ARTRA GROUP INCORPORATED
500 Central Avenue
Northfield, Illinois 60093
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on December 11, 1997
As a shareholder of ARTRA GROUP INCORPORATED (oArtrao or the
oCompanyo), you are invited to be present, or represented by proxy, at the
Annual Meeting of Shareholders, to be held at the Sheraton North Shore Hotel,
933 Skokie Boulevard, Northbrook, Illinois, on December 11, 1997, at 10:30 a.m.
Chicago time, for the following purposes:
(1) To elect Edward A. Celano, Howard R. Conant, Peter R. Harvey, John
Harvey, Robert L. Johnson, Gerard M. Kenny and Maynard K. Louis to the
Board of Directors of Artra for a term of one (1) year.
(2) To ratify the appointment of Coopers & Lybrand L.L.P. as Artra's
independent certified public accountants for the fiscal year ending
December 25, 1997. See "Selection of Auditors" in the Proxy Statement.
(3) To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on October 31, 1997 are
entitled to vote at the Annual Meeting of Shareholders and all adjournments
thereof. Since a majority of the outstanding shares of Artra's stock must be
represented at the meeting in order to constitute a quorum, all shareholders are
urged either to attend the meeting or to be represented by proxy.
If you do not expect to attend the meeting in person, please sign, date
and return the accompanying proxy in the enclosed reply envelope. Your vote is
important regardless of the number of shares you own. If you later find that you
can be present and you desire to vote in person or, for any other reason, desire
to revoke your proxy, you may do so at any time before the voting.
By Order of the Board of Directors
Edwin G. Rymek, Secretary
November 7, 1997
Have you moved? If so, please complete and return the change of address form on
the last page.
<PAGE>
ARTRA GROUP INCORPORATED
500 Central Avenue
Northfield, Illinois 60093
PROXY STATEMENT
This Proxy Statement, Notice of Meeting and Proxy which will be mailed
on or about November 7, 1997 are furnished in connection with the solicitation
by the Board of Directors of ARTRA GROUP INCORPORATED ("Artra" or the "Company")
of proxies to be voted at the annual meeting of shareholders to be held at the
Sheraton North Shore Hotel, 933 Skokie Boulevard, Northbrook, Illinois, on
December 11, 1997 at 10:30 a.m., Chicago time, and any adjournments thereof.
Shareholders of record at the close of business on October 31, 1997
(the "record date") will be entitled to one vote at the meeting for each share
then held. On October 31, 1997, the record date, there were 8,290,182 shares of
common stock of Artra outstanding and 3,583.62 shares of Series A Preferred
Stock of Artra outstanding. On the matters presented to shareholders at this
meeting, the shares of Series A Preferred Stock are entitled to be voted on a
combined basis with the common stock and not on a class basis. Each preferred
and common share is entitled to one vote in person or by proxy, with the
privilege of cumulative voting in connection with the election of directors. All
shares represented by proxy will be voted in accordance with the instructions,
if any, given in such proxy. A shareholder may abstain from voting or may
withhold authority to vote for the nominees by marking the appropriate box on
the accompanying proxy card, or may withhold authority to vote for an individual
nominee by drawing a line through such nominee's name in the appropriate place
on the accompanying proxy card.
UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN, EACH PROPERLY EXECUTED
PROXY WILL BE VOTED, AS SPECIFIED BELOW:
(1) Elect Edward E. Celano, Howard R. Conant, peter r. harvey, John Harvey,
gerard m. kenny, Robert L. Johnson and Maynard K. Louis as directors,
(2) Ratify the appointment of Coopers & Lybrand L.L.P. as the company's
independent certified public accountants.
(3) Transact such other business as may properly be brought before the meeting
or any adjournment thereof.
All proxies may be revoked and execution of the accompanying proxy will
not affect a shareholder's right to revoke it by giving written notice of
revocation to the Secretary at any time before the proxy is voted or by the
mailing of a later dated proxy. Any shareholder attending the meeting in person
may vote his or her shares even though he or she has executed and mailed a
proxy.
2
<PAGE>
THIS PROXY STATEMENT IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
ARTRA. The expense of making this solicitation is being paid by Artra and
consists of the preparing, assembling and mailing of the Notice of Meeting,
Proxy Statement and Proxy, tabulating returns of proxies, and charges and
expenses of brokerage houses and other custodians, nominees or fiduciaries for
forwarding documents to shareholders. In addition to solicitation by mail,
officers and regular employees of Artra may solicit proxies by telephone,
telegram or in person without additional compensation therefor.
Series A Preferred Shareholders' Voting Rights
As of this time, Artra has outstanding 3,583.62 shares of its Series A
Preferred Stock (Series A) which have the right to cast one vote per share for
(i) election of directors. The Statement establishing the Series A states:
"...each share of the Series A Stock shall entitle the holder thereof to one
vote on all matters submitted to a vote of Artra's shareholders, such voting
rights to be indistinguishable with the voting rights attributed to a share of
Artra's common stock."
ELECTION OF DIRECTORS
Seven directors are to be elected at the annual meeting for a term of
one (1) year expiring in 1998.
The Board of Directors has nominated Edward A. Celano, Howard R.
Conant, Peter R. Harvey, John Harvey, Gerard M. Kenny, Robert L. Johnson and
Maynard K. Louis for election as directors for such terms. See "Information
Concerning Directors and Nominee" for a description of the business experience
of, and other information concerning Edward A. Celano, Howard R. Conant, Peter
R. Harvey, John Harvey, Gerard M. Kenny, Robert L. Johnson and Maynard K. Louis.
The By-laws of Artra require seven directors who are being nominated for
election at this time.
Unless you indicate to the contrary, the persons named in the
accompanying proxy will vote it for the election of the nominees named below.
If, for any reason, a nominee should be unable to serve as a director
at the time of the meeting, a contingency which is not expected to occur, the
persons designated herein as proxies may not vote for the election of any other
person not named herein as a nominee for election to the Board of Directors.
Meetings of the Directors
In 1996, the Board of Directors of the Company conducted two (2)
meetings of the Board at which all Directors were present either in person or by
telephone. In addition, the Board of Directors adopted actions by unanimous
consent on fourteen (14) occasions.
3
<PAGE>
Committees
The Audit Committee presently consists of Gerard M. Kenny, Chairman,
Maynard Louis and Robert L. Johnson and it conducted no meetings during 1996.
The Option and Compensation Committee consists of Peter R. Harvey, Chairman,
Maynard Louis and Howard Conant. The Option and Compensation Committee did not
meet during 1996. The Executive Committee consists of John Harvey, Chairman,
Peter R. Harvey, Edward Celano and Robert L. Johnson. The Executive Committee
did not meet during 1996.
Information Regarding Directors
The following table lists the name and age of each director of Artra, his
business experience during the past five (5) years, his positions with Artra and
certain directorships.
Name Age Positions and Experience
- ---- --- ------------------------
John Harvey 65 Chairman of the Board of Directors and
Chief Executive Officer of Artra;
Director since 1968; Chairman of the
Board of Directors, since 1985, a
Director from 1982 to December 1995
and the Chief Executive Officer from
1990 to November 1995 of COMFORCE
Corporation (temporary professional
employment, formerly The Lori
Corporation); an equity holding of
Artra representing 13% of COMFORCE
outstanding stock; a Director of
Plastic Specialties and Technologies,
Inc. ("PST") (textiles, hose and
tubing); Director of PureTec
Corporation, the successor by merger
to Ozite.
