ARTRA GROUP INCORPORATED
500 Central Avenue
Northfield, Illinois 60093
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on November 9, 1998.
As a shareholder of ARTRA GROUP INCORPORATED ('ARTRA" or the
"Company"), you are invited to be present, or represented by proxy, at the
Annual Meeting of Shareholders, to be held at the Sheraton Northshore Hotel, 933
Skokie Boulevard, Northbrook, Illinois, on November 9, 1998, at 10:30 a.m.
Chicago time, for the following purposes:
1. To elect Edward A. Celano, Howard R. Conant, Peter
R. Harvey, John Harvey, Robert L. Johnson, Gerard M. Kenny, Maynard K. Louis and
______________ to the Board of Directors of the Company for a term of one (1)
year.
2. For the shareholders to consider and act upon a
resolution authorizing the sale of substantially all of the assets of Bagcraft
Corporation of America ("Bagcraft") an indirect subsidiary of ARTRA (the "Sale")
to Bagcraft Acquisition, L.L.C.. ("Buyer"), pursuant to an Assets Purchase
Agreement dated as of August 26, 1998, among ARTRA, BCA Holdings, Inc., Bagcraft
Packaging Dynamics, L.L.C., Bagcraft Acquisition, L.L.C. (the "Assets Purchase
Agreement").
3. To ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 1998. See "Selection of
Auditors" in the Proxy Statement.
4. To transact such other business as may properly be
brought before the meeting or any adjournment thereof.
Shareholders of record at the close of business on October 12,
1998 are entitled to vote at the Annual Meeting of Shareholders and all
adjournments thereof. Since a majority of the outstanding shares of the
Company's stock must be represented at the meeting in order to constitute a
quorum, all shareholders are urged either to attend the meeting or to be
represented by proxy.
If you do not expect to attend the meeting in person, please
sign, date and return the accompanying proxy in the enclosed reply envelope.
Your vote is important regardless of the number of shares you own. If you later
find that you can be present and you desire to vote in person or, for any other
reason, desire to revoke your proxy, you may do so at any time before the
voting.
By Order of the Board of Directors
Edwin G. Rymek, Secretary
______________, 1998
Have you moved? If so, please complete and return the change of address form on
the last page.
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TABLE OF CONTENTS
Available Information 3
Incorporation of Document by Reference 3
Cautionary Statement 4
Proxy Statement 5
Series A Preferred Shareholders' Voting Rights 6
Summary 6
Sale of the Assets of Bagcraft 6
Description of the Sale 7
Background of the Sale 7
Summary of the Assets Purchase Agreement 7
Principal Shareholders 8
Buyer 8
Purchase Price 9
Bagcraft Subordinated Note 10
Closing Date 10
Conditions to Closing 10
Representations, Warranties and Covenants 11
Conduct of Business pending the Closing 11
Amendment of Assets Purchase Agreement 11
Expenses 12
Termination Fee 12
Advantages and Disadvantages of the Sale 12
Conflicts 13
Shareholder Approval 13
No Appraisal Rights 14
Tax Treatment 14
Accounting Treatment 14
Use of Proceeds 14
Board of Director's Recommendation 15
Fairness Opinion 15
Bagcraft's Business 18
Present Conditions and Backgrounds 18
Products, Markets, Customers and Distribution 18
Food Service 19
Supermarket Deli/Bakery and Pharmacy 20
Retail Packaging 22
Concessions 22
Microwave/International/Motion Sickness 23
Distribution 23
Employees 24
Properties 24
Legal Proceedings 25
Election of Directors 29
Information Regarding Directors 29
Term Expiring at Next Shareholder's Meeting
at which Directors are Elected 29
Management 31
Information Regarding Executive Officers 31
Executive Compensation 32
Director's Compensation 32
Executive Officer Compensation 32
Summary Compensation Table 33
Option Grants in Fiscal Year 1997/1998 34
Aggregated Option Exercises and
Option Values of December 31, 1997 35
Compensation Committee Interlocks and Insider Participation 35
Security Ownership of Certain Beneficial Owners and Management 36
Certain Relationships and Related Transactions 38
Performance Information 42
Selection of Auditors 43
Shareholders' Proposals 43
General and other Matters 43
Market Price of the Company's Common Stock 44
Selected Financial Data 45
Proforma Balance Sheet as of June 30, 1998 47
Proforma Statement of Operations for Year Ended December 31, 1997 48
Proforma Statement of Operations for Period Ended June 30, 1998 49
Consent of Independent Accountants 50
Annex I Form Of Assets Purchase Agreement
Annex II Opinion Of Investment
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AVAILABLE INFORMATION
ARTRA is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copies made at the public reference facilities of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at its regional
offices located at 7 World Trade Center, New York, New York 10048 and 500 W.
Madison, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, material
filed by ARTRA can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006. The filings
with the Commission of ARTRA are also available to the public form commercial
document retrieval services and at the web site maintained by the Commission at
"http://www.sec.gov"
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement incorporates documents by reference which are not presented
herein or delivered herewith. Copies of these documents (excluding exhibits
unless exhibits are specifically incorporated by reference into the information
incorporated herein) will be provided without charge, on oral or written request
by any person to whom this Proxy Statement is delivered, from ARTRA GROUP
Incorporated, 500 Central Avenue, Northfield IL 60063, telephone number (847)
441-6650.
The following documents filed with the Commission by ARTRA
(File No. 1-3916) pursuant to the Exchange Act are incorporated by reference
herein:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "ARTRA 10-K").
2. Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998 and June 30, 1998.
3. Current Report on Form 8-K dated September 2, 1998.
All documents and reports subsequently filed by ARTRA pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the 1998 ARTRA annual meeting shall be deemed to be
incorporated by reference herein, and shall be a part hereof from the date of
filing of such documents. Any statement contained in any documents incorporated
or deemed to be incorporated by reference herein, or contained in the Proxy
Statement, shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein or in any
subsequently filed document which also is deemed to be incorporated herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part of the Proxy Statement, except as so
modified or superseded.
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No person has been authorized to give any information or make any
representation not contained in this Proxy Statement and, if so given or made,
such information or representation must not be relied upon as having been
authorized. This Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is unlawful to make such offer or solicitation. The
delivery of this Proxy Statement not shall imply that the information contained
herein or in the documents incorporated by reference herein is correct at any
time subsequent to the date hereof or thereof.
CAUTIONARY STATEMENT
When used in this Proxy Statement the words "estimate," "project,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Proxy
Statement. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. ARTRA does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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ARTRA GROUP INCORPORATED
500 Central Avenue
Northfield, Illinois 60093
PROXY STATEMENT
This Proxy Statement, Notice of Meeting and Proxy which will
be mailed on or about October 21, 1998 are furnished in connection with the
solicitation by the Board of Directors of ARTRA GROUP Incorporated ("ARTRA" or
the "Company") of proxies to be voted at the annual meeting of shareholders to
be held at the Sheraton Northshore Hotel, 933 Skokie Boulevard, Northbrook,
Illinois, on November 9, 1998 at 10:30 a.m., Chicago time, and any adjournments
thereof.
Shareholders of record at the close of business on October 12,
1998 (the "record date") will be entitled to one vote at the meeting for each
share then held. On October 12, 1998, the record date, there were _______ shares
of common stock of ARTRA outstanding and 3,750 shares of Series A Preferred
Stock of ARTRA outstanding. On the matters presented to shareholders at this
meeting, the shares of Series A Preferred Stock are entitled to be voted on a
combined basis with the common stock and not on a class basis. Each preferred
and common share is entitled to one vote in person or by proxy, with the
privilege of cumulative voting in connection with the election of directors. All
shares represented by proxy will be voted in accordance with the instructions,
if any, given in such proxy. A shareholder may abstain from voting or may
withhold authority to vote for the nominees by marking the appropriate box on
the accompanying proxy card, or may withhold authority to vote for an individual
nominee by drawing a line through such nominee's name in the appropriate place
on the accompanying proxy card.
UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN, EACH PROPERLY EXECUTED
PROXY WILL BE VOTED, AS SPECIFIED BELOW:
1. To elect Edward A. Celano, Howard R. Conant, Peter
R. Harvey, John Harvey, Robert L. Johnson, Gerard M. Kenny, Maynard K. Louis and
______________ to the Board of Directors of the Company for a term of one (1)
year.
