SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from _________ to __________
Commission file number 1-3916
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Commission file number 1-3916
ARTRA GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1095978
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Central Avenue, Northfield, IL 60093
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- ----------------------
Common stock, without par value New York Stock
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 28, 1998: $23,238,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 28, 1998
- ------------------------------- --------------------------------
Common stock, without par value 7,865,228
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Business
ARTRA Group Incorporated, (hereinafter "ARTRA" or the "Company"), is a
Pennsylvania corporation incorporated in 1933. Through its wholly-owned
subsidiary, Bagcraft Corporation of America ("Bagcraft"), ARTRA currently
operates in one industry segment as a manufacturer of packaging products
principally serving the food industry.
At December 31, 1997 ARTRA held approximately 10% of the outstanding common
stock of COMFORCE Corporation ("COMFORCE", formerly The Lori Corporation
"Lori"). Prior to September 28, 1995, COMFORCE/Lori was a majority owned
subsidiary of ARTRA operating as a designer and distributor of popular-priced
fashion costume jewelry and accessories. In September 1995 COMFORCE adopted a
plan to discontinue its jewelry business. Effective October 17, 1995, COMFORCE
entered the telecommunications and computer technical staffing and consulting
services business with the acquisition of COMFORCE Telecom Inc. COMFORCE has
subsequently expanded this business through various acquisitions. See Notes 3
and 6 to the Company's consolidated financial statements for a further
discussion of ARTRA's investment in COMFORCE.
Packaging Products Business
Effective March 3, 1990, ARTRA entered into the packaging products business with
its acquisition of Bagcraft. Bagcraft, established in 1947, is a leading
manufacturer and supplier of flexible packaging products to the fast food,
bakery, microwave popcorn and supermarket industries and is also a significant
supplier to the theater industry. Several of Bagcraft's products are widely
recognized and have become standard items within various segments of the food
industry. Bagcraft is a full-service supplier complete with its own design
studios, laboratory and engineering departments. Bagcraft's sales and technical
staff work in conjunction with Bagcraft's customers to determine the proper
components of the package. Bagcraft's art department creates packaging designs,
subject to customer approval, or duplicates customer-supplied designs.
Thereafter, the packaging is produced in accordance with customer specifications
using a variety of papers, film, foil and lamination. Bagcraft has developed a
number of proprietary innovations in the manufacture of its packaging products.
Such innovations include the Dubl-Wax(TM) bag, which introduced specialty waxed
bags to the retail bakery industry. Bagcraft is also credited with being
instrumental in developing and producing the first microwave popcorn bags.
Bagcraft currently produces over three billion bags and three billion sheets and
wrappers annually for the packaging of more than 1,000 different products.
Bagcraft purchases the paper, foil, films and chemicals it uses from a number of
different unaffiliated suppliers. Since Bagcraft purchases each of the raw
materials it requires from more than one supplier, it is not dependent upon a
single supplier for any specific materials or supplies.
Sales orders are processed, and manufacturing and delivery schedules are
determined primarily at Bagcraft's headquarters and production facility in
Chicago. In September, 1994, Bagcraft completed the construction of a 265,000
sq. ft. production facility in Baxter Springs, Kansas. The Kansas facility,
which has added production capacity in Bagcraft's growing food service products
business, replaced Bagcraft's production facility in Joplin, Missouri (which was
conveyed to a contractor involved in constructing the Baxter Springs facility in
partial consideration of such contractor's fees), its facility in Carteret, New
Jersey (which was sold in 1994) and its facility in Forest Park, Georgia (which
was converted into a distribution facility until it was closed in June 1996 and
subsequently sold in 1997).
Bagcraft's products are sold throughout the United States by a sales force of
approximately 18 full-time salespersons who sell direct or to wholesale
distributors. Bagcraft also utilizes a number of independent brokers who sell
Bagcraft products to large food processors and food chains. Bagcraft presently
sells its products to more than 2,000 customers. Although some of these are the
largest and most recognizable companies in the food industry, no single customer
accounted for more than 10% of ARTRA's consolidated net sales in 1997.
Sales to customers are made pursuant to orders placed in advance for periods of
up to one year. In certain instances Bagcraft and a customer can enter into an
agreement to maintain a specified minimum inventory for the customer. The
contracts entered into by Bagcraft with its customers vary in length depending
on the customer's needs and Bagcraft's capacity to meet the customer's
requirements. Generally, Bagcraft's contracts provide advance notice of from 30
days to one year to terminate a contract. The contracts typically provide for
delivery of goods at an agreed-upon fixed price, subject
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to adjustment upon timely notice in advance. Bagcraft usually grants its
customers rights of return, subject to penalty, except in the case of goods
produced to specification. In addition, Bagcraft typically requires payment for
goods 30 days after shipment, but gives its customers a 1% discount if payment
is made within 10 days after shipment.
Bagcraft believes that it is the manufacturer of the most diversified line of
flexible packaging products in the United States. However, there are a number of
domestic and foreign companies which compete directly with Bagcraft in each of
its major product lines, certain of which have a larger market share with
respect to specific product lines. Bagcraft's competitors range from small
companies to divisions of large corporations which have substantially greater
financial resources than those available to Bagcraft. Bagcraft competes on the
basis of quality, service and the price of its products.
Bagcraft believes that a modest level of continuing research and development and
strict quality and process control will be necessary to maintain and improve its
position in the flexible packaging industry. All product modifications and
manufacturing innovations reflect input from its personnel in general
management, sales, marketing design, R&D and engineering.
In 1997 Bagcraft restructured its marketing its into seven segments: Food
Service, Supermarket Deli/Bakery and Pharmacy, Retail Packaging, Concessions,
Microwave /International/Motion Sickness, and Distribution.
Food Service
In 1997 the Food Service Segment accounted for approximately 47% of Bagcraft's
total sales. The Food Service Division markets to the Quick Serve Restaurant
("QSR"), Convenience Store, and Full Service Restaurant segments.
Approximately 93% of sales for the Food Service Segment are attributable to
QSRs. Representative customers for this segment include McDonald's, Wendy's,
Burger King, Taco Bell, Dairy Queen and Boston Market. Bagcraft products sold to
QSRs include specialized bags and sheets constructed of foil and paper, for
hamburgers, subs, hot dogs, tacos, sandwiches, French fries, chicken and other
fast food products.
The development of the Honeycomb(TM) foil sheet helped propel Bagcraft to its
industry leading position. The Honeycomb sheet is an innovative construction
which incorporates a moisture absorbing layer that prevents buns from becoming
soggy, and keeps food warm for a longer period of time. In addition, when used
to replace rigid packaging, it provides substantial space savings and represents
significant source reduction to the solid waste system - a growing concern for
environmentally conscious companies. Bagcraft has been recognized for numerous
other innovations in packaging within the QSR market, including Churches' To Go
Bag, McDonald's hash brown bag, and Rotisserie Chicken's To Go! Bag. The Food
Services Segment's leading products are described below.
Product Description
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Laminated Foil Sandwich Bags Small honeycombs of air built into
Bagcraft's exclusive lamination absorb
moisture to help prevent soggy buns and
provide superior insulation.
Laminated Foil Sheets Same as above but in sheet form.
Laminated Paper Sheets Has most of the benefits of foil and is
also microwaveable; the fastest growing
item in the Food Service Segment.
Paper Sheets Economical as a quick wrap for sandwiches
and as tray liners.
French Fry Bags Stain resistant packages of various
sizes.
Bagcraft's state-of-the-art printing capabilities also provide a competitive
advantage in servicing QSRs. Bagcraft's ability to register print, front and
back, on foil and paper enable the Company to print up to eight different
sandwich varieties on a single sheet, which further reduces customer inventory
and storage space requirements. Bagcraft was also the first manufacturer to
print 6-color sheets, producing the most visually appealing packaging for the
QSR market.
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The Convenience Store and Food Service Restaurant segments of the Food Services
accounted for approximately 3% of Bagcraft's 1997 sales. With a similar product
line to the QSR segment, leading Convenience Store segment customers include
7-Eleven, WaWa, AM/PM, and Mobil. Leading Food Service Restaurant segment
customers include Pizza Hut and the Olive Garden.
The Company's leadership in the Food Services area has been significantly
advanced by Bagcraft's new Baxter Springs facility. The Baxter Springs plant
features state-of-the-art printing and converting equipment which allow the
Company to be the low cost producer with the widest array of capabilities in its
Food Service product offerings.
Supermarket Deli/Bakery and Pharmacy
Bagcraft is the industry leader in supplying the specialized bag needs to the
Deli and Bakery departments within Supermarkets, and a significant supplier to a
leading Pharmacy. Revenues in this segment accounted for approximately 13% of
Bagcraft's total 1997 sales. Bakeries, including those in supermarkets and
various retail chains, account for the majority of this segment's sales.
Customers in this segment include Publix, Albertson's, Winn-Dixie, Wakefern, and
Walgreen's. A number of the Supermarket Deli/Bakery and Pharmacy segment's
products, including Dubl-Wax(R), Dubl-Panel(R), Dubl-Clear(R) and
Sealing-Strip(TM), represent a significant manufacturing innovations which have
contributed to Bagcraft's position as the industry leader. Bagcraft believes the
outlook for the future indicates stability and growth.
One of the successful additions to this segment is the "To Go!" Bags(TM). These
single and double wall grease proof and moisture resistant bags offer superior
performance relative to rigid containers such as tubs and cartons and cost much
less on a per unit basis. To Go! Bags(TM) also provide the environmental and
storage advantages of bags. "To Go!" Bags(TM) have been enthusiastically
received and expected to continue market penetration.
Similarly, the patented Message Center Bag(TM) has a "tear out" portion which
has a variety of uses, including "proof of purchase", coupon offers, restaurant
and deli menus, and others. This new product, as well as other patents pending
in the promotional field, are enabling the Company to expand its offerings of
tie-in advertising and cross merchandising. Under these programs, national firms
utilize the Message Center Bag(TM) to display their ads and work out a
coordinated program to have the Message Center Bag(TM) incorporated in their
regular bags. The table below lists the leading products sold to the Supermarket
Deli/Bakery and Pharmacy segment, and provides a brief description of each.
Product Description
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Dubl-Clear(R) Bag Translucent bag, in pinch or
Self-Opening Style ("S.O.S.") style,
used in stores' self-service bins;
makes it easier for cashier to identify
contents and can be closed easily with
tape when produced with the Bagcraft
Sealing Strip(TM).
Dubl-Wax(R)Bag Dubl-Wax(R)Bag enables baked foods to
stay fresh and tasty without becoming
soggy (in pinch or S.O.S.).
Laminated Foil Bags Multi-color laminated bags for the
packaging of specialty breads and deli
items. Can be used in a conventional
oven or on a grill for enhanced flavor.
Dubl Panel(R) Clear film panel for visibility,
surrounded by paper, which can be waxed
on one or two sides for extra shelf
life.
Paper Bags Printed, but where visibility is not
needed. Used especially for specialty
breads such as French, Italian and
Baguettes.
Window Bags A clear window displays the product
within. Used especially for quality
baked products, this product has a
tamper resistant closure, yet can be
opened and reclosed.
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Retail Packaging
Bagcraft enjoys significant competitive advantages in its Retail Packaging
segment through its ability to offer this set of customers innovative and
patented products. With revenues of $12 million, this segment accounted for
approximately 9% of the Bagcraft's total sales in 1997. The Retail Packaging
segment features products for the packaging of bakery goods, such as bagel
chips, cookies, biscotti, dry pasta, donuts, coffee, pre-popped popcorn and
specialized promotional items. This division provides bags with transparent
windows, metal tin tie attachments, and Tac Label(TM) closures. Customers for
the division include Superior, Burns & Ricker and Interstate Brands.
Many of the products sold to this segment of customers represent unique
additions to Bagcraft's standard products. The Cue-Pon Bag(TM) has a "tear out"
coupon affixed near the window of the bag which offers the shopper the immediate
benefit of the coupon upon purchase. The Cue-Pon Pocket Bag(TM) has a pouch on
the front of the bag which can be filled with novelty items by the retailer.
As discussed in Note 3 to the Company's consolidated financial statements,
Bagcraft's January 1997 purchase of AB Specialty Holding Company, Inc. ("AB")
enhanced Bagcraft's Retail Packaging business through AB's capabilities in
heat-sealed bottom bags as well as its ability to produce 6 color process
printed decorative bags. The table below lists the Retail Packaging Segment's
leading products, and provides a brief description of each.
Product Description
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Coffee Bags Double wall bags, many with tin tie
attachments for whole bean or
pre-ground coffee.
Window Bags Self-opening bags with special
shaped windows for easy viewing of
packaging contents.
Cookie Bags Heat sealed top and bottom, highly
protective and attractively printed for
maximum customer appeal.
Bagel Chip Self-opening bags with heat sealed
bottoms and liners.
Concessions
The Concessions market segment encompasses all food service items sold at
stadiums and movie theaters, including circuit-owned cafes and restaurants,
accounting for approximately 4% of Bagcraft's 1997 sales. The principal product
sold to these customers is the theater popcorn bag, which provide the theater
chains with a more economical package that is easy to dispose of and
substantially reduces the amount of space needed to inventory the product. These
double wall bags provide many of the properties of rigid containers such as tubs
and cartons with the environmental and storage advantages of bags. Bagcraft is
the leading supplier of popcorn bags to theater chains such as General Cinema
Corporation, Carmike and Mann Theaters.
Microwave/International/Motion Sickness
The Microwave/International/Motion Sickness segment, which contributed
approximately 2% of Bagcraft's 1997, represents an example of Bagcraft's high
technology advancements. Bagcraft was instrumental in the development of the
first microwave popcorn bag and played an important role in developing the
"susceptor" accelerator technology which is incorporated into these products.
The susceptor technology involves placing a metallized material into the popcorn
bag which accelerates the heat transfer and results in a higher percentage of
the popcorn kernels being popped. Bagcraft continues to provide packaging
upgrades to this industry.
In recent years, Bagcraft has experienced a decline in its domestic microwave
popcorn business because of a flat and-consumer market and the acquisition of
one of its major customers by a company with its own packaging ability. Sales
growth, however, has recently been assisted by the Brown and Crisp microwave
cooking bag. Produced
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exclusively for A.D. Tech, this product significantly expands the number of food
items which can be effectively cooked in a microwave.
Bagcraft currently supplies motion sickness bags to United, Delta, Southwest and
Northwest Airlines, and, with the addition of the heat-sealed bottoms capability
from the AB acquisition, is actively seeking to further its airline motion
sickness business from the other major carriers.
Distribution
The Company's Distribution segment sells to distributors who service many
smaller accounts in a particular geographic region. The Distribution segment
represented approximately 21% of Bagcraft's 1997 sales. Customers include such
leading distributors as Sysco, Alliant Foodservice, Bunzl, Unisource, and
ResourceNet. Bagcraft leads the industry in providing the widest variety of
immediately available unprinted and stock printed bags and sheets. Bagcraft's
stock product line boasts some 300 generically printed stock products. Stock
products are bought and inventories by distributors who, in turn, sell them in
varying quantities to end-users for a multitude of purposes. The stock line is
sold mainly through Bagcraft field salespeople and Chicago in-bound
telemarketing efforts. The table below lists a number of the Distribution
segment's leading products, and provides a brief description of each.
Product Description
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Foil Honeycomb(TM) Sheets Small honeycombs of air built into
Bagcraft's exclusive lamination absorb
moisture to help prevent soggy buns and
provide superior insulation.
SOS Bakery/Deli Bags Self-opening flat bottom waxed bags
with stand-up bottoms for fast loading
at bakery and deli operations.
Pinch Paper Bread Bags Complete range of shapes and sizes for
every style of bread.
SOS Popcorn Bags Flat bottom popcorn bags to replace
bulky tubs and cartons in theaters,
stadiums, concession stands and malls.
To Go!(TM) Bags Flat bottom bags with e xcellent grease
and moisture barriers engineered with
special breathing vents for chicken,
ribs and other hot foods to go.
Foil Insulator Bags Paper laminated to foil bags; provides
excellent heat retention.
Coffee Bags Double wall bags, many with tin tie
attachments for whole bean or
pre-ground coffee
Employees
At December 31, 1997, the Company employed approximately 1,000 persons. The
Company considers its relationships with its employees to be good.
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Item 2. Properties
The following table sets forth a brief description of the properties of the
Company and its subsidiaries. The Company and its subsidiaries believe that all
of their facilities are adequate for their present and reasonably anticipated
future business requirements.
<TABLE>
<CAPTION>
Location General Description Ownership
-------- ------------------- --------
ARTRA:
<S> <C> <C> <C>
Northfield, IL (1) Headquarters facility of Leased
approximately 7,000 sq. ft
Bagcraft:
Chicago, IL Administrative and manufacturing facility of Owned
approximately 148,000 sq. ft.
Chicago, IL (2) Warehouse and office facility of Leased, expiring in 2006
approximately 63,000 sq. ft
Baxter Springs, KS Manufacturing, warehouse and office facility Owned
of approximately 265,000 sq. ft.
Hialeah, FL (2) (3) Manufacturing, warehouse and office facility Leased, expiring in 1998
of approximately 20,000 sq. ft.
Medley, FL (3) (4) Warehouse facility of approximately 20,000 sq.ft. Leased, expiring in 1999
- -------------------------------------------------------------------------------
<FN>
(1) This lease expired in December 1997 and this facility is currently
being leased on a month to month basis. Effective December 1995, the
building was purchased by a trust owned by John Harvey, the Company's
Chairman of the board of directors.
(2) This lease provides for a ten-year option to renew at the current
market rate.
(3) This lease was assumed in conjunction with Bagcraft's January 1997
acquisition of AB Specialty Holding Company.
(4) This lease provides for a two-year renewal option.
</FN>
</TABLE>
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Item 3. Legal Proceedings
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 31, 1996 the Company had
accrued $1,800,000 for business-related litigation and environmental
liabilities. While these litigation and environmental matters involve wide
ranges of potential liability, management does not believe the outcome of these
matters will have a material adverse effect on the Company's financial position;
however it may have an adverse effect on the results of operations for an
individual reporting period. However, ARTRA may not have available funds to pay
liabilities arising out of these business-related litigation and environmental
matters or, in certain instances, to provide for its legal defense.
In November, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois (the "State Court Action") against
Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc., Charles K.
Bobrinskoy, Michael J. Zimmerman (collectively, "Salomon Defendants"), D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William Rifkind relating to the acquisition of
Envirodyne in 1989 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 had a right to appeal the District Court's decision. This appeal had 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, and breach of contract and promissory estoppel. In the State
Court Action, ARTRA sought 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 appealed this decision.
Effective December 31, 1997, the above parties reached a settlement agreement
and all pending litigation was dismissed. ARTRA recognized a gain of
$10,416,000, net of related legal fees and other expenses, resulting from the
settlement agreement.
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 potentially 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,
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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. In October 1997 Bagcraft paid $40,000 to formally extinguish this claim.
Bagcraft's Chicago facility has also been the subject of allegations that it
violated laws and regulations associated with the Clean Air Act. The facility
has numerous sources of air emissions of volatile organic materials ("VOMs")
associated with its printing operations and is required to maintain and comply
with permits and emissions regulations with regard to each of these emission
sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. The NOV alleges that the facility installed and
operated emission sources without permits, that it failed to operate air
pollution control equipment at required efficiencies and that there were
releases of VOMs above permitted limits. 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.
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ARTRA entered into a consent decree with the EPA in which it agreed to pay
$85,000 for one phase of the clean-up costs for this site; however, ARTRA
defaulted on its payment obligation. ARTRA is presently unable to estimate the
total potential liability for clean-up costs at this site, which clean-up is
expected to continue for a number of years. The consent decree, even if it had
been honored by ARTRA, was not intended to release ARTRA from liability for
costs associated with other phases of the clean-up at this site. The Company is
presently unable determine what, if any, additional liability it may incur in
this matter.
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.
On August 7, 1995, a Second Amended Verified Complaint was filed in the Supreme
Court of N.Y. by Philip Elghanian against ARTRA, its officers and directors (the
"ARTRA Defendants") and others alleging that the defendants engaged in a scheme
to defraud plaintiff of approximately $5 million of the value of his investment
in shares of ARTRA. The plaintiff seeks damages and interest in excess of $38
million and punitive and exemplary damages in excess of $100 million. On January
19, 1996, the ARTRA Defendants filed a motion to dismiss the Second Amended
Complaint. As of June 7, 1996 that motion is still pending. Since New York
permits interlocutory appeals, the decision, if adverse, may be appealed. In
February 1997, the Second Amended Complaint was dismissed, with the right to
replead.
In connection with the sale of its former Sargent Welch Scientific Company
subsidiary, ARTRA assumed liabilities relating to early retirement claims. ARTRA
is approximately $80,000 behind in scheduled payments. ARTRA intends to pay the
entire liability, which is a maximum of $320,000, depending upon years lived by
covered employees. ARTRA has accrued the entire $120,000 currently payable in
its financial statements.
9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On December 16, 1997, the annual meeting of shareholders of the Company was
held, at which the shareholders voted on and approved the following matters:
1. The election of the Board of Directors for a term of one year. A
summary of the voting results is as follows:
Shares
Director Shares For Withheld
-------- ---------- --------
Edward A. Celano 7,243,524 46,462
Howard A. Conant 7,242,624 47,362
Peter R. Harvey 7,241,413 48,573
John Harvey 7,241,512 48,474
Robert L. Johnson 7,241,584 48,402
Gerard M. Kenny 7,239,684 50,302
Maynard K. Louis 7,241,624 47,362
2. The appointment of Coopers & Lybrand L.L.P. as ARTRA's independent
certified public accountants for the fiscal year ending December 31,
1997. A summary of the voting results is as follows:
For 7,278,511
Against 7,516
Abstain 3,959
10
<PAGE>
PART II
Item 5. Market For the Registrant's Common Equity and Related Shareholder
Matters.
ARTRA's common stock, without par value, is traded on the New York ("NYSE") and
Pacific Stock Exchanges. The Company currently does not meet certain of the
requirements for maintaining its listing on the NYSE and the NYSE is reviewing
the status of the Company's listing on the exchange. As of December 31, 1997,
the approximate number of holders of its common stock was 2,500.
The high and low sales prices for ARTRA's common stock, as reported in the NYSE
Quarterly Market Statistics reports, during the past two fiscal years were as
follows:
1997 1996
--------------------- ----------------------
High Low High Low
-------- -------- --------- --------
First quarter 6 - 3/8 4 - 1/2 6 - 3/4 4 - 5/8
Second quarter 5 - 3/4 3 - 7/8 9 - 1/4 5 - 3/4
Third quarter 5 - 1/8 3 - 1/2 8 - 3/8 4 - 3/4
Fourth quarter 4 - 1/16 2 - 1/2 6 - 3/4 5
No dividends were paid in 1997 or 1996, nor are any anticipated in 1998. The
Company was prohibited from paying dividends to its stockholders pursuant to the
terms of its bank loan agreement that was discharged in February 1996. In
addition, the Company's operating subsidiaries historically have been prohibited
from or restricted in paying dividends or making distributions under their
respective debt agreements (except for limited overhead allocations or payments
in accordance with tax sharing agreements with the parent entity). Accordingly,
current restrictions or limitations on the Company's Bagcraft subsidiary in
upstreaming payments in 1998 and beyond would make the payment of dividends by
ARTRA unlikely. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the loan agreements of
the Company and its Bagcraft subsidiary.
<PAGE>
Item 6. Selected Financial Data.
Following is a consolidated summary of selected financial data of the Company
for each of the five fiscal years in the period ended December 31, 1997. The
information for the years ended December 28, 1995 and December 29, 1994 reflects
the operations of Arcar Graphics, Inc. ("Arcar") in discontinued operations. The
sale of Arcar (acquired effective April 9, 1994) was completed on October 26,
1995. Certain selected financial data for each of the three fiscal years in the
period ended December 28, 1995 reflects the discontinuance of the Company's
jewelry business, effective September 28, 1995, conducted by the former
majority-owned subsidiary COMFORCE Corporation, formerly The Lori Corporation.
In October 1995, due to issuances of COMFORCE common stock, the Company's
ownership interest in COMFORCE common stock was reduced to approximately 25% and
the investment in COMFORCE was accounted for under the equity method during the
fourth quarter of 1995. Effective December 28, 1995, the Company adopted SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
Under this statement, the Company's investment in COMFORCE is classified as
available for sale and is stated at fair value. See Notes 3 and 6 to the
Company's consolidated financial statements for a further discussion of the
Company's investment in COMFORCE.
<TABLE>
<CAPTION>
Fiscal Year Ended (E)
---------------------------------------------------------
1997 1996 1995 1994 1993
----- ------ ------ ------ ------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 125,027 $ 120,699 $ 121,879 $ 111,837 $ 113,584
Earnings (loss) from
continuing operations (A) (B) (C) 773 3,549 (16,943) (13,529) (8,327)
Earnings (loss) from
discontinued operations (D) -- -- 10 (15,906) (216)
Extraordinary credits (E) -- 9,424 14,030 8,965 22,057
Net earnings (loss) 773 12,973 (2,903) (20,470) 13,514
Earnings (loss) per share (F):
Basic
Continuing operations (.04) .34 (2.70) (2.52) (1.87)
Discontinued operations -- -- -- (2.79) (.04)
Extraordinary credits -- 1.25 2.07 1.57 4.57
Net earnings (loss) (.04) 1.59 (.63) (3.74) 2.66
Diluted
Continuing operations (.04) .32 (2.70) (2.52) (1.84)
Discontinued operations -- -- -- (2.79) (.04)
Extraordinary credits -- 1.19 2.07 1.57 4.49
Net earnings (loss) (.04) 1.51 (.63) (3.74) 2.61
Weighted average number of
shares outstanding
Basic 7,970 7,525 6,776 5,702 4,823
Diluted 7,970 7,939 6,776 5,702 4,908
Total assets 73,206 77,379 77,949 93,429 92,774
Long-term debt 50,619 34,207 34,113 19,673 29,264
Debt subsequently discharged -- -- -- 9,750 --
Cash dividends -- -- -- -- --
12
<PAGE>
<FN>
(A) Earnings from continuing operations for the years ended December 31,
1997 and December 26, 1996 include realized gains of $2,531,000 and
$5,818,000, respectively, from dispositions of COMFORCE common stock
and a gain of $838,000 from an exchange of redeemable preferred stock
of its Bagcraft subsidiary.
(B) Earnings from continuing operations for the year ended December 31,
1997 includes a gain from settlement of litigation of $10,416,000, net
of related legal fees and other expenses, and net related party
compensation/expense reimbursement costs of $2,816,000 (see Note 19 to
the Company's consolidated financial statements).
(C) Earnings from continuing operations for the year December 26, 1996
includes a gain of $838,000 from an exchange of redeemable preferred
stock of its Bagcraft subsidiary.
(D) The loss from discontinued operations for the year ended December 28,
1995 includes a charge to operations of $6,430,000 to write-off the
remaining goodwill of COMFORCE's jewelry business effective June 29,
1995, and a provision of $1,000,000 for loss on disposal of COMFORCE's
jewelry business. Earnings from discontinued operations for the year
ended December 28, 1995 includes a gain on sale of Bagcraft's Arcar
subsidiary of $8,483,000. The loss from discontinued operations for
the year ended December 31, 1994 includes a charge to operations of
$10,800,000 representing a write-off of New Dimensions goodwill.
(E) The 1996, 1995 and 1994 extraordinary credits represent gains from net
discharge of bank indebtedness. The 1993 extraordinary credit
represents a gain from a net discharge of indebtedness due to the
reorganization of COMFORCE's New Dimensions subsidiary.
(F) In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings
Per Share" and restated prior periods accordingly.
(G) In 1997, the Company changed its fiscal year end to December 31. In
prior years the Company had operated on a 52/53 week fiscal year
ending the last Thursday of December.
</FN>
</TABLE>
13
<PAGE>
Item 7. 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 Company's consolidated financial statements for the year ended December 28,
1995 were reclassified to report separately the results of operations of Arcar
and COMFORCE's discontinued jewelry business prior to the deconsolidation of
COMFORCE and its majority-owned subsidiaries effective October 1995.
Accordingly, the following discussion of results of operations is presented for
the Company's continuing operations at December 31, 1997, conducted by the
Company's Bagcraft subsidiary.
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 years in the period ended December 31, 1997.
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
December 31, December 26, December 28,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of goods sold,
exclusive of depreciation
and amortization 81.2% 78.4% 84.1%
Selling, general and administrative 15.6% 13.0% 15.7%
Depreciation and amortization 3.5% 3.3% 3.6%
Write-down of idle machinery and equipment - - 1.2%
----- ---- -----
100.3% 94.7% 104.6%
----- ---- -----
Operating earnings (loss) -0.3% 5.3% - 4.6%
----- ----- -----
Other income (expense):
Interest expense -7.4% -6.1% -7.7%
Amortization of debt discount -2.2% -0.5% -0.3%
Realized gain on disposal of 2.0% 4.8% -
available-for-sale securities
Litigation settlement 8.3% - -
Gain on sale of idle machinery and 0.7% - -
equipment
Other income (expense), net 0.3% -0.1% -0.1%
Equity in loss of COMFORCE - - -0.4%
----- ----- ----
1.7% -1.9% -8.5%
----- ---- ----
Earnings (loss) from continuing operations
before income taxes and minority interest 1.4% 3.4% -13.1%
Provision for income taxes - -0.1% -
Minority interest -0.9% -0.4% -0.7%
---- ---- ----
Earnings (loss) from continuing operations 0.5% 2.9% -13.8%
==== ==== ====
</TABLE>
14
<PAGE>
Year Ended December 31, 1997 vs. Year Ended December 26, 1996
Net sales of $125,027,000 for the year ended December 31, 1997 were $4,328,000,
or 3.6%, higher than net sales for the year ended December 26, 1996. The 1997
net sales increase is attributable to Bagcraft's January 1997 acquisition of the
business assets of AB Specialty, partially offset by sales during 1996 to a
former food service customer.
The Company's cost of sales of $101,527,000 for the year ended December 31, 1997
increased $6,914,000 as compared to the year ended December 26, 1996. Cost of
sales for the year ended December 31, 1997 was 81.2% of net sales compared to a
cost of sales percentage of 78.4% for the year ended December 26, 1996. The
increase in cost of sales percentage is primarily attributable to competitive
market conditions, certain transition costs relating to the AB Specialty
acquisition and a slightly less favorable product mix in 1997.
Selling, general and administrative expenses were $19,548,000 for the year ended
December 31, 1997 as compared to $15,638,000 for the year ended December 26,
1996. Selling, general and administrative expenses were 15.6% of net sales for
the year ended December 31, 1997 as compared to 13.0% of net sales for year
ended December 26, 1996. The 1997 increase in selling, general and
administrative expenses was principally attributable to net related party
compensation/expense reimbursement costs of $2,816,000 (see discussion of Peter
R. Harvey advances below).
Depreciation and amortization expense was $4,364,000 for the year ended December
31, 1997 as compared to $3,927,000 for the year ended December 26, 1996.
Depreciation and amortization expense was 3.5 % of net sales for the year ended
December 31, 1997 as compared to 3.3% of net sales for year ended December 26,
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 an operating loss in the year ended December 31, 1997 of
$412,000 as compared to operating earnings of $6,521,000 in the year ended
December 26, 1996. The 1997 operating loss is attributable to decreased
operating margins and increased selling, general and administrative expenses as
noted above.
Interest expense for the year ended December 31, 1997 increased $1,851,000 as
compared to the year ended December 26, 1996. The 1997 increase is principally
attributable to an increased level of borrowings and related loan fees incurred.
Amortization of debt discount was $2,702,000 for the year ended December 31,
1997 as compared to $548,000 for the year ended December 26, 1996. The 1997
increase is attributable to the December 1996 amendment and restatement of
Bagcraft's Credit Agreement.
During the year ended December 31, 1997 the Company sold or otherwise disposed
of 302,203 shares of COMFORCE common stock resulting in a realized gain of
$2,531,000. During the year ended December 26, 1996 the Company sold or
otherwise disposed of 331,333 shares of COMFORCE common stock resulting in a
realized gain of $5,818,000.
Effective December 31, 1997, the ARTRA received a settlement from certain
litigation relating to the acquisition of Envirodyne in 1989 by Emerald. ARTRA
recognized a gain from the settlement agreement of $10,416,000, net of related
legal fees and other expenses.
In December 1997 the company sold certain idle machinery and equipment
written-off in prior years resulting in a gain of $932,000.
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.
15
<PAGE>
Year Ended December 26, 1996 vs. Year Ended December 28, 1995
Continuing Operations
Net sales of $120,699,000 for the year ended December 26, were $1,180,000, or
1.0%, lower than net sales for the year ended December 28, 1995. The 1996 sales
decrease is attributable to an overall volume decrease partially offset by
increased selling prices. The 1996 volume decrease is principally attributable
to a 1995 promotion by a major fast food customer. The increased 1996 selling
prices were in response to the significant increases in paper costs in 1995.
The Company's cost of sales of $94,613,000 for the year ended December 26, 1996
decreased $7,895,000 as compared to the year ended December 28, 1995. Cost of
sales for the year ended December 26, 1996 was 78.4% of net sales compared to a
cost of sales percentage of 84.1% for the year ended December 28, 1995. The
decrease in cost of sales is primarily attributable to lower paper costs and the
decreased 1996 sales volume as noted above. The decrease in cost of sales
percentage is primarily attributable to lower paper costs and improved
production efficiencies in 1996.
Selling, general and administrative expenses were $15,638,000 in the year ended
December 26, 1996 as compared to $19,131,000 in the year ended December 28,
1995. Selling, general and administrative expenses were 13.0% of net sales in
the year ended December 26, 1996 as compared to 15.7% of net sales in the year
ended December 28, 1995. The 1996 decrease in selling, general and
administrative expenses is primarily attributable to a third quarter 1995
compensation charge related to the issuance of a 35% common stock interest in
COMFORCE as additional consideration for certain individuals to enter into
employment or consulting services agreements to manage COMFORCE's entry into and
development of the telecommunications and computer technical staffing services
business.
Depreciation and amortization expense was $3,927,000 in the year ended December
26, 1996 as compared to $4,330,000 in the year ended December 28, 1995.
Depreciation and amortization expense was 3.3 % of net sales in the year ended
December 26, 1996 as compared to 3.6% of net sales in the year ended December
28, 1995. The 1996 decrease in depreciation and amortization expense is
primarily attributable to the December, 1995 write-down of idle machinery and
equipment dedicated to the production of microwave popcorn products.
In recent years, Bagcraft had experienced a decline in its domestic microwave
popcorn business due to the acquisition of one of its major customers by a
company with its own packaging ability. Accordingly, at December 28, 1995,
Bagcraft incurred a charge to operations of $1,503,000 to write-down the
carrying value of idle machinery and equipment dedicated to the production of
microwave popcorn products.
The Company had operating earnings in the year ended December 26, 1996 of
$6,521,000 as compared to operating loss of $5,593,000 in the year ended
December 28, 1995. The 1996 increase in operating earnings is attributable to
improved operating margins and to the decrease in selling, general and
administrative expenses as noted above.
Interest expense, including amortization of debt discount, for the year ended
December 26, 1996 decreased $1,777,000 as compared to the year ended December
28, 1995. The 1996 decrease is principally due to discharges of bank
indebtedness in the fourth quarter of 1995 and the first quarter of 1996.
During 1996 ARTRA sold 193,000 COMFORCE common shares in the market, with the
net proceeds of approximately $3,7000,000 used for working capital. During 1996
certain lenders received 105,000 COMFORCE common shares held by the Company as
additional consideration for short-term loans. In October 1996, a lender
exercised the conversion rights of a short-term loan and received 33,333
COMFORCE common shares in settlement of the Company's obligation. The
disposition of these 331,333 COMFORCE common shares resulted in realized gains
of $5,818,000 during the year ended December 26, 1996, with cost determined by
average cost.
The 1996 and 1995 extraordinary credits represent net gains from discharge of
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits in due to the utilization of
tax loss carryforwards, except for Federal alternative minimum tax incurred in
1996. Due to the Company's tax loss carryforwards and the uncertainty of future
taxable income, no income tax benefit was recognized in connection with the
Company's 1995 pre-tax loss.
16
<PAGE>
Discontinued Operations
Earnings from discontinued operations of $10,000 for the year ended December 28,
1995 consisted of a charge to operations of $6,430,000 to write-off the
remaining goodwill of COMFORCE's jewelry business, a provision of $1,000,000 for
loss on disposal of COMFORCE's jewelry business and operating losses of
COMFORCE's jewelry business, offset by a gain on sale of Bagcraft's Arcar
subsidiary of $8,483,000 and operating earnings of Bagcraft's Arcar subsidiary.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents increased $5,820,000 during the year ended December
31, 1997. The increase in cash and cash equivalents is primarily attributable to
December proceeds from a litigation settlement (see Note 18 to the consolidated
financial statements), partially offset by pay downs of certain debt
obligations. During the year ended December 31, 1997, cash flows from financing
activities of $6,222,000 were principally attributable to a net increase in
long-term borrowings. Cash flows used by operating activities of $287,000 during
the year ended December 31, 1997 were principally attributable the Company's
operating loss. Cash flows used by investing activities of $115,000 during the
year ended December 31, 1997 principally represent an increase in the receivable
from a related party as discussed in Note 19 to the consolidated financial
statements, funds expended to complete Bagcraft's acquisition of the business
assets of AB Specialty and capital expenditures, offset by proceeds from
litigation settlement and proceeds from sale of COMFORCE common stock.
The Company's consolidated working capital deficiency decreased $2,957,000 to
$435,000 during the year ended December 31, 1997. The decrease in working
capital deficiency is principally attributable to $4,725,000 of ARTRA short-term
private placement notes, refinanced in January 1998, reclassified as long-term
debt at December 31, 1997.
Status of Debt Agreements and Operating Plan
ARTRA Corporate
As of December 31, 1997, the Company's corporate entity had outstanding
short-term indebtedness of $15,451,000 as discussed below.
Promissory Notes
1997 Private Placements
In December 1997, ARTRA completed private placements of $5,375,000 of 12%
promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 ARTRA common
shares at a price of $3.00 per share. The warrants expire in November and
December 1999. The warrantholders have the right to put these warrants back to
ARTRA at any time during a period commencing in December 1998 and ending in May
1999, at a price of $1.50 per share. The cost of this obligation ($161,250 if
all warrants are put back to the Company) was accrued in the Company's financial
statements as a charge to interest expense. In the event of a default, as
defined in the note agreements, the promissory notes will bear interest at 37%.
The proceeds from the private placement were used principally to pay down other
debt obligations.
In July 1997, ARTRA completed private placements of $7,475,000 of 12% 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
$3.75 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 period commencing
in January 1998 and ending in August 1999, at a price of $3.00 per share. The
cost of this obligation ($598,000 if all warrants are put back to the Company)
was amortized in the Company's
17
<PAGE>
financial statements as a charge to interest expense over the period July 1997
(the date of the private placement) through January 1998 (the scheduled maturity
date of the notes). The promissory notes were 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
(then a 17.4% interest), 1,784.02 shares of BCA Series A redeemable
preferred stock (then a 48.5% interest) and 6,488.8 shares of BCA
Series B redeemable preferred stock (then a 79.8% interest).
The proceeds from the July 1997 private placement were advanced to Peter R.
Harvey as discussed below and in Note 19 to the consolidated financial
statements.
The July 1997 private placement notes were repaid and /or refinanced with
proceeds of a January 1998 private placement of 12% notes and with proceeds from
the litigation settlement discussed in Note 18 to the consolidated financial
statements. The January 1998 private placement notes, in the principal amount of
$5,925,000, are payable in January 1999. As additional consideration the January
1998 private placement noteholders received warrants to purchase an aggregate of
116,500 ARTRA common shares at a price of $3.00 per share. The warrants expire
in January 2000. The warrantholders have the right to put these warrants back to
ARTRA at any time during a six-month period commencing in January 1999 and
ending in July 1999, at a price of $1.50 per share. The cost of this obligation
($175,000 if all warrants are put back to the Company) will be amortized in the
Company's financial statements as a charge to interest expense.
The December 1997 and January 1998 private placement notes are collateralized by
900,000 shares of COMFORCE common stock owned by the Company's Fill-Mor
subsidiary and by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).
In June 1997, ARTRA completed private placements of $4,975,000 of 12% promissory
notes due in December 1997. As additional consideration the noteholders received
warrants to purchase an aggregate of 228,750 ARTRA common shares at a price of
$3.75 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 period commencing
in December 1997 and ending in May 1999, at prices of $2.00 to $2.40 per share.
The cost of this obligation ($517,000 if all warrants are put back to the
Company) was amortized 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 notes were paid at maturity in December 1997 principally with
proceeds from the December 1997 private placement.
1996 Private Placement
In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
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 $3.75 per share, as amended. 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 amortized 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). During 1997, warrants to purchase 50,000 ARTRA common shares were put
back to the Company at a cost of $100,000. 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 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 9 to the consolidated financial statements).
18
<PAGE>
Amounts Due To Related Parties
At December 26, 1996, ARTRA had 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 director
evidenced by a 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 director
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 is being
amortized 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 prior borrowings from
this lender 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 was amortized 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.
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 9. In
December 1997 borrowings from this lender were reduced to $2,000,000 with
proceeds from other short-term borrowings. The borrowings from this director are
collaterallized by 490,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.
At December 26, 1996, ARTRA had outstanding borrowings of $3,000,000 from an
unaffiliated company then holding approximately 7% of ARTRA's outstanding common
stock. The loans were evidenced by 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. 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
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.
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In May 1996, ARTRA borrowed $100,000 from a private investor, evidenced by a
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, the private
investor was elected to the Company's board of directors. Effective January 17,
1997, the 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 December 31, 1997 and December 26, 1996, ARTRA also had outstanding
short-term borrowings from other unrelated parties aggregating $601,000 and
$1,990,000, with interest rates varying between 10 % and 15%.
At December 26, 1996, ARTRA was the obligor under two demand notes, issued to an
unaffiliated company, in the principal amount of $2,266,000, including accrued
interest. The notes were issued in October, 1990 with interest at 15%. In July
1997, ARTRA paid all outstanding interest on these demand notes and reduced the
principal amount outstanding under the demand notes to approximately $1,500,000.
In October 1997, the lender agreed to accept 357,720 ARTRA common shares in
payment of the principal amount due on these notes. In January 1998 the lender
returned the 357,720 ARTRA common shares to the Company for cash consideration
of approximately $1,600,000.
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.
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.
Peter R. Harvey Advances
As discussed in Note 19 to the Company's consolidated financial statements,
ARTRA had total advances due from its president, Peter R. Harvey, of which
$18,226,000 and $7,998,000, including accrued interest, remained outstanding at
December 31, 1997 and December 26, 1996, respectively. A $7,500,000 July 1997
advance, as discussed below, bears interest at 12%. The remaining advances of
$10,726,000 and $7,998,000 at December 31, 1997 and December 26, 1996,
respectively, bear interest at the prime rate plus 2% (10.5% at December 31,
1997 and 10.25% December 26, 1996, respectively). This receivable from Peter R.
Harvey has been classified as a reduction of common shareholders' equity.
Commencing January 1, 1993 to date, interest on 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 years ended December 31, 1997 and December
26, 1996 totaled $1,125,000 and $479,000, respectively.
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<PAGE>
In July 1997, ARTRA advanced an additional $7,500,000 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 18.2% interest at December
31, 1997), 1,784.02 shares of BCA Series A redeemable preferred stock (a 51.6%
interest at December 31, 1997) and 6,488.8 shares of BCA Series B redeemable
preferred stock (a 82.7% interest at December 31, 1997). These ARTRA and BCA
redeemable preferred shares were pledged by ARTRA as partial collateral for the
July 1997 private placement of ARTRA promissory notes that funded the advance to
Mr. Harvey. As of December 31, 1997, this additional collateral had a carrying
value in ARTRA's consolidated balance sheet of approximately $11,200,000. The
advances were funded with the proceeds from the July 1997 private placement of
ARTRA notes.
In June 1996, Peter R. Harvey loaned the Company 100,000 shares of ARTRA common
stock with (with a then fair market value of $587,000). The Company principally
issued these common shares to certain lenders as additional consideration for
short-term loans. In September 1996, after the Company's shareholders approved
an increase in the number of authorized common shares, the Company repaid this
loan. At Peter R. Harvey's direction, the 100,000 shares of the Company's common
stock were issued in blocks of 25,000 shares to the four daughters of the
Company's Chairman of the Board, John Harvey.
John Harvey and Peter R. Harvey are brothers.
As collateral for amounts due from Peter R. Harvey, in prior years the Company
had received the pledge of 1,523 shares of ARTRA redeemable preferred stock (a
42.5% interest, with a carrying value in ARTRA's consolidated balance sheet of
approximately $2,000,000 at December 31, 1997) 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 to the Company's consolidated financial
statements), 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 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.
Peter R. Harvey has received only nominal compensation for his services as an
officer or director of ARTRA or any of its subsidiaries for the period October
1990 through December 1997. 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, were fully satisfied.
Additionally, since December 31, 1986, Peter R. Harvey has guaranteed in excess
of $100,000,000 of ARTRA obligations to private and institutional lenders, and
has also incurred significant expenses on behalf of ARTRA in defending ARTRA
against certain litigation.
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).
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<PAGE>
In March 1998, ARTRA's Board of Directors ratified a proposal to settle Mr.
Harvey's advances as follows:
Effective December 31, 1997, Mr. Harvey's net advances from ARTRA were
offset by $2,816,000 ($5,605,000 net of interest accrued and reserved
for the period 1993 - 1997) to $12,621,000. This offset of Mr.
Harvey's advances represented a combination of compensation for prior
year guarantees of ARTRA obligations to private and institutional
lenders, compensation in excess of the nominal amounts Mr. Harvey
received for the years 1995 - 1997 and reimbursement for expenses
incurred to defend ARTRA against certain litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of certain
ARTRA/BCA preferred stock held by Mr. Harvey as discussed in Note 19
to the consolidated financial statements.
The following table presents the pro forma effect on the Company's consolidated
balance sheet as if the January 31, 1998 transaction to retire Mr. Harvey's
remaining advances had occurred as of December 31, 1997:
Pro Forma
As Reported Adjustments Pro Forma
----------- ----------- ---------
(In thousands)
Current assets $ 44,531 $ 44,531
Noncurrent assets 28,675 28,675
--------- ---------
Total assets $ 73,206 $ 73,206
========= =========
Current liabilities
Notes payable and current
maturities of long-term debt $ 15,188 $ 15,188
Accounts payable and
accrued expenses 17,823 17,823
Redeemable preferred stock 11,955 (7,732) 4,223
--------- ---------
44,966 37,234
Noncurrent liabilities 55,294 55,294
Redeemable preferred stock 9,110 (4,548) 4,562
Shareholders' equity (deficit) (36,164) 12,280 (23,884)
--------- ---------
$ 73,206 $ 73,206
========= =========
The pro forma adjustments to Company's consolidated balance sheet reflect the
payment of Mr. Harvey's remaining advances with consideration consisting of
certain ARTRA/BCA preferred stock held by Mr. Harvey.
Redeemable Common Stock
In recent years ARTRA had entered into various agreements under which it has
sold its common shares along with options that required 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 was reflected in the Company's financial statements by a
charge to retained earnings. At December 26, 1996 options were outstanding that,
if exercised, would have required ARTRA to repurchase 98,734 shares of its
common stock for an aggregate amount of $3,657,000.
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<PAGE>
During 1997, all put options were exercised and settled. In December 1997 ARTRA
repurchased 72,984 shares of its common stock for cash of $3,379,000. In January
1997 ARTRA 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.
Redeemable Preferred Stock
As discussed in Note 11 to the consolidated financial statements, ARTRA,
Bagcraft and Bagcraft's parent BCA have various redeemable preferred stock
issues with an aggregate carrying value of $21,065,000 at December 31, 1997.
Redeemable preferred stock issues with an aggregate carrying value of
$11,955,000 at December 31, 1997 matured in 1997. The Bagcraft redeemable
preferred stock, with a carrying value of $2,124,000 at December 31, 1997, was
payable in June 1997. The BCA Series B redeemable preferred stock, with a
carrying value of $9,831,000 at December 31, 1997, was also payable in June
1997. ARTRA does not have available funds to satisfy this obligation in its
entirety. The Company is currently negotiating with the redeemable preferred
shareholders to restructure or extend the maturity date of this obligation
beyond 1997. In August and September 1997 ARTRA repurchased certain ARTRA and
BCA redeemable preferred stock with a carrying value of approximately $820,000
for cash of approximately $425,000. The redeemable preferred stock purchases
were funded with proceeds of short-term borrowings.
As discussed in Note 19 to the consolidated financial statements, effective
January 31, 1998, Peter R. Harvey exchanged certain ARTRA/BCA preferred stock to
retire advances from ARTRA totaling $12,787,000.
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.
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.
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<PAGE>
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 December 31, 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 December 31, 1997 and December 26, 1996, approximately
$4,400,000 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 December 31, 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 December 31, 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 was scheduled to mature 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 that was
scheduled to mature 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 was scheduled to mature, 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 that was scheduled to mature on July
15, 1998. ARTRA used the proceeds of this loan to repay certain ARTRA debt
obligations.
Effective February 27, 1998, the Credit Agreement was amended and restated
whereby, among other things, certain loan covenants were amended and payments
under the Term Loans were modified to provide for annual principal payments
(payable in quarterly installments) as follows:
Term Loan A - $1,200,000 in 1998; $1,800,000 in 1999; $5,500,000 in
2000 and 2001; and $6,000,000 in 2002.
Term Loan B - $50,000 in 1998 - 2002; and $4,750,000 in 2002.
Term Loan C - $75,000 in 1998 - 2003; and $7,050,000 in 2004.
As additional compensation for borrowings under the Credit Agreement, in
December 1993, the lender received a detachable warrant ("Warrant"), originally
expiring in December 1998, allowing the holder to purchase up to 10% of the
fully diluted common equity of Bagcraft at a nominal value. 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. The warrant has been subsequently amended, most recently in
accordance with the February 27, 1998 amendment to the Credit Agreement, 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 warrant's expiration
date to February 27, 2003. Under certain conditions Bagcraft is required to
repurchase the Warrant from the lender.
24
<PAGE>
In March 1994 Bagcraft and the City of Baxter Springs, Kansas completed a
$12,500,000 financing package associated with the construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. The financing package,
funded by a combination of Federal, state and local funds, consists of the
following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:
A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At December 31, 1997 and December 26, 1996,
Bagcraft had outstanding borrowings of $4,900,000 and $5,600,000,
respectively, 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 December 31,
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 December 31, 1997 and December 26,
1996, Bagcraft had outstanding borrowings of $218,000 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 1998 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 3 to the 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.
Investment In COMFORCE Corporation
ARTRA, along with its wholly owned Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE, consisting of 1,525,500 shares or approximately
10% of the outstanding common stock of COMFORCE as of December 31, 1997 with an
aggregate value as of that date of $12,013,000.
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
25
<PAGE>
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.
The Company's operating plan for fiscal year 1998 anticipates the sale of these
marketable securities, with proceeds to be used principally to pay down
Corporate debt obligations and fund working capital requirements.
During 1997 ARTRA sold 219,203 COMFORCE common shares in the market, with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender received 25,000 COMFORCE common shares held by the Company as additional
consideration for a short-term loan. The disposition of these 244,703 COMFORCE
common shares resulted in realized gains of $2,306,000 during the year ended
December 31, 1997, 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 200,000
COMFORCE common shares sold collateralize the notes. 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 were removed from the Company's portfolio of "Available-for-sale
securities" and were classified in the Company's consolidated balance sheet at
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 that was 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. Prior to the forth quarter of 1997 no options to acquire any of
the 200,000 COMFORCE common shares had been exercised. During the fourth quarter
of 1997, options to acquire 59,500 of these COMFORCE common shares were
exercised resulting in a realized gain of $225,000. At December 31, 1997,
options to acquire 140,500 COMFORCE common shares remained unexercised and were
classified in the Company's consolidated balance sheet at December 31, 1997 as
other receivables with an aggregate value of $281,000, based upon the value of
proceeds to be received upon future exercise of the options.
During 1996 ARTRA sold 193,000 COMFORCE common shares in the market, with the
net proceeds of approximately $3,700,000 used for working capital. During 1996
certain lenders received 105,000 COMFORCE common shares held by the Company as
additional consideration for short-term loans. In October 1996, a lender
exercised the conversion rights of a short-term loan and received 33,333
COMFORCE common shares in settlement of the Company's obligation. The
disposition of these 331,333 COMFORCE common shares resulted in realized gains
of $5,818,000 during the year ended December 26, 1996, with cost determined by
average cost.
26
<PAGE>
At December 31, 1997 ARTRA's remaining investment in COMFORCE (1,525,500 shares,
currently a common stock ownership interest of approximately 10%) was classified
in the Company's consolidated balance sheet in current assets as
"Available-for-sale securities." At December 31, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $14,733,000.
Litigation
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Notes 13 and 18 to the Company's
consolidated financial statements. At December 31, 1997 and December 26, 1996,
the Company had accrued current liabilities of $1,800,000 and $1,900,000,
respectively, 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.
Net Operating Loss Carryforwards
At December 31, 1997, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $40,000,000 expiring principally in 2002 -
2013, 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.
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". In February 1998 the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 132 "Employers' Disclosures about Pensions and other
Postretirement Benefits". 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. 132 standardizes the disclosure requirements for pension and other
postretirement benefits.
27
<PAGE>
The Company adopted the provisions of SFAS No. 128 and SFAS No. 129 during for
the Company's fiscal year ending December 31, 1997. The adoption of SFAS No. 128
and SFAS No. 129 did not have a material impact on the Company's financial
statements. SFAS No. 130, SFAS No. 131 and SFAS No. 132 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.
Year 2000 Compliance
The Company has implemented an upgrade to its existing financial, sales,
production and distribution software that is Year 2000 compliant. It is also
conducting a comprehensive review of the balance of its computer systems to
identify those processes that could be adversely affected by the Year 2000 issue
and is developing an implementation plan to resolve any issue that might arise.
In conducting its review, the Company is actively soliciting its suppliers and
customers to assess any Year 2000 issue that might arise from the interaction of
its computer systems with those of its suppliers and customers. The Year 2000
issue refers to the inability of many computer programs and systems to process
accurately dates later than December 31, 1999. Unless these programs are
modified to handle the century change, they will likely interpret the Year 2000
as the year 1900. The Company has not incurred any significant costs for Year
2000 compliance to date and does not expect to incur any significant additional
costs to complete such compliance.
Item 8. Financial Statements and Supplementary Data.
Financial Statements and Schedules as listed on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information Regarding Directors
The following table lists the name and age of each director of ARTRA, his
business experience during the past five (5) years, his positions with ARTRA and
certain directorships.
Term Expiring at Next Shareholders' Meeting at which Directors are Elected
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 10%
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 10% of COMFORCE outstanding
common s tock;). 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 Director since 1996; Executive Vice
President of the Atlantic Bank of New
York since May 1, 1996, Senior Vice
President of National Westminster, USA
from 1984 through April 1996, corporate
finance.
Howard R. Conant 73 Director since 1996; Retired Chairman of
the Board of Interstate Steel Co., 1970
to 1990, and a consultant to Interstate
through 1992.
Maynard K. Louis 68 Director since 1996; Retired Chairman of
the Board of Lord Label (now known as
Porter & Chadburn), a printing company,
from 1965 to 1989, Vice President, 1989
to 1993, director of ARTRA from 1993
through 1995.
Robert L. Johnson 61 Director since 1996; 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.
29
<PAGE>
Name Age Positions and Experience
- ---- --- ------------------------
Mark Santacrose 39 Director since 1997; President of
Bagcraft Corporation of America
("Bagcraft"), flexible packaging
materials of food products since 1994,
Executive Vice President of Bagcraft
since 1993.
John Harvey and Peter R. Harvey are brothers. COMFORCE was a 64.3% owned
subsidiary of ARTRA until December, 1995. ARTRA now owns approximately 10% of
COMFORCE. PureTec International, Inc. and PST are affiliates of ARTRA. Bagcraft
is a wholly owned subsidiary of BCA Holdings, Inc., a wholly owned subsidiary 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.
Name Age Position
- ----------------- --- -------------------------------------
John Harvey 65 Chairman of the Board and Chief Executive Officer
Peter R. Harvey 62 President and Chief Operating Officer
John G. Hamm 58 Executive Vice President
Robert S. Gruber 64 Vice President - Corporate Relations
James D. Doering 61 Vice President, Treasurer and Chief Financial Officer
John Conroy 53 Vice President - Corporate Administration
Lawrence D. Levin 46 Controller
Edwin G. Rymek 67 Secretary
Mark Santacrose 38 President - Bagcraft Corporation of America
John Harvey, Chairman and Chief Executive Officer of ARTRA. See "Information
Concerning Directors" above for a description of Mr. Harvey's relevant business
experience.
Peter R. Harvey, President and Chief Operating Officer of ARTRA. See
"Information Concerning Directors" above for a description of Mr. Harvey's
relevant business experience.
John G. Hamm, Executive Vice President of ARTRA. Mr. Hamm has served as
Executive Vice President, since February 1988, and Vice President - Finance,
from 1975 until 1988, of ARTRA. Mr. Hamm has also served as Vice President
Finance, from August 1990 until July 1995, and as a Director, from 1984 until
July 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.
30
<PAGE>
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.
Mark Santacrose, President of Bagcraft Corporation of America. See "Information
Concerning Directors" above for a description of Mr. Santacrose's relevant
business experience.
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.
Item 11. Executive Compensation
Directors' Compensation
Directors who are not employees of ARTRA ("Outside Directors") are entitled to
receive an annual retainer of $10,000. 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 31, 1997, and December 26, 1996 and December
28, 1995, 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 31, 1997 and whose compensation exceeded $100,000 in 1997.
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, 1997 $190,000 $ -0- $ -0- -0- $ -0- (4)
Chairman and Chief 1996 $137,811 $ -0- $ -0- 141,000 $5,456 (4)
Executive Officer 1995 126,200 -0- -0- -0- 2,520 (5)
James D. Doering, 1996 147,000 -0- -0- -0- 4,750 (4)
Vice President and 1996 133,600 -0- -0- 57,500 6,000 (4)
Chief Financial Officer 1995 49,900 83,500 -0- -0- 3,470 (5)
John G. Hamm, 1997 147,000 -0- -0- -0- 4,750 (4)
Executive 1996 133,600 -0- -0- 101,250 6,000 (4)
Vice President 1995 49,900 83,500 -0- -0- 3,470 (5)
Robert S. Gruber, 1997 110,450 -0- -0- -0- 4,750 (4)
Vice President 1996 110,400 -0- -0- 97,750 6,000 (4)
Corporate Relations 1995 92,000 69,000 -0- -0- 2,868 (5)
John G. Hamm, 1997 147,000 -0- -0- -0- 4,750 (4)
Executive 1996 133,600 -0- -0- 101,250 6,000 (4)
Vice President 1995 49,900 83,500 -0- -0- 3,470 (5)
Mark Santacrose, 1997 225,000 -0- 75,000 (7) -0- 144,616 (4)(6)(8)(10)
President Bagcraft 1996 200,000 -0- 17,500 (7) -0- 89,524 (4)(6)(8)(9)(10)
Corporation of America 1995 175,000 -0- -0- -0- 7,896 (4)(6)(8)(10)
31
<PAGE>
<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 1997 (irrespective of the year in which paid) is
considered in determining inclusion in this table.
(2) Salaries are shown as paid (or deferred) in the year earned. Any
deferred salaries paid in a year subsequent to the year earned are not
shown as paid in such subsequent year. All salary deferrals for the
year 1995 has 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
1997, 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.
