to Section 11.3 of the Credit Agreement, incurred by Agent through the
date hereof, together with a fully earned and non-refundable amendment
fee in the amount of $225,000 as consideration for the execution and
delivery of this Amendment by Agent and Lenders, which amendment fee
Borrower hereby acknowledges as being due and payable by Borrower to
Agent as of the date hereof.
(n) Other Requirements. Agent shall have received all
certificates, orders, authorizations, consents, affidavits, schedules,
instruments, security agreements, financing statements, mortgages,
guarantees, opinions, pledges and other documents or instruments which
are provided for hereunder, or which Agent may at any time request.
3. Additional Amendment Fee. Borrower shall pay to agent in
immediately available funds an additional amendment fee, deemed fully earned and
non-refundable as of the date hereof, in the amount of $100,000 as consideration
for the execution and delivery of this Amendment by Agent and Lenders, which fee
Borrower hereby acknowledges as being due and payable by Borrower to Agent on
the earlier of (a) August 1, 1998 and (b) the Commitment Termination Date;
provided that Borrower shall not be obligated to pay such fee if (i) on or prior
to the date such fee would otherwise be payable pursuant hereto all of the
Commitments are refinanced pursuant to a senior secured credit facility having
an aggregate principal amount of at least $40,000,000 under which GE Capital is
agent or (ii) the Commitment Termination Date does not occur on or prior to
August 1, 1998.
4. Limited Waiver. Agent and Lenders hereby waive the Event of
Default arising solely as a result of Borrower's failure to redeem or otherwise
repurchase any shares of any class of Borrower's preferred stock, to the extent
required to be redeemed or otherwise repurchased in accordance with the
documents relating thereto; provided that this waiver shall cease to be
effective upon the first to occur of (a) July 15, 1998 and (b) the date upon
which any Person demands in writing that Borrower redeem or otherwise repurchase
any shares of any class of Borrower's preferred stock. This waiver is limited to
the specific purposes for which it is granted and, except as set forth above in
this Section 4, shall not be construed as a consent, waiver or other
modification with respect to any term, condition or other provision of any Loan
Document.
5. Releases; Indemnities. In further consideration of Agent's
and Lenders' execution of this Amendment, Borrower, individually and on behalf
of its successors (including, without limitation, any trustee acting on its
behalf and any debtor-in-possession with respect to it), assigns, subsidiaries
and affiliates, hereby forever releases Agent and Lenders and their
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<PAGE>
respective successors, assigns, parents, subsidiaries, affiliates, officers,
employees, directors, agents and attorneys (collectively, the "Releasees") from
any and all debts, claims, demands, liabilities, responsibilities, disputes,
actions and causes of action (whether at law or in equity) and obligations of
every nature whatsoever, whether liquidated or unliquidated, whether known or
unknown, matured or unmatured, fixed or contingent (collectively, "Claims") that
Borrower may have against the Releasees which arise from or relate to any
actions which the Releasees may have taken or omitted to take on or prior to the
date hereof with respect to the Obligations, any Collateral, the Credit
Agreement, any Loan Document and any third parties liable in whole or in part
for the Obligations. Borrower hereby agrees to indemnify and hold the Releasees
harmless with respect to any and all liabilities, obligations, losses,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever incurred by the Releasees, or any of them, whether
direct, indirect or consequential, as a result of or arising from or relating to
any proceeding by, or on behalf of any Person, including, without limitation,
officers, directors, agents, trustees, creditors, partners or shareholders of
Borrower, whether threatened or initiated, asserting any claim for legal or
equitable remedy under any statute, regulation or common law principle arising
from or in connection with the negotiation, preparation, execution, delivery,
performance, administration and enforcement of the Credit Agreement, any other
Loan Document or any other document executed in connection therewith. The
foregoing indemnity shall survive the payment in full of the Obligations and the
termination of the Credit Agreement and the other Loan Documents.
6. Status of Loan Documents; Reference to Credit Agreement.
Except as specifically modified and amended hereby, the Credit Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed. Upon the effectiveness of this Amendment each reference
in (a) the Credit Agreement to "this Amendment," "hereunder," "hereof," or words
of similar import and (b) any other Loan Document to "the Credit Agreement"
shall, in each case and except as otherwise specifically stated therein, mean
and be a reference to the Credit Agreement, as amended and modified hereby
pursuant to the terms hereof.
7. No Amendments. No amendment or modification of any
provision of this Amendment shall be effective without the written agreement of
Agent and Borrower, and no termination or waiver of any provision of this
Amendment, or consent to any departure by Borrower therefrom, shall in any event
be effective without the written concurrence of Agent. Any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given.
8. Benefit of Agreement; Relationship Between Parties. This
Amendment is solely for the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or
interest under or because of the existence of this Amendment. The relationship
of Agent and Lenders, on the one hand, and Borrower, on the other hand, has been
and shall continue to be, at all times, that of creditor and debtor and not as
joint venturers or partners. Nothing contained in the Credit Agreement or any
other Loan Document, or any instrument, document or agreement delivered in
connection therewith, shall be deemed or construed to create a fiduciary
relationship between or among the parties hereto.
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9. No Assignment. The terms and provisions of this Amendment
are for the purpose of defining the relative rights and obligations of Borrower,
Agent and Lenders with respect to the transactions contemplated hereby and there
shall be no third party beneficiaries of any of the terms and provisions of this
Amendment. Borrower may not assign, transfer, hypothecate or otherwise convey
its rights, benefits, obligations or duties hereunder without the prior express
written consent of Agent and Requisite Lenders.
10. Section Titles. The Section and subsection titles
contained in this Amendment are included for the sake of convenience only, shall
be without substantive meaning or content of any kind whatsoever, and are not a
part of the agreement among the parties.
11. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12. Severability. Wherever possible, each provision of this
Amendment shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Amendment shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Amendment.
13. Incorporation by Reference. Sections 10.10 and 10.14 of
the Credit Agreement are hereby incorporated herein by reference in their
entirety with the same effect as if set forth herein in full.
[signature page follows]
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IN WITNESS WHEREOF, this Third Amendment to Credit Agreement
has been duly executed as of the date first written above.