2. For the shareholders to consider and act upon a
resolution authorizing the sale of substantially all of the assets of Bagcraft
Corporation of America ("Bagcraft") an indirect subsidiary of ARTRA (the "Sale")
to Bagcraft Acquisition, L.L.C. ("Buyer"), pursuant to an Assets Purchase
Agreement dated as of August 26, 1998, among ARTRA, BCA Holdings, Inc., Bagcraft
and Packaging Dynamics, L.L.C., Bagcraft Acquisition, L.L.C.(the "Assets
Purchase Agreement").
3. Ratify the appointment of PricewaterhouseCoopers
LLP as the company's independent certified public accountants.
4. Transact such other business as may properly be
brought before the meeting or any adjournment thereof.
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All proxies may be revoked and execution of the accompanying proxy will
not affect a shareholder's right to revoke it by giving written notice of
revocation to the Secretary at any time before the proxy is voted or by the
mailing of a later dated proxy. Any shareholder attending the meeting in person
may vote his or her shares even though he or she has executed and mailed a
proxy.
THIS PROXY STATEMENT IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
ARTRA. The expense of making this solicitation is being paid by the Company and
consists of the preparing, assembling and mailing of the Notice of Meeting,
Proxy Statement and Proxy, tabulating returns of proxies, and charges and
expenses of brokerage houses and other custodians, nominees or fiduciaries for
forwarding documents to shareholders. In addition to solicitation by mail,
officers and regular employees of the Company may solicit proxies by telephone,
telegram or in person without additional compensation therefor.
Series A Preferred Shareholders' Voting Rights
As of this time, ARTRA has outstanding 1849.34 shares of its Series A
Preferred Stock (Series A) which have the right to cast one vote per share for
(i) election of directors, and (ii) for the proposed Amendment to the Articles.
The Statement establishing the Series A states: "...each share of the Series A
Stock shall entitle the holder thereof to one vote on all matters submitted to a
vote of ARTRA's shareholders, such voting rights to be indistinguishable with
the voting rights attributed to a share of ARTRA's common stock."
SUMMARY
References in this Proxy Statement to the "Company" or "ARTRA" shall
mean ARTRA together with its subsidiaries unless the context indicates
otherwise. Included in the description of ARTRA subsidiaries is BCA Holdings,
Inc., a Delaware corporation ("BCA") which is the direct parent corporation of
Bagcraft Corporation of America ("Bagcraft") and is a wholly owned subsidiary of
ARTRA. Hereafter, references herein to ARTRA are to ARTRA only as the holding
company and shall include BCA without separately identifying it.
SALE OF THE ASSETS OF BAGCRAFT
One of the purposes of this Meeting is to consider and act upon a
resolution authorizing the sale (the "Sale") of substantially all of the assets
of Bagcraft Corporation Of America. ("Bagcraft"). ARTRA's subsidiary, Bagcraft,
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
laboratory and engineering departments.
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DESCRIPTION OF THE SALE
Background of the Sale
During 1996, the Board of Directors, in considering the financial,
business, operations and growth aspects of ARTRA's assets and business devised
various alternatives with the objective of maximizing the value of its assets
and business in order to establish a plan that accomplished several goals.
Currently, a primary concern of the Board of Directors is the resolution of
ARTRA's debts that it had incurred in the highly stressful environment that
ARTRA found itself in resulting from the need to retire and resolve various bank
loans incurred in the late 1980's that spilled over into the early and middle
1990's when certain acquisitions did not perform as expected. When these
acquisitions were finally disposed of, ARTRA found itself unable to realize
sufficient value to retire its debt and other obligations and was therefore left
with a very difficult situation.
Through diligent effort in raising new capital, the resolution of bank
debts by settlement; the substantial increase of the common stock price of a
former partially owned subsidiary which permitted ARTRA to sell shares at a
higher price; the restructuring of its Bagcraft subsidiary and its consequent
major improvement in productivity that resulted in renewed profitability and
increased cash flow, ARTRA's Board was able to continue the operation of the
Company as a going concern. In light of the renewed profitability and increased
cash flow of Bagcraft, ARTRA's Board determined that sale of Bagcraft could
generate a profit sufficient to be a source of capital to assist in the future
operations of the Company.
In 1997, ARTRA entered into an agreement with Nesbitt-Burns Securities,
Inc. to consider strategic alternatives with respect to Bagcraft, including its
possible disposition. The effort by Nesbitt-Burns generated significant interest
in the sale of Bagcraft. Ivex Packaging Corporation ("Ivex" New York Stock
Exchange symbol "IXX") was one of the several companies that entertained the
purchase of Bagcraft in 1997. Further discussions with Ivex in 1998 resulted in
the currently proposed sale of substantially all of the assets of Bagcraft
pursuant to the Assets Purchase Agreement, dated as of August 26, 1998, among
ARTRA, BCA, Bagcraft and Bagcraft Acquisition, Inc. ("Buyer"). The relationship
between Buyer and Ivex is described in "Buyer" below.
Summary of the Assets Purchase Agreement
The Assets Purchase Agreement is attached as Annex I to this Proxy
Statement. Pursuant to the Assets Purchase Agreement, on the Closing Date,
Bagcraft will convey to the Buyer, free and clear of all liens (excluding
certain debts to be assumed), substantially all of Bagcraft's assets, including
real and personal property, receivables, inventory, equipment, books and
records, tradenames, trademarks (including the right to use the name Bagcraft
Corporation of America and any similar name), as well as any other tangible or
intangible property (collectively, the "Assets"), but excluding certain assets,
a receivable from ARTRA in the approximate amount of $7,500,000 and an insurance
refund in the amount of approximately $1,000,000, originally estimated at
$850,000, which has been collected (collectively, with certain other immaterial
assets, the "Excluded Assets"). The terms of the Sale, including the Purchase
Price, were determined by negotiation of the parties, as conducted by
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members of their respective managements. Peter Harvey, President of ARTRA, with
the advice of the Board of Directors, principally negotiated the transaction
with the Buyer.
Principal Shareholders
Buyer required that certain principal shareholders (Edward A. Celano,
Howard R. Conant, Peter R. Harvey, John Harvey, Robert L. Johnson, Gerard M.
Kenny and Maynard K. Louis hereinafter collectively referred to as the
"Principal Directors") of ARTRA execute the Assets Purchase Agreement. Their
execution of the Assets Purchase Agreement was solely for purposes of agreeing
that such Principal Shareholders will vote their shares in furtherance of the
Assets Purchase Agreement and will not vote their shares that would in any way
materially impede the Assets Purchase Agreement.
Buyer
The Buyer under the Assets Purchase Agreement is Bagcraft Acquisition
L.L.C., a newly organized Delaware limited liability company ("Buyer"). Buyer is
a subsidiary of Packaging Dynamics, L.L.C. ., a newly organized Delaware limited
liability company ("Dynamics") to be organized by Ivex Packaging Corporation
("Ivex"). Dynamics will consist of (i) Buyer, as owner of all of the Bagcraft's
assets and business (the "Bagcraft Business") and (ii) all of the assets and
business of Ivex's paper mill located in Detroit, Michigan to be contributed to
IPMC Acquisition, L.L.C., (the "Detroit Paper Mill Business"). Dynamics will be
solely owned by Packaging Holdings, L.L.C., a newly organized limited liability
company under the laws of the State of Delaware ("Holdings"). In consideration
of the contribution by Ivex, of the Detroit Paper Mill Business, free and clear
of all liens and encumbrances of any type whatsoever (the "Detroit Paper Mill
Asset Sale), Ivex shall receive $7.50 million in cash and 492,000 of membership
interests in Holdings. One million membership interests of Holdings will be
outstanding after the simultaneous closing of the Bagcraft Asset Sale, the
Detroit Paper Mill Asset Sale, the New Equity Contribution (as hereinafter
defined), the Senior Bank Funding (as hereinafter defined) and the Subordinated
Note Funding (as hereinafter defined), and that after the closing of such
transactions, Ivex (or a wholly-owned subsidiary) will own approximately 492,000
membership interests (49.2% approximate interest) and Holdings' Members (as
hereinafter defined) will own approximately 508,000 shares of such outstanding
Membership Interests (50.8% approximate interest).
Concurrently with the closing of the Assets Purchase Agreement and the
Detroit Paper Mill Asset Sale, Holdings will (i) sell approximately 508,000
membership interests to certain members of senior management of Ivex, Bagcraft
and their affiliates and/or a limited number of third-parties identified by the
foregoing entities (collectively, the "Holdings' Members"), for an aggregate
cash purchase price of $15.5 million (the "New Equity Contribution"); and (ii)
enter into a management agreement (the "Members Agreement") with Ivex and the
Dynamics' Members with terms, mutually acceptable to such parties, relating to
the disposition of the Membership Interests and certain governance matters.
