-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MmdlMai8/wu/L1qMZyx2TSdFteznt+78R/teksINB3V1xm/HfAflyUo0MTbaO4r1 tE1L/KZBvpIQhQl0uqM+kQ== 0000200243-96-000003.txt : 19960412 0000200243-96-000003.hdr.sgml : 19960412 ACCESSION NUMBER: 0000200243-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951228 FILED AS OF DATE: 19960411 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTRA GROUP INC CENTRAL INDEX KEY: 0000200243 STANDARD INDUSTRIAL CLASSIFICATION: COSTUME JEWELRY & NOVELTIES [3960] IRS NUMBER: 251095978 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03916 FILM NUMBER: 96546029 BUSINESS ADDRESS: STREET 1: 500 CENTRAL AVE CITY: NORTHFIELD STATE: IL ZIP: 60093 BUSINESS PHONE: 7084416650 MAIL ADDRESS: STREET 1: 500 CENTRAL AVE CITY: NORTHFIELD STATE: IL ZIP: 60093 FORMER COMPANY: FORMER CONFORMED NAME: TELEPRO INDUSTRIES INC DATE OF NAME CHANGE: 19820225 FORMER COMPANY: FORMER CONFORMED NAME: ELT INC DATE OF NAME CHANGE: 19760503 FORMER COMPANY: FORMER CONFORMED NAME: DUTCH BOY INC DATE OF NAME CHANGE: 19750630 10-K 1 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1995 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended December 29, 1994 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from __________ to __________ Commission file number 1-3916 ARTRA GROUP INCORPORATED (Exact name of registrant as specified in its charter) Commonwealth of Pennsylvania 25-1095978 ---------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 Central Avenue, Northfield, IL 60093 ---------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 441-6650 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ------------------------------- ---------------------- Common stock, without par value New York Stock Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the aggregate market value of the voting stock held by nonaffiliates of the registrant at February 29, 1996: $34,356,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 29, 1996 - ------------------------------- -------------------------------- Common stock, without par value 7,477,418 Documents Incorporated by Reference: None PART I Item 1. Business At December 29, 1994 and, through September 1995, ARTRA Group Incorporated, a Pennsylvania corporation incorporated in 1933, and its majority-owned subsidiaries (hereinafter "ARTRA" or the "Company") principally operated in two industry segments as: 1) a manufacturer of packaging products principally serving the food industry; and 2) a designer and distributor of popular-priced fashion costume jewelry. During 1995, the Company's packaging products business was conducted by the wholly-owned Bagcraft Corporation of America ("Bagcraft") subsidiary and its then wholly-owned subsidiary Arcar Graphics, Inc. ("Arcar") acquired effective April 9, 1994. As discussed in Note 3 to the Company's consolidated financial statements, effective October 26, 1995, Bagcraft completed the sale of the business assets, subject to the buyer's assumption of certain liabilities, of Arcar. During 1995, the Company's fashion costume jewelry business was conducted by its then majority-owned subsidiary The Lori Corporation ("Lori") through its wholly-owned subsidiaries: Rosecraft, Inc. ("Rosecraft") Lawrence Jewelry Corporation ("Lawrence") In recent years, Lori's fashion costume jewelry operations had experienced a pattern of significantly lower sales levels and related operating losses primarily due to a shift in the buying patterns of its major customers (i.e. certain mass merchandisers) from participation in Lori's service program to purchases of costume jewelry and accessories directly from manufacturers and due to a continued unfavorable retail environment. Accordingly, in September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business as discussed in Note 3 to the Company's consolidated financial statements. As discussed in Note 3 to the Company's consolidated financial statements, on October 17, 1995, Lori completed the acquisition of one hundred percent of the capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc. for consideration of approximately $6.4 million, net of cash acquired, consisting of cash of approximately $5.6 million and 500,000 shares of Lori common stock issued as consideration for various fees and guarantees associated with the transaction. Global provides telecommunications and computer technical staffing services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. The acquisition of Global was completed on October 17, 1995. In connection with the re-focus of its business, Lori changed its name to COMFORCE Corporation ("COMFORCE"). Additionally, in conjunction with the Global acquisition, ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify COMFORCE in the event any future liabilities arise concerning pre-existing environmental matters and business related litigation. Effective July 4, 1995, Lori and ARTRA entered into employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. As additional compensation, the agreements provided for the issuance in aggregate of a 35% common stock interest in Lori. After the issuance of the Lori common shares, plus the effects of the issuance of Lori common shares sold by private placements and other Lori common shares issued in conjunction with the Global acquisition, ARTRA's common stock ownership interest in COMFORCE was reduced to approximately 25% at December 28, 1995. Packaging Products Segment Effective March 3, 1990, ARTRA entered into the packaging products business with its acquisition of Bagcraft. Bagcraft, established in 1947, is a leading manufacturer and supplier of flexible packaging products to the fast food, bakery, microwave popcorn and supermarket industries and is also a significant supplier to the theater industry. Several of Bagcraft's products are widely recognized and have become standard items within various segments of the food industry. Bagcraft is a full-service supplier complete with its own laboratory and engineering departments. Bagcraft's sales and technical staff work in conjunction with Bagcraft's customers to determine the proper components of the package. Bagcraft's art department creates packaging designs, subject to customer approval, or duplicates customer-supplied designs. Thereafter, the packaging is produced in accordance with customer specifications using a variety of papers, film, foil and lamination. Bagcraft has developed a number of proprietary innovations in the manufacture of its packaging products. Such innovations include the Dubl-Wax(TM) bag, which introduced specialty waxed bags to the retail bakery industry. Bagcraft is also credited with being instrumental in developing and producing the first microwave popcorn bags. Bagcraft currently produces over two billion bags and two billion sheets and wrappers annually for the packaging of more than 1,000 different products. Bagcraft purchases the paper, foil, films and chemicals it uses from a number of different unaffiliated suppliers. Since Bagcraft purchases each of the raw materials it requires from more than one supplier, it is not dependent upon a single supplier for any specific materials or supplies. Sales orders are processed, and manufacturing and delivery schedules are determined primarily at Bagcraft's headquarters and principle production facility in Chicago. In September, 1994, Bagcraft completed the construction of a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The new Kansas facility, which has added production capacity in Bagcraft's growing food service products business, has replaced Bagcraft's production facility in Joplin, Missouri (which was conveyed to a contractor involved in constructing the Baxter Springs facility in partial consideration of such contractor's fees), its facility in Carteret, New Jersey (which was sold in 1994) and its facility in Forest Park, Georgia (which was converted into a distribution facility). Bagcraft's products are sold throughout the United States by a sales force of approximately 20 full-time salespersons who sell to wholesale distributors and a number of independent brokers who sell Bagcraft product lines to large food processors and food chains. Bagcraft presently sells its products to more than 1,000 customers. Although some of these are the largest and most recognizable companies in the food industry, no single customer accounted for more than 10% of ARTRA's consolidated net sales in 1995. Sales to customers are made pursuant to orders placed in advance for periods of up to one year. In certain instances Bagcraft and a customer can enter into an agreement to maintain a specified minimum inventory for the customer. The contracts entered into by Bagcraft with its customers vary in length depending on the customer's needs and Bagcraft's capacity to meet the customer's requirements. Generally, Bagcraft's contracts provide advance notice of from 30 days to one year to terminate a contract. The contracts typically provide for delivery of goods at an agreed-upon fixed price, subject to adjustment upon timely notice in advance. Bagcraft usually grants its customers rights of return, subject to penalty, except in the case of goods produced to specification. In addition, Bagcraft typically requires payment for goods 30 days after shipment, but gives its customers a 1% discount if payment is made within 10 days after shipment. Bagcraft believes that it is the manufacturer of the most diversified line of flexible packaging products in the United States. However, there are a number of domestic and foreign companies which compete directly with Bagcraft in each of its major product lines, certain of which have a larger market share with respect to specific product lines. Bagcraft's competitors range from small companies to divisions of large corporations which have 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. Bagcraft's products are sold by four marketing divisions as described below: Paper Division Bagcraft believes it is the industry leader in specialty paper bags, which represented approximately 32% of Bagcraft's 1995 sales. Bakeries account for approximately 60% of the paper division's sales which also include supermarkets and various retail food chains. A number of the paper division's products, including Dubl-Wax(TM), Dubl-Panel(TM), Dubl-Clear(TM) and Sealing-Strip(TM) represent significant manufacturing innovations which have contributed to Bagcraft's position as the industry leader. Major customers include Walmart, Walgreen's, Albertson's, Dunkin' Donuts and Boston Market. Bagcraft believes the outlook for the future indicates stability and growth. Bagcraft's Paper Division stocks approximately 150 generic products, which enables Bagcraft to lead the industry in providing the widest variety of immediately available unprinted and stock printed bags and sheets in the industry. Stock products are bought and inventoried by distributors who, in turn, sell them in varying quantities to end-users for a multitude of purposes. The stock line is sold mainly through Bagcraft field salespeople and telemarketing from Bagcraft's Chicago home office. Food Service Division The Food Service Division, which represented approximately 47% of Bagcraft's 1995 sales, is a leader among its competitors. Bagcraft's products sold to the food service industry include foil and paper bags and sheets for sandwiches, french fries, chicken and other prepared foods. Major customers in this industry include Wendy's, Burger King, Taco Bell, Dairy Queen and McDonald's. The development of the Honeycomb sheet helped propel Bagcraft to its industry leading position. The Honeycomb sheet incorporates a moisture absorbing layer which prevents buns from becoming soggy and tends to keep food warm for a longer period of time. Additionally, when used to replace rigid packaging, it represents significant source reduction to the solid waste system. Specialty Bag Division The Specialty Bag Division represented approximately 15% of Bagcraft's 1995 sales. Many of the division's products represent unique additions to Bagcraft's standard products. The Cue-Pon Bag(TM) has a "tear out" coupon affixed near the window on the bag which offers the shopper the immediate benefit of the coupon upon purchase. The Cue-Pon Pocket Bag(TM) has a pouch on the front of the bag which can be filled with novelty items by the retailer. The division features products for the packaging of bakery goods, such as cookies and donuts, coffee, pre-popped popcorn and specialized promotional items such as premiums for kids meals sold by food service chains. This division provides bags with transparent windows, metal tin tie attachments and convenient self-opening bottoms. This division also produces theater popcorn bags, which provide the theater chains with a more economical package that is easy to dispose of and substantially reduces the amount of space needed to inventory the product as well as providing a conveniently resealable bag by using Tac-Labels(TM) in lieu of Tin Ties. Bagcraft is the leading supplier of popcorn bags to theater chains such as General Cinema Corporation and Mann Theaters. The newest addition to this division is the "To Go!" Bags(TM). These double wall bags provide many of the properties of rigid containers such as tubs and cartons with the environmental and storage advantages of bags. Although in the early stages of production, "To Go!" Bags(TM) have been enthusiastically received and now are subject to a backlog. Other customers for the division include Bake-Line Products and Interstate Brands. Microwave Popcorn Division The Microwave Popcorn Division, which represented approximately 5% of Bagcraft's 1995 sales, represents an example of Bagcraft's high technology advancements. Bagcraft supplies microwave popcorn packaging to several industry leaders, including Hunt-Wesson (Orville Redenbacher) and U.S.A. Family Foods. Bagcraft was instrumental in the development of the first microwave popcorn bag and played an important role in developing "susceptor" accelerator technology which it has incorporated into its products. The susceptor technology involves placing a metallized material into the popcorn bag which accelerates the heat transfer and results in a higher percentage of the popcorn kernels being popped. In recent years, Bagcraft has experienced a decline in its domestic microwave popcorn business due to the acquisition of one of its major customers by a company with its own packaging ability. Accordingly, at December 31, 1995, Bagcraft incurred a charge to operations of approximately $1,500,000 to write-down the carrying value of idle machinery and equipment dedicated to the production of microwave popcorn products. As discussed in Note 3 to the Company's consolidated financial statements, effective April 8, 1994, Bagcraft acquired the business assets, subject to buyer's assumption of certain liabilities of Arcar Graphics, Inc. ("Arcar"), a manufacturer and distributor of waterbase inks for the flexographic and rotogravure printing industries. Arcar is one of the larger waterbase ink suppliers in the United States and serves over 500 customers. The principal markets of Arcar's products included printers of tags and labels, flexible packaging manufacturers and polycoated cup manufacturers. As discussed in Note 3 to the Company's consolidated financial statements, effective October 26, 1995, Bagcraft completed the sale of the business assets, subject to the buyer's assumption of certain liabilities, of Arcar. Employees At December 28, 1995, the Company employed approximately 1,000 persons. The Company considers its relationships with its employees to be good. Item 2. Properties The following table sets forth a brief description of the properties of the Company and its subsidiaries. The Company and its subsidiaries believe that all of their facilities are adequate for their present and reasonably anticipated future business requirements.
Location General Description Ownership ------------------------------- --------------------------------------------- ----------------------------- ARTRA: Northfield, IL (1) Headquarters facility of Leased, month to month approximately 27,000 sq. ft Bagcraft: Chicago, IL Administrative and manufacturing facility of Owned approximately 148,000 sq. ft. Chicago, IL (2) Warehouse and office facility of Leased, expiring in 2006 approximately 63,000 sq. ft Baxter Springs, KS(3) Manufacturing, warehouse and office facility of approximately 265,000 sq. ft. Owned Forest Park, GA(3) Warehouse and office facility Owned of approximately 35,000 sq. ft Edison, NJ Warehouse facility Leased, expiring in 1999 of approximately 45,000 sq. ft - -------------------------------------------------------------------------- (1) In July, 1992 ARTRA sold its headquarters building under a lease arrangement with an option to buy that expired in July, 1993. The building continues to be available to ARTRA under a month-to-month lease. (2) This lease provides for a ten-year option to renew at the current market rate (3) In September, 1994, Bagcraft completed construction of a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. This facility replaced Bagcraft's production facilities in Joplin, Missouri, Carteret, New Jersey and Forest Park, Georgia. Bagcraft conveyed the former Joplin, Missouri facility to one of the contractors involved in the construction of the Baxter Springs, Kansas facility as partial consideration for the work performed by this contractor. Bagcraft sold the Carteret, New Jersey facility in 1994. The Forest Park, Georgia facility has been retained as a distribution center.
Item 3. Legal Proceedings As discussed in Note 7 to the Company's consolidated financial statements in March, 1989, Envirodyne Industries, Inc. ("Envirodyne") and Emerald Acquisition Corporation ("Emerald") entered into a definitive agreement for a subsidiary of Emerald to acquire all of the issued and outstanding shares of Envirodyne common stock. Pursuant to the terms of certain letter agreements, ARTRA agreed to participate in the transaction and received Envirodyne's consent to sell its then 4,830,000 Envirodyne common shares (a 26.3% interest) to Emerald. On May 3, 1989 the transaction was consummated. ARTRA received consideration consisting of cash of $75,000,000, a 27.5% common stock interest in Emerald andEmerald junior debentures. On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne under Chapter 11 of the U.S. Bankruptcy Code. On January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. Subsequently, Emerald filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the same court. Envirodyne's plan of reorganization did not provide for any distribution or value to Emerald and Emerald, therefore, is without assets to provide value to ARTRA for ARTRA's investment in Emerald common stock and Emerald Junior Debentures. See discussion below and in Note 20 Litigation for remedies being pursued by ARTRA as damages for the lost value of its investment in Emerald common stock and Emerald Junior Debentures. On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court Action for breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, breach of contract and promissory estopel. In the State Court Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of $408.6 million and approximately $33 million in fees paid to Salomon. The causes of action for breach of the fiduciary duty of due care were repleaded to reserve ARTRA's right to appeal the State Court's dismissal of the causes of action in the Third Amended Complaint. Defendant Kelly was dismissed with prejudice pursuant to a stipulation between ARTRA and the Kelly Defendants. On or about March 1, 1996, DPK brought a motion for summary judgment as to ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is currently pending. Effective December 31, 1989, ARTRA completed the disposal of its former scientific products segment with the sale of its Welch subsidiary, formerly Sargent-Welch Scientific Company, to a privately held corporation whose president and sole shareholder was a vice president of Welch prior to the sale. The consideration received by ARTRA consisted of $2,625,000 payable June 30, 1997, with interest at 10% beginning June 30, 1990, under terms of a noncompetition agreement and the buyer's subordinated note in the principal amount of $2,500,000. The receivable due June 30, 1997 under terms of the noncompetition agreement was reflected in ARTRA's condensed consolidated balance sheet at December 29, 1994 in other assets at $2,625,000. The subordinated security, due in 1997, was originally scheduled to be non-interest bearing for a period of three years, after which time interest will accrue at the rate of 10% per annum. The note was discounted at a rate of 10% during the non-interest bearing period and was reflected in ARTRA's consolidated balance sheet at December 29, 1994 in other assets at $1,375,000, net of a discount of $1,125,000. In December, 1991 Welch filed a lawsuit against ARTRA alleging that certain representations, warranties and covenants made by ARTRA, which were contained in the parties' Stock Purchase Agreement, were false. Welch was seeking compensatory damages in the amount of $3,800,000. Subsequently, ARTRA had filed a counterclaim predicated upon Welch's breach of the payment terms of the parties' Non-Competition Agreement and the Subordinated Note executed by Welch. ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued interest. On November 23, 1994, the Circuit Court of Cook County Law Division in Chicago granted a judgment in favor of ARTRA affirming the validity of the amounts due under the Non-Competition Agreement and the Subordinated Note of $2,625,000 and $2,500,000, respectively. In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by Welch under terms of the noncompetition agreement and the subordinated security. Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a subordinated note in the principal amount of $640,000 payable June 30, 2001. The Company and its subsidiaries are the defendants in various business-related litigation and environmental matters. At December 28, 1995 and December 29, 1994, the Company had accrued $1,800,000 and $1,500,000, respectively, for potential business-related litigation and environmental liabilities. While these litigation and environmental matters involve wide ranges of potential liability, management does not believe the outcome of these matters will have a material adverse effect on the Company's financial statements. However, ARTRA may not have available funds to pay liabilities arising out of these business-related litigation and environmental matters or, in certain instances, to provide for its legal defense. In January, 1985 the United States Environmental Protection Agency ("EPA") notified the Company's Bagcraft subsidiary that it was a potentially responsible party under the Comprehensive Environmental Responsibility Compensation and Liability Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied liability for the site, it has entered into a settlement agreement with the EPA, along with the other third party defendants, to resolve all claims associated with the site except for state claims. In May, 1994 Bagcraft paid $850,000 plus accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed suit in 1993 in the United States District Court for the Northern District of Illinois, against its insurers to recover its liability costs in connection with the Cross Brothers case. Bagcraft was subsequently reimbursed by its insurers for its liability costs incurred in connection with the EPA claim. With regard to the state action, Bagcraft is participating in settlement discussions with the State and thirteen other potential responsible parties to resolve all claims associated with the State. The maximum state claim is $1.1 million for all participants. Bagcraft has accrued $120,000 related to the State action in the Company's consolidated financial statements at December 28, 1995. Bagcraft was listed as a de minimis contributor at the American Chemical Services, Inc. off-site disposal location in Griffith, Indiana and the Duane Marine off-site disposal location in Perth Amboy, New Jersey. These sites are included in the EPA's National Priorities List. Bagcraft is presently unable to determine its liability, if any, with respect to this site. Bagcraft has been notified by the Federal Environment Protection Agency that it is a potentially responsible party for the disposal of hazardous substances at a site on Ninth Avenue in Gary, Indiana. Bagcraft has no records indicating that it deposited hazardous substances at this site and intends to vigorously defend itself in this matter. Bagcraft is presently undertaking a soil remediation project for solvent-contaminated soil at its Chicago manufacturing facility. The environmental firm responsible for implementing the remediation has recommended that a soil vapor extraction process be used, at an estimated cost of $175,000. Although there can be no assurances that remediation costs will not exceed this estimate, in the opinion of management, no material additional costs are anticipated. In April 1994, the EPA notified the Company that it was a potentially responsible party for the disposal of hazardous substances (principally waste oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing facility formerly operated by the Clearshield Plastics Division ("Clearshield") of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In 1985, Harvel was merged into ARTRA's subsidiary Fill-Mor Holding, Inc. ("Fill-Mor"). This site has been included on the EPA's National Priorities List. In February 1983, Harvel sold the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in 1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA for indemnification in connection with this proceeding. The cost of clean-up at the Palmer, Massachusetts site has been estimated to be approximately $7 million according to proofs of claim filed in the adversary proceeding. A committee formed by the named potentially responsible parties has estimated the liability respecting the activities of Clearshield to be $400,000. ARTRA has not made any independent investigation of the amount of its potential liability and no assurances can be given that it will not substantially exceed $400,000. In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in 1991 in the United States District Court for Maryland, Sherwin-Williams Company ("Sherwin-Williams") brought suit against ARTRA and other former owners of a paint manufacturing facility in Baltimore, Maryland for recovery of costs of investigation and clean-up of hazardous substances which were stored, disposed of or otherwise released at this manufacturing facility. This facility was owned by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from 1968 to 1980. Sherwin-William's current projection of the cost of clean-up is approximately $5 to $6 million. The Company has filed counterclaims against Sherwin-Williams and cross claims against other former owners of the property. The Company also is vigorously defending this action and has raised numerous defenses. Currently, the case is in its early stages of discovery and the Company cannot determine what, if any, its liability may be in this matter. ARTRA was named as a defendant in United States v. Chevron Chemical Company brought in the United States District Court for the Central District of California respecting Operating Industries, Inc. site in Monterey Park, California. This site is included on the EPA's National Priorities List. ARTRA's involvement stemmed from the alleged disposal of hazardous substances by The Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling paste, wall coatings and related products, certain of which generated hazardous substances as a by-product of the manufacturing process. ARTRA entered into a consent decree with the EPA in which it agreed to pay $85,000 for one phase of the clean-up costs for this site; however, ARTRA defaulted on its payment obligation. ARTRA is presently unable to estimate the total potential liability for clean-up costs at this site, which clean-up is expected to continue for a number of years. The consent decree, even if it had been honored by ARTRA, was not intended to release ARTRA from liability for costs associated with other phases of the clean-up at this site. The Company is presently unable to determine what, if any, additional liability it may incur in this matter. In a case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated, filed in the Circuit Court of Cook County, Illinois, the City of Chicago alleged that ARTRA (and NL Industries, Inc.) had improperly stored, discarded and disposed of hazardous substances at the subject site, and that ARTRA had conveyed the site to Goodwill Industries to avoid clean-up costs. At the time the suit was filed, the City of Chicago claimed to have expended $1,000,000 in clean-up costs. ARTRA and NL Industries, Inc. have counter sued each other and have filed third party actions against the subsequent owners of the property. The City of Chicago has made an offer to settle the matter for $350,000 for all parties. The parties are currently conducting discovery. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. In a case titled Illinois Environmental Protection Agency v. NL Industries, Inc., ARTRA GROUP Incorporated, et al, the Illinois Environmental Protection Agency filed suit alleging all former owners contributed to the contamination of the site. The suit was dismissed, but subject to possible appeal. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. The EPA has identified ARTRA GROUP Incorporated as a potentially responsible party in an action involving the former manufacturing facility. The EPA is currently investigating the site to determine the extent and type of contamination, if any. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. PART II Item 5. Market For the Registrant's Common Equity and Related Shareholder Matters. ARTRA's common stock, without par value, is traded on the New York ("NYSE") and Pacific Stock Exchanges. The Company currently does not meet certain of the requirements for maintaining its listing on the NYSE and the NYSE is reviewing the status of the Company's listing on the exchange. As of March 31, 1996 and December 28, 1995, the approximate number of holders of its common stock was 2,500. The high and low sales prices for ARTRA's common stock, as reported in the NYSE Quarterly Market Statistics reports, during the past two fiscal years were as follows: 1995 1994 --------------------------- ------------------------- High Low High Low ------------ ------------ ------------ ---------- First quarter 5 - 3/4 3 - 1/2 7 - 3/4 5 - 1/8 Second quarter 5 - 1/2 3 - 1/4 6 - 1/4 4 - 3/8 Third quarter 6 4 - 1/8 7 - 1/4 5 Fourth quarter 5 - 1/8 3 - 5/8 5 - 3/8 3 - 3/4 No dividends were paid in 1995 or 1994 nor are any anticipated in 1996. The Company was prohibited from paying dividends to its stockholders pursuant to the terms of its bank loan agreement that was discharged in February 1996. In addition, the Company's operating subsidiaries historically have been prohibited from or restricted in paying dividends or making distributions under their respective debt agreements (except for limited overhead allocations or payments in accordance with tax sharing agreements with the parent entity). Accordingly, current restrictions or limitations on the Company's Bagcraft subsidiary in upstreaming payments in 1996 and beyond would make the payment of dividends by ARTRA unlikely. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the loan agreements of the Company and its Bagcraft subsidiary. Item 6. Selected Financial Data. Following is a consolidated summary of selected financial data of the Company for each of the five fiscal years in the period ended December 28, 1995. The information for the year ended December 29, 1994 has been reclassified to reflect the operations of Arcar Graphics, Inc. as discontinued operations. The sale of Arcar (acquired effective April 9, 1994) was completed on October 26, 1995. Certain selected financial data for each of the four fiscal years in the period ended December 29, 1994 has been reclassified to reflect the discontinuance of the Company's fashion costume jewelry business effective September 30, 1995 conducted by the former majority-owned subsidiary COMFORCE Corporation, formerly The Lori Corporation. In October 1995, due to additional issuances of COMFORCE common stock, the Company's interest in COMFORCE was reduced to approximately 25% and the investment in COMFORCE was accounted for under the equity method during the fourth quarter of 1995. See notes 3 and 6 to the Company's consolidated financial statements for a further discussion of the Company's investment in COMFORCE and its results of operations.