BAGCRAFT CORPORATION OF
AMERICA
By:___________________________
Title:________________________
GENERAL ELECTRIC CAPITAL
CORPORATION
By:___________________________
Title: Duly Authorized Signatory
-10-
<PAGE>
Appendix A
EXHIBIT D-2
to
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1996
FORM OF TERM LOAN C NOTE
Chicago, Illinois
$7,500,000.00 July 17, 1997
FOR VALUE RECEIVED, the undersigned, BAGCRAFT CORPORATION OF
AMERICA, a Delaware corporation ("Borrower"), HEREBY PROMISES TO PAY to the
order of GENERAL ELECTRIC CAPITAL CORPORATION ("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 SEVEN MILLION FIVE HUNDRED THOUSAND
DOLLARS AND NO CENTS ($7,500,000.00). 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 Term Loan C 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.
-1-
<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:_________________________
-2-
<PAGE>
Appendix B
FORM OF SECOND INTERCOMPANY DEMAND NOTE
Chicago, Illinois
$7,500,000.00 July 17, 1997
FOR VALUE RECEIVED, ARTRA GROUP INCORPORATED, a Pennsylvania
corporation (the "Payor"), hereby promises to pay to the order of BAGCRAFT
CORPORATION OF AMERICA, a Delaware corporation, or its registered assigns (the
"Payee"), in lawful money of the United States of America in immediately
available funds, at such location in the United States of America as the Payee
shall from time to time designate, the amount of (a) SEVEN MILLION FIVE HUNDRED
THOUSAND DOLLARS AND NO CENTS ($7,500,000.00) and (b) interest thereon until
paid at the rate from time to time payable with respect to Term Loan C under
that certain Credit Agreement dated December 30, 1996 (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement";
capitalized terms used herein without definition are so used as defined in the
Credit Agreement) among the Payee, Agent and the parties signatory thereto as
Lenders.
The principal balance hereof, together with all accrued
interest then due and payable thereon, shall be due and payable in full on the
first to occur of (i) July 15, 2000, (ii) the Commitment Termination Date, (iii)
the acceleration of the Revolving Credit Loan and (iv) demand by Payee
hereunder. Payor may prepay all or any part of the principal or accrued interest
at any time and from time to time, without premium or penalty. All partial
prepayments shall be applied first to accrued and unpaid interest and then to
the unpaid principal amount hereof. Interest due hereunder shall be paid at such
times as are specified in the Credit Agreement for interest payable with respect
to Term Loan C.
Upon the commencement of any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar proceeding of any jurisdiction relating to the Payor, the
unpaid principal amount hereof shall become immediately due and payable without
presentment, demand, protest or notice of any kind in connection herewith.
The Payee is hereby directed to record the loan evidenced
hereby, and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of the
information contained therein.
All payments hereunder shall be made without offset,
counterclaim or deduction of any kind.
-1-
<PAGE>
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS (WITHOUT
REGARD TO CONFLICTS OF LAW PROVISIONS THEREOF).
ARTRA GROUP INCORPORATED
By:___________________________
Title:________________________
ACKNOWLEDGMENT
The Payee hereby waives all rights of set-off, defalcation or
similar rights it may otherwise have against the Payor or any amounts at any
time owing by the Payee to the Payor as a result of amounts owing by the Payor
to the Payee under this Note.
This Note and all of the rights of the Payee hereunder have
been pledged to General Electric Capital Corporation, as Agent ("Agent"), as
additional Collateral securing the Obligations pursuant to the terms of that
certain Stock Pledge Agreement dates as of December 17, 1993 (as amended,
restated, supplemented or otherwise modified from time to time) among the Payee
and Agent.
Acknowledged and Agreed:
BAGCRAFT CORPORATION OF AMERICA
By:_________________________________
Title: _____________________________
-2-
Exhibit 10.2
FOURTH AMENDMENT TO WARRANT
This FOURTH AMENDMENT TO WARRANT dated as of July 17, 1997 (this
"Amendment") is by and between BAGCRAFT CORPORATION OF AMERICA, a Delaware
corporation ("Company"), and GENERAL ELECTRIC CAPITAL CORPORATION ("GE
Capital"), a New York corporation.
R E C I T A L S:
WHEREAS, GE Capital is the holder of Warrant No. 2 issued by Company on
December 30, 1996 (as from time to time amended, restated, supplemented or
otherwise modified, the "Warrant");
WHEREAS, GE Capital and Company wish to amend the Warrant as set forth
herein;
and
NOW THEREFORE, for and in consideration of the terms set forth herein
and in the premises, the parties hereto agree as follows:
1. Definitions. Except as otherwise set forth herein, all defined terms
herein shall have the respective meanings ascribed thereto in the Warrant and
the Loan Agreement.
2. Amendment to Warrant. The Warrant is hereby amended as follows:
(a) The text ", subject to adjustment as provided herein" is
inserted immediately after the text "No. of Shares of Common Stock:
709.77" contained on the cover page and on page one of the Warrant.
(b) The following text is inserted as the final paragraph of
the preamble contained on page one of the Warrant:
"Notwithstanding anything to the contrary contained herein or
in any other Loan Document, if Term Loan C is not indefeasibly
paid in full in cash on or prior to January 1, 1998 solely (a)
pursuant to a repayment of the Second ARTRA Note in accordance
with the terms thereof with funds other than those derived
directly or indirectly from the Company or any Subsidiary
thereof and/or (b) with funds derived from the issuance of
common equity of the Company to the extent permitted in
accordance with the terms of the Loan Agreement (whether or
not the Loan Agreement shall then be in effect), then the
number of Shares of Common Stock of the Company initially (and
subject to further adjustment as provided herein) represented
by this Warrant shall be increased to (i) 933.83 Shares of
Common Stock as of February 1, 1998 and continuing through
April 31, 1998, (ii) 1168.16 Shares of Common Stock as of May
1, 1998 and continuing through July 31, 1998 and (iii) 1413.27
Shares of Common Stock as of and continuing after August 1,
1998."
<PAGE>
(c) The text ", the Second ARTRA Note" is inserted immediately
after the text "the ARTRA Note" appearing in the final paragraph of the
definition of "Current Market Value" contained in Section 1 of the
Warrant.