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Dynamics will enter into (i) a senior credit facility with NationsBank
N.A. pursuant to which it will borrow approximately $100.0 million of which
$85.00 million will be utilized at Closing (the "Senior Bank Funding"). In
addition, Holdings will enter into a Subordinated Note with Ivex pursuant to
which it will borrow approximately $7.5 million (the "Ivex Subordinated Note")
and (iii) a Subordinated Note with Bagcraft pursuant to which it will borrow
$2.5 Million (the "Bagcraft Subordinated Note" see "Purchase Price" below) to
fund the cash payments to be made to Bagcraft and Ivex in connection with the
Bagcraft Asset Sale and the Detroit Paper Mill Asset Sale and to fund the Joint
Venture's projected working capital requirements. The following flow chart
illustrates the relations of the various entities involved in the Assets
Purchase Agreement:
Packaging Holdings, L.L.C.
|
|
|
|
Packaging Dynamics, L.L.C.
/ \
/ \
/ \
/ \
Bagcraft Acquisition, L.L.C.(1) IPMC Acquisition, L.L.C.(2)
(1). The assets of Bagcraft will be sold to this entity.
(2). The assets of the Detroit Paper mill will be sold to this entity.
Purchase Price
The purchase price provided under the Assets Purchase Agreement is the
amount of: $89,000,000 in cash and a Subordinated Promissory Note in the amount
of $2,500,000 (the Bagcraft Subordinated Note Funding) (collectively, the
"Bagcraft Purchase Price"), plus or minus a working capital adjustment to the
extent that the working capital of Bagcraft Business as of the Closing is more
than $21,0000,000 or less than $19,500,000 as of the Closing Date. As of July 4,
1998, the working capital amount, as determined by the Assets Purchase Agreement
was $19,557,000. All obligations relating to Bagcraft's phantom equity plan for
management and of taxes and employee benefit plans, environmental liabilities
and liabilities and obligations and the warrants issued in respect to amounts
owing under that certain Second Amended and Restated Credit Agreement dated as
of February 27, 1998 between Bagcraft and General Electric Capital Corporation,
which as of September 15, 1998 was collectively approximately $9,000,000, which
will remain obligations of Bagcraft and will not be assumed by the Joint Venture
(the "Excluded Liabilities"). Concurrently with the closing of the Bagcraft
sale, Bagcraft will use a portion of its net cash proceeds to repay in full all
of Bagcraft's indebtedness for borrowed money (excluding certain liabilities to
be assumed by the Buyer), and will cause its lenders to release all of their
liens and encumbrances from the Bagcraft Business. The Company anticipates that
Bagcraft will realize a net pretax gain of approximately $39.6 million as a
result of the Sale. The amount of the gain is subject to certain adjustments.
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Bagcraft Subordinated Note
As part of the consideration of the Purchase Price, Bagcraft will
receive from Packaging Holdings, L.L.C. a Delaware Limited Liability Company and
the sole member of Dynamics, a subordinated promissory note in the principal
amount of $2,500,000, bearing interest at the rate of five percent (5%) payable
quarterly per annum from the date of Closing until paid in full. The Bagcraft
Subordinated Note shall be due and payable three (3) years after the date of
Closing. Overdue interest bears interest at the rate of fifteen percent (15%)
per annum.
The Bagcraft Subordinated Note is subordinated to the Nations Bank,
N.A. debt of Packaging Dynamics, L.L.C. which is capped at $115,000,000.00 and
up to the amount of $15,000,000 of any other indebtedness incurred by Packaging
Dynamics. Any additional debt incurred by Packaging Dynamics will not be
subordinated to the Bagcraft Subordinated Note.
The Bagcraft Subordinated Note shall be on equal or better terms than
the Ivex Subordinated Note (see Buyer above) and Bagcraft shall have the right
to consent to any changes in the Ivex Subordinated Note.
The Bagcraft Subordinated Note is subject to certain offsets in
accordance with the terms of Section 12.5 of the Assets Purchase Agreement.
The Bagcraft Subordinated Note is prepayable at any time, without
penalty. It requires the repayment in full of all principal and accrued interest
in the event of the consummation of a public offering of the common interest of
Packaging Holdings, L.L.C. and Packaging Dynamics, L.L.C.
Closing Date
The Assets Purchase Agreement provides for the Closing to occur on the
first business day occurring after ARTRA has obtained shareholder approval of
the Assets Purchase Agreement. If the Closing does not occur on or before
December 18, 1998, the Assets Purchase Agreement may be terminated by either
party.
Conditions to Closing
ARTRA and Bagcraft's obligation to close the Sale is subject to the
satisfaction or waiver by Bagcraft of a number of conditions, including (i)
approval by ARTRA shareholders of the Sale; (ii) the representations and
warranties of Buyer set forth in the Agreement being true and correct in all
material respects; (iii) the receipt of all necessary governmental approvals and
the termination and expiration of all waiting periods under the
Hart-Scott-Rodino Antitrust Act of 1976, as amended, if required; (iv) no
material adverse change in Bagcraft's business; (v) satisfactory environmental
audit of real estate owned by Bagcraft; and (vi) other customary conditions.
Buyers' obligation to close is subject to the satisfaction or waiver by
Buyer of a number of conditions, including (i) the representations and
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warranties of ARTRA, BCA, and Bagcraft set forth in the Assets Purchase
Agreement being true and correct in all material respects; (ii) approval by
ARTRA shareholders of the Sale (iii) the receipt of all necessary governmental
approvals and the termination and expiration of all waiting periods under the
Hart-Scott-Rodino Antitrust Act of 1976, as amended, if required; (iv) the
repayment of Bagcraft's debts to lender's; (v) Buyer's due diligence of
environmental and title matters as to Bagcraft's real estate; (vi) Buyer's
receipt of debt and equity financing as described in the Assets Purchase
Agreement; and (vii) other customary conditions.
Representations, Warranties and Covenants
The Assets Purchase Agreement contains certain representations and
warranties by ARTRA, Bagcraft and BCA to Buyer, including representations and
warranties as to (i) organization and good standing, (ii) legality and due
authorization of the Assets Purchase Agreement and the transactions contemplated
thereby, (iii) title to the Transferred Assets, (iv) absence of pending or
threatened legal actions, (v) absence of undisclosed material liabilities or
obligations, (vi) compliance with laws, and (viii) absence of material adverse
changes since December 31, 1997.
The Assets Purchase Agreement contains certain representations and
warranties by Buyer to ARTRA, Bagcraft and BCA, including representations and
warranties as to (i) organization and good standing, (ii) legality and due
authorization of the transaction, and (iii) consents and approvals.
ARTRA, BCA and Bagcraft each agrees, from the Closing Date to September
30, 2001, to indemnify the Buyer from and against misrepresentation or breach of
ARTRA's representations, warranties or covenants set forth in the Assets
Purchase Agreement. The Assets Purchase Agreement permits Buyer to set off any
amounts owed to ARTRA in the event that Buyer is entitled to indemnity payments
under the Assets Purchase Agreement.
ARTRA, BCA and Bagcraft are not obligated to pay any amounts for
indemnification under certain conditions (collectively, the "Basket Exclusions"
as defined in the Assets Purchase Agreement) until the aggregate losses incurred
by Buyer thereunder equals $250,000 (the "Basket Amount"), whereupon ARTRA, BCA
and Bagcraft shall be jointly and severally obligated to pay all amounts of
losses incurred by in full up to the Purchase Price, except for those breaches
of which ARTRA, BCA and Bagcraft had knowledge prior to the Closing.
Conduct of Business Pending the Closing
The Assets Purchase Agreement requires Bagcraft to conduct its business
in the ordinary course from the date of execution of the Assets Purchase
Agreement to the Closing Date.
Amendment of Assets Purchase Agreement
The Assets Purchase Agreement may be amended by the parties only in
writing.
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Expenses
Under the Assets Purchase Agreement, each party bears its own expenses
incurred in connection with the Assets Purchase Agreement and related
transactions. A finders fee in the amount of $200,000 is being paid by Ivex to
Mr. Marshall Rodin. Mr. Rodin is a former president of Bagcraft and is still
receiving health insurance benefits from Bagcraft.