Fiscal Year Ended (D) ----------------------------------------------------------- 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (in thousands except per share data) Net sales $ 121,879 $ 111,837 $ 113,584 $ 121,084 $ 123,906 Loss from continuing operations (16,943) (13,529) (8,327) (4,118) (11,191) Earnings (loss) from discontinued operations (A) 10 (15,906) (216) (33,854) (1,970) Extraordinary credits (B) 14,030 8,965 22,057 -- -- Net earnings (loss) (2,903) (20,470) 13,514 (37,972) (13,161) Earnings (loss) per share: Continuing operations (2.69) (2.56) (1.84) (1.16) (2.87) Discontinued operations -- (2.74) (.04) (7.74) (.49) Extraordinary credits 2.06 1.57 4.49 -- -- Net earnings (loss) (.63) (3.73) 2.61 (8.90) (3.36) Total assets (C) 77,949 93,429 92,774 98,731 126,277 Long-term debt 34,113 19,673 29,264 13,802 57,296 Debt subsequently discharged -- 9,750 -- -- -- Liabilities subject to compromise -- -- -- 41,500 -- Cash dividends -- -- -- -- --
(A) 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 the Lori's fashion costume jewelry operations effective June 29, 1995, a provision of $1,000,000 for loss on disposal of the Lori's fashion costume jewelry operations and a gain on sale of Bagcraft's Arcar subsidiary of $8,483,000. The loss from discontinued operations for the year ended December 31, 1994 includes a charge to operations of $10,800,000 representing a write-off of New Dimensions goodwill. The loss from discontinued operations for the year ended December 31, 1992 includes charges to operations of $8,664,000 representing an impairment of goodwill at December 31, 1992 and $8,500,000 representing increased reserves for markdowns allowances and inventory valuation. (B) The 1995 and 1994 extraordinary credits represent gains from net discharge of indebtedness under terms of a debt settlement agreements with banks. The 1993 extraordinary credit represents a gain from a net discharge of indebtedness due to the reorganization of Lori's former New Dimensions subsidiary. See Note 8 to the Company's consolidated financial statements. (C) As partial consideration for a debt settlement agreement, in December, 1994 the Lori's bank lender received all of the assets of the New Dimensions subsidiary. See Note 8 to the Company's consolidated financial statements. (D) Effective in 1993, the Company adopted a 52/53 week fiscal year ending the last Thursday of December . Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion supplements the information found in the financial statements and related notes: Changes in Business Arcar As discussed in Note 3 to the Company's consolidated financial statements, effective April 8, 1994, Bagcraft purchased the business assets, subject to buyer's assumption of certain liabilities, of Arcar, a manufacturer and distributor of waterbase inks, for consideration of $10,264,000 consisting of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The acquisition of Arcar was accounted for by the purchase method and, accordingly, the assets and liabilities of Arcar were included in ARTRA's financial statements at their estimated fair market value at the date of acquisition. Effective October 26, 1995, Bagcraft sold the business assets, subject to the buyer's assumption of certain liabilities, of Arcar for cash of approximately $20,300,000, resulting in a net gain of $8,483,000. The net proceeds, after extinguishment of certain Arcar debt obligations, of approximately $10,400,000, were used to reduce Bagcraft debt obligations. Lori/COMFORCE In September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business and recorded a provision of $1,000,000 for the estimated costs to complete the disposal of the fashion costume jewelry business. Effective October 17, 1995, Lori acquired one hundred percent of the capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc. for consideration of approximately $6.4 million, net of cash acquired, consisting of cash of approximately $5.6 million and 500,000 shares of Lori common stock issued as consideration for various fees and guarantees associated with the transaction. The cash consideration included net cash payments to the selling shareholders of approximately $5.2 million. The 500,000 shares of Lori common stock issued as consideration for the Global transaction included 150,000 shares issued to Peter R. Harvey, then a director of Lori and currently the president/director of ARTRA and 100,000 shares issued to ARTRA for their guarantee to the selling shareholder of the payment of the Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA are subject to approval by the issuer's shareholders. Global provides telecommunications and computer technical staffing services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. The acquisition of Global was funded principally by private placements of approximately 1,950,000 shares of Lori common stock at $3.00 per share (total proceeds of approximately $5,800,000) plus detachable warrants to purchase approximately 970,000 shares of Lori common stock at $3.375 per share that expire five years from the date of issue. In connection with the re-focus of its business, Lori changed its name to COMFORCE Corporation. Additionally, in conjunction with the Global acquisition, ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify COMFORCE in the event any future liabilities arise concerning pre-existing environmental matters and business related litigation. Effective July 4, 1995, Lori and ARTRA entered into employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. As additional compensation, the agreements provided for the issuance in aggregate of a 35% common stock interest in Lori. After the issuance of the Lori common shares, plus the effects of the issuance of Lori common shares sold by private placements and other Lori common shares issued in conjunction with the Global acquisition, ARTRA's common stock ownership interest in COMFORCE common stock was reduced to approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the equity method through the end of fiscal 1995. See Note 6 to the Company's consolidated financial statements for a further discussion of and the accounting treatment of the Company's investment in COMFORCE at December 28, 1995. As discussed below in the "Liquidity and Capital Resources" section, on August 18, 1994, as amended effective December 23, 1994, ARTRA, Lori's parent, Fill-Mor, Lori and Lori's operating subsidiaries entered into and agreement with Lori's bank lender to settle obligations due the bank under terms of the bank loan agreements of Lori and its discontinued fashion costume jewelry subsidiaries and Fill-Mor. Under terms of the amended settlement agreement, Lori's bank lender received all of the assets of New Dimensions and New Dimensions terminated operations effective December 27, 1994. In March, 1995, the remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain to Lori and Fill-Mor in 1995. Liquidity and Capital Resources Cash and Cash Equivalents and Working Capital Cash and cash equivalents increased $277,000 during the year ended December 28, 1995. Cash flows used by operating activities of $5,943,000 and cash flows used by financing activities of $14,419,000 exceeded cash flows from investing activities of $20,639,000. Cash flows used by operating activities were principally attributable to the Company's loss from operations, exclusive of the effect of a charge to operations of $6,430,000 representing an impairment of goodwill at COMFORCE's (formerly Lori) discontinued fashion costume jewelry operations and a compensation charge to continuing operations of $3,000,000 representing the issuance in aggregate of a 35% common stock interest in COMFORCE as additional consideration under employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. Cash flows used by financing activities were principally attributable to a net reduction of long-term debt with proceeds from the October 26, 1995 sale of Arcar. Cash flows from investing activities represent proceeds from the October 26, 1995 sale of Arcar. The Company's consolidated working capital deficiency decreased $34,107,000 to $26,365,000 during the year ended December 28, 1995. The decrease in working capital deficiency is principally attributable to the classification of borrowings under Bagcraft's credit agreement as long-term liabilities at December 28, 1995 due to a February 1, 1996 amendment that extended the maturity date of the agreement until September 30, 1997 (see Note 10 to the Company's consolidated financial statements.. At December 29, 1994, borrowings under Bagcraft's credit agreement were classified in the Company's consolidated balance sheet as currently payable. Status of Debt Agreements and Operating Plan At December 28, 1995 the Company's corporate entity was in default of provisions of certain of its credit agreements. Under certain debt agreements ARTRA is limited in the amounts it can withdraw from its Bagcraft operating subsidiary. In February, 1996, a bank lender agreed to discharge amounts due under bank notes of the corporate entity ($12,063,000 plus accrued interest) and certain obligations of the Company's president, Peter R. Harvey. Effective February 1, 1996, Bagcraft's credit agreement was extended until September 30, 1997. See Notes 9 and 10 to the Company's consolidated financial statements and discussion below. Effective August 18, 1994, as amended effective December 23, 1994, ARTRA, Fill-Mor, Lori and Lori's operating subsidiaries entered into an agreement with Lori's bank lender to settle obligations due the bank under terms of the bank loan agreements of Lori and its operating subsidiaries and Fill-Mor. See Note 8 to the consolidated financial statements and discussion below. ARTRA Corporate At December 31, 1993, $17,063,000 in ARTRA notes, plus related loan fees and accrued interest were payable to a bank. The notes provided for interest at the prime rate. These bank notes were collateralized by, among other things, 100% of the common stock of ARTRA's BCA Holdings, Inc. ("BCA") subsidiary, the parent of Bagcraft, and a secondary position on the assets of BCA, payments due under a noncompetition agreement with the Company's former Welch subsidiary and by a subordinated note in the principal amount of $2,500,000 received by ARTRA as part of the proceeds from the sale of Welch. See note 9 to the Company's consolidated financial statements for a further discussion of these bank notes. On March 31, 1994, ARTRA entered into a series of agreements with its primary bank lender and with a private corporation that had guaranteed $2,500,000 of ARTRA's bank notes. Per terms of the agreements, the private corporation purchased $2,500,000 in ARTRA notes from ARTRA's bank thereby reducing the outstanding principal on ARTRA's bank notes to $12,063,000 at March 31, 1994 and the bank released the private corporation from its $2,500,000 loan guaranty. As consideration for purchasing $2,500,000 of ARTRA bank notes, the private corporation received a $2,500,000 note payable from ARTRA bearing interest at the prime rate. See Note 9 to the Company's consolidated financial statements for further discussion of this transaction and additional consideration received by the private corporation. A major shareholder and executive officer of the private corporation is an ARTRA director. As additional consideration, the private corporation has received an option to put back to ARTRA the 49,980 shares of ARTRA common stock received as compensation for its former $2,500,000 ARTRA loan guaranty at a price of $15.00 per share. The put option is exercisable on the later of the day that the $2,500,000 note payable to the private corporation becomes due or the date the ARTRA bank notes have been paid in full. The option price increases by $2.25 per share annually ($18.938 per share at December 28, 1995). The $2,500,000 note payable to the private corporation is reflected in the Company's consolidated financial statements as amounts due to related parties. During the first quarter of 1996, the $2,500,000 note and related accrued interest was paid in full principally with proceeds from additional short-term borrowings. In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the former Welch subsidiary under terms of a noncompetition agreement and a subordinated note in the principal amount of $2,500,000 received by ARTRA as part of the proceeds from the 1989 sale of Welch. Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a subordinated note in the principal amount of $640,000 payable June 30, 2001. The cash proceeds were used for a $2,500,000 reduction of amounts due on certain ARTRA bank notes, with the remainder used for working capital. In conjunction with this transaction, ARTRA entered into a letter agreement with the bank whereby the bank agreed not to exercise any of its rights and remedies with respect to amounts due the bank under its ARTRA notes and certain obligations of ARTRA's president, Peter R. Harvey through at least September 28, 1995. In February 1996, the bank agreed to discharge all amounts under its ARTRA notes ($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for consideration of $6,000,000, consisting of a cash payment of $5,150,000 and Mr. Harvey's $850,000 note payable to the bank. ARTRA will recognize a gain on the discharge of its bank indebtedness of approximately $10,000,000 in the first quarter of 1996 and will record a receivable for Mr. Harvey's prorata share of the debt discharge funded by the Company. As collateral for this advance and other previous advances (see note 21 to the Company's consolidated financial statements), Mr. Harvey provided ARTRA a $2,150,000 security interest in certain real estate. In conjunction with the February 1996 discharge of indebtedness, the Company entered into a $1,900,000 short-term loan agreement with an unaffiliated company. The loan, due May 26, 1996, with interest at 12% is collateralized by, among other things, the common stock of ARTRA's BCA subsidiary. As additional compensation for the loan and for participating in the above discharge of indebtedness, the lender has received, to-date, 150,000 shares of ARTRA common stock and 37,500 shares of COMFORCE common stock held by ARTRA. Additionally, for a cash payment of $500,000 to ARTRA, the lender purchased an option to acquire up to 40% of the common stock of Bagcraft for nominal consideration. If the borrowings under the loan agreement are repaid by May 26, 1996, ARTRA can repurchase the option for a cash payment of $550,000. If the borrowings under the loan agreement are repaid subsequent to May 26, 1996, the percentage of the warrant ARTRA can repurchase declines on a sliding scale through July 25, 1996. The proceeds from this loan agreement along with proceeds received from the Bagcraft subsidiary as consideration for the issuance of BCA preferred stock were used to fund the cash payment to the bank for the above discharge of indebtedness. Effective May 14, 1991, ARTRA, through its wholly-owned Fill-Mor subsidiary, entered into a loan agreement with a bank providing for borrowings of up to $2,500,000 with interest at the prime rate plus 2%, of which $2,200,000 was outstanding at December 29, 1994. The loan was collateralized by ARTRA's interest in Lori common stock and preferred stock, by the proceeds of a tax sharing agreement between ARTRA and its Bagcraft subsidiary and by ARTRA's interest in Fill-Mor's common stock. At December 29, 1994, borrowings on this note were reclassified as amounts due under the debt restructuring agreement discussed in Note 8. In March, 1995, borrowings due under this loan agreement were discharged. At December 29, 1994 an ARTRA bank note with outstanding borrowings of $3,600,000 had been past due since December 31, 1990. In October, 1995 the bank agreed to discharge the $3,600,000 note plus accrued interest of $1,467,000 for a cash payment of $150,000, resulting in an extraordinary gain of $4,917,000 in the fourth quarter of 1995. An ARTRA bank note with outstanding borrowings of $345,000 at December 29, 1994 was guaranteed by a private company. Interest on the note was at the prime rate plus 2%. In October, 1995 all amounts due on this bank note were paid in full. In December 1995, ARTRA completed a private placement of $2,500,000 of 12% convertible subordinated promissory notes due March 21, 1996. As additional consideration the noteholders received 15,000 ARTRA common shares per each $100,000 of notes issued, or an aggregate of 375,000 ARTRA common shares. The ARTRA common shares were valued at $1,266,000 ($3.375 per share) based upon the closing market value of ARTRA common stock on the date of issue, discounted for restricted marketability. In the event the notes and all accrued interest is not paid in full at maturity, the noteholders have the option to convert all or a portion of the amount due into shares of ARTRA common at a conversion price of $3.00 per share. The proceeds from the private placement, held in escrow at December 28, 19995, were used to pay down other debt obligations in January, 1996. The notes were repaid in April, 1995, substantially with proceeds from a new private placement of ARTRA notes. As discussed in Note 21 to the Company's consolidated financial statements, ARTRA has total advances due from its president, Peter R. Harvey, of which $5,369,000 and $4,715,000, including accrued interest, remained outstanding at December 28, 1995 and December 29, 1994, respectively. The advances bear interest at the prime rate plus 2% (10.5% at December 28, 1995 and December 29, 1994). This receivable from Peter R. Harvey has been classified as a reduction of common shareholders' equity. In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R. Harvey. The advances provided for interest at the prime rate plus 2%. At March 30, 1995 and December 29, 1994, advances of $1,540,000 and $1,510,000, respectively, including accrued interest, were outstanding. In April, 1995, these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey were transferred to ARTRA as a dividend. Commencing January 1, 1993 to date, interest on all advances to Peter R. Harvey has been accrued and fully reserved. Peter R. Harvey has not received other than nominal compensation for his services as an officer or director of ARTRA or any of its subsidiaries since October of 1990. Additionally, Mr. Harvey has agreed not to accept any compensation for his services as an officer or director of ARTRA or any of its subsidiaries until his obligations to ARTRA, described above, are fully satisfied. Under Pennsylvania Business Corporation Law of 1988, ARTRA (a Pennsylvania corporation) is permitted to make loans to officers and directors. Further, under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is permitted to make loans to an officer (including any officer who is also a director, as in the case of Peter R. Harvey), whenever, in the judgment of the directors, the loan can reasonably be expected to benefit Fill-Mor. At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did not act on a proposal to ratify the advances made by ARTRA to Peter R. Harvey. The 1992 advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of Directors. In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of Directors of Fill-Mor approved the borrowing of funds from Fill-Mor's bank loan agreement, a condition of which was the application of a portion of the proceeds thereof to the payment of certain of Mr. Harvey's loan obligations to the bank. However, the resolutions did not acknowledge the use of such proceeds for this purpose and the formal loan documents with the bank did not set forth this condition (though in fact, the proceeds were so applied by the bank). As partial collateral for amounts due from Peter R. Harvey, the Company has received the pledge of 1,523 shares of ARTRA redeemable preferred stock (with a liquidation value of $1,523,000, plus accrued dividends) which are owned by Mr. Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial Communication Company (a private company). Such interest is valued by Mr. Harvey at $800,000 to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting of 42,067 shares of ARTRA common stock and 707,281 shares of Puretech International, Inc., a publicly traded corporation. As additional collateral for the above mentioned advances and a 1996 advance for Mr. Harvey's prorata of certain bank debt discharged, Mr. Harvey provided ARTRA a $2,150,000 security interest in certain real estate. ARTRA has entered into various agreements under which it has sold its common shares along with options that require ARTRA to repurchase these shares at the option of the holder, principally one year after the date of each agreement. At December 28, 1995, options are outstanding that, if exercised, would require ARTRA to repurchase 283,965 shares of its common stock for an aggregate amount of approximately $4,774,000. ARTRA does not have available funds to satisfy its obligations if these options were exercised. However the holders of redeemable common stock have the option to sell their shares in the market subject to the limitations of Securities Act Rule 144. At its discretion and subject to its financial ability, ARTRA could reimburse the optionholders for any short-fall resulting from such sale. As discussed in Note 12 to the consolidated financial statements, ARTRA, Bagcraft and Bagcraft's parent BCA have various redeemable preferred stock issues with an aggregate carrying value of $18,631,000 outstanding at December 28, 1995. These redeemable preferred stock issues have various maturity dates commencing in 1997. Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to exchange certain preferred stock between the Companies. In connection with the agreement, BCA issued to Bagcraft 8,135 shares of BCA Series B preferred stock (with a liquidation preference equal to $1,000 per share) for cash of $4,135,000. Bagcraft in turn exchanged the BCA Series B preferred stock for Bagcraft redeemable preferred stock (82.7% of 50,000 shares, or 41,350 shares) held by Ozite. Funds for the transaction were obtained by Bagcraft through an advance under its revolving credit loan (see Note 10 to the Company's consolidated financial statements). BCA then upstreamed the proceeds to ARTRA for working capital purposes. As a result of the preferred stock exchange agreement, 17.3% of the original Bagcraft redeemable preferred stock and the prorata share of dividends remain outstanding February 1, 1996. Dividends related to the Bagcraft redeemable preferred stock exchanged have been forgiven in accordance with the agreement. The dividend forgiveness will be reflected in the Company's consolidated financial statements in the first quarter of 1996. The Company has suffered recurring losses from operations and has a net capital deficiency. As a result of these factors, the Company has experienced difficulty in obtaining adequate financing to replace certain current credit arrangements, certain of which are in default, to fund its debt service and liquidity requirements in 1995. Due to its limited ability to receive operating funds from its operating subsidiaries, ARTRA historically has met its operating expenditures with funds generated by such alternative sources as private placements of ARTRA common stock and notes, sales of ARTRA common stock with put options, loans from officers/directors and private investors, as well as through sales of assets and/or other equity infusions. ARTRA plans to continue to seek such alternative sources of funds to meet its future operating expenditures. ARTRA does not currently have available funds to repay amounts due under various loan arrangements, principally with private investors, some of which are currently past due. ARTRA is currently negotiating with certain investors to issue a private placement of ARTRA notes, with the proceeds to be used to pay down outstanding debt obligations. ARTRA will continue to have significant levels of indebtedness in the future. The level of indebtedness may affect the rate at which or the ability of ARTRA to effectuate the refinancing or restructuring of debt. ARTRA intends to continue to negotiate with its creditors to extend due dates to allow ARTRA to maximize value from possible sale of assets and to explore various other sources of funding to meet its future operating expenditures. If ARTRA is unable to negotiate extensions with its creditors and complete the above mentioned transactions, ARTRA could suffer severe adverse consequences, and as a result, ARTRA may be forced to liquidate its assets or file for protection under the Bankruptcy Code. ARTRA's corporate entity has no material commitments for capital expenditures. Bagcraft Effective December 17, 1993, Bagcraft refinanced its bank debt by entering into a Credit Agreement that provides for a revolving credit loan and two separate term loans. The term loans were separate two-year facilities initially totaling $12,000,000 (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the lender's index rate plus 1.75% and 3%, respectively. The principal under Term Loan A is payable at maturity, unless accelerated under terms of the Credit Agreement. The principal under Term Loan B ($4,600,000 and $5,000,000 outstanding at December 28, 1995 and December 29, 1994, respectively) was scheduled to be payable in twenty-four monthly installments of $250,000 from January 1, 1994 to December 1, 1995, with the remaining principal balance payable at maturity, unless accelerated under terms of the Credit Agreement. At December 28, 1995, interest rates on Term Loan A and Term Loan B were 10.25% and 11.5% respectively. The amount available to Bagcraft under the revolving credit loan is subject to a borrowing base, as defined in the agreement, up to a maximum of $18,000,000. At December 28, 1995 and December 29, 1994, approximately $6,600,000 and $800,000, respectively, was available and unused by Bagcraft under the revolving credit loan. Borrowings under the revolving credit loan bear interest at the lender's index rate plus 1.5% and are payable upon maturity of the Credit Agreement, unless accelerated under terms of the Credit Agreement. At December 28, 1995 the interest rate on the revolving credit loan was 10%. Borrowings under the Credit Agreement are collateralized by substantially all of the assets of Bagcraft. The Credit Agreement, as amended, contains various restrictive covenants, that among other restrictions, require Bagcraft to maintain minimum levels of tangible net worth and liquidity levels, and limits capital expenditures and restricts additional loans, dividend payments and payments to related parties. In addition, the Credit Agreement prohibits changes in ownership of Bagcraft. In October, 1995 the Credit Agreement was amended whereby, among other things, the maturity date of the Credit Agreement was extended until March 31, 1996, certain loan covenant violations were resolved and the principal payments under Term Loan B were modified to include five monthly installments of $200,000 from November 15, 1995 to March 31, 1996, with the remaining balance payable at maturity (March 31, 1996) . Effective February 1, 1996, the Credit Agreement was amended whereby, among other things, the maturity date of the Credit Agreement was extended until September 30, 1997, certain loan covenants were amended. The principal payments under Term Loan B were modified to include twenty-three monthly installments of $200,000 from November 15, 1995 to September 30, 1997, with the remaining balance payable at maturity (September 30, 1997) . Additionally, the lender consented to the use of $4,135,000 advance under the revolving credit loan to fund a preferred stock exchange agreement between BCA (the parent of Bagcraft), Bagcraft and the holder of Bagcraft's 13.5% cumulative, redeemable preferred stock (see Note 12). As additional compensation for borrowings under the Credit Agreement, the lender received a detachable warrant, expiring in December 1998, with a put option to purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal value. Under certain conditions Bagcraft is required to repurchase the warrant from the lender. The determination of the repurchase price of the warrant is to be based on the warrant's pro rata share of the highest of book value, appraised value or market value of Bagcraft. In connection with the February 1, 1996 amendment to the Credit Agreement, the warrant agreement was amended to permit the holder to purchase 13% of the fully diluted common equity of Bagcraft at the original nominal purchase price. In March, 1994 Bagcraft and the City of Baxter Springs, Kansas completed a $12,500,000 financing package associated with the construction of a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The financing package, funded by a combination of Federal, state and local funds, consists of the following loan agreements payable by Bagcraft directly to the City of Baxter Springs: A $7,000,000 promissory note payable in ten installments of $700,000 due annually on July 21 of each year beginning in 1995 through maturity on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is payable semi-annually. At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $6,300,000 and $7,000,000, respectively, under this loan agreement. A $5,000,000 subordinated promissory note payable as follows: $150,000 due in 1996; $2,425,000 due in 1998; and $2,425,000 due in 1999. The subordinated promissory note is non-interest bearing, subject to certain repayment provisions as defined in the agreement (as amended). At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $5,000,000 and $4,810,000, respectively, under this loan agreement. Two separate $250,000 subordinated promissory notes payable in varying installments through January 20, 2025. The subordinated promissory notes are non-interest bearing, subject to certain repayment provisions as defined in the agreement. At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $493,000 and $500,000, respectively, under this loan agreement. Borrowings under the above loan agreements are collateralized by a first lien on the land and building at the Baxter Springs, Kansas production facility and by a second lien on certain machinery and equipment. Under certain circumstances, repayment of the borrowings under the above loan agreements is subordinated to the repayment of obligations under Bagcraft's Credit Agreement. At December 28, 1995 $552,000 of borrowings from the above loan agreements is reflected in the consolidated balance sheet in current assets as restricted cash and equivalents. These funds, invested in interest bearing cash equivalents, are restricted for expenditures associated with the Baxter Springs, Kansas project. The new Kansas facility replaced Bagcraft's production facility in Joplin, Missouri. Additionally, with the completion of the new Kansas facility, Bagcraft converted the manufacturing facility in Forest Park, Georgia into a distribution facility. The former Carteret, New Jersey facility was sold in December, 1994 and the proceeds of approximately $1,700,000 were used to reduce borrowings under Bagcraft's Credit Agreement. On April 8, 1994, Bagcraft completed the acquisition of Arcar for consideration consisting of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000 ($5,500,000 and $8,000,000 outstanding at September 28, 1995 and December 29, 1994, respectively). The subordinated promissory notes provided for interest payable quarterly at the prime rate (as defined in the agreement). At September 28, 1995, the remaining outstanding promissory notes were scheduled to mature as follows: $2,500,000 payable March 15, 1996; $2,500,000 payable March 15, 1997; $500,000 payable March 15, 1998. The seller also received a warrant to purchase 177,778 ARTRA common shares at a price of $5.625 per share, the market value at the date of grant. Exercise of the warrant was payable only through a reduction of the subordinated promissory notes and accrued interest due the seller under terms of the purchase agreement. The subordinated promissory notes were paid in full in October, 1995 with proceeds from the sale of Arcar (see Note 3 to the Company's consolidated financial statements). Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the "Agreement") with a bank that provided for a revolving credit loan and a term loan. The term loan, in the original principal amount of $2,750,000, provided for interest at the prime rate plus .75%. Borrowings under the Agreement were collateralized by substantially all of the assets of Arcar. The Agreement contained various restrictive covenants, that among other restrictions, require Arcar to maintain minimum levels of net worth and liquidity levels and limit additional loans, dividend payments, capital expenditures and payments to related parties. All borrowings under the Agreement were paid in full in October, 1995 with proceeds of the sale of Arcar (see Note 3 to the Company's consolidated financial statements). Bagcraft has historically funded its capital requirements with cash flow from operations and funds available under its revolving credit loan. These sources should provide sufficient cash flow to fund Bagcraft's short-term capital requirements. As discussed above, it is anticipated that Bagcraft's recently amended Credit Agreement will provide Bagcraft with the ability to fund its long-term capital requirements. Bagcraft anticipates that its 1996 capital expenditures, principally for manufacturing equipment, will be approximately $2,500,000 and will be funded principally from the above mentioned credit facilities and also from operations. COMFORCE/Lori In September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business and recorded a provision of $1,000,000 for the estimated costs to complete the disposal of the fashion costume jewelry business. Effective October 17, 1995, September 11, 1995, Lori acquired one hundred percent of the capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc. for consideration of approximately $6.4 million, net of cash acquired, consisting of cash of approximately $5.6 million and 500,000 shares of Lori common stock issued as consideration for various fees and guarantees associated with the transaction. The cash consideration included net cash payments to the selling shareholders of approximately $5.2 million. The 500,000 shares of Lori common stock issued as consideration for the Global transaction included 150,000 shares issued to Peter R. Harvey, then a director of Lori and currently the president/director of ARTRA and 100,000 shares issued to ARTRA for their guarantee to the selling shareholder of the payment of the Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA are subject to approval by the COMFORCE's shareholders. Global provides telecommunications and computer technical staffing services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. The acquisition of Global was funded principally by private placements of approximately 1,950,000 shares of Lori common stock at $3.00 per share (total proceeds of approximately $5,800,000) plus detachable warrants to purchase approximately 970,000 shares of Lori common stock at $3.375 per share that expire five years from the date of issue. In connection with the re-focus of its business, Lori changed its name to COMFORCE Corporation. Effective July 4, 1995, Lori and ARTRA entered into employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. As additional compensation, the agreements provided for the issuance in aggregate of a 35% common stock interest in Lori. After the issuance of the Lori common shares, plus the effects of the issuance of Lori common shares sold by private placements and other common shares issued in conjunction with the Global acquisition, ARTRA's common stock ownership interest in COMFORCE common stock was reduced to approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from the ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the equity method through the end of fiscal 1995. See Note 6 to the Company's consolidated financial statements for a further discussion of and the accounting treatment of the Company's investment in COMFORCE at December 28, 1995. In conjunction with the Global acquisition, ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify COMFORCE in the event any future liabilities arise concerning pre-existing environmental matters and business related litigation. Accordingly, ARTRA has accrued $4,500,000 of Lori liabilities classified in its consolidated balance at December 28, 1995 as current liabilities of discontinued operations. Lori Debt Restructuring Effective August 18, 1994, as amended December 23, 1994, ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry subsidiaries, (including the New Dimensions Accessories, Ltd., ("New Dimensions") subsidiary, which terminated operations effective December 27, 1994) entered into an agreement with Lori's bank lender to settle obligations due the bank under terms of the bank loan agreements of Lori and its fashion costume jewelry subsidiaries and Fill-Mor. Borrowings due the bank (approximately $25,000,000 as of December 23, 1994), plus amounts due the bank for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions of the debt settlement agreement in 1995, as discussed below, the balance of this indebtedness was discharged. In conjunction with the debt settlement agreement, ARTRA entered into a $1,850,000 short-term loan agreement with a non-affiliated corporation, the proceeds of which were used to fund amounts due the bank as discussed below. The loan, due June 30, 1995, with interest payable monthly at 10%, was collateralized by 100,000 shares of Lori common stock. These 100,000 Lori common shares were originally issued to the bank under terms of the August 18, 1994 Settlement Agreement. In August, 1995 the loan was extended until September 15, 1995 and the lender received the above mentioned 100,000 Lori common shares as consideration for the loan extension. The loan was repaid by ARTRA in February, 1996. The Company recognized an extraordinary gain of $8,965,000 ($1.57 per share) in December 1994 as a result of the reduction of amounts due the bank under the loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23, 1994. On March 31, 1995 the bank was paid $750,000 and the remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The $750,000 payment was funded with the proceeds of a $850,000 short-term loan from a former director of Lori. As consideration for assisting in the debt restructuring, the former director received 150,000 shares of the Lori common stock valued at $337,500 ($2.25 per share) based upon Lori's closing market value on March 30, 1995. The common stock and virtually all the assets of the Company and its Bagcraft subsidiary have been pledged as collateral for borrowings under various loan agreements. Under certain debt agreements the Company is limited in the amounts it can withdraw from its operating subsidiaries. At December 28, 1995 substantially all cash and equivalents on the Company's consolidated balance sheet were restricted to use by and for the Company's operating subsidiaries. Litigation The Company and its subsidiaries are the defendants in various business-related litigation and environmental matters. See Note 20 to the Company's consolidated financial statements. At December 28, 1995 and December 29, 1994, the Company had accrued $1,800,000 and $1,500,000 respectively, for potential business-related litigation and environmental liabilities. However, as discussed above ARTRA may not have available funds to pay liabilities arising out of these business-related litigation and environmental matters or, in certain instances, to provide for its legal defense. ARTRA could suffer severe adverse consequences in the event of an unfavorable judgment in any of these matters. Net Operating Loss Carryforwards At December 28, 1995, ARTRA had Federal income tax loss carryforwards of approximately $33,000,000 expiring principally in 2003 - 2010. Additionally, ARTRA's discontinued Ultrasonix and Ratex subsidiaries had Federal income tax loss carryforwards of approximately $11,000,000 available to be applied against future taxable income, if any. In recent years, the Company has issued shares of its common stock to repay various debt obligations, as consideration for acquisitions, to fund working capital obligations and as consideration for various other transactions. Section 382 of the Internal Revenue Code of 1986 limits a corporation's utilization of its Federal income tax loss carryforwards when certain changes in the ownership of a corporation's common stock occurs. In the opinion of management, the Company is not currently subject to such limitations regarding the utilization of its Federal income tax loss carryforwards. Should the Company continue to issue a significant number of shares of its common stock, it could trigger a limitation that would prevent it from utilizing a substantial portion of its Federal income tax loss carryforwards. Results of Operations On July 31, 1995, ARTRA and Bagcraft, entered into a letter of intent to sell the business assets, subject to the buyer's assumption of certain liabilities, of Arcar. On October 26, 1995, Bagcraft completed the sale of Arcar. In September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business and recorded a provision of $1,000,000 for the estimated costs to complete the disposal of the fashion costume jewelry business. The Company's consolidated financial statements have been reclassified to report separately the results of operations of Arcar and COMFORCE's (formerly Lori) discontinued fashion costume jewelry business prior to the deconsolidation of COMFORCE and its majority-owned subsidiaries effective October 1995. The following discussion of results of operations is presented for the Company's continuing operations at December 28, 1995, which were conducted by the Company's wholly-owned Bagcraft subsidiary. The Company's Bagcraft subsidiary sells all of its products directly to its customers. On a very limited basis certain customers may be offered extended payment terms beyond 30 days depending upon prevailing trade practices and financial strength. 1995 vs 1994 Net sales from continuing operations of $121,879,000 for the year ended December 28, 1995 were $10,042,000, or 9.0%, higher than net sales from continuing operations for the year ended December 29, 1994. The 1995 sales increase is attributable to increased 1995 selling prices due to the significant increases in paper costs in the second half of 1994 and early 1995 and to an improved sales mix in 1995. The Company's cost of sales from continuing operations of $102,508,000 for year ended December 28, 1995 increased $7,742,000 as compared to year ended December 29, 1994. Cost of sales from continuing operations in the year ended December 28, 1995 was 84.1% of net sales compared to a cost of sales percentage of 84.7% for the year ended December 29, 1994. The increase in cost of sales is primarily attributable to the significant increases in paper costs in the second half of 1994 and early 1995. The decrease in cost of sales percentage is primarily attributable to the Company's ability to pass along the significant increases in paper costs and to improved production efficiencies in 1995. Selling, general and administrative expenses from continuing operations were $19,131,000 in the year ended December 28, 1995 as compared to $16,760,000 in the year ended December 29, 1994. Selling, general and administrative expenses were 15.7% of net sales in the year ended December 28, 1995 as compared to 15.0% of net sales in the year ended December 29, 1994. The 1995 increase in selling, general and administrative expenses is primarily attributable to a compensation charge of $3,000,000 related to the issuance of a 35% common stock interest in COMFORCE/Lori as additional compensation for certain individuals to enter into employment or consulting services agreements to manage its entry into and development of the telecommunications and computer technical staffing services business. In recent years, Bagcraft has experienced a decline in its domestic microwave popcorn business due to the acquisition of one of its major customers by a company with its own packaging ability. Accordingly, at December 31, 1995, Bagcraft incurred a charge to operations of $1,503,000 to write-down the carrying value of idle machinery and equipment dedicated to the production of microwave popcorn products. Operating loss from continuing operations in the year ended December 28, 1995 was $5,593,000 as compared to operating loss of $4,026,000 in the year ended December 29, 1994. The increased operating loss is primarily attributable to a compensation charge of $3,000,000 related to the issuance of a 35% common stock interest in COMFORCE/Lori as additional compensation for certain individuals to enter into employment or consulting services agreements to manage its entry into and development of the telecommunications and computer technical staffing services business and a charge to operations of $1,503,000 to write-down the carrying value of idle machinery and equipment dedicated to the production of microwave popcorn products, partially offset by improved operating margins of the Bagcraft subsidiary. Interest expense from continuing operations in the year ended December 28, 1995 increased $1,164,000 as compared to the year ended December 29, 1994. The 1995 increase is principally due to the cost of ARTRA common stock issued as additional compensation for the December 1995 private placement of ARTRA short-term notes. Due to the Company's tax loss carryforwards and the uncertainty of future taxable income, no income tax benefit was recognized in connection with the Company's 1995 and 1994 pre-tax losses. The 1995 extraordinary credit represents a net gain from discharge of bank indebtedness. 1994 vs 1993 Net sales from continuing operations of $111,837,000 for the year ended December 29, 1994 were $1,747,000, or 1.5%, lower than net sales from continuing operations for the year ended December 30, 1993. The 1994 net sales decrease is primarily attributable to the sale of Bagcraft's Roll Press division, which was completed in the second quarter of 1993. The Company's cost of sales from continuing operations of $94,766,000 for year ended December 29, 1994 increased $1,305,000 as compared to year ended December 30, 1993. Cost of sales from continuing operations in the year ended December 28, 1995 was 84.7% of net sales compared to a cost of sales percentage of 82.3% for the year ended December 30, 1993. The increase in the packaging segment cost of sales and cost of sales percentage is primarily attributable to unforeseen delays in the completion of and higher than anticipated start-up costs of the Baxter Springs, Kansas production facility and higher raw material costs in the second half of 1994, partially offset by a more favorable product mix. Selling, general and administrative expenses from continuing operations were $16,760,000 in the year ended December 29, 1994 as compared to $15,537,000 in the year ended December 30, 1993. Selling, general and administrative expenses were 15.0% of net sales in the year ended December 29, 1994 as compared to 13.7% of net sales in the year ended December 30, 1993. The 1994 increase in selling, general and administrative expenses is primarily attributable to an increase in employee benefit costs and professional fees. In December, 1993 the Bagcraft subsidiary recorded a charge to operations of $1,175,000 representing equipment and inventory relocation costs and employee severance and outplacement costs relating to the construction of a new manufacturing facility in Baxter Springs, Kansas. Operating loss from continuing operations in the year ended December 29, 1994 was $4,026,000 as compared to operating loss of $974,000 in the year ended December 30, 1993. The increased operating loss is primarily attributable to unforeseen delays in the completion of and higher than anticipated start-up costs of the Baxter Springs, Kansas production facility. Interest expense from continuing operations in the year ended December 29, 1994 increased $2,067,000 as compared to the year ended December 30, 1993. The 1994 increase is principally due to an overall increase in borrowings due to the December, 1993 refinancing of Bagcraft's bank debt, an increase in the prime rate and fees incurred for short-term borrowings at the Corporate entity. The 1994 extraordinary credit represents a net gain from discharge of bank indebtedness under the loan agreements of Lori and its operating subsidiaries. The 1993 extraordinary credit represents a gain from a net discharge of indebtedness at Lori's New Dimensions subsidiary. No income tax expense is reflected in the Company's financial statements resulting from the extraordinary credit due to the utilization of tax loss carryforwards. Impact of Inflation and Changing Prices Inflation has become a less significant factor in our economy; however, to the extent permitted by competition, the Company generally passes increased costs to its customers by increasing sales prices over time. Recently Issued Accounting Pronouncements Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from the use or sale of the asset and its eventual disposition, to the carrying amount of the asset. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption will not have a material impact on its financial statements. Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock based compensation is not mandatory, the pronouncement requires companies that choose not to adopt the new fair value accounting, to disclose the pro-forma net income and earnings per share under the new method. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption will not have a material impact on its financial statements as the Company will not adopt the new fair value accounting, but instead comply with the disclosure requirements. Item 8. Financial Statements and Supplementary Data. Financial Statements and Schedules as listed on Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions The information required by Part III will be filed as an amendment to Form 10-K. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements as listed on Page F-1. 2. Financial Statement Schedules as listed on Page F-1. 3. Exhibits as listed on Page E-1. (b) Reports on Form 8-K. On November 8, 1995 the Company filed Form 8-K to report: 1) The October 26, 1995 sale of the business assets, subject to the buyers assumption of certain liabilities, of Bagcraft's Arcar Graphics subsidiary. 2) The settlement of certain debt obligations due a bank lender of approximately $5,000,000 for a cash payment of $150,000. On October 31, 1995 the Company filed Form 8-K to report: 1) The October 17, 1995 acquisition of COMFORCE Global Inc. by The Lori Corporation and the discontinuance of Lori's fashion costume jewelry business. 2) The reduction of the Company's common stock ownership interest in The Lori Corporation from 62.6% to approximately 25% due to the issuance Lori common shares principally to certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business and a private placement of Lori common shares to fund the acquisition of COMFORCE Global. On October 11, 1995 the Company filed Form 8-K to report: 1) On September 11, 1995, the Company's 62.6% owned subsidiary The Lori Corporation agreed to participate in the acquisition of COMFORCE Global Inc. 2) On July 11, 1995 The Company and its 62.6% owned subsidiary The Lori Corporation entered into agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARTRA GROUP INCORPORATED By: JOHN HARVEY ----------------------- John Harvey Chairman and Director Dated: April 9, 1996 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant, in the capacities and on the dates indicated. JOHN HARVEY Chairman and Director April 9, 1996 - ----------------------- John Harvey Chief Executive Officer PETER R. HARVEY President and Director April 9, 1996 - ----------------------- Peter R. Harvey Chief Operating Officer JAMES D. DOERING Vice President /Treasurer April 9, 1996 - ----------------------- James D. Doering Chief Financial Officer GERARD M. KENNY Director April 9, 1996 - ----------------------- Gerard M. Kenny LAWRENCE D. LEVIN Controller April 9, 1996 - ----------------------- Lawrence D. Levin INDEX TO FINANCIAL STATEMENTS Page ---- ARTRA GROUP INCORPORATED AND SUBSIDIARIES Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 28, 1995 and December 29, 1994 F-3 Consolidated Statements of Operations for each of the three fiscal years in the period ended December 28, 1995 F-5 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for each of the three fiscal years in the period ended December 28, 1995 F-6 Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 28, 1995 F-7 Notes to Consolidated Financial Statements F-9 Schedules: I. Condensed Financial Information of Registrant F-39 II. Valuation and Qualifying Accounts F-43 Schedules other than those listed are omitted as they are not applicable or required or equivalent information has been included in the financial statements or notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors ARTRA GROUP Incorporated Northfield, Illinois We have audited the consolidated financial statements and the financial statement schedules of ARTRA GROUP Incorporated and Subsidiaries as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of ARTRA GROUP Incorporated's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ARTRA GROUP Incorporated and Subsidiaries as of December 28, 1995 and December 29, 1994, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency. As a result of these factors, the Company has experienced difficulty in obtaining adequate financing to replace its current credit arrangements, certain of which are in default, to fund its debt service and to satisfy liquidity requirements for 1996. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. COOPERS & LYBRAND L.L.P. Chicago, Illinois April 9, 1996 ARTRA GROUP INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 28, December 29, 1995 1994 -------- -------- ASSETS Current assets: Cash and equivalents $2,347 $2,070 Restricted cash and equivalents 552 1,324 Receivables, less allowance for doubtful accounts and markdowns of $250 in 1995 and $1,654 in 1994 10,897 13,707 Inventories 16,634 20,268 Available -for-sale securities 1,427 - Other 324 1,148 -------- -------- Total current assets 32,181 38,517 -------- -------- Property, plant and equipment Land 930 930 Buildings 11,679 10,584 Improvements to land and leaseholds - 187 Machinery and equipment 30,547 33,756 Construction in in progress 1,117 2,693 -------- -------- 44,273 48,150 Less accumulated depreciation and amortization 17,335 17,110 -------- -------- 26,938 31,040 -------- -------- Other assets: Available -for-sale securities 15,519 - Excess of cost over net assets acquired, net of accumulated amortization of $2,022 in1995 and $7,934 in 1994 3,258 19,076 Other 53 4,796 -------- -------- 18,830 23,872 -------- -------- $77,949 $93,429 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. ARTRA GROUP INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 28, December 29, 1995 1994 -------- -------- LIABILITIES Current liabilities: Notes payable, including amounts due to related parties of $5,675 in 1995 and $5,669 in 1994 $25,300 $28,053 Current maturities of long-term debt 3,512 37,521 Accounts payable, including amounts due to a related party of $399 in 1995 10,925 16,788 Accrued expenses 14,106 16,533 Income taxes 203 94 Liabilities of discontinued operations 4,500 - -------- ------- Total current liabilities 58,546 98,989 -------- ------- Long-term debt 34,113 19,673 Debt subsequently discharged - 9,750 Other noncurrent liabilities 650 1,463 Commitments and contingencies Redeemable common stock, issued 283,965 shares in 1995 and 279,679 shares in 1994 4,774 4,144 ARTRA redeemable preferred stock payable to a related party, $1,000 par value; Series A, 6% cumulative payment-in-kind, including accumulated dividends, net of unamortized discount of $1,575 in 1995 and $1,842 in 1994; redeemable March 1, 2000 at $1,000 per share plus accrued dividends; authorized 2,000,000 shares all series; issued 3,750 shares 3,694 3,129 Bagcraft redeemable preferred stock payable to a related party, cumulative $.01 par value, 13.5%; including accumulated dividends; redeemable in 1997 with a liquidation preference equal to $100 per share; 50,000 shares authorized and issued 10,794 10,119 BCA Holdings preferred stock payable to a related party, $1.00 par value, Series A, 6% cumulative; including accumulated dividends; liquidation preference of $1,000 per share; 10,000 shares authorized; issued 3,675 shares 4,143 3,922 SHAREHOLDERS' EQUITY (DEFICIT) Common stock, no par value; authorized 7,500,000 shares; issued 7,102,979 shares in 1995 and 6,455,602 shares in 1994 5,540 5,052 Additional paid-in capital 38,526 36,613 Unrealized appreciation of investments 21,047 - Receivable from related party, including accrued interest (4,318) (4,100) Accumulated deficit (98,755) (94,520) -------- -------- (37,960) (56,955) Less treasury stock (57,038 shares), at cost 805 805 -------- -------- (38,765) (57,760) -------- -------- $77,949 $93,429 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. ARTRA GROUP INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Fiscal Year --------------------------------- 1995 1994* 1993* --------- -------- ---------- Net sales $121,879 $111,837 $113,584 --------- --------- --------- Costs and expenses: Cost of goods sold, exclusive of depreciation and amortization 102,508 94,766 93,461 Selling, general and administrative 19,131 16,760 15,537 Depreciation and amortization 4,330 4,337 4,385 Write-down of idle machinery and equipment 1,503 - - Restructuring costs - - 1,175 --------- --------- --------- 127,472 115,863 114,558 --------- --------- --------- Operating loss (5,593) (4,026) (974) --------- --------- --------- Other income (expense): Interest expense (9,782) (8,618) (6,551) Equity in loss of COMFORCE (533) - - Other income (expense), net (88) 13 (87) --------- --------- --------- (10,403) (8,605) (6,638) --------- --------- --------- Loss from continuing operations before income taxes and minority interest (15,996) (12,631) (7,612) Provision for income taxes (51) (9) (7) Minority interest (896) (889) (708) --------- --------- --------- Loss from continuing operations (16,943) (13,529) (8,327) Earnings (loss) from discontinued operations 10 (15,906) (216) --------- --------- --------- Loss before extraordinary credit (16,933) (29,435) (8,543) Extraordinary credit, net discharge of indebtedness 14,030 8,965 22,057 --------- --------- --------- Net earnings (loss) (2,903) (20,470) 13,514 Dividends applicable to redeemable preferred stock (565) (516) (471) Reduction of retained earnings applicable to redeemable common stock (767) (309) (243) --------- --------- --------- Earnings (loss) applicable to common shares ($4,235) ($21,295) $12,800 ========= ========= ========= Earnings (loss) per share: Continuing operations ($2.69) ($2.56) ($1.84) Discontinued operations - (2.74) (0.04) --------- --------- --------- Loss before extraordinary credit (2.69) (5.30) (1.88) Extraordinary credit 2.06 1.57 4.49 --------- --------- --------- Net earnings (loss) ($0.63) ($3.73) $2.61 ========= ========= ========= Weighted average number of shares of common stock and common stock equivalents outstanding 6,776 5,702 4,908 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. _______________________________________________ * As reclassified for discontinued operations. ARTRA GROUP INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (In thousands, except share data)
Unrealized Receivable Total Common Stock Additional Appreciation From Treasury Stock Shareholders' ----------------- Paid-in of Related Accumulated ---------------- Equity Shares Dollars Capital Investments Party (Deficit) Shares Dollars (Deficit) ---------- ------- ------- ------------ --------- ---------- ------- ------- -------- Balance at December 31, 1992 4,542,592 $3,587 $29,034 $(5,885) $(86,025) 57,038 $(805) $(60,094) Net earnings - - - - 13,514 - - 13,514 Redeemable common stock accretion - - - - (243) - - (243) Common stock issued to pay liabilities 292,996 224 1,412 - - - - 1,636 Exercise of stock options 74,700 56 294 - - - - 350 Net decrease in receivable from related party - - - 2,042 - - - 2,042 Redeemable preferred stock dividends - - - - (471) - - (471) Common stock issued as compensation 73,320 55 302 - - - - 357 --------- ------ -------- ------- ---------- ------- ------ -------- Balance at December 30, 1993 4,983,608 3,922 31,042 (3,843) (73,225) 57,038 (805) (42,909) Net loss - - - - (20,470) - - (20,470) Redeemable common stock accretion - - - - (309) - - (309) Common stock sold through private placements 855,000 641 2,484 - - - - 3,125 Common stock issued for Lori debt settlement agreement 400,000 300 2,200 - - - - 2,500 Common stock issued to pay liabilities 142,635 107 684 - - - - 791 Sale and reclassification of redeemable common stock (34,266) - (282) - - - - (282) Common stock contributed to ESOP 65,000 49 292 - - - - 341 Exercise of stock options 25,300 19 116 - - - - 135 Net increase in receivable from related party - - - (257) - - - (257) Redeemable preferred stock dividends - - - - (516) - - (516) Common stock issued as compensation 18,325 14 77 - - - - 91 --------- ------ -------- ------- -------- ------- ------ -------- Balance at December 29, 1994 6,455,602 5,052 36,613 (4,100) (94,520) 57,038 (805) (57,760) Net loss - - - - (2,903) - - (2,903) Reclassification of redeemable common stock (100,000) - (500) - - - - (500) Common stock issued to pay liabilities 243,915 183 857 - - - - 1,040 Common stock as additional consideration for private placement of ARTRA notes 375,000 281 985 - - - - 1,266 Net increase in receivable from related party, including accrued interest - - - (218) - - - (218) Redeemable common stock put option exercised (8) 8 - - - - - - - Sale and reclassification of redeemable common stock 85,714 399 - 399 Unrealized appreciation of investments - - - $21,047 - - - - 21,047 Common stock contributed to ESOP 23,750 18 95 - - - - - 113 Exercise of stock options 12,100 9 39 - - - - - 48 Redeemable common stock accretion - - - - - (767) - - (767) Redeemable preferred stock dividends - - - - - (565) - - (565) Common stock issued as compensation 6,898 5 30 - - - - - 35 --------- ------ -------- ------- -------- --------- ------- ------ -------- Balance at December 28, 1995 7,102,979 $5,540 $38,526 $21,047 ($4,318) ($98,755) 57,038 ($805) ($38,765) ========= ====== ======== ======= ======== ========= ======= ====== ========
The accompanying notes are an integral part of the consolidated financial statements. ARTRA GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
Fiscal Year ----------------------------------- 1995 1994 1993 --------- ---------- -------- Cash flows from operating activities: Net earnings (loss) ($2,903) ($20,470) $13,514 Adjustments to reconcile net earnings (loss) to cash flows from operating activities: Extraordinary gain from net discharge of indebtedness (14,030) (8,965) (22,057) Gain on disposal of discontinued operations (8,183) - - Depreciation of property, plant and equipment 4,120 4,252 4,283 Amortization of excess of cost over net assets acquired 837 1,693 1,623 Impairment of goodwill 6,430 10,800 - Amortization of other assets 689 963 216 Inventory valuation reserve 290 - - Gain on sale of property, plant and equipment - (59) (284) Write-down of idle equipment and machinery 1,503 - - Equity in loss of COMFORCE 533 - - Minority interest 896 889 708 Contribution to ARTRA ESOP 42 77 423 Other, principally common issued as compensation 1,300 485 389 Changes in assets and liabilities, net of effects of businesses acquired and discontinued: Increase in receivables (184) (1,923) (348) (Increase) decrease in inventories 453 (727) 2,453 (Increase) decrease in other current and noncurrent assets 1,421 1,068 (1,031) Increase in payables and accrued expenses 611 4,675 804 Increase (decrease) in other current and noncurrent liabilities 450 (763) 170 (Increase) decrease in receivable from related party, including accrued interest (218) (257) 42 --------- ---------- -------- Net cash flows from (used by) operating activities (5,943) (8,262) 905 --------- ---------- -------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment - 2,251 1,401 Additions to property, plant and equipment (2,820) (11,881) (3,156) Retail fixtures (631) (665) (951) Acquisition of Arcar - (2,264) - Proceeds from sale of Arcar 20,318 - - Proceeds from collection of Welch notes 3,000 - - Decrease in restricted cash 772 - - Other - 101 - --------- ---------- -------- Net cash flows from (used by) investing activities 20,639 (12,458) (2,706) --------- ---------- --------