(d) The following text is inserted as the final paragraph of
Section 1 of the Warrant:
"Except as otherwise set forth herein, all capitalized terms
used but not defined herein shall have the respective meanings
ascribed thereto in the Loan Agreement, regardless of whether
the Loan Agreement shall be in effect. Furthermore,
notwithstanding the termination of any other Loan Document
prior to the termination of this Warrant, for purposes of each
reference herein to any such Loan Document or term used herein
but defined therein, such reference shall be given effect to
as if such Loan Document shall then be in full force and
effect."
(e) The reference to "July 31, 1998" contained in subsection
14.1(b) of the Warrant is replaced with a reference to "July 15, 2000".
(f) Each reference to "July 31, 1998" contained in subsection
14.3 of the Warrant is replaced with a reference to "July 15, 2000".
3. Miscellaneous. Upon the effectiveness of this Amendment:
(a) as amended hereby, the Warrant remains in full force and
effect and is hereby ratified and confirmed;
(b) the terms of this Amendment shall be binding upon and
inure to the benefit of the successors of Company and the successors
and assigns of GE Capital and any Subsequent Holder;
(c) this Amendment shall be governed by the internal laws of
the State of Illinois without regard to conflicts of laws provisions;
and
(d) this Amendment may be executed in counterparts which when
taken together shall be considered one and the same document.
[signature page follows]
<PAGE>
WHEREAS, each of the undersigned has caused this Fourth Amendment to
Warrant to be executed by its duly authorized officer as of the date first
written above.
BAGCRAFT CORPORATION OF AMERICA
By: ___________________________________
Title: ________________________________
GENERAL ELECTRIC CAPITAL CORPORATION
By: ___________________________________
Title: Duly Authorized Signatory
Exhibit 10.3
Fourth Amendment Amended and Rotated Credit Agreement
(this "Amendment")
Reference is made to the Amended and Restated Credit Agreement dated as of
December 30, 1996 (as amended or otherwise modified, the "Credit Agreement";
capitalized terms used and not defined herein are so used as defined in the
Credit Agreement) between Bagcraft Corporation of America ("Borrower") and
General Electric Capita1 Corporation, as Agent and Lender ("GE Capital").
Borrower and GE Capital hereby amend the Credit Agreement such that, for
purposes of calculating compliance with clause (d) of Annex K of the Credit
Agreement (Consolidated Tangible Net Worth) for any measurement period ending
June 1, 1997 and December 31, 1999, inclusive, all amounts outstanding under
Term Loan B and Term Loan C at the time of such calculation shall not be
included as liabilities for purposes of such calculation.
This Amendment is limited to the specific provisions set forth above and,
except as so set forth, shall not be construed as a consent, waiver or other
modification with respect to any term, condition or other provision of any
Loan Document.
This Amendment may be executed in counterparts and, upon Agent's receipt of
all such executed counterparts, shall be effective as of June 1, 1997.
Dated: July 25, 1997 BAGCRAFT CORPORATION OF AMERICA,
as Borrower
By:____________________________
Title:_________________________
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By:_____________________________
Title: Duly Authorized Signatory
Exhibit 10.4
Registered # 1997-68
ARTRA GROUP INCORPORATED
12% SECURED PROMISSORY NOTE
$1,000,000.00 June 10, 1997
THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT") AND QUALIFICATION
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS. IT CANNOT BE SOLD, HYPOTHECATED
OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED
UNDER APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO MAKER, AN EXEMPTION
THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, the undersigned, ARTRA GROUP Incorporated, a Pennsylvania
corporation with offices at 500 Central Avenue, Northfield, Illinois 60093
("Maker"), promises to pay to Howard R. Conant, on December 10, 1997 (the
"Maturity Date"), the principal amount of ONE MILLION DOLLARS and no/100
($1,000,000.00) in lawful money of the United States of America (the "Principal)
together with all accrued interest.
This Note bears simple interest ("Interest") at the annual rate of twelve
percent (12%), which is payable on the Maturity Date.
Upon the occurrence of an Event of Default, as defined hereunder, this Note
shall bear interest at a rate per annum of thirty-seven percent (37%) from the
date of the Event of Default until the Default is cured.
This Note is one of a series of notes (the "Notes"), which may be issued by
Maker up to the aggregate principal amount of Eight Million ($8,000,000)
Dollars.
1. Interest.
Maker will pay Interest on the Maturity Date. Interest on the Note will
accrue from the date of delivery of the Note. Interest will be computed on the
basis of a 360-day year of twelve 30 day months.
<PAGE>
2. Method of Payment.
Maker will pay Principal and Interest in money of the United States
that at the time of payment is legal tender for the payment of public and
private debts. However, Maker may pay Principal and Interest by its check,
subject to collection, payable in such money. Payee must surrender this Note to
Maker to collect Principal payments.
3. Security.
This Note is secured by all of the outstanding shares of common stock
of Maker's wholly-owned subsidiary, BCA Holdings, Inc., and such security is
evidenced by a Pledge Agreement of even date herewith (the "Pledge Agreement")
executed by Maker in favor of Doerge Capital Management, as collateral agent for
holders of all the Notes.
4. Covenants of Maker.
Maker covenants and agrees that from and after the date hereof and
until the date of repayment in full of the Principal and Interest, it shall
comply with the following conditions:
(a) Maintenance of Existence and Conduct of Business. Maker shall, and
shall cause each of its subsidiaries to (i) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and rights; and (ii) continue to conduct its business so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
(b) Books and Records. Maker shall, and shall cause each of its
subsidiaries to use its reasonable efforts to keep adequate books and records of
account with respect to its business activities.
(c) Insurance. Maker shall use its reasonable efforts to maintain
insurance policies insuring such risks as are customarily insured against by
companies engaged in businesses similar to those operated by Maker. All such
policies are to be carried with reputable insurance carriers and shall be in
such amounts as are customarily insured against by companies with similar assets
and properties engaged in a similar business.
(d) Compliance with Law. Maker shall use its reasonable efforts to
comply in all material respects with all federal, state and local laws and
regulations applicable to it which if breached would have a material adverse
effect on Maker's business or financial condition.