Termination Fee
Buyer or Seller may terminate the Assets Purchase Agreement:
1. By mutual agreement in writing of Buyer and Seller;
2. If ARTRA's shareholders have not approved the Assets Purchase
Agreement by November 9, 1998; or by December 18, 1998, if the Securities and
Exchange Commission ("SEC") reviews this Proxy Statement and such review delays
the meeting;
3. If any legal proceeding is commenced or threatened to prevent the
Closing and either Buyer or Seller in good faith does not proceed with the
Closing.
Buyer may terminate the Assets Purchase Agreement if: (i) any of
Buyer's conditions to Closing have not been fulfilled by November 9, 1998, or
December 18, 1998 as described above; (ii) if ARTRA, BCA or Bagcraft modifies
the Assets Purchase Agreement or elect to withdraw from the Assets Purchase
Agreement; or (iii) the Principal Shareholders as defined in the Assets Purchase
Agreement fail to perform their obligations thereunder.
Seller had the right to terminate the Assets Purchase Agreement if
Buyer had not delivered to Seller a fully executed agreement for the Detroit
Paper Mill acquisition (see "Buyer" above) by September 4, 1998. Buyer has
complied with this requirement.
In the event that the Assets Purchase Agreement is terminated by Buyer,
ARTRA, BCA or Bagcraft for ARTRA's, BCA's or Bagcraft's failure to comply with
certain of their obligations as defined in the Assets Purchase Agreement, ARTRA,
BCA and Bagcraft will be jointly and severally obligated to Buyer for a
termination fee in the amount of $5,000,000.00 (the "Termination Fee"). In the
event that the termination is caused due to ARTRA's shareholders failing to
approve the transaction, ARTRA, BCA and Bagcraft will not be obligated to pay
the Termination Fee, but will be liable to Buyer for its reasonable
out-of-pocket expenses incurred in connection with the Assets Purchase
Agreement.
Advantages and Disadvantages of the Sale
In the view of ARTRA's management, the primary advantages to the
Company of the Assets Purchase Agreement and the transactions contemplated
thereby are the following: (i) the Company will receive approximately $24.6
million in cash proceeds which will result in a substantial gain over the
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carrying value of the Bagcraft on ARTRA's books and enable ARTRA to utilize its
tax carryforwards to shelter a portion or substantially all of the net profit
realized from the sale; (ii) such cash proceeds will be used by the Company, on
a consolidated basis, to reduce its total debt owed to a commercial lender,
private lenders and reduce its annual interest expense; and (iii) the Company's
management will be able to acquire new business(es). There exists BCA and ARTRA
Preferred stock , as disclosed in the financial statements, which will affect
the final proceeds to ARTRA. The BCA Preferred must be redeemed, or a compromise
reached with the holders of the BCA Preferred, before any of the proceeds can
pass to the ARTRA level.
In the view of the Company's management, the primary disadvantages to
the Company of the Sale are the losses of the earnings and potential cash
payments from Bagcraft. Management believes that retirement of debt, the lower
interest costs due to reduced debt outstanding after the Sale along with the
interest income anticipated to be earned on the remaining proceeds; but more
importantly the enhanced ability to finance certain acquisitions will more than
offset the loss of cash payments and earnings from Bagcraft. Presently, the
Board of Directors has no acquisition candidates in mind.
ARTRA's investment in Comforce ("COMFORCE", formerly The Lori
Corporation "Lori") will be the Company's major ownership interest in an
operating entity (ARTRA does not exercise control over COMFORCE's operations,
has no representative on its Board of Directors or acting as an officer or
employee) after the disposal of Bagcraft. Management and the Board of Directors
believe that the sale should be viewed positively by ARTRA's shareholders,
investors and other interested parties to the extent that it strengthens the
Company's balance sheet (see pro forma unaudited consolidated balance sheet).
For a further discussion of Comforce, see "Investment in Comforce" hereinbelow.
The Board of Directors of ARTRA has determined that the terms and
conditions of the proposed Sale are expedient and in the best interests of the
corporation. The Board of Directors has received an opinion of William Blair &
Company, an independent financial advisor, to the effect that the Sale is fair
to Bagcraft from a financial point of view.
Conflicts
As noted under Buyer above, certain officers of Bagcraft will have the
option of investing in Buyer. It is anticipated that those officers will include
Mark Santacrose, President of Bagcraft, and a director of ARTRA will participate
in such investment of the Buyer. Other than as noted herein, none of the
Company's other directors, officers or associates of such directors and officers
(other than those certain officers of Bagcraft will have the option of investing
in Buyer) has any substantial interest, direct or indirect, in the consummation
of the Sale, apart from an interest arising solely from the ownership of shares
of the Common Stock of ARTRA.
Shareholder Approval
If the Sale is consummated, ARTRA will no longer be engaged in the sale
of flexible packaging products. If the Sale is not approved by ARTRA's
shareholders or otherwise consummated, the Company will evaluate its
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alternatives relating to such business, including the future sale or
liquidation. Approval by the shareholders of the Sale is required by the Amended
and Restated Certificate of Incorporation of ARTRA (the "Certificate") and, to
the extent that the Sale constitutes a sale of all or substantially all of the
assets of ARTRA, by applicable Pennsylvania corporate law. The Certificate
requires the affirmative vote of the holders of not less than 50.01% of the
outstanding shares of Common Stock to dispose of all or substantially all of the
assets of any subsidiary of ARTRA. In addition, Section 1924 of the Pennsylvania
Business Corporation Law ("PBCL") requires that the Board of Directors approve
the plan of the Sale and the plan of Sale shall be adopted upon receiving the
affirmative vote of a majority of the votes cast by all shareholders (common and
preferred) entitled to vote thereon. See above for a description of the Series A
Preferred Shareholders' Voting Rights.
ARTRA is required by the Pennsylvania Business Corporation Law of 1988
of the commonwealth of Pennsylvania (PBCL) and its Articles of Incorporation,
after approval of its Board of Directors, to obtain authorization from the
holders of 50.01% of the issued and outstanding shares of its Stock entitled to
vote to effect any transfer, conveyance, lease or other disposition to any third
party of all or substantially all of the assets or the stock of any subsidiary
or a sale of all or substantially all of its assets. In addition, the PBCL
requires that the holders of a majority of the outstanding shares of the Common
Stock adopt a resolution authorizing the sale of all or substantially all of the
assets of a Pennsylvania corporation, such as ARTRA.
If the Assets Purchase Agreement is not approved by ARTRA' the Company
expects that it will continue to operate the Bagcraft business and will evaluate
alternatives relating to such business, including future prospects for its sale.
No Appraisal Rights
ARTRA is a Pennsylvania corporation. Shareholders are not entitled to
any rights of appraisal or similar rights of dissenters under Pennsylvania
corporation law in connection with the approval or consummation of the Assets
Purchase Agreement because the transactions contemplated thereby do not involve
a merger or consolidation of ARTRA.
Tax Treatment
The tax expense on the Sale of substantially all of the assets of
Bagcraft has been substantially reduced by the utilization of ARTRA's tax loss
carryforward. ARTRA's approximate tax expense on the sale with proceeds of
$89,000,000 in cash and a promissory note in the amount of $2,500,000 is
estimated to be approximately $1,700,000.
Accounting Treatment
The sale of substantially all of the assets of Bagcraft pursuant to the
Assets Purchase Agreement will be recorded as an asset sale. As a result of the
Sale, it is expected that a gain of approximately $39.6 million would be
realized in 1998.
THE BOARD OF DIRECTORS OF ARTRA UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE THE SALE. See "Recommendation of ARTRA' Board of Directors;
Fairness to Shareholders" below.
Use Of Proceeds
The Company intends to use the proceeds from the Assets Purchase
Agreement, on a consolidated basis, to reduce its total debt owed to a
commercial lender, private lenders and reduce its annual interest expense. There
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<PAGE>
exists BCA and ARTRA Preferred stock, as disclosed in the financial statements,
which will affect the final proceeds to ARTRA. (See Advantages and Disadvantages
of the Sale, above)
RECOMMENDATION OF ARTRA GROUP INCORPORATED BOARD OF DIRECTORS; FAIRNESS TO
SHAREHOLDERS
Board of Director's Recommendation
The Board of Directors of ARTRA has determined that the terms and
conditions of the proposed Sale is in the best interests of the corporation.
Consequently, the Board of Directors recommends that you vote "For" the
resolution authorizing the Sale.
As discussed in "Description of the Sale - Background of the Sale," in
connection with the proposed sale to Buyer of substantially all of Bagcraft's
assets, the Board engaged in discussions concerning the prospects of returning
ARTRA to profitability. The Board concluded that a sale of Bagcraft assets to
Buyer for a fair price would generate cash proceeds, reduce indebtedness and
would permit ARTRA to move into new business(es). Based on the foregoing, the
Board determined that in these circumstances a sale to Buyer at a fair price was
in the best interest of the shareholders of ARTRA.