The accompanying notes are an integral part of the consolidated financial statements. ARTRA GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
Fiscal Year ----------------------------------- 1995 1994 1993 --------- --------- --------- Cash flows from financing activities: Net increase in short-term debt 5,488 1,920 54 Proceeds from long-term borrowings 136,756 116,775 123,743 Reduction of long-term debt 156,641) (100,131) (124,759) Proceeds from private placements of ARTRA common stock - 3,230 - Proceeds from exercise of stock options 48 30 129 Proceeds from sale of BCA Holdings preferred stock - - 3,000 Exercise of redeemable common stock put options - (50) - Other (70) (44) (187) -------- ---------- --------- Net cash flows from (used by) financing activities (14,419) 21,730 1,980 -------- ---------- --------- Increase in cash and cash equivalents 277 1,010 179 Cash and equivalents, beginning of year 2,070 1,060 881 ======== ========== ========= Cash and equivalents, end of year $2,347 $2,070 $1,060 ======== ========== ========= Supplemental cash flow information: Cash paid during the year for: Interest $5,847 $8,811 $7,333 Income taxes paid (refunded), net (15) 59 (108) Supplemental schedule of noncash investing and financing activities: Issue common stock and redeemable common stock to pay down current liabilities $1,040 $756 $1,636 Notes issued to sellers as consideration for Arcar acquisition - 8,000 - ARTRA common stock issued to Lori's bank lender as partial consideration for discharge of indebtedness - 2,500 - Transfer New Dimensions assets, net of cash of $674, to Lori's bank lender under terms of the debt settlement agreement - 6,475 - Debt refinanced - - 36,609
The accompanying notes are an integral part of the consolidated financial statements. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Financial Restructuring ARTRA Group Incorporated's ("ARTRA" or the "Company") consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities or other adjustments that might be necessary should ARTRA be unable to continue as a going concern. The Company has suffered recurring losses from operations and has a net capital deficiency. As a result of these factors, the Company has experienced difficulty in obtaining adequate financing to replace certain current credit arrangements, certain of which are in default, and to fund its debt service and liquidity requirements in 1996. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. See Note 9, Notes Payable, and Note 10, Long Term Debt, for further discussion of the status of credit arrangements and restrictions on the ability of operating subsidiaries to fund ARTRA corporate obligations. Due to its limited ability to receive operating funds from its operating subsidiaries, ARTRA has historically met its operating expenditures with funds generated by alternative sources, such as private placements of ARTRA common stock and notes, sales of ARTRA common stock with put options, loans from officers/directors and private investors, as well as through sales of assets and/or other equity infusions. ARTRA plans to continue to seek such alternative sources of funds to meet its future operating expenditures. ARTRA, through its wholly-owned subsidiary, Bagcraft Corporation of America ("Bagcraft"), currently operates in one industry segment as a manufacturer of packaging products principally serving the food industry. Prior to September 28, 1995, ARTRA's then 62.9% owned subsidiary, The Lori Corporation ("Lori"), operated as a designer and distributor of popular-priced fashion costume jewelry and accessories. In recent years, Lori's fashion costume jewelry operations had experienced a pattern of significantly lower sales levels and related operating losses primarily due to a shift in the buying patterns of its major customers (i.e. certain mass merchandisers) from participation in Lori's service program to purchases of costume jewelry and accessories directly from manufacturers and due to a continued unfavorable retail environment. Accordingly, in September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business as discussed in Note 3. As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase agreement to participate in the acquisition of one hundred percent of the capital stock of COMFORCE Global Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc. Global provides telecommunications and computer technical staffing and consulting services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. On October 17, 1995, Lori completed the acquisition of one hundred percent of the capital stock of Global. In connection with the re-focus of its business Lori changed its name to COMFORCE Corporation ("COMFORCE"). Effective July 4, 1995, Lori and ARTRA entered into employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. As additional compensation, the agreements provided for the issuance in aggregate of a 35% common stock interest in Lori. After the issuance of the Lori common shares, plus the effects of the issuance of Lori common shares sold by private placements and other Lori common shares issued in conjunction with the Global acquisition, ARTRA's common stock ownership interest in COMFORCE common stock was reduced to approximately 25% at December 28, 1995. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the equity method through the end of fiscal 1995. See Note 6 for a further discussion of ARTRA's investment in COMFORCE. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Effective October 26, 1995, Bagcraft completed the sale of the business assets, subject to the buyer's assumption of certain liabilities, of its wholly-owned subsidiary, Arcar Graphics, Inc. ("Arcar"), for cash of approximately $20,300,000. The net proceeds, after extinguishment of certain Arcar debt obligations, of approximately $10,400,000, were used to reduce Bagcraft debt obligations. In October, 1995 the Company recognized an extraordinary gain of $4,917,000 ($.71 per share) as a result of a settlement agreement with a bank whereby a $3,600,000 note payable due December 31, 1990 plus accrued interest of $1,467,000 were discharged for a cash payment of $150,000. As discussed in Note 8, the Company recognized an extraordinary gain of $9,113,000 ($1.35 per share) in March 1995 as a result of the discharge of amounts due a bank under the loan agreements of Lori and its parent, Fill-Mor Holding, Inc. ("Fill-Mor"). In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the former Welch Vacuum Technology ("Welch") subsidiary under terms of a noncompetition agreement and a subordinated note in the principal amount of $2,500,000 received by ARTRA as part of the proceeds from the 1989 sale of Welch. Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a subordinated note in the principal amount of $640,000 payable June 30, 2001. The cash proceeds were used for a $2,500,000 reduction of amounts due on certain ARTRA bank notes, with the remainder used for working capital. In conjunction with this transaction, ARTRA entered into a letter agreement with the bank whereby the bank agreed not to exercise any of its rights and remedies with respect to amounts due the bank under its ARTRA notes (see Note 9) and certain obligations of ARTRA's president, Peter R. Harvey. In February 1996, the bank agreed to discharge all amounts under its ARTRA notes ($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for a cash payment of $5,150,000 and Mr. Harvey's $850,000 note payable to the bank. ARTRA will recognize a gain on the discharge of this indebtedness of approximately $10,000,000 in the first quarter of 1996. The cash payment due the bank was funded principally with proceeds received from a short-term loan agreement along with proceeds received from the Bagcraft subsidiary as consideration for the issuance of BCA Holdings, Inc. ("BCA", the parent of Bagcraft) preferred stock, see Note 12. ARTRA intends to continue to negotiate with its creditors to extend due dates to allow ARTRA to maximize value from possible sale of assets and to explore various other sources of funding to meet its future operating expenditures. If ARTRA is unable to negotiate extensions with its creditors and complete the above mentioned transactions, ARTRA could suffer severe adverse consequences, and as a result, ARTRA may be forced to liquidate its assets or file for protection under the Bankruptcy Code. The Company has adopted a 52/53 week fiscal year ending the last Thursday of December. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Intercompany accounts and transactions are eliminated. B. Cash Equivalents Short-term investments with an initial maturity of less than ninety days are considered cash equivalents. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) C. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. D. Property, Plant and Equipment Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred and expenditures for major renovations are capitalized. Depreciation is computed on the basis of estimated useful lives principally by the straight line method for financial statement purposes and principally by accelerated methods for tax purposes. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the period covered by the lease. The costs of property retired or otherwise disposed of are applied against the related accumulated depreciation to the extent thereof, and any profit or loss on the disposition is recognized in earnings. E. Investments in Equity Securities In 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Under this statement, at December 28, 1995, the Company's investment in COMFORCE (see Note 6) is classified as available for sale and is stated at fair value. The adoption of SFAS No. 115 resulted in an increase to shareholders' equity in the fourth quarter of 1995 of $21,047,000. In prior years and, until October 1995, COMFORCE was a majority-owned subsidiary included in the consolidated financial statements of the Company. F. Intangible Assets The net assets of a purchased business are recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of net assets acquired (goodwill) is reflected as intangible assets and amortized on a straight-line basis principally over 40 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through forecasted future operations. G. Revenue Recognition Sales to customers are recorded at the time of shipment net of estimated markdowns and merchandise credits. H. Income Taxes Income taxes are accounted for as prescribed in Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes. Under the asset and liability method of Statement No. 109, the Company recognizes the amount of income taxes payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years those temporary differences are expected to recovered or settled. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) I. Use of Estimates In Preparation of Financial Statements The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. J. Recently Issued Accounting Pronouncements Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from the use or sale of the asset and its eventual disposition, to the carrying amount of the asset. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption will not have a material impact on its financial statements. Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock based compensation is not mandatory, the pronouncement requires companies that choose not to adopt the new fair value accounting, to disclose the pro-forma net income and earnings per share under the new method. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption will not have a material impact on its financial statements as the Company will not adopt the new fair value accounting, but instead comply with the disclosure requirements. 3. CHANGE OF BUSINESS Arcar Graphics, Inc. Effective April 8, 1994, Bagcraft purchased the business assets, subject to buyer's assumption of certain liabilities, of Arcar, a manufacturer and distributor of waterbase inks, for consideration of $10,264,000 consisting of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The acquisition of Arcar was accounted for by the purchase method and, accordingly, the assets and liabilities of Arcar were included in ARTRA's financial statements at their estimated fair market value at the date of acquisition. Effective October 26, 1995, Bagcraft sold the business assets, subject to the buyer's assumption of certain liabilities, of Arcar for cash of approximately $20,300,000, resulting in a net gain of $8,483,000. The net proceeds, after extinguishment of certain Arcar debt obligations, of approximately $10,400,000, were used to reduce Bagcraft debt obligations. At December 29, 1994, the total assets and liabilities of Arcar were approximately $13,157,000 and $11,914,000, respectively. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Lori/COMFORCE In September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business and recorded a provision of $1,000,000 for the estimated costs to complete the disposal of the fashion costume jewelry business. At December 29, 1994, the total assets and liabilities of Lori's discontinued fashion costume jewelry business were approximately $17,460,000 and $11,914,000, respectively. Effective October 17, 1995, Lori acquired one hundred percent of the capital stock of COMFORCE Global, Inc. ("Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc. for consideration of approximately $6.4 million, net of cash acquired, consisting of cash of approximately $5.6 million and 500,000 shares of Lori common stock issued as consideration for various fees and guarantees associated with the transaction. The cash consideration included net cash payments to the selling shareholders of approximately $5.2 million. The 500,000 shares of Lori common stock issued as consideration for the Global transaction included 150,000 shares issued to Peter R. Harvey, then a director of Lori and currently the president/director of ARTRA and 100,000 shares issued to ARTRA for their guarantee to the selling shareholder of the payment of the Global purchase price at closing. The shares issued to Peter R. Harvey and ARTRA are subject to approval by the issuer's shareholders. Global provides telecommunications and computer technical staffing services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. The acquisition of Global was funded principally by private placements of approximately 1,950,000 shares of Lori common stock at $3.00 per share (total proceeds of approximately $5,800,000) plus detachable warrants to purchase approximately 970,000 shares of Lori common stock at $3.375 per share that expire five years from the date of issue. In connection with the re-focus of its business, Lori changed its name to COMFORCE Corporation. Additionally, in conjunction with the Global acquisition, ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify COMFORCE in the event any future liabilities arise concerning pre-existing environmental matters and business related litigation. Accordingly, ARTRA has accrued $4,500,000 of Lori liabilities classified in its consolidated balance at December 28, 1995 as current liabilities of discontinued operations. Effective July 4, 1995, Lori and ARTRA entered into employment or consulting services agreements with certain individuals to manage Lori's entry into and development of the telecommunications and computer technical staffing services business. As additional compensation, the agreements provided for the issuance in aggregate of a 35% common stock interest in Lori. After the issuance of the Lori common shares, plus the effects of the issuance of Lori common shares sold by private placements and other Lori common shares issued in conjunction with the Global acquisition, ARTRA's common stock ownership interest in COMFORCE common stock was reduced to approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the equity method through the end of fiscal 1995. See Note 6 for a further discussion of and the accounting treatment of the Company's investment in COMFORCE at December 28, 1995. Other During 1995 the Company was dismissed as party to certain litigation relating to the former Welch subsidiary. Accordingly, the Company reversed $700,000 of excess liability accruals originally provided in 1989 to complete the disposal of Welch. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company's consolidated financial statements have been reclassified to report separately the results of operations of Arcar and COMFORCE's discontinued fashion costume jewelry business prior to the deconsolidation of Lori and its majority-owned subsidiaries effective October 1995. The 1995, 1994 and 1993 operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and COMFORCE's discontinued fashion costume jewelry business and net gain on disposal of discontinued operations consist of: 1995 1994 1993 -------- -------- --------- Net sales $ 16,932 $ 40,278 $ 46,054 ======== ======== ========= Loss from operations before income taxes $ (8,156) $(15,832) $ (183 Provision for income taxes (17) (74) (33) -------- -------- --------- Loss from operations (8,173) (15,906) (216) -------- -------- --------- Gain on sale of Arcar subsidiary 8,483 -- -- Provision for disposal of business (300) Provision for income taxes -- -- -- -------- -------- --------- Gain on disposal of businesses 8,183 -- -- -------- -------- --------- Earnings (loss) from discontinued operations $ 10 $(15,906) $ (216) ======== ======== ========= 4. CONCENTRATION OF RISK The accounts receivable of the Company's Bagcraft subsidiary at December 28, 1995 consist primarily of amounts due from companies in the food industry. As a result, the collectibility of these receivables is dependent, to an extent, upon the economic condition and financial stability of the food industry. Credit risk is minimized as a result of the large number and diverse nature of Bagcraft's customer base. Bagcraft's major customers include some of the largest companies in the food industry. At December 28, 1995, Bagcraft had 10 customers with accounts receivable balances that aggregated approximately 40% of the Company's total trade accounts receivable. No single customer accounted for 10% or more of Bagcraft's 1995 sales. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. INVENTORIES Inventories consist of: December 28, December 29, 1995 1994 -------- -------- (in thousands) Raw materials and supplies $ 5,645 $ 7,041 Work in process 40 877 Finished goods 10,949 12,350 -------- -------- $ 16,634 $ 20,268 ======== ======== 6. INVESTMENT IN COMFORCE (formerly LORI) CORPORATION As discussed in Note 3, due to the issuances of COMFORCE common shares in conjunction with the acquisition of Global, ARTRA's common stock ownership in COMFORCE was reduced to approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the requirements of APB Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock" through the end of fiscal 1995. Effective December 28, 1995, John Harvey and Peter R. Harvey, ARTRA's chairman and president, respectively, resigned as directors of COMFORCE. Due to such factors as a lack of board of directors representation and participation in policy formulation by ARTRA, as well as a lack of interchange of managerial personnel, ARTRA is not able to exercise significant influence over the operating and financial policies of COMFORCE. Additionally, assuming contemplated additional issuances of COMFORCE common shares, on a fully diluted basis ARTRA's ownership interest in COMFORCE will be reduced to less than 20%. In the opinion of the Company, effective December 28, 1995, the investment in COMFORCE ceased to conform to the requirements of APB Opinion No. 18. Accordingly, the Company adopted SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Under this statement, at December 28, 1995, the Company's investment in COMFORCE is classified as available for sale and is stated at fair value. The adoption of SFAS No. 115 resulted in an increase to shareholders' equity in the fourth quarter of 1995 of $21,047,000. In prior years and, until October 1995, COMFORCE was a majority-owned subsidiary included in the consolidated financial statements of the Company. In February 1996, ARTRA sold the 200,000 COMFORCE common shares it received in connection with Lori's acquisition of COMFORCE to certain officers, directors and key employees of ARTRA. As additional consideration for a February 1996 short-term loan (see Note 9) the lender has received to-date 37,500 COMFORCE common shares held by ARTRA. In March 1996, ARTRA sold 93,000 COMFORCE shares in the market, with the proceeds used for working capital. The above mentioned 330,500 COMFORCE shares were classified in the Company's consolidated balance sheet at December 28, 1995 in current assets as "Available-for-sale securities." ARTRA's remaining investment in COMFORCE (1,970,536 shares) was classified in the Company's consolidated balance sheet at December 28, 1995 in noncurrent assets as "Available-for-sale securities." ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. INVESTMENT IN EMERALD ACQUISITION CORPORATION / ENVIRODYNE INDUSTRIES, INC. In March, 1989, Envirodyne Industries, Inc. ("Envirodyne") and Emerald Acquisition Corporation ("Emerald") entered into a definitive agreement for a subsidiary of Emerald to acquire all of the issued and outstanding shares of Envirodyne common stock. Pursuant to the terms of certain letter agreements, ARTRA agreed to participate in the transaction and received Envirodyne's consent to sell its then 4,830,000 Envirodyne common shares (a 26.3% interest) to Emerald. On May 3, 1989 the transaction was consummated. ARTRA received consideration consisting of cash of $75,000,000, a 27.5% common stock interest in Emerald and Emerald junior debentures. On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne under Chapter 11 of the U.S. Bankruptcy Code. On January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. Subsequently, Emerald filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the same court. Envirodyne's plan of reorganization did not provide for any distribution or value to Emerald and Emerald, therefore, is without assets to provide value to ARTRA for ARTRA's investment in Emerald common stock and Emerald Junior Debentures. See discussion below and in Note 20 Litigation for remedies being pursued by ARTRA as damages for the lost value of its investment in Emerald common stock and Emerald Junior Debentures. On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth Judicial Circuit for the state of Illinois (the "State Court Action") against Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J. Zimmerman (collectively, "Salomon Defendants"), D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with DPK), James F. Massey and William Rifkind. On November 22, 1993, ARTRA filed a First Amended Complaint. The defendants removed the case to the Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of ARTRA's causes of action were remanded to the state court. The Bankruptcy Court retained jurisdiction of ARTRA's claims against the defendants for breaching their fiduciary duty as directors of Emerald to Emerald's creditors and interference with ARTRA's contractual relations with Emerald. On April 7, 1995, the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over two claims was denied. On July 26, 1995, the Bankruptcy Court entered an order dismissing these claims. On August 4, 1995, ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal is still pending. On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court Action for breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, breach of contract and promissory estopel. In the State Court Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of $408.6 million and approximately $33 million in fees paid to Salomon. The causes of action for breach of the fiduciary duty of due care were repleaded to reserve ARTRA's right to appeal the State Court's dismissal of the causes of action in the Third Amended Complaint. Defendant Kelly was dismissed with prejudice pursuant to a stipulation between ARTRA and the Kelly Defendants. On or about March 1, 1996, DPK brought a motion for summary judgment as to ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is currently pending. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. EXTRAORDINARY GAINS ARTRA Debt Restructuring In October, 1995 the Company recognized an extraordinary gain of $4,917,000 ($.71 per share) as a result of a settlement agreement with a bank whereby a $3,600,000 note payable due December 31, 1990 plus accrued interest of $1,467,000 were discharged for a cash payment of $150,000. Lori Debt Restructuring Per terms of a debt settlement agreement, borrowings due a bank under the loan agreements of Lori and its discontinued fashion costume jewelry subsidiaries (including the former New Dimensions ("New Dimensions") subsidiary, which ceased operations in December 1994) and Fill-Mor (approximately $25,000,000 as of December 23, 1994), plus amounts due the bank for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions of the debt settlement agreement in 1995, as discussed below, the balance of this indebtedness was discharged. In conjunction with the debt settlement agreement, ARTRA entered into a $1,850,000 short-term loan agreement with a non-affiliated corporation, the proceeds of which were used to fund amounts due the bank as discussed below. The loan, due June 30, 1995, with interest payable monthly at 10%, was collateralized by 100,000 shares of Lori common stock. These 100,000 Lori common shares were originally issued to the bank under terms of the debt settlement agreement. In August, 1995 the loan was extended until September 15, 1995 and the lender received the above mentioned 100,000 Lori common shares as consideration for the loan extension. The loan was repaid by ARTRA in February, 1996. The Company recognized an extraordinary gain of $8,965,000 ($1.57 per share) in December 1994 as a result of the reduction of amounts due the bank under the loan agreements of Lori and its discontinued fashion costume jewelry subsidiaries and Fill-Mor to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23, 1994 calculated (in thousands) as follows: Amounts due the bank under loan agreements of Lori and its operating subsidiaries and Fill-Mor $ 25,394 Less amounts due the bank at December 29, 1994 (10,500) --------- Bank debt discharged 14,894 Accrued interest and fees discharged 3,635 Other liabilities discharged 1,985 Less consideration to the bank per terms of the amended settlement agreement Cash (1,900) ARTRA common stock (2,500) New Dimensions assets assigned to the bank at estimated fair market value (7,149) --------- Net extraordinary gain $ 8,965 ========= ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On March 31, 1995, the bank was paid $750,000 and the remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The $750,000 payment was funded with the proceeds of a $850,000 short-term loan from a former director of Lori. As consideration for assisting in the debt restructuring, the former director received 150,000 shares of Lori common stock valued at $337,500 ($2.25 per share) based upon Lori's closing market value on March 30, 1995. The first quarter 1995 extraordinary gain was calculated (in thousands) as follows: Amounts due the bank under loan agreements of Lori and its operating subsidiaries and Fill-mor $ 10,500 Less amounts due the bank (750) --------- Bank debt discharged 9,750 Less fair market value of Lori common stock issued as consideration for the debt restructuring (337) Other fees and expenses (300) --------- Net extraordinary gain $ 9,113 ========= New Dimensions 1993 Restructuring The reorganization of New Dimensions resulted in a 1993 extraordinary gain of $22,057,000 ($4.49 per share) from a net discharge of indebtedness calculated (in thousands) as follows: Amount due on New Dimensions' 12.75% Senior Notes, including accrued interest $ 22,822 Trade liabilities and accrued expenses 3,231 --------- Total unsecured claims 26,053 Less present value of payments due to unsecured creditors (2,725) Less present value of bank restructuring loan fee (1,271) --------- Net extraordinary gain $ 22,057 ========= 9. NOTES PAYABLE Notes payable (in thousands) consist of: December 28, December 29, 1995 1994 -------- -------- ARTRA bank notes payable, at various interest rates $ 12,063 $ 18,507 Amounts due to related parties, interest from 8% to 12% 5,675 5,669 ARTRA 12% convertible subordinated promissory notes 2,500 - Other, interest from 8% to 20% 5,062 3,877 -------- -------- $ 25,300 $ 28,053 ======== ======== ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Bank Notes Payable At December 31, 1993, $17,063,000 in ARTRA notes, plus related loan fees and accrued interest were payable to a bank. The notes provided for interest at the prime rate. These bank notes were collateralized by, among other things, 100% of the common stock of ARTRA's BCA subsidiary, the parent of Bagcraft, and a secondary position on the assets of BCA, payments due under a noncompetition agreement with the Company's former Welch subsidiary and by a subordinated note in the principal amount of $2,500,000 received by ARTRA as part of the proceeds from the sale of Welch. Additionally, the bank notes are collateralized by a $5,500,000 personal guaranty of a private investor and, prior to March 31, 1994 as discussed below, the bank notes were collateralized by a $2,500,000 guaranty of a private corporation. A major shareholder and executive officer of the private corporation is an ARTRA director. As additional compensation, the private investor is receiving 1,833 shares of ARTRA common stock for each month the guaranty is outstanding and the private corporation received 833 shares of ARTRA common stock for each month the guaranty was outstanding. Among other things, the bank notes prohibit the payment of cash dividends by ARTRA. On March 31, 1994, ARTRA entered into a series of agreements with its bank lender and with the private corporation noted above that had guaranteed $2,500,000 of ARTRA's bank notes. Per terms of the agreements, the private corporation purchased $2,500,000 of ARTRA notes from ARTRA's bank thereby reducing the outstanding principal on ARTRA's bank notes to $12,063,000 and the bank released the private corporation from its $2,500,000 loan guaranty. The ARTRA bank notes and related loan fees were payable on September 30, 1994. Interest on the bank notes continues to accrue at the prime rate (8.75% and 8.5% at September 28, 1995 and December 29, 1994, respectively) and is payable quarterly. Interest on the bank notes has been paid through June 14, 1994. Effective March 31, 1994, ARTRA pledged, as additional collateral for its bank notes, any and all net proceeds arising from its lawsuit against Salomon Brothers, Inc., Salomon Brothers Holding Company Inc. (collectively, "Salomon") D.P. Kelly & Associates, L.P. ("Kelly") and all of the directors of Emerald for breaches of fiduciary duty by the directors of Emerald, induced by Salomon and Kelly, in connection with the reorganization of Envirodyne as discussed in Note 7. As consideration for purchasing $2,500,000 of ARTRA bank notes, the private corporation received a $2,500,000 note payable from ARTRA bearing interest at the prime rate. As additional consideration, the private corporation has received an option to put back to ARTRA the 49,980 shares of ARTRA common stock received as compensation for its former $2,500,000 ARTRA loan guaranty at a price of $15.00 per share. The put option is exercisable on the later of the day that the $2,500,000 note payable to the private corporation becomes due or the date the ARTRA bank notes have been paid in full. The option price increases by $2.25 per share annually ($18.938 per share at December 28, 1995). The $2,500,000 note payable to the private corporation is reflected in the above table as amounts due to related parties. During the first quarter of 1996, the $2,500,000 note and related accrued interest was paid in full principally with proceeds from additional short-term borrowings. In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by the former Welch subsidiary under terms of a noncompetition agreement and a subordinated note in the principal amount of $2,500,000 received by ARTRA as part of the proceeds from the 1989 sale of Welch. Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a subordinated note in the principal amount of $640,000 payable June 30, 2001. The cash proceeds were used for a $2,500,000 reduction of amounts due on certain ARTRA bank notes, with the remainder used for working capital. In conjunction with this transaction, ARTRA entered into a letter agreement with the bank whereby the bank agreed not to exercise any of its rights and remedies with respect to amounts due the bank under its ARTRA notes and certain obligations of ARTRA's president, Peter R. Harvey through at least September 28, 1995. In February 1996, the bank agreed to discharge all amounts under its ARTRA notes ($12,063,000 plus accrued interest) and certain obligations of Mr. Harvey for consideration of $6,000,000, consisting of a cash payment of $5,150,000 and Mr. Harvey's $850,000 note payable to the bank. ARTRA will recognize a gain on the discharge of its bank indebtedness of approximately $10,000,000 in the first quarter of 1996 and will record a receivable for Mr. Harvey's prorata share of the debt discharge funded by the Company. As collateral for this advance and other previous advances (see note 21), Mr. Harvey provided ARTRA a $2,150,000 security interest in certain real estate. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In conjunction with the February 1996 discharge of indebtedness, the Company entered into a $1,900,000 short-term loan agreement with an unaffiliated company. The loan, due May 26, 1996, with interest at 12% is collateralized by, among other things, the common stock of ARTRA's BCA subsidiary. As additional compensation for the loan and for participating in the above discharge of indebtedness, the lender has received, to-date, 150,000 shares of ARTRA common stock and 37,500 shares of COMFORCE common stock held by ARTRA. Additionally, for a cash payment of $500,000 to ARTRA, the lender purchased an option to acquire up to 40% of the common stock of Bagcraft for nominal consideration. If the borrowings under the loan agreement are repaid by May 26, 1996, ARTRA can repurchase the option for a cash payment of $550,000. If the borrowings under the loan agreement are repaid subsequent to May 26, 1996, the percentage of the warrant ARTRA can repurchase declines on a sliding scale through July 25, 1996. The proceeds from this loan agreement along with proceeds received from the Bagcraft subsidiary as consideration for the issuance of BCA preferred stock (see Note 12) were used to fund the cash payment to the bank for the above discharge of indebtedness. Effective May 14, 1991, ARTRA, through its wholly-owned Fill-Mor subsidiary, entered into a loan agreement with a bank providing for borrowings of up to $2,500,000 with interest at the prime rate plus 2%, of which $2,200,000 was outstanding at December 29, 1994. The loan was collateralized by ARTRA's interest in Lori common stock and preferred stock, by the proceeds of a tax sharing agreement between ARTRA and its Bagcraft subsidiary and by ARTRA's interest in Fill-Mor's common stock. At December 29, 1994, borrowings on this note were reclassified as amounts due under the debt restructuring agreement discussed in Note 8. In March, 1995, borrowings due under this loan agreement were discharged. At December 29, 1994 an ARTRA bank note with outstanding borrowings of $3,600,000 had been past due since December 31, 1990. Effective October 30, 1995, the Company settled this bank obligation totaling approximately $5,000,000, including accrued interest, for a cash payment of $150,000. The gain on this debt extinguishment was reflected in the Company's consolidated financial statements in the fourth quarter of 1995. In October, 1995 the bank agreed to discharge the $3,600,000 note plus accrued interest of $1,467,000 for a cash payment of $150,000, resulting in an extraordinary gain of $4,917,000 ($.71 per share) in the fourth quarter of 1995. An ARTRA bank note with outstanding borrowings of $345,000 at December 29, 1994 was guaranteed by a private company. Interest on the note was at the prime rate plus 2%. In October, 1995 all amounts due on this bank note were paid in full. Amounts Due To Related Parties At December 28, 1995 and December 29, 1994, the Company had outstanding borrowings from its Chairman, John Harvey, of $175,000 and $42,000, respectively. Since January, 1995, John Harvey's borrowings have been evidenced by unsecured short-term notes bearing interest at 8%. As additional compensation the loans provide for the issuance of warrants to purchase ARTRA common shares at prices equal to the market value of ARTRA's common stock at the date of issuance. The warrants expire five years from the date of issuance. Terms of the note provide for the issuance of additional warrants to purchase ARTRA common shares, as determined by the number of days the loans are outstanding. Through February 29, 1996, John Harvey has received warrants to purchase an aggregate of 58,007 shares of ARTRA common stock at prices ranging from $3.75 to $6.125 per share as additional compensation for his loans to ARTRA. At March 30, 1995, amounts due to related parties included a $850,000 short-term loan from a then director of COMFORCE. The loan provided for interest at the prime rate plus 1%. As consideration for assisting with the debt restructuring, the former director received 150,000 Lori common shares valued at $337,500 ($2.25 per share) based upon COMFORCE closing market value on March 30, 1995. The principal amount of the loan was reduced to $750,000 at July 31, 1995. The remaining loan principal was not repaid on its scheduled to maturity date of July 31, 1995. Per terms of the loan agreement, the former director received an additional 50,000 COMFORCE common shares as compensation for the ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) non-payment of the loan at its originally scheduled maturity. The maturity date of the loan was subsequently extended to September 30, 1995. The Company then entered into discussions with the director to extend the maturity date of the loan and, as additional consideration for the non-payment of the loan, the former director received an additional 25,000 shares of COMFORCE common stock in January 1996. In March 1996, the loan was repaid in full by ARTRA. At December 29, 1994, amounts due to related parties also included borrowings of $127,000, respectively, from the above mentioned former director of COMFORCE. As additional compensation the former director has received warrants to purchase an aggregate of 236,315 ARTRA common shares at prices ranging from $3.75 to $6.375 per share based upon the market value of ARTRA's common stock at the date of issuance. The warrants expire five years from the date of issuance. Terms of the note provide for the issuance of additional warrants to purchase ARTRA common shares as determined by the number of days the loan is outstanding. In December 1995, amounts due pursuant to this loan were repaid by the issuance of 33,000 shares of ARTRA common stock. On December 31, 1993, a religious organization, currently holding approximately 7% of ARTRA's outstanding common stock, loaned the Company $2,000,000 evidenced by a short-term note bearing interest at 10%. The proceeds of this loan were remitted to ARTRA's bank to pay principal and interest on ARTRA's bank notes as discussed above. In January, 1994 the religious organization made an additional $1,000,000 short-term loan to the Company also with interest at 10%. As additional compensation for the above loans, the lender received warrants to purchase an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00 per share based upon the market of ARTRA's common stock at the date of issuance. The warrants expire in 1998, five years from the date of issuance. In July, 1994 ARTRA made a $2,000,000 payment against the amounts outstanding on the above loans and the religious organization subsequently loaned ARTRA an additional $2,000,000. At December 28, 1995 and December 29, 1994 borrowings due the religious organization totaled $3,000,000. In December, the religious organization received 126,222 shares of ARTRA common in payment of past due interest through October 31, 1995. Convertible Subordinated Promissory Notes In December 1995, ARTRA completed a private placement of $2,500,000 of 12% convertible subordinated promissory notes due March 21, 1996. As additional consideration the noteholders received 15,000 ARTRA common shares per each $100,000 of notes issued, or an aggregate of 375,000 ARTRA common shares. The ARTRA common shares were valued at $1,266,000 ($3.375 per share) based upon the closing market value of ARTRA common stock on the date of issue, discounted for restricted marketability. In the event the notes and all accrued interest is not paid in full at maturity, the noteholders have the option to convert all or a portion of the amount due into shares of ARTRA common at a conversion price of $3.00 per share. The proceeds from the private placement, held in escrow at December 28, 1995, were used to pay down other debt obligations in January, 1996. The notes were repaid in April, 1996, substantially with proceeds from a new private placement of ARTRA notes. Other In conjunction with the debt settlement agreement discussed in Note 8, ARTRA entered into a $1,850,000 short-term loan agreement with a non-affiliated corporation, the proceeds of which were used to fund amounts due the bank as discussed below. The loan, due June 30, 1995, with interest payable monthly at 10%, was collateralized by 100,000 shares of Lori common stock. These 100,000 COMFORCE common shares were originally issued to the bank under terms of the August 18, 1994 Settlement Agreement. In August, 1995 the loan was extended until September 15, 1995 and the lender received the above mentioned 100,000 COMFORCE common shares as consideration for the loan extension. The loan was repaid by ARTRA in February, 1996. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. LONG-TERM DEBT Long-term debt (in thousands) consists of: December 28, December 29, 1995 1994 -------- -------- Bagcraft Credit Agreement, Term loans, interest at the prime rate plus 1.75% to 3% $ 16,600 $ 17,000 Revolving credit loan, interest at the prime rate plus 1.5% 9,231 16,672 Unamortized discount - (315) Bagcraft, City of Baxter Springs, Kansas loan agreements, interest, at varying rates 11,794 12,310 Arcar subordinated promissory notes due to seller, interest at the prime rate - 8,000 Arcar bank term loan, interest at the prime rate plus .75% - 2,750 Amounts due a bank term under terms of a debt settlement agreement - 10,500 Other, at various interest rates, due in varying amounts through 1995 - 27 -------- -------- 37,625 66,944 Current scheduled maturities (3,512) (37,521) Debt subsequently discharged - (9,750) -------- -------- $ 34,113 $ 19,673 ======== ======== Bagcraft Effective December 17, 1993, Bagcraft refinanced its bank debt by entering into a Credit Agreement that provides for a revolving credit loan and two separate term loans. The term loans were separate two-year facilities initially totaling $12,000,000 (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the lender's index rate plus 1.75% and 3%, respectively. The principal under Term Loan A is payable at maturity, unless accelerated under terms of the Credit Agreement. The principal under Term Loan B ($4,600,000 and $5,000,000 outstanding at December 28, 1995 and December 29, 1994, respectively) was scheduled to be payable in twenty-four monthly installments of $250,000 from January 1, 1994 to December 1, 1995, with the remaining principal balance payable at maturity, unless accelerated under terms of the Credit Agreement. At December 28, 1995, interest rates on Term Loan A and Term Loan B were 10.25% and 11.5% respectively. The amount available to Bagcraft under the revolving credit loan is subject to a borrowing base, as defined in the agreement, up to a maximum of $18,000,000. At December 28, 1995 and December 29, 1994, approximately $6,600,000 and ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) $800,000, respectively, was available and unused by Bagcraft under the revolving credit loan. Borrowings under the revolving credit loan bear interest at the lender's index rate plus 1.5% and are payable upon maturity of the Credit Agreement, unless accelerated under terms of the Credit Agreement. At December 28, 1995 the interest rate on the revolving credit loan was 10%. Borrowings under the Credit Agreement are collateralized by substantially all of the assets of Bagcraft. The Credit Agreement, as amended, contains various restrictive covenants, that among other restrictions, require Bagcraft to maintain minimum levels of tangible net worth and liquidity levels, and limits capital expenditures and restricts additional loans, dividend payments and payments to related parties. In addition, the Credit Agreement prohibits changes in ownership of Bagcraft. In October, 1995 the Credit Agreement was amended whereby, among other things, the maturity date of the Credit Agreement was extended until March 31, 1996, certain loan covenant violations were resolved and the principal payments under Term Loan B were modified to include five monthly installments of $200,000 from November 15, 1995 to March 31, 1996, with the remaining balance payable at maturity (March 31, 1996) . Effective February 1, 1996, the Credit Agreement was amended whereby, among other things, the maturity date of the Credit Agreement was extended until September 30, 1997, certain loan covenants were amended. The principal payments under Term Loan B were modified to include twenty-three monthly installments of $200,000 from November 15, 1995 to September 30, 1997, with the remaining balance payable at maturity (September 30, 1997) . Additionally, the lender consented to the use of $4,135,000 advanced under the revolving credit loan to fund a preferred stock exchange agreement between BCA (the parent of Bagcraft), Bagcraft and the holder of Bagcraft's 13.5% cumulative, redeemable preferred stock (see Note 12). As additional compensation for borrowings under the Credit Agreement, the lender received a detachable warrant, expiring in December 1998, allowing the holder to purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal value. Under certain conditions Bagcraft is required to repurchase the warrant from the lender. The determination of the repurchase price of the warrant is to be based on the warrant's pro rata share of the highest of book value, appraised value or market value of Bagcraft. In connection with the February 1, 1996 amendment to the Credit Agreement, the warrant agreement was amended to permit the holder to purchase 13% of the fully diluted common equity of Bagcraft at the original nominal purchase price and to extend the expiration date to December 17, 1999. In March, 1994 Bagcraft and the City of Baxter Springs, Kansas completed a $12,500,000 financing package associated with the construction of a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The financing package, funded by a combination of Federal, state and local funds, consists of the following loan agreements payable by Bagcraft directly to the City of Baxter Springs: A $7,000,000 promissory note payable in ten installments of $700,000 due annually on July 21 of each year beginning in 1995 through maturity on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is payable semi-annually. At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $6,300,000 and $7,000,000, respectively, under this loan agreement. A $5,000,000 subordinated promissory note payable as follows: $150,000 due in 1996; $2,425,000 due in 1998; and $2,425,000 due in 1999. The subordinated promissory note is non-interest bearing, subject to certain repayment provisions as defined in the agreement (as amended). At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $5,000,000 and $4,810,000, respectively, under this loan agreement. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Two separate $250,000 subordinated promissory notes payable in varying installments through January 20, 2025. The subordinated promissory notes are non-interest bearing, subject to certain repayment provisions as defined in the agreement. At December 28, 1995 and December 29, 1994, Bagcraft had outstanding borrowings of $493,000 and $500,000, respectively, under this loan agreement. Borrowings under the above loan agreements are collateralized by a first lien on the land and building at the Baxter Springs, Kansas production facility and by a second lien on certain machinery and equipment. Under certain circumstances, repayment of the borrowings under the above loan agreements is subordinated to the repayment of obligations under Bagcraft's Credit Agreement. At December 28, 1995 and December 29, 1994, $552,000 and $774,000, respectively, of borrowings from the above loan agreements is reflected in the consolidated balance sheet in current assets as restricted cash and equivalents. These funds, invested in interest bearing cash equivalents, are restricted for expenditures associated with the Baxter Springs, Kansas project. Arcar On April 8, 1994, Bagcraft completed the acquisition of Arcar for consideration consisting of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000 ($5,500,000 and $8,000,000 outstanding at September 28, 1995 and December 29, 1994, respectively). The subordinated promissory notes provided for interest payable quarterly at the prime rate (as defined in the agreement). At September 28, 1995, the remaining outstanding promissory notes were scheduled to mature as follows: $2,500,000 payable March 15, 1996; $2,500,000 payable March 15, 1997; $500,000 payable March 15, 1998. The seller also received a warrant to purchase 177,778 ARTRA common shares at a price of $5.625 per share, the market value at the date of grant. Exercise of the warrant was payable only through a reduction of the subordinated promissory notes and accrued interest due the seller under terms of the purchase agreement. The subordinated promissory notes were paid in full in October, 1995 with proceeds from the sale of Arcar (see Note 3). Effective April 8, 1994, Arcar entered into a Loan and Security Agreement (the "Agreement") with a bank that provided for a revolving credit loan and a term loan. The term loan, in the original principal amount of $2,750,000, provided for interest at the prime rate plus .75%. Borrowings under the Agreement were collateralized by substantially all of the assets of Arcar. The Agreement contained various restrictive covenants, that among other restrictions, require Arcar to maintain minimum levels of net worth and liquidity levels and limit additional loans, dividend payments, capital expenditures and payments to related parties. All borrowings under the Agreement were paid in full in October, 1995 with proceeds from the sale of Arcar (see Note 3). Lori As discussed in Note 8, effective August 18, 1994, as amended effective December 23, 1994, ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry subsidiaries entered into an agreement with Lori's bank lender to settle obligations due the bank under terms of the bank loan agreements of Lori and its fashion costume jewelry subsidiaries and Fill-Mor. Borrowings due the bank under the loan agreements of Lori and its operating subsidiaries and Lori's parent, Fill-Mor, plus amounts due the bank for accrued interest and fees were reduced to $10,500,000 as of December 23, 1994 (of which $7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank). As partial consideration for the Amended Settlement Agreement the bank received a $750,000 Lori note payable due March 31, 1995. In March, 1995 the $750,000 note due the bank was paid and the remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an additional extraordinary gain to Lori and Fill-Mor of $9,113,000 in 1995 (See Note 8). ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The common stock and virtually all the assets of ARTRA's subsidiaries have been pledged as collateral for ARTRA's and its subsidiaries' borrowings. Under certain debt agreements the Company is limited in the amounts it can withdraw from its operating subsidiaries. At December 28, 1995 and December 29, 1994, substantially all cash and equivalents on the Company's consolidated balance sheet are restricted to use by and for the Company's operating subsidiaries. At December 28, 1995 the aggregate amount of yearly maturities of long-term debt, exclusive of debt discharged, is: 1996, $3,512,000; 1997, $24,143,000; 1998, $3,137,000; 1999, $3,137,000; 2000, $712,000; thereafter, $2,983,000. 11. REDEEMABLE COMMON STOCK ARTRA has entered into various agreements under which it has sold its common shares along with options that require ARTRA to repurchase these shares at the option of the holder, principally one year after the date of each agreement. The difference between the option price and the net proceeds received is amortized over the life of the options by a charge to retained earnings. ARTRA agreed to register 100,000 ARTRA common shares issued to a bank as partial consideration for a 1994 debt settlement agreement on or before July 31, 1995, after which the bank has the right to put the 100,000 common shares back to ARTRA for an exercise price of $500,000. As of March 31, 1996 the ARTRA common shares have not been registered and the bank has not exercised the put option. At December 28, 1995 and December 29, 1994 options are outstanding that, if exercised, would require ARTRA to repurchase 283,965 and 279,679 shares of its common stock for an aggregate amount of $4,774,000 and $4,144,000, respectively. 12. REDEEMABLE PREFERRED STOCK On September 27, 1989, ARTRA received a proposal to purchase BCA, the parent of Bagcraft, from Sage Group, Inc. ("Sage"), a privately-owned corporation that owned 100% of the outstanding common stock of BCA. Sage was merged with and into Ozite Corporation ("Ozite") on August 24, 1990. Peter R. Harvey, ARTRA's President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the principal shareholders of Sage and are the principal shareholders of Ozite. Effective March 3, 1990, a wholly-owned subsidiary of ARTRA acquired 100% of BCA's issued and outstanding common shares for consideration of $5,451,000, which included 772,000 shares of ARTRA common stock and 3,750 shares of $1,000 par value junior non-convertible payment-in-kind redeemable Series A Preferred Stock with an estimated fair value of $1,012,000, net of unamortized discount of $2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share plus accrued dividends. Accumulated dividends of $1,519,000 and $1,221,000 were accrued at December 28, 1995 and December 29, 1994, respectively. In 1987, Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock (50,000 shares of 13.5% cumulative, redeemable preferred stock with a liquidation preference equal to $100 per share) redeemable by Bagcraft in 1997 at a price of $100 per share plus accrued dividends. Dividends, which accrue and are payable semiannually on June 1 and December 1 of each year, are reflected in the Company's consolidated statement of operations as minority interest. The holder has agreed to forego dividend payments as long as such payments are prohibited by Bagcraft's lenders. Accumulated dividends of $5,794000 and $5,119,000 were accrued at December 28, 1995 and December 29, 1994, respectively. In 1987, Bagcraft obtained financing from a subsidiary of Ozite through the issuance of a $5,000,000 unsecured subordinated note, due June 1, 1997. During 1992, per agreement with the noteholder, the interest payments were remitted to ARTRA and the noteholder received 675 shares of BCA Series A preferred stock ($1.00 par value, 6% cumulative with a liquidation preference equal to $1,000 per share) with a liquidation value of $675,000. In December, 1993, the unsecured subordinated note and accrued interest thereon were paid in full from proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder, the accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and the noteholder received an additional 3,000 shares BCA preferred stock having a liquidation value of $3,000,000. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to exchange certain preferred stock between the Companies. In connection with the agreement, BCA issued to Bagcraft 8,135 shares of BCA Series B preferred stock (with a liquidation preference equal to $1,000 per share) for cash of $4,135,000. Bagcraft in turn exchanged the BCA Series B preferred stock for Bagcraft redeemable preferred stock (82.7% of 50,000 shares, or 41,350 shares) held by Ozite. Funds for the transaction were obtained by Bagcraft through an advance under its revolving credit. BCA then upstreamed the proceeds to ARTRA for working capital purposes. As a result of the preferred stock exchange agreement, 17.3% of the original Bagcraft redeemable preferred stock and the prorata share of dividends remain outstanding February 1, 1996. Dividends related to the Bagcraft redeemable preferred stock exchanged have been forgiven in accordance with the agreement. The dividend forgiveness will be reflected in the Company's consolidated financial statements in the first quarter of 1996. 13. STOCK OPTIONS AND WARRANTS Stock Option Plan In July, 1985, ARTRA's shareholders approved a stock option plan (the "Plan") for certain officers and key employees of the Company and its subsidiaries. The Plan, as amended, reserved 1,000,000 shares of the Company's common stock and authorized the granting of options on or before February 1, 1995. The purchase price of such options was to be not less than the market value at the date of grant for incentive stock options ("ISO") and not less than 110% of the market value on the date of grant for an ISO granted to a shareholder possessing 10% more of the voting stock of the Company. Non-qualified options may be granted at such price and amount as the Company determines at the date of grant. During 1994, the Company issued a former officer of Bagcraft a non-qualified option to purchase 20,000 shares of ARTRA common stock at $5.75 per share as additional compensation for short-term loans to ARTRA. Effective January 8, 1993, the Company issued certain officers and key employees of ARTRA options to purchase 148,100 shares of ARTRA common stock at $3.75 per share. The options expire ten years from the date of grant. During 1993, the Company issued to a then officer of Bagcraft a non-qualified option to purchase 50,000 shares of ARTRA common stock at $3.75 per share as additional compensation for short-term loans to ARTRA. The options were exercised during 1993. The exercise of these options was principally paid through a reduction of the then Bagcraft officer's loans to ARTRA. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of stock option transactions for the three years in the period ended December 28, 1995 is as follows: 1995 1994 1993 -------- -------- -------- Outstanding at beginning of year: Shares 445,460 450,760 340,360 $ 3.75 $ 3.75 $ 5.25 Prices to to to $ 20.50 $ 20.50 $ 20.50 Options granted: Shares 20,000 198,100 Prices $ 5.75 $ 3.75 Options exercised: Shares (12,100) (25,300) (74,700) $ 3.75 Prices $ 4.00 $ 5.25 to $ 5.25 Options canceled: Shares (1,860) (13,000) $ 5.25 Prices $ 20.50 to $ 5.75 Outstanding at end of year: Shares 431,500 445,460 450,760 ======== ======== ======== $ 3.65 $ 3.75 $ 3.75 Prices to to to $ 10.00 $ 20.50 $ 20.50 Options exercisable at end of year 431,500 445,460 450,760 ======== ======== ======== Options available for future grant at end of year - 390,814 410,814 ======== ======== ======== ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Warrants At December 28, 1995, warrants were outstanding to purchase a total of 1,148,548 common shares at prices ranging from $3.50 per share to $10.50 per share. The warrants, exercisable from the date of issue, expire at various dates through 2003. During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of its common stock at prices ranging from $3.75 per share to $6.125 per share, principally to certain lenders as additional compensation for short-term loans. The warrants expire at various dates in 2000. Warrants to purchase 48,331 shares of ARTRA common stock at prices ranging from $6.75 per share to $11.375 per share expired unexercised during 1995. The warrants were issued as additional compensation for various short-terms loans. During 1994, ARTRA issued warrants to purchase an aggregate of 154,719 shares of its common stock at prices ranging from $4.50 per share to $6.625 per share, principally to certain lenders as additional compensation for short-term loans. The warrants expire at various dates from 1996 and 1999. Warrants to purchase 9,166 shares of ARTRA common stock at prices ranging from $10.00 per share to $11.25 per share expired unexercised during 1994. The warrants were issued as additional compensation for various short-terms loans. During 1993, ARTRA issued warrants to purchase an aggregate of 326,090 shares of its common stock at prices ranging from $3.50 per share to $7.00 per share, principally to certain lenders as additional compensation for short-term loans. The warrants expire at various dates from 1998 and 2003. Additionally, warrants to purchase 76,668 shares of ARTRA common stock at prices ranging from $18.00 per share to $27.00 per share expired unexercised during 1993. The warrants were issued as additional compensation for short-term loans in 1988. 14. RESTRUCTURING COSTS In December, 1993 the Bagcraft subsidiary recorded a charge to operations of $1,175,000 representing equipment and inventory relocation costs and employee severance and outplacement costs relating to the construction of a new manufacturing facility in Baxter Springs, Kansas. In September, 1994, Bagcraft completed construction of a new 265,000 sq. ft. production facility in Baxter Springs, Kansas. This facility replaced Bagcraft's production facilities in Joplin, Missouri, Carteret, New Jersey and Forest Park, Georgia. 15. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries lease certain buildings and equipment which are used in its manufacturing and distribution operations. At December 28, 1995, future minimum lease payments under operating leases that have an initial or remaining noncancellable term of more than one year (in thousands) are: Year ---- 1996 $ 944 1997 860 1998 737 1999 719 2000 449 After 2000 765 ------- $ 4,474 ======= ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Rental expense was $861,000, $1,116,000 and $1,240,000 in fiscal years 1995, 1994 and 1993 respectively. In conjunction with the sale of Arcar (see Note 3), Bagcraft entered into an ink products purchase agreement with the Arcar buyer for a period of five years. Under terms of the agreement, Bagcraft is required to purchase a minimum supply of ink based on market prices in effect at the time of each purchase. Minimum dollar amounts required for each of the contract years ending September 30 is $4,100,000 in 1996; $4,300,000 in 1997; $4,500,000 in 1998; $3,375,000 in 1999; and $2,250,000 in 2000. Bagcraft has issued a letter of credit of $1,000,000 in conjunction with this agreement. The Company and its subsidiaries are the defendants in various business-related litigation and environmental matters. At December 28, 1995 and December 29, 1994, the Company had accrued $1,800,000 and $1,500,000, respectively, for potential business-related litigation and environmental liabilities. While these litigation and environmental matters involve wide ranges of potential liability, management does not believe the outcome of these matters will have a material adverse effect on the Company's financial statements. However, ARTRA may not have available funds to pay liabilities arising out of these business-related litigation and environmental matters or, in certain instances, to provide for its legal defense. In January, 1985 the United States Environmental Protection Agency ("EPA") notified the Company's Bagcraft subsidiary that it was a potentially responsible party under the Comprehensive Environmental Responsibility Compensation and Liability Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied liability for the site, it has entered into a settlement agreement with the EPA, along with the other third party defendants, to resolve all claims associated with the site except for state claims. In May, 1994 Bagcraft paid $850,000 plus accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed suit in 1993 in the United States District Court for the Northern District of Illinois, against its insurers to recover its liability costs in connection with the Cross Brothers case. Bagcraft was subsequently reimbursed by its insurers for its liability costs incurred in connection with the EPA claim. With regard to the state action, Bagcraft is participating in settlement discussions with the State and thirteen other potential responsible parties to resolve all claims associated with the State. The maximum state claim is $1.1 million for all participants. Bagcraft has accrued $120,000 related to the State action in the Company's consolidated financial statements at December 28, 1995. Bagcraft was listed as a de minimis contributor at the American Chemical Services, Inc. off-site disposal location in Griffith, Indiana and the Duane Marine off-site disposal location in Perth Amboy, New Jersey. These sites are included in the EPA's National Priorities List. Bagcraft is presently unable to determine its liability, if any, with respect to this site. Bagcraft has been notified by the Federal Environment Protection Agency that it is a potentially responsible party for the disposal of hazardous substances at a site on Ninth Avenue in Gary, Indiana. The Company has no records indicating that it deposited hazardous substances at this site and intends to vigorously defend itself in this matter. Bagcraft is presently undertaking a soil remediation project for solvent-contaminated soil at its Chicago manufacturing facility. The environmental firm responsible for implementing the remediation has recommended that a soil vapor extraction process be used, at an estimated cost of $175,000. Although there can be no assurances that remediation costs will not exceed this estimate, in the opinion of management, no material additional costs are anticipated. In April 1994, the EPA notified the Company that it was a potentially responsible party for the disposal of hazardous substances (principally waste oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing facility formerly operated by the Clearshield Plastics Division ("Clearshield") of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In 1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been included on the EPA's National Priorities List. In February 1983, Harvel sold the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in 1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA for indemnification in connection with this proceeding. The cost of clean-up at the Palmer, Massachusetts site has been estimated to be approximately $7 million according to proofs of claim filed in the adversary proceeding. A committee formed by the named potentially responsible parties has estimated the ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) liability respecting the activities of Clearshield to be $400,000. ARTRA has not made any independent investigation of the amount of its potential liability and no assurances can be given that it will not substantially exceed $400,000. In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in 1991 in the United States District Court for Maryland, Sherwin-Williams Company ("Sherwin-Williams") brought suit against ARTRA and other former owners of a paint manufacturing facility in Baltimore, Maryland for recovery of costs of investigation and clean-up of hazardous substances which were stored, disposed of or otherwise released at this manufacturing facility. This facility was owned by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from 1968 to 1980. Sherwin-William's current projection of the cost of clean-up is approximately $5 to $6 million. The Company has filed counterclaims against Sherwin-Williams and cross claims against other former owners of the property. The Company also is vigorously defending this action and has raised numerous defenses. Currently, the case is in its early stages of discovery and the Company cannot determine what, if any, its liability may be in this matter. ARTRA was named as a defendant in United States v. Chevron Chemical Company brought in the United States District Court for the Central District of California respecting Operating Industries, Inc. site in Monterey Park, California. This site is included on the EPA's National Priorities List. ARTRA's involvement stemmed from the alleged disposal of hazardous substances by The Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling paste, wall coatings and related products, certain of which generated hazardous substances as a by-product of the manufacturing process. ARTRA entered into a consent decree with the EPA in which it agreed to pay $85,000 for one phase of the clean-up costs for this site; however, ARTRA defaulted on its payment obligation. ARTRA is presently unable to estimate the total potential liability for clean-up costs at this site, which clean-up is expected to continue for a number of years. The consent decree, even if it had been honored by ARTRA, was not intended to release ARTRA from liability for costs associated with other phases of the clean-up at this site. The Company is presently unable determine what, if any, additional liability it may incur in this matter. In a case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated, filed in the Circuit Court of Cook County, Illinois, the City of Chicago alleged that ARTRA (and NL Industries, Inc.) had improperly stored, discarded and disposed of hazardous substances at the subject site, and that ARTRA had conveyed the site to Goodwill Industries to avoid clean-up costs. At the time the suit was filed, the City of Chicago claimed to have expended $1,000,000 in clean-up costs. ARTRA and NL Industries, Inc. have counter sued each other and have filed third party actions against the subsequent owners of the property. The City of Chicago has made an offer to settle the matter for $350,000 for all parties. The parties are currently conducting discovery. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. In a case titled Illinois Environmental Protection Agency v. NL Industries, Inc., ARTRA GROUP Incorporated, et al, the Illinois Environmental Protection Agency filed suit alleging all former owners contributed to the contamination of the site. The suit was dismissed, but subject to possible appeal. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. The EPA has identified ARTRA GROUP Incorporated as a potentially responsible party in an action involving the former manufacturing facility. The EPA is currently investigating the site to determine the extent and type of contamination, if any. The Company is presently unable to determine ARTRA's liability, if any, in connection with this case. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. INCOME TAXES The provision (credit) for income taxes is included in the statements of operations as follows: 1995 1994 1993 --------- --------- --------- (in thousands) Continuing operations $ 51 $ 9 $ 7 Discontinued operations 17 74 33 --------- --------- --------- $ 68 $ 83 $ 40 ========= ========= ========= A summary of the provision (credit) for income taxes is as follows: 1995 1994 1993 --------- --------- --------- (in thousands) Current: Federal $ - $ - $ - State 68 83 40 --------- --------- --------- $ 68 $ 83 $ 40 ========= ========= ========= The 1995, 1994 and 1993 extraordinary credits represent net gains from discharge of indebtedness. No income tax expense is reflected in the Company's financial statements resulting from the extraordinary credits due to the utilization of tax loss carryforwards. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. INCOME TAXES, continued In 1995, 1994 and 1993, the effective tax rates from operations, including discontinued operations were (3.9)%, (.4)% and .3%, respectively, as compared to the statutory Federal rate, which are reconciled as follows: 1995 1994 1993 --------- --------- ---------- (in thousands) Provision (credit) for income taxes using statutory rate $ (600) $ (6,629) $ 4,992 State and local taxes, net of Federal benefit 68 73 7 Current year tax loss not utilized - 3,151 1,938 Amortization of goodwill 155 206 212 Previously unrecognized benefit from utilizing tax loss carryforwards (2,136) - - Effect of not including all subsidiaries in the consolidated tax return 2,546 3,249 (7,113) Other 35 33 4 --------- --------- ---------- $ 68 $ 83 $ 40 ========= ========= ========== ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. INCOME TAXES, continued The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liabilities and deferred tax assets at December 28, 1995 and December 29, 1994 and their approximate tax effects (in thousands) are as follows:
1995 1994 ---------------------------- ----------------------------- Temporary Tax Temporary Tax Difference Difference Difference Difference ---------- ---------- ---------- ---------- Trade accounts receivable $ 200 $ 100 $ 1,700 $ 700 Inventories - - 400 200 Investment in Emerald Acquisition Corporation - - 18,600 7,200 Accrued personnel costs 1,800 700 1,900 800 Restructuring reserve 200 100 1,100 400 Environmental reserve 400 200 400 200 Other 2,900 1,100 2,600 1,000 Capital loss carryforward 11,000 4,300 - - Net operating loss 44,000 17,200 97,000 37,800 -------- ------- Total deferred tax assets 23,700 48,300 -------- ------- Inventories (6,700) (2,600) (6,100) (2,400) Accumulated depreciation (7,900) (3,100) (9,500) (3,700) Other (800) (300) (400) (200) -------- Total deferred tax liabilities (6,000) (6,300) -------- ------- Valuation allowance (17,700) (42,000) -------- ------- Net deferred tax asset $ - $ - ======== =======
The Company has recorded a valuation allowance with respect to the future tax benefits and the net operating loss reflected in deferred tax assets as a result of the uncertainty of their ultimate realization. At December 28, 1995, the Company and its subsidiaries had Federal income tax loss carryforwards of approximately $44,000,000 available to be applied against future taxable income, if any. ARTRA's tax loss carryforwards of approximately $33,000,000 expire principally in 2003 - 2010. Additionally, ARTRA's discontinued Ultrasonix and Ratex subsidiaries had Federal income tax loss carryforwards of approximately $11,000,000 available to be applied against future taxable income, if any. In recent years, the Company has issued shares of its common stock to repay various debt obligations, as consideration for acquisitions, to fund working capital obligations and as consideration for various other transactions. Section 382 of the Internal Revenue Code of 1986 limits a corporation's utilization of its Federal income tax loss carryforwards when certain changes in the ownership of a corporation's common stock occurs. In the opinion of management, the Company is not currently subject to such ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) limitations regarding the utilization of its Federal income tax loss carryforwards. Should the Company continue to issue a significant number of shares of its common stock, it could trigger a limitation that would prevent it from utilizing a substantial portion of its Federal income tax loss carryforwards. 17. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have certain contributory and noncontributory benefit plans covering eligible employees. Both employee and employer contributions are generally determined as a percentage of the covered employee's annual compensation. The total expense charged to continuing operations from all of these plans amounted to $477,000, $333,000 and $450,000 in 1995, 1994 and 1993, respectively. Effective June 1, 1990, the Company adopted an Employee Stock Ownership Plan ("ESOP") which covers eligible employees of ARTRA and certain of its subsidiaries. Employer contributions to the Plan are at the discretion of ARTRA's Board of Directors. Employee contributions are not permitted. Contributions are allocated in the same proportion that the percentage of a participant's compensation for the Plan year bears to the compensation of all participants for the Plan year. ARTRA contributed 8,750 common shares to the Plan with a fair market value of $42,000 ($4.75 per share) for the plan year ending December 28, 1995. ARTRA contributed 15,000 common shares to the Plan with a fair market value of $71,250 ($4.75 per share) for the plan year ending December 29, 1994. ARTRA contributed 65,000 common shares to the Plan with a fair market value of $423,000 ($6.50 per share) for the plan year ending December 30, 1993. At December 28, 1995, the ESOP held 271,775 shares of ARTRA common stock. Effective August 1, 1995, the Company terminated the ESOP and is currently is the process of distributing the related Employee accounts to participants. The Company typically does not offer the types of benefit programs that fall under the guidelines of Statement of Financial Accounting Standards No. 106 - Employers Accounting for Post Retirement Benefits Other Than Pensions. 18. EARNINGS PER SHARE Earnings (loss) per share is computed by dividing net earnings (loss), less redeemable preferred stock dividends and redeemable common stock accretion, by the weighted average number of shares of common stock and common stock equivalents (redeemable common stock, stock options and warrants), unless anti-dilutive, outstanding during each period. Fully diluted earnings per share is not presented since the result is equivalent to primary earnings per share. 19. INDUSTRY SEGMENT INFORMATION At December 28, 1995, the Company, through its Bagcraft subsidiary operates in one industry segment as a manufacturer of packaging products principally serving the food industry. Prior to September 28, 1995 and in prior years, ARTRA's then majority owned subsidiary, Lori, operated as a designer and distributor of popular-priced fashion costume jewelry and accessories. In recent years, Lori's fashion costume jewelry operations had experienced a pattern of significantly lower sales levels and related operating losses primarily due to a shift in the buying patterns of its major customers (i.e. certain mass merchandisers) from participation in Lori's service program to purchases of costume jewelry and accessories directly from manufacturers and due to a continued unfavorable retail environment. Accordingly, in September, 1995, Lori adopted a plan to discontinue its fashion costume jewelry business as discussed in Note 3. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase agreement to participate in the acquisition of one hundred percent of the capital stock of Global. Global provides telecommunications and computer technical staffing and consulting services worldwide to Fortune 500 companies and maintains an extensive, global database of technical specialists, with an emphasis on wireless communications capability. On October 17, 1995, Lori completed the acquisition of one hundred percent of the capital stock of Global. In connection with the re-focus of its business, Lori changed its name to COMFORCE Corporation. Due to the issuances of COMFORCE common shares in conjunction with the acquisition of Global, ARTRA's common stock ownership in COMFORCE was reduced to approximately 25%. Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were deconsolidated from the ARTRA's consolidated financial statements and ARTRA's investment in COMFORCE was accounted for under the equity method through the end of fiscal 1995. As discussed in note 6, effective December 28, 1995, the Company adopted SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Under this statement, at December 28, 1995, the Company's investment in COMFORCE is classified as available for sale and is stated at fair value. No single customer accounted for more than 10% of consolidated net sales in 1995, 1994 and 1993. 20. LITIGATION On November 2, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth Judicial Circuit for the state of Illinois (the "State Court Action") against Salomon Brothers, Inc., Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J. Zimmerman (collectively, "Salomon Defendants"), D.P. Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with DPK), James F. Massey and William Rifkind. On November 22, 1993, ARTRA filed a First Amended Complaint. The defendants removed the case to the Bankruptcy Court in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of ARTRA's causes of action were remanded to the state court. The Bankruptcy Court retained jurisdiction of ARTRA's claims against the defendants for breaching their fiduciary duty as directors of Emerald to Emerald's creditors and interference with ARTRA's contractual relations with Emerald. On April 7, 1995, the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over two claims was denied. On July 26, 1995, the Bankruptcy Court entered an order dismissing these claims. On August 4, 1995, ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal is still pending. On July 18, 1995, ARTRA filed a Fourth Amended Counterclaim in the State Court Action for breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, breach of contract and promissory estopel. In the State Court ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Action, ARTRA seeks compensatory damages of $136.2 million, punitive damages of $408.6 million and approximately $33 million in fees paid to Salomon. The causes of action for breach of the fiduciary duty of due care were repleaded to reserve ARTRA's right to appeal the State Court's dismissal of the causes of action in the Third Amended Complaint. Defendant Kelly was dismissed with prejudice pursuant to a stipulation between ARTRA and the Kelly Defendants. On or about March 1, 1996, DPK brought a motion for summary judgment as to ARTRA's claims for breach of contract and promissory estoppel. DPK's motion is currently pending. Effective December 31, 1989, ARTRA completed the disposal of its former scientific products segment with the sale of its Welch subsidiary, formerly Sargent-Welch Scientific Company, to a privately held corporation whose president and sole shareholder was a vice president of Welch prior to the sale. The consideration received by ARTRA consisted of $2,625,000 payable June 30, 1997, with interest at 10% beginning June 30, 1990, under terms of a noncompetition agreement and the buyer's subordinated note in the principal amount of $2,500,000. The receivable due June 30, 1997 under terms of the noncompetition agreement was reflected in ARTRA's condensed consolidated balance sheet at December 29, 1994 in other assets at $2,625,000. The subordinated security, due in 1997, was originally scheduled to be non-interest bearing for a period of three years, after which time interest will accrue at the rate of 10% per annum. The note was discounted at a rate of 10% during the non-interest bearing period and was reflected in ARTRA's consolidated balance sheet at December 29, 1994 in other assets at $1,375,000, net of a discount of $1,125,000. In December, 1991 Welch filed a lawsuit against ARTRA alleging that certain representations, warranties and covenants made by ARTRA, which were contained in the parties' Stock Purchase Agreement, were false. Welch was seeking compensatory damages in the amount of $3,800,000. Subsequently, ARTRA had filed a counterclaim predicated upon Welch's breach of the payment terms of the parties' Non-Competition Agreement and the Subordinated Note executed by Welch. ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued interest. On November 23, 1994, the Circuit Court of Cook County Law Division in Chicago granted a judgment in favor of ARTRA affirming the validity of the amounts due under the Non-Competition Agreement and the Subordinated Note of $2,625,000 and $2,500,000, respectively. In June 1995 ARTRA entered into an agreement to settle amounts due ARTRA by Welch under terms of the noncompetition agreement and the subordinated security. Per terms of the settlement agreement, ARTRA received cash of $3,000,000 and a subordinated note in the principal amount of $640,000 payable June 30, 2001. In January, 1985 the United States Environmental Protection Agency ("EPA") notified the Company's Bagcraft subsidiary that it was a potentially responsible party under the Comprehensive Environmental Responsibility Compensation and Liability Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied liability for the site, it has entered into a settlement agreement with the EPA, along with the other third party defendants, to resolve all claims associated with the site except for state claims. In May, 1994 Bagcraft paid $850,000 plus accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed suit in 1993 in the United States District Court for the Northern District of Illinois, against its insurers to recover its liability costs in connection with the Cross Brothers case. Bagcraft was subsequently reimbursed by its insurers for its liability costs incurred in connection with the EPA claim. With regard to the state action, Bagcraft is participating in settlement discussions with the State and thirteen other potential responsible parties to resolve all claims associated with the State. The maximum state claim is $1.1 million for all participants. Bagcraft has accrued $120,000 related to the State action in the Company's consolidated financial statements at December 28, 1995. The Company and its subsidiaries are the defendants in various other business-related litigation and environmental matters (see Note 15). Management does not believe the outcome of these matters will have a material adverse effect on the Company's financial statements. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 21. RELATED PARTY TRANSACTIONS Advances to Peter R. Harvey, ARTRA's president, classified in the Consolidated Balance Sheet as a reduction of common shareholders' equity, consist of: December 28, December 29, 1995 1994 --------- --------- (in thousands) ARTRA $ 5,369 $ 3,205 Fill-Mor - 1,510 --------- --------- 5,369 4,715 Less interest for the period January 1, 1993 to date, accrued and fully reserved (1,051) (615) --------- --------- $ 4,318 $ 4,100 ========= ========= ARTRA has total advances due from its president, Peter R. Harvey, of which $5,369,000 and $3,205,000, including accrued interest, remained outstanding at December 28, 1995 and December 29, 1994 The advances bear interest at the prime rate plus 2% (10.5% at December 28, 1995 and December 29, 1994). This receivable from Peter R. Harvey has been classified as a reduction of common shareholders' equity. See note 9 for an additional 1996 advance for Mr. Harvey's prorata share of debt discharged by a bank. The debt discharge was principally funded by ARTRA. In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R. Harvey. The advances provided for interest at the prime rate plus 2%. At March 30, 1995 and December 29, 1994, advances of $1,540,000 and $1,510,000, respectively, including accrued interest, were outstanding. In April, 1995, these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey were transferred to ARTRA as a dividend. Commencing January 1, 1993 to date, interest on all advances to Peter R. Harvey has been accrued and fully reserved. Interest accrued and fully reserved on the advances to Peter R. Harvey for the years ended December 28, 1995 and December 29, 1994 totaled $436,000 and $341,000, respectively. Peter R. Harvey has not received other than nominal compensation for his services as an officer or director of ARTRA or any of its subsidiaries since October of 1990. Additionally, Mr. Harvey has agreed not to accept any compensation for his services as an officer or director of ARTRA or any of its subsidiaries until his obligations to ARTRA, described above, are fully satisfied. Under Pennsylvania Business Corporation Law of 1988, ARTRA (a Pennsylvania corporation) is permitted to make loans to officers and directors. Further, under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is permitted to make loans to an officer (including any officer who is also a director, as in the case of Peter R. Harvey), whenever, in the judgment of the directors, the loan can reasonably be expected to benefit Fill-Mor. ARTRA GROUP INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did not act on a proposal to ratify the advances made by ARTRA to Peter R. Harvey. The 1992 advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of Directors. In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of Directors of Fill-Mor approved the borrowing of funds from Fill-Mor's bank loan agreement, a condition of which was the application of a portion of the proceeds thereof to the payment of certain of Mr. Harvey's loan obligations to the bank. However, the resolutions did not acknowledge the use of such proceeds for this purpose and the formal loan documents with the bank did not set forth this condition (though in fact, the proceeds were so applied by the bank). As partial collateral for amounts due from Peter R. Harvey, the Company has received the pledge of 1,523 shares of ARTRA redeemable preferred stock (with a liquidation value of $1,523,000, plus accrued dividends) which are owned by Mr. Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial Communication Company (a private company). Such interest is valued by Mr. Harvey at $800,000 to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting of 42,067 shares of ARTRA common stock and 707,281 shares of Puretech International, Inc., a publicly traded corporation. In conjunction with Lori's October 1995 acquisition of Global (see Note 3), ARTRA has agreed to assume certain pre-existing Lori liabilities and indemnify COMFORCE in the event any future liabilities arise concerning pre-existing environmental matters and business related litigation. Accordingly, ARTRA has accrued $4,500,000 of Lori liabilities classified in its consolidated balance at December 28, 1995 as current liabilities of discontinued operations. For a discussion of certain other related party debt obligations see Note 9. ARTRA GROUP INCORPORATED AND SUBSIDIARIES SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT ARTRA GROUP INCORPORATED BALANCE SHEETS (Registrant Only In Thousands) December 28, December 29, 1995 1994 --------- --------- ASSETS Current assets: Cash $2,347 $91 Receivables 25 55 Other current assets 85 87 --------- --------- 2,457 233 --------- --------- Property, plant and equipment 25 19 Less accumulated depreciation and amortization 14 6 --------- --------- 11 13 --------- --------- Other assets: Investments in and advances to affiliates 2,567 (15,264) Other - 4,000 --------- --------- 2,567 (11,264) --------- --------- $5,035 ($11,018) ========= ========= LIABILITIES Current liabilities: Notes payable and current maturities of long-term debt $25,300 $28,053 Accounts payable 509 1,576 Accrued expenses 9,323 9,702 Income taxes 200 138 --------- --------- 35,332 39,469 --------- --------- Redeemable common stock 4,774 4,144 --------- --------- Redeemable preferred stock 3,694 3,129 --------- --------- SHAREHOLDERS' EQUITY (DEFICIT) Common stock 5,540 5,052 Additional paid-in capital 38,526 36,613 Unrealized appreciation of investments 21,047 - Receivable from related party, including accrued interest (4,318) (4,100) Accumulated deficit (98,755) (94,520) --------- --------- (37,960) (56,955) Less treasury stock, at cost 805 805 --------- --------- (38,765) (57,760) --------- --------- $5,035 ($11,018) ========= ========= The accompanying notes are an integral part of the condensed financial information. ARTRA GROUP INCORPORATED AND SUBSIDIARIES SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT ARTRA GROUP INCORPORATED STATEMENTS OF OPERATIONS (Registrant Only In Thousands) Fiscal Year ----------------------------- 1995 1994* 1993* -------- --------- -------- Selling, general and administrative expenses $1,760 $2,158 $1,907 Depreciation and amortization 27 4 2 Interest expense 4,953 3,139 2,641 Equity in loss of affiliates 7,817 6,129 3,423 Other expense, net 424 308 85 -------- --------- -------- Loss from continuing operations before income taxes (14,981) (11,738) (8,058) Charge equivalent to income taxes (1,962) (1,791) (269) -------- --------- -------- Loss from continuing operations (16,943) (13,529) (8,327) Equity in earnings (loss) of discontinued affiliate 10 (15,906) (216) -------- --------- -------- Loss before extraordinary credit (16,933) (29,435) (8,543) Extraordinary credit, net discharge of indebtedness 14,030 8,965 22,057 -------- --------- -------- Net earnings (loss) ($2,903) ($20,470) $13,514 ======== ========= ======== The accompanying notes are an integral part of the condensed financial information. ______________________________________________ * As reclassified for discontinued operations. ARTRA GROUP INCORPORATED AND SUBSIDIARIES SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT ARTRA GROUP INCORPORATED STATEMENTS OF CASHFLOWS (Registrant Only In Thousands)
Fiscal Year ------------------------------- 1995 1994 1993 -------- --------- -------- Cash flows from operating activities: Net earnings (loss) ($2,903) ($20,470) $13,514 Adjustments to reconcile net loss to cash flows from operating activities: Extraordinary gain from net discharge of indebtedness (14,030) (8,965) (22,057) Equity in loss of affiliates 7,817 6,129 3,423 Equity in (earnings) loss of discontinued operations (10) 15,906 216 Gain on sale of property, plant and equipment - - - Other, principally common stock issued as compensation 1,370 489 392 Changes in assets and liabilities: Increase (decrease) in other current and noncurrent assets 32 56 (42) Increase in other current and noncurrent liabilities 1,738 2,152 1,076 (Increase) decrease in receivable from related party (218) (257) 42 -------- --------- -------- Net cash flows used by operating activities (6,204) (4,960) (3,436) -------- --------- -------- Cash flows from investing activities: Proceeds from collection of Welch notes 3,000 - - Proceeds from sale of property, plant and equipment - - - Proceeds from sale of BCA Holdings preferred stock - - 3,000 Dividends and advances from (to) subsidiaries - (772) 1,824 Additions to property, plant and equipment (6) (9) (10) -------- --------- -------- Net cash flows from (used by) investing activities 2,994 (781) 4,814 -------- --------- -------- Cash flows from financing activities: Proceeds from private placements of ARTRA common stock - 3,230 - Proceeds from exercise of stock options and warrants 48 30 129 Net increase (decrease) in short-term borrowings 5,488 1,226 (158) Exercise of redeemable common stock options (70) (50) - -------- --------- -------- Net cash flows from (used by) financing activities 5,466 4,436 (29) -------- --------- -------- Net increase (decrease) in cash 2,256 (1,305) 1,349 Cash balance beginning of year 91 1,396 47 -------- --------- -------- Cash balance end of year $2,347 $91 $1,396 ======== ========= ======== Supplemental schedule of noncash investing and financing activities: Issue common stock and redeemable common stock to pay down current liabilities $1,040 $756 $1,636 ARTRA common stock issued to Lori's bank lender as partial consideration for discharge of indebtedness - 2,500 -