(6) These amounts include $30,960 in 1996, and $61,900 in 1997, which were
grossed up to compensate for the tax effect of the forgiveness of a
promissory note dated August 2, 1994, in the original principal amount
of $52,000, in consideration of Mr. Santacrose's agreement to cancel a
Put whereby he had the option of requiring ARTRA to purchase up to
10,000 shares of no par value common stock of ARTRA at a price of $7.00
per share.
(7) Based upon a written plan and determined by the prior year's earnings
performance of Bagcraft.
(8) Included in this amount are amounts related to auto allowance payments,
group term life insurance and health insurance refunds.
(9) This amount includes a special compensation payment for Mr.
Santacrose's involvement in the acquisition and sale of Arcar Graphics,
a former wholly owned subsidiary of Bagcraft.
(10) Mr. Santacrose also participates in a Bagcraft unfunded deferred
compensation plan. (See note 15 to the consolidated financial
statements).
</FN>
</TABLE>
32
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
There were no grants of options made in fiscal year 1997.
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 1997 AND
OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at 12-31-97 Options at 12-31-97
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 $ 17,600/None
James D. Doering 0 0 111,000/0 8,938/None
John G. Hamm 0 0 140,450/0 7,500/None
Robert S. Gruber 0 0 118,750/0 3,525/None
Mark Santacrose 0 0 0 0
- -------------------------------
<FN>
(1) See the notes under "Principal Shareholders" for a description of the
options (including exercise prices) granted to each of the executive
officers listed in this table.
(2) The listed options were issued at per share exercise prices of from
$3.65 per share to $5.25 per share. The market price of Common Stock as
of the close of trading on December 31, 1997 on the New York Stock
Exchange was $3.875 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 1997. 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 1997. See
"Transactions with Management and Others" for a description of various
transactions and relationships between ARTRA and each of these directors.
33
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of February 28, 1998, there were 7,864,228 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 February 28,
1998 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 February 28, 1998, 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
- ------------------------------------- ------- -------
The Equitable Companies Incorporated (1) 559,100 7.1%
Peter R. Harvey(2) Common 440,243 5.6%
Preferred 2,175 60.7%
John Harvey(3) 423,796 6.4%
Gerard M. Kenny(4) 167,064 2.1%
Maynard K. Louis(5) 121,000 1.5%
Howard R. Conant(6) 572,333 6.9 %
Edward A. Celano 3,700 *
Robert L. Johnson 2,873 *
John G. Hamm(7) 142,232 1.8%
Robert S. Gruber(8) 141,104 1.8%
James D. Doering(9) 124,311 1.6%
Mark Santacrose (10) 11,059 *
All directors and executive officers
as a group (14 persons) 2,365,350 26.2%
* Less than 1% of the outstanding shares.
(1) The address of The Equitable Companies Incorporated ("Equitable"), a
Delaware corporation, is 1290 Avenue of the Americas, New York, New
York. The shares beneficially owned by Equitable consist of 559,100
shares of common stock owned by four French mutual insurance companies,
AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha
Assurances Vie Mutuelle and AXA Courtage Assurances Mutuelle, which as
a group beneficially own a majority interest in AXA-UAP, which owns a
majority interest in Equitable.
(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
34
<PAGE>
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."
(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
35
<PAGE>
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.
(10) The shares of stock beneficially owned by Mr. Santacrose consist of
10,000 Shares owned by him directly and 1,055 shares in his Individual
Retirement Account.
Item 13. Certain Relationships and Related Transactions
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.
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.
In March 1998, ARTRA's Board of Directors ratified a proposal to settle Mr.
Harvey's previous advances from ARTRA in the amount of $15,437,000 as follows:
Effective December 31,1997, Mr. Harvey's net advances from ARTRA were
offset by $2,816,000 ($5,606,000 net of interest accrued and reserved
for the period 1993 - 1997) to $12,621,000. This offset of Mr.
Harvey's advances represented a combination of compensation for prior
year guarantees of ARTRA obligations to private and institutional
lenders, compensation in excess of the nominal amounts Mr. Harvey
received for the years 1995-1997 and reimbursement for expenses
incurred to defend ARTRA against certain litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of the following
ARTRA and BCA preferred stock held by Mr. Harvey:
Face Value Plus
Security Accrued Dividends
----------------------------------------- -----------------
ARTRA redeemable preferred stock,
1,734.28 shares $ 2,751,000
BCA Holding Series A preferred stock,
1,784.029 shares 2,234,000
BCA Holding Series B preferred stock,
6,172 shares 7,802,000
-----------
$12,787,000
===========
36
<PAGE>
For additional related Party Transactions between the Registrant and Peter R.
Harvey, ARTRA's president, see Note 19 to the consolidated financial statements.
During 1986 and through August 10, 1988, ARTRA entered into a series of
short-term borrowing agreements with private investors. Each agreement granted
an investor a put option, principally due in one year, that required ARTRA to
repurchase any or all of the shares sold at a 15% to 20% premium during a
specified put period. Kenny Construction Company ("Kenny") entered into a put
option agreement with ARTRA, which has been extended from time to time, most
recently on November 11, 1992. At such time ARTRA and Kenny agreed to extend the
put option whereby Kenny received the right to sell to ARTRA 23,004 shares of
ARTRA common stock at a put price of $56.76 plus an amount equal to 15% per
annum for each day from March 1, 1991 to the date of payment by ARTRA, which
option expires December 31, 1997.
Gerard M. Kenny, a director of ARTRA, is the Executive vice-president and Chief
Executive Officer and a director of Kenny and beneficially owns 16.66% of
Kenny's capital stock.
On March 21, 1989, ARTRA borrowed $5,000,000 from its bank lender evidenced by a
promissory note. This note has been amended and extended from time to time. The
borrowings on this note were collateralized by, among other things, a $2,500,000
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 was subject
to increase at the rate of $2.25 per share per annum ($21.188 at December 26,
1996). The put option was 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.
In December 1997 Kenny exercised all of its put options and ARTRA repurchased
72,984 shares of its common stock for cash of $2,379,000.
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.
37
<PAGE>
Peter R. Harvey and John Harvey were significant shareholders of PST's parent,
PureTec. Peter R. Harvey formerly was a Vice President and a director of PST and
a director of PureTec. John Harvey formerly was a director of PST and PureTec.
In 1987, the predecessor of PST acquired a $5,000,000 subordinated note bearing
interest at a rate of 13.5% per annum and 50,000 shares of 13-1/2% cumulative
redeemable preferred stock of Bagcraft with a liquidation preference of
$5,000,000 with $10,000,000 of the net proceeds of the PST public offering in
May 1987. Interest accrued on the note at a rate of 13.5% per annum. No cash
payments of interest were made during the term of the note. However, during
1992, per agreement with PST, the interest payments for 1992 were remitted by
Bagcraft to ARTRA and the noteholder received Series A preferred stock of
Bagcraft's parent, BCA Holdings, Inc. ("BCA") having a liquidation value of
$675,000. In December 1993, the principal outstanding under this note was repaid
in full in cash from proceeds of Bagcraft's new credit facility with an
institutional lender and PST accepted additional BCA preferred stock having a
liquidation value of $3,000,000 in satisfaction of all unpaid accrued interest
thereon.
The BCA preferred stock provides a $1,000 per share liquidation preference and
annual cumulative cash dividends of $60.00 per share when and if declared by
BCA. The Bagcraft redeemable preferred stock remains outstanding as of the date
hereof. As of December 31, 1997, net dividends in the amount of $854,000 had
accumulated thereon.
During 1993, The Research Center of Kabbalah ("RCK"), which formerly held
approximately 7.5% of ARTRA's outstanding Common Stock (including the stock
issuable upon the exercise of warrants), 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 early 1998,
RCK disposed of all of its ARTRA holdings.
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.
38
<PAGE>
In January 1997, ARTRA borrowed an additional $300,000 from Mr. Conant evidenced
by a 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 Company's 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. In December 1997
borrowings from Mr. Conart were reduced to $2,000,000 with proceeds from other
short-term borrowings. The borrowings from this director are currently
collaterallized by 490,000 shares of COMFORCE common stock by the Company's
Fill-Mor subsidiary.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedules as listed on Page F-1.
3. Exhibits as listed on Page E-1.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
December 31, 1997.
40
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ARTRA GROUP INCORPORATED
By: JOHN HARVEY
---------------------
John Harvey
Chairman and Director
Dated: March 26, 1998 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the registrant, in
the capacities and on the dates indicated.
JOHN HARVEY Chairman and Director March 26, 1998
- ------------------------
John Harvey Chief Executive Officer
PETER R. HARVEY President and Director March 26, 1998
- ------------------------
Peter R. Harvey Chief Operating Officer
JAMES D. DOERING Vice President /Treasurer March 26, 1998
- ------------------------
James D. Doering Chief Financial Officer
EDWARD A. CELANO Director March 26, 1998
- ------------------------
Edward A. Celano
HOWARD R. CONANT Director March 26, 1998
- ------------------------
Howard R. Conant
ROBERT L. JOHNSON Director March 26, 1998
- ------------------------
Robert L. Johnson
GERARD M. KENNY Director March 26, 1998
- ------------------------
Gerard M. Kenny
MAYNARD K. LOUIS Director March 26, 1998
- ------------------------
Maynard K. Louis
MARK F. SANTACROSE Director March 26, 1998
- ------------------------
Mark F. Santacrose
LAWRENCE D. LEVIN Controller March 26, 1998
- ------------------------
Lawrence D. Levin
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
Report of Independent Accountants F-2
Consolidated Balance Sheets as
of December 31, 1997
and December 26, 1996 F-3
Consolidated Statements of Operations
for each of the three fiscal years
in the period ended December 31, 1997 F-5
Consolidated Statements of Changes
in Shareholders' Equity (Deficit)
for each of the three fiscal years
in the period ended December 31, 1997 F-6
Consolidated Statements of Cash Flows
for each of the three fiscal years
in the period ended December 31, 1997 F-7
Notes to Consolidated Financial Statements F-9
Schedules:
I. Condensed Financial Information of Registrant F-42
II. Valuation and Qualifying Accounts F-46
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois
We have audited the consolidated financial statements and the financial
statement schedules of ARTRA GROUP Incorporated and Subsidiaries as listed in
the index on page F-1 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of ARTRA GROUP
Incorporated's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ARTRA
GROUP Incorporated and Subsidiaries as of December 31, 1997 and December 26,
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency. As a result of these factors,
the Company has experienced difficulty in obtaining adequate financing to
replace its current credit arrangements, to fund its debt service and to satisfy
liquidity requirements. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1998
F-2
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 26,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 5,991 $ 171
Receivables, less allowance
for doubtful accounts
of $275 in 1997 and $512 in 1996 10,004 8,267
Inventories 15,749 14,967
Available-for-sale securities 12,013 22,564
Other 774 931
-------- --------
Total current assets 44,531 46,900
-------- --------
Property, plant and equipment
Land 417 417
Buildings 12,742 11,672
Machinery and equipment 35,657 32,346
Construction in progress 675 979
-------- --------
49,491 45,414
Less accumulated depreciation and amortization 24,397 20,480
-------- --------
25,094 24,934
-------- --------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization
of $2,388 in 1997 and $2,083 in 1996 2,729 2,995
Other 852 2,550
-------- --------
3,581 5,545
-------- --------
$ 73,206 $ 77,379
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 26,
1997 1996
-------- --------
LIABILITIES
Current liabilities:
Notes payable, including amounts
due to related parties
of $2,000 in 1997 and $3,600 in 1996 $ 10,726 $ 18,631
Current maturities of long-term debt 4,462 2,712
Accounts payable 5,841 5,129
Accrued expenses 11,440 10,394
Income taxes 324 478
Bagcraft detachable put warrant -- 1,500
Redeemable preferred stock 11,955 11,100
Liabilities of discontinued operations 218 348
-------- --------
Total current liabilities 44,966 50,292
-------- --------
Long-term debt 50,619 34,207
Other noncurrent liabilities 4,675 2,135
Commitments and contingencies
Redeemable common stock, issued 98,734 shares -- 3,657
Redeemable preferred stock 9,110 8,678
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares;
issued 8,297,810 shares in 1997
and 7,624,766 shares in 1996 6,223 5,793
Additional paid-in capital 42,721 40,211
Unrealized appreciation of investments 14,733 25,719
Receivable from related party,
including accrued interest (12,621) (6,468)
Accumulated deficit (87,113) (86,793)
-------- --------
(36,057) (21,538)
Less treasury stock, 80,612 shares in 1997
and 7,628 shares in 1996, at cost 107 52
-------- --------
(36,164) (21,590)
-------- --------
$ 73,206 $ 77,379
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 125,027 $ 120,699 $ 121,879
--------- --------- ---------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 101,527 94,613 102,508
Selling, general and administrative 19,548 15,638 19,131
Depreciation and amortization 4,364 3,927 4,330
Write-down of idle machinery and equipment -- -- 1,503
--------- --------- ---------
125,439 114,178 127,472
--------- --------- ---------
Operating earnings (loss) (412) 6,521 (5,593)
--------- --------- ---------
Other income (expense):
Interest expense (9,308) (7,457) (9,447)
Amortization of debt discount (2,702) (548) (335)
Realized gain on disposal
of available-for-sale securities 2,531 5,818 --
Litigation settlement, net 10,416 -- --
Gain on sale of idle machinery and equipment 932 -- --
Other income (expense), net 406 (107) (88)
Equity in loss of COMFORCE -- -- (533)
--------- --------- ---------
2,275 (2,294) (10,403)
--------- --------- ---------
Earnings (loss) from continuing operations
before income taxes and minority interest 1,863 4,227 (15,996)
(Provision) credit for income taxes 19 (152) (51)
Minority interest (1,109) (526) (896)
--------- --------- ---------
Earnings (loss) from continuing operations 773 3,549 (16,943)
Earnings from discontinued operations -- -- 10
--------- --------- ---------
Earnings (loss) before extraordinary credits 773 3,549 (16,933)
Extraordinary credits, net discharge of indebtedness -- 9,424 14,030
--------- --------- ---------
Net earnings (loss) 773 12,973 (2,903)
Dividends applicable to redeemable preferred stock (693) (621) (565)
Reduction of retained earnings applicable
to redeemable common stock (400) (390) (767)
--------- --------- ---------
Earnings (loss) applicable to common shares ($ 320) $ 11,962 ($ 4,235)
========= ========= =========
Earnings (loss) per share:
Basic
Continuing operations ($ 0.04) $ 0.34 $ (2.70)
Discontinued operations -- -- --
--------- --------- ---------
Earnings (loss) before extraordinary credits (0.04) 0.34 (2.70)
Extraordinary credits -- 1.25 2.07
--------- --------- ---------
Net earnings (loss) ($ 0.04) $ 1.59 $ (.63)
========= ========= =========
Weighted average number of shares of common stock outstanding 7,970 7,525 6,776
========= ========= =========
Diluted
Continuing operations ($ 0.04) $ 0.32 $ (2.70)
Discontinued operations -- -- --
--------- --------- ---------
Earnings (loss) before extraordinary credits (0.04) 0.32 (2.70)
Extraordinary credits -- 1.19 2.07
--------- --------- ---------
Net earnings (loss) ($ 0.04) $ 1.51 $ (.63)
========= ========= =========
Weighted average number of shares of common stock and
common stock equivalents outstanding 7,970 7,939 6,776
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized Receivable Total
Common Stock Additional Appreciation From Treasury Stock Shareholders'
------------------- Paid-in of Related Accumulated ----------------- Equity
Shares Dollars Capital Investments Party (Deficit) Shares Dollars (Deficit)
---------- -------- -------- ------------ -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1994 6,455,602 $5,052 $36,613 $(4,100) $(94,520) 57,038 $(805) $(57,760)
Net loss - - - - (2,903) - - (2,903)
Reclassification of
redeemable common stock (100,000) - (500) - - - - (500)
Common stock issued
to pay liabilities 243,915 183 857 - - - - 1,040
Common stock as additional
consideration for private
placement ARTRA notes 375,000 281 985 - - - - 1,266
Net increase in receivable
from related party,
including accrued interest - - - (218) - - - (218)
Redeemable common stock
put option exercised - (8) 8 - - - - -
Sale and reclassification
of redeemable common stock 85,714 399 399
Unrealized appreciation
of investments - - - $21,047 - - - - 21,047
Common stock
contributed to ESOP 23,750 18 95 - - - - - 113
Exercise of stock options 12,100 9 39 - - - - - 48
Redeemable preferred
stock dividends - - - - - (565) - - (565)
Redeemable common
stock accretion - - - - - (767) - - (767)
Common stock issued
as compensation 6,898 5 30 - - - - - 35
--------- -------- -------- --------- ------- -------- ------- ------- -------
Balance at December 28, 1995 7,102,979 5,540 38,526 21,047 (4,318) (98,755) 57,038 (805) (38,765)
Net earnings - - - - - 12,973 - - 12,973
Common stock issued
to pay liabilities 125,012 94 362 - - - (120,554) 818 1,274
Common stock issued as
additional consideration
for short-term borrowings 50,544 38 (398) - - - (99,456) 1,021 661
Net increase in receivable
from related party,
including accrued interest - - - - (2,150) - - - (2,150)
Common stock loaned
by related party - - - - 587 - 100,000 (587) -
Repay common stock
loaned by related party 100,000 75 512 - (587) - - - -
Increase in unrealized
appreciation of investments - - - 4,672 - - - - 4,672
Exercise of stock
options and warrants 61,000 46 213 - - - (16,900) 109 368
Common stock received
as consideration for
short-term note - - - - - - 87,500 (608) (608)
Reclassification of
redeemable common stock 185,231 - 996 - - - - - 996
Redeemable preferred
stock dividends - - - - - (621) - - (621)
Redeemable common
stock accretion - - - - - (390) - - (390)
--------- -------- -------- --------- ------- -------- ------- ------- -------
Balance at December 26, 1996 7,624,766 5,793 40,211 25,719 (6,468) (86,793) 7,628 (52) (21,590)
--------- -------- -------- --------- ------- -------- ------- ------- -------
</TABLE>
F-6
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT), continued
(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 - - - - - 773 - - 773
Common stock issued
to pay liabilities 444,717 333 1,606 - - - - - 1,939
Net increase in receivable
from related party,
including accrued interest - - - - (6,153) - - - (6,153)
Decrease in unrealized
appreciation of investments - - - (10,986) - - - - (10,986)
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
Exercise of redeemable common
stock put option 72,984 - 55 - - - 72,984 (55) -
Purchase of redeemable
preferred stock - - 89 - - - - - 89
Redeemable preferred
stock dividends - - - - - (693) - - (693)
Redeemable common
stock accretion - - - - - (400) - - (400)
--------- -------- -------- --------- -------- -------- -------- ------- --------
Balance at December 31, 1997 8,297,810 $6,223 $42,721 $14,733 $(12,621) $(87,113) 80,612 $ (107) $(36,164)
========== ======== ======== ========= ======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6(a)
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 773 $ 12,973 ($ 2,903)
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Depreciation of property, plant and equipment 4,059 3,622 4,120
Amortization of excess of cost over net assets acquired 305 305 837
Decrease in receivable from related party 2,816 -- --
Impairment of goodwill -- -- 6,430
Extraordinary gain from net discharge of indebtedness -- (9,424) (14,030)
Gain on disposal of discontinued operations -- -- (8,183)
Amortization of other assets, principally financing costs 4,754 548 689
Inventory valuation reserve 172 191 290
Gain on sale of property, plant and equipment (70) 78 --
Gain on sale of idle machinery and equipment (932) -- --
Write-down of idle equipment and machinery -- -- 1,503
Litigation settlement, net (10,416) -- --
Gain on sale of COMFORCE common stock (2,531) (5,818) --
Equity in loss of COMFORCE -- -- 533
Minority interest 1,109 526 896
Contribution to ARTRA ESOP -- -- 42
Other, principally common stock issued as compensation 454 220 1,300
Changes in assets and liabilities, net of effects of
businesses acquired and discontinued:
(Increase) decrease in receivables (1,631) 2,630 (184)
(Increase) decrease in inventories 132 1,476 453
(Increase) decrease in other current and noncurrent assets 517 (169) 1,421
Increase (decrease) in payables and accrued expenses 321 (5,980) 611
Increase (decrease) in other current and noncurrent liabilities (119) (4,497) 450
-------- -------- --------
Net cash flows used by operating activities (287) (3,319) (5,725)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of COMFORCE common stock 1,821 3,717 --
Net proceeds from litigation settlement 9,761 -- --
Proceeds from sale of property, plant and equipment 537 132 --
Additions to property, plant and equipment (3,066) (2,645) (2,820)
Increase in receivable from related party (8,969) (1,061) (218)
Proceeds from collection of notes receivable -- 342 3,000
Decrease in restricted cash -- 552 772
Acquistion of AB Specialty, net of deposit (1,131) -- --
AB Specialty acquisition deposit -- (1,183) --
Proceeds from sale of idle machinery and equipment 932 -- --
Proceeds from sale of Arcar -- -- 20,318
Retail fixtures -- -- (631)
-------- -------- --------
Net cash flows from (used by) investing activities (115) (146) 20,421
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in short-term debt $ (1,508) $ 286 $ 5,488
Proceeds from long-term borrowings 146,891 141,896 136,756
Reduction of long-term debt (133,781) (140,850) (156,641)
Proceeds from exercise of stock options and warrants 178 369 48
Exercise of redeemable common stock put options (3,379) (510) --
Redemption of detachable put warrants (1,728) -- --
Purchase of redeemable preferred stock (426) -- --
Other (25) 98 (70)
--------- --------- ---------
Net cash flows from (used by) financing activities 6,222 1,289 (14,419)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 5,820 (2,176) 277
Cash and equivalents, beginning of year 171 2,347 2,070
--------- --------- ---------
Cash and equivalents, end of year $ 5,991 $ 171 $ 2,347
========= ========= =========
Supplemental cash flow information: Cash paid during the year for:
Interest $ 7,058 $ 5,320 $ 5,847
Income taxes paid (refunded), net 177 157 (22)
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $ 1,939 $ 1,274 $ 1,040
Issue common stock to pay
redeemable common stock put obligation 679 -- --
Issue common stock as additional consideration
for short-term borrowings -- 661 1,266
COMFORCE common stock given to lenders
as additional consideration for short-term borrowings 169 1,511 --
BCA Holdings redeemable preferred stock issued in exchange for
Bagcraft redeemable preferred stock -- 8,135 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Financial Restructuring
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 consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments relating to recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or other adjustments that might be necessary should ARTRA be unable
to continue as a going concern.
In recent years, the Company has suffered recurring losses from operations and
has a net capital deficiency. As a result of these factors, the Company has
experienced difficulty in obtaining adequate financing to replace certain
current credit arrangements, to fund its debt service and to satisfy liquidity
requirements. 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 8,
Notes Payable, and Note 9, 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.
Effective December 31, 1997, the ARTRA received a settlement relating to certain
litigation pending 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 Industries Inc. ("Envirodyne") in 1989
by Emerald Acquisition Corp. ("Emerald"). ARTRA recognized a gain from the
settlement agreement of $10,416,000, net of related legal fees and other
expenses.
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.
In 1997, the Company changed its fiscal year end to December 31. In recent years
the Company had operated on a 52/53 week fiscal year ending the last Thursday of
December.
F-9
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Intercompany accounts and transactions are
eliminated.
B. Cash Equivalents
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
C. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
D. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight-line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
E. Investments in Equity Securities
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." Under this statement, at December 28, 1995, the Company's
investment in COMFORCE (see Note 6) was classified as available for sale and was
stated at fair value. The adoption of SFAS No. 115 resulted in an increase to
shareholders' equity in the fourth quarter of 1995 of $21,047,000. In prior
years and, until October 1995, COMFORCE was a majority-owned subsidiary included
in the consolidated financial statements of the Company.
F. Intangible Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.
Effective for the fiscal year ending December 26, 1996 the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ". The pronouncement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events
F-10
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use or
sale of the asset and its eventual disposition, to the carrying amount of the
asset. The adoption of SFAS No. 121 did not have a material impact on the
Company's financial statements.
G. Revenue Recognition
Sales to customers are recorded at the time of shipment.
H. Income Taxes
Income taxes are accounted for as prescribed in SFAS No. 109 - Accounting for
Income Taxes. Under the asset and liability method of Statement No. 109, the
Company recognizes the amount of income taxes payable. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years those temporary differences are expected to be recovered or
settled.
I. Use of Estimates In Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J. Stock-Based Compensation
Effective for the fiscal year ending December 26, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation". The pronouncement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on new fair value accounting rules. The Company did not adopt the new fair
value accounting, but instead chose to comply with the disclosure requirements
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material impact on the Company's financial statements.
K. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share" for the year ended
December 31, 1997. The pronouncement, which specifies the computation,
presentation, and disclosure requirements for earnings per share, did not have a
material impact on the Company's financial statements.
F-11
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
L. Recently Issued Accounting Pronouncements
During 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") SFAS No. 130, "Reporting Comprehensive
Income Summary," and SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information". In February 1998 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 132
"Employers' Disclosures about Pensions and other Postretirement Benefits". 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. 132 standardizes the disclosure requirements for pension and other
postretirement benefits.
These new accounting principles 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.
3. CHANGE OF BUSINESS
AB Specialty
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 $2.3 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.
Arcar Graphics
Effective April 8, 1994, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of Arcar Graphics, Inc. ("Arcar"), a
manufacturer and distributor of waterbase inks, for consideration of $10,264,000
consisting of cash of $2,264,000 and subordinated promissory notes totaling
$8,000,000. The acquisition of Arcar was accounted for by the purchase method
and, accordingly, the assets and liabilities of Arcar were included in ARTRA's
financial statements at their estimated fair market value at the date of
acquisition.
Effective October 26, 1995, Bagcraft sold the business assets, subject to the
buyer's assumption of certain liabilities, of Arcar for cash of approximately
$20,300,000, resulting in a net gain of $8,483,000. The net proceeds, after
extinguishment of certain Arcar debt obligations, of approximately $10,400,000,
were used to reduce Bagcraft debt obligations.
COMFORCE
Prior to September 28, 1995, ARTRA's then majority owned subsidiary, COMFORCE
Corporation ("COMFORCE", formerly The Lori Corporation "Lori"), operated as a
designer and distributor of popular-priced fashion costume jewelry and
F-12
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
accessories. In September 1995 COMFORCE adopted a plan to discontinue its
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the jewelry business.
Effective October 17, 1995, COMFORCE entered the telecommunications and computer
technical staffing and consulting services business with the acquisition of
COMFORCE Telecom Inc. COMFORCE has subsequently expanded this business through
various acquisitions.
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 and consulting
services business. In 1995, COMFORCE recognized a non-recurring charge of
$3,425,000 related to this stock since these stock awards were 100% vested when
issued, and were neither conditioned upon these individuals' service to the
Company as employees nor the consummation of the COMFORCE Telecom acquisition.
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 25% at December 28, 1995. Accordingly, in October 1995, the
accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated
from ARTRA's consolidated financial statements. Due to other issuances of
COMFORCE common shares, plus the effects of other transactions, ARTRA's
ownership interest in COMFORCE common stock was reduced to approximately 10% and
14% at December 31, 1997 and December 26, 1996, respectively. See Note 6 for a
further discussion of the accounting treatment of ARTRA's investment in
COMFORCE.
Other
During 1995 the Company was dismissed as party to certain litigation relating to
the former Sargent-Welch Scientific Company ("Welch") subsidiary. Accordingly,
the Company reversed $700,000 of excess liability accruals originally provided
in 1989 to complete the disposal of Welch.
F-13
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Arcar and COMFORCE's discontinued
fashion costume jewelry business prior to the deconsolidation of COMFORCE and
its majority-owned subsidiaries effective October 1995. The 1995 operating
results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's discontinued jewelry business and net gain on disposal of
discontinued operations consist of:
1995
--------
Net sales $ 16,932
========
Loss from operations
before income taxes $ (8,156)
Provision for income taxes (17)
--------
Loss from operations (8,173)
--------
Gain on sale of Arcar subsidiary 8,483
Provision for disposal of business (300)
Provision for income taxes --
--------
Gain on disposal of businesses 8,183
--------
Earnings (loss) from
discontinued operations $ 10
========
4. CONCENTRATION OF RISK
The accounts receivable of the Company's Bagcraft subsidiary at December 31,
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 December 31, 1997, Bagcraft had 10 customers with
accounts receivable balances that aggregated approximately 40% of the Company's
total trade accounts receivable. No single customer accounted for 10% or more of
Bagcraft's 1997 sales.
F-14
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. INVENTORIES
Inventories (in thousands) consist of:
December 31, December 26,
1997 1996
------- -------
Raw materials and supplies $ 5,901 $ 5,582
Work in process 274 287
Finished goods 9,574 9,098
------- -------
$15,749 $14,967
======= =======
6. INVESTMENT IN COMFORCE CORPORATION
In prior years and until October 1995, COMFORCE was a majority-owned subsidiary
of ARTRA and, accordingly, the accounts of COMFORCE and its majority-owned
subsidiaries were included in the consolidated financial statements of ARTRA. As
discussed in Note 3, due to the issuances of COMFORCE common shares in
conjunction with the acquisition of COMFORCE Telecom, ARTRA's ownership interest
in COMFORCE common stock was reduced to approximately 25%. Accordingly, in
October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were
deconsolidated from ARTRA's consolidated financial statements and ARTRA's
investment in COMFORCE was accounted for under the requirements of APB Opinion
No. 18 "The Equity Method of Accounting for Investments in Common Stock" during
the fourth quarter of 1995.
Effective December 28, 1995, John Harvey and Peter R. Harvey, ARTRA's chairman
and president, respectively, resigned as directors of COMFORCE. Due to such
factors as a lack of board of directors representation and participation in
policy formulation by ARTRA, as well as a lack of interchange of managerial
personnel, ARTRA is not able to exercise significant influence over the
operating and financial policies of COMFORCE. Additionally, assuming
contemplated additional issuances of COMFORCE common shares, on a fully diluted
basis ARTRA's ownership interest in COMFORCE common stock was reduced to less
than 20%. In the opinion of the Company, effective December 28, 1995, the
investment in COMFORCE ceased to conform to the requirements of APB Opinion No.
18. Accordingly, the Company adopted SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Under this statement, at December
28, 1995, the Company's investment in COMFORCE is classified as available for
sale and is stated at fair value. The adoption of SFAS No. 115 resulted in an
increase to shareholders' equity in the fourth quarter of 1995 of $21,047,000.
During 1997 ARTRA sold 219,203 COMFORCE common shares in the market, with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender received 25,000 COMFORCE common shares held by the Company as additional
consideration for a short-term loan. The disposition of these 244,703 COMFORCE
common shares resulted in realized gains of $2,306,000 during the year ended
December 31, 1997, 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 200,000
COMFORCE common shares sold collateralize the notes. 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
F-15
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
employees to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly,
these 200,000 COMFORCE common shares were removed from the Company's portfolio
of "Available-for-sale securities" and were classified in the Company's
consolidated balance sheet at 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 that was 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. Prior to the forth quarter of 1997 no
options to acquire any of the 200,000 COMFORCE common shares had been exercised.
During the fourth quarter of 1997, options to acquire 59,500 of these COMFORCE
common shares were exercised resulting in a realized gain of $225,000. At
December 31, 1997, options to acquire 140,500 COMFORCE common shares remained
unexercised and were classified in the Company's consolidated balance sheet at
December 31, 1997 as other receivables with an aggregate value of $281,000,
based upon the value of proceeds to be received upon future exercise of the
options.
During 1996 ARTRA sold 193,000 COMFORCE common shares in the market, with the
net proceeds of approximately $3,700,000 used for working capital. During 1996
certain lenders received 105,000 COMFORCE common shares held by the Company as
additional consideration for short-term loans. In October 1996, a lender
exercised the conversion rights of a short-term loan and received 33,333
COMFORCE common shares in settlement of the Company's obligation. The
disposition of these 331,333 COMFORCE common shares resulted in realized gains
of $5,818,000 during the year ended December 26, 1996, with cost determined by
average cost.
At December 31, 1997 ARTRA's remaining investment in COMFORCE (1,525,500 shares,
currently a common stock ownership interest of approximately 10%) was classified
in the Company's consolidated balance sheet in current assets as
"Available-for-sale securities." At December 31, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $14,733,000.
As discussed in Note 8, at December 31, 1997, 1,390,000 shares of COMFORCE
common stock owned by the Company and its Fill-Mor subsidiary have been pledged
as collateral for various short-term borrowings and 135,500 shares of COMFORCE
common stock owned by the Company and its Fill-Mor subsidiary remain
unencumbered.
7. EXTRAORDINARY GAINS
ARTRA Debt Restructuring
In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. ARTRA recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock along with proceeds received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. See Note 11
for a further discussion of these transactions. As additional compensation for
its loan and for participating in the above discharge of indebtedness the
unaffiliated company received 150,000 shares of ARTRA common stock (with a then
fair market value of $661,000 after a discount for restricted marketability) and
25,000 shares of COMFORCE common stock held by ARTRA (with a then fair market
value of $200,000).
F-16
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The extraordinary gain resulting from the discharge of bank debt is calculated
(in thousands) as follows:
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
========
In October, 1995 the Company recognized an extraordinary gain of $4,917,000
($.71 per share) as a result of a settlement agreement with a bank whereby a
$3,600,000 note payable due December 31, 1990 plus accrued interest of
$1,467,000 were discharged for a cash payment of $150,000.
COMFORCE Debt Restructuring
Upon the satisfaction of certain conditions of a debt settlement agreement, in
March 1995 certain indebtedness of COMFORCE and Fill-Mor was discharged,
resulting in an extraordinary gain to the Company of $9,113,000 ($1.35 per
share) in the first quarter of 1995 calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries and Fill-mor $ 10,500
Less amounts due the bank (750)
---------
Bank debt discharged 9,750
Less fair market value of Lori common stock
issued as consideration for the debt restructuring (337)
Other fees and expenses (300)
---------
Net extraordinary gain $ 9,113
=========
F17
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. NOTES PAYABLE
Notes payable (in thousands) consist of:
December 31, December 26,
1997 1996
------- -------
ARTRA 12% promissory notes -
1997 private placements $ 12,850
ARTRA 12% promissory notes -
1996 private placement -- $ 7,675
Amounts due to related parties,
interest from 10% to 12% 2,000 3,600
ARTRA bank notes payable,
interest at the lender's index rate -- 2,500
Other, interest from 10% to 15% 601 4,856
------- -------
15,451 18,631
Less ARTRA 12% promissory notes
refinanced in January 1998 (4,725) --
------- -------
$ 10,726 $ 18,631
======= =======
Promissory Notes
1997 Private Placements
In December 1997, ARTRA completed private placements of $5,375,000 of 12%
promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 ARTRA common
shares at a price of $3.00 per share. The warrants expire in November and
December 1999. The warrantholders have the right to put these warrants back to
ARTRA at any time during a period commencing in December 1998 and ending in May
1999, at a price of $1.50 per share. The cost of this obligation ($161,250 if
all warrants are put back to the Company) was accrued in the Company's financial
statements as a charge to interest expense. In the event of a default, as
defined in the note agreements, the promissory notes will bear interest at 37%.
The proceeds from the private placement were used principally to pay down other
debt obligations.
In July 1997, ARTRA completed private placements of $7,475,000 of 12% 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
$3.75 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 period commencing
in January 1998 and ending in August 1999, at a price of $3.00 per share. The
cost of this obligation ($598,000 if all warrants are put back to the Company)
was amortized 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 1998 (the scheduled maturity date of the notes). The promissory notes
were 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
(then a 17.4% interest), 1,784.02 shares of BCA Series A redeemable
preferred stock (then a 48.5% interest) and 6,488.8 shares of BCA
Series B redeemable preferred stock (then a 79.8% interest).
F-18
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The proceeds from the July 1997 private placement were advanced to Peter R.
Harvey as discussed in Note 19.
The July 1997 private placement notes were repaid and /or refinanced with
proceeds of a January 1998 private placement of 12% notes and with proceeds from
the litigation settlement discussed in Note 18. The January 1998 private
placement notes, in the principal amount of $5,925,000, are payable in January
1999. July 1997 private placement notes in the principal amount of $4,725,000
were refinanced by the January 1998 private placement notes and, accordingly,
have been classified as long-term debt at December 31, 1997. As additional
consideration the January 1998 private placement noteholders received warrants
to purchase an aggregate of 116,500 ARTRA common shares at a price of $4.50 per
share. The warrants expire in January 2000. The warrantholders have the right to
put these warrants back to ARTRA at any time during a six-month period
commencing in January 1999 and ending in July 1999, at a price of $1.50 per
share. The cost of this obligation ($175,000 if all warrants are put back to the
Company) will be amortized in the Company's financial statements as a charge to
interest expense.
The December 1997 and January 1998 private placement notes are collateralized by
900,000 shares of COMFORCE common stock owned by the Company's Fill-Mor
subsidiary and by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).
In June 1997, ARTRA completed private placements of $4,975,000 of 12% promissory
notes due in December 1997. As additional consideration the noteholders received
warrants to purchase an aggregate of 228,750 ARTRA common shares at a price of
$3.75 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 period commencing
in December 1997 and ending in May 1999, at prices of $2.00 to $2.40 per share.
The cost of this obligation ($517,000 if all warrants are put back to the
Company) was amortized 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 notes were paid at maturity in December 1997 principally with
proceeds from the December 1997 private placement.
1996 Private Placement
In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
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 $3.75 per share, as amended. 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 amortized 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). During 1997, warrants to purchase 50,000 ARTRA common shares were put
back to the Company at a cost of $100,000. 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 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 9).
Amounts Due To Related Parties
At December 26, 1996, ARTRA had 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.
F-19
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In January 1997, ARTRA borrowed an additional $300,000 from this director
evidenced by a 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 director
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 is being
amortized 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 prior borrowings from
this lender 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 was amortized 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.
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 9. In
December 1997 borrowings from this lender were reduced to $2,000,000 with
proceeds from other short-term borrowings. The borrowings from this director are
collaterallized by 490,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.
At December 26, 1996, ARTRA had outstanding borrowings of $3,000,000 from an
unaffiliated company then holding approximately 7% of ARTRA's outstanding common
stock. The loans were evidenced by 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. 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
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 a
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, the private
investor was elected to the Company's board of directors. Effective January 17,
1997, the private investor exercised his conversion rights and received 18,182
shares of ARTRA common stock as payment of the principal balance of his note.
F-20
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 December 31, 1997 and December 26, 1996, ARTRA also had outstanding
short-term borrowings from other unrelated parties aggregating $601,000 and
$1,990,000, with interest rates varying between 10 % and 15%.
At December 26, 1996, ARTRA was the obligor under two demand notes, issued to an
unaffiliated company, in the principal amount of $2,266,000, including accrued
interest. The notes were issued in October, 1990 with interest at 15%. In July
1997, ARTRA paid all outstanding interest on these demand notes and reduced the
principal amount outstanding under the demand notes to approximately $1,500,000.
In October 1997, the lender agreed to accept 357,720 ARTRA common shares in
payment of the principal amount due on these notes. In January 1998 the lender
returned the 357,720 ARTRA common shares to the Company for cash consideration
of approximately $1,600,000.
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.
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.
The weighted average interest rate on all short-term borrowings at December 31,
1997 and December 26, 1996 was 11.5% and 11.3%, respectively.
F-21
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. LONG-TERM DEBT
Long-term debt (in thousands) consists of:
December 31, December 26,
1997 1996
-------- --------
Bagcraft:
Credit Agreement:
Term Loan A, interest at
the lender's index rate plus .25% $ 20,000 $ 20,000
Term Loan B, interest at
the lender's index rate plus .75% 5,000 --
Term Loan C, interest at
the lender's index rate plus 1% 7,500 --
Revolving credit loan, interest at
the lender's index rate 9,313 7,990
Unamortized discount (1,425) (1,752)
City of Baxter Springs, Kansas
loan agreements,
interest at varying rates 9,968 10,681
-------- --------
50,356 36,919
ARTRA 12% promissory notes
refinanced in January 1998 4,725 --
-------- --------
55,081 36,919
Current scheduled maturities (4,462) (2,712)
-------- --------
$ 50,619 $ 34,207
======== ========
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 December 31, 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 December 31, 1997 and December 26, 1996, approximately
F-22
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
$4,400,000 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 December 31, 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 December 31, 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 was scheduled to mature 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 that was
scheduled to mature 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 was scheduled to mature, 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 that was scheduled to mature on July
15, 1998. ARTRA used the proceeds of this loan to repay certain ARTRA debt
obligations.
Effective February 27, 1998, the Credit Agreement was amended and restated
whereby, among other things, certain loan covenants were amended and payments
under the Term Loans were modified to provide for annual principal payments
(payable in quarterly installments) as follows:
Term Loan A - $1,200,000 in 1998; $1,800,000 in 1999; $5,500,000 in
2000 and 2001; and $6,000,000 in 2002.
Term Loan B - $50,000 in 1998 - 2002; and $4,750,000 in 2002.
Term Loan C - $75,000 in 1998 - 2003; and $7,050,000 in 2004.
Amounts outstanding under the Credit Agreement have been reflected in current
maturities and long-term debt at December 31, 1997 according to terms of these
amended maturities.
As additional compensation for borrowings under the Credit Agreement, in
December 1993, the lender received a detachable warrant ("Warrant"), originally
expiring in December 1998, allowing the holder to purchase up to 10% of the
fully diluted common equity of Bagcraft at a nominal value. 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. The warrant has been subsequently amended, most recently in
accordance with the February 27, 1998 amendment to the Credit Agreement, 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 warrant's expiration
date to February 27, 2003. Under certain conditions Bagcraft is required to
repurchase the Warrant from the lender.
F-23
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 1994 Bagcraft and the City of Baxter Springs, Kansas completed a
$12,500,000 financing package associated with the construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. The financing package,
funded by a combination of Federal, state and local funds, consists of the
following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:
A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At December 31, 1997 and December 26, 1996,
Bagcraft had outstanding borrowings of $4,900,000 and $5,600,000,
respectively, 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 December 31,
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 December 31, 1997 and December 26,
1996, Bagcraft had outstanding borrowings of $218,000 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.
ARTRA
As discussed in Note 8, $7,475,000 of ARTRA 12% promissory notes due in January
1998 were repaid and /or refinanced principally with proceeds of a January 1998
private placement of 12% notes payable in January 1999. Private placement notes
in the principal amount of $4,725,000 refinanced by the January 1998 private
placement notes have been classified as long-term debt at December 31, 1997.
The common stock and virtually all the assets of the Company and its Bagcraft
subsidiary have been pledged as collateral for borrowings under various loan
agreements. Under certain debt agreements the Company is limited in the amounts
it can withdraw from its operating subsidiaries.
At December 31, 1997 the aggregate amount of yearly maturities of long-term
debt, exclusive of debt discharged, is: 1998, $4,462,000; 1999, $9,787,000;
2000, $6,337,000; 2001, $6,337,000; 2002, $16,150,000; thereafter, $13,433,000.
10. REDEEMABLE COMMON STOCK
In recent years ARTRA had entered into various agreements under which it has
sold its common shares along with options that required 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 was reflected in the Company's financial statements by a
charge to retained earnings. At December 26, 1996 options were outstanding that,
if exercised,
F-24
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
would have required ARTRA to repurchase 98,734 shares of its common stock for an
aggregate amount of $3,657,000. At December 31, 1997, there were no outstanding
options which would require ARTRA to repurchase shares of its common stock.
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 had been extended from time to time, most recently in November
1992, to expire on December 31, 1997. 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 increased by an amount equal to 15% per annum
for each day from March 1, 1991 to the date of payment by ARTRA. At December 26,
1996, the option price was $83.45 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 increased by $2.25
per share annually ($21.19 per share at December 26, 1996). During the first
quarter of 1996 the ARTRA bank notes were discharged (see Note 7) 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 December 1997, the private corporation exercised the put options and ARTRA
repurchased 72,984 shares of its common stock for a total of $3,379,000.
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.
F-25
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock (in thousands) consists of:
<TABLE>
<CAPTION>
December 31, 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 $ 2,124 $ 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; issued 7,847.79
shares in 1997 and 8,135 shares in 1996 9,831 9,093
------- -------
$ 11,955 $ 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 $859 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 3,583.62 shares in 1997
and 3,750 shares in 1996 $ 4,799 $ 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 3,456.18 shares in 1997
and 3,675 shares in 1996 4,311 4,363
------- -------
$ 9,110 $ 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 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.
In August and September 1997 ARTRA repurchased 166.38 shares of ARTRA Series A
redeemable preferred stock with a carrying value of $209,000 for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000,
F-26
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
which was reflected in the Company's condensed consolidated financial statements
as a credit to additional paid-in capital. 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 $2,074,000 and $1,836,000 were accrued at December 31, 1997 and
December 26, 1996, respectively.
Bagcraft/BCA Holdings
In 1987, Bagcraft obtained financing from a subsidiary of Ozite through the
issuance of a $5,000,000 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 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 $854,000 and $688,000
were accrued at December 31, 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 $1,259,000 and
$1,142,000 were accrued at December 31, 1997 and December 26, 1996,
respectively. The Bagcraft preferred stock was originally scheduled to be
redeemable on June 1, 1997 and is currently redeemable on demand.
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 was originally scheduled to be redeemable on
June 1, 1997 and is currently redeemable on demand. Accumulated dividends of
$1,984,000 and $958,000 were accrued at December 31, 1997 and December 26, 1996,
respectively.
In August and September 1997 ARTRA repurchased 218.82 shares of BCA Series A
redeemable preferred stock and 287.21 shares of BCA Series B redeemable
preferred stock with a combined carrying value of $611,000 for cash of $306,000.
The BCA redeemable preferred stock purchase resulted in a gain of $305,000 which
was reflected in the Company's consolidated statement of operations as minority
interest.
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 7.
As discussed in Note 19, effective January 31, 1998, Peter R. Harvey exchanged
certain ARTRA/BCA preferred stock to retire advances from ARTRA totaling
$12,787,000.
F-27
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
12. STOCK OPTIONS AND WARRANTS
Stock Option Plans
In August, 1996, ARTRA's shareholders approved a stock option plan (the "1996
Plan") for certain officers, key employees and others who render services to the
Company or its subsidiaries. The 1996 Plan reserves 2,000,000 shares of the
Company's common stock for the granting of options on or before August 29, 2006.
Options granted under the Plan shall be in the form of incentive stock options
("ISOs"), as defined under the Internal Revenue Code of 1986, as amended (the
"Code") or non-statutory options which do not qualify under such the Code
("NSOs"), or both, at the discretion of the Company. The purchase price of
options granted under the 1996 Plan shall be not less than fair market value at
the date of grant for ISOs, not less than 110% of fair market value on the date
of grant for an ISO granted to a shareholder possessing 10% more of the voting
stock of the Company and the fair market value per share on the date of grant in
the case of NSOs. Effective October 4, 1996, the Company issued certain officers
and key employees of ARTRA options to purchase 532,750 shares of ARTRA common
stock at $5.25 per share, the fair market value on the date of grant.
The options vested immediately and expire ten years from the date of grant.
In August 1996, ARTRA's shareholders also approved a 1996 Disinterested
Directors Stock Option Plan (the "1996 Director Plan") for directors of the
Company who are not employees or officers. The 1996 Director Plan reserves
200,000 shares of the Company's common stock for the granting of NSOs on or
before August 29, 2006 at a price equal to fair market value per share on the
date of grant. No options were granted under the Director Plan during the years
ended December 31, 1997 and December 26, 1996.
In July 1985, ARTRA's shareholders approved a stock option plan (the "1985
Plan") for certain officers and key employees of the Company and its
subsidiaries. The 1985 Plan, as amended, reserved 1,000,000 shares of the
Company's common stock and authorized the granting of options on or before
February 1, 1995. The purchase price of such options granted under the 1985 Plan
was not less than the market value at the date of grant for ISOs and not less
than 110% of the market value on the date of grant for an ISO granted to a
shareholder possessing 10% more of the voting stock of the Company.
Effective for the fiscal year ending December 26, 1996, the Company has adopted
the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". In 1996 all stock options were granted at an exercise price equal
to fair market value at the date of grant and, accordingly, no compensation
expense has been recognized in connection with the Company's stock option plans.
Had compensation cost for the Company's stock option plan been determined based
on the fair value on the date of grant for awards in 1996 consistent with the
provisions of SFAS No. 123, the Company's earnings applicable to common shares
would have been reduced to the pro forma amounts indicated below:
Year Ended December 26, 1996
----------------------------
As Reported Pro forma
----------- ---------
Earnings applicable to
common shares (in thousands) $11,962 $10,512
======= =======
Earnings per share
Basic $1.59 $1.40
===== =====
Diluted $1.51 $1.32
===== =====
F-28
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The fair value of stock options granted in 1996 was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Expected life (years) 5
Interest rate 6.5%
Volatility 50.0%
Dividend yield -
Information regarding stock option plans for the three years in the period ended
December 31, 1997 is as follows:
1997 1996 1995
---------- ---------- ----------
Options outstanding
at beginning of year 917,850 431,500 445,460
Options granted -- 532,750 --
Options exercised (4,800) (40,400) (12,100)
Options canceled -- (6,000) (1,860)
---------- ---------- ----------
Options outstanding
at end of year 913,050 917,850 431,500
========== ========== ==========
Options exercisable
at end of year 913,050 917,850 431,500
========== ========== ==========
Options available for grant
at end of year 1,467,250 1,467,250 --
========== ========== ==========
Weighted average option prices:
Outstanding at beginning of year $ 4.61 $ 3.89 $ 5.80
Options granted -- $ 5.25 --
Options exercised $ 3.70 $ 5.01 $ 4.00
Options canceled -- $10.00 $20.50
Outstanding at end of year $ 4.61 $ 4.61 $ 3.89
Exercisable at end of year $ 4.61 $ 4.61 $ 3.89
Significant option groups outstanding at December 31, 1997 and related weighted
average price and remaining life information are as follows:
Remaining
Options Options Exercise Life
Grant Date Outstanding Exercisable Price (Years)
---------- ----------- ----------- -------- -------
10-04-96 532,750 532,750 $ 5.25 8
01-08-93 145,800 145,800 $ 3.75 5
06-22-92 6,000 6,000 $ 5.25 4
09-19-91 52,967 52,967 $ 3.65 3
12-19-90 176,033 176,033 $ 3.65 2
F-29
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Warrants
At December 31, 1997, warrants were outstanding to purchase a total of 1,711,032
common shares at prices ranging from $3.50 per share to $8.00 per share. The
warrants, exercisable from the date of issue, expire at various dates through
2003. These warrants were issued principally as additional compensation for
various short-terms loans.
During 1997 ARTRA issued warrants to purchase an aggregate of 1,196,894 shares
of its common stock at prices ranging from $3.00 per share to $5.75 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates from 1998 to 2001. The warrantholders have
the right to put these warrants back to ARTRA at prices from $1.50 to $3.00 per
share during certain six month periods as defined (see Note 8). At December 31,
1997, warrantholders had the right to put warrants to purchase 1,213,644 shares
of ARTRA common stock back to the Company for total consideration of $2,966,000.
Additionally, during 1997 warrants to purchase 35,000 shares of ARTRA common
stock at prices ranging from $4.00 per share to $6.00 per share were exercised,
warrants to purchase 114,000 shares of ARTRA common stock at prices ranging from
$5.00 per share to $6.00 per share were put back to ARTRA for total
consideration of $228,000 and warrants to purchase 159,193 shares of ARTRA
common stock at prices ranging from $5.00 per share to $9.875 per share expired
unexercised.
During 1996 ARTRA issued warrants to purchase an aggregate of 632,583 shares of
its common stock at prices ranging from $4.00 per share to $8.00 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates from 1999 to 2001. Additionally during 1996
warrants to purchase 37,500 shares of ARTRA common stock at prices ranging from
$3.75 per share to $5.00 per share were exercised and warrants to purchase
32,600 shares of ARTRA common stock at prices ranging from $5.375 per share to
$10.50 per share expired unexercised.
During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of
its common stock at prices ranging from $3.75 per share to $6.125 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates in 2000. Additionally during 1996 warrants
to purchase 48,331 shares of ARTRA common stock at prices ranging from $6.75 per
share to $11.375 per share expired unexercised.
13. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease certain buildings and equipment, which
are used in its manufacturing and distribution operations. At December 31, 1997,
future minimum lease payments under operating leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:
Year
----
1998 $ 880
1999 502
2000 265
2001 252
2002 219
After 2002 619
-------
$ 2,737
=======
Rental expense was $1,295,000, $975,000 and $861,000 in fiscal years 1997, 1996
and 1995, respectively. Effective December 1995, John Harvey, the Company's
Chairman of the board of directors purchased the building in which the Company
leases office for its corporate headquarters. The lease expired in December 1997
and has been extended on a month-to-month basis. Rental expense for this lease
was $126,000 annually for the years ended December 31, 1997 and December 26,
1996.
F-30
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In October 1995, Bagcraft entered into an agreement for the purchase of various
ink products for a period of five years. Under terms of the agreement, Bagcraft
is required to purchase a minimum supply of ink based on market prices in effect
at the time of each purchase. For the contract year ended September 30, 1996,
Bagcraft had a short-fall of approximately $126,000. The shortfall for the
contract year ended September 30, 1996 was incorporated into the purchase
requirement for the contract year the contract year ended September 30, 1997. In
January 1997 the agreement was amended to revise the original minimum purchase
requirements and the annual contract period. The minimum dollar amounts required
for each of the remaining years ending October 31 are $4,500,000 in 1998;
$3,375,000 in 1999; and $2,250,000 in 2000. Bagcraft has issued a letter of
credit of $1,000,000 in conjunction with this agreement. Ink purchases for the
contract year the contract year ended September 30, 1997 exceeded the minimum
requirement. In conjunction with a prior self-insurance plan, Bagcraft
maintained a $875,000 letter of credit at December 31, 1997.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 31, 1997 and December 26,
1996, the Company had accrued current liabilities of $1,800,000 and $1,900,000,
respectively, 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 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. In October 1997 Bagcraft paid $40,000 to formally extinguish this claim.
Bagcraft's Chicago facility has also been the subject of allegations that it
violated laws and regulations associated with the Clean Air Act. The facility
has numerous sources of air emissions of volatile organic materials ("VOMs")
associated with its printing operations and is required to maintain and comply
with permits and emissions regulations with regard to each of these emission
sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. The NOV alleges that the facility installed and
operated emission sources without permits, that it failed to operate air
pollution control equipment at required efficiencies and that there were
releases of VOMs above permitted limits. 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 currently attempting to negotiate a
settlement.
F-31
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 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.
F-32
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
14. INCOME TAXES
The provision (credit) for income taxes (in thousands) is included in the
statements of operations as follows:
1997 1996 1995
----- ----- -----
Continuing operations $ (19) $ 152 $ 51
Extraordinary credit -- 200 --
Discontinued operations -- -- 17
----- ----- -----
$ (19) $ 352 $ 68
===== ===== =====
A summary of the provision (credit) for income taxes (in thousands) is as
follows:
1997 1996 1995
----- ----- -----
Current:
Federal $-- $ 200 $--
State (19) 152 68
----- ----- -----
$ (19) $ 352 $ 68
===== ===== =====
The 1996 and 1995 extraordinary credits represent net gains from discharge of
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit in due to the utilization of
tax loss carryforwards, except for Federal alternative minimum tax incurred in
1996.
F-33
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. INCOME TAXES, continued
In 1997, 1996 and 1995, the effective tax rates from operations, including
discontinued operations were 1.0%, 2.5% and (3.9)%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:
1997 1996 1995
------- ------- -------
Provision (credit) for income taxes
using statutory rate $ 633 $ 4,709 $ (600)
State and local taxes,
net of Federal benefit (19) 152 68
Current year tax loss not utilized (1,680) -- --
Deferred finance fee 919 127 --
Amortization of goodwill 104 104 155
Previously unrecognized benefit
from utilizing tax loss
carryforwards -- (4,767) (2,136)
Effect of not including all subsidiaries
in the consolidated tax return -- -- 2,546
Other 24 27 35
------- ------- -------
$ (19) $ 352 $ 68
======= ======= =======
F-34
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. INCOME TAXES, continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1997 and December 26,
1996 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable $ -- $ -- $ -- $ 100
Investment in Emerald Acquisition Corporation -- -- 10,600 4,100
Investment in COMFORCE Corporation 36,000 14,000 39,500 15,400
Accrued personnel costs 1,200 500 1,600 600
Restructuring reserve 600 200 100 --
Environmental reserve 300 100 500 200
Other 3,400 1,300 600 200
Capital loss carryforward 3,500 1,400 2,100 800
Net operating loss 40,000 15,600 35,900 14,000
-------- --------
Total deferred tax assets 33,100 35,300
-------- --------
Inventories (1,900) (700) (4,500) (1,700)
Accumulated depreciation (5,100) (2,000) (6,400) (2,500)
Other (800) (300) (1,000) (300)
-------- --------
Total deferred tax liabilities 3,000 (4,500)
-------- --------
Valuation allowance (30,100) (30,800)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.
At December 31, 1997, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $40,000,000 expiring principally in 2002 -
2013, 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.
F-35
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution 401 (k) plan covering substantially
all employees. Both employee and employer contributions are generally determined
as a percentage of the covered employee's annual compensation. The total expense
charged to operations relating to this plan amounted to $609,000, $513,000 and
$477,000 in 1997, 1996 and 1995, respectively.
Effective January 1, 1996, Bagcraft established an unfunded deferred
compensation plan for certain key executives providing for payments upon
retirement, death or permanent disability. Under the plan, retirement payments
are determined as a percentage of the value of Bagcraft and the extent of
participation in the plan. Participants vest on a pro-rata basis over four years
from the plan's origination date. At December 31, 1997, Bagcraft recorded other
noncurrent assets and other noncurrent liabilities of $426,000, and $850,000,
respectively related to the deferred compensation plan. Deferred compensation
expense relating to this plan amounted to $263,000 and $170,000 for the years
ended December 31, 1997 and December 26, 1996, respectively.
Effective June 1, 1990, the Company adopted an Employee Stock Ownership Plan
("ESOP") which covered eligible employees of ARTRA and certain of its
subsidiaries. Employer contributions to the Plan were at the discretion of
ARTRA's Board of Directors. Employee contributions were not permitted. Effective
August 1, 1995, the Company terminated the ESOP and subsequently distributed the
related Employee accounts to participants. The Company contributed 8,750 ARTRA
common shares to the Plan with a fair market value of $42,000 ($4.75 per share)
for the plan year ending December 28, 1995.
The Company typically does not offer the types of benefit programs that fall
under the guidelines of Statement of Financial Accounting Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions.
16. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share," for the year ended
December 31, 1997. Adoption of this pronouncement, which was applied to prior
periods presented, did not have a material impact on the Company's financial
statements.
Basic earnings (loss) per share is computed by dividing the income available to
common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income available
to common shareholders, 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, during each period.