The Board of Directors has obtained the opinion ("Blair Opinion") of
William Blair & Company ("Blair"), an independent financial advisor, that the
sale, from a financial point of view is fair to Bagcraft. After giving
consideration to the other information discussed above, and in reliance on the
fairness opinion of Blair, the Board of Directors, with Mark Santacrose as a
"interested director" abstaining, unanimously agreed that the approval of the
Sale is in the best interest of, and is fair to, the shareholders of ARTRA.
Fairness Opinion
On August 19, William Blair & Company, L.L.C. ("Blair") provided an
opinion ("Opinion") to the effect that, based upon the terms of the proposed
Buyer's offer as outlined to Blair, the consideration to be received by Bagcraft
(also referred to as "Seller") from Buyer for the Sale of the Bagcraft Assets is
fair to Bagcraft from a financial point of view. The full text of the Blair
Opinion is attached hereto as Annex II and shareholders are encouraged to read
it in its entirety for information with respect to the procedures followed,
assumptions made and matters considered by Blair in arriving at its opinion. In
rendering its Opinion, Blair did not render any opinion as to the value of the
Company, express a view as to the range of values at which the Common Stock may
trade following consummation of the Sale nor make any recommendation to
shareholders with respect to the advisability of disposing or retaining Common
Stock. In addition, the Blair Opinion does not constitute a recommendation
regarding whether or not it is advisable for the shareholders to vote in favor
of the Sale.
In connection with its review of the proposed transaction
("Transaction") and the preparation of its Opinion, Blair examined, among other
things: (a) a draft of the Assets Purchase Agreement dated August 14, 1998 (the
"Draft Purchase Agreement") by and among, ARTRA, BCA Holdings, Inc. ("BCA"), a
15
<PAGE>
wholly-owned subsidiary of ARTRA, Bagcraft, Packaging Dynamics, L.L.C. (the
"Buyer"), and solely for the purposes of Section 7.16 of the Purchase Agreement,
the Principal Shareholders (as defined in the "Purchase Agreement"); (b) certain
audited financial statements of Bagcraft for the three fiscal years ended
December 31, 1997; (c) the internal unaudited financial statements of Bagcraft
for the six months ended July 4, 1998; (d) certain internal business, operating
and financial information and forecasts of Bagcraft ("Seller Forecasts"),
prepared by the senior management of Seller; (e) certain internal business,
operating and financial information and forecasts of Buyer ("Buyer Forecasts"),
prepared by the senior managements of Buyer and Seller; (f) historical revenues,
operating earnings, operating cash flows, net income and capitalization, as to
the Seller and certain publicly held companies in businesses Blair believes to
be comparable to Seller; (g) information regarding publicly available financial
terms of certain recently-completed transactions which Blair believed to be
relevant; (h) current and historical market prices and trading volumes of the
common stock of ARTRA; and (i) certain other publicly available information on
ARTRA. Blair also held discussions with members of the senior management of
ARTRA and Bagcraft to discuss the foregoing, considered other matters which
Blair deemed relevant to its inquiry and took into account such accepted
financial and investment procedures and considerations as it deemed relevant.
In rendering its Opinion, Blair did not assume any responsibility for
independent verification of any of the foregoing information and assumed and
relied on its being complete and accurate in all material respects. In addition,
Blair did not make any independent evaluation or appraisal of any of the assets,
liabilities (contingent or otherwise) or solvency of Bagcraft nor was Blair
furnished with any such evaluation or appraisal.
Blair was advised by Bagcraft's management, that the Seller Forecasts
and Buyer Forecasts were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the managements of Seller and
Buyer. Blair expressed no opinion with respect to the Seller Forecasts or the
Buyer Forecasts or the estimates and judgments on which they were based. The
Opinion is based on economic, market, financial and other conditions existing
on, and other information disclosed to Blair as of the date of the Opinion. It
should be understood that, although subsequent developments may affect the
Opinion, Blair does not have any obligation to update, revise or reaffirm the
Opinion. Blair relied as to all legal matters on advice of counsel to ARTRA, and
assumed that the Transaction will be consummated on the terms described in the
Draft Purchase Agreement, without any waiver of any material terms or conditions
by ARTRA. Blair was not requested to, nor did it, seek alternative participants
for the proposed Transaction.
Blair expressed no opinion at which the price of the common stock of
ARTRA will trade at any future time or as to the effect of the Transaction on
the trading price of the common stock of ARTRA. Such trading price may be
affected by a number of factors, including, but not limited to (i) dispositions
of the common stock of ARTRA by its stockholders within a short period of time
after the announcement or consummation of the Transaction, (ii) changes in
prevailing interest rates and other factors which generally influence the price
of securities, (iii) adverse changes in the current capital markets, (iv) the
occurrence of adverse changes in the financial condition, business, assets,
results of operations or prospects of ARTRA, (v) any necessary actions by or
restrictions of federal, state or other governmental agencies or regulatory
authorities, and (vi) timely completion of the Transaction on terms and
conditions that are acceptable to all parties at interest.
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<PAGE>
Blair's investment banking services and Opinion were provided for the
use and benefit of the Board of Directors of ARTRA in connection with its
consideration of the transaction contemplated by the Purchase Agreement. The
Opinion is limited to the fairness, from a financial point of view, to Seller of
the Transaction Consideration to be received by Bagcraft, in connection with the
Transaction, and Blair did not address the merits of the underlying decisions by
ARTRA and Bagcraft to engage in the Transaction and the Opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Transaction.
Based on these analyses, Blair concluded that the consideration to be
received by Bagcraft is fair, from a financial point of view, to Bagcraft.
Blair is a financial advisory services firm which, as part of its
business, is engaged in the valuation of businesses. The Board selected Blair on
the basis of the firm's expertise and reputation. Blair has been engaged in the
investment banking business since 1935 and continually undertakes the valuation
of investment securities in connection with public offerings, private
placements, business combinations, estate and gift tax valuations and similar
transactions.
Blair received a fee of $150,000 for services rendered in connection
with providing the Blair Opinion. ARTRA also agreed to indemnify Blair and its
officers, directors, employees, agents and controlling persons against certain
liabilities arising in connection with its engagement.
The foregoing summary set forth above does not purport to be a complete
description of the analysis performed by William Blair. The preparation of a
fairness opinion involves determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to summary description. 71c preparation of a fairness opinion does not involve a
mathematical evaluation or weighing of the results of the individual analyses
performed, but requires William Blair to exercise its professional judgment,
based on its experience and expertise in considering a wide variety of analyses
taken as a whole. Each of the analyses conducted by William Blair was carried
out in order to provide a different perspective on the transaction and add to
the total mix of information available. William Blair did not form a conclusion
as to whether any individual analysis, considered in isolation, supported or
failed to support an opinion as to fairness Rather, in reaching its conclusion,
William Blair considered the results of the analyses in light of each other and
ultimately reached its opinion based on the results of all analyses taken as a
whole. William Blair did not place particular reliance or weight on any
particular analysis, but instead concluded its analyses, taken as a whole,
supported its determination. Accordingly, William Blair believes that its
analyses must be considered as a whole and that selecting portions of its '
analyses and the factors considered by it, without considering all analyses and
factors, may create an incomplete view of the evaluation process underlying its
opinion. No company or transaction used in the above analyses as a comparison is
directly comparable to Bagcraft or the contemplated transaction. In performing
its analyses, William Blair made numerous assumptions with respect to industry
17
<PAGE>
performance, business and economic conditions and other matters. The analyses
performed by William Blair are not necessarily indicative of future actual
values and future results, which may be significantly more or less favorable
than suggested by such analyses.
BAGCRAFT'S BUSINESS
Present Conditions and Background
Products, Markets, Customers and Distribution
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.
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Sales to customers are made pursuant to orders placed in advance for periods of
up to one year. In certain instances Bagcraft and a customer can enter into an
agreement to maintain a specified minimum inventory for the customer. The
contracts entered into by Bagcraft with its customers vary in length depending
on the customer's needs and Bagcraft's capacity to meet the customer's
requirements. Generally, Bagcraft's contracts provide advance notice of from 30
days to one year to terminate a contract. The contracts typically provide for
delivery of goods at an agreed-upon fixed price, subject to adjustment upon
timely notice in advance. Bagcraft usually grants its customers rights of
return, subject to penalty, except in the case of goods produced to
specification. In addition, Bagcraft typically requires payment for goods 30
days after shipment, but gives its customers a 1% discount if payment is made
within 10 days after shipment.