The accompanying notes are an integral part of the condensed financial information. ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.) ARTRA GROUP INCORPORATED NOTES TO FINANCIAL INFORMATION (Registrant Only) 1. Presentation The condensed financial information of the Registrant has been prepared in accordance with the instructions for Schedule I to Form 10-K. The Registrant's investments in subsidiaries and affiliates are presented on the equity method. 2. Commitments and Contingencies See Note 15 of the consolidated financial statements. 3. Restricted Assets The terms of several agreements place certain restrictions on the net assets of certain operating subsidiaries. See Notes 9 and 10 of the consolidated financial statements for additional information. 4. Notes Payable and Long-Term Debt See Notes 9 and 10 of the consolidated financial statements. 5. Redeemable Common and Preferred Stock and Stock Options See Notes 11, 12 and 13 of the consolidated financial statements. 6. Income Taxes The Registrant files a consolidated income tax return with its 80% or more owned subsidiaries. Separate returns are filed by the Company's majority-owned, but less than 80% owned subsidiaries. For financial reporting purposes, the Registrant's charge or benefit equivalent to income tax represents the difference between the aggregate of income taxes computed on a separate return basis for each of the subsidiaries and affiliates and the income taxes computed on a consolidated basis. 7. Guarantees of Subsidiaries' Obligations See Notes 3 and 21 of the consolidated financial statements for a discussion of guarantees of subsidiary obligations. ARTRA GROUP INCORPORATED AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for each of the three fiscal years in the period ended December 28, 1995 (in thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions ---------------------- (1) (2) Balance at Charged to Charged to Beginning of Costs and Other Deductions Balance at Description Period Expenses Accounts (Describe) End of Period ------------------- --------- ---------- ----------- ---------- ------------- For the fiscal year ended December 28, 1995: Deducted from assets to which they apply: Allowance for inventory valuation $ 207 $ 315 $ (232)(A) $ 290 ========= ========== ======== ========= Allowance for markdowns $ 835 $ 291 $ (1,126)(A) $ - Allowance for doubtful accounts 819 487 (1,056)(A) 250 -------- ---------- -------- --------- $ 1,654 $ 778 $ (2,182) $ 250 ======== ========== ======== ========= For the fiscal year ended December 29, 1994: Deducted from assets to which they apply: Allowance for inventory valuation $ 4,315 $ 218 $ (4,326)(D) $ 207 ======== ========= ======== ========= Allowance for markdowns $ 2,499 $ 4,799 $ (6,463)(B) $ 835 Allowance for doubtful accounts 595 445 (221)(C) 819 -------- -------- -------- --------- $ 3,094 $ 5,244 $ (6,684) $ 1,654 ======== ======== ======== ========= For the fiscal year ended December 30, 1993: Deducted from assets to which they apply: Allowance for inventory valuation $ 4,900 $ 337 $ (922)(D) $ 4,315 ======== ========= ======== ======== Allowance for markdowns $ 5,280 $ 5,722 $ (8,503)(B) $ 2,499 Allowance for doubtful accounts 671 450 (526)(C) 595 -------- -------- -------- -------- $ 5,951 $ 6,172 $ (9,029) $ 3,094 ======== ======== ======== ========
(A) Principally amounts of discontinued operations. (B) Principally markdowns taken. (C) Principally uncollectible accounts written off, net of recoveries. (D) Principally inventory written off, net of recoveries. INDEX OF EXHIBITS (A) Exhibits included herein: EXHIBIT 3 Articles of Incorporation and By-laws 3.1 Statement with Respect to Shares of Series A Preferred Stock of Registrant. 3.2 Statement with Respect to Shares of Rights and Preferences of Series B Preferred Stock of Registrant. EXHIBIT 10 Material contracts 10.1 Letter Agreement dated February 26, 1996 by and among ARTRA GROUP Incorporated, ARTRA Subsidiary, Inc., BCA Holdings, Inc., Peter and Jean Harvey, and Bank of America Illinois, re. certain Purchase and Sale Agreement and Assignment between the Bank and Arabella S.A., a Luxembourg holding company. 10.2 PURCHASE AND SALE AGREEMENT AND ASSIGNMENT, dated as of February 26, 1996, by and between Bank of America Illinois (the "Seller") and Arabella S.A., a Luxembourg holding company (the "Purchaser"). 10.3 Letter Agreement dated February 26, 1996 by and among ARTRA GROUP Incorporated and Arabella S.A., a Luxembourg holding company, re. purchase of certain indebtedness by Arabella (the "Purchaser") from Bank of America Illinois (the "Seller"). 10.4 AMENDED AND RESTATED PROMISSORY NOTE, dated February 26, 1996 made by BCA HOLDINGS, INC. in favor of ARABELLA S.A. 10.5 OPTION TO PURCHASE SHARES OF COMMON STOCK OF BAGCRAFT CORPORATION OF AMERICA sold by BCA HOLDINGS, INC. to ARABELLA S.A. 10.6 PREFERRED STOCK AGREEMENT made by and between BCA HOLDINGS INC. AND BAGCRAFT CORPORATION OF AMERICA. 10.7 PREFERRED STOCK EXCHANGE AGREEMENT, dated as of January 31, 1996 by and between Ozite Corporation, BCA Holdings Inc. and Bagcraft Corporation of America. 10.8 LIMITED CONSENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT, dated as of February 1, 1996 between BAGCRAFT CORPORATION OF AMERICA and GENERAL ELECTRIC CAPITAL CORPORATION. EXHIBIT 11 Computation of earnings per share and equivalent share of common stock for each of the three years in the period ended December 28, 1995. EXHIBIT 21 Subsidiaries. EXHIBIT 24 Consent of Independent Accountants. (B) Exhibits incorporated herein by reference: EXHIBIT 3 Articles of Incorporation and By-laws 3.3 Amended and Restated Articles of Incorporation of the Registrant as filed in the Department of State of Pennsylvania on December 21, 1990. 3.4 Bylaws of the Registrant, amended as of July 24, 1990, filed as an exhibit to Registrant's Form 10-K for the year ended December 31, 1990. EXHIBIT 10 Material contracts 10.1 ASSET PURCHASE AGREEMENT made as of the 28th day of September, 1995, by and among Arcar Graphics, Inc., an Illinois corporation ("Arcar" or "Seller"), BCA Holdings, Inc., a Delaware corporation ("BCA"), Bagcraft Corporation of America, a Delaware corporation ("BCA" and, collectively with BCA, "Bagcraft"), ARTRA GROUP Incorporated, a Pennsylvania corporation ("ARTRA"), and Arcar Acquisition Corp., a Delaware corporation ("Buyer"), filed with Registrant's Form 8-K dated October 26, 1995. 10.2 LIMITED RELEASE, dated October 30, 1995, between NatWest Bank N. A. ("Releasor"), and ARTRA GROUP Incorporated and Peter R. Harvey ("Releasee"), filed with Registrant's Form 8-K dated October 26, 1995. 10.3 STOCK PURCHASE AGREEMENT, Dated September 11, 1995 by and Among Spectrum Technologies, Inc., The Lori Corporation, COMFORCE Corp.; ARTRA Group Incorporated, Peter R. Harvey, Marc L. Werner, James L. Paterek, Michael Ferrentino, and Christopher P. Franco, filed with Registrant's Form 8-K dated September 11, 1995. 10.4 Letter Agreement dated June 29, 1995, regarding employment or consulting services between The Lori Corporation, ARTRA Group Incorporated, James L. Paterek, Michael Ferrentino, and Christopher P. Franco, filed with Registrant's Form 8-K dated September 11, 1995. 10.5 ASSIGNMENT AGREEMENT, dated and effective March 31, 1995, by and among IBJ Schroder Bank & Trust Company, The Lori Corporation, Lawrence Jewelry Co., Lawrence Jewelry Corporation, New Dimensions Accessories Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., ARTRA GROUP Incorporated and Alexander Verde, filed as an exhibit to Registrant's Form 10-K, for the year ended December 29, 1994, dated April 12, 1995. 10.6 REGISTRATION AND SETTLEMENT AGREEMENT dated as of March 31, 1995 by and between ARTRA GROUP Incorporated and IBJ Schroder Bank & Trust Company filed as an exhibit to Registrant's Form 10-K, for the year ended December 29, 1994, dated April 12, 1995. 10.7 AMENDED SETTLEMENT AGREEMENT by and among THE LORI CORPORATION, LAWRENCE JEWELRY CO., LAWRENCE JEWELRY CORPORATION, NEW DIMENSIONS ACCESSORIES LTD. (formerly known as R.N. Koch, Inc.), ROSECRAFT, INC., FILL-MOR HOLDING, INC., ARTRA GROUP INCORPORATED AND IBJ SCHRODER BANK & TRUST COMPANY, dated as of December 23, 1994 filed as an exhibit to Registrant's Form 8-K, dated January 3, 1995. 10.8 Loan Agreement, dated as of December 23, 1994, by and among ARTRA GROUP Incorporated and McGOODWIN JAMES & CO filed as an exhibit to Registrant's Form 8-K, dated January 3, 1995. 10.9 Settlement Agreement dated August 18, 1994 by among The Lori Corporation, Lawrence Jewelry Co., Lawrence Jewelry Corporation, New Dimensions Accessories, Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., ARTRA GROUP Incorporated and IBJ Schroder Bank & Trust Company, dated as of August 18,1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.10 Pledge and Security Agreement between The Lori Corporation and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.10 Pledge and Security Agreement between Lawrence Jewelry Co. and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.11 Pledge and Security Agreement between Lawrence Jewelry Corporation and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.12 Pledge and Security Agreement between New Dimensions Accessories, Ltd and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.13 Pledge and Security Agreement between Rosecraft, Inc. and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.14 Pledge and Security Agreement between Fill-Mor Holding, Inc. and IBJ Schroder Bank & Trust Company dated as of August 18, 1994 filed as an exhibit to Registrant's Form 10-Q for the quarterly period ended June 30, 1994, dated August 19, 1994. 10.15 Credit Agreement dated as of December 17, 1993 by and between Bagcraft Corporation of America as Borrower and General Electric Capital Corporation as agent and lender filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. . 10.16 Loan Agreement dated December 27, 1993 in the amount of $5,000,000 between Bagcraft Corporation of America and the City of Baxter Springs, Kansas filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.19 Construction Loan Agreement dated as of February 15, 1994 in the amount of $7,000,000 between the City of Baxter Springs, Kansas and Bagcraft Corporation of America filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.20 Loan Agreement dated January 19, 1994 in the amount of $250,000 between Bagcraft Corporation of America and the City of Baxter Springs, Kansas filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.21 Loan Agreement dated January 20, 1994 in the amount of $250,000 between Bagcraft Corporation of America and the City of Baxter Springs, Kansas filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.22 Asset Purchase Agreement dated as March 1, 1994 by and between AGI Acq. Inc., a subsidiary of Bagcraft Corporation of America, and Arcar Graphics, Inc. filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.23 Loan and Security Agreement dated as of April 8, 1994 between AGI Acq. Inc. and American National Bank and Trust Company of Chicago filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. 10.24 Revolving Note dated as of April 8, 1994 in the amount of $1,500,000 from AGI Acq. Inc. to American National Bank and Trust Company of Chicago filed as an exhibit to Registrant's Form 10-K for the year ended December 30, 1993, dated April 11, 1994. EX-11 2 COMPUTATION OF EARNINGS LOSS PER SHARE EXHIBIT 11 ARTRA GROUP INCORPORATED COMPUTATION OF EARNINGS (LOSS) PER SHARE AND EQUIVALENT SHARE OF COMMON STOCK (In thousands, except per share data)
Fiscal Year --------------------------------- Line 1995 1994* 1993* -------- -------- -------- AVERAGE SHARES OUTSTANDING 1 Weighted average number of shares of common stock outstanding during the period 6,776 5,702 4,823 2 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury shares - - 85 --------- --------- -------- 3 Weighted average number of shares and equivalent shares of common stock outstanding during the period 6,776 5,702 4,908 ========= ========= ======== EARNINGS (LOSS) 4 Loss from continuing operations ($16,943) ($13,529) ($8,327) 5 Less dividends applicable to redeemable preferred stock (565) (516) (471) 6 Less redeemable common stock accretion (767) (309) (243) ========= ========= ======== 7 Amount for per share computation ($18,275) ($14,354) ($9,041) ========= ========= ======== 8 Loss before extraordinary credit (16,933) ($29,435) ($8,543) 9 Less dividends applicable to redeemable preferred stock (565) (516) (471) 10 Less redeemable common stock accretion (767) (309) (243) ========= ========= ======== 11 Amount for per share computation ($18,265) ($30,260) ($9,257) ========= ========= ======== 12 Net earnings (loss) ($2,903) ($20,470) $13,514 13 Less dividends applicable to redeemable preferred stock (565) (516) (471) 14 Less redeemable common stock accretion (767) (309) (243) --------- --------- -------- 15 Amount for per share computation ($4,235) ($21,295) $12,800 ========= ========= ======== PER SHARE AMOUNTS Loss from continuing operations (line 7 / line 3) ($2.69) ($2.56) ($1.84) ========= ========= ======== Loss before extraordinary credit (line 11 / line 3) ($2.69) ($5.30) ($1.88) ========= ========= ======== Net earnings (loss) (line 15 / line 3) ($0.63) ($3.73) $2.61 ========= ========= ========
Earnings (loss) per share is computed by dividing net earnings (loss), less redeemable preferred stock ock dividends and redeemable common stock accretion, by the weighted average number of shares of common stock tock and common stock equivalents (redeemable common stock, stock options and warrants), unless anti-dilutive, outstanding during the period. Fully diluted earnings (loss) per share are not presented since the result is s equivalent to primary earnings (loss) per share. _________________________________________________ * As reclassified for discontinued operations. EX-21 3 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES (As of April 9, 1996) ARTRA GROUP INCORPORATED (1) | | | A. G. Fill-Mor ARTRA ARTRA BCA Holding Corp. (2) Holding Inc (2) Resources Subsidiary Inc. Holdings Inc. 100 % Corp. (2) 100 % (3) 100 %(2) 100 % | Bagcraft Corporation of America (2) 100 % (1) Pennsylvania Corporation (2) Delaware Corporation (3) lllinois Corporation EX-24 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 24 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of ARTRA GROUP Incorporated on Form S-8 (File No. 2-61375) of our report, which includes an explanatory paragraph referring to an uncertainty concerning the Company's ability to continue as a going concern, dated April 9, 1996 on our audits of the consolidated financial statements and financial statement schedules of ARTRA GROUP Incorporated as of December 28, 1995 and December 29, 1994, and for each of the three fiscal years in the period ended December 28, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Chicago, Illinois April 9, 1996 EX-10 5 LETTER AGREEMENT EXHIBIT 10.1 ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 1 February 26, 1996 ARTRA GROUP Incorporated 500 Central Avenue Northfield, Illinois 60093 ARTRA Subsidiary, Inc. 500 Central Avenue Northfield, Illinois 60093 BCA Holdings, Inc. 500 North Central Northfield, Illinois 60693 Peter and Jean Harvey c/o ARTRA GROUP Incorporated Attention: Mr. Peter R. Harvey Gentlemen: Reference is made herein to that certain letter agreement dated September 29, 1991, as amended by that certain letter agreement dated February 11, 1992, as amended by that certain letter agreement dated September 10, 1992, as amended by that certain letter agreement dated December 31, 1992, as amended by that certain letter agreement dated June 30, 1993, as amended by that certain letter agreement dated March 31, 1994, and as further amended by that certain letter agreement dated June 30, 1995, from Continental Bank N.A., which has subsequently become Bank of America Illinois (the "Bank") addressed to and accepted by ARTRA GROUP Incorporated ("ARTRA"), ARTRA Subsidiary, Inc., a wholly-owned subsidiary of ARTRA ("ARTRA SUB"), BCA Holdings, Inc., a wholly-owned subsidiary of ARTRA ("BCA") and Peter and Jean Harvey ("Harvey") (as so amended, the "June 1995 Letter Agreement"). Reference is also made to the Harvey Indebtedness (as defined below) and all documents and instruments executed in connection therewith. Each of the ARTRA Notes (as defined below) has matured and the Harvey Indebtedness has matured. ARTRA, ARTRA Sub, BCA, the Harveys and the Bank have agreed to satisfy all obligations under the ARTRA Notes and Harvey Indebtedness, all in accordance with and subject to the provisions set forth herein. This letter shall be referred to hereinafter as this "Letter Agreement." I. Preliminary Statements. A. ARTRA Notes. 1. As of the date hereof, ARTRA is indebted to the Bank pursuant to the ARTRA Notes (as defined herein) in the aggregate principal amount of $14,563,639.59, together with interest thereon (the "Indebtedness"). ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 2 ARTRA is further indebted to the Bank for, among other things, legal fees through the date hereof, and the Outstanding Fee Amount (as defined in the September 1991 Letter Agreement). 2. The ARTRA Indebtedness is evidenced by, inter alia, that certain Amended and Restated Secured Promissory Note dated as of July 6, 1988, made by ARTRA payable to the order of Bank in the original principal amount of $5,000,000 (the "1988 ARTRA Note"), that certain Amended and Restated Promissory Note dated as of March 21, 1989, made by ARTRA payable to the order of Bank in the original principal amount of $2,500,000 (the "1989 ARTRA Note"), and that certain Amended and Restated Promissory Note dated as of June 22, 1990, made by ARTRA payable to the order of Bank in the original principal amount of $7,063,639.59 (the "1990 ARTRA Note", and collectively with the 1988 ARTRA Note and the 1989 ARTRA Note, the "ARTRA Notes"); 3. Payment of the 1988 ARTRA Note is partially guaranteed by that certain Guaranty dated July 6, 1988, made by Mr. Barry Rymer ("Rymer") in favor of Bank (as heretofore amended and supplemented, the "1988 Rymer Guaranty"), and fully guaranteed by (i) that certain Amended and Restated ARTRA SUB Guaranty and Security Agreement executed on October 15, 1991, by ARTRA SUB in favor of Bank (as heretofore amended and supplemented, the "ARTRA SUB Guaranty and Security Agreement"), and (ii) that certain BCA Holdings, Inc. Guaranty and Security Agreement executed on October 15, 1991 by BCA in favor of Bank (as heretofore amended and supplemented, the "BCA Guaranty and Security Agreement"); 4. Payment of the 1989 ARTRA Note is partially guaranteed by that certain Guaranty dated March 21, 1989, made by Rymer in favor of Bank (as heretofore amended and supplemented, the "1989 Rymer Guaranty" and together with the 1988 Rymer Guaranty, the "Rymer Guaranties"), and fully guaranteed by the ARTRA SUB Guaranty and Security Agreement and the BCA Guaranty and Security Agreement; 5. Payment of the 1990 ARTRA Note is fully guaranteed by (i) the ARTRA Sub Guaranty and Security Agreement and (ii) the BCA Guaranty and Security Agreement; 6. Payment of the ARTRA Indebtedness is secured by, inter alia, (i) that certain Amended and Restated Pledge Agreement dated as of June 22, 1990, made by and between ARTRA and Bank (as heretofore amended and supplemented, the "1990 ARTRA Pledge Agreement"), (ii) that certain ARTRA Pledge Agreement dated as of September 29, 1991, made by and between ARTRA and Bank (as heretofore amended and supplemented, the "1991 ARTRA Pledge Agreement") and (iii) that certain Pledge and Security Agreement and Financing Statement dated as of September 29, 1991, by and between BCA and Bank (as heretofore amended, the "BCA Pledge Agreement") (collectively, the "ARTRA Collateral"); 7. Each of the 1988 ARTRA Note, the 1989 ARTRA Note and the 1990 ARTRA Note has matured, and Bank has not received principal payment of the 1988 ARTRA Note, 1989 ARTRA Note or the 1990 ARTRA Note or payment of interest due thereunder or payment of certain fees to which Bank is entitled thereunder. As a result of such non-payment, ARTRA is in default under the June 1995 Letter Agreement and each of the ARTRA Notes; B. Harvey Indebtedness 1. Harvey is indebted to Bank pursuant to Harvey Note A, Harvey Note B, the Canary Obligations and Mortgage Note (each as defined below), in the aggregate principal amount of $7,496,830, together with accrued interest thereon (collectively, the "Harvey Indebtedness"); ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 3 2. On September 14, 1990, Peter R. Harvey and Jean M. Harvey made and delivered to Bank a promissory note payable on demand in the original principal amount of $1,400,000 ("Harvey Note A"); 3. As security for the payment of Harvey Note A and all extensions, renewals and substitutions, defendants Peter R. Harvey and Jean M. Harvey gave Bank a lien upon and a security interest in certain collateral consisting of sundry securities (the "Harvey Note A Collateral"); 4. On September 14, 1990, Peter R. Harvey made and delivered to Bank a promissory note payable on demand in the original principal amount of $896,830 ("Harvey Note B"); 5. As security for the payment of Harvey Note B and all extensions, renewals and substitutions, defendant Peter Harvey gave Bank a lien upon and a security interest in certain collateral consisting of sundry securities (the "Harvey Note B Collateral"); 6. On April 27, 1989, Peter R. Harvey executed a guaranty (the "Canary Guaranty") in favor of Bank, as reaffirmed by a reaffirmation agreement dated as of November 6, 1991 with respect to the Canary Guaranty (the "Reaffirmation Agreement"); 7. Pursuant to the Canary Guaranty and the Reaffirmation Agreement, Peter R. Harvey and Prior Management, Inc. guaranteed repayment to Bank of all obligations of the Canary and the Elephant, Inc. (hereinafter "Canary") to Bank, including (a) those pursuant to that certain Demand Promissory Note dated as of April 27, 1989, made by Canary payable to the order of Bank in the original principal amount of $5,700,000 and (b) those made by Canary pursuant to that certain Loan and Security Agreement dated as of November 6, 1991, between Canary and Bank, which provided for Canary to borrow funds from Bank pursuant to a revolving credit facility in the original principal amount of $800,000 (collectively, the "Canary Obligations"); 8. Peter R. Harvey's liability under the Canary Guaranty is limited to the amount of $2,200,000, plus interest on such amount and all expenses of enforcing the Canary Guaranty, including attorneys' fees; 9. Bank is the first mortgage lienholder on certain real property and improvements located in Northbrook, Cook County, Illinois (the "Mortgage Note Collateral" and, collectively with the Harvey Note A Collateral and the Harvey Note B Collateral, the "Harvey Collateral") through operation of the following documents: a. Mortgage dated as of March 1, 1983, Supplemental Mortgage dated as of November 22, 1983, Supplemental Mortgage Modification and Extension Agreement dated as of March 12, 1985, and Second Supplemental Mortgage Modification and Extension Agreement dated as of January 14, 1988, all made by First Bank, formerly National Boulevard Bank, N.A., formerly National Boulevard Bank of Chicago, as Trustee under a Trust Agreement dated as of February 10, 1977 known as Trust No. 5601 ("Mortgagor") (collectively, the "Mortgage"); b. Fourth Substitute Note dated as of September 7, 1990 made by Peter R. Harvey and Jean M. Harvey payable to Bank in the principal amount of $3,000,000 (the "Mortgage Note"); In consideration of the above Preliminary Statements and the mutual covenants contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged by all parties hereto, ARTRA, ARTRA SUB, BCA, Harvey, Jean Harvey and the Bank hereby agree as follows: ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 4 II. Transactions To Be Consummated On The Closing Date. A. Sale and Assignment of ARTRA Notes, Harvey Indebtedness and collateral security and related rights and documents. 1. On the Closing Date, pursuant to that certain Purchase and Sale Agreement and Assignment between the Bank and Arabella S.A., a Luxembourg holding company ("Buyer"), of even date herewith, the form of which is attached hereto as Exhibit A, the Bank shall sell and assign all of its right, title and interest in the ARTRA Notes, the Harvey Indebtedness and all collateral security and related documentation (except for the Mortgage Note and Mortgage Note Collateral) to Buyer, as is, without any representations or warranties whatsoever, in consideration of $5,150,000 (the "Cash Purchase Price"), to be paid in cash at closing. 2. In addition, on the Closing Date, the Mortgage Note shall be amended and restated such that the indebtedness owing to the Bank thereunder is $3,000,000 (the "Amended Mortgage Note"). The form of the Amended Mortgage Note is attached hereto as Exhibit B. The term of such Amended Mortgage Note shall provide for maturity one year from the date hereof, with interest at the Bank's Reference Rate (as defined in the Amended Mortgage Note). In consideration of the transactions contemplated by this Letter Agreement, including, without limitation, the releases contained herein, the Bank shall sell to ARTRA a participation in the Amended Mortgage Note, pursuant to the terms and conditions of that certain Participation Agreement between the Bank and ARTRA of even date herewith (the "Participation Agreement"), the form of which is attached hereto as Exhibit C. B. Release. Effective on the date hereof, for valuable consideration the receipt of which is hereby acknowledged, ARTRA, ARTRA SUB, BCA, Harvey and Jean Harvey hereby, for themselves, and their affiliates, successors, heirs, executors, administrators and assigns ("Releasors"), forever release, discharge and acquit the Bank and its parents, subsidiaries and affiliates, and each of their respective officers, directors, shareholders, attorneys, agent and employees and their successors, heirs and assigns ("Released Parties"), and each of them, separately and collectively, of and from any and all claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes of action, actions, counterclaims, debts, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, losses and expenses, of every type, kind, nature, description or character, and irrespective of how, why or by reason of what fact ("Claims"), whether heretofore, now existing or hereafter arising, or which could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, fixed or contingent, and defenses of every nature and kind whatsoever, each as though fully set forth herein at length, including but not limited to any Claims which in any way arise prior to the date hereof out of, are connected with or relate to the transactions contemplated by and occurring in connection with the ARTRA Notes, the Harvey Indebtedness and the other loan documents or any other loan or extension of credit by the Bank or any of the other Released Parties to any of the Releasors prior to the date hereof, as well as any action or inaction of any person or entity released hereunder with respect thereto, and any action or inaction with respect to any and all guaranties of the indebtedness evidenced thereby and/or any and all collateral security for such indebtedness. Notwithstanding the foregoing, the Bank shall continue to have its rights and obligations under the Amended Mortgage Note and Mortgage Note Collateral documents from and after the date hereof. Effective on the Closing Date, the Released Parties release, discharge and acquit the Releasors of and from any and all Claims which in any way arise prior to the Closing Date out of, are connected with or relate to the transactions ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 5 contemplated by, and occurring in connection with, the ARTRA Notes and the Harvey Indebtedness (excluding any and all claims arising at any time whatsoever relating to the Mortgage Note or the Mortgage Note Collateral). In this connection, the Releasors hereby agree, represent and warrant that they realize and acknowledge that factual matters now unknown to them may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and they further agree, represent and warrant that this release has been negotiated and agreed upon in light of that realization and that they nevertheless hereby intend to release, discharge and acquit the parties set forth hereinabove from any such unknown losses or Claims which are in any way related to the transactions referred to hereinabove. It is hereby further understood and agreed that the acceptance of delivery of this release by the parties released hereby shall not be deemed or construed as an admission of liability by any party released by the terms hereof, and each such party hereby expressly denies liability of any nature whatsoever arising from or related to the subject of the within release. C. Litigation Covenants. 1. The Bank hereby covenants that it shall promptly after the Closing Date, take all necessary and appropriate action, in good faith, to have the following lawsuits dismissed with prejudice: Bank of America v. ARTRA Group Incorporated, ARTRA Subsidiary, Inc and BCA Holdings, Inc., Case 95L13519, Circuit Court of Cook County, Illinois, Law Division; Bank of America v. Peter and Jean Harvey, Case 94L0769, Circuit Court of Cook County, Illinois, Law Division; and Bank of America v. Barry Rymer, Case 94L13521, Circuit Court of Cook County, Illinois, Law Division. 2. Upon receipt by the Bank of executed confessions of judgement by Peter R. Harvey and Jean M. Harvey in form and substance satisfactory to the Bank, the Bank will take necessary appropriate action to dismiss, without prejudice, the lawsuit entitled Bank of America v. First Bank, formerly National Boulevard Bank, N.A., formerly National Boulevard Bank of Chicago, as Trustee under a Trust Agreement dated February 20, 1977 Known as Trust No. 5601; Peter R. Harvey and Jean M. Harvey, individually, and unknown others, Case 94CH05671, Circuit Court of Cook County, Illinois, Chancery Division. III. The Closing Date. The Closing Date shall occur when, and for purposes of this Letter Agreement shall be defined as the date upon which, each of the following has occurred: A. The Bank shall have received counterparts of this Letter Agreement duly executed by ARTRA, ARTRA SUB, BCA, Harvey and Jean Harvey. B. Final documentation of the sale and assignment of the ARTRA Notes, Harvey Indebtedness and all collateral security and related rights and documents (except the Mortgage Note and Mortgage Note Collateral) ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 6 and all related documentation shall have been fully executed and effective pursuant to their terms and all conditions precedent thereto shall have been satisfied or duly waived; C. the Amended Mortgage Note and the Participation Agreement shall have been duly executed and delivered by all parties thereto; D. the Bank shall have received an officer's certificate together with resolutions of the Board of Directors of each of ARTRA, ARTRA SUB and BCA; E. the Cash Purchase Price shall have been received by the Bank; and F. the Bank shall have received all further instruments and documents which are necessary or appropriate, or which the Bank shall reasonably request, in order to implement the agreements described herein, each duly executed by all parties thereto. IV. Future Release. Upon the request of Harvey, and after the indefeasible payment in full of the Seller's Interest (as defined in the Participation Agreement), the Bank agrees to execute and deliver such releases of the Mortgage Note and Mortgaged Note Collateral that are reasonable and necessary under the circumstances. V. Governing Law. THIS LETTER AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. VI. Waiver of Jury Trial. ARTRA, ARTRA SUB, BCA AND HARVEY EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THEM AND THE BANK ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS LETTER AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. ARTRA, ARTRA SUB, BCA AND HARVEY EACH AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION MAY BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS LETTER AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ARTRA, ARTRA SUB, BCA OR HARVEY TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. ARTRA GROUP Incorporated ARTRA Subsidiary, Inc. BCA Holdings, Inc. February 26, 1996 Page 7 Please indicate your agreement to be bound by the terms of this Letter Agreement by signing in the space provided below. Very truly yours, BANK OF AMERICA ILLINOIS By: Title: Vice President AGREED, ACCEPTED AND ACKNOWLEDGED this 26th day of February, 1996 ARTRA GROUP INCORPORATED ARTRA SUBSIDIARY, INC. By: By: Title: Title: BCA HOLDINGS, INC. PETER HARVEY By: Title: JEAN HARVEY EX-10 6 PURCHASE AND SALE AGREEMENT EXHIBIT 10.2 PURCHASE AND SALE AGREEMENT AND ASSIGNMENT This Purchase and Sale Agreement and Assignment, dated as of February 26, 1996 (this "Agreement"), is made by and between Bank of America Illinois (the "Seller") and Arabella S.A., a Luxembourg holding company (the "Purchaser"). PRELIMINARY STATEMENTS: A. ARTRA Indebtedness. 1. As of the date of this Agreement, ARTRA GROUP Incorporated ("ARTRA") is indebted to the Seller under the ARTRA Notes (as defined below) in the aggregate principal amount of $14,563,639.59, together with interest on such principal amount (collectively, the "ARTRA Indebtedness"). ARTRA is further indebted to the Seller for, among other things, legal fees through the date of the Agreement and the Outstanding Fee Amount under, and as defined in, the letter agreement dated September 29, 1991 (as amended or supplemented) from the Seller (f/k/a Continental Bank N.A.) and addressed to and accepted by ARTRA, ARTRA Subsidiary Inc., a wholly owned subsidiary of ARTRA ("ARTRA SUB"). 