5. Representations and Warranties of Maker.
Maker represents and warrants that it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania and has all requisite corporate
<PAGE>
power to carry on its business as now conducted and to own its properties and
assets it now owns; (ii) is duly qualified or licensed to do business as a
foreign corporation in good standing in the jurisdictions in which ownership of
property or the conduct of its business requires such qualification except
jurisdictions in which the failure to qualify to do business will have no
material adverse effect on its business, prospects, operations, properties,
assets or condition (financial or otherwise); (iii) has full power and authority
to execute and deliver this Note, and that the execution and delivery of this
Note will not result in the breach of or default under, with or without the
giving of notice and/or the passage of time, any other agreement, arrangement or
indenture to which it is a party or by which it may be bound, or the violation
of any law, statute, rule, decree, judgment or regulation binding upon it; and
(iv) has taken and will take all acts required, including but not limited to
authorizing the signatory hereof on its behalf to execute this Note, so that
upon the execution and delivery of this Note, it shall constitute the valid and
legally binding obligation of Maker enforceable in accordance with the terms
thereof.
6. Defaults and Remedies.
(a) Events of Default. The occurrence or existence of any one or more
of the following events or conditions (regardless of the reasons therefor) shall
constitute an "Event of Default" hereunder:
(i) Maker shall fail to make any payment of Principal or
Interest when due and payable or declared due and payable pursuant to the terms
hereof;
(ii) Maker shall fail at any time to be in material compliance
with any of the covenants set forth in Section 4 of this Note, or shall fail at
any time to be in material compliance with or neglect to perform, keep or
observe any of the provisions of this Note to be complied with, performed, kept
or observed by Maker and such failure shall remain uncured for a period of 15
days after notice thereof has been given by Payee to Maker;
(iii) Any representation or warranty made in this Note by
Maker shall be untrue or incorrect in any material respect as of the date when
made or deemed made;
(iv) A case or proceeding shall have been commenced against
Maker, or any of its subsidiaries, in a court having competent jurisdiction
seeking a decree or order in respect of Maker, or any of its subsidiaries, (A)
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law; (B) appointing a custodian, receiver, liquidator, assignee, trustee
or sequestrator (or similar official) of Maker, or any of its subsidiaries, or
any of their respective properties; or (C) ordering the winding-up or
liquidation of the affairs of Maker, or any of its subsidiaries,, and such case
or proceeding shall remain unstayed or undismissed for a period of
<PAGE>
90 consecutive days or such court shall enter a decree or order granting the
relief sought in such case or proceeding;
(v) Maker, or any of its subsidiaries, shall (A) file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law; or (B) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or the taking of possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Maker, or any of its
subsidiaries, or any of their respective properties; or
(vi) the occurrence of an event of default under the terms
of (A) the Warrant; and (B) the Pledge Agreement.
(b) Remedies. If an Event of Default occurs and is continuing, the
holders of at least 15% in principal amount of the Notes may declare all of the
Notes to be due and payable immediately by notice to Maker.
7. Maker's Right to Prepay.
Maker may prepay this Note. In the event that the Note is prepaid prior
to the Maturity Date, Maker will incur a prepayment penalty in an amount equal
to the amount of interest that would have been due had the Note been held to
maturity. Notwithstanding the foregoing, this Note may be prepaid without
penalty upon the closing of the sale of Bagcraft Corporation of America.
8. Acknowledgment of Payee's Investment Representations.
By accepting this Note Payee acknowledges that this Note has not been
and will not be registered under the Act or qualified under any state securities
laws and that the transferability thereof is restricted by the registration
provisions of the Act as well as such state laws. Based upon the representations
and agreements being made by him herein, this Note is being issued to him
pursuant to an exemption from such registration provided by Section 4 (2) of the
Act and applicable state securities law qualification exemptions. Payee
represents that he is acquiring the Note for his own account, for investment
purposes only and not with a view to resale or other distribution thereof, nor
with the intention of selling, transferring or otherwise disposing of all or any
part of it for any particular event or circumstance, except selling,
transferring or disposing of it only upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934, the Rules and
Regulations promulgated by the Commission thereunder, and any applicable state
securities laws. Payee further understands and agrees that no transfer of this
Note shall be valid unless made in compliance with the restrictions set forth on
the front of this Note, effected on Maker's books by the registered holder
hereof, in person or by an attorney duly
<PAGE>
authorized in writing, and similarly noted hereon. Maker may charge Payee a
reasonable fee for any re registration, transfer or exchange of this Note.
9. Limitation of Liability.
A director, officer, employee or stockholder, as such, of Maker shall
not have any liability for any obligations of Maker under this Note or for any
claim based on, in respect or by reason of such obligations or their creation.
Payee, by accepting this Note, waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of this Note.
10. Miscellaneous.
(a) Effect of Forbearance. No forbearance, indulgence, delay or failure
to exercise any right or remedy by Payee with respect to this Note shall operate
as a waiver or as an acquiescence in any default.
(b) Effect of Single or Partial Exercise of Right. No single or partial
exercise of any right or remedy by Payee shall preclude any other or further
exercise thereof or any exercise of any other right or remedy by Payee.
(c) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of Illinois applicable to contracts made and to be
performed entirely within such State.
(d) Headings. The headings and captions of the various paragraphs
herein are for convenience of reference only and shall in no way modify any of
the terms or provisions of this Note.
(e) Loss, Theft, Destruction or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Note, Maker shall make and deliver or caused to be made and delivered to
Payee a new Note of like tenor in lieu of this Note.
(f) Modification of Note or Waiver of Terms Thereof Relating to Payee.
No modification or waiver of any of the provisions of this Note shall be
effective unless in writing and signed by Payee and then only to the extent set
forth in such writing, nor shall any such modification or waiver be applicable
except in the specific instance for which it is given. This Note may not be
discharged orally but only in writing duly executed by Payee.
<PAGE>
(g) Notice. All offers, acceptances, notices, requests, demands and
other communications under this Note shall be in writing and, except as
otherwise provided herein, shall be deemed to have been given only when
delivered in person, via facsimile transmission if receipt thereof is confirmed
by the recipient, or, if mailed, when mailed by certified or registered mail
prepaid, to the parties at their respective addresses first set forth above, or
at such other address as may be given in writing in future by either party to
the other.
(h) Successors and Assigns. This Note shall be binding upon Maker, its
successors, assigns and transferees, and shall inure to the benefit of and be
enforceable by Payee and its successors and assigns.
* * *
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be executed on its
behalf by an officer thereunto duly authorized as of the date set forth above.