Bagcraft believes that it is the manufacturer of the most diversified line of
flexible packaging products in the United States. However, there are a number of
domestic and foreign companies which compete directly with Bagcraft in each of
its major product lines, certain of which have a larger market share with
respect to specific product lines. Bagcraft's competitors range from small
companies to divisions of large corporations which have 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
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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
- ------- -----------
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. 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
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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
- ------- -----------
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
- ------- -----------
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.
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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 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 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
- ------- -----------
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.
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SOS Popcorn Bags Flat bottom popcorn bags to replace bulky
tubs and cartons in theaters, stadiums,
concession stands and malls.
ToGo!(TM) Bags Flat bottom bags with excellent 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.
Properties
The following table sets forth a brief description of the properties of the
Company and its subsidiaries. The Company and its subsidiaries believe that all
of their facilities are adequate for their present and reasonably anticipated
future business requirements.
<TABLE>
<CAPTION>
Location General Description Ownership
-------- ------------------- --------
<S><C> <C> <C>
ARTRA:
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
- -------------------------------------------------------------------------------
24
<PAGE>
<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>
Legal Proceedings
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 31, 1997 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
25
<PAGE>
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, 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
26
<PAGE>
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
27
<PAGE>
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.
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
28
<PAGE>
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.
ELECTION OF DIRECTORS
Seven directors are to be elected at the annual meeting for a term of
ONE (1) year expiring in 1999.
The Board of Directors has nominated Edward A. Celano, Howard R.
Conant, Peter R. Harvey, John Harvey, Gerard M. Kenny, Robert L. Johnson,
Maynard K. Louis, and Mark Santacrose for election as directors for such terms.
See "Information Concerning Directors and Nominee" for a description of the
business experience of, and other information concerning Edward A. Celano,
Howard R. Conant, Peter R. Harvey, John Harvey, Gerard M. Kenny, Robert L.
Johnson ,Maynard K. Louis, and Mark Santacrose. Unless you indicate to the
contrary, the persons named in the accompanying proxy will vote it for the
election of the nominees named below.
If, for any reason, a nominee should be unable to serve as a director
at the time of the meeting, a contingency which is not expected to occur, the
persons designated herein as proxies may not vote for the election of any other
person not named herein as a nominee for election to the Board of Directors.
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
29
<PAGE>
Plastic Specialties and Technologies,
Inc. ("PST") (textiles, hose and tubing);
Director of PureTec Corporation, the
successor by merger to Ozite, until March
of 1998, when PureTec was merged into
Teckni-Plex, Inc.
Peter R. Harvey 63 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 stock;). Director of PureTec
Corporation, (textiles, hose and tubing)
the successor by merger to Ozite, until
March of 1998, when PureTec was merged
into Teckni-Plex, Inc.
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.
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.
30
<PAGE>
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 63 President and Chief Operating Officer
John G. Hamm 59 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
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.
31
<PAGE>
James D. Doering, Vice President, Treasurer and Chief Financial Officer
of ARTRA. Mr. Doering has served as Vice President, since 1980, Treasurer, since
1987, Chief Financial Officer, since February 1988, and Controller, from 1980 to
1987. Mr. Doering has also served as Vice President and Chief Financial Officer
of Comforce from February 1988 through January 1996.
John Conroy, Vice President - Corporate Administration of ARTRA. Mr.
Conroy has served as Vice President - Corporate Administration since March 1990.
Prior thereto, he served as Vice President - Corporate Administration, of
Sargent-Welch Scientific Company from September 1988 to December 1989. Mr.
Conroy previously served in various risk management positions with ARTRA from
1978 to September 1988, most recently as Corporate Risk Director.
Lawrence D. Levin, Controller of ARTRA. Mr. Levin has served as
Controller, since 1987, Assistant Treasurer and Assistant Secretary, since 1980,
and Assistant Controller, from 1980 to 1987. Mr. Levin has also served as
Controller of Comforce since December 1989 through January 1996 and as the
Assistant Chief Financial Officer of Comforce from May 1993 through January
1996.
Edwin G. Rymek, Secretary of ARTRA. Mr. Rymek has served as Secretary
of ARTRA since 1987 and of Comforce from 1982 through 1995.
Officers are appointed by the boards of directors of ARTRA and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey (a director and executive officer) and John
Harvey (a director and executive officer), who are brothers, there are no family
relationships among the executive officers and/or directors, nor are there any
arrangements or understandings between any officer and another person pursuant
to which he was appointed to office except as may be hereinafter described.
Executive Compensation
Directors' Compensation
Directors who are not employees of ARTRA ("Outside Directors") are
entitled to receive an annual retainer of $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.
32
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation(1)
---------------------- -------------------------
Securities All
Underlying(3) Other
Name and Salary Salary Options - Compen-
Principal Positions Year Paid Deferred(2) Bonus No. of Shares sation
------------------- ---- ---- ----------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
John Harvey, 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)
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)
<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.
</FN>
</TABLE>
33
<PAGE>
(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 Footnote 15 to the Consolidated Financial
Statements for the year ended December 31, 1997).
The following information sets forth detail concerning the aggregate
number and potential realizable values of options granted to the Chief Executive
Officer and the other executive officers of ARTRA listed in the Summary
Compensation Table during the fiscal year ended December 31, 1997. The Board of
Directors authorized the issuance of options on October 5, 1996 at a per share
exercise price of $5.25 (being the closing price on October 4, 1996).
OPTION GRANTS IN FISCAL YEAR 1997/1998
There were no grants of options made in fiscal year 1997.
In 1998, ARTRA granted options to certain of its Board of Directors in
accordance with the ARTRA Group Incorporated 1996 Disinterested Directors Stock
Option Plan, as follows:
No. of Shares Option Price Date of Grant Nature of Option
12,500 $3.125 May 28, 1998 Non-statutory
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 31, 1997 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 1997.
34
<PAGE>
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
1998. 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 to Bagcraft and ARTRA) were made by
Peter R. Harvey, the President and Chief Operating Officer of ARTRA. . See
"Transactions with Management and Others" for a description of various
transactions and relationships between ARTRA and each of these directors.
35
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
As of August 31, 1998, there were 7,863,778 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 August 31,
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 August 31, 1998, 1,849.34 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 441 23.8%
John Harvey(3) 423,796 6.4%
Gerard M. Kenny(4) 165,064 2.1%
Maynard K. Louis(5) 92,000 1.2%
Howard R. Conant(6) 279,000 3.4%
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 officers as a group (14 persons) 2,365,350 23.1%
* 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.
36
<PAGE>
(3) Mr. John Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares of Common Stock beneficially owned by Mr.
Harvey consist of 123,100 shares held directly by him, 1,705 shares
held in his 401(k) plan, 5,746 shares held in his individual retirement
account, 100,000 shares held by Mr. Harvey's daughters, 75,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share,
4,000 shares issuable under an option which expires January 8, 2003 at
an exercise price of $3.75 per share, 141,000 shares issuable under an
option which expires October 4, 2006 at an exercise price of $5.25 per
share and an aggregate of 72,245 shares issuable under warrants
expiring at various dates in 2000 and 2001 received in 1995 and 1996 as
additional compensation for 1995 and 1996 short-term loans at exercise
prices of $3.75 per share to $6.25 per share.
(4) The shares beneficially owned by Mr. Kenny consist of 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, 1999 at an exercise
price of $6.00 per share. 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 92,000 shares of ARTRA
common stock at prices of $5.125 to $8.00 per share which warrants
expire on various dates commencing in 1998 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 120,000 shares of ARTRA common stock at prices of $3.9375 to
$5.875 per share which warrants expire on various dates in 2001 and
2002.
(7) The shares of Common Stock beneficially owned by Mr. Hamm consist of 50
shares held directly by him, 93 shares held by him and his wife
jointly, 1,639 shares held in his 401(k) plan, 25,000 shares issuable
under an option which expires December 19, 2000 at an exercise price of
$3.65 per share, 1,000 shares issuable under an option which expires
September 19, 2001 at an exercise price of $3.65 per share, 13,200
shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share, and 101,250 shares issuable under an
option which expires October 4, 2006, at an exercise price of $5.25 per
share.