F-36
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Earnings (loss) per share for each of the three fiscal years in the period ended
December 31, 1997 was computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 26, 1996 December 28, 1995
-------------------- -------------------- --------------------
Basic Diluted Basic Diluted Basic Diluted
-------- -------- -------- -------- -------- --------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding 7,970 7,970 7,525 7,525 6,776 6,776
Common stock equivalents
(options/warrants) -- -- -- 414 -- --
-------- -------- -------- -------- -------- --------
7,970 7,970 7,525 7,939 6,776 6,776
======== ======== ======== ======== ======== ========
EARNINGS (LOSS):
Earnings (loss) from continuing
operations $ 773 $ 773 $ 3,549 $ 3,549 $(16,943) $(16,943)
Dividends applicable to
redeemable preferred stock (693) (693) (621) (621) (565) (565)
Redeemable common stock accretion (400) (400) (390) (390) (767) (767)
-------- -------- -------- -------- -------- --------
Earnings (loss) from continuing
operations applicable to
common shareholders (320) (320) 2,538 2,538 (18,275) (18,275)
Earnings from discontinued operations -- -- -- -- 10 10
-------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary credit (320) (320) 2,538 2,538 (18,265) (18,265)
Extraordinary credit -- -- 9,424 9,424 14,030 14,030
======== ======== ======== ======== ======== ========
Net earnings (loss) $ (320) $ (320) $ 11,962 $ 11,962 $ (4,235) $ (4,235)
======== ======== ======== ======== ======== ========
PER SHARE AMOUNTS:
Earnings (loss) from
continuing operations
applicable to common shares $ (0.04) $ (0.04) $ 0.34 $ 0.32 $ (2.70) $ (2.70)
Earnings (loss) from
discontinue operations -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary credit (0.04) (0.04) 0.34 0.32 (2.70) (2.70)
Extraordinary credits -- -- 1.25 1.19 2.07 2.07
======== ======== ======== ======== ======== ========
Net earnings (loss) applicable
to common shares $ (0.04) $ (0.04) $ 1.59 $ 1.51 $ (0.63) $ (0.63)
======== ======== ======== ======== ======== ========
</TABLE>
17. INDUSTRY SEGMENT INFORMATION
At December 31, 1997, the Company, through its Bagcraft subsidiary operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.
Prior to September 28, 1995, ARTRA's then majority owned subsidiary, COMFORCE,
operated as a designer and distributor of popular-priced fashion costume jewelry
and accessories. In September 1995, COMFORCE adopted a plan to discontinue its
jewelry business.
As discussed in Note 3, effective October 17, 1995, COMFORCE entered the
telecommunications and computer technical staffing and consulting services
business with the acquisition of COMFORCE Telecom Inc. COMFORCE has subsequently
expanded this business through various acquisitions.
F-37
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Due to the issuances of COMFORCE common shares in conjunction with the
acquisition of COMFORCE Telecom, ARTRA's common stock ownership in COMFORCE was
reduced to approximately 25%. Accordingly, in October 1995, the accounts of
COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's
consolidated financial statements and ARTRA's investment in COMFORCE was
accounted for under the equity method during the fourth quarter of 1995. As
discussed in Note 5, effective December 28, 1995, the Company adopted SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities." Under
this statement, at December 28, 1995, the Company's investment in COMFORCE is
classified as available for sale and is stated at fair value.
No single customer accounted for more than 10% of consolidated net sales in
1997, 1996 and 1995.
18. LITIGATION
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 had a right to appeal the District Court's decision. This appeal had 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, and breach of contract and promissory estoppel. In the State
Court Action, ARTRA sought 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 appealed this decision.
Effective December 31, 1997, the above parties reached a settlement agreement
and all pending litigation was dismissed. ARTRA recognized a gain from the
settlement agreement of $10,416,000, net of related legal fees and other
expenses.
The Company and its subsidiaries are the defendants in various other
business-related litigation and environmental matters (see Note 13). Management
does not believe the outcome of these matters will have a material adverse
effect on the Company's financial statements.
F-38
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. 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:
December 31, December 26,
1997 1996
-------- --------
Total advances, including accrued interest $ 18,226 $ 7,998
Less interest for the period
January 1,1993 to date,
accrued and fully reserved (2,789) (1,530)
-------- --------
15,437 6,468
Less compensation/expense reimbursement (2,816) --
-------- --------
Net advances $ 12,621 $ 6,468
======== ========
ARTRA had total advances due from its president, Peter R. Harvey, of which
$18,226,000 and $7,998,000, including accrued interest, remained outstanding at
December 31, 1997 and December 26, 1996, respectively. A $7,500,000 July 1997
advance, as discussed below, provided for interest at 12%. The remaining
advances of $10,726,000 and $7,998,000 at December 31, 1997 and December 26,
1996, respectively, bear interest at the prime rate plus 2% (10.5% at December
31, 1997 and 10.25% December 26, 1996, respectively). This receivable from Peter
R. Harvey has been classified as a reduction of common shareholders' equity.
Commencing January 1, 1993 to date, interest on 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 years ended December 31, 1997 and December
26, 1996 totaled $1,259,000 and $479,000, respectively.
In July 1997, ARTRA advanced an additional $7,500,000 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 18.2% interest at December
31, 1997), 1,784.02 shares of BCA Series A redeemable preferred stock (a 51.6%
interest at December 31, 1997) and 6,488.8 shares of BCA Series B redeemable
preferred stock (a 82.7% interest at December 31, 1997). These ARTRA and BCA
redeemable preferred shares were pledged by ARTRA as partial collateral for the
July 1997 private placement of ARTRA promissory notes that funded the advance to
Mr. Harvey. As of December 31, 1997, this additional collateral had a carrying
value in ARTRA's consolidated balance sheet of approximately $11,200,000. The
advances were funded with the proceeds from the July 1997 private placement of
ARTRA notes as discussed in Note 8.
In June 1996, Peter R. Harvey loaned the Company 100,000 shares of ARTRA common
stock with (with a then fair market value of $587,000). The Company principally
issued these common shares to certain lenders as additional consideration for
short-term loans. In September 1996, after the Company's shareholders approved
an increase in the number of authorized common shares, the Company repaid this
loan. At Peter R. Harvey's direction, the 100,000 shares of the Company's common
stock were issued in blocks of 25,000 shares to the four daughters of the
Company's Chairman of the Board, John Harvey.
John Harvey and Peter R. Harvey are brothers.
As collateral for amounts due from Peter R. Harvey, in prior years the Company
had received the pledge of 1,523 shares of ARTRA redeemable preferred stock (a
42.5% interest at December 31, 1997, with a carrying value in ARTRA's
consolidated balance sheet of approximately $2,000,000) which are owned by Mr.
Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
F-39
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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.
Peter R. Harvey has received only nominal compensation for his services as an
officer or director of ARTRA or any of its subsidiaries for the period October
1990 through December 1997. Additionally, Mr. Harvey had 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, were fully
satisfied. Additionally, since December 31, 1986, Peter R. Harvey has guaranteed
in excess of $100,000,000 of ARTRA obligations to private and institutional
lenders, and has also incurred significant expenses on behalf of ARTRA in
defending ARTRA against certain litigation.
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).
In March 1998, ARTRA's Board of Directors ratified a proposal to settle Mr.
Harvey's advances as follows:
Effective December 31, 1997, Mr. Harvey's net advances from ARTRA were
offset by $2,816,000 ($5,605,000 net of interest accrued and reserved
for the period 1993 - 1997) to $12,621,000. This offset of Mr.
Harvey's advances represented a combination of compensation for prior
year guarantees of ARTRA obligations to private and institutional
lenders, compensation in excess of the nominal amounts Mr. Harvey
received for the years 1995 - 1997 and reimbursement for expenses
incurred to defend ARTRA against certain litigation.
F-40
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of the following
ARTRA/BCA preferred stock held by Mr. Harvey:
Face Value
Plus
Security Accrued Dividends
------------------------------------------------------ -----------------
ARTRA redeemable preferred stock, 1,734.28 shares $ 2,751,000
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000
------------
$ 12,787,000
============
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 December 31, 1997 and December 26, 1996, respectively, $218,000 and $348,000
of such pre-existing Lori liabilities were classified in ARTRA's consolidated
balance sheet at as current liabilities of discontinued operations.
In conjunction with COMFORCE's October 1995 acquisition of COMFORCE Telecom (see
Note 3), ARTRA agreed to assume substantially all pre-existing Lori liabilities
and indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. Accordingly,
at December 31, 1997 and December 26, 1996, respectively, $218,000 and $348,000
of such pre-existing Lori liabilities were classified in ARTRA's consolidated
balance at as current liabilities of discontinued operations.
For a discussion of certain other related party debt obligations see Note 8.
F-41
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
BALANCE SHEETS
(Registrant Only In Thousands)
December 31, December 26,
1997 1996
-------- --------
ASSETS
Current assets:
Cash $ 5,986 $ 162
Receivables 362 430
Other current assets 397 453
-------- --------
6,745 1,045
-------- --------
Property, plant and equipment 41 33
Less accumulated depreciation and amortization 41 33
-------- --------
-- --
-------- --------
Investments in and advances to (from) affiliates (15,274) 8,266
-------- --------
$ 6,745 $ 9,311
======== ========
LIABILITIES
Current liabilities:
Notes payable $ 15,451 $ 16,131
Accounts payable 35 25
Accrued expenses 7,096 6,508
Income taxes 254 265
-------- --------
22,836 22,929
-------- --------
Investments in and advances from affiliates 15,274 --
-------- --------
Redeemable common stock -- 3,657
-------- --------
Redeemable preferred stock 4,799 4,315
-------- --------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 6,223 5,793
Additional paid-in capital 42,721 40,211
Unrealized appreciation of investments 14,733 25,719
Receivable from related party,
including accrued interest (12,621) (6,468)
Accumulated deficit (87,113) (86,793)
-------- --------
(36,057) (21,538)
Less treasury stock, at cost 107 52
-------- --------
(36,164) (21,590)
-------- --------
$ 6,749 $ 9,311
======== ========
The accompanying notes are an integral part of the condensed financial
information.
F-42
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Registrant Only In Thousands)
Fiscal Year
------------------------------
1997 1996 1995
-------- -------- --------
Selling, general and administrative expenses $ 5,661 $ 1,998 $ 1,760
Depreciation and amortization 7 19 27
Interest expense 6,130 3,997 4,953
Equity in (earnings) loss of affiliates (863) (7,745) 7,817
Litigation settlement (10,416) -- --
Other expense, net (11) 1 424
-------- -------- --------
Earnings (loss) from continuing operations
before income taxes (508) 1,730 (14,981)
Benefit (charge) equivalent to income taxes 1,281 1,819 (1,962)
-------- -------- --------
Earnings (loss) from continuing operations 773 3,549 (16,943)
Equity in earnings of discontinued affiliate -- -- 10
-------- -------- --------
Loss before extraordinary credits 773 3,549 (16,933)
-------- -------- --------
Extraordinary credits,
net discharge of indebtedness -- 9,424 14,030
-------- -------- --------
Net earnings (loss) $ 773 $ 12,973 ($ 2,903)
======== ======== ========
The accompanying notes are an integral part of the condensed financial
information.
F-43
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARTRA GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 773 $ 12,973 ($ 2,903)
Adjustments to reconcile net loss
to cash flows from operating activities:
Decrease in receivable from related party 2,816 -- --
Extraordinary gain from net discharge of indebtedness -- (9,424) (14,030)
Equity in loss of affiliates (863) (7,745) 7,817
Litigation settlement (10,416) -- --
Equity in (earnings) loss of discontinued operations -- -- (10)
Other, principally common stock issued as compensation 462 239 1,370
Changes in assets and liabilities:
Increase (decrease) in other current and noncurrent assets 2,294 (1,315) 32
Increase in other current and noncurrent liabilities (1,114) 1,696 1,738
-------- -------- --------
Net cash flows used by operating activities (6,048) (3,576) (5,986)
-------- -------- --------
Cash flows from investing activities:
Increase in receivable from related party (8,969) (1,061) (218)
Proceeds from litigation settlement 9,761 -- --
Proceeds from collection of notes receivable -- 342 3,000
Dividends and advances from (to) subsidiaries 13,417 4,473 --
Additions to property, plant and equipment (8) (8) (6)
-------- -------- --------
Net cash flows from investing activities 14,201 3,746 2,776
-------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 178 369 48
Net increase (decrease) in short-term borrowings 992 (2,214) 5,488
Purchase of redeemable preferred stock (120) -- --
Exercise of redeemable common stock options (3,379) (510) (70)
-------- -------- --------
Net cash flows from (used by) financing activities (2,329) (2,355) 5,466
-------- -------- --------
Net increase (decrease) in cash 5,824 (2,185) 2,256
Cash balance beginning of year 162 2,347 91
-------- -------- --------
Cash balance end of year $ 5,986 $ 162 $ 2,347
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $ 1,672 $ 1,274 $ 1,040
Issue common stock as additional consideration
for short-term borrowings -- 661 1,266
Issue common stock to pay
redeemable common stock obligation 679 -- --
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
F-44
<PAGE>
ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.)
ARTRA GROUP INCORPORATED
NOTES TO FINANCIAL INFORMATION
(Registrant Only)
1. Presentation
The condensed financial information of the Registrant has been prepared in
accordance with the instructions for Schedule I to Form10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.
2. Commitments and Contingencies
See Note 13 of the consolidated financial statements.
3. Restricted Assets
The terms of several agreements place certain restrictions on the net assets of
certain operating subsidiaries. See Notes 8 and 9 of the consolidated financial
statements for additional information.
4. Notes Payable and Long-Term Debt
See Notes 8 and 9 of the consolidated financial statements.
5. Redeemable Common and Preferred Stock and Stock Options
See Notes 10, 11 and 12 of the consolidated financial statements.
6. Income Taxes
The Registrant and its majority owned subsidiaries file a consolidated income
tax return. For financial reporting purposes, the Registrant's charge or benefit
equivalent to income tax represents the difference between the aggregate of
income taxes computed on a separate return basis for each of the subsidiaries
and affiliates and the income taxes computed on a consolidated basis.
7. Related Party Transactions
See Notes 8 and 19 of the consolidated financial statements.
F-45
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for each of the three fiscal years in the period ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------------- --------------- ----------------------------- ----------- ------------
Additions
-----------------------------
(1) (2)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) nd of Period
--------------- --------------- --------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 26, 1996:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 249 $ 172 $ (144)(B) $ 277
========= ========== ======== =========
Allowance for doubtful accounts $ 512 $ 63 $ (300)(A) $ 275
========= ========== ======== =========
For the fiscal year ended December 26, 1996:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 290 $ 191 $ (232)(B) $ 249
========= ========== ======== =========
Allowance for doubtful accounts $ 250 $ 365 $ (103)(A) $ 512
========= ========== ======== =========
For the fiscal year ended December 28, 1995:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 207 $ 315 $ (232)(C) $ 290
========= ========== ======== =========
Allowance for markdowns $ 835 $ 291 $ (1,126)(C) $ -
Allowance for doubtful accounts 819 487 (1,056)(C) 250
--------- ---------- -------- ---------
$ 1,654 $ 778 $ (2,182) $ 250
========= ========== ======== =========
</TABLE>
(A) Principally markdowns taken.
(B) Principally inventory written off, net of recoveries.
(C) Principally amounts of discontinued operations.
F-46
<PAGE>
INDEX OF EXHIBITS
(A) Exhibits included herein:
EXHIBIT 3 Articles of Incorporation and By-laws
EXHIBIT 10 Material contracts
10.1 SECOND AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of February 27, 1998,
by and between BAGCRAFT CORPORATION OF
AMERICA, as Borrower and GENERAL ELECTRIC
CAPITAL CORPORATION, as Agent and as
Lender.
10.2 WARRANT NO.3 To Purchase Common Stock of
BAGCRAFT CORPORATION OF AMERICA.
10.3 Settlement Agreement made and entered into
as of December 31, 1997 by and among ARTRA
Group Incorporated ("ARTRA"), Peter Harvey
and John Harvey, and Salomon Brothers
Holding Company Inc. and any of its
successors (collectively "SBHC"), Salomon
Brothers Inc ("SBI"), a corporation
organized under the laws of the State of
Delaware (along with SBHC, "Salomon"),
D.P. Kelly & Associates, L.P. ("DPK"), a
Delaware Limited Partnership, Charles K.
Bobrinskoy, Donald P. Kelly, James L.
Massey, William Rifkin (erroneously sued
in the actions defined below as the
"Original Action", the "Federal Action"
and the "Elghanian Action" as William
Rifkind), Michael J. Zimmerman
(collectively without Salomon and DPK, the
"Individual Defendants"), Envirodyne
Industries, Inc. and any of its
predecessors ("Envirodyne"), and Emerald
Acquisition Corporation ("Emerald").
EXHIBIT 21 Subsidiaries.
EXHIBIT 23 Consent of Independent Accountants.
E-1
<PAGE>
(B) Exhibits incorporated herein by reference:
EXHIBIT 3 Articles of Incorporation and By-laws
3.1 Amended and Restated Articles of
Incorporation of the Registrant as filed
in the Department of State of Pennsylvania
on December 21, 1990 filed as an exhibit
to Registrant's Form 10-K for the year
ended December 31, 1990.
3.2 Bylaws of the Registrant, amended as of
July 24, 1990, filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1990.
3.3 Statement with Respect to Shares of Series
A Preferred Stock of Registrant, filed as
an exhibit to Registrant's Form 10-K for
the year ended December 30, 1993.
3.4 Statement with Respect to Shares of Rights
and Preferences of Series B Preferred
Stock of Registrant, filed as an exhibit
to Registrant's Form 10-K for the year
ended December 30, 1993.
EXHIBIT 10 Material contracts
10.4 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, filed as an exhibit to
Registrant's Form 10-Q, for the quarter
ended June 26, 1997.
10.5 FOURTH AMENDMENT TO WARRANT dated as of
July 17, 1997, by and between BAGCRAFT
CORPORATION OF AMERICA and GENERAL
ELECTRIC CAPITAL CORPORATION Lender, filed
as an exhibit to Registrant's Form 10-Q,
for the quarter ended June 26, 1997.
10.6 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, filed as an exhibit to
Registrant's Form 10-Q, for the quarter
ended June 26, 1997.
10.7 TERM PROMISSORY NOTE, dated as of June 10,
1997, between ARTRA GROUP Incorporated and
Howard R. Conant, filed as an exhibit to
Registrant's Form 10-Q, for the quarter
ended June 26, 1997.
10.8 WARRANT TO PURCHASE COMMON STOCK of ARTRA
GROUP Incorporated, dated June 10, 1997,
issued to Howard R. Conant, filed as an
exhibit to Registrant's Form 10-Q, for the
quarter ended June 26, 1997.
10.9 SECOND AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT, dated as of May 15,
1997, by and between BAGCRAFT CORPORATION
OF AMERICA, as Borrower and GENERAL
ELECTRICCAPITAL CORPORATION, as Agent and
as Lender.
E-2
<PAGE>
10.10 THIRD AMENDMENT TO WARRANT dated as of May
15, 1997, by and between BAGCRAFT
CORPORATION OF AMERICA and GENERAL
ELECTRIC CAPITAL CORPORATION.
10.11 TERM PROMISSORY NOTE, dated as of April
21, 1997, between ARTRA GROUP Incorporated
and Howard R. Conant, filed as an exhibit
to Registrant's Form 10-Q, for the quarter
ended March 27, 1997.
10.12 AMENDED AND RESTATED STOCK PLEDGE
AGREEMENT, dated as of April 21, 1997,
between Fill-Mor Holding, Inc., a
wholly-owned subsidiary of ARTRA GROUP
Incorporated and Howard R. Conant filed as
an exhibit to Registrant's Form 10-Q, for
the quarter ended March 27, 1997.
10.13 WARRANT TO PURCHASE COMMON STOCK of ARTRA
GROUP Incorporated, dated April 21, 1997,
issued to Howard R. Conant filed as an
exhibit to Registrant's Form 10-Q, for the
quarter ended March 27, 1997.
10.14 FIRST AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT, dated as of May 5, 1997,
by and between BAGCRAFT CORPORATION OF
AMERICA, as Borrower and GENERAL ELECTRIC
CAPITAL CORPORATION, as Agent and as
Lender filed as an exhibit to Registrant's
Form 10-Q, for the quarter ended March 27,
1997.
10.15 SECOND AMENDMENT TO WARRANT dated as of
May 5, 1997, by and between BAGCRAFT
CORPORATION OF AMERICA and GENERAL
ELECTRIC CAPITAL CORPORATION filed as an
exhibit to Registrant's Form 10-Q, for the
quarter ended March 27, 1997.
10.16 Term Promissory Note, dated as of March
26, 1997, between ARTRA GROUP Incorporated
and Howard R. Conant, filed as an exhibit
to Registrant's Form 10-K for the year
ended December 26, 1996.
10.17 Term Promissory Note, dated as of March
26, 1997, between ARTRA GROUP Incorporated
and Stephalex International, Inc., filed
as an exhibit to Registrant's Form 10-K
for the year ended December 26, 1996.
10.18 Option Agreement, dated as of March 26,
1997, by and between ARTRA GROUP
Incorporated and Howard R. Conant, filed
as an exhibit to Registrant's Form 10-K
for the year ended December 26, 1996.
10.19 Option Agreement, dated as of March 26,
1997, by and between ARTRA GROUP
Incorporated and Stephalex International,
Inc., filed as an exhibit to Registrant's
Form 10-K for the year ended December 26,
1996.
10.20 AMENDED AND RESTATED CREDIT AGREEMENT,
Dated as of December 30, 1996, by and
among BAGCRAFT CORPORATION OF AMERICA, as
Borrower and GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and as Lender, filed
as an exhibit to Registrant's Form
Amendment No. 1 to Form S-1 Registration
Statement dated January 29, 1997.
E-3
<PAGE>
10.21 AMENDED AND RESTATED WARRANT To Purchase
Common Stock of BAGCRAFT CORPORATION OF
AMERICA (Warrant No. 2), filed as an
exhibit to Registrant's Form Amendment No.
1 to Form S-1 Registration Statement dated
January 29, 1997.
10.22 SETTLEMENT AND RELEASE AGREEMENT, dated as
of December 19, 1996, by and among ARTRA
GROUP Incorporated, Fill-Mor Holding, Inc.
and Peter R. Harvey, COMFORCE Corporation,
James L. Paterek, Michael Ferrentino,
Christopher P. Franco and Kevin W. Kiernan
and Kwiatt, Silverman & Ruben, Ltd., filed
as an exhibit to Registrant's Form
Amendment No. 1 to Form S-1 Registration
Statement dated January 29, 1997.
10.23 LOCK-UP AGREEMENT, dated December 19,
1996, re. sale of COMFORCE common stock,
filed as an exhibit to Registrant's Form
Amendment No. 1 to Form S-1 Registration
Statement dated January 29, 1997.
10.24 LOAN AGREEMENT, dated as of August 15,
1996, between Fill-Mor Holding, Inc. ARTRA
GROUP Incorporated, and Manufacturers Bank
filed as an exhibit to Registrant's Form
8-K dated August 23, 1996.
E-4
EXHIBIT 21
SUBSIDIARIES
(As of March 26, 1998)
ARTRA GROUP INCORPORATED (1)
|
|
|
-------------------------------------------------------------
| | | | |
| | | | |
A. G. Fill-Mor ARTRA ARTRA BCA
Holding Corp. (2) Holding Inc (2) Resources Subsidiary Inc. Holdings Inc.
100% 100 % Corp. (2) 100 % (3) 100 %(2)
100 % |
|
Bagcraft Corporation
of America (2)
100 %
(1) Pennsylvania Corporation
(2) Delaware Corporation
(3) lllinois Corporation
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
ARTRA GROUP Incorporated on Form S-8 (File No. 2-61375) of our report, which
includes an explanatory paragraph referring to an uncertainty concerning the
Company's ability to continue as a going concern, dated March 26, 1998 on our
audits of the consolidated financial statements and financial statement
schedules of ARTRA GROUP Incorporated as of December 31, 1997 and December 26,
1996, and for each of the three fiscal years in the period ended December 31,
1997, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K. THE AMOUNTS PRESENTED FOR EARNINGS PER SHARE FOR THE YEARS ENDED
DECEMBER 26, 1996 AND DECEMBER 28, 1995 HAVE BEEN RESTATED IN ACCORDANCE WITH
SFAS NO. 128, "EARNINGS PER SHARE," WHICH WAS ADOPTED BY THE COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C> <C> <C>
<PERIOD-TYPE> 12-mos 12-mos 12-mos
<FISCAL-YEAR-END> DEC-31-1997 DEC-26-1996 DEC-28-1995
<PERIOD-START> DEC-27-1996 DEC-29-1995 DEC-30-1994
<PERIOD-END> DEC-31-1997 DEC-26-1996 DEC-28-1995
<EXCHANGE-RATE> 1.000 1.000 1.000
<CASH> 5,991 171 2,347
<SECURITIES> 12,013 22,564 1,427
<RECEIVABLES> 10,279 8,779 11,147
<ALLOWANCES> 275 512 250
<INVENTORY> 15,749 14,967 16,634
<CURRENT-ASSETS> 44,531 46,900 32,181
<PP&E> 49,491 45,414 44,273
<DEPRECIATION> 24,397 20,480 17,335
<TOTAL-ASSETS> 73,206 77,379 77,949
<CURRENT-LIABILITIES> 44,966 50,292 58,546
<BONDS> 0 0 0
9,110 8,678 18,631
0 0 0
<COMMON> 6,223 5,793 5,540
<OTHER-SE> (42,387) (27,383) (44,305)
<TOTAL-LIABILITY-AND-EQUITY> 73,206 77,379 77,949
<SALES> 125,027 120,699 121,879
<TOTAL-REVENUES> 125,027 120,699 121,879
<CGS> 101,527 94,613 102,508
<TOTAL-COSTS> 101,527 94,613 102,508
<OTHER-EXPENSES> 10,736 14,380 26,481
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 12,010 8,005 9,782
<INCOME-PRETAX> 754 3,701 (16,892)
<INCOME-TAX> (19) 152 51
<INCOME-CONTINUING> 773 3,549 (16,943)
<DISCONTINUED> 0 0 10
<EXTRAORDINARY> 0 9,424 14,030
<CHANGES> 0 0 0
<NET-INCOME> 773 12,973 (2,903)
<EPS-PRIMARY> (.04) 1.59 (.63)
<EPS-DILUTED> (.04) 1.51 (.63)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION ORINGINALLY EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIODS ENDED MARCH 27, 1997, JUNE 26, 1997 AND SEPTEMBER 25,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORMS 10-Q. THE
AMOUNTS PRESENTED FOR EARNINGS PER SHARE HAVE BEEN RESTATED IN ACCORDANCE WITH
SFAS NO. 128, "EARNINGS PER SHARE," WHICH WAS ADOPTED BY THE COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1997 AND FOR ALL APPLICABLE PRIOR PERIODS.
</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C> <C> <C>
<PERIOD-TYPE> 3-mos 6-mos 9-mos
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> DEC-27-1996 DEC-27-1996 DEC-27-1996
<PERIOD-END> MAR-27-1997 JUN-26-1997 SEP-25-1997
<EXCHANGE-RATE> 1.000 1.000 1.000
<CASH> 48 226 291
<SECURITIES> 0 0 12,845
<RECEIVABLES> 9,721 10,794 10,833
<ALLOWANCES> 497 205 227
<INVENTORY> 19,356 18,241 16,270
<CURRENT-ASSETS> 44,225 42,271 42,521
<PP&E> 47,678 48,305 48,859
<DEPRECIATION> 21,464 22,469 23,493
<TOTAL-ASSETS> 74,633 72,604 72,028
<CURRENT-LIABILITIES> 50,592 56,890 60,374
<BONDS> 0 0 0
8,895 9,124 8,878
0 0 0
<COMMON> 5,920 5,920 5,955
<OTHER-SE> (36,332) (43,331) (51,462)
<TOTAL-LIABILITY-AND-EQUITY> 74,633 72,604 72,028
<SALES> 28,461 60,274 92,599
<TOTAL-REVENUES> 28,461 60,274 92,599
<CGS> 22,394 48,113 74,498
<TOTAL-COSTS> 22,394 48,113 74,498
<OTHER-EXPENSES> 7,621 10,468 15,625
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,503 5,494 8,700
<INCOME-PRETAX> (1,554) (3,801) (6,224)
<INCOME-TAX> (201) (41) (153)
<INCOME-CONTINUING> (1,353) (3,842) (6,071)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,353) (3,842) (6,071)
<EPS-PRIMARY> (.21) (.56) (.87)
<EPS-DILUTED> (.21) (.56) (.87)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION ORINGINALLY EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIODS ENDED MARCH 28, 1996, JUNE 27, 1996 AND SEPTEMBER 26,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORMS 10-Q. THE
AMOUNTS PRESENTED FOR EARNINGS PER SHARE HAVE BEEN RESTATED IN ACCORDANCE WITH
SFAS NO. 128, "EARNINGS PER SHARE," WHICH WAS ADOPTED BY THE COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1997 AND FOR ALL APPLICABLE PRIOR PERIODS.
</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C> <C> <C>
<PERIOD-TYPE> 3-mos 6-mos 9-mos
<FISCAL-YEAR-END> DEC-26-1996 DEC-26-1996 DEC-26-1996
<PERIOD-START> DEC-29-1995 DEC-29-1995 DEC-29-1995
<PERIOD-END> MAR-28-1996 JUN-27-1996 SEP-26-1996
<EXCHANGE-RATE> 1.000 1.000 1.000
<CASH> 71 987 99
<SECURITIES> 0 0 0
<RECEIVABLES> 10,705 10,790 9,372
<ALLOWANCES> 203 227 301
<INVENTORY> 17,174 15,345 15,211
<CURRENT-ASSETS> 28,340 27,821 25,489
<PP&E> 44,680 45,132 45,645
<DEPRECIATION> 18,009 18,898 19,795
<TOTAL-ASSETS> 78,144 104,261 86,131
<CURRENT-LIABILITIES> 41,913 39,483 36,368
<BONDS> 0 0 0
18,226 18,746 21,511
0 0 0
<COMMON> 5,625 5,625 5,777
<OTHER-SE> (31,096) (890) (17,381)
<TOTAL-LIABILITY-AND-EQUITY> 78,144 104,261 86,131
<SALES> 28,402 60,765 90,162
<TOTAL-REVENUES> 28,402 60,765 90,162
<CGS> 23,141 48,856 71,710
<TOTAL-COSTS> 23,141 48,856 71,710
<OTHER-EXPENSES> 3,311 5,456 9,472
<LOSS-PROVISION> 0 50 0
<INTEREST-EXPENSE> 1,747 3,484 5,370
<INCOME-PRETAX> 203 2,969 3,610
<INCOME-TAX> 0 50 87
<INCOME-CONTINUING> 203 2,919 3,523
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 9,424 9,424 9,424
<CHANGES> 0 0 0
<NET-INCOME> 9,627 12,343 12,947
<EPS-PRIMARY> 1.27 1.59 1.63
<EPS-DILUTED> 1.22 1.51 1.55
</TABLE>
EXHIBIT 10.1
Dated as of February 27, 1998
by and between
BAGCRAFT CORPORATION OF AMERICA
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION
as Agent and as Lender
<PAGE>
TABLE OF CONTENTS
1. AMOUNT AND TERMS OF CREDIT........................................1
1.1 Revolving Credit Advances................................1
1.2 Term Loans...............................................2
1.3 Capital Expenditure Loan.................................5
1.4 Swing Line Facility......................................6
1.5 Letters of Credit........................................7
1.6 Prepayment...............................................7
1.7 Single Loan..............................................9
1.8 Use of Proceeds..........................................9
1.9 Interest.................................................9
1.10 Eligible Accounts.......................................12
1.11 Eligible Inventory......................................12
1.12 Fees....................................................12
1.13 Cash Management Systems.................................12
1.14 Receipt of Payments.....................................12
1.15 Application and Allocation of Payments..................13
1.16 Loan Account and Accounting.............................14
1.17 Indemnity...............................................14
1.18 Access..................................................15
1.19 Taxes...................................................16
1.20 Capital Adequacy and Other Adjustments..................16
1.21 Amendment and Restatement...............................18
2. CONDITIONS PRECEDENT.............................................18
2.1 Conditions to Initial Loans, Advances
and Letter of Credit Obligations........................18
2.2 Further Conditions to each Loan,
Advance and Letter of Credit Obligation.................19
2.3 Further Conditions to Each
Capital Expenditure Advance.............................20
3. REPRESENTATIONS AND WARRANTIES...................................22
3.1 Corporate Existence; Compliance with Law................22
3.2 Executive Offices.......................................22
3.3 Corporate Power Authorization,
Enforceable Obligations.................................22
3.4 Financial Statements and Projections....................23
3.5 Collateral Reports......................................23
3.6 Material Adverse Effect.................................23
3.7 Ownership of Property; Liens............................23
3.8 Restrictions; No Default................................24
3.9 Labor Matters...........................................24
3.10 Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness......................24
3.11 Government Regulation...................................25
3.12 Margin Regulations......................................25
3.13 Taxes...................................................25
3.14 ERISA...................................................26
3.15 No Litigation...........................................27
i
<PAGE>
3.16 Brokers.................................................27
3.17 Employment Matters......................................27
3.18 Patents, Trademarks, Copyrights and Licenses............28
3.19 Full Disclosure.........................................28
3.20 Hazardous Materials.....................................28
3.21 Insurance Policies......................................29
3.22 Deposit and Disbursement Accounts.......................29
3.23 Government Contracts....................................29
3.24 Customer and Trade Relations............................29
3.25 Agreements and Other Documents..........................29
3.26 Kansas Indebtedness.....................................29
4. FINANCIAL STATEMENTS AND INFORMATION.............................30
4.1 Reports and Notices.....................................30
4.2 Communication with Accountants..........................30
5. AFFIRMATIVE COVENANTS............................................30
5.1 Maintenance of Existence and Conduct of Business........30
5.2 Payment of Obligations..................................30
5.3 Books and Records.......................................31
5.4 Litigation..............................................31
5.5 Insurance...............................................31
5.6 Compliance with Laws....................................32
5.7 Agreements..............................................32
5.8 Supplemental Disclosure.................................32
5.9 Employee Plans..........................................33
5.10 Environmental Matters...................................33
5.11 Landlords' Agreements, Bailee Letters
and Mortgagee Agreements................................33
5.12 Leased Locations of Collateral..........................34
5.13 Subsidiaries............................................34
5.14 Maintenance of Equipment and Fixtures...................34
5.15 Purchase Offers.........................................34
5.16 Board of Directors......................................34
5.17 ARTRA Tax Loss Carryforwards............................34
6. NEGATIVE COVENANTS...............................................34
6.1 Mergers, Etc.....................................................35
6.2 Investments; Loans and Advances.........................35
6.3 Indebtedness............................................35
6.4 Employee Loans and Transactions.........................35
6.5 Capital Structure and Business..........................36
6.6 Guaranteed Indebtedness.................................36
6.7 Liens...................................................36
6.8 Sale of Assets..........................................36
6.9 Events of Default.......................................37
ii
<PAGE>
6.10 ERISA...................................................37
6.11 Financial Covenants.....................................37
6.12 Hazardous Materials.....................................37
6.13 SaleLeasebacks..........................................38
6.14 Cancellation of Indebtedness............................38
6.15 Restricted Payments.....................................38
6.16 Leases..................................................38
6.17 Composition.............................................38
6.18 Accounting Changes......................................38
6.19 Change of Corporate Name................................38
6.20 Sale of Stock...........................................38
6.21 Cash Management.........................................38
6.22 No Impairment of Upstreaming............................39
6.23 No Amendment............................................39
6.24 No Change in Management.................................39
6.25 Management Agreements...................................39
6.26 Overriding Agreements...................................39
7. TERM.............................................................39
7.1 Termination.............................................39
7.2 Survival of Obligations Upon Termination
of Financing Arrangements...............................39
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES...........................40
8.1 Events of Default.......................................40
8.2 Remedies................................................43
8.3 Waivers by Borrower.....................................43
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT..............44
9.1 Assignment and Participations...........................44
9.2 Appointment of Agent....................................45
9.3 Agent's Reliance, Etc...................................46
9.4 GE Capital and Affiliates...............................47
9.5 Lender Credit Decision..................................47
9.6 Indemnification.........................................47
9.7 Successor Agent.........................................48
9.8 Setoff and Sharing of Payments..........................48
9.9 Advances; Payments; NonFunding Lenders;
Information.............................................49
10. MISCELLANEOUS....................................................51
10.1 Successors and Assigns..................................51
10.2 Complete Agreement; Modification of Agreement...........51
10.3 Amendments and Waivers..................................51
10.4 Fees and Expenses.......................................54
10.5 No Waiver...............................................55
10.6 Remedies................................................55
iii
<PAGE>
10.7 Severability............................................55
10.8 Conflict of Terms.......................................55
10.9 Authorized Signature....................................56
10.10 GOVERNING LAW...........................................56
10.11 Notices.................................................57
10.12 Section Titles..........................................57
10.13 Counterparts............................................57
10.14 MUTUAL WAIVER OF JURY TRIAL.............................57
10.15 Reinstatement...........................................58
10.16 Advice of Counsel.......................................58
10.17 Confidentiality.........................................58
iv
<PAGE>
INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Term Note
Exhibit E - Form of Notice of Capital Expenditure Advance
Exhibit F - Form of Capital Expenditure Advance
Compliance Certificate
Exhibit G - Form of Capital Expenditure Loan Note
Exhibit H - Form of Swing Line Note
Exhibit I - Form of Notice of Conversion/Continuation
Exhibit J - Form of Assignment Agreement
Schedule 3.2 - Executive Offices
Schedule 3.7 - Real Estate and Leases
Schedule 3.9 - Labor Matters
Schedule 3.10 - Ventures, Subsidiaries, Affiliates;
Outstanding Stock and Indebtedness
Schedule 3.13 - Tax Matters
Schedule 3.14 - ERISA Plans
Schedule 3.15 - Litigation
Schedule 3.17 - Employment Matters
Schedule 3.18 - Intellectual Property
Schedule 3.20 - Hazardous Materials
Schedule 3.21 - Insurance Policies
Schedule 3.22 - Deposit and Disbursement Accounts
Schedule 3.23 - Government Contracts
Schedule 5.1 - Trade Names
Schedule 6.3 - Indebtedness
Schedule 6.4 - Affiliate and Employee Loans, Transactions and Agreements
Schedule 10.8 - Authorized Signatures
Annex A - Definitions
Annex B - Letters of Credit
Annex C - Cash Management Systems
Annex D - Schedule of Documents
Annex E - Responsible Individual
Annex F - Eligible Accounts
Annex G - Eligible Inventory
Annex H - Insurance Standards
Annex I - Financial Statements and Projections
Annex J - Collateral Reports
Annex K - Financial Covenants
Annex L - Notice Addresses
Annex M - Wire Transfer information
Annex N - Commitments
v
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
February 27, 1998, is by and between BAGCRAFT CORPORATION OF AMERICA, a Delaware
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (in its individual capacity, "GE Capital"), for itself, as Lender,
and as Agent for Lenders.
RECITALS
A. The parties hereto are parties to an Amended and Restated Credit Agreement
dated as of December 30, 1996 (as heretofore amended, supplemented or otherwise
modified, the "Prior Credit Agreement") pursuant to which Lenders provided to
Borrower aggregate commitments of up to Fifty Million Five Hundred Thousand
Dollars ($50,500,000), subject to the terms and conditions set forth therein.
B. The parties hereto desire to amend and restate the Prior Credit Agreement and
the "Obligations" (as defined therein) to reflect continued aggregate
commitments of up to Fifty Million Five Hundred Thousand Dollars ($50,500,000)
provided by Lenders to Borrower, subject to the terms and conditions set forth
herein.
C. Capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the meanings ascribed to them in Annex A. All Schedules,
Exhibits, Annexes and other attachments hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together with this
Agreement, shall constitute but a single agreement. These Recitals shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Revolving Credit Advances. Upon and subject to the terms and
conditions hereof, each Lender agrees to make available, from time to time,
until the Commitment Termination Date, for Borrower's use and upon the request
of Borrower therefor, advances (each, a "Revolving Credit Advance") against
Eligible Accounts and Eligible Inventory in an aggregate amount outstanding
which, pursuant to Section 1.1(b), shall not at any given time exceed the lesser
at such time of (i) the Maximum Revolving Credit Loan minus the sum of
outstanding Letter of Credit Obligations, and (ii) an amount equal to the
Borrowing Base minus the sum of outstanding Letter of Credit Obligations
("Borrowing Availability"), in each case less the Swing Line Loan outstanding at
such time and such reserves as Agent may deem appropriate from time to time in
its sole and absolute discretion. Until all amounts outstanding in respect of
the Revolving Credit Loan shall become due and payable on the Commitment
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1(a). Each Revolving Credit Advance shall be made on notice
by Borrower to the individual responsible for Borrower as identified on Annex E
at the address specified thereon, given no later than (1) 11:30 a.m. (Chicago
time) on the Business Day of the proposed Revolving Credit Advance, in the case
of an Index Rate Loan and (2) 11:30
<PAGE>
a.m. (Chicago time) on the date which is three Business Days prior to the
proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice
(a "Notice of Revolving Credit Advance") shall be substantially in the form of
Exhibit A, specifying therein the requested date, the amount of such Revolving
Credit Advance, and such other information as may be required by Agent and shall
be given in writing (by telecopy, telex or cable) or by telephone confirmed
immediately in writing. If Borrower desires to have the Revolving Credit Advance
bear interest by reference to a LIBOR Rate, it must comply with Section 1.9(f).
Agent shall be entitled to rely upon, and shall be fully protected under this
Agreement in relying upon, any Notice of Revolving Credit Advance believed by
Agent to be genuine and to assume that each Person executing and delivering the
same was duly authorized unless the responsible individual, or a designee
thereof, acting thereon for Agent shall have, at the time of reliance thereon,
actual knowledge to the contrary.
(b) Borrower shall execute and deliver to each Lender a note to
evidence the Revolving Credit Loan, such note to be in the principal amount of
the Revolving Loan Commitment of such Lender, dated the Closing Date and
substantially in the form of Exhibit C (each, as executed and as it may be
amended, restated, supplemented or otherwise modified from time to time, a
"Revolving Credit Note" and, collectively, the "Revolving Credit Notes"). The
Revolving Credit Notes shall represent the obligation of Borrower to pay the
amount of the Maximum Revolving Credit Loan or, if less, the aggregate unpaid
principal amount of all Revolving Credit Advances made by Lenders to Borrower
and all other Obligations with interest thereon as prescribed in Section 1.9.
The date and amount of each Revolving Credit Advance and each payment of
principal with respect thereto shall be recorded on the books and records of
Agent, which books and records shall constitute prima facie evidence of the
accuracy of the information therein recorded. The entire unpaid balance of the
Revolving Credit Loan shall be immediately due and payable on the Commitment
Termination Date.
1.2 Term Loans. (a) Upon and subject to the terms and conditions
hereof, each Lender agrees to provide its Pro Rata Share of a term loan to
Borrower on the Closing Date, in the amount of Twenty Million Dollars
($20,000,000) ("Term Loan A"). Amounts repaid under Term Loan A may not
thereafter be reborrowed. Borrower shall pay the principal amount of Term Loan A
in consecutive installments on the twentieth day of March, June, September and
December of each year (each, a "Payment Date"), commencing March 20, 1998, as
follows:
Payment Date Installment Amount
Each of the four (4) $300,000
Payment Dates occurring
from March 20, 1998
through December 20, 1998
Each of the four (4) $450,000
Payment Dates occurring
from March 20, 1999
through December 20, 1999
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Each of the four (4) $1,375,000
Payment Dates occurring
from March 20, 2000
through December 20, 2000
Each of the four (4) $1,375,000
Payment Dates occurring
from March 20, 2001
through December 20, 2001
Each of the four (4) $1,500,000
Payment Dates occurring
from March 20, 2002
through December 20, 2002
Notwithstanding anything to the contrary contained herein or in the Term Loan A
Notes, the then entire unpaid balance of Term Loan A shall be immediately due
and payable upon the first to occur of the (i) Commitment Termination Date and
(ii) acceleration of the Revolving Credit Loan.
Borrower shall execute and deliver to each Lender a note to
evidence Term Loan A, such note to be in a principal amount equal to the amount
of Term Loan A provided by such Lender, dated the Closing Date and substantially
in the form of Exhibit D (each, as executed and as it may be amended, restated,
supplemented or otherwise modified and in effect from time to time, a "Term Loan
A Note" and, collectively, the "Term Loan A Notes"). The Term Loan A Notes shall
represent the obligation of Borrower to pay the amount of Term Loan A and all
other obligations with interest thereon as prescribed in Section 1.9. The date
and amount of each payment of principal and interest on Term Loan A 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) Upon and subject to the terms and conditions hereof, each
Lender agrees to provide its Pro Rata Share of a term loan to Borrower on the
Closing Date, in the amount of Five Million Dollars ($5,000,000) ("Term Loan
B"). Amounts repaid under Term Loan B may not thereafter be reborrowed. Borrower
shall pay the principal amount of Term Loan B in consecutive installments on
each Payment Date, commencing March 20, 1998, as follows:
Payment Date Installment Amount
Each of the twenty (20) $12,500
Payment Dates
occurring from March 20, 1998
through December 20, 2002
Each of the four (4) $1,187,500
Payment Dates occurring
from March 20, 2003
through December 20, 2003
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Notwithstanding anything to the contrary contained herein or in the Term Loan B
Notes, the then entire unpaid balance of Term Loan B shall be immediately due
and payable upon the first to occur of the (i) Commitment Termination Date and
(ii) acceleration of the Revolving Credit Loan.
Borrower shall execute and deliver to each Lender a note to
evidence Term Loan B, such note to be in a principal amount equal to the amount
of Term Loan B provided by such Lender, dated the Closing Date and substantially
in the form of Exhibit D (each, as executed and as it may be amended, restated,
supplemented or otherwise modified and in effect from time to time, a "Term Loan
B Note" and, collectively, the "Term Loan B Notes"). The Term Loan B Notes shall
represent the obligation of Borrower to pay the amount of Term Loan B and all
other obligations with interest thereon as prescribed in Section 1.9. The date
and amount of each payment of principal and interest on Term Loan B 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.
(c) Upon and subject to the terms and conditions hereof, each
Lender agrees to provide its Pro Rata Share of a term loan to Borrower on the
Closing Date, in the amount of Seven Million Five Hundred Thousand Dollars
($7,500,000) ("Term Loan C"). Amounts repaid under Term Loan C may not
thereafter be reborrowed. Borrower shall pay the principal amount of Term Loan C
in consecutive installments on each Payment Date, commencing March 20, 1998, as
follows:
Payment Date Installment Amount
Each of the twenty-four (24) $18,750
Payment Dates
occurring from March 20, 1998
through December 20, 2003
Each of the four (4) $1,762,500
Payment Dates occurring
from March 20, 2004
through December 20, 2004
Notwithstanding anything to the contrary contained herein or in the Term Loan C
Notes, the then entire unpaid balance of Term Loan C shall be immediately due
and payable upon the first to occur of the (i) Commitment Termination Date and
(ii) acceleration of the Revolving Credit Loan.
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 Closing Date and substantially
in the form of Exhibit D (each, as executed and as it may be amended, restated,
supplemented or otherwise modified and in effect from time to time, a "Term Loan
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 1.9. The date
and amount of each payment of principal and interest
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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.
1.3 Capital Expenditure Loan. (a) Subject to the terms and
conditions hereof, each Lender agrees to make available from time to time, until
December 31, 1999, in connection with the financing of Capital Expenditures
constituting the acquisition cost of Equipment, its Pro Rata Share of advances
(each, a "Capital Expenditure Advance") under the Capital Expenditure Loan. The
aggregate Capital Expenditure Advances incurred during the term of this
Agreement shall not exceed the Capital Expenditure Loan Commitment. In addition,
each Capital Expenditure Advance shall not exceed the lesser of (x) the Maximum
Capital Expenditure Advance Amount or (y) Capital Expenditure Loan Availability
as of the date of such Capital Expenditure Advance. Amounts from time to time
borrowed under this Section 1.3(a) and repaid may not be reborrowed. Each
Capital Expenditure Advance must be in a minimum amount of $500,000 and integral
multiples of $500,000 in excess of such amount. Subject to the additional
advance notice requirements set forth in Section 2.3, each Capital Expenditure
Advance shall be made on notice by Borrower to the individual responsible for
Borrower as identified on Annex E at the address specified thereon, given no
later than (1) 11:30 a.m. (Chicago time) on the Business Day of the proposed
Capital Expenditure Advance, in the case of an Index Rate Loan and (2) 11:30
a.m. (Chicago time) on the date which is two Business Days prior to the proposed
Capital Expenditure Advance, in the case of a LIBOR Loan. Each such notice (a
"Notice of Capital Expenditure Advance") shall be substantially in the form of
Exhibit E, specifying therein the requested date, the amount of such Capital
Expenditure Advance, and such other information as may be required by Agent and
shall be given in writing (by telecopy, telex or cable) or by telephone
confirmed immediately in writing. If Borrower desires to have the Capital
Expenditure Advance bear interest by reference to a LIBOR Rate, it must comply
with Section 1.9(f). Agent shall be entitled to rely upon, and shall be fully
protected under this Agreement in relying upon, any Notice of Capital
Expenditure Advance believed by Agent to be genuine and to assume that each
Person executing and delivering the same was duly authorized unless the
responsible individual, or a designee thereof, acting thereon for Agent shall
have, at the time of reliance thereon, actual knowledge to the contrary.
(b) Borrower shall execute and deliver to each Lender a note
to evidence the Capital Expenditure Loan, such note to be in the maximum
principal amount of the Capital Expenditure Loan Commitment of such Lender,
dated the Closing Date and substantially in the form of Exhibit G (each, as
executed and as it may be amended, restated, supplemented or otherwise modified
from time to time, a "Capital Expenditure Loan Note" and, collectively, the
"Capital Expenditure Loan Notes"). The Capital Expenditure Loan Notes shall
represent the obligation of Borrower to pay the amount of the Capital
Expenditure Loan Commitment or, if less, the aggregate unpaid principal amount
of the Capital Expenditure Loan made by Lenders to Borrower and all other
Obligations with interest thereon as prescribed in Section 1.9. Borrower shall
pay the principal amount of each Capital Expenditure Advance in equal
installments on twelve (12) consecutive Payment Dates, commencing with the first
Payment Date to occur after the making of such Capital Expenditure Advance. The
date and amount of each Capital Expenditure Advance and each payment of
principal with respect thereto shall be recorded on the books and records of
Agent, which books and records shall constitute prima facie evidence of the
accuracy of the information therein recorded. Notwithstanding the foregoing, the
entire unpaid balance of the Capital
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Expenditure Loan shall be immediately due and payable on the Commitment
Termination Date, if not sooner paid in full.
1.4 Swing Line Facility. (a) Agent shall notify the Swing
Line Lender upon Agent's receipt of any Notice of Revolving Credit Advance.
Subject to the terms and conditions hereof, the Swing Line Lender may, in its
discretion, make available from time to time until the Commitment Termination
Date advances (each, a "Swing Line Advance") in accordance with any such notice.
The aggregate amount of Swing Line Advances outstanding shall not exceed the
lesser of (i) the Borrowing Base minus the sum of the Revolving Credit Loan and
Letter of Credit Obligations outstanding at such time and reserves established
by Agent in accordance with this Agreement and (ii) the Swing Line Commitment
("Swing Line Availability"). Until the Commitment Termination Date, Borrower may
from time to time borrow, repay and reborrow under this Section 1.4(a). Each
Swing Line Advance shall be made pursuant to a Notice of Revolving Credit
advance delivered by Borrower to Agent in accordance with Section 1.1(a). Those
notices must be given no later than 11:30 a.m. (Chicago time) on the Business
Day of the proposed Swing Line Advance. Notwithstanding any other provision of
this Agreement or the other Loan Documents, the Swing Line Loan shall constitute
an Index Rate Loan. Borrower shall repay the aggregate outstanding principal
amount of the Swing Line Loan upon demand therefor by Agent.
(b) Borrower shall execute and deliver to the Swing Line
Lender a note to evidence the Swing Line Commitment, such note to be in the
principal amount of the Swing Line Commitment of the Swing Line Lender, dated
the Closing Date and substantially in the form of Exhibit H (as executed and as
it may be amended, restated, supplemented or otherwise modified from time to
time, the "Swing Line Note"). The Swing Line Note shall represent the obligation
of Borrower to pay the amount of the Swing Line Commitment or, if less, the
aggregate unpaid principal amount of all Swing Line Advances made to Borrower
with interest thereon as prescribed in Section 1.9. The date and amount of each
Swing Line Advance and each payment of principal with respect thereto shall be
recorded on the books and records of Agent, which books and records shall
constitute prima facie evidence of the accuracy of the information therein
recorded. The entire unpaid balance of the Swing Line Loan shall be immediately
due and payable on the Commitment Termination Date if not sooner paid in full.
(c) Refunding of Swing Line Loans. The Swing Line Lender, at
any time and from time to time in its sole and absolute discretion, may on
behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line
Lender to so act on its behalf) request each Lender (including the Swing Line
Lender) with a Revolving Loan Commitment (each, a "Revolving Lender") to make a
Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an
amount equal to such Revolving Lender's Pro Rata Share of the principal amount
of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding on the date
such notice is given. Unless any of the events described in Sections 8.1(g),
8.1(h) or 8.1(i) shall have occurred (in which event the procedures of Section
1.4(d) shall apply) and regardless of whether the conditions precedent set forth
in this Agreement to the making of a Revolving Credit Advance are then
satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata
Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to
2:00 p.m. (Chicago time), in immediately available funds on the Business Day
next succeeding the date such notice is given. The proceeds of such
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<PAGE>
Revolving Credit Advances shall be immediately paid to the Swing Line Lender and
applied to repay the Refunded Swing Line Loan.
(d) Participation in Swing Line Loans. If, prior to refunding
a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.4(c),
one of the events described in Sections 8.1(g), 8.1(h) or 8.1(i) shall have
occurred, then, subject to the provisions of Section 1.4(e), each Revolving
Lender will, on the date such Revolving Credit Advance was to have been made for
the benefit of Borrower, purchase from the Swing Line Lender an undivided
participation interest in the Swing Line Loan in an amount equal to its Pro Rata
Share of such Swing Line Loan. Upon request, each Revolving Lender will promptly
transfer to the Swing Line Lender, in immediately available funds, the amount of
its participation.
(e) Revolving Lenders' Obligations Unconditional. Each
Revolving Lender's obligation to make Revolving Credit Advances in accordance
with Section 1.4(c) and to purchase participating interests in accordance with
Section 1.4(d) shall be absolute and unconditional and shall not be affected by
any circumstance, including (A) any setoff, counterclaim, recoupment, defense or
other right which such Revolving Lender may have against the Swing Line Lender,
Borrower or any other Person for any reason whatsoever; (B) the occurrence or
continuance of any Default or Event of Default; (C) any inability of Borrower to
satisfy the conditions precedent to borrowing set forth in this Agreement on the
date upon which such participating interest is to be purchased or (D) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing. If any Revolving Lender does not make available to Agent or the
Swing Line Lender, as applicable, the amount required pursuant to Section 1.4(c)
or 1.4(d), as the case may be, the Swing Line Lender shall be entitled to
recover such amount on demand from such Revolving Lender, together with interest
thereon for each day from the date of non-payment until such amount is paid in
full at the Federal Funds Rate for the first two Business Days and at the Index
Rate thereafter.
1.5 Letters of Credit. Subject to the terms and conditions of
this Agreement, including Annex B, Borrower shall have the right to request, and
each Lender agrees to incur or purchase participations in its Pro Rata Share of,
Letter of Credit Obligations in accordance with Annex B.
1.6 Prepayment. In the event that the outstanding balance of
the Revolving Credit Loan shall, at any time, exceed the lesser at such time of
(i) the Maximum Revolving Credit Loan minus the sum of Letter of Credit
Obligations then outstanding and (ii) the Borrowing Base minus the sum of Letter
of Credit Obligations then outstanding, in each case less the Swing Line Loan
then outstanding and reserves established by Agent pursuant to this Agreement,
Borrower shall immediately repay the Revolving Credit Loan in the amount of such
excess.
(b) Borrower shall have the right at any time on thirty (30)
days' prior written notice to Agent to terminate and prepay the entire Revolving
Credit Loan. Upon any such termination and prepayment, Borrower's right to
receive Advances or request the incurrence of Letter of Credit Obligations shall
simultaneously terminate and, notwithstanding anything to the contrary contained
herein or the Notes, the entire outstanding balances of the Term Loans and the
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Capital Expenditure Loan shall be immediately due and payable. Each such
prepayment and termination shall be accompanied by the payment of all accrued
and unpaid interest and all Fees and other remaining Obligations, including the
Letter of Credit Obligations and the then outstanding balances of the Term Loans
and the Capital Expenditure Loan. Any prepayment made pursuant hereto shall be
accompanied by the payment of Fees in accordance with Section 1.12 and LIBOR
funding breakage costs in accordance with Section 1.17(b).
(c) Borrower shall have the right at any time on thirty (30)
days' prior written notice to Agent to voluntarily prepay all or any portion of
any Term Loan or the Capital Expenditure Loan. Any prepayments of less than all
of the outstanding balance of any Term Loan or the Capital Expenditure Loan
shall be applied to the then remaining installments of such Loan in the inverse
order of maturity until paid in full. Any prepayment made pursuant hereto shall
be accompanied by the payment of Fees in accordance with Section 1.12 and LIBOR
funding breakage costs in accordance with Section 1.17(b).
(d) Immediately upon receipt by Borrower of Net Proceeds of
any Asset Disposition, Borrower shall apply all of such Net Proceeds in the
order set forth in Section 1.15(a); provided, however, the foregoing shall not
apply to an Asset Disposition to the extent the Net Proceeds thereof are (i)
used to refund or fund Borrower's purchase within sixty (60) days prior to such
Asset Disposition of capital assets for use in its business or (ii) used by
Borrower within one-hundred eighty (180) days following such Asset Disposition
to purchase capital assets for use in its business (and to the extent such Net
Proceeds exceed the costs of any of the foregoing purchases, such excess Net
Proceeds shall be governed by this Section 1.6(d)). Notwithstanding the
preceding sentence, immediately upon Borrower's receipt of Net Proceeds to be
utilized pursuant to the foregoing proviso, such Net Proceeds shall be applied
to the outstanding principal amount of the Revolving Credit Loan (without
permanent reduction of the Revolving Loan Commitment); provided, that if the
purchases referred to in such proviso are not made by the expiration of the
applicable time periods indicated therein, such Net Proceeds shall then be
applied in the order set forth in Section 1.15(a). All sales or purchases of
assets referred to herein (A) shall be subject to the provisions of Section 6.8
and (B) shall be, or shall have been, as the case may be, offered or sold to, or
purchased from, a Person that is not an Affiliate of Borrower or any of its
Subsidiaries on an arms' length basis.
(e) Immediately upon receipt by Borrower of the proceeds of
any issuance of Stock or debt securities, Borrower shall apply all of such
proceeds, net of underwriting discounts and commissions and other reasonable
costs paid to non-Affiliates in connection therewith, in the order set forth in
Section 1.15(a).
(f) Within sixty (60) days following the end of each Fiscal
Year, Borrower shall prepay the Loans in an amount equal to fifty percent (50%)
of Excess Cash Flow for such Fiscal Year calculated on the basis of Borrower's
financial statements for such Fiscal Year delivered to Agent pursuant to Section
4.1. All such prepayments from Excess Cash Flow shall be applied in the order
set forth in Section 1.15(a). Concurrently with the making of any such payment,
Borrower shall deliver to Agent a certificate of its chief executive officer or
chief financial officer demonstrating its calculation of the amount required to
be paid.
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1.7 Single Loan. All Loans, Advances, Letter of Credit
Obligations and other Obligations of Borrower under this Agreement and the other
Loan Documents shall constitute one (1) obligation of Borrower secured, until
repaid in full and Commitments therefor are terminated, by all of the
Collateral.
1.8 Use of Proceeds. Borrower shall utilize the proceeds of
all Revolving Credit Advances, Swing Line Advances and the Term Loans for the
financing of ordinary working capital needs and Capital Expenditures to the
extent permitted hereunder. Borrower shall utilize the proceeds of all Capital
Expenditure Advances for the financing of Capital Expenditures to the extent
permitted hereunder.