ARTRA GROUP Incorporated
a Pennsylvania corporation
By: _______________________________
Title: _____________________________
ATTEST: ____________________________________
Philip E. Ruben, Assistant Secretary
EXHIBIT 10.5
WARRANT NO. 1997- 68
ARTRA GROUP INCORPORATED
WARRANT TO PURCHASE COMMON STOCK
(No Par Value)
June 10, 1997
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO ARTRA GROUP INCORPORATED,
AN EXEMPTION THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, Howard R. Conant (the "Holder") is entitled to purchase,
subject to the provisions of this Warrant, from ARTRA GROUP Incorporated, a
Pennsylvania corporation ("ARTRA" or the "Company"), at a price of $5.00 per
share (the "Exercise Price") of no par common stock of the Company, ("Common
Stock"), at any time from June 10, 1997 to the time of expiration of this
Warrant at 5:00 p.m., Chicago, Illinois time, on June 10, 1999 (the "Expiration
Date"), 40,000 shares of Common Stock, and the Holder shall be governed and
bound by all of the covenants, terms and conditions contained herein. The number
of shares of Common Stock to be received upon the exercise of this Warrant and
the price to be paid for a share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise and as adjusted from time to time are hereinafter sometimes referred to
as "Warrant Shares", and the exercise price of a share of Common Stock in effect
at any time and as adjusted from time to time is hereinafter sometimes referred
to as the "Exercise Price".
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time after the First Exercise Date and on or before the Expiration
Date of this Warrant, or if such day is a day on which banking institutions are
authorized by law to close in Chicago, Illinois, then on the next succeeding
business day, by presentation and surrender hereof to the Company at its office
at 500 Central Avenue, Northfield, Illinois, with the purchase form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of shares of Common Stock specified in such form. If this Warrant should
be exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the
<PAGE>
rights of the Holder to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by the Company of this Warrant at its office
in proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that certificates representing such shares of Common Stock shall
not then be actually delivered to the Holder.
2. Reservation of Shares, Fractional Shares.
(a) ARTRA hereby agrees that at all times it shall reserve for issue
and delivery upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issue and delivery upon exercise of this Warrant.
(b) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon exercise hereof, ARTRA shall pay to the Holder an amount
in cash equal to such fraction multiplied by the then current market value of a
share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange the current
value shall be the last reported sale price of the Common Stock on such exchange
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for such
day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last reported bid
and ask prices reported by the National Quotation Bureau, Inc., on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not so reported, the
current value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the ARTRA.
3. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the ARTRA for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Any such exchange shall
be made by surrender of this Warrant to ARTRA or at the office of its agent, if
any, with the assignment form annexed duly executed. Subject to compliance with
the provisions of
2
<PAGE>
applicable law, ARTRA, without charge to the Holder, shall execute and deliver a
new Warrant in the name of any assignee named in such instrument or assignment,
and this Warrant shall promptly be canceled. This Warrant may be divided or
combined with other Warrants which carry the same rights upon presentation
hereof at the office of ARTRA or at the office of its agent, if any, together
with a written notice specifying the names and denominations in which new
Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as
used herein includes any Warrants into which this Warrant may be divided or
exchanged. Upon receipt by ARTRA of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, ARTRA will execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
ARTRA whether or not this Warrant so lost, stolen, destroyed or mutilated shall
be at any time enforceable by anyone.
4. Rights of the Holder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of ARTRA. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of ARTRA, whether such liability is
asserted by ARTRA or by creditors of ARTRA. The rights of the Holder are limited
to those expressed in this Warrant and are not enforceable against ARTRA except
to the extent set forth herein.
5. Stock Dividends; Reclassification, Reorganization, Anti-Dilution
Provisions. This Warrant is subject to the following further provisions:
(a) In case, prior to the expiration of this Warrant by exercise or by
its terms, ARTRA shall issue any shares of Common Stock as a stock dividend or
subdivide the number of outstanding shares of Common Stock into a greater number
of shares, then in either of such cases, the Exercise Price per share of the
Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately reduced, and the number of Warrant Shares
at that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event ARTRA shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the Exercise Price per share of the
Warrant Shares purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased, and the number of Warrant Shares
at the time purchasable pursuant to this Warrant shall be proportionally
decreased. Any dividend paid or distributed upon the Common Stock in stock of
any other class or securities convertible into shares of Common Stock
3
<PAGE>
shall be treated as a dividend paid in Common Stock to the extent that shares of
Common Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by
its terms, ARTRA shall be recapitalized by reclassifying its Common Stock into
stock with par value, or the Company or a successor corporation shall
consolidate or merge with or convey all or substantially all of its or of any
successor corporation's property and assets to any other corporation or
corporations (any such corporation being included within the meaning of the term
"successor corporation" in the event of any consolidation or merger of any such
corporation with, or the sale of all or substantially all of the property of any
such corporation to another corporation or corporations), in exchange for stock
or securities of a successor corporation, the Holder of this Warrant shall
thereafter have the right to purchase, upon the terms and conditions and during
the time specified in this Warrant, in lieu of the Warrant Shares theretofore
purchasable upon the exercise of this Warrant, the kind and number of shares of
stock and other securities receivable upon such recapitalization or
consolidation, merger or conveyance by a holder of the number of shares of
Common Stock which the Holder of this Warrant might have purchased immediately
prior to such recapitalization or consolidation, merger or conveyance.
(c) Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable pursuant to this
Warrant in accordance with and as required by, the terms of subdivision (a) of
this Section 5, ARTRA shall compute the adjusted Exercise Price and the adjusted
number of Warrant Shares purchasable at such adjusted Exercise Price by reason
of such event in accordance with the provisions of subdivision (a) and shall
prepare an officer's certificate setting forth such adjusted Exercise Price and
the adjusted number of Warrant Shares and showing in detail the facts upon which
such conclusions are based. ARTRA shall forthwith mail a copy of such
certificate to each Holder of this Warrant at the Holder's address shown in the
Company's Warrant Registry, and thereafter such certificate shall be conclusive
and binding upon such Holder unless contested by such Holder by written notice
to ARTRA ten (10) days after receipt of the certificate.