Peter R. Harvey 62 President and Chief Operating Officer
and a Director since 1968; Director
of COMFORCE (temporary professional
employment, formerly The Lori
Corporation)from 1985 to December 1995
and a vice president through January
1996, an equity holding of ARTRA
representing 13% of COMFORCE
outstanding common stock; Director of
PureTec Corporation, (textiles, hose
and tubing) the successor by merger to
Ozite.
Gerard M. Kenny 45 Director since 1988; Executive Vice
President and Director since 1982 of
Kenny Construction Company since 1982
(diversified heavy construction);
General Partner of Clinton Industries
(investments), a limited partnership,
since 1972.
Edward A. Celano 58 Executive Vice President of the
Atlantic Bank of New York since May 1,
1996, Senior Vice President of
National Westminster, USA from 1984
through April 1996, corporate finance.
4
<PAGE>
Howard R. Conant 73 Retired Chairman of the Board of
Interstate Steel Co., 1970 to 1990,
and a consultant to Interstate through
1992.
Maynard K. Louis 68 Retired Chairman of the Board of Lord
Label (now known as Porter &
Chatburn), a printing company, from
1965 to 1989, Vice President, 1989 to
1993, director of Artra from 1993
through 1995.
Robert L. Johnson 61 Chairman and Chief Executive Officer
of Johnson Bryce, Inc., flexible
packaging materials of food products
since 1991, and previously, for many
years, a vice president of Sears
Roebuck & Co.
John Harvey and Peter R. Harvey are brothers. Comforce was a 64.3%
owned subsidiary of Artra until December, 1995. Artra now owns approximately 13%
of Comforce. PureTec International, Inc. and PST are affiliates of Artra.
MANAGEMENT
Information Regarding Executive Officers
Set forth below is information concerning the executive officers and
other key employees of Artra who were in office or employed as of the date of
this Prospectus.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John Harvey 65 Chairman of the Board and Chief Executive Officer of Artra
Peter R. Harvey 62 President and Chief Operating Officer of Artra
John G. Hamm 58 Executive Vice President of Artra
Robert S. Gruber 64 Vice President - Corporate Relations of Artra
James D. Doering 60 Vice President, Treasurer and Chief Financial Officer of Artra
John Conroy 53 Vice President - Corporate Administration of Artra
Lawrence D. Levin 45 Controller of Artra
Edwin G. Rymek 67 Secretary of Artra
</TABLE>
John Harvey, Chairman and Chief Executive Officer of Artra. See
"Information Concerning Directors" above for a description of Mr. Harvey's
relevant business experience.
Peter R. Harvey, President and Chief Operating Officer of Artra. See
"Information Concerning Directors" above for a description of Mr. Harvey's
relevant business experience.
5
<PAGE>
John G. Hamm, Executive Vice President of Artra. Mr. Hamm has served as
Executive Vice President, since February 1988, and Vice President - Finance,
from 1975 until 1988, of Artra. Mr. Hamm has also served as Vice President
Finance, from August 1990 until July 1995, and as a Director, from 1984 until
July 1995 of Ozite Corporation. Mr. Hamm also serves as a Director of SoftNet
Systems, Inc. since 1985 and served as Director of PST from 1985 until January,
1996.
Robert S. Gruber, Vice President - Corporate Relations of Artra. Mr.
Gruber has served as Vice President - Corporate Relations of Artra since 1975
and as a consultant to The Lori Corporation from 1975 to 1995. Mr. Gruber has
also served as a consultant to Comforce during 1996.
James D. Doering, Vice President, Treasurer and Chief Financial Officer
of Artra. Mr. Doering has served as Vice President, since 1980, Treasurer, since
1987, Chief Financial Officer, since February 1988, and Controller, from 1980 to
1987. Mr. Doering has also served as Vice President and Chief Financial Officer
of Comforce from February 1988 through January 1996.
John Conroy, Vice President - Corporate Administration of Artra. Mr.
Conroy has served as Vice President Corporate Administration since March 1990.
Prior thereto, he served as Vice President - Corporate Administration, of
Sargent-Welch Scientific Company from September 1988 to December 1989. Mr.
Conroy previously served in various risk management positions with Artra from
1978 to September 1988, most recently as Corporate Risk Director.
Lawrence D. Levin, Controller of Artra. Mr. Levin has served as
Controller, since 1987, Assistant Treasurer and Assistant Secretary, since 1980,
and Assistant Controller, from 1980 to 1987. Mr. Levin has also served as
Controller of Comforce since December 1989 through January 1996 and as the
Assistant Chief Financial Officer of Comforce from May 1993 through January
1996.
Edwin G. Rymek, Secretary of Artra. Mr. Rymek has served as Secretary
of Artra since 1987 and of Comforce from 1982 through 1995.
Officers are appointed by the boards of directors of Artra and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey (a director and executive officer) and John
Harvey (a director and executive officer), who are brothers, there are no family
relationships among the executive officers and/or directors, nor are there any
arrangements or understandings between any officer and another person pursuant
to which he was appointed to office except as may be hereinafter described.
6
<PAGE>
EXECUTIVE COMPENSATION
Directors' Compensation
Directors who are not employees of Artra ("Outside Directors") are
entitled to receive an annual retainer of $10,000 and options on common stock to
purchase 2,500 shares on February 1 of each year and options to purchase 10,000
shares upon becoming a director. Each Outside Director who sits on an
established committee of Artra is entitled to receive $250 per committee meeting
attended and the chairman of a committee is entitled to receive $500 for each
meeting. Employees of Artra who also serve as directors or committee members
receive no additional compensation for such service.
Executive Officer Compensation
The following table shows all compensation paid by Artra and its
subsidiaries for the fiscal years ended December 26, 1996, December 28, 1995 and
December 29, 1994, to the chief executive officer of Artra and each of its other
most highly compensated executive officers who were serving as executive
officers of Artra as of December 26, 1996 and whose compensation exceeded
$100,000 in 1996.
SUMMARY COMPENSATION TABLE~~
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation(1)
---------------------- -------------------------
Securities All
Underlying(3) Other
Name and Salary Salary Options - Compen-
Principal Positions Year Paid Deferred(2) Bonus No. of Shares sation
------------------- ---- ---- ----------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
John Harvey, 1996 $137,811 $ -0- $ -0- 141,000 $5,456 (4)
Chairman and Chief 1995 126,200 -0- -0- -0- 2,520 (5)
Executive Officer 1994 126,200 -0- -0- -0- 2,520 (5)
James D. Doering, 1996 133,600 -0- -0- 57,500 6,000 (4)
Vice President and 1995 49,900 83,500 -0- -0- 3,470 (5)
Chief Financial Officer 1994 111,133 22,267 -0- -0- 3,000 (5)
John G. Hamm, 1996 133,600 -0- -0- 101,250 6,000 (4)
Executive 1995 49,900 83,500 -0- -0- 3,470 (5)
Vice President 1994 111,133 22,267 -0- -0- 3,000 (5)
Robert S. Gruber, 1996 110,400 -0- -0- 97,750 6,000 (4)
Vice President 1995 92,000 69,000 -0- -0- 2,868 (5)
Corporate Relations 1994 -0- 18,400 -0- -0- 4,831 (5)
<FN>
(1) No additional annual compensation was paid, no restrictive stock awards or
stock appreciation rights were granted, and no long term incentive plan
payouts were made to any of the officers listed in the table. Only
compensation earned in 1996 (irrespective of the year in which paid) is
considered in determining inclusion in this table.