1.9 Interest. Borrower shall pay interest to Agent, for the
ratable benefit of Lenders, in arrears (i) as to any Index Rate Loan, on the
first day of each calendar month to occur while such Loan is outstanding, (ii)
as to any LIBOR Loan, on the last day of the LIBOR Period applicable thereto,
(iii) on the Commitment Termination Date, and (iv) if any interest accrues or
remains payable after the Commitment Termination Date, upon demand by Agent.
(b) If any interest or other payment on any Loan becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day (except as set forth in the
definition of LIBOR Period) and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
(c) Borrower shall be obligated to pay interest to Agent, for
the ratable benefit of Lenders, at a rate equal to (i) the Index Rate plus the
applicable per annum rate (the "Index Margin") set forth in the following grid
or (ii) at Borrower's election in accordance with Section 1.9(f), the applicable
LIBOR Rate plus the applicable per annum rate (the "LIBOR Margin"; the Index
Margin and LIBOR Margin, each a "Margin"), in each case based on the amounts
outstanding from time to time under the applicable Loan.
> 1.5
Margin Ratio < 1.5 but < 1.75 > 1.75
------------ ----- ---------- ------
Revolving Credit Loan
LIBOR Margin 2.50 2.25 2.00
Index Margin 0.00 0.00 0.00
Swing Line Loan
LIBOR Margin n.a. n.a. n.a.
Index Margin 0.00 0.00 0.00
Term Loan A
LIBOR Margin 3.00 2.75 2.50
Index Margin 0.25 0.00 0.00
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Term Loan B
LIBOR Margin 3.50 3.50 3.50
Index Margin 0.75 0.75 0.75
Term Loan C
LIBOR Margin 3.75 3.75 3.75
Index Margin 1.00 1.00 1.00
Capital Expenditure Loan
LIBOR Margin 3.00 2.75 2.50
Index Margin 0.25 0.00 0.00
Initially, the applicable Margin for each Loan shall be the highest rates set
forth in the foregoing grid for such Loan. Thereafter, all determinations of
each Margin will be based on the ratio of (1) EBITDA to (2) the sum of (A) Fixed
Charges plus (B) the greater of (I) actual Capital Expenditures and (II)
$2,500,000 (collectively, the "Margin Ratio"), all as determined for Borrower
and its Subsidiaries on a consolidated basis as of the last day of each Fiscal
Quarter for the trailing twelve (12) Fiscal Months then ended. All adjustments
(up or down) in the Margins will be implemented prospectively on a quarterly
basis, effective on the first day of the first Fiscal Quarter that occurs more
than five (5) days after delivery of Borrower's quarterly Financial Statements
for the preceding Fiscal Quarter to Lenders, commencing with Financial
Statements delivered for the fourth Fiscal Quarter of 1997. Concurrently with
the delivery of such Financial Statements, Borrower shall deliver to Agent and
Lenders a certificate, signed by its chief financial officer, setting forth in
reasonable detail the basis for the determination of each Margin. If a Default
or an Event of Default shall have occurred or be continuing at the time, the
applicable Margin for each Loan shall be the highest rate set forth in the
foregoing grid for such Loan until the first day of the first calendar month
following the date on which such Default or Event of Default is waived or cured.
Thereafter, each Margin shall be as determined based on the foregoing grid.
(d) All computations of interest shall be made by Agent on
the basis of a three hundred and sixty (360) day year, in each case for the
actual number of days occurring in the period for which such interest is
payable. The Index Rate applicable during each calendar month shall be
determined on the last day of the preceding calendar month, and the interest
rate applicable during each calendar month shall be calculated based on the
Index Rate as in effect for that calendar month. Each determination by Agent of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error or bad faith.
(e) (i) So long as any Default or Event of Default not
described in the following clause (ii) shall have occurred and be continuing, at
the election of Agent (or upon the written request of Requisite Lenders)
confirmed by written notice from Agent to Borrower and (ii) so long as any Event
of Default specified in Section 8.1(g), (h) or (i) shall have occurred and be
continuing, the interest rate applicable to the Loans and all other Obligations
shall be increased by two percent (2%) per annum above the rates of interest
otherwise applicable hereunder ("Default Rate").
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(f) So long as no Default or Event of Default shall have
occurred and be continuing, and subject to the additional conditions precedent
set forth in Section 2.2, Borrower shall have the option to (i) request that any
Revolving Credit Advances or Capital Expenditure Loan Advances be made as a
LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans (other
than the Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert
any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs
in accordance with Section 1.17(b) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon the
expiration of the applicable LIBOR Period, in which case the succeeding LIBOR
Period of that continued Loan shall commence on the last day of the LIBOR Period
of the Loan to be continued. Any Loan to be made or continued as, or converted
into, a LIBOR Loan must be in a minimum amount of $1,000,000 and integral
multiples of $500,000 in excess of such amount. Any such election must be made
by 11:30 a.m. (Chicago time) on the third (3rd) Business Day prior to (1) the
date of any proposed Advance which is to bear interest at the LIBOR Rate, (2)
the end of each LIBOR Period with respect to any LIBOR Loans to be continued as
such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to
a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no
election is received with respect to a LIBOR Loan by 11:30 a.m. (Chicago time)
on the third (3rd) Business Day prior to the end of the LIBOR Period with
respect thereto (or if a Default or an Event of Default shall have occurred and
be continuing or the additional conditions precedent set forth in Section 2.2 or
2.3, as applicable, shall not have been satisfied), that LIBOR Loan shall be
converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must
make such election by notice to Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/Continuation") in the
form of Exhibit I.
(g) Notwithstanding anything to the contrary set forth in
this Section 1.9, if, at any time until payment in full of all of the
Obligations, any rate of interest payable hereunder exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "Maximum Lawful
Rate"), then in such event and so long as the Maximum Lawful Rate would be so
exceeded, such rate of interest payable hereunder shall be reduced to be equal
to the Maximum Lawful Rate; provided, however, that if at any time thereafter
the rate of interest payable hereunder is less than the Maximum Lawful Rate,
Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate
until such time as the total interest received by Agent, on behalf of Lenders,
from the making of such advances hereunder is equal to the total interest which
would have been received had the interest rate payable hereunder been (but for
the operation of this paragraph) the interest rate payable since the Closing
Date, as otherwise provided in this Agreement. Thereafter, the interest rate
payable hereunder shall be the applicable rate of interest provided in Section
1.9(c) or (e) of this Agreement, unless and until the rate of interest again
exceeds the Maximum Lawful Rate, in which event this paragraph shall again
apply. In no event shall the total interest received by any Lender pursuant to
the terms hereof exceed the amount which such Lender could lawfully have
received had the interest due hereunder been calculated for the full term hereof
at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated
pursuant to this paragraph, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made. In the event that a court of competent
jurisdiction,
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notwithstanding the provisions of this Section 1.9 (g), shall make a final
determination that a Lender has received interest hereunder or under any of the
other Loan Documents in excess of the Maximum Lawful Rate, Agent shall, to the
extent permitted by applicable law, promptly apply such excess in the order set
forth in Section 1.15(a) and, thereafter, with respect to any excess, to
Borrower or as a court of competent jurisdiction may otherwise order.
1.1 Eligible Accounts. Based on the most recent Schedule of
Accounts delivered by Borrower to Agent and on other information available to
Agent, Agent shall at its sole discretion determine which Accounts shall be
deemed to be "Eligible Accounts" for purposes of determining the amounts, if
any, to be advanced to Borrower under the Revolving Credit Loan. In determining
whether a particular Account constitutes an Eligible Account, Agent shall not
include any such Account which is excluded by the criteria set forth on Annex F.
1.11 Eligible Inventory. Based on the most recent Schedule of
Inventory delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its sole discretion determine which Inventory shall be
deemed to be "Eligible Inventory" for purposes of determining the amounts, if
any, to be advanced to Borrower under the Revolving Credit Loan. In determining
whether any particular Inventory constitutes Eligible Inventory, Agent shall not
include Inventory which is excluded by the criteria set forth on Annex G.
1.12 Fees. Borrower shall pay to GE Capital, individually,
the fees specified in that certain Fee Letter, dated as of the Closing Date (as
from time to time amended, restated, supplemented or otherwise modified, the "GE
Capital Fee Letter"), at the times specified for payment therein.
(b) As additional compensation for Lenders' costs and risks
in making the Revolving Credit Loan available to Borrower, Borrower agrees to
pay to Agent, for the ratable benefit of Lenders, in arrears, on the first
Business Day of each month prior to the Commitment Termination Date and on the
Commitment Termination Date, a fee for Borrower's non-use of available funds
(the "Non-use Fee") in an amount equal to three-eighths of one percent (.375%)
per annum (calculated on the basis of a three hundred and sixty (360) day year
and actual days elapsed) of the difference between the respective daily averages
of (i) the Maximum Revolving Credit Loan (as it may be adjusted and in effect
from time to time hereunder) and (ii) the amount of the Revolving Credit Loan
plus the Swing Line Loan plus the Letter of Credit Obligations outstanding
during the period for which the Non-Use Fee is due.
1.13 Cash Management Systems. Prior to the Closing Date,
Borrower shall have established and will at all times maintain the cash
management systems described on Annex C.
1.14 Receipt of Payments. Borrower shall make each payment
under this Agreement not later than 12:00 noon (Chicago time) on the day when
due in lawful money of the United States of America in immediately available
funds to the Collection Account. For purposes of computing interest and fees and
determining the amount of funds available for borrowing pursuant to Section
1.1(a) and 1.3(a), (a) all payments (including cash sweeps) consisting of cash,
wire or electronic transfers in immediately available funds shall be deemed
received on the date of
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deposit thereof in the Collection Account and notice to Agent of such deposit,
and (b) all payments consisting of checks, drafts, or similar non-cash items
shall be deemed received one (1) Business Day after the date of receipt of good
funds following deposit of any such payment in the Collection Account and notice
to Agent of such deposit.
1.15 Application and Allocation of Payments. So long as no
Default or Event of Default shall have occurred and be continuing, (i) payments
consisting of proceeds of Accounts received in the ordinary course of business
shall be applied to the Swing Line Loan and the Revolving Credit Loan, (ii)
payments matching specific scheduled payments then due shall be applied to those
scheduled payments, (iii) voluntary prepayments shall be applied as set forth in
Section 1.6(b) or 1.6(c), as applicable and (iv) mandatory prepayments shall be
applied as set forth in Sections 1.6(d), 1.6(e) or 1.6(f), as applicable. As to
each other payment, and as to all payments made when a Default or Event or
Default shall have occurred and be continuing or following the Commitment
Termination Date, Borrower hereby irrevocably waives the right to direct the
application of any and all payments at any time or times hereafter received from
or on behalf of Borrower and Borrower hereby irrevocably agrees that Agent shall
have the continuing exclusive right to apply any and all such payments against
the then due and payable Obligations as Agent may deem advisable notwithstanding
any previous entry by Agent upon the Loan Account or any other books and
records. In the absence of a specific determination by Agent with respect
thereto, the same shall be applied in the following order: (1) to unpaid Fees
and expenses; (2) to any interest due and not yet paid hereunder in respect of
Term Loan A; (3) to any interest due and not yet paid hereunder in respect of
the Capital Expenditure Loan; (4) to any interest due and not yet paid hereunder
in respect of the Swing Line Loan; (5) to any interest due and not yet paid
hereunder in respect of the Revolving Credit Loan; (6) to any interest due and
not yet paid hereunder in respect of Term Loan B; (7) to any interest due and
not yet paid hereunder in respect of Term Loan C; (8) to the then remaining
installments of Term Loan A in the inverse order of maturity; (9) to the then
remaining installments of the Capital Expenditure Loan in the inverse order of
maturity (and thereupon the Capital Expenditure Loan Commitment shall be
permanently reduced by the amount of such prepayment); (10) to the outstanding
principal of the Swing Line Loan; (11) to the outstanding principal of the
Revolving Credit Loan (and thereupon the Revolving Loan Commitment shall be
permanently reduced by the amount of such prepayment); (12) to any Letter of
Credit Obligations to provide cash collateral therefor, until fully cash
collateralized, in the manner set forth in Annex B; (13) to the then remaining
outstanding balance of Term Loan B; (14) to the then remaining outstanding
balance of Term Loan C; and (xiii) to all other unpaid Obligations. Agent is
authorized to, and, upon the expiration of the applicable time period, if any,
set forth in Section 8.1, at its option may, make or cause to be made Revolving
Credit Advances on behalf of Borrower for payment of all Fees, expenses,
Charges, costs, principal, interest, or other Obligations owing by Borrower
under this Agreement or any of the other Loan Documents if and to the extent
Borrower fails to promptly pay any such amounts as and when due, even if such
Revolving Credit Advance would cause total Revolving Credit Advances and Swing
Line Advances to exceed Borrowing Availability or the Maximum Revolving Credit
Loan amount. At Agent's option and to the extent permitted by law, any advances
so made shall be deemed Revolving Credit Advances constituting part of the
Revolving Credit Loan hereunder.
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1.16 Loan Account and Accounting. Agent shall maintain a loan
account (the "Loan Account") on its books to record: all Advances and payments
made under Letter of Credit Obligations, all payments made by Borrower and all
other appropriate debits and credits as provided in this Agreement with respect
to the Obligations. All entries in the Loan Account shall be made in accordance
with Agent's customary accounting practices as in effect from time to time.
Borrower shall pay all Obligations as such amounts become due or are declared
due pursuant to the terms of this Agreement.
The balance in the Loan Account, as recorded on Agent's most
recent printout or other written statement, shall be presumptive evidence of the
amounts due and owing to Agent and Lenders by Borrower; provided, that, any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's obligations to pay the Obligations. Agent shall render to
Borrower a monthly accounting of transactions under the Loans, setting forth the
balance of the Loan Account. Each and every such accounting shall (absent
manifest error) be deemed final, binding and conclusive upon Borrower in all
respects as to all matters reflected therein, unless Borrower, within thirty
(30) days after the date any such accounting is rendered, shall notify Agent in
writing of any objection which Borrower may have to any such accounting,
describing the basis for such objection with specificity. In that event, only
those items expressly objected to in such notice shall be deemed to be disputed
by Borrower. Agent's determination, based upon the facts available, of any item
objected to by Borrower in such notice shall be presumptively correct, unless
Borrower shall further object to such determination within a reasonable period
of time thereafter.
1.17 Indemnity. Borrower shall indemnify and hold each of
Agent, Lenders and their respective Affiliates, officers, directors, employees,
attorneys, agents and representatives (each, an "Indemnified Person"), harmless
from and against any and all suits, actions, proceedings, claims, damages,
losses, liabilities and expenses (including attorneys' fees and disbursements
and other costs of investigation or defense, including those incurred upon any
appeal) which may be instituted or asserted against or incurred by any such
Indemnified Person as the result of credit having been extended under this
Agreement and the other Loan Documents or in connection with or arising out of
the transactions contemplated hereunder and thereunder, including any and all
Environmental Liabilities and costs; provided, that Borrower shall not be liable
for any indemnification to such Indemnified Person to the extent that any such
suit, action, proceeding, claim, damage, loss, liability or expense results
solely from such Indemnified Person's gross negligence or willful misconduct, as
finally determined by a court of competent jurisdiction after all possible
appeals have been exhausted. NEITHER AGENT, ANY LENDER NOR ANY OTHER INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(b) To induce Lenders to provide the LIBOR Rate option on the
terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether that repayment is
made pursuant to any provision of this Agreement or any
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other Loan Document or is the result of acceleration, by operation of law or
otherwise); (ii) Borrower shall default in payment when due of the principal
amount of or interest on any LIBOR Loan; (iii) Borrower shall default in making
any borrowing of, conversion into or continuation of LIBOR Loans after Borrower
has given notice requesting the same in accordance herewith; or (iv) Borrower
shall fail to make any prepayment of a LIBOR Loan after Borrower has given a
notice thereof in accordance herewith, Borrower shall indemnify and hold
harmless each Lender from and against all losses, costs and expenses resulting
from or arising from any of the foregoing. Such indemnification shall include
any loss (including loss of margin) or expense arising from the reemployment of
funds obtained by it or from fees payable to terminate deposits from which such
funds were obtained. For the purpose of calculating amounts payable to a Lender
under this Section 1.17(b), each Lender shall be deemed to have actually funded
its relevant LIBOR Loan through the purchase of a deposit bearing interest at
the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 1.17(b). This covenant shall survive the termination
of this Agreement and the payment of the Notes and all other amounts payable
hereunder. As promptly as practicable under the circumstances, each Lender shall
provide Borrower with its written calculation of all amounts payable pursuant to
this Section 1.17(b), and such calculation shall be binding on the parties
hereto unless Borrower shall object in writing within ten (10) Business Days of
receipt thereof, specifying the basis for such objection in detail.
(c) Borrower hereby acknowledges and agrees that Agent (i) is
not now, and has not ever been, in control of any of the Real Estate or of
Borrower's affairs, and (ii) does not have the capacity through the provisions
of the Loan Documents to influence Borrower's conduct with respect to the
ownership, operation or management of any of its real property, including any of
its Real Estate.
1.18 Access. Borrower shall (i) provide full access during
normal business hours, from time to time upon five (5) Business Days' prior
notice, to Agent and any of its officers, employees and agents, as frequently as
Agent determines, in its sole discretion, to be appropriate (unless a Default or
Event of Default shall have occurred and be continuing or if access is necessary
to protect or preserve the Collateral, as determined by Agent, in any of which
events Agent and Lenders, and their respective officers, employees, designees,
agents and representatives shall have access at any and all times and without
any notice), to the properties, facilities, books, records, suppliers,
customers, advisors and employees (including officers) of Borrower and its
Subsidiaries, to the Collateral, to the accountants of Borrower and its
Subsidiaries and to the work papers of such accountants. Without limiting the
generality of the foregoing, Borrower shall permit Agent, and any of its
officers, employees, agents and representatives, on two (2) separate occasions
per annum (unless a Default or an Event of Default has occurred and is
continuing or if access is necessary to protect or preserve the Collateral, as
determined by Agent, then, in any of such cases, with respect to Agent and
Lenders, at any and all times) determined by Agent in its sole discretion, to
(i) inspect, audit and make extracts from all of Borrower's and its
Subsidiaries' records, files and books of account and (ii) inspect, review and
evaluate the Accounts, Inventory at Borrower's and its Subsidiaries' locations
and at premises not owned by or leased to Borrower or any Subsidiary of
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Borrower. Representatives of other Lenders may accompany Agent's representatives
on regularly scheduled audits at no charge to Borrower. Borrower shall make
available to Agent, its counsel and advisors, immediately upon Agent's request
therefor, originals or copies of all books, records, board minutes, contracts,
insurance policies, environmental audits, business plans, files, financial
statements (actual and pro forma), filings with federal, state and local
regulatory agencies, and other instruments and documents which Agent may
request. Borrower shall deliver any document or instrument necessary for Agent,
as it may from time to time request, to obtain records from any service bureau
or other Person which maintains records for Borrower, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by Borrower. Borrower shall instruct its certified public
accountants and its banking and other financial institutions to make available
to Agent such information and records as Agent may request. Confidential
information obtained by Agent and Lenders pursuant to this Section 1.18 shall be
subject to Section 10.14.
1.19 Taxes. Any and all payments by Borrower hereunder or
under the Notes shall be made, in accordance with this Section 1.19, free and
clear of and without deduction for any and all present or future Taxes. If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note, (i) the sum payable shall be increased
as much as shall be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
1.19) Agent or Lenders, as applicable, receive an amount equal to the sum they
would have received had no such deductions been made, (ii) Borrower shall make
such deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law.
(b) Borrower shall indemnify and pay, within ten (10) days of
demand therefor, Agent and each Lender for the full amount of Taxes (including
any Taxes imposed by any jurisdiction on amounts payable under this Section
1.19) paid by Agent or such Lender, as appropriate, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
(c) Within thirty (30) days after the date of any payment of
Taxes, Borrower shall furnish to Agent, at its address referred to in Section
10.10, the original or a certified copy of a receipt evidencing payment thereof.
1.20 Capital Adequacy and Other Adjustments.
(a) In the event that any Lender shall have determined that
any law, treaty, governmental (or quasi-governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by any Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), in each case adopted after the Closing Date, from any central bank or
governmental agency or body having jurisdiction does or would have the effect of
increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall
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from time to time within fifteen (15) days after notice and demand from such
Lender (together with the certificate referred to in the next sentence and with
a copy to Agent) pay to Agent, for the account of such Lender, additional
amounts sufficient to compensate such Lender for such reduction; provided,
however, that, notwithstanding the foregoing, Borrower shall have no obligation
to make any such payment in the event, if any, that such notice and demand was
sent by such Lender more than ninety (90) days after it became aware of such
law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order. A certificate as to the amount of such cost and showing the basis of the
computation of such cost submitted by such Lender to Borrower and Agent shall,
absent manifest error, be final, conclusive and binding for all purposes.
(b) Each Lender organized under the laws of a jurisdiction
outside the United States (a "Foreign Lender") as to which payments to be made
under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001
or other applicable form, certificate or document prescribed by the IRS or the
United States certifying as to such Foreign Lender's entitlement to such
exemption (a "Certificate of Exemption"). Prior to becoming a Lender under this
Agreement and within fifteen (15) days after a reasonable written request of
Agent or Borrower from time to time thereafter, each Foreign Lender that becomes
a Lender under this Agreement shall provide a Certificate of Exemption to
Borrower and Agent. No foreign Person may become a Lender hereunder if such
Person is unable to deliver a Certificate of Exemption. If a Foreign Lender does
not provide a Certificate of Exemption to Agent and Borrower within the time
periods set forth above, Borrower shall withhold taxes from payments to such
Foreign Lender at the applicable statutory rate and Borrower shall not be
required to pay any additional amounts as a result of such withholding;
provided, that all such withholding shall cease upon delivery by such Foreign
Lender of a Certificate of Exemption to Agent and Borrower.
(c) In the event Borrower shall be required to pay any
increased cost to any Lender pursuant to Section 1.20(a), Borrower shall be
entitled, by so notifying Agent and such Lender within thirty (30) days after
such Lender notifies Borrower of any such increased cost, to arrange for the
substitution of a new lender for such Lender within sixty (60) days thereafter
pursuant to the relevant provisions of Section 9.1, whereupon, upon the
effectiveness of such substitution, all of such Lender's Pro Rata Share shall be
assigned to such new lender; provided, however, that: (i) such Lender shall be
entitled to withdraw its notice of increased costs within a period of thirty
(30) days from the date of Borrower's notice of substitution, whereupon Borrower
shall no longer be entitled to substitute for such Lender as described above;
(ii) in no event shall Borrower be entitled to substitute for any Lender unless
the net present value of the additional cost to Borrower (including closing
costs) of such substitution is less than the net present value of the additional
cost referred to in this Section 1.20 to Borrower of maintaining such Lender's
Pro Rata Share; and (iii) in all events (other than those described in clause
(i) above), Borrower shall remain liable for the increased costs of such Lender
for the period prior to the actual repayment of such Lender's Pro Rata Share.
(d) Notwithstanding anything to the contrary contained herein,
if the introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, in
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each case, after the Closing Date, for any Lender to make or to continue to fund
or maintain any LIBOR Loan, then, unless that Lender is able to make or to
continue to fund or to maintain such LIBOR Loan at another branch or office of
that Lender without, in that Lender's opinion, adversely affecting it or its
Loans or the income obtained therefrom, on notice thereof and demand therefor by
such Lender to Borrower through Agent, (i) the obligation of such Lender to make
or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower
shall forthwith prepay in full all outstanding LIBOR Loans owing to such Lender,
together with interest accrued thereon, unless Borrower, within five (5)
Business Days after the delivery of such notice and demand, converts all such
Loans into a Loan bearing interest based on the Index Rate.
1.21 Amendment and Restatement. (a) This Agreement amends and
restates in its entirety the Prior Credit Agreement and, upon effectiveness of
this Agreement, the terms and provisions of the Prior Credit Agreement shall,
subject to this Section 1.21, be superseded hereby. All references to "Credit
Agreement" contained in the Loan Documents delivered in connection with the
Prior Credit Agreement shall be deemed to refer to this Agreement.
Notwithstanding the amendment and restatement of the Prior Credit Agreement by
this Agreement, the Obligations outstanding under the Prior Credit Agreement as
of the Closing Date shall remain outstanding and constitute continuing
Obligations hereunder and shall continue to be secured by the Collateral. Such
outstanding Obligations and the Liens securing payment thereof shall in all
respects be continuing, and this Agreement shall not be deemed to evidence or
result in a novation or repayment and re- borrowing of such Obligations. In
furtherance of and without limiting the foregoing, from and after the Closing
Date and except as expressly specified herein, the terms, conditions, and
covenants governing the Obligations outstanding under the Prior Credit Agreement
shall be solely as set forth in this Agreement, which shall supersede the Prior
Credit Agreement in its entirety.
(b) This is the final expression of a credit agreement among
Borrower, Agent and Lenders. This Agreement cannot be contradicted by evidence
of any prior oral credit agreement or of a contemporaneous oral credit agreement
among Borrower, Agent and Lenders. Borrower and Agent affirm that they have no
oral agreement or agreement by course of dealing with respect to the subject
matter hereof.
2. CONDITIONS PRECEDENT
2.1 Conditions to Initial Loans, Advances and Letter of
Credit Obligations. Notwithstanding any other provision of this Agreement and
without affecting in any manner the rights of Agent and Lenders hereunder,
Borrower shall have no rights under this Agreement (but shall have all
applicable obligations hereunder), and no Lender shall be obligated to make any
Advance or Loan or incur any Letter of Credit Obligation, or to take, fulfill,
or perform any other action hereunder, until the following conditions have been
satisfied, in Agent's sole and reasonable discretion, or waived in writing by
Agent:
(a) This Agreement or counterparts hereof shall have been
duly executed by, and delivered to, Borrower, Agent and Lenders.
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(b) Agent shall have received such guaranties, documents,
instruments, agreements and amendments thereto and legal opinions as Agent shall
request in connection with the transactions contemplated by this Agreement and
the other Loan Documents, including all guaranties, documents, instruments,
agreements and legal opinions listed in Annex D, each in form and substance
satisfactory to Agent.
(c) Agent shall have received evidence satisfactory to it
that Borrower has obtained consents and acknowledgments of all Persons whose
consents and acknowledgments may be required, including, but not limited to, all
requisite Governmental Authorities, to the terms, and to the execution and
delivery, of this Agreement, the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby.
(d) Borrower shall have paid to GE Capital all Fees required
to be paid at or prior to the Closing Date under the terms of the GE Capital Fee
Letter.
(e) Since December 31, 1996, there shall have been: (i) no
Material Adverse Effect on the business, operations, financial condition,
prospects or projections of Borrower, the industries in which it operates, the
Collateral, or any of its Subsidiaries; (ii) no litigation will have commenced
which, if successful, could have any such Material Adverse Effect or could
challenge any of the transactions contemplated by this Agreement and the other
Loan Documents; (iii) except as expressly permitted in accordance with the Prior
Credit Agreement, no dividends, distributions, payments, loans, contributions,
fees or other transfers of cash, property or other assets to any stockholders or
Affiliate of Borrower, including ARTRA or its employees, directors, officers or
Affiliates; and (iv) no material increase in liabilities, liquidated or
contingent, and no material decrease in assets of Borrower or any of its
Subsidiaries.
(f) Agent shall have completed its business and legal due
diligence with respect to Borrower and its Subsidiaries and the legal and
corporate structure thereof and the results of such due diligence shall be
satisfactory to Agent, in its sole discretion.
(g) Agent shall have received such other documents as Agent
or any Lender may reasonably request in connection with the transactions
contemplated by this Agreement and the other Loan Documents.
2.2 Further Conditions to each Loan, Advance and Letter of
Credit Obligation. It shall be a further condition to the making of each
Advance, the incurrence of each Letter of Credit Obligation and the continuance
of each Term Loan that the following statements shall be true on the date of
each such advance, incurrence or funding (or any conversion or continuation of
any Loan into or as a LIBOR Loan), as the case may be:
(a) All of Borrower's representations and warranties
contained herein or in any of the other Loan Documents shall be true and correct
on and as of the Closing Date and the date on which each such Advance is made or
such Letter of Credit Advance is incurred, as though made on and as of such
date, except to the extent that any such representation or warranty expressly
relates
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to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement.
(b) Borrower and each of its Subsidiaries shall be in
compliance in all material respects with all of the covenants and other
agreements contained herein or in any of the other Loan Documents.
(c) No event shall have occurred and be continuing, or would
result from the making of any Advance, the incurrence of any Letter of Credit
Obligation or the funding of any Term Loan, as the case may be, which
constitutes or would constitute a Default or an Event of Default.
(d) After giving effect to such Revolving Credit Advance or
Swing Line Advance or the incurrence of such Letter of Credit Obligation, as the
case may be, the aggregate principal amount of the Revolving Credit Loan shall
not exceed the maximum amount permitted by Section 1.6(a).
(e) After giving effect to such Capital Expenditure Advance,
the aggregate principal amount of the Capital Expenditure Loan shall not exceed
the maximum amount permitted by Section 1.3(a).
(f) After giving effect to such Swing Line Advance, the
aggregate principal amount of the Swing Line Loan shall not exceed the maximum
amount permitted by Section 1.4(a).
(g) Each of the conditions set forth in Section 2.1 shall
continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Advance or any
Term Loan, or the request by Borrower for the incurrence by Lenders of any
Letter of Credit Obligation, or the conversion or continuation of any Loan into,
or as, a LIBOR Loan, as the case may be, shall be deemed to constitute, as of
the date of such request or acceptance, (i) a representation and warranty by
Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a
reaffirmation by Borrower of the granting and continuance of Agent's Liens, on
behalf of itself and Lenders, pursuant to the Collateral Documents.
2.3 Further Conditions to Each Capital Expenditure Advance.
It shall be a further condition to the initial and each subsequent Capital
Expenditure Advance that each of the following conditions shall have been
satisfied:
(a) Capital Expenditure Advance Compliance Certificate. At
least five (5) Business Days prior to the funding of any such Capital
Expenditure Advance, Borrower shall deliver to Agent a Capital Expenditure
Advance Compliance Certificate, fully executed by the chief financial officer or
chief executive officer of Borrower. Such Certificate must be in the form of
Exhibit F and must describe the nature and amount of Equipment proposed to be
acquired in connection with a Capital Expenditure Advance and certify that (i)
the proceeds of such Capital
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Expenditure Advance shall be used solely to fund Capital Expenditures
constituting the Hard Costs of such Equipment, (ii) the aggregate amount of such
Capital Expenditure Advance does not exceed the lesser of (x) the Maximum
Capital Expenditure Advance Amount or (y) Capital Expenditure Loan Availability
as of such date, (iii) after giving effect to such Capital Expenditure Advance,
the aggregate principal amount of the Capital Expenditure Advances made during
the term of this Agreement shall not exceed the Capital Expenditure Loan
Commitment and (iv) such Equipment can and shall be used by Borrower in the
ordinary course of its business consistent with past practices.
(b) Additional Requirements. Concurrently with the delivery of
each Capital Expenditure Advance Compliance Certificate (or, in the case of
clause (iv) below, promptly upon receipt by Borrower), Borrower shall deliver to
Agent:
(i) to the extent necessary or requested by Agent, evidence
of the proper filing in all required filing offices of duly executed Code
financing statements or amendments to existing financing statements with respect
to the Equipment acquired with the proceeds of such Advance (and termination or
partial release statements, as required to terminate or release any Liens on
such Equipment at the time of the acquisition thereof by Borrower), and such
other documents, instruments and agreements as Agent may request, including duly
endorsed certificates of title for all titled Equipment, all in form
satisfactory to Agent and perfecting first priority security interests of Agent
on behalf of Lenders in such Equipment.
(ii) if requested by Agent, copies of policies of insurance
and loss payable endorsements in form and substance satisfactory to Agent
regarding the Equipment acquired with the proceeds of such Capital Expenditure
Advance, duly executed, and evidence of the payment of the premiums therefor;
(iii) duly executed originals of a letter of direction from
Borrower addressed to Agent with respect to the disbursement on the applicable
funding date of the proceeds of such Capital Expenditure Advance, which
disbursement shall be made by Agent directly to the seller of the Equipment;
(iv) stamped invoices, delivery and acceptance certificates
and other documentary evidence satisfactory to Agent evidencing the acceptance
and purchase of the applicable Equipment by Borrower; and
(v) such other documents as Agent or any Lender may reasonably
request in connection with such Capital Expenditure Advance.
The request and acceptance by Borrower of the proceeds of any Capital
Expenditure Advance shall be deemed to constitute, as of the date of such
request, (i) a representation and warranty by Borrower that the conditions in
this Section 2.3 have been satisfied and (ii) a reaffirmation by Borrower of the
granting and continuance of Agent's Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.
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REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans and Advances and to incur
the Letter of Credit Obligations, Borrower makes the following representations
and warranties to Agent and each Lender, each and all of which shall be true and
correct as of the date of execution and delivery of this Agreement, and shall
survive the execution and delivery of this Agreement:
3.1 Corporate Existence; Compliance with Law. Borrower and
each of its Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
been duly qualified to conduct business and is in good standing in each other
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, where failure to so qualify could have a
Material Adverse Effect; (ii) has the requisite corporate power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease and to conduct its
business as now, heretofore and proposed to be conducted; (iii) has all
licenses, permits, consents or approvals from or by, and has made all filings
with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct,
where failure to do so could have a Material Adverse Effect; (iv) is in
compliance with its certificate or articles of incorporation and by-laws; and
(v) is in compliance with all applicable provisions of law, where failure to so
comply could have a Material Adverse Effect.
3.2 Executive Offices. The current location of Borrower's
executive office and principal place of business is set forth on Schedule 3.2
and, except as set forth on Schedule 3.2, none of such locations have changed
within the past six (6) months.
3.3 Corporate Power Authorization, Enforceable Obligations.
The execution, delivery and performance by Borrower of the Loan Documents and
all instruments and documents to be delivered by Borrower, to the extent it is a
party thereto, hereunder and thereunder and the creation of all Liens provided
for herein and therein: (i) are within Borrower's corporate power; (ii) have
been duly authorized by all necessary or proper corporate and shareholder
action; (iii) are not in contravention of any provision of Borrower's
certificate or articles or incorporation or bylaws; (iv) will not violate any
law or regulation, or any order or decree of any court or governmental
instrumentality; (v) will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound, including, without limitation, the Kansas Loan documents;
(vi) will not result in the creation or imposition of any Lien upon any of the
property of Borrower other than those in favor of Agent, on behalf of itself and
Lender, all pursuant to the Loan Documents; and (vii) do not require the consent
or approval of any Governmental Authority or any other Person, except those
referred to in Section 2.1(d), all of which will have been duly obtained, made
or complied with prior to the Closing Date. At or prior to the Closing Date,
each of the Loan Documents shall have been duly executed and delivered for the
benefit of or on behalf of Borrower and each shall then constitute a legal,
valid and binding obligation of Borrower, to the extent it is a party thereto,
enforceable against it in accordance with its terms, except as enforceability
may be limited by
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bankruptcy, insolvency or other similar laws affecting the rights of creditors
generally or by application of general principles of equity.
3.4 Financial Statements and Projections. Borrower has
delivered to Agent the Financial Statements and Projections most recently
required to be delivered to Agent as of the Closing Date pursuant to the Prior
Credit Agreement.
3.5 Collateral Reports. Borrower has delivered to Agent all
Collateral Reports most recently required to be delivered to Agent as of the
Closing Date pursuant to the Prior Credit Agreement.
3.6 Material Adverse Effect. Neither Borrower nor any of its
Subsidiaries, as of December 31, 1996, had any obligations, contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the audited Financial
Statements of Borrower and its Subsidiaries as of such date and which could,
alone or in the aggregate, have or result in a Material Adverse Effect. There
has been no material adverse change in the business, assets, operations,
prospects, projections or financial or other condition of Borrower or any of its
Subsidiaries since December 31, 1996. Except as expressly permitted under the
Prior Credit Agreement prior to the Closing Date or under this Agreement (a) no
dividends, advances or other distributions have been declared, paid or made upon
any Stock of Borrower or any of its Subsidiaries and (b) no shares of Stock of
Borrower have been, or are required to be, redeemed, retired, purchased or
otherwise acquired for value.
3.7 Ownership of Property; Liens. Except as described on
Schedule 3.7, the real estate listed on Schedule 3.7 constitutes all of the real
property owned, leased, or used in its business by Borrower or its Subsidiaries.
Borrower and each of its Subsidiaries own good and marketable fee simple title
to: (i) all of its Real Estate, subject to no Liens other than Permitted
Encumbrances, and has valid and marketable leasehold interests in all of its
Leases (both as lessor and lessee, sublessee or assignee), all as described on
Schedule 3.7, and (ii) good and marketable title to, or valid leasehold
interests in, all of its other properties and assets, and none of the properties
and assets of Borrower or any of its Subsidiaries are subject to any Liens,
except Permitted Encumbrances; and Borrower or such Subsidiary has received all
deeds, assignments, waivers, consents, non-disturbance and recognition or
similar agreements, bills of sale and other documents, and duly effected all
recordings, filings and other actions necessary to perfect and, in all material
respects, establish and protect, Borrower's or such Subsidiary's right, title
and interest in and to all such real estate and other assets or property.
Neither Borrower, any of its Subsidiaries nor any other party to any such Lease
described on Schedule 3.7 is in any material default of its obligations
thereunder or has delivered or received any notice of default under any such
Lease, and no event has occurred which, with the giving of notice, the passage
of time or both, would constitute a default under any such Lease. Except as
described on Schedule 3.7, (i) neither Borrower nor any of its Subsidiaries owns
or holds or is obligated under or a party to, any option, right of first refusal
or any other contractual right to purchase, acquire, sell, assign or dispose of
any real property owned or leased by Borrower or such Subsidiary; and (ii) no
portion of any real property owned or leased by Borrower or any of its
Subsidiaries has suffered any material damage by fire or other casualty loss or
a Release which has not heretofore been completely repaired and restored to its
original condition
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or is being remedied. To the best of Borrower's knowledge after good faith and
diligent investigation, except as disclosed on Schedule 3.20 as required
pursuant to Section 3.20, all permits, including environmental air and waste
permits, required to have been issued or appropriate to enable the real property
owned or leased by Borrower or such Subsidiary to be lawfully occupied and used
for all of the purposes for which they are currently occupied and used, have
been lawfully issued and are, as of the Closing Date, in full force and effect.
3.8 Restrictions; No Default. No contract, lease, agreement
or other instrument to which Borrower or any of its Subsidiaries is a party or
by which it or any of its properties or assets is bound or affected and no
provision of applicable law or governmental regulation has or results in a
Material Adverse Effect, or could have or result in a Material Adverse Effect.
Neither Borrower nor any of its Subsidiaries is in default, and to Borrower's or
such Subsidiary's knowledge no third party is in default, under or with respect
to any contract, agreement, lease or other instrument to which it is a party. No
Default or Event of Default has occurred and is continuing or will result from
the consummation of the transactions contemplated by the Loan Documents.
3.9 Labor Matters. There are no strikes or other labor
disputes against Borrower or any of its Subsidiaries that are pending or
threatened. Hours worked by and payment made to employees of Borrower and its
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable federal, state, local or foreign law dealing with such matters.
All payments due from Borrower or any of its Subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of Borrower. Except as set forth on Schedule 3.9, neither Borrower nor any
of its Subsidiaries has any obligation under any collective bargaining agreement
or any employment agreement. There is no organizing activity involving Borrower
or any of its Subsidiaries pending or threatened by any labor union or group of
employees. Except as set forth on Schedule 3.9, there are no representation
proceedings pending or threatened with the National Labor Relations Board, and
no labor organization or group of employees of Borrower or any of its
Subsidiaries has made a pending demand for recognition. There are no complaints
or charges against Borrower or any of its Subsidiaries pending or threatened to
be filed with any federal, state, local or foreign court, governmental agency or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any individual by Borrower or
any of its Subsidiaries. Neither Borrower nor any of its Subsidiaries is a
contractor or subcontractor and, except as set forth on Schedule 3.9, neither
Borrower nor any Subsidiary has a legal obligation to engage in affirmative
action.
3.10 Ventures, Subsidiaries and Affiliates; Outstanding Stock
and Indebtedness. Except as set forth on Schedule 3.10, (i) Borrower has no
subsidiaries, is not engaged in any joint venture or partnership with any other
Person, and or an Affiliate of any other Person, (ii) there are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which any Person may be required to issue or sell any Stock or other equity
security of Borrower, and there are no outstanding stock appreciation rights or
similar arrangements, and (iii) Borrower is the sole direct or indirect
beneficial owner of all of the outstanding capital stock of its Subsidiaries.
All of the issued and outstanding Stock of Borrower is owned, and all of the
stock appreciation rights and similar arrangements granted by Borrower are held,
by each of the Persons named on Schedule 3.10. Except as set forth on Schedule
3.10, there are no outstanding rights to
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purchase, options, warrants or similar rights or agreements pursuant to which
any Person may be required to issue or sell any Stock or other equity security
of any Subsidiary of Borrower, and there are no outstanding stock appreciation
rights or similar arrangements. As of the Closing Date, all outstanding
Indebtedness and all Liens of Borrower and its Subsidiaries are described in
Section 6.3 (including Schedule 6.3) and 6.7, respectively.
3.11 Government Regulation. Neither Borrower nor any of its
Subsidiaries is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940 as amended. Neither
Borrower nor any of its Subsidiaries is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or any other federal or state statute that restricts or limits its
ability to incur Indebtedness or to perform its obligations hereunder, and the
making of the Advances and Loans, and the incurrence of Letter of Credit
Obligations, in each case by Lenders, the application of the proceeds and
repayment thereof by Borrower or such Subsidiary and the consummation of the
transactions contemplated by this Agreement and the other Loan Documents will
not violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.12 Margin Regulations. Neither Borrower nor any of its
Subsidiaries is engaged, nor will it engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin security" within the respective meanings
of each of the quoted terms under Regulation U or G of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") as now and from time to
time hereafter in effect. Neither Borrower nor any of its Subsidiaries owns any
"margin security", as that term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve Board, and none of the proceeds of any Loan,
Advance or Letter of Credit will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the loans or other extensions of credit under this Agreement to be considered a
"purpose credit" within the meaning of Regulation G, T, U or X of the Federal
Reserve Board. Neither Borrower nor any of its Subsidiaries will take or permit
any agent acting on its behalf to take any action which might cause this
Agreement or any other Loan Document or any document or instrument delivered
pursuant hereto to violate any regulation of the Federal Reserve Board.
3.13 Taxes. All federal, state, local and foreign tax
returns, reports and statements, including, but not limited to, information
returns (Form 1120-S) required to be filed by Borrower or any of its
Subsidiaries, have been filed with the appropriate Governmental Authority and
all Charges and other impositions shown thereon to be due and payable have been
paid prior to the date on which any fine, penalty, interest or late charge may
be added thereto for nonpayment thereof, or any such fine, penalty, interest,
late charge or loss has been paid; provided, that, Borrower may in good faith
contest, by proper legal action or proceedings, the validity or amount of any
such Charges or claims, so long as, at the time of commencement of any such
action or proceeding, and during the pendency thereof (i) adequate reserves with
respect thereto are maintained on the books of Borrower, in accordance with
GAAP, (ii) such contest operates to suspend collection of such
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Charges or claims and such contest is maintained and prosecuted continuously and
with diligence, and (iii) Agent has not advised Borrower in writing that Agent
reasonably believes that nonpayment or nondischarge thereof could have or result
in a Material Adverse Effect. Borrower and each of its Subsidiaries has paid
when due and payable all Charges required to be paid by it. Proper and accurate
amounts have been withheld by Borrower and its Subsidiaries from its respective
employees for all periods in full compliance in all material respects with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. Schedule 3.13 sets forth those
taxable years for which Borrower's tax returns are currently being audited by
the IRS or any other applicable Governmental Authority and any assessments or
threatened assessments in connection with such audit, or otherwise currently
outstanding. Except as described on Schedule 3.13, neither Borrower nor any of
its Subsidiaries has executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any Charges. Neither
Borrower nor any of its Subsidiaries has filed a consent pursuant to IRC Section
341(f) or agreed to have IRC Section 341(f) (2) apply to any dispositions of
subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None
of the property owned by Borrower or any of its Subsidiaries is property which
Borrower or such Subsidiary is required to treat as being owned by any other
Person pursuant to the provisions of IRC Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended, and in effect immediately prior to the
enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within
the meaning of the IRC Section 168 (h). Neither Borrower nor any of its
Subsidiaries has agreed or been requested to make any adjustment under IRC
Section 481(a) by reason of a change in accounting method or otherwise. Neither
Borrower nor any of its Subsidiaries have any obligation under any written tax
sharing agreement, except, subject to Section 6.15, the Tax Sharing Agreement.
3.14 ERISA. Neither Borrower nor any of its Subsidiaries has
now, or has ever had, any Pension Plans and neither Borrower nor any of its
Subsidiaries has any liabilities with respect to any Pension Plans. Schedule
3.14 lists all Plans maintained or contributed to by Borrower or any of its
Subsidiaries and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. Each Qualified Plan has been
determined by the IRS to qualify under Section 401 of the IRC, and the trusts
created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and to the best knowledge of Borrower
nothing has occurred which would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the filing of reports required under the IRC or
ERISA which are true and correct as of the date filed, and with respect to each
Plan, other than a Qualified Plan, all required contributions and benefits have
been paid in accordance with the provisions of each such Plan. With respect to
any Qualified Plan, neither Borrower, any of its Subsidiaries nor any ERISA
Affiliate has failed to make any contribution or pay any amount due as required
by Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
With respect to all Retiree Welfare Plans, the present value of future
anticipated expenses pursuant to the latest actuarial projections of liabilities
does not exceed Fifty Thousand Dollars ($50,000), and copies of such latest
projections have been provided to Agent. Neither Borrower nor any of its
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Subsidiaries has engaged in a prohibited transaction, as defined in Section 4975
of the IRC or Section 406 of ERISA, in connection with any Plan, which would
subject Borrower or such Subsidiary (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975 of the IRC or
any other material liability.
(b) Except as set forth on Schedule 3.14: (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) No ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
Borrower or any of its Subsidiaries, threatened claims, actions or lawsuits
(other than claims for benefits in the normal course), asserted or instituted
against (x) any Plan or its assets, (y) any fiduciary with respect to any Plan
or (z) Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to
any Plan; (iv) neither Borrower, any of its Subsidiaries, nor any ERISA
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (v) within
the last five years neither Borrower, any of its Subsidiaries, nor any ERISA
Affiliate has engaged in a transaction which resulted in a Title IV Plan with
Unfunded Liabilities being transferred outside of the "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) Borrower,
each of its Subsidiaries and each ERISA Affiliate have complied with the notice
and continuation coverage requirements of Section 4980B of the IRC and the
regulations thereunder except where the failure to comply could not have or
result in any Material Adverse Effect; and (vii) no liability under any Plan has
been funded, nor has such obligation been satisfied, with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation and the equivalent by each other nationally recognized rating
agency.
3.15 No Litigation. Except as set forth on Schedule 3.15, no
action, claim or proceeding is now pending or, to the knowledge of Borrower or
any of its Subsidiaries, threatened against Borrower or such Subsidiary, at law,
in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, local or foreign government or of any
agency or subdivision thereof, or before any arbitrator or panel of arbitrators,
(i) which challenges Borrower's or such Subsidiary's right, power or competence
to enter into or perform any of its obligations under the Loan Documents, or the
validity or enforceability of any Loan Document or any action taken thereunder,
or (ii) which if determined adversely, could have or result in a Material
Adverse Effect, nor to the best knowledge of Borrower or such Subsidiary does a
state of facts exist which is reasonably likely to give rise to such
proceedings.
3.16 Brokers. No broker or finder acting on behalf of
Borrower or any of its Subsidiaries brought about the obtaining, making or
closing of the loans made pursuant to this Agreement or the transactions
contemplated by the Loan Documents and neither Borrower nor any of its
Subsidiaries has any obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
3.17 Employment Matters. Except as set forth on Schedule
3.17, there are no (i) employment, consulting or management agreements covering
management of Borrower or any of
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its Subsidiaries, or (ii) collective bargaining agreements or other labor
agreements covering any employees of Borrower or any of its Subsidiaries. Except
as furnished pursuant to the Prior Credit Agreement, a true and complete copy of
each such agreement has been furnished to Agent as of the Closing Date.
3.18 Patents, Trademarks, Copyrights and Licenses. Except as
otherwise set forth on Schedule 3.18, Borrower and each of its Subsidiaries owns
all material licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, and trade names necessary to continue to
conduct its business as heretofore conducted by it, now conducted by it and
proposed to be conducted by it, each of which is listed, together with Copyright
Office or Patent and Trademark Office application or registration numbers, where
applicable, on Schedule 3.18. Schedule 3.18 lists all tradenames or other names
under which Borrower and each of its Subsidiaries conducts business. Borrower
and each of its Subsidiaries conducts (or has within the past six (6) years
conducted) its business without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of others. There is no infringement or claim
of infringement by others of any license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property right of
Borrower or any of its Subsidiaries.
3.19 Full Disclosure. No information contained in this
Agreement, any of the other Loan Documents, the Projections, the Financial
Statements, the Collateral Reports or any written statement furnished by or on
behalf of Borrower or any of its Subsidiaries pursuant to the terms of this
Agreement, which has previously been, or is currently being, delivered to Agent,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they were made. The Liens granted to
Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents are
fully perfected first priority Liens in and to the Collateral described therein
and the Liens granted to Agent, on behalf of itself and Lenders, pursuant to the
Mortgages are fully perfected first priority Liens in and to the Mortgaged
Property described therein, subject only to Permitted Encumbrances then
existing. Since December 31, 1996, no event has occurred and is continuing which
has had or could have or result in a Material Adverse Effect.
3.20 Hazardous Materials. Except as set forth on Schedule
3.20, the Real Property is free of contamination from any Hazardous Material. In
addition, Schedule 3.20 discloses potential material environmental liabilities
of Borrower or any of its Subsidiaries of which any of them have knowledge (i)
related to noncompliance with the Environmental Laws, or (ii) associated with
the Real Estate. Neither Borrower nor any of its Subsidiaries has caused or
suffered to occur any Release with respect to any Hazardous Material at, under,
above or within any real property which it owns or leases. Neither Borrower nor
any of its Subsidiaries is involved in operations which could lead to the
imposition of any liability or Lien on it, or any owner of any premises which it
occupies, under any Environmental Law, and neither Borrower nor any of its
Subsidiaries has permitted any tenant or occupant of such premises to engage in
any such activity. Borrower has provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities and Costs, in each case
relating to Borrower and each of its Subsidiaries.
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3.21 Insurance Policies. Schedule 3.21 lists all insurance of
any nature maintained for current occurrences by Borrower and its Subsidiaries,
as well as a summary of the terms of such insurance. Borrower covenants that
such Insurance complies with and shall at all times comply with the standards
set forth on Annex H.
3.22 Deposit and Disbursement Accounts. Schedule 3.22 lists
all banks and other financial institutions at which Borrower or its Subsidiaries
maintains deposits and/or other accounts, including any disbursement accounts,
and such Schedule correctly identifies the name, address and telephone number of
each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number.
3.23 Government Contracts. Except as set forth on Schedule
3.23, neither Borrower nor any of its Subsidiaries is a party to any contract or
agreement with the federal government and none of the Accounts are subject to
the Federal Assignment of Claims Act (31 U.S.C. Section 3727) relative to the
assignment of such Accounts.
3.24 Customer and Trade Relations. There exists no actual or
threatened termination or cancellation of, or any material adverse modification
or change in: the business relationship of Borrower or any of its Subsidiaries
with any customer or group of customers whose purchases individually or in the
aggregate are material to the operations of Borrower, such Subsidiary, or
Borrower and its Subsidiaries taken as a whole; or the business relationship of
Borrower or any of its Subsidiaries with any supplier material to the operations
of Borrower, such Subsidiary, or Borrower and its Subsidiaries taken as a whole.
3.25 Agreements and Other Documents. As of the Closing Date,
Borrower has provided (except as provided under the Prior Credit Agreement) to
Agent, on behalf of Lenders, accurate and complete copies (or summaries) of all
of the following agreements or documents to which Borrower or any of its
Subsidiaries is subject: each Plan; supply agreements not terminable by Borrower
or such Subsidiary, as appropriate, within sixty (60) days following written
notice issued by Borrower or such Subsidiary; purchase agreements not terminable
by Borrower or such Subsidiary, as appropriate, within sixty (60) days following
written notice issued by Borrower or such Subsidiary; leases of real property;
any lease of equipment having a remaining term of one (1) year or longer and
requiring aggregate rental and other payments in excess of Fifty Thousand
Dollars ($50,000) per annum; licenses and permits necessary for the conduct of
Borrower's or such Subsidiary's businesses; employment, consulting, severance,
"golden parachute" and other similar agreements with any officer of Borrower or
such Subsidiary; instruments or documents evidencing Indebtedness of Borrower or
such Subsidiary and any security interest granted by Borrower or such Subsidiary
with respect thereto; and instruments and agreements evidencing the issuance of
any equity securities, warrants, rights or options to purchase equity securities
of Borrower or such Subsidiary.
3.26 Kansas Indebtedness. No default or event of default has
occurred and is continuing under the Kansas Loan Documents or will result
thereunder from the consummation of the transactions contemplated by the Loan
Documents.
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FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. Borrower covenants and agrees that
from and after the Closing Date and until the Commitment Termination Date, it
shall deliver to Agent and/or Lenders, as required, the Financial Statements,
notices and Projections at the times, to the Persons and in the manner set forth
on Annex I.
(b) Borrower covenants and agrees that from and after the
Closing Date, it shall deliver to Agent and/or Lenders, as required, the various
Collateral Reports at the times, to the Persons and in the manner set forth on
Annex J.
4.2 Communication with Accountants. Borrower authorizes Agent
to communicate directly with its independent certified public accountants and
tax advisors, including Coopers & Lybrand, and authorizes those accountants and
advisors to disclose to Agent any and all financial statements and other
supporting financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other affairs of
Borrower or any of its Subsidiaries. To permit Borrower's attendance thereat,
Agent shall provide one (1) day's prior notice to Borrower of any such
communications between Agent and the foregoing persons.
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, unless Agent shall
otherwise consent in writing, from and after the Closing Date and until the
Commitment Termination Date:
5.1 Maintenance of Existence and Conduct of Business.
Borrower shall, and shall cause each of its Subsidiaries to: do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and its rights and franchises; continue to conduct its
business substantially as now conducted or as otherwise permitted hereunder; at
all times maintain, preserve and protect all of its copyrights, patents,
trademarks, trade names and all other intellectual property and rights as
licensee or licensor thereof in use or useful in the conduct of its business,
preserve all the remainder of its property, in use or useful in the conduct of
its business and keep each of the same in good repair, working order and
condition (taking into consideration ordinary wear and tear) and from time to
time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; and transact business only in such names
as are set forth on Schedule 5.1.
5.2 Payment of Obligations. Borrower shall: (i) pay and
discharge or cause to be paid and discharged all Obligations; and (ii) prior to
an Event of Default, pay and discharge, or cause to be paid and discharged, its
Indebtedness other than the Obligations at the time such amounts are due and
payable, and, subject to Section 5.2(b), pay and discharge or cause to be paid
and discharged promptly all (A) Charges imposed upon it, its income and profits,
or any of its property (real, personal or mixed), and (B) lawful claims for
labor, materials, supplies and services or otherwise, before any thereof shall
become in default.
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(b) Borrower may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges described in Section 5.2 (a)
(ii); provided, that (i) adequate reserves with respect to such contest are
maintained on the books of Borrower, in accordance with GAAP, (ii) no Lien shall
be imposed to secure payment of such Charges other than Permitted Encumbrances
and such contest is maintained and prosecuted continuously and with diligence
and operates to suspend collection or enforcement of such Charges, (iii) none of
the Collateral becomes subject to forfeiture or loss as a result of such
contest, (iv) Borrower shall promptly pay or discharge such contested Charges or
claims and all additional charges, interest, penalties and expenses, if any, and
shall deliver to Agent evidence acceptable to Agent of such compliance, payment
or discharge, if such contest is terminated or discontinued adversely to
Borrower or the conditions set forth in this Section 5.2(b) are no longer met,
and (v) Agent has not advised Borrower in writing that Agent reasonably believes
that nonpayment or nondischarge thereof could have or result in a Material
Adverse Effect.
5.3 Books and Records. Borrower shall keep adequate records
and books of account with respect to Borrower's and each of its Subsidiaries'
business activities, in which proper entries, reflecting all financial
transactions, are made in accordance with GAAP and on a basis consistent with
the Financial Statements referred to in Section 3.4.
5.4 Litigation. Borrower shall notify Agent in writing,
promptly upon learning thereof, of any litigation commenced or threatened
against Borrower or any of its Subsidiaries, and of the institution against it
of any suit or administrative proceeding that may involve an amount in excess of
One Hundred Thousand Dollars ($100,000) or seeks injunctive relief or could have
or result in a Material Adverse Effect if adversely determined.
5.5 Insurance. Borrower shall maintain the policies of
insurance described on Schedule 3.21 in form and with insurers recognized as
adequate by Agent. Except to the extent permitted under Section 6.15, Borrower
shall maintain such policies at its sole cost and expense. Such policies shall
be in such amounts as are set forth on Schedule 3.21 and, in no event, less than
the amounts maintained on the Closing Date, except for appropriate changes in
such amounts resulting from acquisitions or dispositions made in accordance with
this Agreement. Borrower shall notify Agent promptly of any occurrence causing a
material loss or decline in value of any real or personal property and the
estimated (or actual, if available) amount of such loss or decline. Except as
otherwise specified on Schedule 3.21, Borrower hereby directs all present and
future insurers under its "All Risk" policies of insurance to pay all proceeds
payable thereunder directly to Agent, on behalf of itself and Lenders. Borrower
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent) as Borrower's true and lawful agent and
attorney-in-fact for the purpose, upon the occurrence and during the continuance
of a Default or an Event of Default, of making, settling and adjusting claims
under the "All Risk" policies of insurance, endorsing the name of Borrower on
any check, draft, instrument or other item of payment for the proceeds of such
"All Risk" policies of insurance, and for making all determinations and
decisions with respect to such "All Risk" policies of insurance. Unless a
Default or an Event of Default shall have occurred and be continuing, at
Borrower's request, Agent shall release casualty insurance proceeds to Borrower
necessary to pay for the repair, replacement or reconstruction of the assets
subject to such casualty, provided that Agent reasonably believes that, in the
event that the reasonably anticipated costs of such repair, replacement or
reconstruction will exceed the amount
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of such insurance proceeds, Borrower is and will be able to meet such additional
cost. In the event Borrower at any time or times hereafter shall fail to obtain
or maintain any of the policies of insurance required above or to pay any
premium in whole or in part relating thereto, Agent, without waiving or
releasing any Obligations or Default or Event of Default hereunder, may at any
time or times thereafter (but shall not be obligated to) obtain and maintain
such policies of insurance and pay such premium and take any other action with
respect thereto which Agent deems advisable. All sums so disbursed, including
attorneys, fees, court costs and other charges related thereto, shall be
payable, on demand, by Borrower to Agent and shall be additional Obligations
hereunder secured by the Collateral, provided, that, if and to the extent
Borrower fails to promptly pay any of such sums upon demand therefor, Agent is
authorized to, and at its option may, make or cause to be made Revolving Credit
Advances on behalf of Borrower for payment thereof.