(d) In case:
(i) ARTRA shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or any other
distribution in respect of the Common Stock (including cash) pursuant to,
without limitation, any spin-off, split-off or distribution of ARTRA's assets;
or
(ii) ARTRA shall take a record of the holders of its Common
Stock for the purpose of entitling them to subscribe for or purchase any shares
of stock of any class or to receive any other rights; or
4
<PAGE>
(iii) of a classification, reclassification or other
reorganization of the capital stock of ARTRA, consolidation or merger of ARTRA
with or into another corporation or conveyance of all or substantially all of
the assets of ARTRA; or
(iv)of the voluntary or involuntary dissolution, liquidation
or winding up of ARTRA, then, and in any such case, ARTRA shall mail to the
Holder of this Warrant at the Holder's address shown in ARTRA's Warrant Registry
a notice stating the date or expected date (the "Record Date") on which a record
is to be taken for the purpose of such dividend, distribution or rights, on
which such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, as
the case may be. Such notice shall then specify the date or expected date, if
any is to be fixed, as of which holders of Common Stock of record shall be
entitled to participate in said dividend, distribution or rights, or shall be
entitled to exchange shares of Common Stock for securities or other property
deliverable upon such liquidation or winding up, as the case may be. Such notice
shall be provided at least fifteen (15) days prior to the Record Date.
(e) In case ARTRA at any time while this Warrant shall remain
unexpired and unexercised shall dissolve, liquidate or wind up its affairs, the
Holder of this Warrant may receive, upon exercise hereof prior to the Record
Date, in lieu of each share of Common Stock of ARTRA which it would have been
entitled to receive, the same number of any securities or assets as may be
issuable, distributable or payable upon any such dissolution, liquidation or
winding up with respect to each share of Common Stock of ARTRA.
6. Restriction on Transferability. (a) This Warrant and the shares of
ARTRA issuable upon the exercise of this Warrant have not been registered under
the Securities Act of 1933, as amended (the "Act"). By acceptance hereof, the
Holder covenants, agrees and represents that:
(i) This Warrant has been acquired for, and such shares, if
acquired upon the exercise of this Warrant, shall be acquired for, investment
and may not be sold, offered for sale, pledged, hypothecated or otherwise
transferred, in the absence of an effective registration statement for such
securities under the Act or an opinion of counsel reasonably satisfactory to
ARTRA to the effect that registration is not required under the Act, and the
Holder has the capacity to protect his interests in connection with the purchase
of this Warrant.
(ii) The Holder has had the opportunity to ask questions and
receive answers from ARTRA about ARTRA's
5
<PAGE>
business and the purchase by him of these securities, and he has been given the
opportunity to make any inquiries that he may desire of any personnel of ARTRA
concerning the proposed operation of ARTRA and has been furnished with all of
the information he has requested. No advertisement has been used in connection
with the offer or sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign or
otherwise dispose of this Warrant or the shares of Common Stock issuable upon
the exercise of this Warrant except pursuant to a registration statement under
the Act and qualification under applicable state securities laws or pursuant to
an opinion of counsel reasonably satisfactory to ARTRA that such registration
and qualification are not required, and that the transaction (if it involves a
sale in the over-the-counter market or on a securities exchange) does not
violate any provision of the Act. The Holder understands that a stop-transfer
order will be placed on the books of ARTRA respecting this Warrant and any
certificates representing the shares of Common Stock issuable upon the exercise
of this Warrant and that this Warrant and any such certificates shall bear a
restrictive legend and a stop transfer order shall be placed with the transfer
agent prohibiting any such transfer until such time as the securities
represented by such certificates shall have been registered under the Act or
shall have been transferred in accordance with an opinion of counsel reasonably
satisfactory to ARTRA that such registration is not required; and
(iv) The Holder understands that he must hold the shares issuable upon
the exercise of this Warrant indefinitely unless they are registered under the
Act or an exemption from registration becomes available. Although ARTRA files
reports pursuant to the Securities Act of 1934 and accordingly makes available
to the public the information required by Rule 144, nothing contained in this
Warrant shall require ARTRA to continue to make available to the public such
information.
Each certificate for the shares issued upon the exercise of the
Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have
not been registered under the Securities Act of 1933, as
amended (the "Act") and may not be sold, offered for sale,
pledged, hypothecated or otherwise transferred except pursuant
to a registration statement under the Act or an exemption from
registration under the Act or the rules and regulations
thereunder."
7. Registration of Warrant Shares for Distribution. ARTRA hereby
covenants and agrees with the Holder that if, at any time before the time this
Warrant expires, ARTRA proposes to file with the Securities
6
<PAGE>
and Exchange Commission ("SEC") on its own behalf and/or on behalf of any of the
holders of its Common Stock, a Registration Statement under the Act, on any form
permitting the resale of Warrant Shares under a "shelf registration" or on any
other form for the general registration of the Common Stock of ARTRA for cash,
then ARTRA shall give notice to the Holder, at least 20 days before the filing,
with the SEC, of such proposed Registration Statement. The notice shall offer to
include in such filing, to the extent then permissible under the Act, all of the
Warrant Shares on behalf of Holders of such shares. The Holder shall then have a
period of up to 10 days after the date of the mailing of such notice by ARTRA
within which to advise ARTRA of his election to include all or any part of his
Warrant Shares in such Registration Statement, setting forth the number of
Warrant Shares for which registration is being requested. ARTRA shall thereupon
include in such filing, subject to the limitation hereinafter referred to, such
Warrant Shares proposed to be offered for sale and shall use its best efforts to
effect registration under the Act of such Warrant Shares. The Holder may elect
to include Warrant Shares in such Registration Statement which have not yet been
acquired by exercise of the Warrants, provided, however, that in such event, the
Holder shall exercise the Warrants with respect to such shares, and shall pay
the Exercise Price of such Warrant Shares in the manner provided in Section 1
hereof, prior to any sale of such shares.