7
<PAGE>
(2) Salaries are shown as paid (or deferred) in the year earned. Any deferred
salaries paid in a year subsequent to the year earned are not shown as paid
in such subsequent year. All salary deferrals for the years 1994 and 1995
have been paid as of the date hereof.
(3) All of the options shown in this column were granted under Artra's 1996
Stock Option Plan at an exercise price of $5.25 per share, being the closing
price of Artra's common stock on the New York Stock Exchange on the date of
grant (October 4, 1996). These options expire October 4, 2006.
(4) These amounts include Artra's contributions to the 401(k) plan during 1996
and 1995 and amounts contributed to the ARTRA GROUP Incorporated Employee
Stock Ownership Plan (the "ESOP") during 1995. See note (5) below for a
further discussion of the ESOP.
(5) These amounts represent the closing price on the New York Stock Exchange of
common stock as of the date the named officers became entitled to receive
the stock pursuant to the ESOP. Annual contributions were made to the ESOP
at the discretion of the Board of Directors. Artra contributed 15,000 common
shares to the Plan with a fair market value of $71,250 ($4.75 per share) for
the plan year ending December 29, 1994. Effective August 1, 1995, Artra
terminated the ESOP and subsequently distributed the related Employee
accounts to participants.
</FN>
</TABLE>
The following table sets forth information concerning the aggregate
number and potential realizable values of options granted to the Chief Executive
Officer and the other executive officers of Artra listed in the Summary
Compensation Table during the fiscal year ended December 26, 1996. The Board of
Directors authorized the issuance of options on October 5, 1996 at a per share
exercise price of $5.25 (being the closing price on October 4, 1996).
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Appreciation for
Individual Grants Option Term (1)
----------------------------------------------------------------- -------------------------
Number of % of Total Options
Options Granted to Exercise Price Expiration
Name Granted Employees in 1996 ($ per share) Date 5% 10%
- ------------------- -------- ----------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Harvey 141,000 26.5% $ 5.25 10-04-06 $ 466,710 $1,184,400
James D. Doering 57,500 10.8% $ 5.25 10-04-06 $ 190,325 $ 784,875
John G. Hamm 101,250 19.0% $ 5.25 10-04-06 $ 335,138 $ 850,500
Robert S. Gruber 97,750 18.3% $ 5.25 10-04-06 $ 323,553 $ 821,100
</TABLE>
8
<PAGE>
The following table sets forth information concerning the aggregate
number and values of options held by the Chief Executive Officer and the other
executive officers of Artra listed in the Summary Compensation Table as of
December 26, 1996 which were granted to such officers in consideration of their
services as officers or directors of Artra. No other options held by the Chief
Executive Officer or any other executive officers of Artra listed in the Summary
Compensation Table were exercised in 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION VALUES AS OF DECEMBER 26, 1996
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at 12-26-96 Options at 12-26-96
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable(1) Unexercisable(2)
- ------------------ --------------- --------- ------------------- ------------------
<S> <C> <C> <C> <C>
John Harvey 0 $ 0 221,000/0 $321,000/None
James D. Doering 8,500 18,000 111,000/0 180,000/None
John G. Hamm 0 0 140,450/0 184,000/None
Robert S. Gruber 0 0 118,750/0 136,000/None
<FN>
(1) See the notes under "Principal Shareholders" for a description of the
options (including exercise prices) granted to each of the executive
officers listed in this table.
(2) The listed options were issued at per share exercise prices of from $3.65
per share to $5.25 per share. The market price of Common Stock as of the
close of trading on December 26, 1996 on the New York Stock Exchange was
$6.125 per share.
</FN>
</TABLE>
Compensation Committee Interlocks And Insider Participation
Authority to determine the compensation of executive officers is
conferred upon Artra's Board of Directors or, in the case of officers paid by
Bagcraft Corporation of America ("Bagcraft"), by Bagcraft's Board of Directors.
The salary of John Harvey was paid by Bagcraft.
Artra's Board did not consider the compensation of its officers in
1996. The decisions concerning the cash compensation of these executive officers
(including John Harvey, the Chairman and Chief Executive Officer of Artra, who
was compensated by Bagcraft for his services as its Chairman) were made by Peter
R. Harvey, the President and Chief Operating Officer of Artra. Although Artra
has an Option and Compensation Committee formed to consider and award options
under Artra's 1985 Stock Option Plan, this committee did not meet in 1996. In
December, 1995, the Artra Board awarded options to the Chief Executive Officer
and to certain executive officers subject to approval by the shareholders of the
1996 Stock Option Plan. Peter R. Harvey, John Harvey and Gerard Kenny executed
the consent approving these awards. These awards were granted as compensation
for late salary payments during the period 1991 to 1995. See "Transactions with
Management and Others" for a description of various transactions and
relationships between Artra and each of these directors.
9
<PAGE>
PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
ARTRA Common Stock, Dow Jones Equity Market Index
and Dow Jones Diversified Industrial Index
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Dow Jones Equity Market Index $100.00 $108.61 $119.86 $120.76 $165.95 $209.08
Dow Jones Diversified Industrial Index $100.00 $109.54 $105.20 $104.23 $111.14 $141.41
ARTRA Common Stock $100.00 $ 47.06 $ 76.47 $ 60.29 $ 60.29 $ 72.06
</TABLE>
PRINCIPAL SHAREHOLDERS
As of October 31, 1997, there were 8,290,182 shares of Common Stock
issued and outstanding. The following table sets forth the number and percentage
of Common Stock known by management of Artra to be beneficially owned as of
October 28, 1997 by (i) all shareholders known by management of Artra to own 5%
or more of Artra's Common Stock, (ii) all directors of Artra, (iii) each
executive officer included in the Summary Compensation Table and (iv) all
directors, executive officers and other key employees of Artra as a group (9
persons). Unless stated otherwise, each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated. As of
October 31, 1997, 3,583.62 shares of Series A Preferred Stock of Artra, par
value $1,000 per share, were issued and outstanding. Each share of this Series A
Preferred Stock entitles the holder to one vote on an equal basis with each
share of Common Stock. Accordingly, for purposes of showing ownership of Common
Stock in the table below, the Series A Preferred Stock is treated as Common
Stock.
Number
of Shares
Beneficially Name of Beneficial Owner Owned Percent
- ------------------------------------- ----- -------
Research Center of Kabbalah(1) 647,250 7.5%
Prestwood Limited (10) 357,270 4.3%
Peter R. Harvey(2) Common 440,243 5.39%
Preferred 2,175 60.7%
John Harvey(3) 423,796 6.1%
Gerard M. Kenny(4) 240,048 2.9%
Maynard K. Louis(5) 121,000 1.4%
Howard R. Conant(6) 592,333 6.8%
Edward A. Celano 18,182 *
Robert L. Johnson 2,873 *
John G. Hamm(7) 142,232 1.7%
Robert S. Gruber(8) 141,104 1.79%
James D. Doering(9) 124,311 1.5%
All directors and executive officers
as a group (12 persons) 2,572,816 26.2%
* Less than 1% of the outstanding shares.