(b) Agent reserves the right at any time, upon review of
Borrower's risk profile, to require additional forms and limits of insurance to,
in Agent's sole opinion, adequately protect both Agent and Lenders' interests in
all or any portion of the Collateral and to ensure that Borrower and each of its
Subsidiaries is protected by insurance in amounts and with coverage customary
for businesses engaged in their businesses. Upon the occurrence and during the
continuance of any Default or Event of Default, Agent reserves the right at any
time, upon review of Borrower's and/or any of its Subsidiaries' risk profile, to
require additional forms and limits of insurance to, in Agent's sole opinion,
adequately protect Agent's and Lenders' interests, including, but not limited
to, their interests in the Collateral. Borrower shall, if so requested by Agent,
deliver to Agent, from time to time upon request of Agent, a report of a
reputable insurance broker, satisfactory to Agent, with respect to its insurance
policies.
(c) On the Closing Date and from time to time thereafter, as
requested by Agent, Borrower shall deliver to Agent endorsements to all (i) "All
Risk" and business interruption insurance naming Agent, on behalf of itself and
Lenders, as loss payee, and (ii) general liability and other liability policies
naming Agent, on behalf of itself and Lenders, as additional insured.
5.6 Compliance with Laws. Borrower and each of its
Subsidiaries shall comply in all material respects with all federal, state and
local laws, regulations, orders and agreements (including conciliation
agreements) applicable to it, including those relating to licensing,
environmental, consumer credit, truth-in-lending, ERISA and labor matters.
5.7 Agreements. Borrower and each of its Subsidiaries shall
perform in all material respects, within all required time periods (after giving
effect to any applicable grace periods), all of its obligations and enforce all
of its rights under each agreement to which it is a party, including any lease
or customer contracts to which it is a party. Borrower or any of its
Subsidiaries may terminate or modify any provision of any agreement to which it
is a party, so long as such termination or modification could not have or result
in a Material Adverse Effect.
5.8 Supplemental Disclosure. On the request of Agent (in the
event that such information is not otherwise delivered by Borrower to Agent
pursuant to this Agreement), so long as there are Obligations outstanding
hereunder, and with reasonable frequency (unless a Default or an Event of
Default has occurred and is continuing, then, in such case, as frequently as
requested
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by Agent), Borrower will supplement each schedule or representation herein with
respect to any matter hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described in
such schedule or as an exception to such representation or which is necessary to
correct any information in such schedule or representation which has been
rendered inaccurate thereby; provided, however, that such supplement to such
schedule or representation shall not be deemed an amendment thereof unless
expressly consented to in writing by Agent and Requisite Lenders, and no such
supplements, except as the same may be consented to in a writing which expressly
includes a waiver, shall be or be deemed a waiver of any Default or Event of
Default disclosed therein.
5.9 Employee Plans. Borrower shall notify Agent of (i) any
and all claims, actions, or lawsuits asserted or instituted, and of any
threatened litigation or claims, against Borrower, any of its Subsidiaries, or
against any ERISA Affiliate in connection with any Plan or Qualified Plan or/and
against any such Plan itself, or against any fiduciary of or service provided to
any such Plan and (ii) the occurrence of any Reportable Event with respect to
any Pension Plan.
5.10 Environmental Matters. Borrower shall, and shall cause
all of its Subsidiaries to, (i) comply in all respects with the Environmental
Laws applicable to it, (ii) notify Agent promptly after Borrower or such
Subsidiary becomes aware of any Release upon any premises owned or occupied by
it, and (iii) promptly forward to Agent a copy of any order, notice, permit,
application, or any communication or report received by Borrower or such
Subsidiary in connection with any such Release or any other matter relating to
the Environmental Laws that may affect such premises or Borrower or such
Subsidiary. The provisions of this Section 5.10 shall apply whether or not the
Environmental Protection Agency, any other federal agency or any state, local or
foreign environmental agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.
5.11 Landlords' Agreements, Bailee Letters and Mortgagee
Agreements. Borrower shall have obtained as of the Closing Date a landlord's
agreement in form and substance acceptable to Agent from the lessor of each
leased premise currently being used by Borrower or any of its Subsidiaries and
shall obtain such an agreement from the lessor of each premise leased after the
Closing Date, in each case where Collateral is currently or may be located.
Borrower shall have obtained as of the Closing Date a bailee letter in form and
substance acceptable to Agent with respect to any warehouse currently being used
by Borrower or any of its Subsidiaries and shall obtain such a letter with
respect to each warehouse established after the Closing Date, in each case where
Collateral is currently or may be located. Borrower shall have obtained as of
the Closing Date a mortgagee's agreement in form and substance acceptable to
Agent from the mortgagee of each owned property currently being used by Borrower
or any of its Subsidiaries and shall obtain such an agreement from the mortgagee
of each property mortgaged after the Closing Date, in each case where Collateral
is currently or may be located. No real property shall be leased, established as
a warehouse or acquired by Borrower or any of its Subsidiaries after the Closing
Date, unless and until a landlord agreement, bailee letter or mortgagee
agreement, as appropriate, shall first have been obtained in form and substance
acceptable to Agent with respect to such location.
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5.12 Leased Locations of Collateral. Borrower shall timely
and fully pay and perform in all material respects its obligations under all
leases and other agreements with respect to each leased location or public
warehouse where any Collateral is or may be located. Borrower shall promptly
deliver to Agent copies of (a) any and all default notices received under or
with respect to any such leased location or public warehouse and (b) any and all
other notices received under or with respect to any such lease or other
agreement. Upon Agent's request, Borrower shall promptly deliver to Agent copies
of (i) all invoices received by Borrower for the payment of rent or other
obligations with respect to any such leased location or warehouse and (ii) all
cancelled checks evidencing payment of such rent and other obligations.
5.13 Subsidiaries. Prior to forming any Subsidiary, Borrower
shall provide not less than thirty (30) days prior written notice to Agent,
receive the prior written consent of Agent, (c) enter into a pledge agreement
with Agent, for the benefit of Agent and Lenders, pledging the capital stock of
such Subsidiary as additional security for the Obligations and (d) cause such
Subsidiary to enter into a guaranty, security agreement and all other mortgages,
deeds of trust and other documents, instruments and agreements as Agent may
request with Agent, for the benefit of Agent and Lenders, securing all of the
assets of such Subsidiary as additional security for the Obligations.
5.14 Maintenance of Equipment and Fixtures. Borrower shall
keep and maintain its Equipment and Fixtures in good operating condition
sufficient for the continuation of Borrower's business conducted on a basis
consistent with past practices, and Borrower shall provide or arrange for all
maintenance and service and all repairs necessary for such purpose.
5.15 Purchase Offers. Promptly upon Borrower's receipt of any
offer by any Person to acquire all or substantially all of Borrower's capital
stock or assets, prior to execution or delivery of any document in response to
such offer Borrower shall deliver a copy of such offer, together with all
supporting documentation received by Borrower with respect thereto, to Agent for
its review. Confidential information received by Agent and Lenders from Borrower
pursuant to this Section 5.15 shall be subject to Section 10.14.
5.16 Board of Directors. Immediately upon any change in the
composition of Borrower's board of directors, Borrower shall notify Agent of the
same.
5.17 ARTRA Tax Loss Carryforwards. Borrower shall cause ARTRA
to offset tax loss carryforwards available to ARTRA ("Carryforwards") against
all potential tax liabilities (including Borrower's obligations under the Tax
Sharing Agreement (the "Tax Sharing Obligations")) attributable to Borrower's
change of its Inventory accounting from a last-in first-out method to a first-in
first-out method (the "Conversion") and, pursuant thereto, Borrower may permit
ARTRA to offset up to $1,820,000 of Carryforwards so applied to the Tax Sharing
Obligations against the outstanding balance of all intercompany accounts owing
from ARTRA to Borrower on the date of the Conversion as indicated on Borrower's
financial statements prepared pursuant to this Agreement.
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NEGATIVE COVENANTS
Borrower covenants and agrees that, without Agent's prior
written consent, from and after the Closing Date until the Commitment
Termination Date:
6.1 Mergers, Etc. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, directly or indirectly, by operation of law
or otherwise, merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with, any Person or, except
as otherwise permitted by Section 5.13, form any Subsidiary.
6.2 Investments; Loans and Advances. Except as otherwise
permitted by Sections 6.3 or 6.4, or by the Security Agreement, Borrower shall
not, nor shall Borrower permit any of its Subsidiaries to, make any investment
in, or make or accrue loans or advances of money to any Person, through the
direct or indirect lending of money, holding of securities or otherwise;
provided that not more than (a) $12,500,000 of intercompany demand loans
advanced by Borrower to ARTRA prior to the Closing Date (which shall not
increase but rather amortize in accordance with the terms thereof) may remain
outstanding until the first to occur of the (i) Commitment Termination Date and
(ii) acceleration of the Revolving Credit Loan, so long as such loans are
evidenced by demand promissory notes in form and substance acceptable to Agent
and pledged to Agent as additional Collateral securing the Obligations and (b)
the intercompany loan advanced by Borrower to ARTRA prior to the Closing Date
and described in Section 8.1(q) may remain outstanding in accordance with the
terms of such Section 8.1(q).
6.3 Indebtedness. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except (i) Indebtedness secured by Liens described in clause (x)
of the definition of Permitted Encumbrances, (ii) the Obligations, (iii)
unfunded pension fund and other employee benefit plan obligations and
liabilities not to exceed One Million Five Hundred Thousand Dollars ($1,500,000)
in the aggregate and then only to the extent they are permitted to remain
unfunded under applicable law and (vi) the Kansas Indebtedness, all of which
shall be described separately on Schedule 6.3 in detail reasonably satisfactory
to Agent, indicating, without limitation, the respective amounts thereof
outstanding as of the Closing Date, the amortization schedules relating thereto
and the documents pursuant to which such Indebtedness was incurred.
6.4 Employee Loans and Transactions. Borrower shall not, nor
shall Borrower permit any of its Subsidiaries to, except as otherwise expressly
permitted hereunder, enter into any lending, borrowing or other commercial
transaction with any of its employees, officers, directors, Subsidiaries,
Affiliates or related parties without the prior written consent of Agent,
including (i) downstreaming or upstreaming of cash or intercompany advances or
guarantees and (ii) payment of any management consulting, advisory or similar
fee based on or related to Borrower's or such Subsidiary's operating performance
or income or any percentage thereof other than full-time employment agreements
and incentive compensation programs with current employees in accordance with
the agreements described on Schedule 6.4, and (iii) payment of all or a portion
of the salaries or compensation to any Person employed by any Affiliate of
Borrower, including ARTRA and its Affiliates; provided, that in the case of the
foregoing clause (iii) Borrower may
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make payments on behalf of ARTRA in respect of "BMS Healthcare" (or a
replacement primary health care insurance provider) premiums and claims so long
as the amount of such payments is fully reimbursed as an offset against payments
(to the fullest extent of such payments in the consecutive order of their
occurrence) owing by Borrower to ARTRA pursuant to the Tax Sharing Agreement.
Borrower shall not: (a) permit the direct and indirect compensation of its ten
(10) most highly compensated employees to exceed, in the aggregate, during any
Fiscal Year one hundred twenty-five percent (125%) of the amount of such
compensation during the immediately preceding Fiscal Year; or (b) amend, alter
or otherwise modify Borrower's incentive or other compensation plans, or
establish other such plans, except as required in accordance with Borrower's
1996 Bonus Incentive Program, as restated on an annual basis, provided that such
program shall not permit Borrower to increase the amount of such compensation
provided to its ten (10) highest paid employees above the amounts otherwise
permitted in accordance with the foregoing clause (a). Notwithstanding the
foregoing, ARTRA shall be permitted to offer compensation to directors or
employees of Borrower pursuant to an equity incentive plan, in form and
substance reasonably satisfactory to Agent.
6.5 Capital Structure and Business. Borrower shall not, nor
shall Borrower permit any of its Subsidiaries to: (i) make any changes in any of
its business objectives, purposes or operations which could in any way
materially adversely affect the repayment of the Obligations or could have or
result in a Material Adverse Effect, (ii) make or permit to exist any change in
its capital structure as described on Schedule 3.10 (including the issuance of
any shares of Stock, options, warrants or other securities or agreements
convertible into Stock or any revision of the terms of its outstanding Stock
other than pursuant to the Warrant), or (iii) amend its certificate or articles
of incorporation or bylaws. Neither Borrower nor any of its Subsidiaries shall
engage in any business other than the businesses currently engaged in by
Borrower or such Subsidiary or businesses in industries related to the
businesses currently engaged in by Borrower or such Subsidiary. Parent shall not
engage in any business activities other than the ownership of Borrower's Stock
and those activities incidental to Parent's corporate existence and good
standing.
6.6 Guaranteed Indebtedness. Borrower shall not, nor shall
Borrower permit any of its Subsidiaries to, incur any Guaranteed Indebtedness
except by endorsement of instruments or items of payment for deposit to the
general account of Borrower, and for Guaranteed Indebtedness incurred for the
benefit of Borrower or such Subsidiary if the primary obligation is expressly
permitted by this Agreement.
6.7 Liens. Borrower shall not, nor shall Borrower permit any
of its Subsidiaries to, create, incur, assume or permit to exist any Lien on or
with respect to any properties or assets (including any documents or instrument
with respect to Goods or Accounts) of Borrower or any of its Subsidiaries,
whether now owned or hereafter acquired, or any income or profits therefrom,
except Permitted Encumbrances. In addition, neither Borrower nor any of its
Subsidiaries shall become a party to any agreement, note, indenture or
instrument, or take any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favor of Agent, on behalf of
itself and Lenders, as additional collateral for the Obligations.
6.8 Sale of Assets. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, sell, transfer, convey, assign or otherwise
dispose of any of its properties or other
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assets, including the capital stock of any Subsidiary or any of its Accounts;
provided, however, that the foregoing shall not prohibit (a) the sale of
Inventory in the ordinary course of business or (b) the disposition of other
assets (excluding dispositions of Accounts and dispositions of Inventory not
sold in the ordinary course of Business) which are no longer in use or useful to
Borrower or such Subsidiary in the conduct of its business in an amount or
amounts not exceeding One Million Five Hundred Thousand Dollars ($1,500,000) in
the aggregate per annum.
6.9 Events of Default. Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to, take any action or omit to take any action,
which act or omission would constitute a Default or an Event of Default under,
pursuant to, or noncompliance with any of, the terms of this Agreement or any of
the other Loan Documents or a default or an event of default which could cause
or result in a Material Adverse Effect pursuant to, or noncompliance with, any
other contract, lease, mortgage, deed of trust or instrument to which it is a
party or by which it or any of its property is bound, or any document creating a
Lien.
6.10 ERISA. Neither Borrower, any of its Subsidiaries, nor
any ERISA Affiliate shall without Agent's prior written consent acquire any new
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an "accumulated funding deficiency", as defined in Section
302 of ERISA, or any "unfunded vested benefits", as defined in Section
4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a Multiemployer
Plan, and in Section 4211 of ERISA in the case of a Multiemployer Plan.
Additionally, neither Borrower, any of its Subsidiaries, nor any ERISA Affiliate
shall, without Agent's prior written consent, permit or suffer any condition set
forth on Schedule 3.13 to cease to be met and satisfied at any time; terminate
any Pension Plan that is subject to Title IV of ERISA where such termination
could reasonably be anticipated to result in liability to such Person; permit
any accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to
be incurred with respect to any Pension Plan; fail to make any contributions or
fail to pay any amounts due and owing as required by the terms of any Plan
before such contributions or amounts become delinquent; make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
Multiemployer Plan; or at any time fail to provide Agent with copies of any Plan
documents or governmental reports or filings, if requested by Agent. Neither
Borrower, any of its Subsidiaries, nor any ERISA Affiliate shall cause or permit
to occur any event described in Section 4062(e) of ERISA with respect to any
Title IV Plan or any ERISA Event to the extent such ERISA Event could reasonably
be expected to have a Material Adverse Effect.
6.11 Financial Covenants. Borrower shall not breach or fail
to comply with any of the Financial Covenants (the "Financial Covenants") set
forth on Annex K.
6.12 Hazardous Materials. Except as set forth on Schedule
3.20, Borrower shall not, nor shall Borrower permit any of its Subsidiaries or
any other Person within its control to, cause or permit a Release or the
presence, use, generation, manufacture, installation, Release, discharge,
storage or disposal of any Hazardous Materials on, under, in, above or about any
of its real estate or the transportation of any Hazardous Materials to or from
any real estate where such Release or such presence, use, generation,
manufacture, installation, Release, discharge, storage or disposal would violate
or form the basis for liability under any Environmental Laws. If a Default or
Event
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of Default shall have occurred and be continuing, Borrower, at its own expense,
shall cause the performance of such environmental audits and preparation of such
environmental reports as Agent may from time to time request as to any location
at which Collateral is then located, by reputable environmental consulting firms
acceptable to Agent, and in form and substance acceptable to Agent.
6.13 Sale-Leasebacks. Neither Borrower nor any of its
Subsidiaries shall engage in any sale-leaseback or similar transaction involving
any of its assets.
6.14 Cancellation of Indebtedness. Neither Borrower nor any
of its Subsidiaries shall cancel any claim or debt owing to it, except for
reasonable consideration negotiated on an arm's-length basis and in the ordinary
course of its business.
6.15 Restricted Payments. Borrower shall not, nor shall
Borrower cause or permit any of its Subsidiaries to, make any Restricted
Payment; provided, however, that, so long as no Default or Event of Default has
occurred and is continuing or would result therefrom, Borrower may make payments
pursuant to the Tax Sharing Agreement and the Services Agreement, in each case
not to exceed the lesser of (a) Borrower's allocated portion of the items
respectively covered by each such agreement and (b) the actual cost which
Borrower would incur for each such respective item independently of Borrower's
affiliation with ARTRA or any other Person party to either such agreement.
6.16 Leases. Borrower shall not, nor shall Borrower cause or
permit any of its Subsidiaries to, enter into any lease of real property or
similar agreement or arrangement, if the aggregate payment for Borrower and its
Subsidiaries under all such leases, agreements and arrangements would exceed
Five Hundred Thousand Dollars ($500,000) for any successive twelve (12) month
period.
6.17 Composition. Borrower shall not, nor shall Borrower
cause or permit any of its Subsidiaries to, cause or suffer the occurrence of
any change in the composition of its Stockholders as of the Closing Date.
6.18 Accounting Changes. Borrower shall not, nor shall
Borrower cause or permit any of its Subsidiaries to, make any change in
accounting treatment or reporting practices, except as required by GAAP, or
change its Fiscal Year.
6.19 Change of Corporate Name. Borrower shall not, nor shall
Borrower cause or permit any of its Subsidiaries to, change its corporate name.
6.20 Sale of Stock. Borrower shall not, nor shall Borrower
cause or permit any of its Subsidiaries to, sell (whether in a public or private
offering or otherwise) or otherwise provide rights to any Person (other than
rights provided to Borrower or Parent as of the Closing Date which are not
otherwise prohibited by any Loan Document) with respect to any of its Stock,
except pursuant to the exercise of the Warrant.
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6.21 Cash Management. Except for petty cash accounts
described in the following sentence, Borrower shall not, nor shall Borrower
permit or cause any of its Subsidiaries to, maintain any bank account not
expressly permitted to be maintained by Annex C and identified on Schedule 3.22
as required by Annex C. Except for petty cash accounts (all of which are
identified on Schedule 3.22) with an aggregate balance not in excess of Twenty
Five Thousand Dollars ($25,000) at any time, collectively, Borrower shall not,
nor shall Borrower cause or permit any of its Subsidiaries to, maintain a cash
balance in any bank account which, as of any date, exceeds the amount necessary
to cover outstanding checks to be drawn against such account in the ordinary
course of business on such date.
6.22 No Impairment of Upstreaming. Borrower shall not, nor
shall Borrower permit or cause any of its Subsidiaries to, directly or
indirectly, enter into or become bound by any agreement, instrument, indenture
or other obligation which could directly or indirectly restrict, prohibit or
require the consent of any Person with respect to the payment of dividends or
distributions or the making of Intercompany Loans by any Subsidiary to Borrower.
6.23 No Amendment. Borrower shall not, nor shall Borrower
permit or cause any of its Subsidiaries to, directly or indirectly, amend,
restate, supplement or otherwise modify the Tax Sharing Agreement or the
Services Agreement. None of the Kansas Loan Documents shall be amended,
restated, supplemented or otherwise modified.
6.24 No Change in Management. Borrower shall not cause or
suffer the occurrence of any change in its senior management (including its
chief executive officer, chief financial officer and chief operating officer) as
of the Closing Date; provided, that, in the event of the resignation, retirement
or death of any of the foregoing, Borrower shall replace the same with a Person
reasonably acceptable to Agent.
6.25 Management Agreements. Except to the extent that the
annual payments under all management, consulting, advisory or other similar
agreements of Borrower do not exceed $250,000 in the aggregate, Borrower shall
not enter into any such agreement or amend, alter or otherwise modify, or renew
or extend, any such agreement to which it is a party as of the Closing Date.
Notwithstanding the foregoing, Borrower may compensate its employees in
accordance with Section 6.4.
6.26 Overriding Agreements. Except as expressly specified in
this Agreement, Borrower shall not pay, make, declare or guaranty or become
obligated to pay, make, declare or guaranty, whether directly or indirectly, any
dividend, distribution, payment, loan or advance, contribution, investment,
Restricted Payment or other transfer of cash, property or other assets to or in
respect of Parent, ARTRA, any Subsidiary of any of the foregoing, Peter R.
Harvey or any of his family members, or any stockholder, employee, director,
officer or Affiliate of any of the foregoing.
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7. TERM
7.1 Termination. The financing arrangements contemplated
hereby shall be in effect until, and the Loans, Letter of Credit Obligations and
all other Obligations shall be automatically due and payable in full on, the
Commitment Termination Date.
7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of Borrower or the rights of Agent and
Lenders relating to any unpaid portion of any Loan, Letter of Credit Obligations
or any other Obligation, due or not due, liquidated, contingent or unliquidated
or any transaction or event occurring prior to such termination, or any
transaction or event, the performance of which is not required until after the
Commitment Termination Date. Except as otherwise expressly provided herein or in
any other Loan Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon Borrower, and all rights of Agent and
Lenders, all as contained in the Loan Documents shall not terminate or expire,
but rather shall survive such termination or cancellation and shall continue in
full force and effect until such time as the Loans, Letter of Credit Obligations
and all other Obligations have been indefeasibly paid in full in accordance with
the terms of the agreements creating such Obligations.
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) (i) Borrower shall fail to make any payment hereunder or
under any of the other Loan Documents when due and payable or declared due and
payable, consisting of principal of, interest on or Fees with respect to the
Obligations.
(ii) Borrower shall fail to make any payment hereunder or
under any of the other Loan Documents when due and payable or declared due and
payable, consisting of a payment not described in clause (i) above, and such
payment shall remain unremedied for a period ending on the first to occur of
three (3) Business Days after Borrower shall (A) receive written notice of such
failure from Agent or (B) become aware of such failure.
(b) Borrower shall fail or neglect to perform, keep or
observe any of the provisions of Section 1.13 or Section 6, including any of the
provisions set forth on Annexes C and K, respectively, or there shall exist any
agreement or other document accomplishing or purporting to accomplish (whether
on a conditional basis or otherwise) any event, condition or other occurrence
prohibited by any Loan Document.
(c) Borrower shall fail or neglect to perform, keep or
observe any term or provision of this Agreement (other than any such term or
provision referred to in other paragraphs of this Section 8.1) or of any of the
other Loan Documents, and the same shall remain unremedied for a period ending
on the first to occur of thirty (30) days after Borrower shall (i) receive
written notice of any such failure from Agent or (ii) become aware thereof.
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(d) Borrower shall, or shall cause or permit any of its
Subsidiaries to, fail to timely and fully pay and perform its obligations in all
material respects under all leases and other agreements with respect to each
leased location or public warehouse, if any, at which Collateral is located or
shall fail or neglect to perform, keep or observe any of the provisions of
Section 5.12; provided, that, Borrower may in good faith contest, by proper
legal action or proceedings, the validity, amount or enforcement of any such
obligation or provision, so long as, at the time of commencement of any such
action or proceeding, and during the pendency thereof (i) no Default or Event of
Default shall have occurred, (ii) adequate reserves with respect thereto are
maintained on the books of Borrower, in accordance with GAAP, (iii) such contest
operates to suspend collection of the contested obligations, or enforcement of
the contested provisions, and such contest is maintained and prosecuted
continuously and with diligence, and (iv) Agent has not advised Borrower in
writing that Agent reasonably believes that nonpayment or nondischarge thereof
could have or result in a Material Adverse Effect.
(e) A default shall occur under any other agreement, document
or instrument to which Borrower is a party or by which Borrower or Borrower's
property is bound and such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise) due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) in respect of
any Indebtedness of Borrower in an aggregate amount exceeding One Hundred
Thousand Dollars ($100,000) or (ii) causes (or permits any holder of such
Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in
an aggregate amount exceeding One Hundred Thousand Dollars ($100,000) to become
due prior to its stated maturity or prior to its regularly scheduled dates of
payment.
(f) Any representation or warranty herein or in any other
Loan Document or in any written statement pursuant thereto or hereto, or any
report, financial statement or certificate made or delivered to Agent or any
Lenders by Borrower shall be untrue or incorrect in any material respect, as of
the date when made or deemed made (including those made or deemed made pursuant
to Section 2.2).
(g) Any material amount of the assets of Borrower or any of
its Subsidiaries shall be attached, seized, levied upon or subjected to a writ
or distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of Borrower or such
Subsidiary, as the case may be, and shall remain unstayed or undismissed for
sixty (60) consecutive days; or any Person other than Borrower shall apply for
the appointment of a receiver, trustee or custodian for any of Borrower's assets
and shall remain unstayed or undismissed for sixty (60) consecutive days; or
Borrower or such Subsidiary, as the case may be, shall have concealed, removed
or permitted to be concealed or removed, any part of its property, with intent
to hinder, delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may be
fraudulent under any bankruptcy, fraudulent conveyance or other similar law.
(h) A case or proceeding shall have been commenced against
Borrower or any of its Subsidiaries in a court having competent jurisdiction
seeking a decree or order (i) under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable
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federal, state or foreign bankruptcy or other similar law, (ii) appointing a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) of Borrower or any of its Subsidiaries or of any substantial part of
any of their properties, or (iii) ordering the winding up or liquidation of the
affairs of Borrower or such Subsidiary and such case or proceeding shall remain
undismissed or unstayed for thirty (30) consecutive days or such court shall
enter a decree or order granting the relief sought in such case or proceeding.
(i) Borrower or any of its Subsidiaries shall (i) file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Borrower or any of
its Subsidiaries or of any substantial part of any of their properties, (iii)
fail generally to pay its debts as such debts become due, or (iv) take any
corporate action in furtherance of any such action.
(j) A final judgment or judgments (after the expiration of
all times to appeal therefrom) for the payment of money in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate shall be rendered against Borrower
or any of its Subsidiaries unless the same shall be (i) fully covered by
insurance in accordance with Section 5.5 or (ii) vacated, stayed, bonded, paid
or discharged within a period of thirty (30) days from the date of such
judgment.
(k) Any event not specified in this Section 8 shall have
occurred which Agent reasonably believes could have or could result in a
Material Adverse Effect and Agent shall have given Borrower at least ten (10)
days notice thereof.
(l) Any provisions of any Collateral Document, including the
Security Agreement or any Mortgage, after delivery thereof pursuant to Section
2.1, shall for any reason cease to be valid, binding and enforceable in
accordance with its terms in a manner which, in Agent's sole and absolute
discretion, could adversely affect Agent, Lenders or the Collateral, or any
security interest created under any Collateral Document, including the Security
Agreement or any Mortgage, shall cease to be a valid and perfected security
interest or Lien having the first priority in any of the Collateral purported to
be covered thereby (subject only to Permitted Encumbrances).
(m) Without Agent's prior written consent, (i) there shall
occur any Change in Control.
(n) Without Agent's prior written consent, there shall occur
any (i) merger, acquisition or consolidation transaction involving Borrower or
(ii) sale of all or substantially all of the assets of Borrower.
(p) Any determination or notice is received by Borrower from
the United States (or any department or agency thereof) with respect to a claim
or other assertion for damages or any other amounts resulting from any violation
of the Davis-Bacon Act by Borrower in the construction of its Kansas Facility,
which claim or other assertion could, in the sole and absolute discretion of
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Agent, result in a Material Adverse Affect or otherwise adversely affect
Borrower's ability to repay the Obligations pursuant to the Loan Documents or
the rights and privileges of Agent or Lenders thereunder.
(q) ARTRA shall fail to repay in full to Borrower as soon as
possible and, in any event, in individual increments of at least $50,000 not
later than March, June, September and December of 1998, the $200,000 principal
balance of the loan outstanding as of the Closing Date made by Borrower to ARTRA
pursuant to the Acknowledgment and Consent dated as of December 28, 1994 between
Borrower and Agent.
8.2 Remedies. If any Event of Default shall have occurred and
be continuing or if a Default shall have occurred and be continuing and (i)
Agent or Requisite Revolving Lenders shall have determined not to make any
Revolving Credit Advances or incur any Letter of Credit Obligations or (ii)
Agent or Requisite Capital Expenditure Lenders shall have determined not to make
any Capital Expenditure Advances, so long as that specific Default is
continuing, Agent may (and shall, at the written request of the (i) Requisite
Revolving Lenders with respect to Revolving Credit Advances and Letter of Credit
Obligations and (ii) Requisite Capital Expenditure Lenders with respect to
Capital Expenditure Advances), without notice, suspend this facility with
respect to, further Revolving Credit Advances, the incurrence of further Letter
of Credit Obligations and/or further Capital Expenditure Advances, as
applicable, whereupon any further Revolving Credit Advances, Letter of Credit
Obligations and Capital Expenditure Advances, as applicable, shall be made or
extended in Agent's sole discretion (or in the sole discretion of (i) Requisite
Revolving Lenders or (ii) Requisite Capital Expenditure Lenders, as applicable,
if such suspension occurred at their respective direction) so long as such
Default or Event of Default is continuing. If any Default or Event of Default
shall have occurred and be continuing, Agent may (and shall, at the written
request of the Requisite Revolving Lenders), without notice except as otherwise
expressly provided herein, increase the rate of interest applicable to the Loans
and the Fees applicable to Letters of Credit to the Default Rate.
(b) If any Event of Default shall have occurred and be
continuing, Agent may (and at the written request of the Requisite Lenders
shall), without notice, (i) terminate this facility with respect to further
Advances and the incurrence of further Letter of Credit Obligations; (ii)
declare all or any portion of the Obligations, including all or any portion of
any Loan to be forthwith due and payable, and require that all Letter of Credit
Obligations be cash collateralized as provided in Annex B, all without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower; and (iii) exercise any rights and remedies
provided to Agent under the Loan Documents and/or at law or equity, including
all remedies provided under the Code; provided, however, that upon the
occurrence of an Event of Default specified in Sections 8.1(g), (h) or (i), all
of the Obligations, including the aggregate Revolving Credit Loan, shall become
immediately due and payable without declaration, notice or demand by any Person.
8.3 Waivers by Borrower. Except as otherwise provided for in
this Agreement or by applicable law, Borrower waives): (a) presentment, demand
and protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all
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commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Agent on which Borrower may in any way
be liable, and hereby ratifies and confirms whatever Agent may do in this
regard, (b) all rights to notice and a hearing prior to Agent's taking
possession or control of, or to Agent's replevy, attachment or levy upon, the
Collateral or any bond or security which might be required by any court prior to
allowing Agent to exercise any of its remedies, and (c) the benefit of all
valuation, appraisal, marshalling and exemption laws. Borrower acknowledges that
it has been advised by counsel of its choice with respect to this Agreement, the
other Loan Documents and the transactions evidenced by this Agreement and the
other Loan Documents and understands fully the terms, conditions and
implications of each of the foregoing.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and Participations. The Borrower consents to
any Lender's assignment of, and/or sale of participations in, at any time or
times, the Loan Documents, Loans, Letter of Credit Obligations and any
Commitment or of any portion thereof or interest therein, including any Lender's
rights, title, interests, remedies, powers or duties thereunder, whether
evidenced by a writing or not. Any assignment by a Lender shall (i) require the
consent of Agent (which shall not be unreasonably withheld or delayed) and the
execution of an assignment agreement substantially in the form attached hereto
as Exhibit J and otherwise in form and substance satisfactory to, and
acknowledged by, Agent (an "Assignment Agreement"); (ii) be conditioned on such
assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (iii) if a
partial assignment, be in an amount at least equal to $5,000,000 and, after
giving effect to any such partial assignment, the assigning Lender shall have
retained Commitments in an amount at least equal to $5,000,000; and (iv) include
a payment to Agent of an assignment fee of $3,500. In the case of an assignment
by a Lender under this Section 9.1, the assignee shall have, to the extent of
such assignment, the same rights, benefits and obligations as it would if it
were a Lender hereunder. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Borrower hereby acknowledges
and agrees that any assignment will give rise to a direct obligation of Borrower
to the assignee and that the assignee shall be considered to be a "Lender".
Agent shall deliver a copy of each executed Assignment Agreement to Borrower. In
all instances, each Lender's liability to make Loans hereunder shall be several
and not joint and shall be limited to such Lender's Pro Rata Share of the
applicable Commitment. In the event Agent or any Lender assigns or otherwise
transfers all or any part of a Note, Agent or any such Lender shall so notify
Borrower and Borrower shall, upon the request of Agent or such Lender, execute
new Notes in exchange for the Notes being assigned. Notwithstanding the
foregoing provisions of this Section 9.1(a), any Lender may at any time pledge
or assign all or any portion of such Lender's rights under this Agreement and
the other Loan Documents to a Federal Reserve Bank; provided, however, that no
such pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Loan Document.
(b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined
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as if that Lender had not sold such participation, and that the holder of any
such participation shall not be entitled to require such Lender to take or omit
to take any action hereunder except actions directly affecting (i) any reduction
in the principal amount of, or interest rate or Fees payable with respect to,
any Loan in which such holder participates, (ii) any extension of the scheduled
amortization of the principal amount of any Loan in which such holder
participates or the final maturity date thereof, and (iii) any release of all or
substantially all of the Collateral (other than in accordance with the terms of
this Agreement, the Collateral Documents or the other Loan Documents). Solely
for purposes of Sections 1.17, 1.19, 1.20 and 9.8, Borrower acknowledges and
agrees that a participation shall give rise to a direct obligation of Borrower
to the participant and the participant shall be considered to be a "Lender".
Except as set forth in the preceding sentence, Borrower shall not have any
obligation or duty to any participant. Neither Agent nor any Lender (other than
the Lender selling a participation) shall have any duty to any participant and
may continue to deal solely with the Lender selling a participation as if no
such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no
Lender shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.
(d) Borrower shall assist any Lender permitted to sell
assignments or participations under this Section 9.1 as reasonably required to
enable the assigning or selling Lender to effect any such assignment or
participation, including the execution and delivery of any and all agreements,
notes and other documents and instruments as shall be requested and the
preparation of informational materials for, and the participation of management
in meetings with, potential assignees or participants. Borrower shall certify
the correctness, completeness and accuracy of all descriptions of Borrower and
its affairs contained in any selling materials provided by it and all other
information provided by it and included in such materials, except that any
Projections delivered by Borrower shall only be certified by Borrower as (i)
having been prepared by Borrower in light of the past operations of its business
(but including future payments of known contingent liabilities), based upon
estimates and assumptions stated therein (all of which Borrower believes to be
reasonable and fair in light of current conditions and current facts known to
Borrower) and (ii) reflecting, as of the Closing Date, Borrower's good faith and
reasonable estimates of its future financial performance and of the other
information projected therein for the period set forth therein.
(e) A Lender may furnish any information concerning Borrower
in the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). Each Lender shall obtain
from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 10.17.
(f) So long as no Event of Default shall have occurred and be
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant, if, as of the date of
the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements under Section 1.20(a),
increased costs under Section 1.20(c), an inability to fund LIBOR Loans under
Section 1.20(d), or withholding taxes in accordance with Section 1.20(b).
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9.2 Appointment of Agent. GE Capital is hereby appointed to
act on behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 9.2 are solely for the benefit of
Agent and Lenders and neither Borrower nor any other Person shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement and the other Loan
Documents, Agent shall act solely as an agent of Lenders and does not assume and
shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for Borrower or any other Person. Agent shall have no
duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. The duties of Agent shall be mechanical
and administrative in nature and Agent shall not have, or be deemed to have, by
reason of this Agreement, any other Loan Document or otherwise a fiduciary
relationship in respect of any Lender. Neither Agent nor any of its Affiliates
nor any of their respective officers, directors, employees, agents or
representatives shall be liable to any Lender for any action taken or omitted to
be taken by it hereunder or under any other Loan Document, or in connection
herewith or therewith, except for damages solely caused by its or their own
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
If Agent shall request instructions from Requisite Lenders,
Requisite Capital Expenditure Lenders, Requisite Revolving Lenders,
Supermajority Revolving Lenders or all affected Lenders with respect to any act
or action (including failure to act) in connection with this Agreement or any
other Loan Document, then Agent shall be entitled to refrain from such act or
taking such action unless and until Agent shall have received instructions from
Requisite Lenders, Requisite Capital Expenditure Lenders, Requisite Revolving
Lenders, Supermajority Revolving Lenders, or all affected Lenders, as the case
may be, and Agent shall not incur liability to any Person by reason of so
refraining. Agent shall be fully justified in failing or refusing to take any
action hereunder or under any other Loan Document (a) if such action would, in
the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders, Requisite Capital Expenditure Lenders, Requisite Revolving
Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable.
9.3 Agent's Reliance, Etc. Neither Agent nor any of its
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages solely caused by its or their own gross negligence or willful misconduct
as finally determined by a court of competent jurisdiction. Without limitation
of the generality of the foregoing, Agent: (a) may treat the payee of any Note
as the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or
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representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of
Borrower or to inspect the Collateral (including the books and records) of
Borrower; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (f) shall incur no liability under or
in respect of this Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
9.4 GE Capital and Affiliates. With respect to its
Commitments hereunder, GE Capital shall have the same rights and powers under
this Agreement and the other Loan Documents as any other Lender and may exercise
the same as though it were not Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include GE Capital in its individual
capacity. GE Capital and its Affiliates may lend money to, invest in, and
generally engage in any kind of business with, Borrower, any of its Affiliates
and any Person who may do business with or own securities of Borrower or any
such Affiliate, all as if GE Capital were not Agent and without any duty to
account therefor to Lenders. GE Capital and its Affiliates may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to Lenders. GE Capital has
also received a warrant from Borrower. Each Lender acknowledges the potential
conflict of interest between GE Capital as a Lender holding disproportionate
interests in the Loans, GE Capital as a warrant holder of Borrower, GE Capital
as a stockholder of Borrower and GE Capital as Agent.
9.5 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender and based
on the Financial Statements referred to in Section 3.4 and such other documents
and information as it has deemed appropriate, made its own credit and financial
analysis of Borrower and its own decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement. Each Lender acknowledges the
potential conflict of interest of each other Lender as a result of Lenders
holding disproportionate interests in the Loans, and expressly consents to, and
waives any claim based upon, such conflict of interest.
9.6 Indemnification. Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrower and without limiting the obligations of
Borrower hereunder), ratably according to their respective Pro Rata Shares, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by Agent in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,
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expenses or disbursements resulting solely from Agent's gross negligence or
wilful misconduct as finally determined by a court of competent jurisdiction.
Without limiting the foregoing, each Lender agrees to reimburse Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement and each other Loan
Document, to the extent that Agent is not reimbursed for such expenses by
Borrower.
9.7 Successor Agent. Agent may resign at any time by giving
not less than thirty (30) days' prior written notice thereof to Lenders and
Borrower. Upon any such resignation, the Requisite Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have been so appointed
by the Requisite Lenders and shall have accepted such appointment within 30 days
after the resigning Agent's giving notice of resignation, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a
Lender, if a Lender is willing to accept such appointment, or otherwise shall be
a commercial bank or financial institution or a subsidiary of a commercial bank
or financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, by the 30th day after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower, such approval not to be unreasonably withheld or delayed; provided
that such approval shall not be required if a Default or an Event of Default
shall have occurred and be continuing. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall succeed to and
become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the earlier of the acceptance of any appointment as Agent
hereunder by a successor Agent or the effective date of the resigning Agent's
resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the other Loan
Documents. Agent may be removed at the written direction of the holders of
fifty-one percent or more of the Commitments (including Agent's Commitment);
provided that in so doing, such Lenders shall be deemed to have waived and
released any and all claims they may have against Agent.
9.8 Setoff and Sharing of Payments. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence and during the continuance of any Event of
Default, each Lender and each holder of any Note is hereby authorized at any
time or from time to time, without notice to Borrower or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate and
to apply any and all balances held by it at any of its offices for the account
of Borrower (regardless of whether such balances are then due to Borrower) and
any other properties or assets any time held
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or owing by that Lender or that holder to or for the credit or for the account
of Borrower against and on account of any of the Obligations which are not paid
when due. Any Lender or holder of any Note exercising a right to set off or
otherwise receiving any payment on account of the Obligations in excess of its
Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders
shall sell) such participations in each such other Lender's or holder's Pro Rata
Share of the Obligations as would be necessary to cause such Lender to share the
amount so set off or otherwise received with each other Lender or holder in
accordance with their respective Pro Rata Shares. Each Lender's obligation under
this Section 9.8 shall be in addition to and not in limitation of its
obligations to purchase a participation in an amount equal to its Pro Rata Share
of the Swing Line Loans under Section 1.4. Borrower agrees, to the fullest
extent permitted by law, that (a) any Lender or holder may exercise its right to
set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such amount so set off to other
Lenders and holders and (b) any Lender or holders so purchasing a participation
in the Loans made or other Obligations held by other Lenders or holders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender or holder were a
direct holder of the Loans and the other Obligations in the amount of such
participation. Notwithstanding the foregoing, if all or any portion of the
set-off amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of set-off, the purchase of participations
by that Lender shall be rescinded and the purchase price restored without
interest.
9.9 Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert.
(a) Advances; Payments. (i) Revolving Lenders shall refund or
participate in the Swing Line Loan in accordance with clauses (c) and (d) of
Section 1.4. If the Swing Line Lender declines to make a Swing Line Loan or if
Swing Line Availability is zero, Agent shall notify Revolving Lenders, promptly
after receipt of a Notice of Revolving Advance and in any event prior to 12:00
noon (Chicago time) on the date such Notice of Revolving Advance is received, by
telecopy, telephone or other similar form of transmission. Each Lender shall
make the amount of such Lender's Pro Rata Share of each Revolving Credit Advance
and Capital Expenditure Advance available to Agent in same day funds by wire
transfer to Agent's account as set forth in Annex H not later than 2:00 p.m.
(Chicago time) on the requested funding date, in the case of an Index Rate Loan
and not later than 10:00 a.m. (Chicago time) on the requested funding date in
the case of a LIBOR Loan. After receipt of such wire transfers (or, in the
Agent's sole discretion, before receipt of such wire transfers), subject to the
terms hereof, Agent shall make the requested Revolving Credit Advance or Capital
Expenditure Advance to Borrower. All such payments by each Lender shall be made
without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar week or more
frequently as aggregate cumulative payments in excess of $3,000,000 are received
with respect to all Loans (each, a "Settlement Date"), Agent will advise each
Lender by telephone, or telecopy of the amount of such Lender's Pro Rata Share
of principal, interest and Fees paid for the benefit of Lenders with respect to
each applicable Loan. Provided that such Lender has made all payments required
to be made by it and purchased all participations required to be purchased by it
under this Agreement and the other Loan Documents as of such Settlement Date,
Agent will pay to each Lender such Lender's Pro Rata Share of principal,
interest and Fees paid by Borrower since the
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previous Settlement Date for the benefit of that Lender on the Loans held by it.
Such payments shall be made by wire transfer to such Lender's account (as
specified by such Lender in Annex M or the applicable Assignment Agreement) not
later than 1:00 p.m. (Chicago time) on the next Business Day following each
Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may assume
that each Lender will make its Pro Rata Share of each Revolving Credit Advance
and Capital Expenditure Advance available to Agent on each funding date. If such
Pro Rata Share is not, in fact, paid to Agent by such Lender when due, Agent
will be entitled to recover such amount on demand from such Lender without
set-off, counterclaim or deduction of any kind. If any Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Lender or to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that Borrower may have against any Lender
as a result of any default by such Lender hereunder. To the extent that Agent
advances funds to Borrower on behalf of any Lender and is not reimbursed
therefor on the same Business Day as such advance is made, Agent shall be
entitled to retain for its account all interest accrued on such advance until
reimbursed by the applicable Lender.
(c) Return of Payments. (i) If Agent pays an amount to a
Lender under this Agreement in the belief or expectation that a related payment
has been or will be received by Agent from Borrower and such related payment is
not received by Agent, then Agent will be entitled to recover such amount from
such Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Lender (such
Lender, a "Non- Funding Lender") to make any Advance to be made or purchased by
it on the date specified therefor shall not relieve any other Lender (each such
other Lender, an "Other Lender") of its obligations to make such Advance or
purchase such participation on such date, but neither any Other Lender nor Agent
shall be responsible for the failure of any Non-Funding Lender to make an
Advance to be made, or to purchase a participation required hereunder.
Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender
shall not have any voting or consent rights under or with respect to any Loan
Document or constitute a "Lender" (or be included in the calculation of
"Requisite Lenders", "Requisite Capital Expenditure Lenders", "Requisite
Revolving Lenders" or "Supermajority Revolving Lenders" hereunder) for any
voting or consent rights under or with respect to any Loan Document.
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(e) Dissemination of Information. Agent will use reasonable
efforts to provide Lenders with any notice of Default or Event of Default
received by Agent from, or delivered by Agent to, any Credit Party, with notice
of any Event of Default of which Agent has actually become aware and with notice
of any action taken by Agent following any Event of Default; provided, however,
that Agent shall not be liable to any Lender for any failure to do so, except to
the extent that such failure is attributable solely to Agent's gross negligence
or willful misconduct as finally determined by a court of competent
jurisdiction. Lenders acknowledge that Borrower is required to provide Financial
Statements and Collateral Reports to Lenders in accordance with Annexes I and J
hereto and agree that Agent shall have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent or Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
MISCELLANEOUS
10.1 Successors and Assigns. This Agreement and the other
Loan Documents shall be binding on and shall inure to the benefit of Borrower,
Agent, Lenders and their respective successors and assigns, except as otherwise
provided herein or therein. Borrower may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Agent and Requisite Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by Borrower without the prior express written
consent of Agent shall be null and void, as if the same shall have never
occurred. The terms and provisions of this Agreement are for the purpose of
defining the relative rights and obligations of Borrower, Agent and Lenders with
respect to the transactions contemplated hereby and there shall be no third
party beneficiaries of any of the terms and provisions of this Agreement or any
of the other Loan Documents.
10.2 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 10.2. Any Letter of Interest, Commitment Letter, proposal
or other similar letter or understanding between Borrower and Agent or any of
its affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be merged with and into and
superseded by this Agreement.
10.3 Amendments and Waivers. Except for actions expressly
permitted to be taken by Agent, no amendment, modification, termination or
waiver of any provision of this Agreement or any of the Notes, or any consent to
any departure by Borrower or any of its Subsidiaries therefrom, shall in any
event be effective unless the same shall be in writing and signed by Agent and
Borrower, and by Requisite Lenders, Requisite Capital Expenditure Lenders,
Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected
Lenders, as applicable. Except
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as set forth in clauses (b) and (c) below, all such amendments, modifications,
terminations or waivers requiring the consent of any Lenders shall require the
written consent of Requisite Lenders.
(b) No amendment, modification, termination or waiver of or
consent with respect to any provision of this Agreement which increases the
percentage advance rates set forth in the definition of the Borrowing Base, or
which makes less restrictive the nondiscretionary criteria for exclusion from
Eligible Accounts and Eligible Inventory set forth in Annex F and G, shall be
effective unless the same shall be in writing and signed by Agent, Supermajority
Revolving Lenders and Borrower. No amendment, modification, termination or
waiver of or consent with respect to any provision of this Agreement which
waives compliance with the conditions precedent set forth in Section 2.2 to the
making of any Revolving Credit Advance or the incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed by
Agent, Requisite Revolving Lenders and Borrower. No amendment, modification,
termination or waiver of or consent with respect to any provision of this
Agreement which waives compliance with the conditions precedent set forth in
Sections 2.2 or 2.3 to the making of any Capital Expenditure Advance shall be
effective unless the same shall be in writing and signed by Agent, Requisite
Capital Expenditure Lenders and Borrower. Notwithstanding anything contained in
this Agreement to the contrary (i) no waiver or consent with respect to any
Default (if in connection therewith Agent or Requisite Revolving Lenders, as the
case may be, have exercised its or their right to suspend the making or
incurrence of further Revolving Credit Advances or Letter of Credit Obligations
pursuant to Section 8.2(a)) or any Event of Default shall be effective for
purposes of the conditions precedent to the making of Revolving Credit Advances
or the incurrence of Letter of Credit Obligations set forth in Section 2.2
unless the same shall be in writing and signed by Agent, Requisite Revolving
Lenders and Borrower and (ii) no waiver or consent with respect to any Default
(if in connection therewith Agent or Requisite Capital Expenditure Lenders, as
the case may be, have exercised its or their right to suspend the making or
incurrence of further Capital Expenditure Advances pursuant to Section 8.2(a))
or any Event of Default shall be effective for purposes of the conditions
precedent to the making of Capital Expenditure Advances set forth in Sections
2.2 or 2.3 unless the same shall be in writing and signed by Agent, Requisite
Capital Expenditure Lenders and Borrower.
(c) No amendment, modification, termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected thereby,
do any of the following: (i) increase the principal amount of any Lender's
Commitment (which action shall be deemed to directly affect all Lenders); (ii)
reduce the principal of, rate of interest on or Fees payable with respect to any
Loan or Letter of Credit Obligations of any affected Lender; (iii) extend any
scheduled payment date or final maturity date of the principal amount of any
Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any
payment of interest or Fees as to any affected Lender; (v) release any Guaranty
or Pledge Agreement, except as otherwise permitted herein or in the other Loan
Documents, release or permit any Credit Party to sell or otherwise dispose of
any Collateral with a value exceeding $5,000,000 in the aggregate (which action
shall be deemed to directly affect all Lenders); (vi) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Loans which
shall be required for Lenders or any of them to take any action hereunder; and
(vii) amend or waive this Section 10.3 or the definitions of the terms
"Requisite Lenders", "Requisite Capital Expenditure Lenders", "Requisite
Revolving Lenders" or "Supermajority Revolving Lenders" insofar as such
definitions affect the substance of this Section
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10.3. Furthermore, no amendment, modification, termination or waiver affecting
the rights or duties of Agent under this Agreement or any other Loan Document
shall be effective unless in writing and signed by Agent, in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on any Credit Party in any
case shall entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 10.3 shall be binding upon each holder of the Notes at the time
outstanding and each future holder of the Notes.
(d) If, in connection with any proposed amendment,
modification, waiver or termination:
(i) requiring the consent of all affected Lenders,
the consent of Requisite Lenders is obtained, but the consent
of other Lenders whose consent is required is not obtained
(any such Lender whose consent is not obtained as described
this clause (i) and in clauses (ii), (iii) and (iv) below
being referred to as a Non-Consenting Lender), or
(ii) requiring the consent of Supermajority Revolving
Lenders, the consent of Requisite Revolving Lenders is
obtained, but the consent of Supermajority Revolving Lenders
is not obtained, or
(iii) requiring the consent of (a) Requisite
Revolving Lenders, the consent of Lenders holding 51% or more
of the aggregate Revolving Loan Commitments is obtained, but
the consent of Requisite Revolving Lenders is not obtained or
(b) Requisite Capital Expenditure Lenders, the consent of
Lenders holding 51% or more of the aggregate Capital
Expenditure Loan Commitments is obtained, but the consent of
Requisite Capital Expenditure Lenders is not obtained, or
(iv) requiring the consent of Requisite Lenders, the
consent of Lenders holding 51% or more of the aggregate
Commitments is obtained, but the consent of Requisite Lenders
is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower
Representative's request, Agent or a Person acceptable to Agent shall have the
right with Agent's consent and in Agent's sole discretion (but shall have no
obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent's request, sell and
assign to Agent or such Person, all of the Commitments of such Non-Consenting
Lender for an amount equal to the principal balance of all Loans held by the
Non-Consenting Lender and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.
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(e) Upon indefeasible payment in full in cash and performance
of all of the Obligations, termination of the Commitments and a release of all
claims against Agent and Lenders, and so long as no suits, actions proceedings,
or claims are pending or threatened against any Indemnified Person asserting any
damages, losses or liabilities that are Indemnified Liabilities, Agent shall
deliver (and Lenders shall deliver, to the extent not delivered by the Agent and
legally required to be delivered by Lenders) to Borrower termination statements,
mortgage releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.
10.4 Fees and Expenses. Borrower shall reimburse Agent for
all reasonable out-of-pocket expenses reasonably incurred in connection with (a)
the preparation of the Loan Documents (including the reasonable fees and
expenses of all of its special loan counsel, advisors, consultants and auditors
retained in connection with the Loan Documents and the transactions contemplated
thereby and advice in connection therewith), (b) wire transfers to the account
of Borrower and (c) Letter of Credit Obligations. Borrower shall reimburse Agent
(and, with respect to clauses (c) and (d) below, Lenders) for all reasonable
fees, costs and expenses reasonably incurred, including the fees, costs and
expenses of counsel or other advisors (including environmental and management
consultants) for advice, assistance, or other representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf
of Borrower by Lender of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its rights hereunder or
thereunder;
(c) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, Borrower or any other Person)
in any way relating to the Collateral, any of the Loan Documents or any other
agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to Agent by virtue of the Loan Documents;
(d) any attempt to enforce any rights of Agent or any Lender
against Borrower or any other Person that may be obligated to Agent or any
Lender by virtue of any of the Loan Documents;
(e) any work-out or restructuring of the Loans during the
pendency of one or more Events of Default;
(f) any attempt to (i) monitor the Loans or other
Obligations, (ii) evaluate, observe, assess Borrower, any of its Subsidiaries or
their respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
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in each of clauses (a) through (f) above, including all the attorneys' and other
professional and service providers' fees arising from such services, including
those in connection with any appellate proceedings; and all expenses, costs,
charges and other fees incurred by such counsel and others in any way or respect
arising in connection with or relating to any of the events or actions described
in this Section 10.3 shall be payable, on demand, by Borrower to Agent. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplication expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other advisory services. Notwithstanding the foregoing (a) Agent shall charge
Borrower according to Agent's policy in effect from time to time and on the same
basis that Agent charges its other borrowers with respect to fees, costs and
expenses of photocopying and duplication, long distance telephone charges, air
express charges, telegram charges, and secretarial overtime charges and (b) all
fees, costs and expenses incurred in connection with any valuation performed
pursuant to the Warrant shall be governed by the terms of the Warrant.
10.5 No Waiver. Agent's or any Lender's failure, at any time
or times, to require strict performance by Borrower of any provision of this
Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default under this Agreement or any of the other Loan Documents shall not
suspend, waive or affect any other Event of Default under this Agreement and any
of the other Loan Documents whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations of Borrower contained in
this Agreement or any of the other Loan Documents and no Default or Event of
Default by Borrower under this Agreement and no defaults by Borrower under any
of the other Loan Documents shall be deemed to have been suspended or waived by
Agent or any Lender, unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized employee of Agent and
Requisite Lenders and directed to Borrower specifying such suspension or waiver.
10.6 Remedies. Agent's and Lenders' rights and remedies under
this Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Agent or any Lender may have under any other agreement, including
the other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
10.7 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10.8 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement,
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if any provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
10.9 Authorized Signature. Until Agent shall be notified by
Borrower to the contrary, the signature upon any document or instrument
delivered pursuant hereto of an officer of Borrower listed on Schedule 10.8
shall bind Borrower and be deemed to be the act of Borrower affixed pursuant to
and in accordance with resolutions duly adopted by Borrower's Board of
Directors.
10.10 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. BORROWER, AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, CITY OF CHICAGO, ILLINOIS,
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWER, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND
BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF THE COUNTY OF COOK, CITY OF CHICAGO, ILLINOIS AND,
PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND BORROWER HEREBY AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE UPON CT CORPORATION
SYSTEM, 208 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER
PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE IN
WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF
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SERVICE OF ALL PROCESS IN ANY SUCH ACTION OR SUIT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A
COPY OF ANY SUCH PROCESS SO SERVED MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON ANNEX L OF THIS AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY
AGREES THAT THE FOREGOING SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT
NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
10.11 Notices. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
either of the parties by the other party, or whenever either of the parties
desires to give or serve upon the other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (ii)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
10.10), (iii) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (iv) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated on Annex L or to such other address
(or facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated on Annex L
to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
10.12 Section Titles. The Section titles and Table of
Contents contained in this Agreement are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement
between the parties hereto.
10.13 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.
10.14 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING
IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
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QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND
BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. BORROWER WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE
PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
10.15 Reinstatement. This Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against Borrower for liquidation or reorganization, should Borrower become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Borrower's assets, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
10.16 Advice of Counsel. Each of the parties represents to
each other party hereto that it has discussed this Agreement and, specifically,
the provisions of Sections 10.10 and 10.14, with its counsel.
10.17 Confidentiality. So long as no Default or Event of
Default has occurred, Agent and each Lender agrees to exercise reasonable
efforts to keep any non-public information delivered or made available to it
pursuant to this Agreement or any other Loan Document, which Borrower has
identified as confidential information, confidential from all Persons other than
(a) officers, employees, agents, designees, representatives or affiliates of
Agent or Lenders, (b) bona fide prospective or actual assignees, transferees or
participants of Agent or Lenders pursuant to Section 1.20(b) or 9.1, (c)
consultants or advisors that have agreed to comply with this Section 10.14 on
terms and conditions conforming to Agent's policy in effect from time to time,
or (d) as required or requested by any Governmental Authority or representative
thereof or pursuant to a legal process or as required in connection with the
exercise of any remedy under this Agreement or any of the other Loan Documents.
[signature page follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
BAGCRAFT CORPORATION OF AMERICA
By: _______________________________
Title: ____________________________
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and as Lender
By: _______________________________
Title: Duly Authorized Signatory
<PAGE>
ANNEX A
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Agreement shall have (unless
otherwise provided elsewhere in the Agreement) the following respective meanings
and all section references in the following definitions shall refer to sections
of the Agreement:
"Account Debtor" shall mean any Person who may become
obligated to Borrower, or any of its Subsidiaries under, with respect to, or on
account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined
in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, and, in any event, including (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by chattel paper, documents or instruments) now owned or
hereafter received or acquired by or belonging or owing to Borrower or any of
its Subsidiaries, whether arising out of goods sold or services rendered by it
or from any other transaction (including any such obligations which may be
characterized as an account or contract right under the Code), (b) all of
Borrower's and each of its Subsidiaries' rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or services,
(c) all of Borrower's and each of its Subsidiaries' rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all monies due or to become due
to Borrower, or any of its Subsidiaries, under all purchase orders and contracts
for the sale of goods or the performance of services or both by Borrower or any
of its Subsidiaries or in connection with any other transaction (whether or not
yet earned by performance on the part of Borrower or such Subsidiary, as
appropriate) now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing.
"Advance" shall mean any Revolving Credit Advance, Swing Line
Advance or Capital Expenditure Advance, as the context may require.
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean GE Capital or its successor appointed
pursuant to Section 9.2.
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"Agreement" shall mean the Second Amended and Restated Credit
Agreement dated as of the Closing Date by and among Borrower, Agent and Lenders,
including all restatements and modifications thereof and amendments and
supplements thereto and any appendices, exhibits, schedules or annexes to any of
the foregoing, and shall refer to the Agreement as the same may be in effect at
any and all times such reference becomes operative.
"ARTRA" shall mean ARTRA GROUP Incorporated, a Pennsylvania
corporation.