The right of the Holder to include such Warrant Shares in a Registration
Statement provided for herein shall be subject to the following conditions:
(a) ARTRA, in its sole discretion, shall select the underwriter or
underwriters, if any, who are to undertake the sale and distribution of the
Warrant Shares to be included in a Registration Statement filed under the
provisions of this Section 7; and
(b) ARTRA shall have the right to require, in any offering to be made
solely, or in part, for its own account, that the Holder delay any offering of
Warrant Shares to be included on behalf of the Holder for a period of ninety
(90) days after the first effective date of such Registration Statement, upon
ARTRA first having delivered to the Holder the written opinion of its
underwriter to the effect that the inclusion of such securities in the
Registration Statement may have an adverse effect on the marketing of such
offering; provided, however, that in the event of such delay, ARTRA shall
maintain the effectiveness of the Registration Statement, for which purpose
ARTRA shall prepare and file such amendments and supplements to the Registration
Statement and Prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective for a period of ninety (90) days after
the effective date of the post-effective amendment pursuant to which the Holder
is entitled to sell the Warrant Shares.
The Holder agrees to cooperate with ARTRA in the preparation and filing
of any Registration Statement hereunder and shall promptly provide to ARTRA such
information as it may reasonably request to enable it to comply with any
applicable law or regulation to facilitate the preparation of the
7
<PAGE>
Registration Statement. ARTRA shall bear the legal, accounting and printing
expenses in connection with the preparation and filing of any Registration
Statement provided herein, together with all other expenses incidental thereto,
except (i) the expense of the underwriter or underwriters selected by the Holder
(if other than the underwriters selected by ARTRA), (ii) the legal fees and
expenses of the Holder's counsel, (iii) brokerage commissions and transfer
taxes, if any, in connection with the sale or distribution of the Shares by the
Holder; and (iv) the expense of registering, or obtaining (or determining the
availability of) an exemption from the registration of shares of ARTRA's Common
Stock for sale in any state or other jurisdiction other than New York,
California, Illinois or such other jurisdiction in which ARTRA registers Shares
or obtains an exemption from registration at the request of another holder or
other holders of warrants, provided that, if the Holder and another holder or
other holders of warrants each request that ARTRA register Shares or obtain an
exemption in such other jurisdiction, the expense thereof may be allocated on an
equitable basis between or among the Holder and such other holder or holders who
make such request.
ARTRA shall furnish to the Holder, without charge, a copy of the
Registration Statement and of each amendment and supplement thereto, including
all financial statements and exhibits, and such number of conformed copies of
the Registration Statement and of each amendment thereto, including all
financial statements, but excluding exhibits, as the Holder may reasonably
request.
ARTRA shall furnish to the Holder, as soon as possible after the
effective date of such Registration Statement or post-effective Amendment
thereto and thereafter, from time to time, during the period or ninety (90)
days, as many copies of the prospectus (and of any amended or supplemental
prospectus) as the Holder may reasonably request. If, during such period, any
event occurs as a result of which the prospectus, as then amended or
supplemented, would include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading, or it shall be
necessary to amend or supplement the prospectus to comply with the law or with
the rules and regulations promulgated by the SEC, ARTRA shall forthwith notify
the Holder thereof and at the request of Holder, prepare and furnish to the
Holder, in such quantity as the Holder may reasonably request, an amendment or
supplement which shall correct such statement or omission or cause the
prospectus to comply with the law and with said rules and regulations.
ARTRA shall use its best efforts to cause such Registration Statement
to become effective and shall promptly advise the Holder (i) when such
Registration Statement, or any post-effective amendment thereto, shall have
become effective, and when any amendment of, or supplement to, the prospectus is
filed with the SEC, (ii) when the SEC shall make a request or suggestion for any
amendment to such Registration Statement or the prospectus or for additional
information and by the nature and substance thereof, and (iii) of the issuance
by the SEC of a stop order suspending the effectiveness of such Registration
Statement or the suspension of the order
8
<PAGE>
suspending the effectiveness of such Registration Statement or the suspension of
the qualification of ARTRA's shares for sale in any jurisdiction, or of the
initiation or threatening of any proceedings for that purpose, and shall use its
best efforts to prevent the issuance of any such stop orders, or, if such order
shall be issued, to obtain the withdrawal thereof.
ARTRA, when and as requested by the Holder, shall take all action
necessary to permit the offering of the Warrant Shares as contemplated hereby
under the securities laws of such states as the Holder shall designate at the
sole expense of the Holder (except that ARTRA shall pay all costs for Illinois,
New York and California); provided, however, that ARTRA shall not be required to
qualify as a foreign corporation or to file a consent to service of process in
any state in which it is not then so qualified or in which it has not then filed
such consent notwithstanding the Holder's agreement to pay the costs thereof.
Except as set forth below, ARTRA, on the one hand, and the Holder, on
the other hand, shall each indemnify and hold harmless the other and any
officer, director, employee, agent or attorney thereof from and against any
losses, claims, actions, damages or liabilities to which the other may become
subject, under the Act or any State Act (as hereinafter defined) or otherwise,
insofar as such losses, claims, damages or liabilities arise out of, or are
based upon, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any Prospectus, whether final
or preliminary, forming a part thereof, or any amendment or supplement thereto,
or any blue sky application or other document filed in any state or other
jurisdiction in order to qualify any shares for offer or sale under the laws of
any such state or other jurisdiction ("State Act") (all of the foregoing
referred to herein as "Registration Material"), or the omission or alleged
omission of any material fact required to be stated therein or necessary to make
the statements therein not misleading, or in breach, or non-compliance with, any
duty of disclosure imposed upon such party under the Act or any State Act in
connection with such Registration Material; provided, however, that the Holder's
obligation to indemnify ARTRA and any officer, director, employee, agent or
attorney thereof shall be limited to any losses, claims, actions, damages or
liabilities which are based on written information supplied to ARTRA by the
Holder (or the failure of the Holder to supply material information requested by
ARTRA) specifically for inclusion in the Registration Material, and ARTRA's
obligation to indemnify the Holder shall be discharged to the extent of the
foregoing.
The Holder further agrees to indemnify and hold harmless ARTRA and any
officer, director, employee, agent or attorney thereof from and against any
losses, claims, damages, fines, penalties, costs, expenses or liabilities
arising out of or based on the offer or sale or alleged offer or sale by the
Holder of any shares in, or to any person residing in any state in which the
shares have not been qualified for offer or sale, or otherwise in violation of
the Act or any State Act or of the terms and conditions of this Warrant.
9
<PAGE>
Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof may be made against any indemnifying party pursuant to this Agreement,
notify each indemnifying party in writing of the commencement thereof; and the
omission so to notify each indemnifying party will relieve such party from any
liability pursuant to this Agreement as to the particular item for which
indemnification is then being sought. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel who shall be reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation. An indemnifying party shall not be liable to any indemnified
party on account of any settlement of any claim or action effected without the
consent of an indemnifying party.