10
<PAGE>
(1) The address of Research Center of Kabbalah ("RCK") is 83-84 115th Street,
Richmond Hill, New York 11418. The shares beneficially owned by RCK
consist of 361,000 shares of Common Stock owned directly, 21,250 shares of
Common Stock issuable under a warrant which expires October 29, 1998 at an
exercise price of $6.00 per share, 65,000 shares of Common Stock issuable
under a warrant which expires December 31, 1998 at an exercise price of
$7.00 per share, 100,000 shares of Common Stock issuable under a warrant
which expires February 14, 2002 at an exercise price of $5.625 per share
and 100,000 shares of Common Stock issuable under a warrant which expires
April 13, 2002 at an exercise price of $5.00 per share.
(2) Mr. Peter R. Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares beneficially owned by Mr. Harvey consist of
375,790 shares held directly by him (of which 373,615 are Common Stock and
2,175 are shares of Series A Preferred Stock), 23,001 shares held as
trustee for the benefit of his nieces, 800 shares owned by his wife and
children, 634 shares held in his 401(k) plan, 7,193 shares held in his
individual retirement account, 20,000 shares issuable under an option
which expires September 19, 2001 at an exercise price of $3.65 per share
and 15,000 shares issuable under an option which expires January 8, 2003
at an exercise price of $3.75 per share.
(3) Mr. John Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares of Common Stock beneficially owned by Mr.
Harvey consist of 123,100 shares held directly by him, 1,705 shares held
in his 401(k) plan, 5,746 shares held in his individual retirement
account, 100,000 shares held by Mr. Harvey's daughters, 75,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share, 4,000
shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share, 141,000 shares issuable under an option
which expires October 4, 2006 at an exercise price of $5.25 per share and
an aggregate of 72,245 shares issuable under warrants expiring at various
dates in 2000 and 2001 received in 1995 and 1996 as additional
compensation for 1995 and 1996 short-term loans at exercise prices of
$3.75 per share to $6.25 per share.
(4) The shares beneficially owned by Mr. Kenny consist of 2,000 shares of
Artra's common stock issuable upon the exercise of an option at $10.00 per
share expiring November 28, 1996, 75,652 shares held by (or issuable to)
Kenny Construction Company, 14,411 shares held by Clinton Industries, and
75,001 shares issuable under a warrant held by Clinton Industries which
expires November 10, 1997 at an exercise price of $5.00 per share. Kenny
Construction Company holds put options to sell to Artra (i) 23,004 shares
of Common Stock for a put price of $83.45 per share plus an amount equal
to 15% per annum for each day from March 1, 1991 to the date of payment by
Artra, which put option expires December 31, 1997, and (ii) 49,980 shares
of Common Stock for a put price of $21.19 per share, subject to an annual
increase of $2.25, which put option is exercisable on the later of the
date Artra's obligations to Bank of America are repaid or the $2,500,000
note of Artra payable to Kenny Construction Company (as described in
paragraph 5 under "Transactions with Management and Others." If the stock
subject to the put is sold at a price less than the put price, Artra would
remain liable to the holder of the put for the amount by which the put
price of the shares exceeds the selling price. Mr. Kenny is Executive Vice
President, Director and beneficial owner of 16.66% of the issued and
outstanding stock of Kenny Construction Company. He is also the General
Partner and a 14.28% beneficial owner of Clinton Industries, a limited
partnership. See paragraphs 4 and 5 under "Transactions with Management
and Others."
11
<PAGE>
(5) Mr. Louis is the holder of warrants to purchase 121,000 shares of Artra
common stock at prices of $4.50 to $8.00 per share which warrants expire
on various dates commencing in 1997 and ending June 13, 2001.
(6) Mr. Conant holds 150,000 Artra common shares directly, Mrs. Conant holds
9,000 Artra common shares and Mr. Conant holds warrants to acquire 443,333
shares of Artra common stock at prices of $5.00 to $5.875 per share which
warrants expire on various dates in 2001 and 2002.
(7) The shares of Common Stock beneficially owned by Mr. Hamm consist of 50
shares held directly by him, 93 shares held by him and his wife jointly,
1,639 shares held in his 401(k) plan, 25,000 shares issuable under an
option which expires December 19, 2000 at an exercise price of $3.65 per
share, 1,000 shares issuable under an option which expires September 19,
2001 at an exercise price of $3.65 per share, 13,200 shares issuable under
an option which expires January 8, 2003 at an exercise price of $3.75 per
share, and 101,250 shares issuable under an option which expires October
4, 2006, at an exercise price of $5.25 per share.
(8) The shares of Common Stock beneficially owned by Mr. Gruber consist of
20,190 shares held directly by him, 943 shares held in his 401(k) plan,
1,221 shares held in his individual retirement account, 8,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share, 12,000
shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share and 97,750 shares issuable under an
option which expires October 4, 2006, at an exercise price of $5.25 per
share.
(9) The shares of Common Stock beneficially owned by Mr. Doering consist of
10,500 shares held by him in joint tenancy with his wife, 1,693 shares
held in his 401(k) plan, 1,118 shares held in his individual retirement
account, 22,500 shares issuable under an option which expires December 19,
2000 at an exercise price of $3.65 per share, 31,000 shares issuable under
an option which expires January 8, 2003 at an exercise price of $3.75 per
share and 57,500 shares issuable under an option which expires October 4,
2006, at an exercise price of $5.25 per share.
12
<PAGE>
(10) Prestwood Limited is a British Virgin Islands company located in Tortola,
BVI. The shares are directly and beneficially owned by Prestwood and
consist of 357,270 shares of common stock.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Effective October 17, 1995, Comforce, formerly a 64% owned subsidiary
of Artra, acquired all of the capital stock of Comforce Telecom, Inc. ("Comforce
Telecom"), formerly Spectrum Global Services, Inc. d/b/a Yield Global, for
consideration of approximately $6.4 million, net of cash acquired. This
consideration consisted of cash to the seller of approximately $5.1 million,
fees of approximately $700,000, including a fee of $500,000 to a related party,
and 500,000 shares of Comforce common stock valued at $843,000 (at a price per
share of $1.68) issued as consideration for various fees and guarantees
associated with the transaction. The 500,000 shares of Comforce common stock
consisted of (i) 100,000 shares issued to an unrelated party for guaranteeing
the purchase price to the seller, (ii) 100,000 shares issued to Artra, then the
majority shareholder of Comforce, in consideration of its guaranteeing the
purchase price to the seller and agreeing to enter into the Assumption
Agreement, as discussed below, (iii) 150,000 shares issued to two unrelated
parties for advisory services in connection with the acquisition, and (iv)
150,000 shares issued to Peter R. Harvey, then a Vice President and director of
Comforce for guaranteeing the payment of the $6.4 million purchase price to the
seller. Additionally, in conjunction with the 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 condensed consolidated balance as current liabilities
of discontinued operations.