(8) The shares of Common Stock beneficially owned by Mr. Gruber consist of
20,190 shares held directly by him, 943 shares held in his 401(k) plan,
1,221 shares held in his individual retirement account, 8,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share,
12,000 shares issuable under an option which expires January 8, 2003 at
an exercise price of $3.75 per share and 97,750 shares issuable under
an option which expires October 4, 2006, at an exercise price of $5.25
per share.
(9) The shares of Common Stock beneficially owned by Mr. Doering consist of
10,500 shares held by him in joint tenancy with his wife, 1,693 shares
held in his 401(k) plan, 1,118 shares held in his individual retirement
account, 22,500 shares issuable under an option which expires December
19, 2000 at an exercise price of $3.65 per share, 31,000 shares
issuable under an option which expires January 8, 2003 at an exercise
price of $3.75 per share and 57,500 shares issuable under an option
which expires October 4, 2006, at an exercise price of $5.25 per share.
37
<PAGE>
(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.
Certain Relationships and Related Transactions
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 1999. 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
===========
38
<PAGE>
For additional related Party Transactions between the Registrant and Peter R.
Harvey, ARTRA's president, see Note 19 to the consolidated financial statements
for the year ended December 31, 1997.
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 was scheduled to expire on
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.
39
<PAGE>
On September 27, 1989, ARTRA received a proposal to purchase Bagcraft from Sage
Group, Inc. ("Sage"), a privately-owned corporation. Effective March 3, 1990, a
wholly-owned subsidiary of ARTRA indirectly acquired from Sage 100% of the
issued and outstanding common shares of BCA Holdings, Inc., which in turn owned
100% of the stock of Bagcraft, for total consideration which was delivered to
Ozite as the successor by merger to Sage, upon approval of ARTRA's shareholders.
The consideration for the Bagcraft acquisition consisted of 772,000 shares of
ARTRA's common stock and 3,750 shares of its $1,000 par value junior
non-convertible payment-in-kind preferred stock bearing a dividend rate of 6%.
The issuance of the ARTRA Common and Preferred Stock as consideration was
approved by ARTRA's shareholders at the December 1990 annual meeting of
shareholders. Upon the merger of Sage into Ozite on August 24, 1990, Ozite
became entitled to receive this consideration, which right Ozite assigned to its
PST subsidiary. Peter R. Harvey, ARTRA's President, and John Harvey, ARTRA's
Chairman of the Board of Directors, were the principal shareholders of Sage and
Ozite as of the times that the merger agreements were executed and the mergers
consummated. Ozite subsequently repurchased the 3,750 shares of preferred stock
in February 1992, 1,523 of which shares were subsequently assigned to Peter
Harvey in consideration of his discharge of certain indebtedness of Ozite to him
in April 1992. Mr. Harvey pledged these 1,523 preferred shares to ARTRA. The
$4,750,000 price of the 772,000 shares of common stock and 3,750 shares of
preferred stock was equal to the fair market value thereof as of January 31,
1991 as determined by an independent investment banking firm engaged by PST to
make such determination.
Peter R. Harvey and John Harvey 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
40
<PAGE>
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.
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
41
<PAGE>
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 has been 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 has been
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. Conant were reduced to $2,000,000 with proceeds from other
short-term borrowings. The borrowings from this director are currently
collateralized by 490,000 shares of COMFORCE common stock by the Company's
Fill-Mor subsidiary.
In August, 1998 ARTRA borrowed an additional $500,000 from Mr. Conant, due
December 20, 1998, bearing interest at 15%. As additional compensation, the
lender received a warrant to purchase 20,000 ARTRA common stock shares at a
price of $3.9375 per share. The warrant holder has the right to put this warrant
back to ARTRA at any time during the period August 28, 1998 to August 28, 2000,
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 August 28, 1998 (the date of loan) through August 28, 2000. The
proceeds from this loan were used to pay down other ARTRA debt obligations.
PERFORMANCE INFORMATION
Set forth below in tabular form is a comparison of the total shareholder return
(annual change in share price plus dividends paid, if any, assuming reinvestment
of dividends when paid) assuming an investment of $100.00 of the starting date
for the period shown for ARTRA, the Dow Jones Equity Market index ( a broad
equity market index which includes the stock of companies traded on the New York
Stock Exchange) and the Dow Jones Industrial Index - Containers & Packaging (an
index including companies that manufacture bags, cans, boxes, jars, etc. used
for packaging). No dividends were paid on ARTRA common stock during the period
shown. The return is based on the annual percentage change during each fiscal
year in the five year period ended on December 31, 1997.
Comparison of Five Year Cumulative Total Return
ARTRA Common Stock, Dow Jones Equity Market Index
and Dow Jones Industrial Index - Containers & Packaging
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Dow Jones Equity Market Index $100.00 $110.37 $111.15 $151.98 $190.82 $251.32
Dow Jones Industrial Index -
Containers & Packaging $100.00 $ 96.04 $ 96.74 $103.24 $131.26 $149.85
ARTRA Common Stock $100.00 $162.50 $128.13 $128.13 $153.13 $ 96.88
</TABLE>
42
<PAGE>
SELECTION OF AUDITORS
The Board of Directors appointed PricewaterhouseCoopers LLP independent
certified public accountants, to audit the financial statements of the Company
and its wholly-owned subsidiaries for the fiscal year ending December 31, 1998.
PricewaterhouseCoopers LLP has served as principal auditors for the Company
since 1962.
This appointment is being presented to shareholders for ratification. The
favorable vote of the holders of a majority of the shares represented in person
or by proxy at the Meeting and entitled to vote (assuming a quorum is present)
is required to ratify the appointment.
A representative of PricewaterhouseCoopers LLP is expected to attend the meeting
and will be afforded an opportunity to make a statement if he desires to do so.
He is also expected to be available to respond to appropriate questions.
The Board of Directors recommends that the shareholders vote FOR the proposal.
Proxies solicited by the Board of Directors will be voted in favor of this
proposal unless a contrary vote or authority withheld is specified.
SHAREHOLDERS' PROPOSALS
Any shareholder may notify management of his intention to present a
proposal for action at the next annual meeting by delivery of a notice to be
reviewed by management not less than 120 calendar days in advance of the
solicitation date of ARTRA's next annual meeting or for action at any other
meeting at a reasonable time before solicitation is made, and any proposal
received by ______, 1998 will be considered for action at the next annual
meeting. Such notices should be submitted to ARTRA GROUP Incorporated, 500
Central Avenue, Northfield, Illinois 60093, Attention: Corporate Secretary.
GENERAL AND OTHER MATTERS
Management knows of no matters, other than those referred to in this
proxy statement, which will be presented to the meeting. However, if any other
matters properly come before the meeting or any adjournment, the persons named
in the accompanying proxy will vote it in accordance with their best judgment on
such matters.
The Company will bear the expense of preparing, printing and mailing
this proxy material, as well as the cost of any required solicitation. In
addition to the solicitation of proxies by use of the mails, the Company may use
regular employees, without additional compensation, to request, by telephone or
otherwise, attendance or proxies previously solicited.
You are urged to sign and return your proxy
_______________________________________
Edwin G. Rymek
Secretary
HAVE YOU MOVED?
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, Illinois 60093
Please change my address on the books of ARTRA GROUP Incorporated.
Name of Owner
Print Name exactly as it appears on Stock Certificate
From (Old Address)
(Please print)
To (New Address)
_______________________________________________________________________________
Street Address City or Town State Zip Code
Date___________
Signature: _________________________________________________
Owner(s)should sign name(s) exactly as appears on Stock Certificate. If this
form is signed by a representative, evidence of authority should be supplied.
MAY BE ENCLOSED IN ENVELOPE WITH PROXY CARD
43
<PAGE>
MARKET PRICE OF THE COMPANY'S COMMON STOCK
ARTRA's common stock, without par value, is traded on the New York ("NYSE") and
Pacific Stock Exchanges. The Company currently does not meet certain of the
requirements for maintaining its listing on the NYSE and the NYSE is reviewing
the status of the Company's listing on the exchange. As of September 15, 1998
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 six months ended June 30, 1998
and past two fiscal years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ---------------------
High Low High Low High Low
----------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter 4 - 1/16 3 - 1/16 6 - 3/8 4 - 1/2 6 - 3/4 4 - 5/8
Second quarter 3 - 5/16 3 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
</TABLE>
44
<PAGE>
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 presented below does not give effect to the proposed disposition of
Bagcraft. 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.