The Holder shall execute and deliver to the underwriter or
underwriters an indemnification agreement in such form as may reasonably be
requested and refusal of a Holder to comply with this obligation shall nullify
ARTRA's obligation to register the Warrant shares.
The inclusion of the Warrant Shares in any Registration Statement shall
not be required if counsel of ARTRA shall render an opinion, in writing, that
all of the Holder's Warrant Shares, proposed to be included in such Registration
Statement, may be publicly distributed by the Holder without registration under
the Act in which case the restrictive legend and stop transfer shall be removed.
8. Registration on the Books of ARTRA. ARTRA shall keep, or cause to be
kept, at its office at 500 Central Avenue, Northfield, Illinois, a register in
which ARTRA shall register this Warrant. No transfer of this Warrant shall be
valid unless made at such office and noted on the Warrant register upon
satisfaction of all conditions for transfer. When presented for transfer or
payment, this Warrant shall be accompanied by a written instrument or
instruments of transfer or surrender, in form satisfactory to ARTRA, duly
executed by the registered Holder or by his duly authorized attorney. ARTRA may
deem and treat the registered Holder hereof as the absolute owner of this
Warrant for all purposes, and ARTRA shall not be affected by any notice to the
contrary.
9. Put of Warrant. The Holder shall have the option to require ARTRA to
purchase his unexercised purchase rights under this Warrant, for a total
purchase price equal to $2.00 per share (the "Put Option"). The Holder shall
exercise the Put Option by giving ARTRA thirty (30) days written notice (which
notice shall be in the form attached hereto and made a part hereof) at any time
and from time to time from the earlier of: (i) the date of full payment of that
certain 12% Secured Promissory Note of even date herewith and payable to Holder,
or (ii) the date of December 10, 1997 (the "Option Exercise Date"). The Put
Option shall terminate six months after the Option Exercise Date. The
10
<PAGE>
total purchase price for the Put Option shall be paid in full no later that the
last day of the 30 day written notice period.
Governing Law. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the internal laws of
the State of Illinois, and not its conflict of laws provisions.
IN WITNESS WHEREOF, ARTRA has caused this Warrant to be executed
by its duly authorized officer.
ARTRA GROUP Incorporated
By:________________________
Title:_____________________
Agreed to and accepted.
HOLDER:
____________________________________
Howard R. Conant Date:
11
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED _________________________________________ hereby
sells, assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________ the right to
purchase Common Stock, represented by this Warrant, to the extent of
______________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________________ attorney, to
transfer the same on the books of ARTRA with full power of substitution in the
premises.
Signature__________________________
Date:__________________, ____
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
12
<PAGE>
PURCHASE FORM
Dated_________________, ____
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing __________ shares of Common Stock and hereby makes
payment of $__________ in payment of the exercise price thereof.
-----------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Social Security or other Taxpayer Identification Number__________
Signature_______________________________
13
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
NOTICE OF PUT OPTION
Dated: December ___, 1997
TO: ARTRA GROUP Incorporated
500 Central Avenue
Northfield, IL 60693
RE: Put Option
Please be advised that in accordance with Paragraph 8 of the ARTRA GROUP
Incorporated Warrant to Purchase Common Stock, dated as of June ___, 1997,
Grantee hereby exercises its rights under the Put Option.
Very truly yours,
------------------------------
------------------------------
14
EXHIBIT 11
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(Unaudited in thousands except per share amounts)
Three Months Ended
--------------------
Line June 26, June 27,
- ---- 1997 1996
-------- --------
AVERAGE SHARES OUTSTANDING
1 Weighted average number of shares of
common stock outstanding during the period 7,859 7,435
2 Net additional shares assuming stock options
and warrants exercised and proceeds used
to purchase treasury shares -- 399
-------- --------
3 Weighted average number of shares and
equivalent shares of common stock
outstanding during the period 7,859 7,834
======== ========
EARNINGS (LOSS)
4 Earnings (loss) before extraordinary credit $ (3,842) $ 2,919
5 Less dividends applicable to
redeemable preferred stock (336) (306)
6 Less redeemable common stock accretion (196) (205)
-------- --------
7 Amount for per share computation $ (4,374) $ 2,408
======== ========
8 Net earnings (loss) $ (3,842) $ 12,343
9 Less dividends applicable to
redeemable preferred stock (336) (306)
10 Less redeemable common stock accretion (196) (205)
-------- --------
11 Amount for per share computation $ (4,374) $ 11,832
======== ========
PER SHARE AMOUNTS
Earnings (loss) before extraordinary credit
(line 7 / line 3) $ (.56) $ .28
======== ========
Net earnings (loss)
(line 11 / line 3) $ (.56) $ 1.51
======== ========
Earnings (loss) per share is computed by dividing net earnings (loss),
less redeemable preferred stock dividends and redeemable common stock
accretion, by the weighted average number of shares of common stock and
common stock equivalents (redeemable common stock, stock options and
warrants), unless anti-dilutive, outstanding during the period. Fully
diluted earnings (loss) per share are not presented since the result is
equivalent to primary earnings (loss) per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-25-1997
<PERIOD-START> DEC-27-1996
<PERIOD-END> JUN-26-1997
<EXCHANGE-RATE> 1.000
<CASH> 226
<SECURITIES> 0
<RECEIVABLES> 10,794
<ALLOWANCES> 205
<INVENTORY> 18,241
<CURRENT-ASSETS> 42,271
<PP&E> 48,305
<DEPRECIATION> 22,469
<TOTAL-ASSETS> 72,604
<CURRENT-LIABILITIES> 56,890
<BONDS> 0
9,124
0
<COMMON> 5,920
<OTHER-SE> (43,331)
<TOTAL-LIABILITY-AND-EQUITY> 72,604
<SALES> 60,274
<TOTAL-REVENUES> 60,274
<CGS> 48,113
<TOTAL-COSTS> 48,113
<OTHER-EXPENSES> 10,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,494
<INCOME-PRETAX> (3,801)
<INCOME-TAX> (41)
<INCOME-CONTINUING> (3,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,842)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