Effective July 4, 1995, Comforce's management agreed to issue up to a
35% common stock interest in Comforce to certain individuals to manage
Comforce's entry into the telecommunications and computer technical staffing
business. Comforce recognized a non-recurring charge of $3,425,000 related to
this stock since these stock awards were 100% vested when issued, and were
neither conditioned upon these individuals' service to Comforce as employees nor
the consummation of the Comforce Telecom acquisition. Accordingly, this
compensation charge was fully recognized in 1995. The shares of Comforce common
stock issued in accordance with the above agreements were valued at $.93 per
share. Comforce's management valued Comforce based on its discussions with
market makers and other advisors, taking into account (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of Comforce was principally related to the
potential effect that a purchase of Comforce Telecom, if successfully concluded,
would have market value of Comforce common stock. Comforce's management believed
this value of $.93 per share to be a fair and appropriate value based upon
13
<PAGE>
Comforce's financial condition as of the date Comforce became obligated to issue
these shares. After the issuance of the Comforce common shares, plus the effects
of other transactions, Artra's ownership interest in Comforce common stock was
reduced to approximately 13% and 25% at December 26, 1996 and December 28, 1995,
respectively. Accordingly, in October 1995, the accounts of Comforce and its
majority-owned subsidiaries were deconsolidated from ArtraAEs consolidated
financial statements.
Effective December 19, 1996, Artra and Comforce agree to settle various
differences in the interpretation of certain agreements relating to the Comforce
Telecom acquisition, whereby, among other things:
(1) Comforce delivered to Artra 100,000 shares of Comforce common stock in
consideration of Artra guarantee of the Comforce Telecom purchase price
to the seller and 100,000 shares of Comforce common stock for the
cancellation of the Series C Preferred Stock. ArtraAEs financial
statements have reflected the issuance of these 200,000 Comforce common
shares to Artra since the fourth quarter of 1995.
(2) Artra delivered to Comforce certificates evidencing its ownership of
100% of the Lori Series C Preferred Stock.
(3) 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. Sales proceeds will be used principally to discharge
certain Artra and Fill-Mor debt obligations.
(4) 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.
(5) Artra agreed to deposit 125,000 shares of its Comforce common stock
into an escrow account to collateralize its remaining obligations under
the Assumption Agreement.
Comforce did not retain an underwriter for the proposed underwritten
public offering referred to in paragraph (3) and, accordingly, effective April
30, 1997 Artra was released from the provisions of the Lock-up Agreement.
During 1995, Artra received $399,000 of advances from Comforce. In
1996, Comforce advanced Artra an additional $54,000. During 1996 Artra repaid
the above advances and paid down, assumed or otherwise settled substantially all
of the known pre-existing Comforce liabilities it assumed in conjunction with
the Comforce Telecom acquisition.
John Harvey was the chief executive officer, the chairman of the board
of Comforce until November 1995 and a director to December 1995. Peter R. Harvey
was a director of Comforce to December 1995 and a vice president of Comforce
through January 1, 1996. James D. Doering was the vice president and chief
financial officer of Comforce through January 1996. Lawrence D. Levin was the
controller and assistant chief financial officer of Comforce through January
1996. Edwin Rymek was the secretary of Comforce through November 1995.
14
<PAGE>
In January 1995, Artra borrowed $100,000 from John Harvey on a
short-term basis evidenced by a note due March 20, 1995 and bearing interest at
8% per annum. This loan, as well as other short-term borrowings from John
Harvey, aggregating $175,000 at December 28, 1995, have been renewed as they
matured during 1995. In February 1996 Artra repaid $50,000 to Mr. Harvey. In May
1996 Artra repaid Mr. Harvey's loans and related accrued interest in their
entirety. As additional compensation the loans provided for the issuance of
warrants to purchase Artra common shares, as determined by the number of days
the loans are outstanding. John Harvey received warrants to purchase an
aggregate of 66,045 shares of Artra common stock at prices ranging from $3.75 to
$6.125 per share as additional compensation for his loans to Artra.
The Harvey Family Trust is the owner of the real estate at 500 Central,
Northfield, Illinois, the corporate offices of Artra which was acquired by the
Trust in September 1996. Artra rents approximately 7,000 square feet of office
space and 1,000 square feet of warehouse space from the Trust at an annual
rental of $126,000 pursuant to a lease expiring in January 1998. Artra may renew
the lease for an additional one year period at an increased rent in the sum of
$132,000. The building contains approximately 29,500 total square feet. In the
opinion of Artra management, the Artra rental obligation to the Harvey Family
Trust does not exceed the fair market value for similar rentals. John Harvey is
the grantor and beneficiary of the Trust.
During 1990 and 1991, Artra made advances to Peter R. Harvey, of which
$820,000 (including $112,000 in accrued interest) remained outstanding at
December 30, 1993. The outstanding principal balance of these advances bears
interest at the prime rate plus 2%. Artra had previously borrowed funds from Mr.
Harvey evidenced by a $2,000,000 Artra note payable to him. Upon Mr. Harvey's
surrender of this note to Artra (which note had previously been pledged by him
to secure obligations he owed to another company), Artra applied the $2,000,000
to amounts due from him.
In addition to the advances made directly by Artra, certain advances
were previously made to Mr. Harvey by Bagcraft prior to its acquisition by Artra
in 1990. In December 1993, $1,894,000, representing the total amount of these
advances (including accrued interest of $120,000) was transferred from Artra's
Bagcraft subsidiary to Artra as a dividend (a portion of which interest has been
reserved on Artra's books).
In February 1996, a bank agreed to discharge all amounts under its
Artra notes ($14,563,639.39 including accrued interest and fees) and certain
obligations of Artra's president, Peter R. Harvey. In connection with said
discharge, Artra obtained a $2,150,000 participation right in a $3 million note,
which was offset by the discharge of $2,150,000 in prior Harvey indebtedness. In
addition, Artra recorded a receivable of $1,089,000 for Mr. Harvey's pro rata
share of the debt discharge funded by Artra. See "Transactions with Management
and Others -- Settlement of the Bank of America Illinois Debt." 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 in the real
estate, subordinated to the noteholder's $850,000 security interest in this real
estate.
In May 1991, Artra's Fill-Mor subsidiary made advances to Peter R.
Harvey. The advances, made out of a portion of the proceeds of a short-term bank
loan, bear interest at the prime rate plus 2%. The amount of these advances at
March 30, 1995 was $1,540,000 (including $398,000 of accrued interest). In
15
<PAGE>
April, 1995, these advances from Artra's Fill-Mor subsidiary to Peter R. Harvey
were transferred to Artra as a dividend. The aggregate amount of all amounts due
from Mr. Harvey which remained outstanding as of September 30, 1997 was
$15,073,535 with accrued interest of $2,241,320 for a total of $17,314,855 of
which Artra has reserved interest on the principal owed to it by Mr. Harvey in
the sum of $2,241,320.
Mr. Harvey has pledged the following collateral to Artra as security
for his debts:
Collateral Description
---------- -----------
42,067 Shares (1) Artra common stock
707,281 Shares (1) PureTec Inc. common stock
250 Shares (1) Industrial Communications common stock
1,523 Shares (1) Artra Series A preferred stock
652 Shares* (2) Artra Series A preferred stock
1,784 Shares* (2) BCA Series A redeemable preferred stock
6,489 Shares* (2) BCA Series B redeemable preferred stock
Mortgage (1) Lien on Harvey personal residence
*These assets pledged to Artra were subsequently repledged by Artra to
a private lender in connection with a loan made to Artra and are now in that
lenderAEs possession.
(1) The pledge of 1,523 shares of Artra redeemable preferred stock has a
liquidation value of $1,523,000, plus accrued dividends. 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... See "Transactions With Management And Others
- - Settlement of the Bank of America Illinois Debt." The bank had a
senior security interest in the amount of $850,000 on the real estate
described in the table above. 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 in the real estate,
subordinated to the noteholder's $850,000 security interest in this
real estate.