"Asset Disposition" shall mean the sale, transfer, conveyance,
assignment, sale and leaseback or other disposition or the pledge, mortgage or
other encumbrance by Borrower of any of its properties or other assets,
including the capital stock of any Subsidiary or any of its Accounts, except for
the sale of inventory in the ordinary course pursuant to the terms of the
Agreement.
"Assignment Agreement" shall have the meaning assigned to it
in Section 9.1(a).
"Borrower" shall mean Bagcraft Corporation of America, a
Delaware corporation.
"Borrowing Availability" shall have the meaning assigned to it
in Section 1.1(a).
"Borrowing Base" shall mean at any time an amount determined
by Agent from time to time, equal to the sum at such time of:
(a) Up to eighty-five percent (85%) of Eligible Accounts; and
(b) up to (i) fifty-five percent (55%) of Eligible Inventory
not consisting of Min- Max Inventory and (ii) sixty percent (60%) of
Eligible Inventory consisting of Min-Max Inventory, valued, in each
case, on a first-in, first-out basis (at the lower of cost or market).
"Borrowing Base Certificate" shall mean a certificate in the
form attached to the Agreement as Exhibit B.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York or the State of Illinois and in reference to LIBOR Loans shall
mean any such day that is also a LIBOR Business Day.
"Capital Expenditure Advance" shall have the meaning assigned
to it in Section 1.3(a).
"Capital Expenditure Loan" shall mean the aggregate amount of
Capital Expenditure Advances outstanding at any time.
"Capital Expenditure Loan Availability" shall mean, as of any
date of determination, the lesser of (a) the Capital Expenditure Loan Commitment
as of such date less the aggregate amount of all Capital Expenditure Advances
made under this Agreement through such date of determination and (b) the Term
Loan A Commitment less the sum of (i) aggregate amount of all
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Capital Expenditure Advances made under this Agreement through such date of
determination and (ii) the then outstanding aggregate principal amount of Term
Loan A, all of the foregoing calculated without giving effect to any payments or
prepayments of principal in respect of the Capital Expenditure Loan which may
have been made at any time or from time to time on or prior to such date of
determination.
"Capital Expenditure Loan Commitment" shall mean (a) as to any
Lender with a Capital Expenditure Loan Commitment, the aggregate commitment of
such Lender to make the Capital Expenditure Advances as set forth on Annex N or
in the most recent Lender Addition Agreement executed by such Lender and (b) as
to all Lenders with a Capital Expenditure Loan Commitment, the aggregate
commitment of all Lenders to make Capital Expenditure Advances, which aggregate
commitment shall be the lesser of (i) the Maximum Capital Expenditure Loan and
(ii) eighty percent (80%) of the aggregate Hard Costs of all Equipment acquired
with proceeds of the Capital Expenditure Loan.
"Capital Expenditure Loan Note" shall have the meaning
assigned to it in Section 1.3(b).
"Capital Expenditures" shall mean all payments (including all
payments under Capital Leases, installment purchase agreements and other similar
purchase money financing arrangements) for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one (1) year and that are required to be capitalized under GAAP, to
the extent so required.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet, other than, with respect
to such Person, any such lease under which such Person is the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Change in Control" shall mean any event, transaction or
occurrence as a result of which (a) after the Closing Date, any Person or
"group" shall acquire "beneficial ownership" (as such terms are defined under
Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934,
as amended), either directly or indirectly, of more than twenty-five percent
(25%) of the outstanding shares of Stock of ARTRA having the right to vote for
the election of directors of ARTRA under ordinary circumstances, (b) ARTRA shall
cease to own and control all of the economic and voting rights associated with
all outstanding shares of each class of capital Stock of Parent on a fully
diluted basis, (c) Parent shall cease to own and control all of the economic and
voting rights associated with all outstanding shares of each class of capital
Stock of Borrower on a
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fully diluted basis or (d) the existence of any agreement or other document
accomplishing or purporting to accomplish (whether on a conditional basis or
otherwise) any of the foregoing.
"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental taxes (including taxes owed to
the PBGC at the time due and payable), levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) the Collateral, (ii) the
Obligations, (iii) the employees, payroll, income or gross receipts of Borrower
or any of its Subsidiaries, (iv) Borrower's or any of its Subsidiaries'
ownership or use of any of its properties or other assets, or (v) any other
aspect of Borrower's or any of its Subsidiaries' businesses.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by Borrower or any of
its Subsidiaries, wherever located.
"Closing Date" shall mean the date of execution of the
Agreement.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of Illinois; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Agent's or any Lender's security interest
in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Illinois, the term "Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction solely for
purposes of the provisions of the Loan Documents relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
"Collateral" shall mean the property covered by the Collateral
Documents and any other property, real or personal (including Investment
Property), tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Pledge Agreement, the Mortgages, the Copyright Assignments, the Patent and
Trademark Assignments and any other agreement or other document pursuant to
which a security interest or Lien is granted in favor of Agent, on behalf of
itself and Lenders, to secure the Obligations.
"Collateral Reports" shall mean the reports with respect to
the Collateral referred to in Section 3.5.
"Collection Account" shall mean that certain account of Agent,
account number 502 328 54 in the name of General Electric Capital Corporation,
Commercial Finance Group, at Bankers Trust Company, 17 Wall Street, New York,
New York ABA number 021 001 033.
"Commitment" or "Commitments" shall mean (a) as to any Lender,
the aggregate of such Lender's Revolving Loan Commitment (including without
duplication, in the case of the Swing Line Lender, the Swing Line Commitment as
a subset of its Revolving Loan Commitment), Term Loan Commitments and Capital
Expenditure Loan Commitment and (b) as to all Lenders, the
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aggregate of all Lenders' Revolving Loan Commitments (including without
duplication the Swing Line Lender's Swing Line Commitment as a subset of its
Revolving Loan Commitment), Term Loan Commitments and Capital Expenditure Loan
Commitments, which aggregate commitment shall not exceed Fifty Million Five
Hundred Thousand Dollars ($50,500,000) on the Closing Date, as such amount may
be adjusted, if at all, from time to time in accordance with the Agreement.
"Commitment Termination Date" shall mean the earliest of (i)
September 30, 2002, (ii) the date of termination of Lenders' obligations to
advance funds or permit existing advances to remain outstanding pursuant to
Section 8.2, and (iii) the date of indefeasible prepayment in full by Borrower
of all Loans in accordance with the provisions of Section 1.6 and discharge of
all Letter of Credit Obligations and all other Obligations under the Agreement
and the other Loan Documents.
"Concentration Account" shall have the meaning assigned to it
in Annex C.
"Contracts" shall mean all "contracts," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, and, in any event, including all contracts, undertakings, or
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower or any of its Subsidiaries may now or
hereafter have any right, title or interest, including any agreement relating to
the terms of payment or the terms of performance of any Account.
"Copyright Assignments" shall mean the Copyright Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by Borrower
and its Subsidiaries, as each may be amended, restated, supplemented or
otherwise modified from time to time.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by Borrower or any of its Subsidiaries under any written
agreement granting any right to use any Copyright or Copyright registration, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Copyrights" shall mean all of the following now owned or
hereafter acquired by Borrower or any of its Subsidiaries: (i) all copyrights
and general intangibles of like nature (whether registered or unregistered), now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.
"Default" shall mean any event which, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in
Section 1.9(e).
"Disbursement Account" shall have the meaning assigned to it
in Annex C.
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"Distributable Cash" shall mean, for any Fiscal Year of
Borrower, an amount equal to EBITDA minus the sum of (i) Interest Expense, (ii)
Capital Expenditures incurred (but not in excess of Capital Expenditures
permitted for such Fiscal Year under the Loan Documents), (iii) scheduled
payments of principal paid on Funded Debt, and (iv) taxes paid in cash by
Borrower or any of its Subsidiaries, including payments made under the Tax
Sharing Agreement pursuant to Section 6.15.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Documents" shall mean any "documents," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located.
"EBITDA" shall mean for any fiscal period of Borrower, Net
Income before interest, taxes, depreciation, amortization and, to the extent
recognized in determining such Net Income, extraordinary items, as defined by
GAAP.
"Eligible Accounts" shall have the meaning assigned to it in
Annex F.
"Eligible Inventory" shall have the meaning assigned to it in
Annex G.
"Environmental Laws" shall mean all federal, state, local and
foreign laws, statutes, ordinances and regulations, now or hereafter in effect,
and in each case as amended or supplemented from time to time, and any
applicable judicial or administrative interpretation thereof, including any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable real estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 et
seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49
U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. ss.ss. 136 et seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. ss.ss. 6901 et seq.) ("RCRA"); the Toxic
Substance Control Act, as amended (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air
Act, as amended (42 U.S.C. ss.ss. 740 et seq.); the Federal Water Pollution
Control Act, as amended (33 U.S.C. ss.ss. 1251 et seq.); the Occupational Safety
and Health Act, as amended (29 U.S.C. ss.ss. 651 et seq.) ("OSHA"); and the Safe
Drinking Water Act, as amended (42 U.S.C. ss.ss. 300(f) et seq.), and any and
all regulations promulgated thereunder, and all analogous state, local and
foreign counterparts or equivalents and any transfer of ownership notification
or approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, removal actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any person or entity, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil
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statute or common law (including any thereof arising under any Environmental
Law, permit, order or agreement with any Governmental Authority) and which
relate to any health or safety condition regulated under any Environmental Law
or in connection with any other environmental matter or Release, threatened
Release or the presence of a Hazardous Material or threatened Release of a
Hazardous Material.
"Equipment" shall mean all "equipment," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located and, in any event, including all Borrower's and
each of its Subsidiaries' machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment with
software and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks, forklifts, molds, dies,
stamps, motor vehicles, rolling stock and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, all
whether now owned or hereafter acquired, and wherever situated, together with
all additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Borrower or any
of its Subsidiaries, any trade or business (whether or not incorporated) under
common control with Borrower or such Subsidiary, as appropriate, and which,
together with Borrower or such Subsidiary, as appropriate, are treated as a
single employer within the meaning of Sections 414(b), (c), (m) or (o) of the
IRC.
"ERISA Event" shall mean, with respect to Borrower, any of its
Subsidiaries or any ERISA Affiliate, (i) a Reportable Event with respect to a
Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of Borrower, any of
its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal
of Borrower, any of its Subsidiaries or any ERISA Affiliate from any
Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title
IV Plan or the treatment of a plan amendment as a termination under Section 4041
of ERISA; (v) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (vi) the failure to make required contributions
to a Qualified Plan; or (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Title IV Plan
or Multiemployer Plan or the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
"Event of Default" shall have the meaning assigned to it in
Section 8.1.
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"Excess Cash Flow" shall mean the total of the following
(without duplication) with respect to Borrower (i) Distributable Cash, plus (ii)
the net after-tax gains arising from extraordinary items, as defined by GAAP,
minus (iii) income attributable to Asset Dispositions (other than sales of
inventory in the ordinary course).
"Federal Funds Rate" shall mean, for any day, a floating rate
equal to the weighted average of the rates on overnight federal funds
transactions among members of the Federal Reserve System, as determined by
Agent.
"Federal Reserve Board" shall have the meaning assigned to it
in Section 3.11.
"Fees" shall mean any and all fees due to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the financial statements
referred to in Section 3.4.
"Fiscal Month" shall mean any of the monthly accounting
periods of Borrower ending on the Saturday occurring closest to the last day of
each calendar month, except that the last such period occurring in each calendar
year shall end on the last Saturday of such calendar year.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Borrower.
"Fiscal Year" shall mean any of the annual fiscal accounting
periods of Borrower.
"Fixed Charges" shall mean, for any fiscal period of Borrower,
the sum of (i) cash interest expense (whether paid or accrued) in respect of
Funded Debt (excluding, with respect to the Obligations, the difference between
interest charged at the normal rates set forth in the Agreement and interest
charged at the Default Rate), plus (ii) regularly scheduled payments of
principal (whether paid or accrued) on Funded Debt for such fiscal period.
"Funded Debt" shall mean, with respect to Borrower and its
Subsidiaries, on a consolidated and consolidating basis, all of its Indebtedness
which by the terms of the agreement governing or instrument evidencing such
Indebtedness matures more than one (1) year from, or is directly or indirectly
renewable or extendible at its option under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year from the date of creation thereof, including current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and shall also include the Loans,
Letter of Credit Obligations and other Obligations.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, consistently
applied.
"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation having an office at 201 High Ridge Road, Stanford,
Connecticut 06927-5100.
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"GE Capital Fee Letter" shall have the meaning assigned to it
in Section 1.12(a).
"General Intangibles" shall mean any "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by Borrower or
any of its Subsidiaries and, in any event, including all right, title and
interest which Borrower or any of its Subsidiaries may now or hereafter have in
or under any Contract, all customer lists, Copyrights, Trademarks, Patents,
service marks, trade names, business names, corporate names, trade styles, logos
and other source or business identifiers, and all applications therefor and
reissues, extensions or renewals thereof, rights in intellectual property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark license), all
rights and claims in or under insurance policies (including insurance for fire,
damage, loss and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments and rights of indemnification.
"Goods" shall mean all "goods" as such term is defined in the
Code, now owned or hereafter acquired by Borrower or any of its Subsidiaries,
wherever located.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
(i) to purchase or repurchase any such primary obligation, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet condition
of the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (iv) to indemnify the owner of such primary obligation against
loss in respect thereof.
"Hard Costs" shall mean the aggregate cash purchase price paid
or payable by Borrower for the Equipment to which a Capital Expenditure Advance
relates, excluding amounts paid or payable in connection with such assets in
respect of insurance, taxes, tariffs, levies, freight, delivery, crating,
installation, packing, service, maintenance or similar contracts or
arrangements, warranties, software, financing costs, and/or similar costs or
charges so paid or payable.
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"Hazardous Material" shall mean any substance, material or
waste, the generation, handling, storage, treatment or disposal of which is
regulated by or forms the basis of liability now or hereafter under, any
Government Authority in any jurisdiction in which Borrower or any of its
Subsidiaries has owned, leased, or operated real property or disposed of
hazardous materials, or by any Federal government authority, including any
material or substance which is (i) defined as a "solid waste" (other than
non-hazardous waste which is routinely disposed of in the ordinary course of
Borrower's business), "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste" or other
similar term or phrase under any Environmental Laws, (ii) petroleum or any
fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), any
radioactive substance, methane, volative hydrocarbons or any industrial solvent,
(iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. ss.ss. 1251 et seq. (33 U.S.C. ss.ss. 1321) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq. (42 U.S.C. ss. 6903),
or (v) defined as a "hazardous substance" pursuant to Section 1012 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq. (42 U.S.C. ss. 9601).
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured, but excluding obligations to trade creditors incurred in the ordinary
course of business), (ii) all obligations evidenced by notes, bonds, debentures
or similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iv) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under synthetic leases, (v) all Indebtedness referred to in
clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property or other assets (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, (vi) the Obligations, and
(vii) all liabilities under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in
Section 1.17(a).
"Index Margin" shall have the meaning assigned to it in
Section 1.9(c).
"Index Rate" shall mean, for any day, a floating rate equal to
the higher of (i) the rate publicly quoted from time to time by The Wall Street
Journal as the "base rate on corporate loans at large U.S. money center
commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of
the type described, the highest per annum rate of interest published by the
Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus fifty (50) basis points per
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annum. Each change in any interest rate provided for in the Agreement based upon
the Index Rate shall take effect at the time of such change in the Index Rate.
"Index Rate Loan" shall mean a Loan or portion thereof bearing
interest by reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by Borrower or any of its
Subsidiaries, wherever located, and, in any event, including all certificated
securities, all certificates of deposit, including all notes and other evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
"Interest Expense" shall mean, for any fiscal period (a)
interest expense (whether cash or non-cash) of Borrower determined in accordance
with GAAP for the relevant period ended on such date (i) including, in any
event, interest expense with respect to any Funded Debt of such Person and (ii)
excluding, in any event non-cash interest expense (including amortization of
original issue discount) less (b) to the extent included in the determination of
interest expense pursuant to the foregoing clause (a), cash interest income
received by Borrower from ARTRA for the relevant period.
"Inventory" shall mean any "inventory," as such term is
defined in the Code, now or hereafter owned or acquired by, Borrower or any of
its Subsidiaries, wherever located, and, in any event, including inventory,
merchandise, goods and other personal property which are held by or on behalf of
Borrower or any of its Subsidiaries, for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Borrower's or any of its Subsidiaries' businesses or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"Investment Property" shall have the meaning ascribed thereto
in Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall include (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of Borrower, including the
rights of Borrower to any securities account and the financial assets held by a
securities intermediary in such securities account and any free credit balance
or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts held by Borrower; (iv) all commodity
contracts held by Borrower; and (v) all commodity accounts held by Borrower.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor --- thereto.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
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"Kansas Collateral" shall mean the (a) business machinery,
equipment, furnishings and fixtures of Borrower located at the Kansas Facility
and subject to a second Lien (first Lien, in the case of that certain "sheeter"
identified as "machine #141" and located at the Kansas Faciliy) in favor of the
Kansas Lender, which second Lien is fully subordinated to Agent's first priority
Lien pursuant to the terms of the Kansas Loan Documents and (b) Real Estate
constituting the Kansas Facility and subject to a first Lien in favor of the
Kansas Lender pursuant to the Kansas Loan Documents.
"Kansas Facility" shall mean Borrower's owned facility in
Baxter Springs, Kansas.
"Kansas Indebtedness" shall mean, collectively, the
subordinated secured loans made by the Kansas Lender to Borrower on the dates
indicated on Schedule 6.3, consisting of (a) one (1) term loan made by the City
of Baxter Springs, Kansas, in the original maximum principal amount of Two
Hundred Fifty Thousand Dollars ($250,000), (b) a six (6) year term loan made by
the City of Baxter Springs, Kansas in an original maximum principal amount of
Five Million Dollars ($5,000,000) and (c) a minimum five (5) year term loan made
by the City of Baxter Springs, Kansas in an original maximum principal amount of
Seven Million Dollars ($7,000,000) and guaranteed by the State of Kansas and the
United States Department of Housing and Urban Development, all of the foregoing
in form and substance satisfactory to Agent in its sole discretion and
identified on Schedule 6.3 in the manner required by Section 6.3.
"Kansas Lender" shall mean the City of Baxter Springs, Kansas.
"Kansas Loan Documents" shall mean the loan agreements,
security agreements, guarantees, notes and other instruments, documents,
certificates and agreements executed by Borrower and evidencing or relating to
the Kansas Indebtedness and the Kansas Collateral, including the subordination
provisions contained therein and the Kansas Intercreditor Agreements, as each of
the same may be amended, restated, supplemented or otherwise modified and in
effect from time to time, all of the foregoing in form and substance
satisfactory to Agent in its sole discretion.
"Kansas Intercreditor Agreements" shall mean the Intercreditor
Agreements entered into among Agent, on behalf of itself and Lenders (as senior
lenders), Kansas Lender (as subordinated lender), and Borrower, including all
amendments, modifications and supplements thereto, all in form and substance
satisfactory to Agent in its sole discretion, and shall refer to the
Intercreditor Agreements as the same may be in effect at the time such reference
becomes operative.
"Leases" shall mean all leasehold estates in real property now
owned or hereafter acquired by Borrower or any of its Subsidiaries, as lessee,
as each may be amended, restated, supplemented or otherwise modified from time
to time.
"Lenders" shall mean GE Capital and, if at any time GE Capital
shall decide to assign or syndicate all or any portion of the Obligations, such
term shall include such assignee or such other members of the syndicate.
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"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance or guarantee or purchase of a participation, by Lenders or another, of
letters of credit. The amount of Letter of Credit Obligations outstanding at any
time shall equal the maximum amount which may be payable by Lenders thereupon or
pursuant thereto at such time.
"Letters of Credit" shall mean commercial or standby letters
of credit issued at the request and for the account of Borrower for which
Lenders have incurred Letter of Credit Obligations, as each may be amended,
restated, supplemented or otherwise modified from time to time.
"LIBOR Business Day" shall mean a Business Day on which banks
in the city of London are generally open for interbank or foreign exchange
transactions.
"LIBOR Loan" shall mean a Loan or any portion thereof bearing
interest by reference to the LIBOR Rate.
"LIBOR Margin" shall have the meaning assigned to it in
Section 1.9(c).
"LIBOR Period" shall mean, with respect to any LIBOR Loan,
each period commencing on a LIBOR Business Day selected by Borrower pursuant to
the Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.9(f); provided
that the foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if any LIBOR Period would otherwise end on a day that is
not a LIBOR Business Day, such LIBOR Period shall be extended to the
next succeeding LIBOR Business Day unless the result of such extension
would be to carry such LIBOR Period into another calendar month in
which event such LIBOR Period shall end on the immediately preceding
LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date shall end two (2) LIBOR Business Days prior
to such date;
(c) any LIBOR Period pertaining to a LIBOR Loan that begins on
the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such LIBOR Period) shall end on the last LIBOR Business Day of a
calendar month;
(d) Borrower shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be
no more than three (3) separate LIBOR Loans in existence at any one
time.
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"LIBOR Rate" shall mean for each LIBOR Period, a rate of
interest determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for
the applicable LIBOR Period which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the second full LIBOR Business Day next
preceding the first day of each LIBOR Period (unless such date is not a
Business Day, in which event the next succeeding Business Day will be
used); divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve system or other
governmental authority having jurisdiction with respect thereto, as now
and from time to time in effect) for Eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board
which are required to be maintained by a member bank of the Federal
Reserve System (such rate to be adjusted to the nearest one sixteenth
of one percent (1/16th of 1%) or, if there is not a nearest one
sixteenth of one percent (1/16th of 1%), to the next highest one
sixteenth of one percent (1/16th of 1%).
If such interest rates shall cease to be available from
Telerate News Service, the LIBOR Rate shall be determined from such
financial reporting service or other information as shall be mutually
acceptable to Agent and Borrower.
"License" shall mean any Copyright License, Patent License,
Trademark License or other license of rights or interests now held or hereafter
acquired by Borrower or any of its Subsidiaries.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction), any right of any Person
(other than Agent or Lenders) with respect to Collateral not expressly permitted
in accordance with the specific terms of the Loan Documents, or the existence of
any agreement or other document accomplishing or purporting to accomplish
(whether on a conditional basis or otherwise) any of the foregoing.
"Loan Account" shall have the meaning assigned to it in
Section 1.16.
"Loan Documents" shall mean the Agreement, the Notes, the
Collateral Documents, the Warrant and all other agreements, instruments,
documents and certificates identified in Annex D in favor of Agent and/or
Lenders and including all other pledges, powers of attorney, consents,
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assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of Borrower or any of its
Affiliates, or any employee of Borrower, or any of its Affiliates, and delivered
to Agent or any Lender in connection with the Agreement or the transactions
contemplated hereby, together with all documents delivered in connection with
the Prior Credit Agreement, to the extent not amended and restated pursuant to
the Agreement, as each may be amended, restated, supplemented or otherwise
modified from time to time.
"Loans" shall mean the Revolving Credit Loan, the Swing Line
Loan, the Term Loans and the Capital Expenditure Loan, collectively.
"Lock Box Account" shall have the meaning assigned to it in
Annex C.
"Margin Ratio" shall have the meaning assigned to it in
Section 1.9(c).
"Margins" means collectively the Index Margin and the LIBOR
Margin.
"Material Adverse Effect" shall mean (a) a material adverse
effect on (i) the business, assets, operations or financial or other condition
of Borrower or Borrower and its Subsidiaries considered as a whole, (ii)
Borrower's ability to pay any Loan, Advance, Letter of Credit Obligation or
other Obligation in accordance with the terms thereof, (iii) the Collateral or
Agent's Liens, on behalf of itself and Lenders, on the Collateral or the
priority of any such Lien, or (iv) Agent's or any Lender's rights and remedies
under the Agreement and the other Loan Documents or (b) except as otherwise
permitted under the Agreement or the other Loan Documents, the incurrence by
Borrower of any material liability, contingent or liquidated.
"Maximum Capital Expenditure Advance Amount" shall mean, with
respect to any Capital Expenditure Advance, an amount not in excess of 80% of
the Hard Costs of the Equipment to be acquired with the proceeds of such
Advance.
"Maximum Capital Expenditure Loan" shall mean, at any
particular time, an amount equal to Three Million Dollars ($3,000,000), as such
amount may be adjusted, if at all, from time to time in accordance with the
Agreement.
"Maximum Lawful Rate" shall have the meaning assigned to it in Section 1.9(g).
"Maximum Revolving Credit Loan" shall mean, at any particular
time, an amount equal to Eighteen Million Dollars ($18,000,000), as such amount
may be adjusted, if at all, from time to time in accordance with the Agreement.
"Min-Max Contract" shall mean a written agreement between
Borrower and a customer of Borrower containing a firm obligation of such
customer to purchase an amount of Inventory which is not less than the minimum
amount specified therein and not more than the maximum amount specified therein.
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"Min-Max Inventory" shall mean Eligible Inventory which is the
subject of a Min- Max Contract, but only to the extent not exceeding the maximum
amount prescribed by the relevant Min-Max Contract.
"Mortgaged Properties" shall mean all Real Estate owned by
Borrower.
"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by Borrower to Agent, with
respect to the Mortgaged Properties, all in form and substance satisfactory to
Agent, as each may be amended, restated, supplemented or otherwise modified from
time to time.
"Multiemployer Plan" shall mean a "multiemployer plan", as
defined in Section 4001(a)(3) of ERISA, to which Borrower, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to make, or within
the last six (6) years has made or been obligated to make, contributions on
behalf of participants who are or were employed by any of them.
"Net Income" shall mean for any period Borrower's consolidated
net income (or loss) after income and franchise taxes and shall have the meaning
given such term by GAAP; provided, that, there shall be specifically excluded
therefrom the net after-tax gains and losses arising from extraordinary items,
as defined by GAAP.
"Net Proceeds" shall mean all cash proceeds received by
Borrower from any Asset Disposition (including insurance proceeds and awards of
compensation and all payments in respect of any promissory notes or other
non-cash consideration taken as consideration), net of the direct taxes and
reasonable costs and expenses of such Asset Disposition and amounts, if any,
required to be applied to repayment of Indebtedness (other than the Obligations)
secured by any lien, security interest, claim or encumbrance on the asset or
assets so disposed of.
"Non-use Fee" shall have the meaning assigned to it in Section
1.12(b).
"Notes" shall mean the Revolving Credit Notes, the Swing Line
Note, the Term Loan Notes and the Capital Expenditure Loan Notes, collectively.
"Notice of Capital Expenditure Advance" shall have the meaning
assigned to it in Section 1.3(a).
"Notice of Revolving Credit Advance" shall have the meaning
assigned to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts,
liabilities and obligations, for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or amounts are liquidated or determinable) owing by
Borrower to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other
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instrument, arising under the Agreement or any of the other Loan Documents. This
term includes all principal, interest, Fees, Charges, expenses, attorneys' fees
and any other sum chargeable to Borrower under the Agreement or any of the other
Loan Documents.
"Other Taxes" shall have the meaning assigned to it in Section
1.19.
"Parent" shall mean BCA Holdings, Inc., a Delaware
corporation.
"Patent and Trademark Assignments" shall mean the patent and
trademark assignments made in favor of Agent, on behalf of itself and Lenders,
by Borrower and its Subsidiaries, as each may be amended, restated, supplemented
or otherwise modified from time to time.
"Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by Borrower or any of its Subsidiaries granting
any right with respect to any invention on which a Patent is in existence, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Patents" shall mean all of the following in which Borrower or
any of its Subsidiaries now holds or hereafter acquires any interest: (i) all
letters patent of the United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of the United States
or any other country, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any State or Territory thereof, or any other country, and
(ii) all reissues, continuations, continuations-in-part or extensions thereof.
"Payment Date" shall have the meaning assigned to it in
Section 1.2(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not
an individual account plan, as defined in Section 3(34) of ERISA, and which
Borrower or any of its Subsidiaries or, if a Title IV Plan, any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"Permitted Encumbrances" shall mean the following
encumbrances: (i) Liens for taxes or assessments or other governmental Charges
or levies, either not yet due and payable or to the extent that nonpayment
thereof is permitted by the terms of Section 5.2(b); (ii) pledges or deposits of
money securing statutory obligations under workmen's compensation, unemployment
insurance, social security or public liability laws or similar legislation
(excluding Liens under ERISA); (iii) pledges or deposits of money securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which Borrower is a party as lessee made in the ordinary course of business;
(iv) inchoate and unperfected workers', mechanics', suppliers' or similar Liens
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arising in the ordinary course of business; (v) carriers', warehousemen's or
other similar possessory liens arising in the ordinary course of business and
securing indebtedness not yet due and payable in an outstanding aggregate amount
not in excess of Ten Thousand Dollars ($10,000) at any time; (vi) deposits
securing, or in lieu of, surety, appeal or customs bonds in proceedings to which
Borrower is a party; (vii) any attachment or judgment Lien, unless the judgment
it secures shall not, within thirty (30) days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not have been
discharged within thirty (30) days after the expiration of any such stay; (viii)
zoning restrictions, easements, licenses, or other restrictions on the use of
real property or other minor irregularities in title (including leasehold title)
thereto, so long as the same do not materially impair the use, value, or
marketability of such real property, lease or leasehold estate; (ix) purchase
money Liens with respect to Equipment acquired in the ordinary course of
business in accordance with past practice (subject to the limitations on Capital
Expenditures set forth in the Agreement, including Annex K thereto), so long as
such liens attach only to the Equipment so acquired without the proceeds of any
Loan or Advance; and (x) Liens on the Kansas Collateral securing, and granted
upon the incurrence of, the Kansas Indebtedness in accordance with this
Agreement and the Kansas Loan Documents.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, county, city, municipal,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof).
"Plan" shall mean an employee benefit plan, as defined in
Section 3(3) of ERISA, which Borrower or any of its Subsidiaries, on behalf of
participants who are or were employed by any of them (a) currently maintains,
contributes to or has an obligation to contribute to or (b) within the last six
(6) years has maintained, contributed to or had an obligation to contribute to.
"Pledge Agreement" shall mean the Pledge Agreement made by
Parent in favor of Agent, on behalf of itself and Lenders, including all
amendments, restatements and modifications thereof and supplements thereto, and
shall refer to the Pledge Agreement as the same may be in effect at the time
such reference becomes operative.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code and, in any event, shall include (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Borrower or any of its
Subsidiaries from time to time with respect to any of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to Borrower or
any of its Subsidiaries from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (iii) any claim of Borrower or
any of its Subsidiaries against third parties (a) for past, present or future
infringement of any Patent or Patent License, (b) for past, present or future
infringement or dilution of any Copyright or Copyright License or (c) for past,
present or future infringement or dilution of any Trademark or Trademark License
or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License, (iv) any
recoveries by
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Borrower or any of its Subsidiaries against third parties with respect to any
litigation or dispute concerning any of the Collateral, and (v) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral, upon disposition or otherwise.
"Projections" shall mean any and all projections delivered
pursuant to or in connection with the Agreement.
"Pro Rata Share" shall mean with respect to matters relating
to (a) a Lender's portion of Term Loan A, the percentage obtained by dividing
(i) the portion of Term Loan A held by such Lender, by (ii) the outstanding
amount of Term Loan A, (b) a Lender's portion of Term Loan B, the percentage
obtained by dividing (i) the portion of Term Loan B held by such Lender, by (ii)
the outstanding amount of Term Loan B, (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, (d) a Lender's Commitment
with respect to Capital Expenditure Advances (including the making or repayment
of Capital Expenditure Advances pursuant to those Commitments) and, with respect
to all other matters, the percentage obtained by dividing (i) the Capital
Expenditure Loan Commitment of that Lender by (ii) the aggregate Capital
Expenditure Loan Commitments of all Lenders, (e) a Lender's Commitment with
respect to Revolving Credit Advances, Swing Line Advances and Letter of Credit
Obligations (including the making or repayment of Revolving Credit Advances and
Swing Line Advances and incurrence of Letter of Credit Obligations pursuant to
those Commitments) and, with respect to all other matters, the percentage
obtained by dividing (i) the Revolving Loan Commitment (including the Swing Line
Commitment as a subset of the Swing Line Lender's Revolving Loan Commitment) of
that Lender by (ii) the aggregate Revolving Loan Commitments of all Lenders, as
each of the foregoing percentages may be adjusted by assignments permitted
pursuant to Section 9.1, (f) a Lender's portion of all Loans, the percentage
obtained by dividing (i) the aggregate Commitment of such Lender by (ii) the
aggregate Commitments of all Lenders and (g) a Lender's portion of all Loans on
and after the Commitment Termination Date, the percentage obtained by dividing
(i) the aggregate outstanding principal balance of the Loans held by such Lender
by (ii) the aggregate outstanding principal balance of the Loans held by all
Lenders.
"Qualified Plan" shall mean an employee pension benefit plan,
as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under
Section 401(a) of the IRC, and which Borrower, any of its Subsidiaries or any
ERISA Affiliate, on behalf of participants who are or were employed by any of
them (a) currently maintains, contributes to or has an obligation to contribute
to or (b) within the last six (6) years has maintained, contributed to or had an
obligation to contribute to.
"Real Estate" shall mean all of the real estate of Borrower
listed in Schedule 3.7.
"Refunded Swing Line Loan" shall have the meaning assigned to
it in Section 1.4(c).
"Release" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of
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Hazardous Materials in the indoor or outdoor environment by such Person,
including the movement of Hazardous Materials through or in the air, soil,
surface water, ground water or property.
"Reportable Event" shall mean any of the events described in
Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Requisite Lenders" shall mean (a) Lenders having more than
sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or
(b) if the Commitments have been terminated, more than sixty-six and two-thirds
percent (66 2/3%) of the aggregate outstanding amount of all Loans and Letter of
Credit Obligations.
"Requisite Capital Expenditure Lenders" shall mean (a) Lenders
having more than sixty-six and two-thirds percent (66 2/3%) of the Capital
Expenditure Loan Commitments of all Lenders, or (b) if the Capital Expenditure
Loan Commitments have been terminated, more than sixty-six and two-thirds
percent (66 2/3%) of the aggregate outstanding amount of the Capital Expenditure
Loan.
"Requisite Revolving Lenders" shall mean (a) Lenders having
more than sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan
Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been
terminated, more than sixty-six and two-thirds percent (66 2/3%) of the
aggregate outstanding amount of the Revolving Credit Loan and Letter of Credit
Obligations.
"Restricted Payment" shall mean (i) the declaration or payment
of any dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(ii) any payment on account of the purchase, redemption, defeasance or other
retirement of a Person's Stock or any other payment or distribution made in
respect thereof, either directly or indirectly, (iii) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Person, (iv) any dividend, distribution, payment, loan, contribution, fee
or other transfer of cash, property or other assets to any stockholder or
Affiliate of Borrower, including ARTRA or any of its employees, officers,
directors or Affiliates, including Peter R. Harvey or any of his family members
or Affiliates or (v) the existence of any agreement or other document
accomplishing or purporting to accomplish (whether on a conditional basis or
otherwise) any of the foregoing.
"Retiree Welfare Plan" shall mean any Welfare Plan providing
for continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to
it in Section 1.1(a).
"Revolving Credit Loan" shall mean the aggregate amount of
Revolving Credit Advances outstanding at any time.
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"Revolving Credit Note" shall have the meaning assigned to it
in Section 1.1(b).
"Revolving Lender" shall have the meaning assigned to it in
Section 1.4(c).
"Revolving Loan Commitment" shall mean (a) as to any Revolving
Lender, the aggregate commitment of such Lender to make Revolving Credit
Advances (including without duplication Swing Line Advances as a subset of the
Swing Line Lender's Revolving Loan Commitment) and incur Letter of Credit
Obligations as set forth on Annex N or in the most recent Lender Addition
Agreement executed by such Lender and (b) as to all Revolving Lenders, the
aggregate commitment of all Lenders to make Revolving Credit Advances (including
without duplication Swing Line Advances) and incur Letter of Credit Obligations,
which maximum aggregate commitment shall be equal to the Maximum Revolving
Credit Loan.
"Schedule of Accounts" shall mean the schedules of Accounts to
be delivered by Borrower to Agent pursuant to Annex F.
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits, schedules or annexes thereto, listing certain documents
and information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached as Annex D to the Agreement.
"Schedule of Inventory" shall mean the schedules of Inventory
to be delivered by Borrower to Agent pursuant to Annex G, including Borrower's
internal reports classifying and valuing Inventory.
"Security Agreement" shall mean the Security Agreement entered
into among Agent, on behalf of itself and Lenders and Borrower, including all
amendments, restatements and modifications thereof and supplements thereto, and
shall refer to the Security Agreement as the same may be in effect at the time
such reference becomes operative.
"Services Agreement" shall mean the agreement pursuant to
which Borrower and ARTRA each share certain costs and expenses of insurance,
including all amendments, modifications and supplements thereto, all in form and
substance satisfactory to Agent in its sole discretion, and shall refer to such
agreement as the same may be in effect at the time such reference becomes
operative.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests or other equivalents (regardless of how
designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting, including common stock, preferred stock or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).
"Stockholder" shall mean each holder of Stock of Borrower or
any of its Subsidiaries, as the context may require.
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"Subsidiary" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of fifty percent (50%) or more of such Stock
whether by proxy, agreement, operation of law or otherwise and (ii) any
partnership in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than fifty percent (50%) or of which
any such Person is a general partner or may exercise the powers of a general
partner.
"Supermajority Revolving Lenders" shall mean (a) Lenders
having eighty percent (80%) or more of the Revolving Loan Commitments of all
Lenders, or (b) if the Revolving Loan Commitments have been terminated, eighty
percent (80%) or more of the aggregate outstanding amount of the Revolving
Credit Loan (with the Swing Line Loan being attributed to the Lender making such
Loan) and Letter of Credit Obligations.
"Swing Line Advance" has the meaning assigned to it in Section
1.4(a).
"Swing Line Availability" has the meaning assigned to it in
Section 1.4(a).
"Swing Line Commitment" shall mean, as to the Swing Line
Lender, the commitment of the Swing Line Lender to make Swing Line Loans as set
forth on Annex N, which commitment constitutes a subfacility of the Revolving
Loan Commitment of the Swing Line Lender.
"Swing Line Lender" shall mean GE Capital.
"Swing Line Loan" shall mean at any time, the aggregate amount
of Swing Line Advances outstanding to Borrower.
"Swing Line Note" has the meaning assigned to it in Section
1.4(b).
"Tangible Net Worth" shall mean the (a) total assets of
Borrower on a consolidated basis (less applicable reserves and other properly
deductible items), after deducting therefrom organizational expenses, General
Intangibles, goodwill, covenants not to compete, research and development costs,
training costs, and all unamortized debt discount, deferred charges (other than
prepaid insurance and deferred financing fees relating to the Obligations and
the Kansas Indebtedness) and all receivables from Affiliates, including Peter R.
Harvey and ARTRA, less (b) total liabilities of Borrower on a consolidated
basis, which, in the case of all of the foregoing items, would be reflected on a
consolidated balance sheet of Borrower and its Subsidiaries under GAAP.
"Tax Sharing Agreement" shall mean, collectively, each of
those certain Tax Sharing Agreements by and between ARTRA, Borrower and Parent
dated as of January 1, 1991 and March 7, 1991, respectively, including all
amendments, modifications and supplements thereto, all in form
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<PAGE>
and substance satisfactory to Agent in its sole discretion, and shall refer to
the Tax Sharing Agreement as the same may be in effect at the time such
reference becomes operative.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges
or withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Agent or a Lender by the
jurisdictions under the laws of which Agent and Lenders are organized or any
political subdivision thereof.
"Term Loan A" shall have the meaning assigned to it in Section
1.2(a).
"Term Loan A Commitment" shall mean (a) as to any Lender, the
aggregate commitment of such Lender to make Term Loan A as set forth on Annex N
or in the most recent Lender Addition Agreement executed by such Lender and (b)
as to all Lenders, the aggregate commitment of all Lenders to make Term Loan A,
which maximum aggregate commitment shall be Twenty Million Dollars
($20,000,000).
"Term Loan A Note" shall have the meaning assigned to it in
Section 1.2(c).
"Term Loan B" shall have the meaning assigned to it in Section
1.2(d).
"Term Loan B Commitment"shall mean (a) as to any Lender, the
aggregate commitment of such Lender to make Term Loan B as set forth on Annex N
or in the most recent Lender Addition Agreement executed by such Lender and (b)
as to all Lenders, the aggregate commitment of all Lenders to make Term Loan B,
which maximum aggregate commitment shall be Five Million Dollars ($5,000,000).
"Term Loan B Note" shall have the meaning assigned to it in
Section 1.2(f).
"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, the
aggregate commitment of such Lender to make Term Loan C as set forth on Annex N
or in the most recent Lender Addition Agreement executed by such Lender and (b)
as to all Lenders, 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).
"Term Loan Commitment" shall mean (a) as to any Lender, the
aggregate commitment of such Lender to make the Term Loans and (b) as to all
Lenders, the aggregate commitment of all Lenders to make the Term Loans.
"Term Loan Notes" shall mean, collectively, the Term Loan A
Notes, the Term Loan B Notes and the Term Loan C Notes.
23
<PAGE>
"Term Loans" shall mean, collectively, Term Loan A, Term Loan
B and Term Loan C.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by Borrower or any of its Subsidiaries
granting any right to use any Trademark or Trademark registration, as the same
may be amended, restated, supplemented or otherwise modified from time to time.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by Borrower or any of its Subsidiaries: (i) all trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, prints and labels on which any of
the foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; and (ii) all reissues,
extensions or renewals thereof.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (i) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions in
effect under such Title IV Plan, and (ii) for a period of five (5) years
following a transaction reasonably likely to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by
Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of such
transaction.
"Warrant" shall mean the Warrant issued as of December 17,
1993 by Borrower in favor of GE Capital, as heretofore amended, and as
substituted as of the Closing Date, including all other amendments,
restatements, substitutions and modifications thereof and supplements thereto,
all in form and substance satisfactory to Agent in its sole discretion, and
shall refer to the Warrant as the same may be in effect at the time such
reference becomes operative.
"Welfare Plan" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Borrower or any
of its Subsidiaries.
"Withdrawal Liability" shall mean, at any time, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA, with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all
24
<PAGE>
financial computations hereunder shall be computed, unless otherwise
specifically provided herein, in accordance with GAAP consistently applied. That
certain items or computations are explicitly modified by the phrase "in
accordance with GAAP" shall in no way be construed to limit the foregoing. In
the event that any "Accounting Changes" (as defined below) occur and such
changes result in a change in the calculation of the financial covenants,
standards or terms used in the Agreement or any other Loan Document, then
Borrower, Agent and Lenders agree to enter into negotiations in order to amend
such provisions of this Agreement so as to equitably reflect such Accounting
Changes with the desired result that the criteria for evaluating Borrower's and
its Subsidiaries' financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made; provided, further, that
the agreement of Requisite Lenders to any required amendments of such provisions
shall be sufficient to bind all Lenders. "Accounting Changes" means (a) changes
in accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions), and (b) changes in accounting principles
concurred in by Borrower's certified public accountants. In the event, if any,
that Agent, Borrower and Requisite Lenders shall have agreed upon the required
amendments, then after such agreement has been evidenced in writing and the
underlying Accounting Change with respect thereto has been implemented, any
reference to GAAP contained in this Agreement or in any other Loan Document
shall, only to the extent of such Accounting Change, refer to GAAP, consistently
applied after giving effect to the implementation of such Accounting Change. If
Agent, Borrower and Requisite Lenders cannot agree upon the required amendments
within sixty (60) days following the date of implementation of any Accounting
Change, then all financial statements delivered and all calculations of
financial covenants and other standards and terms in accordance with the
Agreement and the other Loan Documents shall be prepared, delivered and made
without regard to the underlying Accounting Change.
All other undefined terms contained in the Agreement or any of
the other Loan Documents shall, unless the context indicates otherwise, have the
meanings provided for by the Code as in effect in the State of Illinois to the
extent the same are used or defined therein. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole,
including the Exhibits, Schedules and Annexes thereto, as the same may from time
to time be amended, modified or supplemented, and not to any particular section,
subsection or clause contained in the Agreement.
Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. The words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations.
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<PAGE>
ANNEX B
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Subject to the terms and conditions of this Agreement, the
Revolving Loan Commitment may, in addition to Revolving Credit Advances, be
utilized, upon the request of Borrower, for the issuance of Letters of Credit or
guaranties thereof by Agent so long as GE Capital is Agent, on behalf of each
Lender (severally and not jointly) according to such Lender's Pro Rata Share of
the Revolving Loan Commitment to guaranty payment to banks (whether or not such
banks are Lenders) which issue Letters of Credit for the account of Borrower.
The aggregate amount of all Letter of Credit Obligations incurred by Agent and
Lenders pursuant to this paragraph (a) shall not exceed the lesser of (i) Three
Million Dollars ($3,000,000), (ii) the Maximum Revolving Credit Loan minus the
sum of the Revolving Credit Loan, Swing Line Loan and Letter of Credit
Obligations then outstanding and (iii) the Borrowing Base minus the sum of the
Revolving Credit Loan, Swing Line Loan and Letter of Credit Obligations then
outstanding and, in the case of the foregoing clauses (ii) and (iii), less
reserves established by Agent pursuant to this Agreement. No such Letter of
Credit shall have an expiry date which is more than one year following the date
of issuance thereof and Agent and Lenders shall be under no obligation to incur
Letter of Credit Obligations in respect of any Letter of Credit having an
initial or extended expiry date, or extension option, which is later than the
Commitment Termination Date. It is understood that the bank or other legally
authorized Person (including any Lender) which shall issue any Letter of Credit
contemplated by this paragraph (a) shall be selected by Borrower and acceptable
to Agent, in its sole discretion.
(b) In the event that any Lender shall make any payment on or
pursuant to any Letter of Credit Obligation, such payment shall then be deemed
automatically to constitute a Revolving Credit Advance under Section 1.1(a) of
the Agreement.
(c) In the event that any Letter of Credit Obligation, whether
or not then due and payable, shall for any reason be outstanding on the
Commitment Termination Date, Borrower will pay to Agent for the benefit of
Lenders cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an
amount equal to the maximum amount then available to be drawn under the
applicable Letter of Credit plus all outstanding fees and expenses relating
thereto. Such funds or Cash Equivalents shall be held by Agent in a cash
collateral account (the "Cash Collateral Account") maintained at Bankers Trust
Company, 17 Wall Street, New York, New York, ABA#: 021 001 033, in the name of
General Electric Capital Corporation, Commercial Finance Group, Acct.#: 502 328
54. The Cash Collateral Account shall be in the name of Agent (as a cash
collateral account), and shall be under the sole dominion and control of Agent
and subject to the terms of this Annex B. Borrower hereby pledges, and grants to
Lender a security interest in, all such funds and Cash Equivalents held in the
Cash Collateral Account from time to time and all proceeds thereof, as security
for the payment of all amounts due in respect of the Letter of Credit
Obligations, whether or not then due. This Agreement shall constitute a security
agreement under applicable law.
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From time to time after funds are deposited in the Cash
Collateral Account, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Lenders with respect to such Letter of Credit Obligations.
Neither Borrower nor any Person claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrower to Lenders in respect thereof, any funds remaining in the
Cash Collateral Account in excess of the then remaining Letter of Credit
Obligations shall be returned to Borrower.
Agent shall not have any obligation to invest the funds in the
Cash Collateral Account or deposit such funds in an interest bearing account,
and interest and earnings thereon, if any, shall be the property of Lenders.
(d) In the event that Lenders shall incur any Letter of Credit
Obligation pursuant hereto at the request or on behalf of Borrower, Borrower
agrees to pay to Agent for the benefit of Lenders, as compensation to Lenders
for such Letter of Obligation, (i) all costs and expenses incurred by any Lender
on account of such Letter of Credit Obligation and (ii) commencing with the
month in which such Letter of Credit Obligation is incurred by Lenders and
monthly thereafter for each month during which such Letter of Credit Obligation
shall remain outstanding, a fee in an amount equal to two percent (2.0%) per
annum of the maximum amount available from time to time to be drawn under the
applicable Letter of Credit, calculated on the basis of a 360-day year and the
actual number of days elapsed; provided, however, that (A) so long as any
Default or Event of Default not described in the following clause (B) shall have
occurred and be continuing, at the election of Agent (or upon the written
request of Requisite Lenders) confirmed by written notice from Agent to Borrower
and (B) so long as any Event of Default specified in Section 8.1(g), (h) or (i)
shall have occurred and be continuing, such fee shall be increased to four
percent (4.0%) per annum, calculated on the basis of a 360-day year and the
actual number of days elapsed. Fees payable in respect of Letter of Credit
Obligations shall be paid to Agent for the benefit of Lenders in arrears, on the
first day of each month. The fees, costs and expenses provided for in this
paragraph (d) are in addition to any fees, costs and expenses payable to the
issuers of the Letters of Credit, all of which are solely for the account of
Borrower.
(e) Request for Lender Guaranties. Borrower shall give Agent
at least two (2) days prior written notice as to the issuance of a Letter of
Credit or letter credit guaranty, specifying the date such Letter of Credit or
guaranty is to be issued, identifying the beneficiary and describing the nature
of the transactions proposed to be supported thereby. The notice shall be
accompanied by the form of the Letter of Credit to be guarantied and, to the
extent not previously delivered to Agent, copies of all agreement between
Borrower the issuer of the Letter of Credit to be guarantied pertaining to the
issuance of Letters of Credit.
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<PAGE>
(f) The obligation of Borrower to reimburse Lenders for
payments made with respect to any Letter of Credit Obligation shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances including the following circumstances:
(1) any lack of validity or enforceability of any Letter of
Credit or any other agreement;
(2) the existence of any claim, set-off, defense or other
right which Borrower or any of its Affiliates or any Lender may at any time have
against a beneficiary or any transferee of any Letter of Credit (or any persons
or entities for whom any such transferee may be acting), any Lender, or any
other Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between Borrower or any of its Affiliates and the beneficiary for
which the Letter of Credit was procured);
(3) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by Agent, any Lender, or the issuing bank under
any Letter of Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of Credit,
provided that, in the case of any payment by Agent or any Lender under any
Letter of Credit, Agent or such Lender has not acted with gross negligence or
willful misconduct (as finally determined by a court of competent jurisdiction)
in determining that the demand for payment under such Letter of Credit or
guaranty thereof complies on its face with any applicable requirements for a
demand for payment under such Letter of Credit or guaranty thereof;
(5) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lenders' Duties. In addition to
amounts payable as elsewhere provided in this Agreement, Borrower hereby agrees
to protect, indemnify, pay and save Agent and each Lender harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) which Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (1) the issuance of any Letter of Credit or
guaranty thereof, other than as a result of the gross negligence or willful
misconduct of Agent or such Lender as finally determined by a court of competent
jurisdiction or (2) the failure of Agent or any Lender to honor a demand for
payment under any Letter of Credit or guaranty thereof as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority.
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As between Agent and Borrower and any Lender and Borrower,
Borrower assumes all risks of the acts and omissions of, or misuse of any Letter
of Credit by beneficiaries of any Letter of Credit. In furtherance and not in
limitation of the foregoing, neither Agent nor any Lender shall be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document issued by any party in connection with the application for and
issuance of any Letter of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided that, in the case of any payment
by Agent under any Letter of Credit or guaranty thereof, Agent has not acted
with gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such Letter of Credit or guaranty
thereof; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document
required in order to make a payment under any Letter of Credit or guaranty
thereof or of the proceeds thereof; (vii) for the credit of the proceeds of any
drawing under any Letter of Credit or guaranty thereof; and (viii) for any
consequences arising from causes beyond the control of Agent or any Lender. None
of the above shall affect, impair, or prevent the vesting of any of Agent's or
any Lender's rights or powers hereunder.
4
<PAGE>
ANNEX C
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
The Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:
Prior to the Closing Date and for so long as any Loan or any
other Obligation is outstanding, Borrower shall deposit and shall cause its
Subsidiaries to deposit or cause to be deposited promptly, and in any event no
later than the first Business Day after the date of receipt thereof, all cash,
checks, drafts or other similar items of payment relating to or constituting
payments made in respect of any and all Collateral into bank accounts in
Borrower's name or such Subsidiary's name (collectively, the "Borrower
Accounts") at banks set forth on Schedule 3.22. Prior to the Closing Date,
Borrower shall have established a concentration account in Borrower's name (the
"Concentration Account") at LaSalle National Bank, which shall be designated as
the Concentration Account bank on Schedule 3.22, in accordance with a blocked
account agreement in form and substance satisfactory to Agent, in its sole
discretion.
Prior to the Closing Date, LaSalle National Bank, as
Concentration Account bank, and all of the banks set forth on Schedule 3.22 with
which Borrower or any Subsidiary thereof has any relationship other than as the
holder of a deposit account, including by way of example any mortgage or other
lending relationship (each such bank a "Relationship Bank"), shall have entered
into triparty blocked account agreements with Agent, for the benefit of itself
and Lenders, and Borrower and/or each such Subsidiary, as applicable, in form
and substance acceptable to Agent, which shall become operative prior to the
Closing Date at LaSalle National Bank, as the bank where the Concentration
Account is maintained, and all Relationship Banks at which Borrower Accounts are
maintained. Borrower shall clearly designate each bank which is a Relationship
Bank as such on Schedule 3.22. Each such blocked account agreement shall
provide, among other things, that:
(i) all items of payment deposited in such Borrower Account
and proceeds thereof deposited in such Concentration Account are held
by such bank as agent or bailee-in- possession for Agent;
(ii) the bank executing such agreement has no rights of setoff
or recoupment or any other claim against such Borrower Account or
Concentration Account, as the case may be, other than for payment of
its service fees and other charges directly related to the
administration of such account and for returned checks or other items
of payment; and
(iii) prior to the Closing Date (A) with respect to each bank
at which a Borrower Account is located, such bank agrees to forward
immediately all amounts in Borrower Account to the Concentration
Account and to commence the process of daily sweeps from such Borrower
Account into the Concentration Account and (B) with respect to the bank
at which the Concentration Account is located, such bank agrees to
forward immediately all
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amounts received in the Concentration Account to the Collection Account
through daily sweeps from such Concentration Account into the
Collection Account.
Prior to the Closing Date, Borrower shall cause each and every
bank at which any Borrower Account is located, including each Relationship Bank
and each of the other banks at which any Borrower Account is located, to (i)
forward immediately, and in no event less frequently than once each Business
Day, all amounts in Borrower Accounts at such bank to the Concentration Account
and (ii) commence, and continue each Business Day, the process of daily sweeps
from each such Borrower Account into the Concentration Account. Prior to the
Closing Date, Borrower shall cause LaSalle National Bank, as the bank where the
Concentration Account is located, to forward immediately all amounts received in
the Concentration Account to the Collection Account through daily sweeps from
such Concentration Account into the Collection Account.
So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Schedule 3.22 to add or replace a Borrower
Account or replace the Concentration Account; provided, however, that (i) Agent
shall have consented in writing to the opening of such account with the relevant
bank, and (ii) prior to the time of the opening of such account, Borrower and/or
the Subsidiaries thereof, as applicable, and such bank shall have executed and
delivered to Agent a triparty blocked account agreement, in form and substance
satisfactory to Agent.
The Borrower Accounts and the Concentration Account shall be
cash collateral accounts, with all cash, checks and other similar items of
payment in such accounts securing payment of all Loans, Letter of Credit
Obligations and other Obligations, and in which Borrower or such Subsidiary
shall have granted a Lien to Agent, on behalf of itself and Lenders, pursuant to
the Security Agreement.
All amounts deposited in the Collection Account shall be
deemed received by Agent in accordance with Section 1.14 of the Agreement and
shall be applied (and allocated) by Agent in accordance with Section 1.15 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the Collection
Account.
The Borrower may maintain, in its name, an account (the
"Disbursement Account") at a bank acceptable to Agent into which, Agent shall,
from time to time, deposit proceeds of Revolving Credit Advances made pursuant
to Section 1.1 of the Agreement and Swing Line Advances made pursuant to Section
1.4 of the Agreement, in each case for use by Borrower solely in accordance with
the provisions of Section 1.8 of the Agreement. The Disbursement Account shall
be a cash collateral account, with all cash, checks and other similar items of
payment in such account securing payment of all Loans, Letter of Credit
Obligations and other Obligations, and in which Borrower shall have granted a
Lien to Agent, for the benefit of itself and Lenders, pursuant to the Security
Agreement. The Disbursement Account shall be subject to a triparty blocked
account agreement identical to the agreement governing Borrower Accounts and the
Concentration Account; provided, however, that, according to the terms thereof,
such agreement shall become effective upon the occurrence of a default or an
Event of Default.
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The Borrower shall and shall cause its Subsidiaries to (i)
hold in trust for Agent, for the benefit of itself and Lenders, all checks, cash
and other items of payment received by Borrower or any such Subsidiary, and (ii)
within one (1) Business Day after receipt by Borrower or any such Subsidiary of
any checks, cash or other items or payment, deposit the same into a Borrower
Account. The Borrower and its Subsidiaries acknowledge and agree that all cash,
checks or items of payment constituting proceeds of Collateral are the property
of Lenders. All proceeds of the sale or other disposition of any Collateral,
other than sales of Inventory by Borrower in the ordinary course of business,
shall be deposited directly into the Concentration Account.
(i) Notwithstanding the foregoing, Borrower shall deliver to
Agent as soon as possible and in any event within 45 days after the Closing Date
a fully executed blocked account agreement, in accordance with the foregoing,
with respect to Borrower's bank account, number 1350016640, maintained at Union
Planters Bank, Hialeah, Florida.
3
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ANNEX D
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SCHEDULE OF DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(b) of the Agreement, the following
items must be received by Agent in form and substance satisfactory to Agent on
or prior to the Closing Date (each capitalized term used but not otherwise
defined herein shall have the meaning ascribed thereto in Annex A to the
Agreement):
Exhibits, Schedules and Annexes. All Exhibits, Schedules and
Annexes to the Agreement, in form and substance satisfactory to Agent.
Revolving Credit Notes. For each Revolving Lender, one (1)
duly executed original Revolving Credit Note, dated the Closing Date.
Swing Line Note. For the Swing Line Lender, one (1) duly
executed original Swing Line Note, dated the Closing Date.
Term Loan A Notes. For each Lender with a Term Loan A
Commitment, one (1) duly executed original Term Loan A Note, dated the Closing
Date.
Term Loan B Notes. For each Lender with a Term Loan B
Commitment, one (1) duly executed original Term Loan B Note, dated the Closing
Date.
Term Loan C Notes. For each Lender with a Term Loan C
Commitment, one (1) duly executed original Term Loan C Note, dated the Closing
Date.
Capital Expenditure Loan Notes. For each Lender with a Capital
Expenditure Loan Commitment, one (1) duly executed original Capital Expenditure
Loan Note, dated the Closing Date.
Security Agreement . A duly executed Security Agreement,
amended and restated as of the Closing Date, including a power of attorney and
all other instruments, documents and agreements executed pursuant thereto, all
in form and substance satisfactory to Agent.
Copyrights, Patents and Trademarks. Duly executed supplements
to Borrower's Copyright Assignment and Patent and Trademark Assignment, with
respect to any applicable Collateral not secured pursuant thereto as of the
Closing Date.
Pledge Agreement . A duly executed Pledge Agreement, amended
and restated as of the Closing Date, including all instruments, documents and
agreements executed pursuant thereto, all in form and substance satisfactory to
Agent.
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Warrant. A duly executed replacement Warrant, dated the
Closing Date, including all instruments, documents and agreements executed
pursuant thereto, all in form and substance satisfactory to Agent.
Other Loan Documents. Evidence satisfactory to Agent that all
other Loan Documents are in full force and effect as of the Closing Date.