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended (G)
---------------------- -----------------------------------------------------------
June 30, June 26,
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 63,265 $ 60,274 $ 125,027 $ 120,699 $ 121,879 $ 111,837 113,584
Earnings (loss) from
continuing operations (A) (B) (C) (2,083) (3,842) 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) (2,083) (3,842) 773 12,973 (2,903) (20,470) 13,514
Earnings (loss) per share (F):
Basic
Continuing operations (.29) (.56) (.04) .34 (2.70) (2.52) (1.87)
Discontinued operations -- -- -- -- -- (2.79) (.04)
Extraordinary credits -- -- -- 1.25 2.07 4.57 1.57
Net earnings (loss) (.29) (.56) (.04) 1.59 (.63) (3.74) 2.66
Diluted
Continuing operations (.29) (.56) (.04) .32 (2.70) (2.52) (1.84)
Discontinued operations -- -- -- -- -- (2.79) (.04)
Extraordinary credits -- -- -- 1.19 2.07 4.49
Net earnings (loss) (.29) (.56) (.04) 1.51 (.63) (3.74) 2.61
Weighted average number of
shares outstanding
Basic 7,914 7,859 7,970 7,525 6,776 5,702 4,823
Diluted 7,914 7,859 7,970 7,939 6,776 5,702 4,908
Total assets 71,084 72,604 73,206 77,379 77,949 93,429 92,774
Long-term debt 43,784 34,528 50,619 34,207 34,113 19,673 29,264
Debt subsequently discharged -- -- -- -- -- 9,750 --
Cash dividends -- -- -- -- -- -- --
45
<PAGE>
<FN>
(A) Earnings from continuing operations for the six months ended June 30,
1998 and June 26, 1997 include realized gains of $320,000 and
$255,000, respectively, from dispositions of COMFORCE common stock.
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.
(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.
(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) In addition to operating losses, 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. In
addition to operating losses, 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. In addition to operating
losses, 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>
46
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
June 30, 1998
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Less
Bagcraft
Net Assets Pro Forma
Historical Sold Adjustments Pro Forma
---------- ---------- ---------- ----------
(A)
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and equivalents $27 $89,000 (B) $11,254
(51,525)(C)
(8,550)(D)
(13,350)(F)
(4,348)(G)
Receivables, net 10,841 $(10,704) 137
Inventories,net 17,331 (17,331) -
Available-for-sale securities 14,588 14,588
Other 952 (408) (317)(E) 227
---------- ----------
Total current assets 43,739 26,206
---------- ----------
Property,plant & equip, net 24,639 (24,639) -
Excess of cost over net assets acquired, net 2,578 (2,578)(E) -
2,500 (B)
Other 128 (128)(E) 2,500
---------- ---------- ---------- ----------
$71,084 $(53,082) $10,704 $28,706
========== ========== ========== ==========
CURRENT LIABILITIES
Notes payable $15,072 $(13,350)(F) $1,722
Current maturities of L-T debt 4,462 (4,462)(C) -
Accounts payable 7,758 $(7,738) 20
Accrued liabilities 10,624 (5,623) 5,001
Income taxes payable 288 (35) 1,700 (H) 1,953
(2,212)(G)
Redeemable preferred stock 4,395 (2,183)(C) -
---------- ----------
42,599 8,696
---------- ----------
Long-term debt 43,784 (43,784)(C) -
Other noncurrent liabilities 4,670 (4,670)(D) -
Deferred gain on sale of Bagcraft
($2.5 million note) 2,500 (H) 2,500
Redeemable preferred stock 4,802 (2,136)(G) 2,666
Equity (Deficit) (24,771) 39,615 (H) 17,344
---------- ---------- ---------- ----------
$71,084 $(13,396) $(28,982) $28,706
========== ========== ========== ==========
<FN>
Adjustments to the pro forma balance sheet consist of:
(A) Net Bagcraft assets purchased by buyer.
(B) Gross proceeds received from sale of Bagcraft net assets consisting of cash
of $89 million and a $2.5 million note.
(C) Pay off Bagcraft outstanding debt and redeemable preferred stock
obligations.
(D) Pay off Bagcraft liabilities not assumed by buyer.
(E) Write-off miscellaneous assets not purchased by buyer.
(F) Pay down ARTRA Corporate short-term borrowings with proceeds from sale.
(G) Pay off BCA Holdings redeemable preferred stock obligations.
(H) Gain on sale of Bagcraft net assets.
</FN>
</TABLE>
47
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Less Pro Forma
Historical Bagcraft Adjustments Pro Forma
----------- ---------- ----------- ---------
(A)
<S> <C> <C> <C>
Net sales $63,265 ($63,265) $ -
----------- ----------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 51,794 (51,794) -
Selling, general and administrative 8,004 (6,852) 1,152
Depreciation and amortization 1,541 (1,541) -
----------- ---------- ---------
61,339 (60,187) 1,152
----------- ---------- ---------
Operating earnings (loss) 1,926 (3,078) (1,152)
----------- ---------- ---------
Other income (expense):
Interest expense (3,516) 1,529 $750(B) (1,237)
Amortization of debt discount (329) 329 -
Realized gain on disposal
of available-for-sale securities 320 320
Other income (expense), net (140) 66 (74)
----------- ---------- ---------
(3,665) 1,924 (991)
----------- ---------- ---------
Loss from continuing operations
before income taxes and minority interest (1,739) (1,154) (2,143)
Provision for income taxes (44) 44 -
Minority interest (300) 58 242(C) -
----------- ---------- ---------- ---------
Loss from continuing operations ($2,083) ($1,052) $992 ($2,143)
=========== ========== ========== =========
Per share loss from continuing operations
applicable to common shares:
Basic ($0.29) ($0.30)
=========== =========
Diluted ($0.29) ($0.33)
=========== =========
Weighted average number of shares
of common stock outstanding:
Basic 7,914 7,914
=========== =========
Diluted 7,914 7,914
=========== =========
<FN>
Adjustments to the pro forma statement of operations consist of:
(A) Reflect Bagacraft as a discontinued operation.
(B) Reduction of interest expense due to the assumed paydown of Corporate notes
payable.
(C) Reverse minority interest representing dividends accrued on BCA Holdings
redeemable preferred stock obligations paid off with proceeds from sale of
Bagcraft net assets.
</FN>
</TABLE>
48
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(Unaudited in Thousands)
<TABLE>
Less Pro Forma
Historical Bagcraft Adjustments Pro Forma
----------- ------------ ------------ ---------
(A)
<S> <C> <C> <C> <C>
Net sales $125,027 ($125,027) $ -
----------- ------------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 101,527 (101,527) -
Selling, general and administrative 19,548 (13,840) 5,708
Depreciation and amortization 4,364 (4,357) 7
----------- ------------ ----------
125,439 (119,724) 5,715
----------- ------------ ----------
Operating earnings (loss) (412) (5,303) (5,715)
----------- ------------ ----------
Other income (expense):
Interest expense (9,308) 3,130 1,500 (B) (4,678)
Amortization of debt discount (2,702) 2,702 -
Realized gain on disposal
of available-for-sale securities 2,531 2,531
Litigation settlement 10,416 10,416
Other income (expense), net 1,338 (1,326) 12
----------- ------------ ----------
2,275 4,506 8,281
----------- ------------ ----------
Earnings (loss) from continuing operations
before income taxes and minority interest 1,863 (797) 2,566
Provision for income taxes 19 (19) -
Minority interest (1,109) 117 992 (C) -
----------- ------------ ---------- ----------
Earnings from continuing operations $773 (699) 2,492 $2,566
=========== ============ ========== ==========
Per share earnings (loss) from
continuing operations applicable to common shares:
Basic ($0.04) $0.19
=========== ==========
Diluted ($0.04) $0.18
=========== ==========
Weighted average number of shares
of common stock outstanding:
Basic 7,970 7,970
=========== ==========
Diluted 7,970 8,093
=========== ==========
<FN>
Adjustments to the pro forma statement of operations consist of:
(A) Reflect Bagacraft as a discontinued operation.
(B) Reduction of interest expense due to the assumed paydown of Corporate notes
payable.
(C) Reverse minority interest representing dividends accrued on BCA Holdings
redeemable preferred stock obligations paid off with proceeds from sale of
Bagcraft net assets.
</FN>
</TABLE>
49
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Preliminary Proxy Statement
Pursuant to Section 14(a) of the Securities and Exchange Act of 1934 of our
report dated March 26, 1998 on our audits of the financial statements of ARTRA
GROUP Incorporated for the years ended December 31, 1997, December 26, 1996 and
December 27, 1995.
PricewaterhouseCoopers LLP
Chicago, Illinois
September 21, 1998
50