(2) 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 Series A 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 October
15, 1997, this additional collateral had a carrying value of the
obligation in ArtraAEs consolidated balance sheet of approximately
$11,000,000. The advances were funded with the proceeds from the July
1997 private placement of ArtraAEs notes.
In summary, Peter Harvey has pledged $14,838,000 of Artra and BCA
preferred stock including cumulative unpaid dividends (preferred stock in the
sum of $1,314,902 has been hypothecated by John Harvey, his brother); securities
with an estimated value of $2,915,000 as described in the table above; and a
second mortgage on real estate as described above.
Peter R. Harvey has not received compensation for either the guarantee
described in the next paragraph or his services other than nominal amounts as an
officer or director of Artra or any of its subsidiaries since October 1990.
16
<PAGE>
Additionally, Mr. Harvey has agreed not to accept any compensation for his
services as an officer or director of Artra or any of its subsidiaries until his
obligations to Artra, described above, are fully satisfied.
Additionally, since December 31, 1986, Peter R. Harvey has guaranteed
approximately $120,000,000 of Artra obligations to private and institutional
lenders (John Harvey also was a co-guarantor of a $26,700,000 loan included in
that total with Peter R. Harvey), and has also hypothecated personal assets as
security for the Artra obligations which are described in this proxy statement.
Under Pennsylvania Business Corporation Law of 1988, Artra (a
Pennsylvania corporation) is permitted to make loans to officers and directors.
Further, under the Delaware General Corporation Law, Fill-Mor (a Delaware
corporation) is permitted to make loans to an officer (including any officer who
is also a director, as in the case of Peter R. Harvey), whenever, in the
judgment of the directors, the loan can reasonably be expected to benefit
Fill-Mor.
At the September 19, 1991 meeting, Artra's Board of Directors discussed
but did not act on a proposal to ratify the advances made by Artra to Peter R.
Harvey. The 1992 advances made by Artra to Peter R. Harvey were ratified by
Artra's Board of Directors. In the case of the loan made by Fill-Mor to Peter R.
Harvey, the Board of Directors of Fill-Mor approved the borrowing of funds from
Fill-Mor's bank loan agreement, a condition of which was the application of a
portion of the proceeds thereof to the payment of certain of Peter R. Harvey's
loan obligations to the bank. However, the resolutions did not acknowledge the
use of such proceeds for this purpose and the formal loan documents with the
bank did not set forth this condition (though in fact, the proceeds were so
applied by the bank).
In June 1996, Peter R. Harvey loaned Artra 100,000 shares of Artra
common stock (with a then fair market value of $587,000). The Company
principally issued these common shares to certain lenders as additional
consideration for short-term loans. In September 1996, after Artra's
shareholders approved an increase in the number of authorized common shares,
Artra repaid this loan. At Peter R. Harvey's direction, the 100,000 shares of
Artra's common stock were issued in blocks of 25,000 shares to the four
daughters of Artra's Chairman of the Board, John Harvey. John Harvey and Peter
R. Harvey are brothers.
During 1986 and through August 10, 1988, Artra entered into a series of
short-term borrowing agreements with private investors. Each agreement granted
an investor a put option, principally due in one year, that required Artra to
repurchase any or all of the shares sold at a 15% to 20% premium during a
specified put period. Kenny Construction Company ("Kenny") entered into a put
option agreement with Artra, which has been extended from time to time, most
recently on November 11, 1992. At such time Artra and Kenny agreed to extend the
put option whereby Kenny received the right to sell to Artra 23,004 shares of
Artra common stock at a put price of $56.76 plus an amount equal to 15% per
annum for each day from March 1, 1991 to the date of payment by Artra, which
option expires December 31, 1997.
Gerard M. Kenny, a director of Artra, is the Executive vice-president
and Chief Executive Officer and a director of Kenny and beneficially owns 16.66%
of Kenny's capital stock.
17
<PAGE>
On March 21, 1989, Artra borrowed $5,000,000 from its bank lender
evidenced by a promissory note. This note has been amended and extended from
time to time. The borrowings on this note were collateralized by, among other
things, a $2,500,000 guaranty by Kenny. Kenny received compensation in the form
of 833 shares of Artra common stock for each month that its guaranty remained
outstanding through March 31, 1994. Under this arrangement, Kenny received
49,980 shares of Artra common stock as compensation for its guaranty.
On March 31, 1994, Artra entered into a series of agreements with its
bank lender and with Kenny. Under the terms of these agreements, Kenny purchased
a $2,500,000 participation in the $5,000,000 note payable to Artra's bank
lender. Kenny's participation is evidenced by a $2,500,000 Artra note (the
"Kenny Note") bearing interest at the prime rate. As consideration for its
purchase of this participation, the bank lender released Kenny from its
$2,500,000 loan guaranty. As additional consideration, Kenny received an option
to put back to Artra the 49,980 shares of Artra common stock received as
compensation for its $2,500,000 Artra loan guaranty at a price of $15.00 per
share. The put option is subject to increase at the rate of $2.25 per share per
annum ($21.188 at December 26, 1996). The put option is exercisable on the later
of the date the Kenny Note is repaid or the date Artra's obligations to its bank
lender are fully paid. During the first quarter of 1996, the $2,500,000 note and
related accrued interest was paid in full, principally with the proceeds from
additional short-term borrowings. The put option remains outstanding.
On September 27, 1989, Artra received a proposal to purchase Bagcraft
from Sage Group, Inc. ("Sage"), a privately-owned corporation. Effective March
3, 1990, a wholly-owned subsidiary of Artra indirectly acquired from Sage 100%
of the issued and outstanding common shares of BCA Holdings, Inc., which in turn
owned 100% of the stock of Bagcraft, for total consideration which was delivered
to Ozite as the successor by merger to Sage, upon approval of Artra's
shareholders. The consideration for the Bagcraft acquisition consisted of
772,000 shares of Artra's common stock and 3,750 shares of its $1,000 par value
junior non-convertible payment-in-kind preferred stock bearing a dividend rate
of 6%. The issuance of the Artra Common and Preferred Stock as consideration was
approved by Artra's shareholders at the December 1990 annual meeting of
shareholders. Upon the merger of Sage into Ozite on August 24, 1990, Ozite
became entitled to receive this consideration, which right Ozite assigned to its
PST subsidiary. Peter R. Harvey, Artra's President, and John Harvey, Artra's
Chairman of the Board of Directors, were the principal shareholders of Sage and
Ozite as of the times that the merger agreements were executed and the mergers
consummated.
Ozite subsequently repurchased the 3,750 shares of preferred stock in
February 1992, 1,523 of which shares were subsequently assigned to Peter Harvey
in consideration of his discharge of certain indebtedness of Ozite to him in
April 1992. Mr. Harvey pledged these 1,523 preferred shares to Artra. The
$4,750,000 price of the 772,000 shares of common stock and 3,750 shares of
preferred stock was equal to the fair market value thereof as of January 31,
1991 as determined by an independent investment banking firm engaged by PST to
make such determination.
Peter R. Harvey and John Harvey are significant shareholders of PST's
parent, PureTec, as described in Note 1 to the table under "Principal
Shareholders." Peter R. Harvey is a Vice President and a director of PST and a
director of PureTec. John Harvey is a director of PST and PureTec.