Security Interests and Code Filings. Except as received by
Agent pursuant to the Prior Credit Agreement, evidence satisfactory to Agent
that Agent (for the benefit of itself and Lenders) has a valid and perfected
first priority (other than to the extent otherwise permitted in accordance with
Section 6.7 of the Agreement) security interest in the Collateral.
Cash Management System; Blocked Account Agreements. Except as
received by Agent pursuant to the Prior Credit Agreement, evidence satisfactory
to Agent that, prior to the Closing Date, cash management systems, including
Blocked Account Agreements (amended as Agent may deem necessary) complying with
Annex C to the Agreement are currently maintained in the manner set forth in
such Annex C.
Mortgage Amendments. Amendments to the Mortgages, covering all
of the Real Estate (each, a "Mortgaged Property"), dated the Closing Date,
satisfactory in form and substance to Agent for recording in all places to the
extent necessary to maintain valid and enforceable first priority lien (subject
to Permitted Encumbrances) on each Mortgaged Property.
Insurance. Except as recently received by Agent pursuant to
the Prior Credit Agreement, updated certificates of insurance relating to the
insurance policies required by Section 5.5 of the Agreement, showing loss
payable and/or additional insured clauses or endorsements, in favor of Agent, on
behalf of Lenders.
Waivers. Except as received by Agent pursuant to the Prior
Credit Agreement, landlord waivers and consents, bailee letters and mortgagee
agreements in form and substance satisfactory to Agent and amended as Agent may
deem necessary, in each case as required pursuant to Section 5.11 of the
Agreement.
Fee Letter. A duly executed original of the GE Capital Fee
Letter.
Initial Borrowing Base Certificate. A duly executed Borrowing
Base Certificate most recently required to be delivered pursuant to the Prior
Credit Agreement.
Initial Notice of Revolving Credit Advance. A duly executed
Notice of Revolving Credit Advance, dated on or prior to the Closing Date, with
respect to the initial Revolving Credit Advance, if any, to be requested by
Borrower on the Closing Date.
Financial Statements and Collateral Reports. All Financial
Statements and Collateral Reports most recently required to be delivered
pursuant to the Prior Credit Agreement.
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Officer's Certificate. A duly executed original of a
certificate of the chief executive officer or chief financial officer of
Borrower, dated the Closing Date, stating that since December 31, 1996, there
has been: (i) no Material Adverse Effect on the business, operations, financial
condition, prospects or projections of Borrower, the industries in which it
operates, the Collateral, or any of its Subsidiaries; (ii) no litigation has
commenced which, if successful, could have any such Material Adverse Effect or
could challenge any of the transactions contemplated by this Agreement and the
other Loan Documents; (iii) except as expressly permitted in accordance with the
Prior Credit Agreement, no dividends, distributions, payments, loans,
contributions, fees or other transfers of cash, property or other assets to any
stockholders or Affiliate of Borrower, including ARTRA or its employees,
directors, officers or Affiliates; and (iv) no material increase in liabilities,
liquidated or contingent, and no material decrease in assets of Borrower or any
of its Subsidiaries.
Charter and Good Standing. For Parent, Borrower and each of
its Subsidiaries, such Person's (a) certificate or articles of incorporation and
all amendments thereto, (b) good standing certificates (including verification
of tax status) in its state of incorporation and (c) good standing certificates
(including verification of tax status) and certificates of qualification to
conduct business in each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, each of the
foregoing dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized governmental entity.
Bylaws and Resolutions. For Parent, Borrower and each of its
Subsidiaries (a) such Person's bylaws, together with all amendments thereto, and
(b) resolutions of such Person's Board of Directors and, as required,
stockholders, approving and authorizing the execution, delivery and performance
of the Loan Documents to which such Person is a party and the transactions to be
consummated in connection therewith, each of the foregoing certified as of the
Closing Date by such Person's corporate secretary or an assistant secretary as
being in full force and effect without any modification or amendment.
Incumbency Certificates. For Parent, Borrower and each of its
Subsidiaries, signature and incumbency certificates of the officers of each such
Person executing any of the Loan Documents, certified as of the Closing Date by
such Person's corporate secretary or an assistant secretary as being true,
accurate, correct and complete.
Opinions of Counsel. Duly executed originals of an opinion of
Kwiatt, Silverman and Ruben, Ltd., General Counsel for Parent, Borrower and its
Subsidiaries, in form and substance satisfactory to Agent and its counsel, dated
the Closing Date, and accompanied by a letter addressed to such counsel from
Parent, Borrower and its Subsidiaries, authorizing and directing such counsel to
address its opinion to Agent, on behalf of Lenders, and to include in such
opinion an express statement to the effect that Agent and Lenders are authorized
to rely on such opinion.
Other Documents. Such other certificates, documents and
agreements respecting Borrower or any of its Subsidiaries, as Agent may request
in its sole discretion, including the GE Capital Fee Letter.
3
<PAGE>
ANNEX E
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
RESPONSIBLE INDIVIDUAL
Telephone #
Name and Title Notice Address Telecopy #
James Hogan / General Electric 203-316-7500
Bagcraft Account Manager Capital Corporation 203-316-7893
Commercial Finance, Inc.
201 High Ridge Road
Stamford, CT 06927-5100
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<PAGE>
ANNEX F
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
ELIGIBLE ACCOUNTS
In determining whether an account constitutes an Eligible
Account, Agent shall not include any Account:
(a) which does not arise from the sale of goods or the
performance of services by Borrower in the ordinary course of its business;
(b) upon which (i) Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) against which is asserted any defense, counterclaim,
setoff or dispute, but only to the full extent of such defense, counterclaim,
setoff or dispute;
(d) that is not a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise sold and
accepted by the Account Debtor obligated upon such Account;
(e) with respect to which an invoice, acceptable to Agent in
form and substance, has not been sent;
(f) that (i) is not owned by Borrower or (ii) is subject to
any right, claim, security interest or other interest of any other Person, other
than the Lien in favor of Agent, on behalf of itself and Lenders;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of Borrower or any Subsidiary thereof, or to any entity
which has any common officer or director with Borrower or any Subsidiary
thereof;
(h) that is the obligation of an Account Debtor that is the
United States government or a political subdivision thereof, unless Agent, in
its sole discretion, has agreed to the contrary in writing and Borrower, if
necessary or desirable as determined by Agent, has complied with the Federal
Assignment of Claims Act of 1940, and any amendments thereto, with respect to
such obligation;
(i) that is the obligation of an Account Debtor located in a
foreign country, other than (i) Canada, provided, that, such obligation is
denominated entirely in United States dollars and is fully payable within the
United States or (ii) a foreign country, provided, that, such obligation is
backed by a letter of credit or other credit enhancement in form and substance
acceptable to Agent in its sole discretion and the same has been delivered to
Agent and, provided, further, that, if any
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Default or Event of Default shall have occurred and be continuing, Borrower
shall notify the issuer of such letter of credit or other credit enhancement
that the same has been assigned to Agent, on behalf of Agent and Lenders, in
accordance with Section 5-116(2)(b) of the Code;
(j) that is the obligation of an Account Debtor to whom
Borrower or any Subsidiary thereof is liable for goods sold or services rendered
by the Account Debtor to Borrower or any Subsidiary thereof, but only to the
full extent of all such liabilities in the aggregate with respect to such
Account Debtor;
(k) that arises with respect to goods which are delivered on a
cash-on-delivery basis or placed on consignment, guaranteed sale or other terms
by reason of which the payment by the Account Debtor is or may be conditional;
(l) that is in default; provided, further, that, without
limiting the generality of the foregoing, an Account shall be deemed in default
upon the occurrence of any of the following:
(i) the Account is not paid within the earlier of: sixty (60)
days past its due date or ninety (90) days past its original invoice
date;
(ii) if any Account Debtor obligated upon such Account
suspends business, makes a general assignment for the benefit of
creditors or fails to pay its debts generally as they come due; or
(iii) if any petition is filed by or against any Account
Debtor obligated upon such Account under any bankruptcy law or any
other federal, state or foreign (including any provincial)
receivership, insolvency relief or other law or laws for the relief of
debtors;
(m) which is the obligation of an Account Debtor that has
failed to make a payment within sixty (60) days past the applicable due date on
fifty percent (50%) or more of the dollar amount of Accounts upon which such
Account Debtor is obligated (Borrower shall be entitled to notify Agent
regarding the circumstances of such payment failure, and, thereafter, Agent, in
its sole and absolute discretion, may choose to include all or a portion, if
any, of such account as an Eligible Account);
(n) which is due more than ninety (90) days from the date of
determination of eligibility thereof;
(o) which arises from any bill-and-hold or other sale of goods
which remain in Borrower's or any Subsidiary thereof's possession or under
Borrower's or any such Subsidiary's control, but only to the fullest extent of
that portion of such goods not actually billed and shipped at the time of
Agent's determination thereof;
(p) as to which Agent's interest, on behalf of itself and
Lenders, therein is not a first priority perfected security interest;
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<PAGE>
(q) as to which any of the representations or warranties
pertaining to Accounts set forth in the Agreement or any of the other Loan
Documents is untrue;
(r) to the extent such Account exceeds any credit limit
established by Agent, in its reasonable discretion;
(s) to the extent such Account is evidenced by any note; or
(t) which is otherwise unacceptable to Agent in its sole
discretion.
3
<PAGE>
ANNEX G
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
ELIGIBLE INVENTORY
In determining whether Inventory constitutes Eligible Inventory, Agent
shall not include Inventory which:
(a) is not owned by Borrower free and clear of all Liens and
rights of any other Person, except the Liens in favor of Agent, on behalf of
itself and Lenders, and encumbrances set forth in clause (v) or (vi) of the
definition of Permitted Encumbrances;
(b) except as set forth in clause (c) below with respect to
goods which are "in transit," is not located on premises owned, operated or
leased by Borrower;
(c) consists of goods which are "in transit", except to the
extent shipped (i) F.O.B. point of shipment and/or (ii) on vehicles owned by
Borrower or common carriers employed by, or subject to the direction of,
Borrower; provided, that, Borrower maintains (A) appropriate and adequate
casualty insurance with respect to goods shipped on such common carriers, in
form and with insurers recognized as adequate by Agent, together with
appropriate evidence showing loss payable clauses or endorsements in favor of
Agent, on behalf of Lenders, in form and substance satisfactory to Agent and (B)
adequate reserves on its books, in accordance with GAAP, with respect to all
amounts charged by, and all other fees and expenses associated with, such common
carriers;
(d) is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory has been
delivered to Agent;
(e) in Agent's reasonable credit judgement, is obsolete,
unsalable, shopworn, damaged or unfit for sale;
(f) consists of display items or shipping materials;
(g) consists of packing materials, but only to the full extent
that the same are (i) customized or specialized for or on behalf of Borrower or
(ii) not maintained in "full pallets" or are otherwise maintained in broken or
incomplete packages or sets;
(h) consists of goods which have been returned by the buyer;
(i) consists of discontinued or slow-moving items or finished
goods of substandard quality;
(j) is placed by Borrower on consignment;
(k) is not of a type held for sale in the ordinary course of
Borrower's business;
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(l) as to which Agent's interest, on behalf of itself and
Lenders, therein is not a first priority perfected security interest;
(m) as to which any of the representations or warranties
pertaining to Inventory set forth in the Agreement or any of the other Loan
Documents is untrue;
(n) is located at a public warehouse, unless Agent has
received therefrom a copy of a duly executed bailee letter, in form and
substance acceptable to Agent in its sole discretion;
(o) consists of supplies or work-in-process;
(p) is otherwise unacceptable to Agent in its sole discretion.
In addition, Inventory located at an owned or leased location
shall be subject to the provisions set forth in Section 5.11 and 5.12 of the
Agreement.
2
<PAGE>
ANNEX H
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Insurance Standards
1. Borrower shall, and shall cause each of its Subsidiaries
to, at its sole cost and expense, maintain "All Risk" physical damage insurance
on all real and personal property, including fire and extended coverage, boiler
and machinery coverage, flood, earthquake, liquids, theft, explosion, collapse
and all other hazards and risks ordinarily insured against by owners or users of
such properties in similar businesses. All policies of insurance on such
property shall contain an endorsement, in form and substance satisfactory to
Agent, showing loss payable to Agent as its interests appear.
2. Borrower shall, at its sole cost and expense, maintain
commercial general liability insurance on an "occurrence basis" (unless such
insurance cannot be reasonably obtained at commercially reasonable rates, in
which case such insurance shall be on a "claims made" basis) against claims for
personal injury, bodily injury and property damage with a minimum limit of
$1,000,000 per occurrence and $2,000,000 in the aggregate. Such coverage shall
include, but not be limited to, premises/operations, broad form contractual
liability, underground, explosion and collapse hazard, independent contractors,
broad form property coverage, products and completed operations liability.
Borrower shall, at its sole cost and expense, maintain workers' compensation
insurance including employer's liability in the amount of $500,000 for each
accident, $500,000 disease-policy limit, and $500,000 disease-each employee.
3. Borrower shall, at its sole cost and expense, maintain
automobile liability insurance for all owned, non-owned or hired automobiles
against claims for personal injury, bodily injury and property damage with a
minimum combined single limit of $1,000,000 per occurrence.
4. Borrower shall, at its sole cost and expense, maintain
umbrella policies of insurance in form and substance substantially similar to
each of the umbrella policies which it maintains on the Closing Date, with, in
any event, a minimum combined limit of $25,000,000 in the aggregate.
5. All policies of insurance required to be maintained under
this Agreement shall (i) include Agent as an additional insured, (ii) contain a
30-day advance notice of alteration or cancellation, (iii) provide that no act
or default by Borrower, any Subsidiary or any other Person shall affect the
right of Agent to recover under such policy or policies of insurance in case of
loss or damage, (iv) be in form substantially similar to those in effect on the
Closing Date and be with insurers rated at least A by A.M. Best and (v) be in
not less than the amounts set forth herein.
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<PAGE>
ANNEX I
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS
Borrowers shall deliver or cause to be delivered to Agent or
to Agent and Lenders, as indicated, the following:
(a) To Agent and Lenders, within thirty (30) days after the
end of each Fiscal Month, consolidated and consolidating financial and other
information regarding Borrower and its Subsidiaries, certified by the chief
financial officer of Borrower, including (i) unaudited balance sheets as of the
close of such Fiscal Month and the related statements of income and cash flow
for that portion of the Fiscal Year ending as of the close of such Fiscal Month
and (ii) unaudited statements of income and cash flows for such Fiscal Month, in
each case setting forth in comparative form the figures for the corresponding
period in the prior year and the figures contained in the budget, all prepared
in accordance with GAAP (subject to normal year-end adjustments), except for the
absence of footnotes and except as otherwise disclosed therein in reasonable
detail, and accompanied by (A) a statement in reasonable detail showing the
calculations used in determining compliance with the financial covenants set
forth on Annex K and (B) the certification of the chief executive officer or
chief financial officer of Borrower that all of such financial and other
information is true, complete and correct and presents fairly in accordance with
GAAP (subject to normal year-end adjustments), except for the absence of
footnotes and except as otherwise disclosed therein in reasonable detail, the
financial position, results of operations and statements of cash flows of
Borrower and its Subsidiaries, on both a consolidated and consolidating basis,
as at the end of such Fiscal Month and for the period then ended, and that there
was no Default or Event of Default in existence as of such time or, if a Default
or Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default.
In addition, Borrower shall deliver to Agent and Lenders,
within thirty (30) days after the end of each Fiscal Month, a management
discussion and analysis which includes a comparison to budget for that Fiscal
Month and a comparison of performance for that Fiscal Month to the corresponding
period in the prior year;
(b) To Agent and Lenders, within sixty (60) days after the end
of each Fiscal Year, an operating plan, approved by the Board of Directors of
Borrower, for such applicable Fiscal Year, which will include a complete
statement of the assumptions on which such plan is based, will include monthly
balance sheets and a monthly budget for such applicable Fiscal Year and will
integrate sales, gross profits, operating expenses, operating profit, cash flow
projections and borrowing availability projections all prepared on the same
basis as that on which operating results are reported, and plans for personnel,
capital expenditures (with a separate description for Capital Expenditures
constituting the acquisition cost of Equipment to be financed with proceeds of
Capital Expenditure Advances) and facilities; all of which shall be in detail
acceptable to Agent in its sole discretion;
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(c) To Agent and Lenders, contemporaneously with ARTRA's
filing thereof with the Securities and Exchange Commission, audited financial
statements, for Borrower and its Subsidiaries, on a consolidated basis,
consisting of balance sheets and statements of income and retained earnings and
cash flows, setting forth in comparative form in each case the figures for the
previous Fiscal Year and the figures contained in the budget, which financial
statements shall be prepared in accordance with GAAP, certified (only with
respect to the consolidated financial statements) without qualification, by an
independent certified public accounting firm of national standing or otherwise
acceptable to Agent, and accompanied by (i) a statement prepared in reasonable
detail showing the calculations used in determining compliance with each of the
financial covenants set forth on Annex K, (ii) a report from such accounting
firm to the effect that, in connection with their audit examination, nothing has
come to their attention to cause them to believe that a Default or Event of
Default has occurred (or specifying those Defaults and Events of Default that
they became aware of), (iii) a letter addressed to Agent, on behalf of itself
and Lenders, in form and substance reasonably satisfactory to Agent, signed by
such accounting firm acknowledging that Agent and Lenders are entitled to rely
upon such accounting firm's certification of such audited financial statements,
(iv) the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and material litigation matters and
(v) the certification of the chief executive officer or chief financial officer
of Borrower that all such financial statements are true, complete and correct
and present fairly in accordance with GAAP the financial position, results of
operations and statements of cash flows of Borrower and its Subsidiaries, on a
consolidated basis, as at the end of such year and for the period then ended,
and that there was no Default or Event of Default in existence as of such time
or, if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default;
(d) To Agent and Lenders, within five (5) Business Days after
receipt thereof by Borrower, copies of all management letters, exception reports
or similar letters or reports, if any, received by Borrower from its independent
certified public accountants;
(e) To Agent and Lenders, as soon as practicable, and in any
event within five (5) Business Days after Borrower becomes aware of the
existence of any Default or Event of Default, or any development or other
information which could have or result in a Material Adverse Effect, telephonic
or telecopied notice specifying the nature of such Default or Event of Default
or development or information, including the anticipated effect thereof, which
notice, if given telephonically, shall be promptly confirmed in writing on the
next Business Day; and
(f) To Agent and Lenders, as soon as reasonably practicable
after Agent's request therefor, such other financial and other information
respecting Borrower's or its Subsidiaries', businesses, financial condition or
prospects as Agent (or any Lender through Agent) shall request from time to time
with reasonable frequency (unless a Default or Event of Default shall have
occurred and be continuing, in which event Agent or Lenders may make requests at
any and all times).
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<PAGE>
ANNEX J
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
COLLATERAL REPORTS
Borrowers shall deliver or cause to be delivered to Agent or
to Agent and Lenders, as indicated, the following:
(a) To Agent, upon its request, and in no event less
frequently than for each Fiscal Month received within fifteen (15) days after
the end of such Fiscal Month (together with a copy of all or any part of such
delivery requested by any Lender in writing after the Closing Date), a Borrowing
Base Certificate, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its sole discretion.
(b) To Agent, on a weekly basis, or daily as Agent may request
in its sole discretion (together with a copy of all or any part of such delivery
requested by any Lender in writing after the Closing Date), collateral reports,
including all additions and reductions (cash and non-cash) with respect to
Accounts, in each case accompanied by such supporting detail and documentation
as shall be requested by Agent in its sole discretion;
(c) To Agent, upon its request, and in no event less
frequently than fifteen (15) days after the last day of each Fiscal Month, and,
in the event, if any, that Borrowing Availability less the then outstanding
balance of the Revolving Credit Loan falls below $1,000,000, no less frequently
than fifteen (15) days after both the fifteen (15th) day and the last day of
each Fiscal Month, a summary of Inventory by location and type with a supporting
perpetual Inventory report, in each case accompanied by such supporting detail
and documentation as shall be requested by Agent in its sole discretion;
(d) To Agent, within twenty (20) days of the end of each
Fiscal Month, (i) a monthly trial balance showing Accounts outstanding aged from
invoice due date as follows: current, 1 to 30 days, 31 to 60 days, 61 to 90 days
and 91 days or more, and (ii) a complete Inventory report in detail satisfactory
to Agent; in each case accompanied by such supporting detail and documentation
as shall be requested by Agent in its sole discretion;
(e) To Agent, at the time of delivery of each of the monthly
financial statements delivered pursuant to Annex I, a reconciliation of the
Accounts trial balance and month-end Inventory reports to Borrower's general
ledger and monthly financial statements delivered pursuant to such Annex I, in
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its sole discretion; and
(f) Such other reports, statements and reconciliations with
respect to the Borrowing Base or Collateral as Agent shall from time to time
request in its sole discretion.
1
<PAGE>
ANNEX K
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied:
(a) EBITDA. Borrower and its Subsidiaries on a consolidated
basis shall have, measured for the trailing twelve (12) Fiscal Month
period ended on the last day of each Fiscal Quarter ending during each
calendar month set forth below, EBITDA equal to or greater than the
amounts set forth opposite each of such periods:
Calendar Month Amount
March, 1998 $ 8,500,000
June, 1998 $ 8,500,000
September, 1998 $ 9,000,000
December, 1998 $ 9,000,000
March, 1999 $ 9,500,000
June, 1999 $ 9,500,000
September, 1999 $ 10,000,000
December, 1999 $ 10,000,000
March, 2000 $ 10,500,000
June, 2000 $ 10,500,000
September, 2000 $ 11,000,000
December, 2000 and each calendar $ 11,000,000
month thereafter
(b) EBITDA to Interest Expense. Borrower and its Subsidiaries
on a consolidated basis shall have, measured for the trailing twelve
(12) Fiscal Month period ended on the last day of each Fiscal Quarter
ending during each Fiscal Year set forth below, a ratio of (i) EBITDA
to (ii) Interest Expense equal to or greater than the ratios set forth
opposite each of such periods:
Fiscal Year Ratio
1998 2.80 to 1:00
1999 3.00 to 1:00
2000 and each Fiscal Year thereafter 3.20 to 1:00
(c) EBITDA to the sum of Fixed Charges and Capital
Expenditures. Borrower and its Subsidiaries on a consolidated basis
shall have, measured for the trailing twelve (12) Fiscal Month period
ended on the last day of each Fiscal Quarter, a ratio of (i) EBITDA to
1
<PAGE>
(ii) the sum of (x) Fixed Charges and (y) Capital Expenditures equal to
or greater 1:00 to 1:00:
(d) Consolidated Tangible Net Worth. Borrower, its
Subsidiaries on a consolidated basis shall have, measured as of the end
of the trailing twelve (12) Fiscal Month period ended on the last day
of each Fiscal Quarter ending during each calendar month set forth
below, Tangible Net Worth equal to or greater than the amounts set
forth opposite each of such dates:
Calendar Month Amount
December, 1998 ($13,000,000)
March, 1999 ($11,000,000)
June, 1999 ($11,000,000)
September, 1999 ($ 9,000,000)
December, 1999 ($ 9,000,000)
March, 2000 ($ 7,000,000)
June, 2000 ($ 7,000,000)
September, 2000 ($ 7,000,000)
December, 2000 and each calendar ($ 5,000,000)
month thereafter
(e) Maximum Capital Expenditures. Borrower and its
Subsidiaries on a consolidated basis shall not make Capital
Expenditures that exceed in the aggregate the amount set forth opposite
each Fiscal Year set forth below:
Fiscal Year Amount
1998 $4,500,000
1999 and each Fiscal Year thereafter $3,000,000
(f) Notwithstanding anything contained in the Agreement or any
other Loan Document to the contrary, for purposes of calculating
compliance with (i) clauses (a), (b) and (c) above, in calculating
EBITDA for any period of determination there shall be included therein,
without duplication, non-cash ESOP, 401K and phantom stock expenses for
such period, as reflected on the books of Borrower in accordance with
GAAP, (ii) clauses (c) and (e) above, in calculating Capital
Expenditures for any period of determination there shall be excluded
therefrom Capital Expenditures made during such period pursuant to
Section 1.6(d) of the Agreement.
2
<PAGE>
ANNEX L
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
NOTICE ADDRESSES*
(a) If to Borrower:
Bagcraft Corporation of America
3900 West 43rd Street
Chicago, Illinois 60632
Attention: Chief Financial Officer
Telecopy No.: (773) 254-5216
With copies to:
Kwiatt, Silverman and Ruben, Ltd.
500 North Central Avenue
Northfield, Illinois 60093
Attention: Philip E. Ruben
Telecopy No.: (847) 441-7696
(b) If to Agent or GE Capital:
General Electric Capital Corporation
Commercial Finance, Inc.
201 High Ridge Road
Stamford, CT 06927-5100
Attention: Vice President, Portfolio
Telecopy No.: (203) 316-7893
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel - Commercial Finance
Telecopy No.: (203) 316-7889
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Ronald H. Jacobson
Telecopy No.: (312) 558-5700
1
<PAGE>
ANNEX M
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
WIRE INSTRUCTIONS
Lender Instructions
GE Capital Bank: Bankers Trust Company
New York, New York
Acct.: 502 328 54
Ref.: General Electric Capital Corporation,
Commercial Finance Group
ABA: 021 001 033
1
<PAGE>
ANNEX N
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
COMMITMENTS
<TABLE>
<CAPTION>
Revolving Loan Term Loan A Capital Expenditure Term Loan B Term Loan C
Lender Commitment 1/ Commitment Loan Commitment 2/ Commitment Commitment
<S> <C> <C> <C> <C> <C>
GE Capital $18,000,000 3/ $20,000,000 $3,000,000 $5,000,000 $7,500,000
-
----------- ----------- ---------- ---------- ---------
Total: $18,000,000 $20,000,000 $3,000,000 $5,000,000 $7,500,000
=========== =========== ========== ========== ==========
- -----------------------------------------------
<FN>
1/ Incudes $3,000,000 Letter of Credit subfacility
2/ Subfacility of Term Loan A
3/ Includes $3,000,000 Swing Line Commitment
</FN>
</TABLE>
1
EXHIBIT 10.2
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
WARRANT NO. 3
To Purchase Common Stock of
BAGCRAFT CORPORATION OF AMERICA
Warrant No. 3
No. of Shares of Common Stock: 1419.54
<PAGE>
TABLE OF CONTENTS
Section Page
1. DEFINITIONS..................................................1
2. EXERCISE OF WARRANT..........................................6
-------------------
2.1. Manner of Exercise..................................6
------------------
2.2. Payment of Taxes....................................8
----------------
2.3. Fractional Shares...................................8
-----------------
2.4. Continued Validity..................................8
------------------
3. TRANSFER, DIVISION AND COMBINATION...........................9
----------------------------------
3.1. Transfer............................................9
--------
3.2. Division and Combination............................9
------------------------
3.3. Expenses............................................9
--------
3.4. Maintenance of Books................................9
--------------------
4. ADJUSTMENTS..................................................9
-----------
4.1. Stock Dividends, Subdivisions and Combinations......9
----------------------------------------------
4.2. Certain Other Distributions........................10
---------------------------
4.3. Issuance of Additional Shares of Common Stock......11
---------------------------------------------
4.4. Issuance of Warrants or Other Rights...............14
------------------------------------
4.5. Issuance of Convertible Securities.................14
----------------------------------
4.6. Superseding Adjustment.............................15
----------------------
4.7. Other Provisions Applicable to
Adjustments under this Section.....................16
------------------------------
4.8. Reorganization, Reclassification,
Merger, Consolidation or Disposition of Assets.....18
----------------------------------------------
4.9. Other Action Affecting Common Stock................19
-----------------------------------
4.10. Certain Limitations................................19
-------------------
5. NOTICES TO WARRANT HOLDERS..................................19
5.1. Notice of Adjustments..............................19
5.2. Notice of Corporate Action.........................20
6. NO IMPAIRMENT...............................................20
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY............................................................21
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS...........22
9. RESTRICTIONS ON TRANSFERABILITY.............................22
9.1. Restrictive Legend.................................22
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<PAGE>
9.2. Notice of Proposed Transfers;
Request for Registration...........................22
------------------------
9.3. Required Registration..............................23
---------------------
9.4. Incidental Registration............................24
-----------------------
9.5. Registration Procedures............................24
-----------------------
9.6. Expenses...........................................26
--------
9.7. Indemnification and Contribution...................27
--------------------------------
9.8. Termination of Restrictions........................28
---------------------------
9.9. Listing on Securities Exchange.....................29
------------------------------
9.10. Certain Limitations on Registration Rights.........29
------------------------------------------
9.11. Selection of Managing Underwriters.................29
----------------------------------
10. SUPPLYING INFORMATION.......................................29
11. LOSS OR MUTILATION..........................................30
12. OFFICE OF COMPANY...........................................30
13. FINANCIAL AND BUSINESS INFORMATION..........................30
----------------------------------
13.1. Monthly and Quarterly Information.................30
---------------------------------
13.2. Annual Information................................31
------------------
13.3. Filings...........................................31
-------
14. REPURCHASE BY COMPANY OF WARRANT............................32
--------------------------------
14.1. Obligation to Repurchase Warrant..................32
--------------------------------
14.2. Option to Repurchase Warrant......................33
----------------------------
14.3. Subsequent Public Offering or Sale...............34
----------------------------------
14.4. Determination and Payment of Repurchase Price.....34
---------------------------------------------
15. APPRAISAL...................................................35
16. LIMITATION OF LIABILITY.....................................35
17. PARTICIPATION IN CORPORATE DISTRIBUTIONS AND
TAKE-ALONG RIGHTS....................................................36
18. MISCELLANEOUS...............................................37
-------------
18.1. Nonwaiver and Expenses...........................37
----------------------
18.2. Notice Generally.................................37
----------------
18.3. Indemnification..................................38
---------------
18.4. Remedies.........................................38
--------
18.5. Successors and Assigns...........................38
----------------------
18.6. Amendment........................................38
---------
18.7. Severability.....................................38
------------
18.8. Headings.........................................39
--------
18.9. Governing Law....................................39
-------------
-ii-
<PAGE>
EXHIBITS AND ANNEXES
Exhibit A - Subscription Form
Exhibit B - Assignment Form
Annex A - Take-Along Letter Agreement
-iii-
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 1419.54 Warrant No. 3
WARRANT
To Purchase Common Stock of
BAGCRAFT CORPORATION OF AMERICA
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION,
or registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from BAGCRAFT CORPORATION OF AMERICA, a
Delaware corporation ("Company"), 1419.54 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $0.001 per share, all on the
terms and conditions and pursuant to the provisions hereinafter set forth.
This Warrant No. 3 is given in substitution for Warrant No. 2
which was issued by Company to General Electric Capital Corporation on December
30, 1996, and surrendered for cancellation on the Closing Date concurrently with
the issuance of this Warrant No. 3.
Notwithstanding any contrary provision of this or any other
Loan Document, if Company fully consummates a sale of all Common Stock or all or
substantially all of its assets and properties on or prior to April 30, 1998 for
cash consideration of not less than $92,500,000 in immediately available funds,
then this Warrant shall represent the lesser of (a) 1234.46 shares of Common
Stock and (b) the number of shares of Common Stock represented by this Warrant
immediately prior to such transaction, in each case subject to adjustment as
provided herein.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by Company after the Commencement Date, other than Warrant
Stock.
"Affiliate Accounts" shall mean, at any time of determination,
all Accounts (including principal, interest and all other amounts owing or
outstanding in respect thereof) owing
-1-
<PAGE>
to Company from any of its Affiliates (including, without limitation, ARTRA or
BCA), without giving effect to (a) creditworthiness, probability of collection,
payment ability or any other write-off, write-down or concept of value
diminution or adjustment and without giving effect or (b) any accounting
treatment having the effect of recharacterizing any such Account into any equity
account or other account having similar effect.
"Appraised Value" shall mean, in respect of any share of
Common Stock on any date of determination, the fair market value of such share
of Common Stock determined (a) without giving effect to the discount for (i) a
minority interest or (ii) any lack of liquidity of the Common Stock or to the
fact that Company may have no class of equity registered under the Exchange Act,
(b) assuming that any and all then outstanding shares of preferred stock of the
Company and accrued dividends thereon were canceled and permanently retired as
of any date of determination without any requirement of payment by the Company
in respect thereof, (c) without duplication, after decreasing the fair market
value of such share of Common Stock by the amount of the PST Adjustment
attributable thereto and (d) treating all Affiliate Accounts as if paid in full
in cash to Borrower without any contingency or offsetting adjustment. Such fair
market per share of Common Stock shall be based on the value of Company in a
sale as a whole and on a going concern basis between a willing buyer and a
willing seller, neither acting under compulsion, as determined by an investment
banking firm selected in accordance with the terms of Section 15, divided by the
number of Fully Diluted Outstanding shares of Common Stock.
"ARTRA" shall mean ARTRA GROUP Incorporated, a Pennsylvania
corporation.
"BCA" shall mean BCA Holdings, Inc., a Delaware corporation.
"Book Value" shall mean, in respect of any share of Common
Stock on any date of determination, the consolidated book value of Company as of
the last day of any month immediately preceding such date of determination,
divided by the number of Fully Diluted Outstanding shares of Common Stock as
determined in accordance with GAAP by Coopers & Lybrand or any other firm of
independent certified public accountants of recognized national standing
selected by Company and reasonably acceptable to the Majority Holders, provided
that, for purposes of any such determination (a) it shall be assumed that any
and all then outstanding shares of preferred stock of the Company and accrued
dividends thereon were then canceled and permanently retired without any
requirement of payment by the Company in respect thereof, (c) without
duplication, the book value of Company shall be decreased by the PST Adjustment
and (d) all Affiliate Accounts shall be treated as if paid in full in cash to
Borrower without any contingency or offsetting adjustment.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of Illinois.
"Closing Date" shall mean the date set forth on the signature
page to this Warrant.
"Commencement Date" shall mean December 17, 1993.
-2-
<PAGE>
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of Company as constituted on the
Commencement Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of Company of
any other class (regardless of how denominated) issued to the holders of shares
of Common Stock upon any reclassification thereof which is also not preferred as
to dividends or assets over any other class of stock of Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date of determination, the highest of:
(a) the Book Value per share of Common Stock at such date;
(b) the Appraised Value per share of Common Stock as at such
date; and
(c) if there shall then be a public market for the Common
Stock, an amount determined in accordance with the following clauses
(i) and (ii):
(i) The average of the daily market prices for 30
consecutive Business Days commencing 45 days before such date
shall be determined in accordance with (ii) below (the
"Unadjusted Price Per Share"). The Unadjusted Price Per Share
shall then be multiplied the number of shares of Common Stock
Fully Diluted Outstanding (the result being referred to as the
"Unadjusted Gross Value"). The Unadjusted Gross Value shall
then be increased by an amount equal to (A) the aggregate
amount which would then be payable by the Company if it then
redeemed and permanently retired all shares of its outstanding
preferred stock, including accrued dividends less (B) the PST
Adjustment plus (C) the amount of all Affiliate Accounts, as
if paid in full in cash to Borrower without any contingency or
offsetting adjustment (collectively, the "Gross-Up Amount").
The sum of the Unadjusted Gross Amount and the Gross-Up Amount
is herein referred to as the "Adjusted Gross Amount". The
Adjusted Gross Amount shall then be divided by the number of
shares of Common Stock Fully Diluted Outstanding to yield a
per share amount.
(ii) For purposes of the foregoing clause (i), the
daily market price for each such Business Day shall be (A) the
last sale price on such day on the principal stock
-3-
<PAGE>
exchange on which such Common Stock is then listed or admitted
to trading, (B) if no sale takes place on such day on any such
exchange, the average of the last reported closing bid and
asked prices on such day as officially quoted on any such
exchange, (C) if the Common Stock is not then listed or
admitted to trading on any stock exchange, the average of the
last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System
or the National Quotation Bureau, Inc., (D) if neither such
corporation at the time is engaged in the business of
reporting such prices, as furnished by any similar firm then
engaged in such business, or (E) if there is no such firm, as
furnished by any member of the NASD selected mutually by the
Majority Holders and Company or, if they cannot agree upon
such selection, as selected by two such members of the NASD,
one of which shall be selected by the Majority Holders and one
of which shall be selected by Company.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Deferral Notice" shall have the meaning set forth in Section
14.1(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean February 27, 2003.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, and other options or
warrants to purchase, or securities convertible into, shares of Common Stock
outstanding on such date which would be deemed outstanding for purposes of
determining book value or net income per share in accordance with GAAP by
Coopers & Lybrand or any other firm of independent certified public accountants
of recognized national standing selected by Company and reasonably acceptable to
the Majority Holders.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation.
-4-
<PAGE>
"Holder" shall mean the Person in whose name the Warrant set
forth herein is registered on the books of Company maintained for such purpose.
"Initial Holder" shall mean GE Capital.
"Liabilities" shall mean the "Obligations" as defined in the
Loan Agreement.
"Loan Agreement" shall mean the Second Amended and Restated
Credit Agreement dated as of the Closing Date by and between Company and GE
Capital as Agent and Lender and the other Lenders from time to time party
thereto, or any successor agreement between such parties, as the same may be
amended, restated, modified or supplemented and in effect from time to time.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then purchasable upon exercise of all Warrants, whether or not then
exercisable.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Offering" shall have the meaning set forth in Section
14.1(b).
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"PST" shall mean Plastic Specialties and Technologies, Inc., a
Delaware corporation.
"PST Adjustment" shall mean an amount equal to $5,768,812, (a)
$4,135,000 of which constitutes the prior amount paid to redeem 41,350 PST-Held
Shares and satisfy unpaid dividends accrued (but not forgiven) thereon as of
(but not after) the Commencement Date, (b) $865,000 of which constitutes the
amount necessary to redeem the remaining 8,650 PST-Held Shares and (c) $768,812
of which constitutes the amount necessary to satisfy unpaid dividends accrued on
such remaining PST-Held Shares as of (but not after) the Commencement Date.
-5-
<PAGE>
"PST-Held Shares" shall mean shares of the Company's preferred
stock issued to PST prior to the Commencement Date.
"Repurchase Price" shall have the meaning set forth in Section
14.4.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Sale" shall have the meaning set forth in Section 14.1(b).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
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.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Closing Date and
until 5:00 P.M., New York time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder.
-6-
<PAGE>
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to Company at its principal office at 3900 West 43rd Street,
Chicago, Illinois 60632 or at the office or agency designated by Company
pursuant to Section 12:
(i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common
Stock to be purchased;
(ii) payment of the Warrant Price applicable with respect to
the shares being purchased; and
(iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter, execute
or cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of Holder or, subject to Section 9, such other name as
shall be designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other Person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the notice and the Warrant Price and this Warrant are received by
Company as described above and all taxes required to be paid by Holder, if any,
pursuant to Section 2.2 prior to the issuance of such shares have been paid. If
this Warrant shall have been exercised in part, Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the contrary,
Company shall not be required to register shares in the name of any Person who
acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in
accordance with this Warrant.
At the option of the holder hereof, payment of the Warrant Price shall be made
by:
(a) wire transfer of funds to an account in a bank located in
the United States designated by the Company for such purpose;
(b) certified or official bank check payable to the order of
the Company;
(c) deducting from the shares delivered upon exercise hereof a
number of shares having an aggregate Current Market Price on the date
of exercise equal to the aggregate
-7-
<PAGE>
purchase price for all shares as to which this Warrant is then
being exercised (and so directing the Company in the notice);
(d) by application of the Liabilities as provided in Section
2.5 hereof; or
(e) by any combination of such methods.
If a Holder surrenders any Note issued under the Loan
Agreement having an aggregate value which exceeds the aggregate Warrant Price, a
new Note shall be issued under the Loan Agreement in the principal amount equal
to that portion of such surrendered principal amount not applied to the Warrant
Price not paid in cash to the Holder; provided, however, that such new Note
shall be in a principal amount equal to the next lowest integral multiple of
$1,000 and the Company shall pay in cash to the Holder the difference between
the Warrant Price and such in next lowest integral multiple of $1,000.
2.2 Payment of Taxes. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof
(other than any income taxes imposed on Holder in connection herewith), unless
such tax or charge is imposed by law upon Holder, in which case such taxes or
charges shall be paid by Holder and (except with respect to any such income
taxes) reimbursed to Holder by Company .
2.3 Fractional Shares. Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the Current
Market Price per share of Common Stock on the date of exercise.
2.4 Continued Validity. A holder of shares of Common Stock
issued upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold pursuant
to a Registration Statement under the Securities Act or sold pursuant to Rule
144 thereunder), shall continue to be entitled with respect to such shares to
all rights to which it would have been entitled as Holder under Sections 9, 10,
13 and 17 of this Warrant. Company will, at the time of each exercise of this
Warrant, in whole or in part, upon the request of the holder of the shares of
Common Stock issued upon such exercise hereof, acknowledge in writing, in form
reasonably satisfactory to such holder, its continuing obligation to afford to
such holder all such rights; provided, however, that if such holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of Company to afford to such holder all such rights.
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3 TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Sections 9 and 14,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of Company referred to in
Section 2.1 or the office or agency designated by Company pursuant to Section
12, together with a written assignment of this Warrant substantially in the form
of Exhibit B hereto duly executed by Holder or its agent or attorney and if such
transfer is not to be made pursuant to Section 14, funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.2 Expenses. Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.3 Maintenance of Books. Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any
time Company shall:
(a) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
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(b) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then: (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event; and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash (other than a cash distribution or dividend payable
out of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of
Company),
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then:
(i) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction;
(A) the numerator of which shall be the Current
Market Price per share of Common Stock at the date of taking
such record, and
(B) the denominator of which shall be such Current
Market Price per share of Common Stock minus the amount
allocable to one share of Common Stock of
(x) any such cash so distributable, plus
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(y) the fair value (as determined in good
faith by the Board of Directors of Company and
supported by an opinion from an investment banking
firm of recognized national standing acceptable to
the Majority Holders) of any and all such evidences
of indebtedness, shares of stock, other securities or
property or warrants or other subscription or
purchase rights so distributable; and
(ii) the Current Warrant Price shall be adjusted to equal (A)
the Current Warrant Price multiplied by the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant
is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3 Issuance of Additional Shares of Common Stock.
If at any time Company shall (except as hereinafter provided) issue or
sell any Additional Shares of Common Stock in exchange for consideration in an
amount per Additional Share of Common Stock less than the Current Warrant Price
at the time the Additional Shares of Common Stock are issued, then:
(i) the Current Warrant Price as to the number of shares for
which this Warrant is exercisable prior to such adjustment shall be
reduced to a price determined by multiplying the Current Warrant Price
then in effect by a fraction
(A) the numerator of which is an amount equal to (x)
the number of shares of Common Stock Outstanding immediately
prior to such issue or sale multiplied by the then existing
Current Warrant Price, plus (y) the consideration, if any,
received by Company upon such issue or sale, and
(B) the denominator of which is the total number of
shares of Common Stock Outstanding immediately after such
issue or sale; and
(ii) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained
by multiplying the Current Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or sale and
dividing the product thereof by the Current Warrant Price resulting
from the adjustment made pursuant to clause (i) above.
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[Example: Assume Current Warrant Price is $1.00 per share, 90,000 shares
outstanding and Warrant is for 10,000 shares. Company issues 10,000 shares for
$.10 per share or $1,000 total. Current Warrant Price is adjusted by multiplying
$1.00 by the following fraction:
numerator = (90,000 x $1.00) + $1,000 = $91,000
------------------------- -------
denominator = 90,000 + 10,000 = 100,000
Resulting Current Warrant Price = $0.91 per share.
Number of Warrant Shares is then adjusted by multiplying 10,000 by $1.00 and
dividing the result (which is $10,000) by the new Current Warrant Price of
$0.91. $10,000/$0.91 = 10,989. So the adjusted number of shares for which
Warrant may be exercised is 10,989.]
(b) If at any time Company shall (except as hereinafter
provided) at any time issue or sell any Additional Shares of Common Stock for
consideration in an amount per Additional Share of Common Stock less than the
Current Market Price, then:
(i) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained
by multiplying the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such issue or sale by a
fraction (A) the numerator of which shall be the number of shares of
Common Stock Outstanding immediately after such issue or sale, and (B)
the denominator of which shall be the number of shares of Common Stock
Outstanding immediately prior to such issue or sale plus the number of
shares which the aggregate offering price of the total number of such
Additional Shares of Common Stock would purchase at the then Current
Market Price; and
(ii) the Current Warrant Price as to the number of shares for
which this Warrant is exercisable prior to such adjustment shall be
adjusted by multiplying such Current Warrant Price by a fraction (X)
the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale; and (Y)
the denominator of which shall be the number of shares of Common Stock
purchasable immediately after such issue or sale.
[Example: Assume Current Market Price is $10.00 per share, 90,000 shares
outstanding, Warrant is for 10,000 shares and Current Warrant Price is $1.00 per
share. Company issues 10,000 shares for $1.00 per share or $10,000 total.
Number of Warrant Shares is adjusted by multiplying 10,000 by the following
fraction:
numerator = (90,000 + 10,000) = 100,000
--------------------------------- -------
denominator = 90,000 + ($10,000 divided by $10) = 91,000
10,000 x (100,000/91,000) = 10,989. So the adjusted number of shares for which
Warrant may be exercised is 10,989.]
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Current Warrant Price is then adjusted by multiplying $1.00 by the following
fraction:
numerator = 10,000
denominator = 10,989
Resulting adjusted Current Warrant Price = $0.91 per share.]
(c) If at any time Company (except as hereinafter provided)
shall issue or sell any Additional Shares of Common Stock in exchange for
consideration in an amount per Additional Shares of Common Stock which is less
than the Current Warrant Price and less than the Current Market Price (as
defined above) at the time the Additional Shares of Common Stock are issued, the
adjustment required under Section 4.3 shall be made in accordance with the
formula in paragraph (a) or (b) above which results in the lower Current Warrant
Price following such adjustment. The provisions of paragraphs (a) and (b) of
Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock
for which an adjustment is provided under Section 4.1 or 4.2. No adjustment of
the number of shares of Common Stock for which this Warrant shall be exercisable
shall be made under paragraph (a) or (b) of Section 4.3 upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of
any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Convertible Securities, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrant or other rights therefor) pursuant to Section
4.4 or Section 4.5.
(d) If any Additional Shares of Common Stock are issued or
sold in exchange for consideration in an amount per Additional Share of Common
Stock equal to or greater than the Current Warrant Price and the Current Market
Price at the time the Additional Shares are issued, then:
(i) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained
by multiplying the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such adjustment by a
fraction (A) the numerator of which shall be the number of shares of
Common Stock Outstanding immediately after the issuance of such
Additional Shares of Common Stock, and (B) the denominator of which
shall be the number of shares of Common Stock Outstanding immediately
prior to the issuance of such Additional Shares of Common Stock; and
(ii) the Current Warrant Price as to the number of shares of
Common Stock for which this Warrant is exercisable prior to such
adjustment shall not change but the Current Warrant Price for each of
the incremental number of shares of Common Stock for which this Warrant
becomes exercisable after such adjustment shall be equal to the fair
value of such consideration per Additional Share of Common Stock.
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[Example: Assume Current Market Price is $10.00 per share, 90,000 shares
outstanding, Warrant is for 10,000 shares and Current Warrant Price is $1.00 per
share. Company issues 10,000 shares for $20.00 per share or $200,000 total.
Number of Warrant Shares is adjusted by multiplying 10,000 by the following
fraction:
numerator = (90,000 + 10,000) = 100,000
----------------- -------
denominator = 90,000 = 90,000
10,000 x (100,000/90,000) = 11,111 This equals 10% on a fully-diluted basis.
Current Warrant Price for the original 10,000 Warrant Shares remains $1.00 per
share. Current Warrant Price for the additional 1,111 Warrant Shares is equal to
the fair value of the consideration received for the shares sold by the Company,
in this case $20.00 per share. The effect is to give the Holder a pre-emptive
right to maintain the 10% by acquiring the additional shares at the sale price.]
4.4 Issuance of Warrants or Other Rights. If at any time
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than either the Current Warrant Price or
the Current Market Price in effect immediately prior to the time of such issue
or sale, then the number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding and Company shall have received all of the consideration payable
therefor, if any, as of the date of the actual issuance of the number of Shares
for which this Warrant is exercisable and such warrants or other rights. No
further adjustments of the Current Warrant Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise of
such warrants or other rights or upon the actual issue of such Common Stock upon
such conversion or exchange of such Convertible Securities.
4.5 Issuance of Convertible Securities. If at any time Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than either the Current Warrant Price or Current Market
Price in effect immediately prior to the time of such issue or sale, then the
number of Shares for which this Warrant is exercisable and the Current Warrant
Price shall be adjusted as provided in Section 4.3 on the basis that the maximum
number of Additional Shares of Common
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Stock necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and Company shall
have received all of the consideration payable therefor, if any, as of the date
of actual issuance of such Convertible Securities. No adjustment of the number
of Shares for which this Warrant is exercisable and the Current Warrant Price
shall be made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 4.4. No further adjustments of the number of Shares for
which this Warrant is exercisable and the Current Warrant Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number of
Shares for which this Warrant is exercisable and the Current Warrant Price have
been or are to be made pursuant to other provisions of this Section 4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be made by reason of such issue
or sale.
4.6 Superseding Adjustment. (a) If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities, such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire or be rescinded or
canceled or be determined to be illegal, and all or a portion of such warrants
or rights, or the right of conversion or exchange with respect to all or a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised (because they have expired, been rescinded or canceled or
determined to be illegal), then, for each outstanding Warrant:
(i) such previous adjustment to the Warrant made with respect
to the issuance of such warrants, rights or Convertible Securities
shall be rescinded and annulled and any Additional Shares of Common
Stock which were deemed to have been issued (but not in fact issued) by
virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation; and
(ii) a new adjustment of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant Price
shall be made on the basis of:
(A) treating any Additional Shares of Common Stock
which were in fact issued pursuant to such warrants, rights or
Convertible Securities as having been issued for the
consideration per share which was received; and
(B) treating any such warrants or rights or
Convertible Securities (if any) which then remain outstanding
and are not expired, rescinded, canceled or declared illegal
as having been newly granted or issued immediately after the
time of such expiration, rescinding, cancellation or
declaration of illegality and treating the number of
Additional Shares of Common Stock or other property issuable
pursuant
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to such warrants, rights or Convertible Securities as having
been issued on such date for the consideration receivable
therefor thereunder on such date.
(b) If, at any time after any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the
result of any issuance of warrants, rights or Convertible Securities, the
consideration per share for which shares of Common Stock are issuable pursuant
to such warrants or rights or Convertible Securities shall be increased solely
by virtue of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or event then,
for each outstanding Warrant:
(i) such previous adjustment made with respect to the issuance
of such warrants, rights or Convertible Securities shall be rescinded
and annulled and any Additional Shares of Common Stock which were
deemed to have been issued (but not in fact issued) by virtue of the
computation made in connection with the adjustment so rescinded and
annulled shall no longer be deemed to have been issued by virtue of
such computation; and
(ii) a new adjustment of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant Price
shall be made on the basis of:
(A) treating the number of Additional Shares of
Common Stock or other property, if any, theretofore actually
issued pursuant to the previous exercise of any such warrants
or rights or Convertible Securities as having been issued on
the date or dates of any such exercise and for the
consideration actually received therefor; and
(B) treating any such warrants or rights or
Convertible Securities which then remain outstanding as having
been granted or issued immediately after the time of such
increase of the consideration per share for which shares of
Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities and
treating the number of Additional Shares of Common Stock or
other property issuable pursuant to such warrants, rights or
Convertible Securities as having been issued on such date for
the consideration receivable therefor after giving effect to
such increase in the consideration per share.
4.7 Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by Company therefor
shall be the amount of the cash received by Company therefor, or, if
such Additional Shares of Common Stock or Convertible Securities are
offered by Company for subscription, the subscription
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price, or, if such Additional Shares of Common Stock or Convertible
Securities are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by Company for and
in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided,
the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of Company. In case any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection
with any merger in which Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such
portion of the assets and business of the nonsurviving corporation as
such Board in good faith shall determine to be attributable to such
Additional Shares of Common Stock, Convertible Securities, warrants or
other rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration
received by Company for issuing such warrants or other rights plus the
additional consideration payable to Company upon exercise of such
warrants or other rights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to
Company upon the exercise of the right of conversion or exchange in
such Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividends upon any class of stock other than
Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in Section 4.1) up
to, but not beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of
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any adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken
into account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property
becomes distributable pursuant to this Section 4 by reason of the
taking of any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, and Holder
exercises this Warrant, any Additional Shares of Common Stock issuable
upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such
shares or other property shall be held in escrow for Holder by Company
to be issued to Holder upon and to the extent that the event actually
takes place, upon payment of the then Current Warrant Price.
Notwithstanding any other provision to the contrary herein, if the
event for which such record was taken fails to occur or is rescinded,
then such escrowed shares shall be canceled by Company and escrowed
property returned.
(f) Challenge to Good Faith Determination. Whenever the
Board of Directors of Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by Company and acceptable to the
Majority Holders.
4.8 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of Company, then
each Holder shall have the right thereafter to receive, upon exercise of such
Holder's Warrant, the number of shares of common stock of the successor or
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acquiring corporation or of Company, if it is the surviving corporation, and
Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company
acting in good faith) in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.9 Other Action Affecting Common Stock. In case at any time
or from time to time Company shall take any action in respect of its Common
Stock (other than the payment of dividends permitted by Section 4.2(a) or any
other action described in this Section 4), then, unless such action will not
have a materially adverse effect upon the rights of the Holders, the number of
shares of Common Stock or other stock for which this Warrant is exercisable
and/or the purchase price thereof shall be adjusted in such manner as may be
equitable in the circumstances.
4.10 Certain Limitations. Notwithstanding anything herein to
the contrary, Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1 Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, Company shall forthwith
prepare a certificate to be executed by the chief financial officer of Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of Company determined the fair value of
any evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2 or
4.7(a)), specifying the number of shares of Common Stock for which this Warrant
is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. Company
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shall promptly cause a signed copy of such certificate to be delivered to each
Holder in accordance with Section 17.2. Company shall keep at its office or
agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective purchaser of a Warrant
designated by a Holder thereof.
5.2 Notice of Corporate Action. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences
of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or
any consolidation or merger of Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least ten (10) days' prior written notice of the date on which a record date
shall be selected for such dividend distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least ten (10) days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause also shall
specify (i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of Company and delivered in
accordance with Section 17.2.
6. NO IMPAIRMENT
Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith
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assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, Company
will (a) not increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable Company to perform its
obligations under this Warrant.
Upon the request of Holder, Company will at any time during
the period this Warrant is outstanding (but not more often than twice in any
year) acknowledge in writing, in form reasonably satisfactory to Holder, the
continuing validity of this Warrant and the obligations of Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an adjustment
reducing the current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, Company shall
take any corporate action which may be necessary in order that Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority or other governmental approval or filing under any
federal or state law (otherwise than as provided in Section 9) before such
shares may be so issued, Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered
or qualified.
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8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend. (a) Except as otherwise provided in
this Section 9, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
are subject to the conditions specified in a certain Warrant
No. 3 dated February 27, 1998, originally issued by Bagcraft
Corporation of America. No transfer of the shares represented
by this certificate shall be valid or effective until such
conditions have been fulfilled. A copy of the form of said
Warrant is on file with the Secretary of Bagcraft Corporation
of America. The holder of this certificate, by acceptance of
this certificate, agrees to be bound by the provisions of such
Warrant."
(v) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act, the rules
and regulations thereunder or the provisions of this Warrant."
9.2 Notice of Proposed Transfers; Request for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten (10) days' prior written notice (a "Transfer Notice") to Company
of such holder's intention to effect such Transfer, describing the
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manner and circumstances of the proposed Transfer, and obtain from counsel to
such holder who shall be reasonably satisfactory to Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, Company shall, within five days thereof, notify the
holder of such Warrants or such Restricted Common Stock as to whether such
opinion is reasonably satisfactory and, if so, such holder shall thereupon be
entitled to Transfer such Warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(a), and each Warrant
issued upon such Transfer shall bear the restrictive legend set forth in Section
9.1(b), unless in the opinion of such counsel such legend is not required in
order to ensure compliance with the Securities Act. The holder of the Warrants
or the Restricted Common Stock, as the case may be, giving the Transfer Notice
shall not be entitled to Transfer such Warrants or such Restricted Common Stock
until receipt of notice from Company under this Section 9.2(a) that such opinion
is reasonably satisfactory.
The holders of Warrants and Warrant Stock shall have the right
to request registration of such Warrant Stock pursuant to Sections 9.3 and 9.4.
9.3 Required Registration. After receipt of a written request
from the holder of Warrants and/or Warrant Stock representing at least an
aggregate of fifty percent (50%) of the total of (i) all shares of Warrant Stock
then subject to purchase upon exercise of all warrants and (ii) all shares of
Warrant Stock then outstanding, and which are Restricted Common Stock requesting
that Company effect the registration of Warrant Stock issuable upon the exercise
of such holder's Warrants or of any of such holder's Warrant Stock under the
Securities Act and specifying the intended method or methods of disposition
thereof (which the Company shall be reasonably satisfied will not be illegal),
Company shall promptly notify all holders of Warrants and Warrant Stock in
writing of the receipt of such request and each such holder, in addition to any
rights under Section 9.4, may elect (by written notice sent to Company within
ten (10) Business Days from the date of such holder's receipt of the
aforementioned Company's notice) to have its shares of Warrant Stock included in
such registration thereof pursuant to this Section 9.3. Thereupon Company shall,
as expeditiously as is possible, use its best efforts to effect the registration
under the Securities Act of all shares of Warrant Stock which Company has been
so requested to register by such holders for sale, all to the extent required to
permit the disposition (in accordance with the intended method or methods
thereof, as aforesaid) of the Warrant Stock so registered; provided, however,
that Company shall not be required to effect more than two (2) registrations of
any Warrant Stock pursuant to this Section 9.3, unless Company shall be eligible
to file a registration statement on Form S-3 (or other comparable short form)
under the Securities Act, in which event there shall be no limit on the number
of such registrations pursuant to this Section 9.3.
If the managing underwriter advises the prospective sellers in
writing that the aggregate number of shares of Warrant Stock and other shares of
Common Stock, if any, requested to be registered by other holders of
registration rights or proposed to be included in such registration by the
Company should be less than the number of shares of Warrant Stock and other
shares of Common Stock requested or proposed to be registered, the number of
shares of Warrant Stock and other shares of Common Stock to be sold by each
prospective seller (including the Company) shall
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be reduced as follows: first, the number of shares of Common Stock proposed to
be registered by the holders of Common Stock possessing registration rights
granted by the Company other than under or arising from this Warrant shall be
reduced to zero, if necessary; second, the number of shares of Common Stock
proposed to be registered by the Company shall be reduced to zero, if necessary;
and third, the number of shares of Warrant Stock proposed to be included in such
registration shall be reduced pro rata among the prospective sellers of shares
of Warrant Stock to be sold in the proposed distribution. If such underwriter
determines that the number of shares of Common Stock proposed to be sold is
insufficient to proceed with such registration or qualification, the Company
shall immediately recapitalize its Common Stock to enable such registration and
qualification to be completed as such underwriter advises.
9.4 Incidental Registration. If Company at any time proposes
to file on its behalf and/or on behalf of any of its security holders (the
"demanding security holders") a Registration Statement under the Securities Act
on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Exchange Act) of Company, it will give written notice to all holders of Warrants
or Warrant Stock at least 60 days before the initial filing with the Commission
of such Registration Statement, which notice shall set forth the intended method
of disposition of the securities proposed to be registered by Company. The
notice shall offer to include in such filing any or all of the aggregate number
of shares of Warrant Stock then outstanding and any or all of the shares of
Common Stock for which this Warrant is then exercisable, as such holders may
request.