18
<PAGE>
In 1987, the predecessor of PST acquired a $5,000,000 subordinated note
bearing interest at a rate of 13.5% per annum and 50,000 shares of 13-1/2%
cumulative redeemable preferred stock of Bagcraft with a liquidation preference
of $5,000,000 with $10,000,000 of the net proceeds of the PST public offering in
May 1987. Interest accrued on the note at a rate of 13.5% per annum. No cash
payments of interest were made during the term of the note. However, during
1992, per agreement with PST, the interest payments for 1992 were remitted by
Bagcraft to Artra and the noteholder received Series A preferred stock of
Bagcraft's parent, BCA Holdings, Inc. ("BCA") having a liquidation value of
$675,000. In December 1993, the principal outstanding under this note was repaid
in full in cash from proceeds of Bagcraft's new credit facility with an
institutional lender and PST accepted additional BCA preferred stock having a
liquidation value of $3,000,000 in satisfaction of all unpaid accrued interest
thereon.
The BCA preferred stock provides a $1,000 per share liquidation
preference and annual cumulative cash dividends of $60.00 per share when and if
declared by BCA. The Bagcraft redeemable preferred stock remains outstanding as
of the date hereof. As of June 26, 1997, net dividends in the amount of $803,000
had accumulated thereon.
Settlement of the Bank of America Illinois Debt
As of February 26, 1996, Artra was indebted to B of A in the sum of
$14,563,639.59 including accrued interest and fees (the "Prior Indebtedness").
As of February 26, 1996, Peter R. Harvey, an officer and director of Artra, was
indebted to B of A in the sum of $7,496,830 including accrued interest (the
"Prior Harvey Indebtedness"), (the Prior Indebtedness and the Prior Harvey
Indebtedness are collectively referred to as the "Debt", or "Prior Notes").
On February 26, 1996, for an aggregate purchase price of $5,150,000
(the "Purchase Price") Arabella, S.A. ("Arabella") purchased from B of A (the
"Debt Purchase") all of B of A's interest in the Debt except that B of A
retained the rights to $3 million of the Prior Harvey Indebtedness. B of A then
entered into a Participation Agreement with Artra pursuant to which B of A
transferred to Artra the right to receive $2.15 million of the retained $3
million indebtedness. The $3 million indebtedness was collateralized by a
mortgage on certain real estate owned by Mr. Harvey. B of A's rights to the
remaining $850,000 of the indebtedness had priority over Artra's rights to the
$2.15 million. 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.
The Prior Artra Indebtedness and the Prior Harvey Indebtedness to
BankAmerica were satisfied as follows:
(1) Artra paid Arabella cash in the amount of $2,650,000, 100,000 shares of
Artra common stock (valued at $440,667 after a discount for restricted
marketability) and 25,000 shares of Comforce common stock held by Artra
(with a then fair market value of $200,000).
19
<PAGE>
(2) BCA executed a note in favor of Arabella in the principal amount of
$1,900,000 with a maturity date of May 26, 1996 (the "New Artra Note,")
and Peter R. Harvey executed a note in favor of Arabella in the
principal amount of $2,296,830 (the "New Harvey Note"). The amount of
the Harvey Note was reduced to $100,000 if payment was made by May 26,
1996. Arabella was entitled to up to an additional 100,000 shares of
Artra common stock and 25,000 shares of Comforce stock depending on
when Artra and Peter R. Harvey repaid the new debt. The New Artra and
Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April).
Based on the date of the repayment, Arabella received an additional
50,000 shares of Artra stock, which had a value of $220,000 after a
discount for restricted marketability. Arabella also received an
additional $125,000 in lieu of the additional 12,500 shares of Comforce
to which it was entitled based on the date of repayment.
(3) Artra gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal consideration. The option was valued at $500,000.
Per the terms of the agreement, Artra repurchased the option for
$550,000 in April, 1996.
Artra recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's pro rata share ($1,089,000) of the debt discharge funded by Artra. In
addition, based upon the assignment by the bank to Artra of the Harvey mortgage
in the amount of $2,150,000, subordinated to the extent of $850,000, Artra
offset $2,150,000 of other debt previously owed to it by Peter Harvey. The net
effect of the above transactions with Mr. Harvey, other than Artra receiving
collateral, was that there was no change in the amount of the debt owed to Artra
by Mr. Harvey. In order to obtain access to the $2,650,000 paid to Arabella, the
following transactions occurred.
(1) Bagcraft purchased from BCA all of the authorized shares of a newly
created BCA Class B Redeemable Preferred stock (the "BCA B Pref")
consisting of 8,135 shares, a $1,000 per share liquidation preference
and annual cumulative cash dividends of $135 per share for $4,135,000
which was borrowed under Bagcraft's line of credit.
(2) BCA distributed the $4,135,000 to Artra. Artra paid $2,650,000 to
Arabella and used the remaining $1,485,000 to pay down other debt
obligations and for working capital.
(3) Bagcraft then exchanged the BCA B Pref for 82.7% of the outstanding
shares of Bagcraft preferred stock (the "Bagcraft Preferred") which
were owned by Ozite Corporation, a wholly owned subsidiary of PureTec.
Following this exchange, Ozite held all of the outstanding BCA B Pref.
Bagcraft then held 82.7% of the outstanding shares of its Preferred
which was canceled. There are 8,650 shares of Bagcraft Preferred
remaining outstanding held by PST.
20
<PAGE>
Other Transactions
On March 9, 1990, Maynard K. Louis, a member of the Board of Directors,
made a loan to Artra in the principal amount of $500,000 bearing interest at the
rate of 10% per annum. This loan was repaid in 1992 through the issuance to Mr.
Louis of 68,198 shares of Artra's common stock. On April 2, 1992, Mr. Louis made
a loan to Artra in the principal amount of $100,000 bearing interest at the rate
of 9% per annum, which loan, due April 1, 1994, has been extended. On October 1,
1993, Mr. Louis made a short term loan in the principal amount of $75,000
bearing interest at the rate of 8% per annum to Artra's BCA Holdings Inc. and A
G Holding Corp. subsidiaries due October 22, 1993, which loan was repaid. As
consideration for making or agreeing to extend these loans, Mr. Louis received
the warrants to purchase Artra's common stock described in note 5 to the table
under "Principal Shareholders."
During 1993, The Research Center of Kabbalah ("RCK"), which holds
approximately 7.5% of Artra's outstanding Common Stock (including the stock
issuable upon the exercise of warrants) as of December 26, 1996, made certain
short-term loans to Artra of which $2,000,000, with interest at 10%, was
outstanding at December 31, 1993. As additional compensation, RCK received
warrants to purchase an aggregate of 86,250 Artra common shares at prices
ranging from $6.00 to $7.00 per share based upon the market of Artra's common
stock at the date of issuance. The warrants expire five years from the date of
issuance. In January 1994, Kabbalah made an additional $1,000,000 short-term
loan to Artra, also with interest at 10%. The proceeds of these loans were used
to pay down various Artra short-term loans and other debt obligations. In
December, 1995, RCK received 126,222 shares of Artra common in payment of past
due interest through October 31, 1995. Interest on the loans was paid through
March, 1997. Payment on the loans was due March 31, 1994, however, the lender
did not demand 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 RCK 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 Edward A. Celano, then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997, bearing interest at 10%. The proceeds of the
loan were used for working capital. At Artra's annual meeting of shareholders,
held August 29, 1996, Mr. Celano was elected to Artra's board of directors.