Each holder of any such Warrants or any such Warrant Stock
desiring to have Warrant Stock registered under this Section 9.4 shall advise
Company in writing within 30 days after the date of receipt of such offer from
Company, setting forth the amount of such Warrant Stock for which registration
is requested. Company shall thereupon include in such filing the number of
shares of Warrant Stock for which registration is so requested, subject to the
next sentence, and shall use its best efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a proposed public
offering shall advise Company in writing that, in its opinion, the distribution
of the Warrant Stock requested to be included in the registration concurrently
with the securities being registered by Company or such demanding security
holder would materially and adversely affect the distribution of such securities
by Company or any selling stockholders, then the Company and each prospective
seller may sell that proportion of the shares of Common Stock to be sold in the
proposed distribution which the number of shares of Common Stock proposed to be
sold by such prospective seller bears to the aggregate number of Common Stock
proposed to be sold by all prospective sellers including the Company. Except as
otherwise provided in Section 9.6, all expenses of such registration shall be
borne by Company.
9.5 Registration Procedures. If Company is required by the
provisions of this Section 9 to use its best efforts to effect the registration
of any of its securities under the Securities Act, Company will, as
expeditiously as possible:
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(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to
cause such Registration Statement to become and remain effective for a
period of time required for the disposition of such securities by the
holders thereof, but not to exceed 90 days;
(b) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of
all securities covered by such Registration Statement until the earlier
of such time as all of such securities have been disposed of in a
public offering or the expiration of 90 days;
(c) furnish to such selling security holders such
number of copies of a summary prospectus or other prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling security
holders may reasonably request;
(d) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each holder of such securities shall
reasonably request or as shall be required by the managing underwriter
(provided, however, that Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any jurisdiction
in which it is not then qualified or to file any general consent to
service or process), and do such other reasonable acts and things as
may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such
Registration Statement;
(e) furnish, at the request of any holder requesting
registration of Warrant Stock pursuant to Section 9.3, on the date that
such shares of Warrant Stock are delivered to the underwriters for sale
pursuant to such registration or, if such Warrant Stock is not being
sold through underwriters, on the date that the Registration Statement
with respect to such shares of Warrant Stock becomes effective, (1) an
opinion, dated such date, of the independent counsel representing
Company for the purposes of such registration, addressed to the
underwriters, if any, and if such Warrant Stock is not being sold
through underwriters, then to the holders making such request, in
customary form and covering matters of the type customarily covered in
such legal opinions; and (2) a comfort letter dated such date, from the
independent certified public accountants of Company, addressed to the
underwriters, if any, and if such Warrant Stock is not being sold
through underwriters, then to the holder making such request and, if
such accountants refuse to deliver such letter to such holder, then to
Company in a customary form and covering matters of the type
customarily covered by such comfort letters as the underwriters or such
holders shall reasonably request. Such opinion of counsel shall
additionally cover such other legal matters with respect to the
registration in respect of which such opinion is being given as such
holders holding a majority of the Warrant Stock being so registered may
reasonably request. Such letter from the independent certified public
accountants shall additionally cover such other financial
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matters (including information as to the period ending not more than
five (5) Business Days prior to the date of such letter) with respect
to the registration in respect of which such letter is being given as
the holders holding a majority of the Warrant Stock being so registered
may reasonably request;
(f) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities; and
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than 18 months after the effective date of the Registration
Statement, an earnings statement covering the period of at least twelve
(12) months beginning with the first full month after the effective
date of such Registration Statement, which earnings statements shall
satisfy the provisions of Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of Company
to take any action pursuant to this Section 9 in respect of the securities which
are to be registered at the request of any holder of Warrants or Warrant Stock
that such holder shall furnish to Company such information regarding the
securities held by such holder and the intended method of disposition thereof as
Company shall reasonably request, and as shall be required in connection with
the action taken by Company, and, if such registration is pursuant to an
underwriting, such holder shall enter into an underwriting agreement customary
for such transactions.
9.6 Expenses. All expenses incurred in complying with Section
9, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for Company, the reasonable fees and expenses of one
firm acting as counsel for the selling security holders (selected by those
holding a majority of the shares being registered), expenses of any special
audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 9.5(d), shall be paid by Company, except that
(a) all such expenses in connection with any amendment
or supplement to the Registration Statement or prospectus filed more
than 90 days after the effective date of such Registration Statement
because any holder of Warrant Stock has not effected the disposition of
the securities requested to be registered shall be paid by such holder;
and
(b) Company shall not be liable for any fees, discounts
or commissions to any underwriter or any fees or disbursements of
counsel for any underwriter in respect of the securities sold by such
holder of Warrant Stock except to the same extent that the Company has
agreed to pay fees, discounts or commissions to any underwriter and/or
fees and disbursements of counsel for any underwriter in respect of the
securities being sold by any other selling stockholder of the Company.
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9.7 Indemnification and Contribution. In the event of any
registration of any of the Warrant Stock under the Securities Act pursuant to
this Section 9, Company shall indemnify and hold harmless the holder of such
Warrant Stock, such holder's directors and officers, and each other Person
(including each underwriter) who participated in the offering of such Warrant
Stock and each other Person, if any, who controls such holder or such
participating Person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such holder
or any such director or officer or participating Person or controlling Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement
under which such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto; or
(ii) any alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse such holder or such
director, officer or participating Person or controlling Person for any
legal or any other expenses reasonably incurred by such holder or such
director, officer or participating Person or controlling Person in
connection with investigating or defending any such loss, claim,
damage, liability or action;
provided, however, that Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any alleged untrue statement or alleged omission made in such Registration
Statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to Company by
such holder specifically for use therein or (in the case of any registration
pursuant to Section 9.3) so furnished for such purposes by any underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such securities
by such holder.
(b) Each holder of any Warrant Stock, by acceptance thereof,
agrees to indemnify and hold harmless Company, its directors and officers and
each other Person, if any, who controls Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which Company or any such director or officer or any such Person may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information in writing provided to
Company by such holder of such Warrant Stock specifically for use in the
following documents and contained, on the effective date thereof: any
Registration Statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto.
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(c) If the indemnification provided for in this Section 9 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9.7(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
9.8 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock and the legend requirements of Section 9.1 shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common Stock:
(a) when and so long as such security shall have been
effectively registered under the Securities Act and disposed of
pursuant thereto; or
(b) when Company shall have received an opinion of counsel
reasonably satisfactory to it that such shares may be transferred
without registration thereof under the Securities Act.
Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from Company, at the expense of Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE
WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF
TERMINATED ON __________, ____, AND ARE OF NO
FURTHER FORCE AND EFFECT."
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All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from
Company, at Company's expense, a new certificate representing such Common Stock
not bearing the restrictive legend set forth in Section 9.1(a).
9.9 Listing on Securities Exchange. If Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
9.10 Certain Limitations on Registration Rights.
Notwithstanding the other provisions of Section 9:
(a) Company shall not be obligated to register the Warrant
Stock of any holder if, in the opinion of counsel to Company reasonably
satisfactory to the holder and its counsel (or, if the holder has
engaged an investment banking firm, to such investment banking firm and
its counsel), the sale or other disposition of such holder's Warrant
Stock, in the manner proposed by such holder (or by such investment
banking firm), may be effected without registering such Warrant Stock
under the Securities Act; and
(b) if Company has had a registration statement under which a
holder had a right to have its Warrant Stock included pursuant to
Sections 9.3 or 9.4 declared effective within one year prior to the
date of any request pursuant to Section 9.3, then, until such one year
period has expired, Company shall not be obligated to register the
Warrant Stock of any holder pursuant to Section 9.3; provided, however,
that if any holder elected to have shares of its Warrant Stock included
under such registration statement but some or all of such shares were
excluded pursuant to the penultimate sentence of Section 9.4, then such
one-year period shall be reduced to six months.
9.11 Selection of Managing Underwriters. The managing
underwriter or underwriters for any offering of Warrant Stock to be registered
pursuant to Section 9.3 shall be selected by the holders of a majority of the
shares being so registered (other than any shares being registered pursuant to
Section 9.4) and shall be reasonably acceptable to Company. The managing
underwriter or underwriters for any offering of Warrant Stock to be registered
pursuant to Section 9.4 shall be selected by the Company but shall be reasonably
acceptable to holders of a majority of the shares of Warrant Stock being
registered in such registration.
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant and each
holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any information
reporting forms presently or hereafter required by the
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Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of GE Capital shall be sufficient
indemnity, so long as GE Capital is not then the subject of a bankruptcy or
insolvency proceeding and has not made an assignment for the benefit of its
creditors), and in case of mutilation upon surrender and cancellation hereof,
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
such Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to Company for cancellation.
12. OFFICE OF COMPANY
As long as any of the Warrants remain outstanding, Company
shall maintain an office or agency (which may be the principal executive offices
of Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. FINANCIAL AND BUSINESS INFORMATION
13.1 Monthly and Quarterly Information. (a) While the Loan
Agreement is in effect, the Company will deliver to each Holder copies of the
monthly financial statements required to be delivered to the agent under the
Loan Agreement (the "Agent"), as and when the same are delivered to the Agent.
Thereafter, until such time (if ever) as the Company shall become a reporting
company under the Exchange Act, the Company will deliver to each Holder, within
thirty (30) days after the end of each fiscal month of the Company (a "Fiscal
Month"), consolidated and consolidating financial and other information
regarding the Company and its Subsidiaries, certified by the chief financial
officer of the Company, including (i) unaudited balance sheets as of the close
of such Fiscal Month and the related statements of income and cash flow for that
portion of the Fiscal Year ending as of the close of such Fiscal Month and (ii)
unaudited statements of income and cash flows for such Fiscal Month, in each
case setting forth in comparative form the figures for the corresponding period
in the prior year and the figures contained in the budget, all prepared in
accordance with GAAP (subject to normal year-end adjustments and except for the
absence of footnotes and except as otherwise disclosed therein in reasonable
detail), and accompanied by the certification of the chief executive officer or
chief financial officer of the Company that all of such financial and other
information is true, complete and correct and presents fairly in accordance with
GAAP (subject to normal year-end adjustments and except for the absence of
footnotes and except as otherwise disclosed therein in reasonable detail), the
financial position, results of operations and statements of cash flows of the
Company and its Subsidiaries, on both a consolidated and consolidating basis, as
at the end of such Fiscal Month and for the period then ended.
(b) From and after the date, if ever, upon which the Company
shall become a reporting company under the Exchange Act, the Company shall
provide to each Holder, as and when
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required to be filed with the Commission, copies of all quarterly financial
statements and other financial reports required to be filed with the Commission
or which the Company elects to file with the Commission or otherwise to publicly
disclose.
13.2 Annual Information. (a) While the Loan Agreement is in
effect, the Company will deliver to each Holder copies of the annual financial
statements required to be delivered to the Agent as and when the same are
delivered to the Agent. Thereafter, until such time (if ever) as the Company
shall become a reporting company under the Exchange Act, for each fiscal year of
the Company (a "Fiscal Year"), the Company will deliver to each Holder audited
financial statements for the Company and its Subsidiaries, on a consolidated and
consolidating basis, consisting of balance sheets as of the end of such Fiscal
Year and statements of income and retained earnings and cash flows for such
Fiscal Year, setting forth in comparative form in each case the figures for the
previous Fiscal Year, which financial statements shall be prepared in accordance
with GAAP, certified (only with respect to the consolidated financial
statements) without qualification, by an independent certified public accounting
firm of national standing and accompanied by: (i) the annual letters to such
accountants in connection with their audit examination detailing contingent
liabilities and material litigation matters, and (ii) the certification of the
chief executive officer or chief financial officer of the Company that all such
financial statements are true, complete and correct and present fairly in
accordance with GAAP the financial position, results of operations and
statements of cash flows of the Company and its Subsidiaries, on a consolidated
basis, as at the end of such year and for the period then ended. Such annual
financial statements shall be delivered to each Holder contemporaneously with
filing thereof with the Commission by the Company's parent corporation, ARTRA
Group, Incorporated ("ARTRA") so long as ARTRA shall be a reporting company
under the Exchange Act, but within one hundred twenty (120) days after the end
of each Fiscal Year for any period occurring after the date (if ever) upon which
ARTRA shall cease to be a reporting company under the Exchange Act.
(b) From and after the date, if ever, upon which the Company
shall become a reporting company under the Exchange Act, the Company shall
provide to each Holder, as and when required to be filed with the Commission,
copies of all annual financial statements, annual reports to stockholders and
proxy statements required to be filed with the Commission.
13.3 Filings. Company will file on or before the required date
all regular or periodic reports (pursuant to the Exchange Act) required to be
filed with the Commission and will deliver to Holder promptly upon their
becoming available one copy of each report, notice or proxy statement sent by
Company or ARTRA to the Company's or ARTRA's stockholders generally, and of each
regular or periodic report (pursuant to the Exchange Act) and any Registration
Statement, prospectus or written communication (other than transmittal letters)
(pursuant to the Securities Act), filed by Company or ARTRA with (i) the
Commission or (ii) any securities exchange on which shares of Common Stock or
any class of securities of ARTRA are listed.
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14 REPURCHASE BY COMPANY OF WARRANT
14.1 Obligation to Repurchase Warrant.
(a) From time to time during the period ending on the
Expiration Date and commencing on the earliest to occur of:
(i) February 27, 2000
(ii) the occurrence of a merger (other than where Company is
the surviving corporation and there is no change in or distribution
with respect to its Common Stock), sale of substantially all of the
assets or sale of the majority of the outstanding shares of Common
Stock of Company;
(iii) repayment of a material portion of the indebtedness
evidenced by the Notes issued under the Loan Agreement with funds
derived from any source other than (A) operating income of the Company,
or (B) additional capital contributed by the Company's stockholders and
obtained by them without any direct or indirect credit support (by
guaranty or otherwise) from the Company;
(iv) the date upon which a public offering of any class of the
Company's securities becomes effective; and
(v) the acceleration of the maturities of the Notes issued
under the Loan Agreement pursuant to the occurrence of an Event of
Default under the Loan Agreement;
(the "Repurchase Period"), upon written notice from any Holder, Company shall
repurchase, on the date and in the manner set forth in Section 14.4 below, from
such Holder all or the portion of this Warrant designated in such notice for an
amount determined by multiplying (x) the number of shares of Common Stock
subject to this Warrant or portion thereof being repurchased by (y) the
difference between the Current Market Price per share of Common Stock as of the
date of such notice and the Current Warrant Price per share of Common Stock as
of the date of such notice; provided, however, that if no Event of Default under
the Loan Agreement shall have occurred and then be continuing, Company shall
have the right, upon delivery of a written notice (the "Deferral Notice") to the
Holder within thirty (30) days following its receipt of the repurchase notice,
to satisfy its obligations under this Section 14.1 to repurchase this Warrant or
a portion thereof by effecting, at Company's expense, within one hundred twenty
(120) days after the date of the Deferral Notice, an underwritten public
offering on a firm commitment basis of the shares of Common Stock subject to the
Warrant requested to be repurchased, the net proceeds (after underwriting
discounts and commissions) of which shall not be less than the amount required
for such repurchase, in which event such repurchase of the Warrant shall be
deferred and such underlying Common Stock shall be sold pursuant to such public
offering. Nothing herein shall preclude the exercise by Holder of any portion of
this Warrant exercisable at any time prior to such repurchase.
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(b) Notwithstanding the provisions of Section 14.1(a), if, at
any time during the period between the date on which any Holder shall have
exercised its rights under this Section 14.1 to cause Company to repurchase all
or a portion of such Holder's Warrant through and including the date on which
such Holder has received in cash the amount payable by the Company in respect of
such repurchase (the "Sale Period"), (i) any shares of Common Stock are sold by
the Company or any stockholder of the Company pursuant to an effective
Registration Statement filed with the Commission with respect to a public
offering of Common Stock (an "Offering") or (ii) Company shall consolidate or
merge with, sell not less than 90% of its Common Stock to, or sell all or
substantially all of its property and assets to, any Person, and the
consideration received by stockholders in connection with such merger,
consolidation or sale shall consist solely of cash (a "Sale"), then (1) in the
case of an Offering, if the net offering price per share to Company (after
deduction of all underwriters' discounts, fees, commissions and expenses related
to any such offering which would be payable by Holder if such Warrant Shares had
been registered and sold in such offering under Section 9 hereof, but without
deducting the value of any warrants, options or other rights granted or sold by
Company to any such underwriter) upon consummation of such offering, after
deducting the Current Warrant Price per share of the Common Stock as of such
date (even though beyond the expiration of the Sale Period) exceeds the
Repurchase Price per share of Common Stock paid to any Holder for the Warrant
upon any such repurchase, Company shall forthwith upon the consummation of such
offering pay to such Holder the amount of such excess multiplied by the number
of shares of Common Stock subject to the Warrant repurchased as an additional
amount of Repurchase Price hereunder and (2) in the case of a Sale, such Holder
shall (whether or not such Holder shall have previously surrendered such
Holder's Warrant for repurchase by Company pursuant to this Section 14) be
entitled to receive, on the date of such Sale, the higher of (A) the amount
payable to such Holder as determined pursuant to Section 14.1(a) and (B) an
amount equal to the amount of cash such Holder would have received upon such
Sale had such Holder's Warrant (or the portion thereof being repurchased) been
fully exercised immediately prior thereto less the aggregate Current Warrant
Price payable at the time of such Sale for the purchase of the shares of Common
Stock then subject to such Holder's Warrant (or the portion thereof being
repurchased).
(c) Notwithstanding any provision contained in this Warrant to
the contrary, should Company for any reason fail to perform its obligations
arising under Section 14.1 hereof, such obligations shall in all respects
continue until Company has fulfilled such obligations.
14.2 Option to Repurchase Warrant. From time to time on or
after (a) the Closing Date, in the case of the successful consummation of a sale
of not less than 90% of the Common Stock or all or substantially all of the
Company's property and assets, in each case for cash consideration in the form
of immediately available funds and (b) in all other cases, February 27, 2000, in
each case until the Expiration Date, and, with respect to any shares of Warrant
Stock requested to be registered pursuant to Section 9.3 hereof, Company shall
have the right, upon written notice to any Holder, to repurchase from such
Holder, from any source of funds legally available therefor, on the date and in
the manner set forth in Section 14.4 below, all or any part of the Warrant then
held by such Holder for an amount (subject to the adjustment provided in Section
14.3 below) determined by multiplying the number of shares of Common Stock
subject to such Warrant or portion thereof being repurchased by the difference
between the Current Market Price per share of
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Common Stock as of the date of such notice and the Current Warrant Price per
share of Common Stock as of the date of such notice; provided, however, that
nothing herein shall preclude the exercise by Holder of any portion of this
Warrant exercisable at any time prior to such repurchase.
14.3 Subsequent Public Offering or Sale. In the event that
Company exercises its repurchase right pursuant to Section 14.2 hereof and at
any time within six (6) months following the date of such repurchase an Offering
or a Sale shall be consummated then (a) in the case of an Offering, if the net
offering price per share to Company (after deduction of all underwriters'
discounts, fees, commissions and expenses related to any such offering which
would be payable by Holder if such Warrant Shares had been registered and sold
in such offering under Section 9 hereof, but without deducting the value of any
warrants, options or other rights granted or sold by Company to any such
underwriter) upon consummation of such offering, after deducting the Current
Warrant Price per share of the Common Stock as of such date (even though beyond
the expiration of such 6-month period) exceeds the Repurchase Price per share of
Common Stock paid to any Holder for the Warrant upon any such repurchase,
Company shall forthwith upon the consummation of such offering pay to such
Holder the amount of such excess multiplied by the number of shares of Common
Stock subject to the Warrant repurchased as an additional amount of Repurchase
Price hereunder and (b) in the case of a Sale, such Holder shall (whether or not
such Holder shall have previously surrendered such Holder's Warrant for
repurchase by Company pursuant to this Section 14) be entitled to receive, on
the date of such Sale, the higher of (i) the amount payable to such Holder as
determined pursuant to Section 14.1(a) and (ii) an amount equal to the amount of
cash such Holder would have received upon such Sale had such Holder's Warrant
(or the portion thereof being repurchased) been fully exercised immediately
prior thereto less the aggregate Current Warrant Price payable at the time of
such Sale for the purchase of the shares of Common Stock then subject to such
Holder's Warrant (or the portion thereof being repurchased).
14.4 Determination and Payment of Repurchase Price. The
purchase price for any repurchase pursuant to this Section 14 (the "Repurchase
Price") shall be determined within ninety (90) days of the date of the
repurchase notice received or given by Company pursuant to Section 14.1 or 14.2,
and shall be payable in cash within twenty (20) days following the date of such
determination of the Repurchase Price. On the date of any repurchase of Warrants
pursuant to this Section 14, each Holder shall assign to Company such Holder's
Warrant or portion thereof being repurchased, as the case may be, without any
representation or warranty (other than customary representations and warranties
as to ownership, absence of liens and due authority to consummate such
transaction), by the surrender of such Holder's Warrant at the principal office
of Company referred to in Section 2.1 against payment therefor of the Repurchase
Price by, at the option of such Holder, (i) wire transfer to an account in a
bank located in the United States designated by such Holder for such purpose,
(ii) a certified or official bank check drawn on a member of the New York
Clearing House payable to the order of such Holder or (iii) in the case of a
sale of not less than 90% (but not all) of the Common Stock, securities
identical to those received by the selling stockholders of the Common Stock
pursuant to such sale, ratably according to the percentage of aggregate shares
of Common Stock not so sold by such selling stockholders (with the remainder of
the Repurchase Price being paid as the Holder may request pursuant to clauses
(i) or (ii) above). If less than all of any Holder's Warrant is being
repurchased, Company shall, pursuant to Section 3, cancel such
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Warrant and issue in the name of, and deliver to, such Holder a new Warrant for
the portion not being repurchased.
(b) Each Holder shall have the right at any time to object to
the determination of Current Market Value pursuant to this Section 14 by
specifying in writing to Company the nature of its objection and, unless such
objection is resolved by agreement of Company and such Holder, Company and such
Holder shall each have the right to subject the disputed determination to
separate firms of independent accountants of recognized national standing for a
joint resolution of the objection of such Holder (which firms of independent
accountants may, in either case, be the firms of accountants regularly retained
by Company or such Holder). If such firms cannot jointly resolve the objection
of such Holder, then, unless otherwise directed by agreement of Company and such
Holder, such firms shall in their sole discretion choose another firm of
independent certified public accountants of recognized national standing, which
is not the regular auditor of such Holder or Company, which firm shall resolve
such objection. In either case, for purposes hereof the determination so made
shall be conclusive and binding on Company, such Holder and all Persons claiming
under or through any of them, and any adjustment in the determination of Book
Value and the Repurchase Price per share of Common Stock resulting from such
determination shall be made. The cost of any such determination shall be borne:
(i) by Company if it results in an increase of the aggregate Repurchase Price
for all shares of Common Stock issuable upon the exercise hereof of ten percent
(10%) or more; (ii) by such Holder if it results in a decrease of the aggregate
Repurchase Price for all shares of Common Stock issuable upon the exercise
hereof of ten percent (10%) or more; and (iii) equally by the Company and the
Holder in any other case.
(c) Any repurchase by Company of all or any portion of the
Warrant pursuant to Section 14.1 which is delayed by (1) the failure of Company
to determine the Repurchase Price within the time periods required in Section
14.4(a) or (2) an objection by any Holder of the Warrant to any determination of
Book Value pursuant to Section 14.4(b) shall be consummated within 10 days
after, as the case may be, the determination of the Repurchase Price or the
resolution of such objection.
(d) In the event that the determination of the Repurchase
Price requires an opinion from an investment banking firm or accounting firm,
all costs and fees associated therewith shall be paid by Company.
15. APPRAISAL
The determination of the Appraised Value per share of Common
Stock shall be made by an investment banking firm of nationally recognized
standing selected by Company and acceptable to the Majority Holders. If the
investment banking firm selected by Company is not acceptable to the Majority
Holders and Company and the Majority Holders cannot agree on a mutually
acceptable investment banking firm, then the Majority Holders and Company shall
each choose one such investment banking firm and the respective chosen firms
shall agree on another investment banking firm which shall make the
determination. Company shall retain, at its sole cost, such investment banking
firm as may be necessary for the determination of Appraised Value required by
the terms of this Warrant, except as otherwise provided in Section 14.4(b).
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16. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
17. PARTICIPATION IN CORPORATE DISTRIBUTIONS AND TAKE-ALONG RIGHTS
17.1 Company's Obligation to Make Payments.
(a) Company shall not declare, make or pay any dividend or
other distribution, whether in cash, securities or other property, with respect
to its Common Stock (a "Distribution") unless it concurrently makes a cash
payment to the holder of this Warrant equal to (1) the amount of cash plus the
fair value of any property or securities distributed with respect to each
outstanding share of Common Stock at the time, as determined in good faith by
the Board of Directors of Company, multiplied by (2) the number of shares of
Common Stock then issuable upon exercise of this Warrant.
(b) Except for repurchases of Warrant Shares upon the exercise
of the repurchase options contained in Section 14 hereof, Company shall not
repurchase or redeem any of its equity securities or any securities convertible
into or exchangeable for such equity securities or any warrants or other rights
to purchase such equity securities unless it concurrently makes a cash payment
to the holder of this Warrant equal to the product of (i) the quotient obtained
by dividing (x) the aggregate amount of cash and the aggregate fair value of any
property paid out by Company in connection with any such repurchase or
redemption at the time, as determined in good faith by the Board of Directors of
Company, by (y) the number of shares of Common Stock outstanding on a fully
diluted (excluding shares of Common Stock then issuable upon exercise of this
Warrant) immediately after such repurchase or redemption, and (ii) the number of
shares of Common Stock then issuable upon the exercise of this Warrant. Upon any
such payment by the Company, the number of shares of Common Stock then issuable
upon the exercise of this Warrant shall be adjusted by multiplying the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to such payment by a fraction (A) the numerator of which shall be the number of
shares of Common Stock Outstanding immediately after such repurchase or
redemption, and (B) the denominator of which shall be the number of shares of
Common Stock Outstanding immediately prior to such repurchase or redemption.
Concurrently, the Holder of this Warrant shall deliver the same to the Company
for cancellation and the Company shall deliver to Holder a new Warrant
evidencing the adjusted number of unpurchased shares of Common Stock called for
by this Section 17.1(b), which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of Holder, appropriate notation
may be made on this Warrant and the same returned to Holder. [Example: 90 shares
are outstanding and Warrant is for 10 shares (10% on a fully diluted basis).
Company redeems 10 shares for $8 each ($80 total). 80 shares are left
outstanding. $80 divided by 80 shares = $1 per share. 10 x $1 = $10 to be
delivered to Holder. Warrant is then adjusted by multiplying 10 (pre-payment
number of exercisable shares) by 80/90. Resulting Warrant is for 8.89 shares or
10% of post-redemption stock on a fully-diluted basis.]
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17.2 Take-Along Rights. Each holder of Warrants or Warrant
Shares shall have the right to be taken along in the sale of any Common Stock by
BCA, the principal stockholder of the Company, or in any sale of capital stock
of BCA by ARTRA, in accordance with the letter addressed to each holder, and any
assignee, transferee or successor, a copy of which is attached as Annex A hereto
and made a part hereof.
18. MISCELLANEOUS
18.1 Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies. If Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, Company
shall pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
18.2 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its
last known address appearing on the books of Company maintained for
such purpose.
(b) If to Company, at:
Bagcraft Corporation of America
3900 West 43rd Street
Chicago, Illinois 60632
Attention: Mark Santacrose, Esq.
Telecopy Number: (773) 254-8204
with a copy to:
Philip E. Ruben
Kwiatt, Silverman & Ruben, Ltd.
500 Central Avenue
Northfield, IL 60093
Telecopy: (847) 441-7696
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication
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hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, telecopied and confirmed by
telecopy answerback, or three (3) Business Days after the same shall have been
deposited in the United States mail, certified, or one (1) Business Day after
the same has been deposited with a reputable overnight courier with instructions
to deliver the same on the next Business Day. Failure or delay in delivering
copies of any notice, demand, request, approval, declaration, delivery or other
communication to the person designated above to receive a copy shall in no way
adversely affect the effectiveness of such notice, demand, request, approval,
declaration, delivery or other communication.
18.3 Indemnification. Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of (i) Holder's exercise
of this Warrant and/or ownership of any shares of Warrant Stock issued in
consequence thereof, or (ii) any litigation to which Holder is made a party in
its capacity as a stockholder of Company; provided, however, that Company will
not be liable hereunder to the extent that any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's gross negligence, bad faith or willful
misconduct in its capacity as a stockholder or warrant holder of Company.
18.4 Remedies. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under Section 9 of this Warrant. Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of Section 9 of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
18.5 Successors and Assigns. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
18.6 Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
Company and the Majority Holders, provided that no such Warrant may be modified
or amended to reduce the number of shares of Common Stock for which such Warrant
is exercisable or to increase the price at which such shares may be purchased
upon exercise of such Warrant (before giving effect to any adjustment as
provided therein) without the prior written consent of the Holder thereof.
18.7 Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be
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ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant.
18.8 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
18.9 Governing Law. This Warrant shall be governed by the
internal laws and decisions of the State of Illinois, without regard to the
provisions thereof relating to conflict of laws.
[Balance of page left intentionally blank; signature page
follows.]
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IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: February ___, 1998
BAGCRAFT CORPORATION OF AMERICA
By:____________________________
Title:_________________________
Attest:
By:_______________________________
Title:_____________________________
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ____ Shares of Common Stock of
Bagcraft Corporation of America and herewith makes payment therefor in the
amount of $___________ as follows:
$______________ by wire transfer;
$______________ by certified or official bank check enclosed herewith;
$______________ by deducting from the shares delivered upon exercise
hereof a number of shares having an aggregate Current Market Price on
the date of exercise equal to the aggregate purchase price for all
shares as to which this Warrant is then being exercised;
$_____________ by application of the Liabilities as provided in Section
2.5 of this Warrant;
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to________________________ whose address
is__________________________________ and, if such shares of Common Stock shall
not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the shares
of Common Stock issuable hereunder be delivered to the undersigned.
-------------------------------------
(Name of Registered Owner)
------------------------------------
(Signature of Registered Owner)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint attorney-in-fact to register
such transfer on the books of Bagcraft Corporation of America maintained for the
purpose, with full power of substitution in the premises.
Dated:_______________ Print Name:________________________
Signature:_________________________
Witness:___________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
ANNEX A
February 27, 1998
To Each Holder of a Warrant to Purchase
Common Stock of Bagcraft Corporation of America
and all Assignees, Transferees and
Successors of such Holder:
Reference is made to the Warrant of even date herewith to purchase the
Common Stock of Bagcraft Corporation of America, a Delaware corporation (the
"Company"), issued to General Electric Capital Corporation, a New York
corporation ("GE Capital"), (as from time to time amended, replaced, refinanced,
restated, superseded, supplemented or otherwise modified). All capitalized terms
used in this agreement which are defined in the Warrant are used as defined in
the Warrant unless the context otherwise requires.
The undersigned, BCA Holdings, Inc., a Delaware corporation ("BCA")
and ARTRA GROUP Incorporated, a Pennsylvania corporation ("ARTRA"; collectively,
BCA and ARTRA are referred to herein as the "Controlling Stockholders"),
warrant, covenant and agree with the holders of the Warrant and the Warrant
Stock, their assignees, transferees and successors (the "Warrantholders") as
follows:
If any Controlling Stockholder proposes any sale (other than pursuant
to a public offering) (a "Sale) of all or a portion of its common stock of the
Company ("Common Stock") or any class of capital stock of BCA ("BCA Stock')
(collectively, Common Stock and BCA Stock are referred to herein as "Controlling
Stock"), the Controlling Stockholders shall provide for such Sale on a basis
which includes a ratable share of all shares which have been issued or then are
issuable under the Warrant (collectively "Warrant Stock") on a pro-rata basis.
1. The Controlling Stockholders shall give each Warrantholder written
notice of a proposed Sale of Controlling Stock not less than 45 days before such
Sale is to take place. The notice ("Sale Notice") shall set forth:
a. the name and address of the Proposed Purchaser;
b. the name and address of each Warrantholder as
shown on the records of the Company, the number of shares of
Warrant Stock held by or issuable to each Warrantholder;
c. the number and nature of shares of Controlling
Stock proposed to be transferred by the Controlling Stockholders;
d. the proposed amount and form of consideration
and terms and conditions of payment offered by such Proposed Purchaser;
and
<PAGE>
e. the signed agreement of the Proposed Purchaser
acknowledging that he has been informed of this letter agreement and
has agreed to purchase Warrant Stock in accordance with the terms
hereof.
2. The take-along rights provided in this agreement may be exercised
by any Warrantholder (an "Electing Warrantholder") by delivery of a written
notice (a "Take-Along-Notice") to the Company or ARTRA (with a copy to each
other Warrantholder) within thirty (30) days after receipt of the Sale Notice. A
Take-Along Notice shall state the number of shares of Warrant Stock which the
Warrantholder wishes to include in such Sale to the Proposed Purchaser.
3. The Warrantholders shall be entitled to sell to the Proposed
Purchaser Warrant Stock at the same price per share as the price per share to be
paid for Controlling Stock and otherwise on the same terms as are to be
applicable to the sale of the Controlling Stock, except as provided in paragraph
4 below. The Warrantholders shall be entitled to sell the same percentage of the
Warrant Stock held by them, as that percentage of the Controlling Stock
ultimately sold by the Controlling Stockholders (after reductions to permit the
sale of the Warrant Stock).
4. Any shares of Warrant Stock purchased from the Warrantholders
pursuant to this agreement shall be purchased on terms and conditions which do
not include the making of any representations and warranties, indemnities or
other similar agreements other than the representations, warranties and
indemnities as to the ownership of such shares of Warrant Stock and the due
authority to sell such shares.
BCA HOLDINGS, INC. ARTRA GROUP INCORPORATED
By:_______________________ By:_______________________
Title:______________________ Title:____________________
EXHIBIT 10.3
SETTLEMENT AGREEMENT AND RELEASES
This Settlement Agreement and Release (the "Agreement") is made and entered
into as of December 31, 1997 by and among Artra Group Incorporated ("Artra"), a
corporation organized under the laws of the State of Pennsylvania, Peter Harvey
and John Harvey, on the one hand, and Salomon Brothers Holding Company Inc, a
corporation organized under the laws of the State of Delaware, and any of its
successors (collectively "SBHC"), Salomon Brothers Inc ("SBI"), a corporation
organized under the laws of the State of Delaware (along with SBHC, "Salomon"),
D.P. Kelly & Associates, L.P. ("DPK"), a Delaware Limited Partnership, Charles
K. Bobrinskoy, Donald P. Kelly, James L. Massey, William Rifkin (erroneously
sued in the actions defined below as the "Original Action", the "Federal Action"
and the "Elghanian Action" as William Rifkind), Michael J. Zimmerman
(collectively without Salomon and DPK, the "Individual Defendants"), Envirodyne
Industries, Inc., a corporation organized under the laws of the State of
Delaware, and any of its predecessors ("Envirodyne"), and Emerald Acquisition
Corporation ("Emerald"), a corporation organized under the laws of the State of
Delaware, on the other hand.
WHEREAS, Artra has instituted an action in the Circuit Court of the
Eighteenth Judicial District, Du Page County, Wheaton, Illinois, against
Salomon, DPK and the Individual Defendants, entitled Artra Group Incorporated v.
Salomon Brothers Holding Company Inc, et al., Index No. 93 L 2198 (the "Original
Action");
WHEREAS, the Original Action allegedly was removed by Salomon, DPK and the
Individual Defendants to the bankruptcy proceedings of both Emerald, Case No.
93-B-17632 (the "Emerald Bankruptcy") and Envirodyne, Case No. 93-B-00319 (the
"Envirodyne Bankruptcy"), in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (the "Bankruptcy Court");
WHEREAS, certain causes of action were remanded to the Circuit Court of the
Eighteenth Judicial District, Du Page County, Wheaton, Illinois (the "State
Action"), and the remaining causes of action remained before the Bankruptcy
Court in both the Emerald Bankruptcy, as Adversary No. 93 A 01616 and the
Envirodyne Bankruptcy, as Adversary No. 93 A 01617, each entitled Artra Group
Incorporated v. Salomon Brothers Holding Company, Inc., et al. (the "Federal
Action");
WHEREAS, the Federal Action was dismissed by the Bankruptcy Court, which
dismissal was affirmed by the United States District Court for the Northern
District of Illinois, Eastern Division;
WHEREAS, Artra has appealed the dismissal of the Federal Action to the
United States Court of Appeals for the Seventh Circuit, No. 96-3997 (the
"Appeal"), which appeal is currently pending;
WHEREAS, the State Action is currently pending against Salomon, Charles
Bobrinskoy and Michael Zimmerman, and has been dismissed as against DPK and
Donald P. Kelly;
WHEREAS, Salomon, DPK and the Individual Defendants have denied any
liability to Artra with respect to the causes of action asserted in the State
Action and in the Federal Action;
WHEREAS, Artra commenced an action related to certain pay-in-kind notes
issued by Emerald in favor of Artra in the Circuit Court of the Eighteenth
Judicial District, Du Page County, Wheaton, Illinois, against Emerald, Case No.
93 L 0812 (the "Bond Action");
WHEREAS, judgment was entered in favor of Artra and against Emerald in the
amount of $38,906,434.02 in the Bond Action;
WHEREAS, Emerald has appealed the judgment in the Bond Action to the
Appellate Court of Illinois, Second District, which appeal is currently pending
and has been stayed by the Emerald Bankruptcy;
<PAGE>
WHEREAS, all of the parties hereto, with the exception of Envirodyne and
Emerald, have had claims asserted against them in an action commenced in the
Supreme Court of the State of New York for the County of New York, Elghanian v.
Harvey, et al., Index No. 103826/95 (the "Elghanian Action"), which action has
been dismissed and is being appealed;
WHEREAS, the parties hereto believe that the claims asserted in the
Elghanian Action are without merit;
WHEREAS, the parties hereto desire to settle the differences between them
as set forth herein;
NOW, THEREFORE, in consideration of the covenants and promises contained
herein below, the parties hereto have agreed as follows:
1. Upon execution of the Agreement, Salomon shall pay to Artra the sum of
Eleven ($11,000,000) Dollars. The payment shall be made by wire transfer of
$9,761,379.07 to the account of Artra Group Incorporated, First National Bank of
Chicago, 400 Central Avenue, Northfield, IL 60093, ABA No. 071000013, Account
No. 1115001120773, Attn: Ms. Suad Lubbat (847/441-1363) and delivery to Moses &
Singer, 1301 Avenue of the Americas, New York, New York 10019, of a check drawn
on a Salomon account or the account of a Salomon affiliate in the amount of
$1,238,620.93 payable to Moses & Singer LLP.
2. Artra represents that it does not have any complaints, suits, actions,
charges, claims, causes, appeals and/or proceedings presently pending against
Salomon, DPK, the Individual Defendants, Envirodyne and/or Emerald, other than
the State Action, the Federal Action, the Appeal, Emerald's appeal of the Bond
Action and any proofs of claim filed in the Emerald Bankruptcy.
3. Concurrently with the receipt of the payment provided for in paragraph
1, Artra shall execute and deliver to Salomon withdrawals or dismissals, as the
case may be, with prejudice, of the State Action and the Appeal. Thereafter, at
Salomon's request Artra shall take such additional steps as are necessary to
effectuate the withdrawals or dismissals, with prejudice, of the State Action,
the Federal Action and the Appeal.
4. Concurrently with Emerald's execution and delivery of the Agreement,
duly approved by the Bankruptcy Court, to Artra, Artra shall deliver to Emerald
an executed satisfaction of judgment to be entered in the Circuit Court of the
Eighteenth Judicial District, Du Page County, Wheaton, Illinois for the judgment
obtained in the Bond Action, as well as take all steps necessary to dismiss and
withdraw, with prejudice, any and all proofs of claim filed by Artra in the
Emerald Bankruptcy and to waive any right to any distribution in the Emerald
Bankruptcy.
5. Concurrently with Artra's execution and delivery of the Agreement, DPK
shall execute and deliver to Artra a withdrawal of its motion for costs in the
State Action. Thereafter, at Artra's request DPK shall take such additional
steps as are necessary to effectuate the withdrawal of its motion for costs in
the State Action.
6. Artra, for itself and its successors and assigns, irrevocably releases
and forever discharges SBHC, SBI, Travelers Group Inc. ("Travelers"), a
corporation organized under the laws of the State of Delaware, DPK, Emerald and
each of the Individual Defendants, and each of their predecessors, successors,
assigns, present and former officers, directors, employees, agents, attorneys,
representatives, affiliates, parent corporations, direct and indirect
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which Artra may have or claim to have arising from or
in any way connected with (i) the claims asserted in the State Action, the
Federal Action, the Elghanian Action or the Bond Action, (ii) the leveraged
buyout of Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy, including, but not limited to, all
causes of action actually asserted or which could have been asserted in the
Emerald Bankruptcy, the Envirodyne Bankruptcy, the State Action, the Federal
Action, the Elghanian Action or the Bond Action.
2
<PAGE>
7. Artra, for itself and its successors and assigns, irrevocably releases
and forever discharges Envirodyne, and each of its predecessors, successors,
assigns, present and former officers, directors, employees, agents, attorneys,
representatives, affiliates, parent corporations, direct and indirect
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which Artra may have or claim to have arising from or
in any way connected with (i) the claims asserted in the State Action, the
Federal Action, the Elghanian Action or the Bond Action, (ii) the leveraged
buyout of Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy, including, but not limited to, all
causes of action actually asserted or which could have been asserted in the
Emerald Bankruptcy, the Envirodyne Bankruptcy, the State Action, the Federal
Action, the Elghanian Action or the Bond Action, except that Artra specifically
reserves and does not release or discharge any defenses, counterclaims,
crossclaims, claims, actions, causes of action, debts, damages, expenses,
losses, costs, grievances and liabilities of any kind arising in connection with
claims which may be asserted by the PSC Resources Site PRP Group, Envirodyne,
Monsanto Company, Marane Oil Corp or any other third-party, related to a Palmer,
Massachusetts, environmental clean-up site.
8. SBHC, for itself and its successors and assigns, irrevocably releases
and forever discharges Artra, Peter Harvey, John Harvey, DPK, Envirodyne,
Emerald and Donald P. Kelly, and each of their predecessors, successors,
assigns, present and former officers, directors, employees, agents, attorneys,
representatives, affiliates, parent corporations, direct and indirect
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which SBHC may have or claim to have arising from or
in any way connected with (i) the claims asserted in the State Action, the
Federal Action, the Elghanian Action or the Bond Action, (ii) the leveraged
buyout of Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy, including, but not limited to, all
causes of action actually asserted or which could have been asserted in the
Emerald Bankruptcy, the Envirodyne Bankruptcy, the State Action, the Federal
Action, the Elghanian Action or the Bond Action.
9. SBI, for itself and its successors and assigns, irrevocably releases and
forever discharges Artra, Peter Harvey, John Harvey, DPK, Envirodyne, Emerald
and Donald P. Kelly, and each of their predecessors, successors, assigns,
present and former officers, directors, employees, agents, attorneys,
representatives, affiliates, parent corporations, direct and indirect
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which SBI may have or claim to have arising from or
in any way connected with (i) the claims asserted in the State Action, the
Federal Action, the Elghanian Action or the Bond Action, (ii) the leveraged
buyout of Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy, including, but not limited to, all
causes of action actually asserted or which could have been asserted in the
Emerald Bankruptcy, the Envirodyne Bankruptcy, the State Action, the Federal
Action, the Elghanian Action or the Bond Action.
3
<PAGE>
10. Envirodyne, for itself and its predecessors, successors and assigns,
irrevocably releases and forever discharges Artra, Peter Harvey and John Harvey,
and each of their predecessors, successors, assigns, present and former
officers, directors, employees, agents, attorneys, representatives, affiliates,
parent corporations, direct and indirect subsidiaries, heirs, executors and
administrators, from any and all claims, actions, causes of action, debts,
damages, expenses, losses, costs, grievances, indemnity claims, contribution
claims, subrogation claims and liabilities of any kind or any nature whatsoever,
whether actual or potential, known or unknown, suspected or unsuspected, direct
or indirect, fixed or contingent, that may exist in law or in equity, which
Envirodyne may have or claim to have arising from or in any way connected with
(i) the claims asserted in the State Action, the Federal Action, the Elghanian
Action or the Bond Action, (ii) the leveraged buyout of Envirodyne in 1989,
(iii) Envirodyne, (iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the
Emerald Bankruptcy, including, but not limited to, all causes of action actually
asserted or which could have been asserted in the Emerald Bankruptcy, the
Envirodyne Bankruptcy, the State Action, the Federal Action, the Elghanian
Action or the Bond Action, except that Envirodyne specifically reserves and does
not release or discharge any defenses, counterclaims, crossclaims, claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances
and liabilities of any kind arising in connection with claims which may be
asserted by the PSC Resources Site PRP Group, Artra, Monsanto Company, Marane
Oil Corp or any other third-party, related to a Palmer, Massachusetts,
environmental clean-up site, including any absolute or affirmative defenses that
Envirodyne may have, including, but not limited to, Artra's failure to file a
proof of claim in the Envirodyne Bankruptcy.
11. Envirodyne, for itself and its predecessors, successors and assigns,
irrevocably releases and forever discharges SBHC, SBI, Travelers, and each of
the Individual Defendants, excluding Donald P. Kelly, and each of their
predecessors, successors, assigns, present and former officers, directors,
employees, agents, attorneys, representatives, affiliates, parent corporations,
direct and indirect subsidiaries, heirs, executors and administrators, from any
and all claims, actions, causes of action, debts, damages, expenses, losses,
costs, grievances, indemnity claims, contribution claims, subrogation claims and
liabilities of any kind or any nature whatsoever, whether actual or potential,
known or unknown, suspected or unsuspected, direct or indirect, fixed or
contingent, that may exist in law or in equity, which Envirodyne may have or
claim to have arising from or in any way connected with (i) the claims asserted
in the State Action, the Federal Action, the Elghanian Action, or the Bond
Action, (ii) the leveraged buyout of Envirodyne in 1989, (iii) Envirodyne, (iv)
Emerald, (v) the Envirodyne Bankruptcy, or (vi) the Emerald Bankruptcy,
including, but not limited to, all causes of action actually asserted or which
could have been asserted in the Emerald Bankruptcy, the Envirodyne Bankruptcy,
the State Action, the Federal Action, the Elghanian Action or the Bond Action.
12. Emerald, for itself and its successors and assigns, irrevocably
releases and forever discharges Artra, Peter Harvey, John Harvey, SBHC, SBI,
Travelers, DPK, Donald P. Kelly and each of the Individual Defendants, and each
of their predecessors, successors, assigns, present and former officers,
directors, employees, agents, attorneys, representatives, affiliates, parent
corporations, direct and indirect subsidiaries, heirs, executors and
administrators, from any and all claims, actions, causes of action, debts,
damages, expenses, losses, costs, grievances, indemnity claims, contribution
claims, subrogation claims and liabilities of any kind or any nature whatsoever,
whether actual or potential, known or unknown, suspected or unsuspected, direct
or indirect, fixed or contingent, that may exist in law or in equity, which
Emerald may have or claim to have arising from or in any way connected with (i)
the claims asserted in the State Action, the Federal Action, the Elghanian
Action or the Bond Action, (ii) the leveraged buyout of Envirodyne in 1989,
(iii) Envirodyne, (iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the
Emerald Bankruptcy, including, but not limited to, all causes of action actually
asserted or which could have been asserted in the Emerald Bankruptcy, the
Envirodyne Bankruptcy, the State Action, the Federal Action, the Elghanian
Action or the Bond Action.
13. DPK, for itself, its partners and its successors and assigns,
irrevocably releases and forever discharges Artra, Peter Harvey, John Harvey,
SBHC, SBI, Travelers, Emerald and the Individual Defendants, excluding Donald P.
4
<PAGE>
Kelly, and each of their predecessors, successors, assigns, present and former
officers, directors, employees, agents, attorneys, representatives, affiliates,
parent corporations, direct and indirect subsidiaries, heirs, executors and
administrators, from any and all claims, actions, causes of action, debts,
damages, expenses, losses, costs, grievances, indemnity claims, contribution
claims, subrogation claims and liabilities of any kind or any nature whatsoever,
whether actual or potential, known or unknown, suspected or unsuspected, direct
or indirect, fixed or contingent, that may exist in law or in equity, which DPK
may have or claim to have arising from or in any way connected with (i) the
claims asserted in the State Action, the Federal Action, the Elghanian Action or
the Bond Action, (ii) the leveraged buyout of Envirodyne in 1989, (iii)
Envirodyne, (iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the Emerald
Bankruptcy, including, but not limited to, all causes of action actually
asserted or which could have been asserted in the Emerald Bankruptcy, the
Envirodyne Bankruptcy, the State Action, the Federal Action, the Elghanian
Action or the Bond Action.
14. The Individual Defendants, excluding Donald P. Kelly, each for
themselves and their heirs, executors, administrators, successors and assigns,
irrevocably release and forever discharge Artra, Peter Harvey, John Harvey, DPK,
Donald P. Kelly, Envirodyne and Emerald, and each of their predecessors,
successors, assigns, present and former officers, directors, employees, agents,
attorneys, representatives, affiliates, parent corporations, direct and indirect
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which the Individual Defendants, individually and
collectively, may have or claim to have arising from or in any way connected
with (i) the claims asserted in the State Action, the Federal Action, the
Elghanian Action or the Bond Action, (ii) the leveraged buyout of Envirodyne in
1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the
Emerald Bankruptcy, including, but not limited to, all causes of action actually
asserted or which could have been asserted in the Emerald Bankruptcy, the
Envirodyne Bankruptcy, the State Action, the Federal Action, the Elghanian
Action or the Bond Action.
15. Peter Harvey and John Harvey, each for themselves and their heirs,
executors, administrators, successors and assigns, irrevocably release and
forever discharge, SBHC, SBI, Travelers, DPK, Emerald and each of the Individual
Defendants, and each of their predecessors, successors, assigns, present and
former officers, directors, employees, agents, attorneys, representatives,
affiliates, parent corporations, direct and indirect subsidiaries, heirs,
executors and administrators, from any and all claims, actions, causes of
action, debts, damages, expenses, losses, costs, grievances, indemnity claims,
contribution claims, subrogation claims and liabilities of any kind or any
nature whatsoever, whether actual or potential, known or unknown, suspected or
unsuspected, direct or indirect, fixed or contingent, that may exist in law or
in equity, which Peter Harvey or John Harvey, individually or collectively, may
have or claim to have arising from or in any way connected with (i) the claims
asserted in the State Action, the Federal Action, the Elghanian Action or the
Bond Action, (ii) the leveraged buyout of Envirodyne in 1989, (iii) Envirodyne,
(iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the Emerald Bankruptcy,
including, but not limited to, all causes of action actually asserted or which
could have been asserted in the Emerald Bankruptcy, the Envirodyne Bankruptcy,
the State Action, the Federal Action, the Elghanian Action or the Bond Action.
16. Peter Harvey and John Harvey, each for themselves and their heirs,
executors, administrators, successors and assigns, irrevocably release and
forever discharge Envirodyne, and each of its predecessors, successors, assigns,
present and former officers, directors, employees, agents, attorneys,
representatives, affiliates, parent corporations, direct and indirect
5
<PAGE>
subsidiaries, heirs, executors and administrators, from any and all claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, which Peter Harvey or John Harvey, individually or
collectively, may have or claim to have arising from or in any way connected
with (i) the claims asserted in the State Action, the Federal Action, the
Elghanian Action or the Bond Action, (ii) the leveraged buyout of Envirodyne in
1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne Bankruptcy, or (vi) the
Emerald Bankruptcy, including, but not limited to, all causes of action actually
asserted or which could have been asserted in the Emerald Bankruptcy, the
Envirodyne Bankruptcy, the State Action, the Federal Action, the Elghanian
Action or the Bond Action, except that Peter Harvey and John Harvey,
individually and collectively, specifically reserve and do not release or
discharge any defenses, counterclaims, crossclaims, claims, actions, causes of
action, debts, damages, expenses, losses, costs, grievances and liabilities of
any kind arising in connection with claims which may be asserted by the PSC
Resources Site PRP Group, Envirodyne, Monsanto Company, Marane Oil Corp or any
other third-party, related to a Palmer, Massachusetts, environmental clean-up
site.
17. Donald P. Kelly, for himself and his heirs, executors, administrators,
successors and assigns, irrevocably releases and forever discharges Artra, Peter
Harvey, John Harvey, SBI, SBHC, Travelers, Emerald and the Individual
Defendants, and each of their predecessors, successors, assigns, present and
former officers, directors, employees, agents, attorneys, representatives,
affiliates, parent corporations, direct and indirect subsidiaries, heirs,
executors and administrators, from any and all claims, actions, causes of
action, debts, damages, expenses, losses, costs, grievances, indemnity claims,
contribution claims, subrogation claims and liabilities of any kind or any
nature whatsoever, whether actual or potential, known or unknown, suspected or
unsuspected, direct or indirect, fixed or contingent, that may exist in law or
in equity, which Donald P. Kelly may have or claim to have arising from or in
any way connected with (i) the claims asserted in the State Action, the Federal
Action, the Elghanian Action or the Bond Action, (ii) the leveraged buyout of
Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald, (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy, including, but not limited to, all
causes of action actually asserted or which could have been asserted in the
Emerald Bankruptcy, the Envirodyne Bankruptcy, the State Action, the Federal
Action, the Elghanian Action or the Bond Action.
18. Each of the parties hereto represents that it has not assigned,
transferred or otherwise conveyed to any third party any rights, claims,
actions, causes of action, debts, damages, expenses, losses, costs, grievances,
indemnity claims, contribution claims, subrogation claims and liabilities of any
kind or any nature whatsoever, whether actual or potential, known or unknown,
suspected or unsuspected, direct or indirect, fixed or contingent, that may
exist in law or in equity, against any party hereto, which arose from or are in
any way connected with (i) the claims asserted in the State Action, the Federal
Action, the Elghanian Action or the Bond Action, (ii) the leveraged buyout of
Envirodyne in 1989, (iii) Envirodyne, (iv) Emerald (v) the Envirodyne
Bankruptcy, or (vi) the Emerald Bankruptcy. Notwithstanding the foregoing, the
parties hereto acknowledge that one or more of the Salomon entities has merged
with a direct or indirect subsidiary of Travelers. As between DPK, Donald P.
Kelly, Envirodyne, SBHC, SBI, Travelers, and their respective affiliates, the
subject matter of the releases set forth in paragraphs 8, 9, 11, 13 and 17 above
are not intended to, and shall not, release, include or alter any existing
securities account relationships, insurance policy, investment or trading
account holding equity or debt securities, or mutual or private fund investments
between or among any such person or entity.
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19. Salomon represents that: (i) it has incurred legal expenses on behalf
of William Rifkin ("Rifkin") and James L. Massey ("Massey") related to the State
Action, the Federal Action, the Appeal and the Elghanian Action; (ii) to the
best of its knowledge Rifkin and Massey have not personally incurred legal
expenses related to the State Action, the Federal Action, the Appeal or the
Elghanian Action; and (iii) it is unaware of any claims, actions, causes of
action, debts, damages, expenses, losses, costs, grievances and liabilities of
any kind or any nature whatsoever, whether actual or potential, known or
unknown, suspected or unsuspected, direct or indirect, fixed or contingent, that
may exist in law or in equity, possessed by Rifkin and Massey against Artra,
Peter Harvey or John Harvey. Further, Salomon shall use its best efforts to have
Massey and Rifkin execute the Agreement.
20. Each party hereto, other than the Individual Defendants, DPK, Peter
Harvey and John Harvey, shall bear its or his own attorneys' fees and costs, if
any, in connection with the State Action, the Federal Action, the Appeal, the
Bond Action, the appeal of the Bond Action, the Elghanian Action and the
Agreement. No party hereto shall make any claim in the future against any other
party hereto with respect to such fees and costs, with the exception of a claim
by any of the Individual Defendants, DPK, Peter Harvey or John Harvey as against
any party hereto who has been paying such fees and costs on their behalf prior
to the execution of the Agreement.
21. The Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of the signature page of the
Agreement by telephone facsimile transmission shall be equally effective as
manual delivery of an executed counterpart. Any party delivering an executed
counterpart of the signature page of the Agreement by telephone facsimile
transmission shall thereafter promptly manually deliver an executed counterpart,
but the failure to manually deliver such executed counterpart shall not effect
the validity, enforceability and binding effect of the Agreement.
22. The Agreement and its performance and enforcement shall be governed by
the laws of the State of New York, without regard to its rules regarding choice
of law.
23. The persons executing the Agreement on behalf of Artra, SBHC, SBI, DPK
and Envirodyne represent that they are authorized to execute the Agreement on
behalf of the Corporation or partnership on whose behalf they have executed the
Agreement.
24. The parties' execution, delivery and performance of the Agreement shall
not create or be deemed to create a partnership, joint venture or any other
business combination.
25. The Agreement is the entire understanding between Artra, Peter Harvey
and John Harvey, on the one hand, and Salomon, DPK, each of the Individual
Defendants, Envirodyne and Emerald, on the other hand, relating to the subject
matter hereof and supersedes and merges all prior and contemporaneous agreements
and discussions, oral or written, between the parties. No statements, promises
or representations have been made by any party to any other, or relied upon, and
no consideration has been offered, promised, expected or held out other than as
expressly provided herein.
26. The Agreement may not be changed, altered, modified or amended except
in a writing signed by all parties.
27. The Agreement shall be fully and completely binding as to all parties
immediately upon its execution and delivery by SBI, SBHC, Artra, Peter Harvey,
John Harvey, DPK, Envirodyne, Donald P. Kelly, Charles Bobrinskoy and Michael
Zimmerman (the "Required Parties"), except that:
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(a) the release by Emerald set forth in paragraph 12 hereof, as
well as the release of Emerald by any party, as set forth in
the Agreement, shall not be binding and effective until (i)
either the entry of an order by the Bankruptcy Court (which
order shall have become final and unappealable) authorizing
Emerald to execute, deliver and perform the Agreement, or,
alternatively, the dismissal of the Emerald Bankruptcy, and
(ii) the execution and delivery of the Agreement by Emerald;
(b) notwithstanding any failure by Massey to execute and deliver
the Agreement, any and all releases of Massey shall be
immediately effective and binding when the Required Parties
have executed and delivered the Agreement; and
(c) notwithstanding any failure by Rifkin to execute and deliver
the Agreement, any and all releases of Rifkin shall be
immediately effective and binding when the Required Parties
have executed and delivered the Agreement;
28. As soon as practicable after the execution and delivery of the
Agreement by the Required Parties, Emerald shall apply to the Bankruptcy Court
for authority to execute, deliver and perform the Agreement.
29. The parties hereto acknowledge that they have read each and every
paragraph of the Agreement and that they understand their respective rights and
obligations hereunder and have been advised by their counsel in connection with
entering into the Agreement. The parties hereto acknowledge that they freely,
voluntarily and without coercion enter into the Agreement.
ARTRA GROUP INCORPORATED
By:
--------------------
Title:
SALOMON BROTHERS HOLDING
COMPANY INC
By:
--------------------
Title:
SALOMON BROTHERS INC
By:
--------------------
Title:
D.P. KELLY & ASSOCIATES,
L.P.
By:
----------------------
Title:
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ENVIRODYNE INDUSTRIES, INC.
By:
----------------------
Title:
EMERALD ACQUISITION CORPORATION
By:
----------------------
Title:
---------------------------
CHARLES K. BOBRINSKOY
---------------------
DONALD P. KELLY
---------------------
JAMES L. MASSEY
---------------------
WILLIAM RIFKIN
-------------------------
MICHAEL J. ZIMMERMAN
---------------------
PETER HARVEY
---------------------
JOHN HARVEY
9