Effective January 17, 1997, Mr. Celano exercised his conversion rights and
received 18,182 shares of Artra common stock as payment of the principal balance
of his note.
In August, 1996, Artra borrowed $500,000 from Howard Conant, then a
private investor, evidenced by an short-term note, due December 23, 1996,
bearing interest at 10%. The loan was collateralized by 125,000 shares of
Comforce common stock owned by Artra's Fill-Mor subsidiary. As additional
compensation for the loan, Mr. Conant received a warrant, expiring in 2001, to
purchase 25,000 Artra common shares at a price of $5.00 per share. The proceeds
of the loan were used for working capital. At Artra's annual meeting of
shareholders, held August 29, 1996, Mr. Conant was elected to Artra's board of
directors. In December, 1996, the loan was extended until April 23, 1997 and Mr.
Conant received, as additional compensation, a warrant, expiring in 2001, to
purchase 25,000 Artra common shares at a price of $5.875 per share.
21
<PAGE>
In January, 1997, Artra borrowed an additional $300,000 from Mr. Conant
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
Artra's Fill-Mor subsidiary. As additional compensation for the loan, Mr. Conant
received a warrant, expiring in 2002, to purchase 25,000 Artra common shares at
a price of $5.75 per share.
In March 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
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
Artra's Fill-Mor subsidiary. As additional compensation, Mr. Conant received an
option to purchase 25,000 shares of Comforce common stock owned by Artra'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 total put price of $50,000.
In May 1997, Mr. Conant exercised his rights and put the Comforce option back to
Artra for $50,000. The proceeds from this loan were used in part to repay an
Artra/Fill-Mor $2,500,000 bank term loan.
In April 1997, Artra borrowed $5,000,000 from Mr. Conant 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 warrant holder 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 Artra'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
warrant holder has the right to put the warrant back to Artra). The proceeds
from this loan were used to repay Mr. Conant's outstanding borrowings of
$1,800,000 and to pay down other Artra debt obligations.
In June 1997, Artra borrowed an additional $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation, the
lender received a warrant to purchase 40,000 Artra common stock shares at a
price of $5.00 per share. The warrant holder 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 CompanyAEs financial statements as a charge to interest expense
over the period June 10, 1997 (the date of loan) through December 10, 1997 (the
date the warrant holder has the right to put the warrant back to Artra). The
proceeds from this loan were used to pay down other Artra debt obligations. In
July 1997, borrowings from Mr. Conant were reduced to $3,000,000 with proceeds
advanced to Artra from a Bagcraft term loan as discussed above. As of October
21, 1997, Artra had total outstanding borrowings of $3,000,000 from Mr. Conant
collateralized by a 75% interest in the common stock of ArtraAEs BCA subsidiary
(the parent of Bagcraft).
22
<PAGE>
SELECTION OF AUDITORS
The Board of Directors appointed Coopers & Lybrand L.L.P. independent
certified public accountants, to audit the financial statements of the company
and itAEs wholly-owned subsidiaries for the fiscal year ending December 25,
1997. Coopers & Lybrand L.L.P. has served as principal auditors for the company
since 1962.
This appointment is being presented to shareholders for approval of the
appointment for the audit to be conducted for the year ending 1997. The
favorable vote of the holders of a majority of the shares represented in person
or by proxy at the Meeting and entitled to vote (assuming a quorum is present)
is required to ratify the appointment.
A representative of Coopers & Lybrand L.L.P. is expected to attend the
meeting and will be afforded an opportunity to make a statement if he desires to
do so. He is also expected to be available to respond to appropriate questions.
The Board of Directors recommends that the shareholders vote FOR the
proposal. Proxies solicited by the Board of Directors will be voted in favor of
this proposal unless a contrary vote or authority withheld is specified.
SHAREHOLDERS' PROPOSALS
Any shareholder may notify management of his intention to present a
proposal for action at the next annual meeting by delivery of a notice to be
reviewed by management not less than 120 calendar days in advance of the
solicitation date of Artra's next annual meeting or for action at any other
meeting at a reasonable time before solicitation is made, and any proposal as
required by law received on or before March 23, 1998 will be considered for
action at the next annual meeting. Such notices should be submitted to ARTRA
GROUP Incorporated, 500 Central Avenue, Northfield, Illinois 60093, Attention:
Corporate Secretary.
GENERAL AND OTHER MATTERS
Management knows of no matters, other than those referred to in this
proxy statement, which will be presented to the meeting. However, if any other
matters properly come before the meeting or any adjournment, the persons named
in the accompanying proxy will vote it in accordance with their best judgment on
such matters.
The Company will bear the expense of preparing, printing and mailing
this proxy material, as well as the cost of any required solicitation. In
addition to the solicitation of proxies by use of the mails, Artra may use
regular employees, without additional compensation, to request, by telephone or
otherwise, attendance or proxies previously solicited.
You are urged to sign and return your proxy promptly.
------------------------------
Edwin G. Rymek
Secretary
November 7, 1997
23
<PAGE>
HAVE YOU MOVED?
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, Illinois 60093
Please change my address on the books of ARTRA GROUP Incorporated.
Name of Owner
Print Name exactly as it appears on Stock Certificate
From (Old Address)
(Please print)
To (New Address)
Street Address City or Town State Zip Code
Date___________
Signature: _________________________________________________
Owner(s) should sign name(s) exactly as appears on Stock Certificate. If this
form is signed by a representative, evidence of authority should be supplied.
MAY BE ENCLOSED IN ENVELOPE WITH PROXY CARD
24
<PAGE>
ARTRA GROUP INCORPORATED
THIS PROXY IS BEING SOLICITED BY THE ARTRA GROUP INCORPORATED
BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated November 7, 1997 in
connection with the Annual Meeting of Shareholders to be held at 10:30 a.m. on
Thursday, December 11, 1997 at the Sheraton North Shore Hotel 933 Skokie Blvd,
Northbrook, Illinois, 60062 and hereby appoints James Doering and Lawrence Levin
and each of them (with full power to act alone), the attorneys and proxies of
the undersigned, with power of substitution to each, to vote all shares of the
Common Stock and Preferred Stock registered in the name provided herein which
the undersigned is entitled to vote at the 1997 Annual Meeting of Shareholders,
and at any adjournments thereof, with all the powers the undersigned would have
if personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals set forth in said Proxy.
SEE REVERSE SIDE FOR THE TWO PROPOSALS. If you wish to vote in accordance with
the Board of Directors' recommendations, just sign on the reverse side. You need
not mark any boxes.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of Directors and FOR
Proposal 2.
The Board of Directors recommends a vote FOR Proposal 1.
1. Election of Directors (To the right). One Year Term. For Withheld
[ ] [ ]
Election of Directors
Nominees: Edward A. Celano, Howard R. Conant,
Peter R. Harvey, John Harvey, Robert L. Johnson,
Gerard M. Kenny and Maynard K. Louis
- ------------------------------------------------
[ ] For all nominees except as noted above.
2. Proposal to ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent public accountants for me fiscal year ending December 25,
1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion the Proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournments thereof.
I PLAN TO ATTEND THE MEETING [ ]
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Date ______________________________
Signature: ________________________
Date ______________________________
Signature: ________________________