2. The ARTRA Indebtedness is evidenced by, among other things, the Amended and Restated Secured Promissory Note dated as of July 6, 1988, made by ARTRA payable to the order of the Seller in the original principal amount of $5,000,000 (the "1988 ARTRA Note"), the Amended and Restated Promissory Note dated as of March 21, 1989, made by ARTRA payable to the order of the Seller in the original principal amount of $2,500,000 (the "1989 ARTRA Note"), and the Amended and Restated Promissory Note dated as of June 22, 1990, made by ARTRA payable to the order of the Seller in the original principal amount of $7,063,639.59 (the "1990 ARTRA Note" and, together with the 1988 ARTRA Note and the 1989 ARTRA Note, the "ARTRA Notes"). 3. Under the Subordination Agreement dated as of March 31, 1994 (the "Kenny Subordination Agreement") by and between the Seller and Kenny Construction Company ("Kenny"), payment of the ARTRA Indebtedness is senior to the indebtedness of ARTRA to Kenny under the Amended and Restated Promissory Note dated as of March 21, 1989 made by ARTRA and payable to the order of Kenny in the original principal amount of $2,500,000. 4 Payment of the 1988 ARTRA Note is partially guaranteed by the Guaranty dated July 6, 1988, made by Barry Rymer ("Rymer") in favor of the Seller (as amended, restated or supplemented, the "1988 Rymer Guaranty"), and fully guaranteed by (i) the Amended and Restated ARTRA SUB Guaranty and Security Agreement executed on October 15, 1991, by ARTRA SUB in favor of the Seller (as amended, restated or supplemented, the "ARTRA SUB Guaranty"), and (ii) the BCA Holdings, Inc. Guaranty and Security Agreement executed on October 15, 1991 by BCA Holdings, Inc., a wholly owned subsidiary of ARTRA ("BCA"), in favor of the Seller (as amended, restated or supplemented, the "BCA Guaranty"). 5. Payment of the 1989 ARTRA Note is partially guaranteed by the Guaranty dated March 21, 1989, made by Rymer in favor of the Seller (as amended, restated or supplemented, the "1989 Rymer Guaranty" and, together with the 1988 Rymer Guaranty, the "Rymer Guaranties"), and fully guaranteed by the ARTRA SUB Guaranty and the BCA Guaranty. 6. Payment of the 1990 ARTRA Note is fully guaranteed by (i) the ARTRA SUB Guaranty and (ii) the BCA Guaranty. 7. Payment of the ARTRA Indebtedness is secured by, among other things, (i) the Amended and Restated Pledge Agreement dated as of June 22, 1990, made by and between ARTRA and the Seller (as amended, restated or supplemented, the "1990 ARTRA Pledge Agreement"), (ii) the ARTRA Pledge Agreement dated as of September 29, 1991, made by and between ARTRA and the Seller (as amended, restated or supplemented, the "1991 ARTRA Pledge Agreement") and (iii) the Pledge and Security Agreement and Financing Statement dated as of September 29, 1991, by and between BCA and the Seller (as amended, restated or supplemented, the "BCA Pledge Agreement" and, together with the 1990 ARTRA Pledge Agreement, the 1991 Pledge Agreement, the Rymer Guaranties, the ARTRA SUB Guaranty, the BCA Guaranty and the Kenny Subordination Agreement, the "ARTRA Collateral"). B. Harvey Indebtedness. 1. As of the date of this Agreement, Peter R. Harvey and/or Jean M. Harvey (collectively, "Harvey") are indebted to the Seller under the Harvey Note A, the Harvey Note B and the Canary Obligations (each as defined below), in the aggregate principal amount of $4,496,830, together with accrued interest on such principal amount (collectively, excluding the Mortgage Note (as defined below), the "Harvey Indebtedness"). 2. On September 14, 1990, Harvey made and delivered to the Seller a promissory note payable on demand in the original principal amount of $1,400,000 (the "Harvey Note A"). 3. On September 14, 1990, Peter R. Harvey made and delivered to the Seller a promissory note payable on demand in the original principal amount of $896,830 (the "Harvey Note B"). 4. As security for the payment of the Harvey Note A, the Harvey Note B and all extensions, renewals and substitutions, Peter R. Harvey gave the Seller a lien upon and a security interest in certain collateral consisting of sundry securities listed on Schedule I (the "Harvey Note Collateral"). 5. On April 27, 1989, The Canary and the Elephant, Inc. ("Canary") made and delivered to the Seller a promissory note payable on demand in the original principal amount of $5,700,000 (the "Canary Note") and on November 6, 1991, Canary and the Seller entered into a revolving credit facility, which provided for Canary to borrow funds from the Seller in the original principal amount of $800,000 (collectively with the Canary Note, the "Canary Obligations"). 6. On April 27, 1989, Peter R. Harvey executed a guaranty (the "Canary Guaranty") in favor of the Seller, as reaffirmed by a reaffirmation agreement dated as of November 6, 1991 with respect to the Canary Guaranty (the "Reaffirmation Agreement" and, together with the Canary Guaranty and the Harvey Note Collateral, the "Harvey Collateral"), under which Peter R. Harvey guaranteed repayment to the Seller of all obligations of Canary to the Seller under the Canary Obligations; Peter R. Harvey's liability under the Canary Guaranty is limited to the amount of $2,200,000, plus interest on such amount and all expenses of enforcing the Canary Guaranty, including attorneys' fees. C. Mortgage. 1. As of the date of this Agreement, Harvey is indebted to the Seller in the aggregate principal amount of $3,000,000, together with interest on such principal amount, under the Fourth Substitute Note dated as of September 7, 1990 (as amended, restated or supplemented, the "Existing Mortgage Note") made by Harvey payable to the Seller in the original principal amount of $3,000,000. 2. Concurrently with the execution of this Agreement, the Existing Mortgage Note is amended and restated such that (i) the rate at which the principal amount of the Existing Mortgage Note will accrue interest is the Seller's "Reference Rate," (ii) interest is payable quarterly in arrears and (iii) the principal amount of the Existing Mortgage Note matures one year from the date of this Agreement (as amended and restated, the "Mortgage Note"). 3. Payment of the Mortgage Note is secured by a first mortgage lien on real property and improvements located in Northbrook, Cook County, Illinois (the "Mortgage Note Collateral") through operation of the Mortgage Note and the Mortgage dated as of March 1, 1983, the Supplemental Mortgage as of dated November 22, 1983, the Supplemental Mortgage Modification and Extension Agreement dated as of March 12, 1985, and the Second Supplemental Mortgage Modification and Extension Agreement dated as of January 14, 1988, all made by First Bank (formerly National Boulevard Bank, N.A., formerly National Boulevard Bank of Chicago), as Trustee under a Trust Agreement dated as of February 10, 1977 known as Trust No. 5601. D. Purchase and Sale Agreement and Assignment. 1. The Seller desires to sell to the Purchaser and the Purchaser desires to purchase from the Seller all of the Seller's right, title and interest in the ARTRA Indebtedness and the Harvey Indebtedness, excluding the Mortgage Note (the "Purchase and Sale"). 2. In connection with the Purchase and Sale, the Purchaser will receive assignment of all of the Seller's right, title and interest in the ARTRA Collateral and the Harvey Collateral, excluding the Mortgage Note Collateral (the "Assignment"). 3. In consideration of the Purchase and Sale and the Assignment, the Seller will receive from the Purchaser the sum of $5,150,000 in cash. AGREEMENT: The Purchaser and the Seller agree the following terms and conditions govern the Purchase and Sale and the Assignment: 1. PURCHASE, SALE AND ASSIGNMENT 1.1 Purchase and Sale. On the date this Agreement becomes effective, after satisfaction of each of the conditions set forth in Section 5 (the "Closing Date"), the Seller shall sell to the Purchaser and the Purchaser shall acquire from the Seller all right, title and interest of the Seller in the ARTRA Indebtedness and the Harvey Indebtedness, excluding the Mortgage Note. 1.2 Assignment. On the Closing Date, the Seller shall assign to the Purchaser all documents, agreements, papers and instruments guarantying or securing the ARTRA Indebtedness, as set forth on Schedule II and the Harvey Indebtedness, excluding the Mortgage Note Collateral, as set forth in Schedule III (collectively, the "Indebtedness Agreements"). 1.3 Purchase Price. On the Closing Date, the Purchaser shall pay to the Seller, in immediately available funds, a purchase price (the "Purchase Price") of $5,150,000. 1.4 Non-Recourse Sale. It is agreed by the Seller and the Purchaser that the purchase and sale of the ARTRA Indebtedness and the Harvey Indebtedness under this Agreement, as well as the assignment of the ARTRA Collateral and the Harvey Collateral under this Agreement, is without recourse and without representation or warranty, express (except as set forth in Section 2) or implied, by the Seller. 1.5 Further Assurances. The Seller agrees that at any time and from time to time, at the cost and expense of the Purchaser, the Seller will execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary to complete the Assignment. 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER To induce the Purchaser to enter into this Agreement, the Seller represents and warrants to the Purchaser that: 2.1 Authority and Enforceability. The execution, delivery and performance of this Agreement by the Seller have been duly authorized by all necessary action on the part of the Seller. 2.2 Indebtedness Documents. To the best of the Seller's knowledge, (i) the ARTRA Indebtedness and Harvey Indebtedness constitutes all of the obligations of ARTRA, ARTRA SUB, BCA and Harvey to the Seller, respectively, except for the Mortgage Note, (ii) the Seller is the sole owner and holder the ARTRA Notes, the Harvey Note A and the Harvey Note B and (iii) the documents, instruments and agreements listed on Schedules II and III constitute all the material documents, instruments and agreements governing the ARTRA Collateral and the Harvey Collateral. 2.3 Exclusive Representations and Warranties. The representations and warranties set forth in this Section 2 are the sole and exclusive representations and warranties made by the Seller, its representatives, agents, officers, directors and other employees, with respect to the ARTRA Indebtedness, the Harvey Indebtedness, the ARTRA Collateral, the Harvey Collateral the Mortgage Note or the Mortgage Note Collateral, and the sale or assignment thereof to the Purchaser under this Agreement or otherwise. Without limiting the generality of the foregoing, it is expressly acknowledged and agreed by the Purchaser that no covenant, agreement, representation or warranty made by the Seller or any such other person, in this Agreement or otherwise, is construed as a warranty, representation, guaranty or other agreement or acknowledgement as to, nor does the Seller or any such other person assume any responsibility for: (A) the creditworthiness of ARTRA, ARTRA SUB, BCA or Harvey or the collectability of the ARTRA Notes, the Harvey Note A, the Harvey Note B or the Mortgage Note or the ARTRA Collateral, the Harvey Collateral or the Mortgage Note Collateral by reason of the respective obligors' ability to make payments with respect thereto; (B) the conformity of the ARTRA Indebtedness, the Harvey Indebtedness, the Mortgage Note, the ARTRA Collateral, the Harvey Collateral, or the Mortgage Note Collateral with laws and regulations binding upon the Seller or the Purchaser; (C) the genuineness, legality, validity or enforceability of the ARTRA Indebtedness, the Harvey Indebtedness, the Mortgage Note, the ARTRA Collateral, the Harvey Collateral or the Mortgage Note Collateral, whether by the Seller or otherwise; or (D) the value of the ARTRA Collateral, the Harvey Collateral or the Mortgage Note Collateral or the priority or validity of the liens and security interests with respect to the ARTRA Indebtedness, the Harvey Indebtedness or the Mortgage Note. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER To induce the Seller to enter into this Agreement, the Purchaser represents and warrants to the Seller that: 3.1 Legal Status. The Purchaser is an entity duly organized and validly existing under the laws of the jurisdiction of its organization. 3.2 Capacity. The Purchaser has full power, authority and legal right to execute and deliver, and to perform and observe the provisions of this Agreement and to carry out the transactions contemplated by this Agreement, including, without limitation, to purchase the ARTRA Indebtedness and the Harvey Indebtedness and to receive assignment of the ARTRA Collateral and the Harvey Collateral from the Seller. 3.3 Authority and Enforceability. The execution, delivery and performance of this Agreement by the Purchaser have been duly authorized by all necessary action. 3.4 No Reliance. The Purchaser has, independently and without reliance upon the Seller or any of the Seller's officers, directors, employees, agents or affiliates, and based upon such documents and information as the Purchaser has deemed appropriate, made its own appraisal of and investigation into ARTRA, ARTRA SUB, BCA and Harvey, the ARTRA Indebtedness, the Harvey Indebtedness, the Mortgage Note, the ARTRA Collateral, the Harvey Collateral and the Mortgage Note Collateral and made its own decision to enter into this Agreement and to purchase the ARTRA Indebtedness and the Harvey Indebtedness and to receive assignment of the ARTRA Collateral and the Harvey Collateral under this Agreement. 4. INDEMNIFICATION The Purchaser agrees to indemnify, defend and hold harmless the Seller from and against any and all liabilities, claims, demands, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees for the Seller's outside attorneys and allocated costs and expenses of the Seller's in-house attorneys), actions or causes of action (collectively and severally, "Claims"), assessed against or imposed upon the Seller by any person or entity, arising out of or related to any action or inaction by the Purchaser following the Closing Date as successor in interest to the Seller under the ARTRA Indebtedness, the Harvey Indebtedness, the ARTRA Collateral and the Harvey Collateral; provided, however, that the Purchaser has no obligation under this Section 4 with respect to any Claims directly resulting from the willful misconduct of the Seller. 5. CONDITIONS TO EFFECTIVENESS. The transactions contemplated by this Agreement are deemed to have occurred for all purposes at the opening of business of the Seller on the date all conditions precedent set forth below have been met (or waived in writing): 5.1 Conditions Precedent to the Obligations of the Seller. The obligation of the Seller to sell the ARTRA Indebtedness and the Harvey Indebtedness, excluding the Mortgage Note, to the Purchaser under this Agreement, and to assign the ARTRA Collateral and the Harvey Collateral to the Purchaser under this Agreement, are subject to the following conditions: (A) This Agreement. The Seller has received a duly executed and delivered copy of this Agreement (or counterpart copies of this Agreement). (B) Purchase Price. The Seller has received the Purchase Price. (C) Resolutions. The Seller has received evidence satisfactory to the Seller that the board of directors, shareholders or general partners, as the case may be, of the Purchaser have approved the execution, delivery and performance of this Agreement. (D) Letter Agreement. All conditions set forth in the letter agreement of even date herewith from the Seller and addressed to and accepted by ARTRA, ARTRA SUB, BCA and Harvey have been satisfied. (E) Other. The Seller has received all further instruments and documents which are necessary or appropriate, or which the Seller reasonably requests, in order to implement the agreements contained in this Agreement, each duly executed by all parties to such instruments and documents. 5.2 Conditions Precedent to the Obligations of the Purchaser. The obligation of the Purchaser to purchase the ARTRA Indebtedness and the Harvey Indebtedness from the Seller under this Agreement is subject to the following conditions: (A) This Agreement. The Purchaser has received a duly executed and delivered copy of this Agreement (or counterpart copies of this Agreement). (B) Endorsed Notes. The Purchaser has received the ARTRA Notes, the Harvey Note A and the Harvey Note B, each duly endorsed as follows: Pay to The Order of Arabella S.A., a Luxembourg holding company, without recourse. Signed. (C) Indebtedness Agreements. The Purchaser has received the original of each Indebtedness Agreement which the Seller has agreed to sell, assign and transfer to the Purchaser under this Agreement, as set forth on Schedule II and III (or if the original is not in the possession of the Seller, a copy of such Indebtedness Agreement), accompanied by an assignment in the form attached as Exhibit A. (D) Possessory Collateral. The Purchaser has received such of the ARTRA Collateral and the Harvey Collateral as is held by the Seller. 6. MISCELLANEOUS 6.1 Survival. The representations and warranties, covenants and agreements of the Seller and the Purchaser under this Agreement survive the Closing Date. 6.2 Waiver. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, is deemed to be, or construed as, a further or continuing waiver of any such term, provision or condition, or of any other term, provision or condition of this Agreement. 6.3 Captions. The preliminary statements of this Agreement (except for definitions) and section or other headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement. 6.4 Entire Agreement. This Agreement constitutes the entire agreement between the Seller and the Purchaser with regard to the subject matter of this Agreement, and there are no prior agreements, understandings, restrictions, warranties or representations between the parties with regard to the subject matter of this Agreement. 6.5 Assignment. This Agreement is not assignable, by operation of law or otherwise, by the Purchaser (or its successors or assigns) to any person or entity without the prior written consent of the Seller. Any purported assignment in violation of this subsection 6.5 is void and of no effect as against the Seller. Subject to the foregoing, this Agreement is binding upon, and inures to the benefit of, the Seller, the Purchaser, ARTRA, ARTRA SUB, BCA and Harvey and their respective successors and assigns. 6.6 Amendment and Waiver. Neither this Agreement nor any provision of this Agreement may be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 6.7 Counterparts. This Agreement may be executed in counterparts and such counterparts, when taken together, constitute one and the same agreement. The Seller and the Purchaser agree to accept facsimile counterparts. 6.8 Notices. Any notices to be given under this Agreement are sufficiently given if in writing and delivered personally, sent by telecopy (answerback received), mailed by registered or certified mail, return receipt requested, postage prepaid, or sent by overnight courier to the following addresses or to such other address as the parties may from time to time designate in writing delivered in accordance with this subsection 6.8: To the Purchaser: Arabella S.A. c/o Scorpion Holdings 599 Lexington Avenue, Suite 2700 New York, New York 10022 Attention: Kevin McCarthy N. Brandolini Telephone: (212) 207-9020 Fax: (212) 207-9050 with a copy to: Altheimer & Gray 10 South Wacker Drive Chicago, Illinois 60606 Attention: Nancy L. Kasko, Esq. Telephone: (312) 715-4000 Fax: (312) 715-4800 with a copy to: Kwiatt, Silverman & Ruben 500 North Central Avenue Northfield, Illinois 60093 Attention: Philip E. Ruben, Esq. Telephone: (847) 441-7676 Fax: (847) 441-7696 To the Seller: Bank of America Illinois 231 South LaSalle Street 8th Floor Chicago, Illinois 60697 Attention: Andrew J. Sutherland Telephone: (312) 828-8673 Fax: (312) 987-1276 with a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Attention: David S. Kurtz, Esq. Timothy R. Pohl, Esq. Telephone: (312) 782-3939 Fax: (312) 782-8585 with a copy to: Kwiatt, Silverman & Ruben 500 North Central Avenue Northfield, Illinois 60093 Attention: Philip E. Ruben, Esq. Telephone: (847) 441-7676 Fax: (847) 441-7696 Any notice to be given under this Agreement is deemed received (i) on the date delivered, if delivered personally, (ii) on the date a telecopied answerback is received, if sent by telecopy, (iii) on the third business day after the date such notice was sent, if sent by registered or certified mail, or (iv) the date of the stamped receipt, if sent by overnight delivery service. 6.9 Governing Law, Severability. THIS AGREEMENT IS GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS. Wherever possible, each provision of this Agreement is interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is prohibited by, or invalid under, applicable law, such provision is ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. 6.10 CONSENT TO JURISDICTION. THE SELLER AND THE PURCHASER CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED IN THE COUNTY OF COOK IN THE STATE OF ILLINOIS FOR ANY PROCEEDING FOR ANY OBLIGATION UNDER THIS AGREEMENT AND WAIVE ANY OBJECTION WHICH THEY MAY NOW OR HEREINAFTER HAVE TO THE LAYING OF VENUE OR TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION OR PROCEEDING OR ANY CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. 6.11 WAIVER OF JURY TRIAL. THE PURCHASER AND THE SELLER WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE SELLER AND THE PURCHASER ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS RELATED TO THIS AGREEMENT. THE PURCHASER AND THE SELLER AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION MAY BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT EITHER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. * * * Delivered at Chicago, Illinois, as of the day and year above first written. BANK OF AMERICA ILLINOIS By: Andrew J. Sutherland Vice President ARABELLA S.A., a Luxembourg holding company By: Name: Title: Accepted and Acknowledged as of the day and year first above written. ARTRA GROUP INCORPORATED By: Name: Title: ARTRA SUBSIDIARY, INC. By: Name: Title: BCA HOLDINGS, INC. By: Name: Title: Peter R. Harvey Jean M. Harvey EXHIBIT A Form of Assignment of Indebtedness Agreement FOR VALUE RECEIVED, the undersigned ("Assignor") grants, assigns and transfers to Arabella S.A., a Luxembourg holding company ("Assignee"), without recourse and without representation or warranty, express or implied (except as explicitly set forth in the Purchase and Sale Agreement and Assignment dated as of February 26, 1996 by and between Assignor and Assignee), all right, title and interest of Assignor under the documents described on Schedule 1 attached hereto, the originals or true and correct copies of which are attached hereto as well. Dated: February 26, 1996 BANK OF AMERICA ILLINOIS By: Andrew J. Sutherland Vice President SCHEDULE I Sundry Securities Comprising Harvey Note A Collateral 1. 191,780 shares of ARTRA Group Incorporated common stock. 2. 171,105 shares The of Rymer Company (f/k/a Kroehler Mfg. Co.) stock. 3. 52,655 shares of Pure Tech International, Inc. stock. SCHEDULE II ARTRA Indebtedness Agreements
Agreement Date - --------- ---- 1. Subordination Agreement between Bank of America Illinois March 31, 1994 (f/k/a Continental Bank N.A.) and Kenny Construction Company 2. Guaranty made by Barry Rymer in favor of Bank of America July 6, 1988 Illinois (f/k/a Continental Bank N.A.), as amended on October 15, 1991 by the Acknowledgement Consent and Amendment to Guaranty 3. Amended and Restated ARTRA Sub Guaranty and Security October 15, 1991 Agreement made by ARTRA Subsidiary, Inc. in favor of Bank of America Illinois (f/k/a Continental Bank N.A) 4. BCA Holdings, Inc. Guaranty and Security Agreement made by October 15, 1991 BCA Holdings, Inc. in favor of Bank of America Illinois (f/k/a Continental Bank N.A.) 5. Guaranty made by Barry Rymer in favor of Bank of America March 21, 1989 Illinois (f/k/a Continental Bank N.A.), as supplemented on March 21, 1989 by a letter agreement, and as amended on October 15, 1991 by the Acknowledgement to Consent and Amendment to Guaranty 6. Amended and Restated Pledge Agreement made by ARTRA June 22, 1990 Group Incorporated in favor of Bank of America Illinois (f/k/a Continental Bank N.A.), as amended on March 31, 1994 by the First Amendment to Amended and Restated Pledge Agreement, and as further amended on June 31, 1995 by the Second Amendment to Amended and Restated Pledge Agreement 7. ARTRA Pledge Agreement made by ARTRA Group September 29, 1991 Incorporated in favor of Bank of America Illinois (f/k/a Continental Bank N.A.), as amended on March 31, 1994 by the First Amendment to ARTRA Pledge Agreement 8. Pledge and Security Agreement and Financing Statement made September 29, 1991 by BCA Holding Company, Inc. in favor of Bank of America Illinois (f/k/a Continental Bank N.A.), as amended on March 31, 1994 by the First Amendment to Pledge and Security Agreement and Financing Statement
SCHEDULE III Harvey Indebtedness Agreements
Agreement Date - --------- ---- 1. Guaranty made by Peter R. Harvey in favor of Bank of America April 27, 1989 Illinois (f/k/a Continental Bank N.A.), as reaffirmed on November 6, 1991 by the Reaffirmation Agreement
EX-10 7 LETTER AGREEMENT EXHIBIT 10.3 February 26, 1996 Arabella S.A. c/o Scorpion Holdings, Inc. 599 Lexington Suite 2700 New York, NY 10022 Gentlemen: Concurrently with the delivery of this letter ("Letter Agreement"), (a) Arabella S.A., a Luxembourg holding company ("Lender"), is purchasing from Bank of America Illinois ("BA") certain indebtedness (the "ARTRA Prior Indebtedness") owed to BA by the undersigned, ARTRA Group Incorporated, a Pennsylvania corporation (the "Company"), and certain indebtedness (the "Harvey Indebtedness") owed to BA by Peter Harvey ("Harvey"); (b) a portion of the ARTRA Prior Indebtedness is being forgiven by Lender and direct liability for payment of the Prior Indebtedness, as so reduced, is being assumed by BCA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("BCA"), and the notes evidencing the ARTRA Prior Indebtedness are being consolidated, amended and restated as evidenced by an Amended and Restated Note of even date herewith (the "BCA Note") made by BCA and payable to the order of Lender in the principal amount of $1,900,000; (c) the notes evidencing the Harvey Prior Indebtedness are being consolidated, amended and restated as evidenced by an Amended and Restated Note of even date herewith (the "Harvey Note" and, together with the BCA Note, the "Notes") made by Harvey and payable to the order of Lender in the principal amount of $2,296,830. The transactions described above are referred to herein as the "Transactions". Lender has required as a condition to Lender's consummation of the Transactions that the Company execute and deliver this Letter Agreement. In consideration of Lender's agreement to enter into the Transactions, the Company agrees with Lender as follows: 1. DELIVERY OF SHARES. The Company hereby delivers to Lender (a) certificates representing 100,000 shares of common stock of the Company, and (b) certificates representing 25,000 shares of common stock of Comforce Corporation ("Comforce"). All such shares are validly issued, fully paid and nonassessable. 2. AGREEMENT TO DELIVER ADDITIONAL SHARES. If the Notes have not been prepaid prior to the applicable dates set forth below, Lender shall be entitled to receive, and the Company shall deliver to Lender certificates representing, additional shares of common stock of the Company and of Comforce in the following amounts and on the following dates: No. of Shares No. of Shares of the Company of Comforce Date -------------- ----------- ---- 50,000 12,500 March 27, 1996 50,000 12,500 April 26, 1996 3. REGULATION S. All shares of common stock of the Company delivered to Lender pursuant to Section 1 or 2 above shall be registered pursuant to Regulation S of the Securities and Exchange Commission ("Regulation S"). The Company shall use its best efforts to cause all shares of common stock of Comforce delivered to Lender pursuant to Section 1 or 2 above to be registered pursuant to Regulation S. 4. PIGGYBACK REGISTRATION RIGHTS WITH RESPECT TO ARTRA COMMON STOCK. (a) As used in this Section 4, the term "Registrable Shares" shall means all shares of common stock of the Company held by Lender or any affiliate of Lender, whether acquired pursuant to this Letter Agreement or otherwise. (b) If the Company proposes to file with the Securities and Exchange Commission ("SEC") for its own account or for the account of any of the holders of its common stock, a registration statement under the Securities Act of 1933, as amended (the "Act") and the registration form to be used may be used for the registration of Registrable Shares, then the Company shall give written notice to Lender, not less than 20 days prior to the time such registration statement is to be filed with the SEC, of such proposed registration statement. The notice shall offer to include in such registration statement, to the extent then permissible under the Act, all of the Registrable Shares for the account of the holders of Registrable Shares. Within 10 days after receipt of such notice, each holder of Registrable Shares may deliver a written notice to the Company requesting that the Company include in such registration statement Registrable Shares held by such holder and stating the number of Registrable Shares that such holder requests that the Company include in such registration. Subject to the limitations set forth in Section 4(b), the Company shall include in such registration all Registrable Shares that holders of Registrable Shares have requested that the Company register and shall use its best efforts to effect registration under the Act of such Registrable Shares. (c) The right of holders of Registrable Shares to include Registrable Shares in the registration statement provided for herein shall be subject to the following conditions: (i) The Company, in its sole discretion, shall select the underwriter or underwriters, if any, to manage and administer the sale and distribution of the Registrable Shares to be included in a registration statement filed under the provisions of this Section 4. (ii) The Company shall have the right to require, in any offering to be made solely, or in part, for its own account, that the holder of Registrable Shares delay any offering or sale of Registrable Shares for a period of 90 days after the first effective date of such registration statement, upon the Company first having delivered to each holder of Registrable Shares requesting registration the written opinion of its underwriter to the effect that the inclusion of such Registrable Shares in the registration statement may have an adverse effect on the marketing of such offering; provided, however, that in the event of such delay, the Company shall maintain the effectiveness of the registration statement, for which purpose the Company shall prepare and file such amendments and supplements to the registration statement and prospectus used in connection therewith as may be necessary to include the Registrable Shares after such 90 day period, and to keep the registration statement effective for a period of 90 days after the effective date of the post-effective amendment pursuant to which the holders of Registrable Shares requesting registration shall be entitled to sell the Registrable Shares. (d) Each holder of Registrable Shares agrees to cooperate with the Company in the preparation and filing of any registration statement hereunder and shall promptly provide to the Company such information as it may reasonably request to enable it to comply with any applicable law or regulation to facilitate the preparation of the registration statement. The Company shall bear all expenses in connection with the preparation and filing of any registration statement provided for herein excluding underwriting fees, discounts and commissions attributable to the sale of Registrable Shares. (e) The Company shall furnish, without charge, to each holder of Registrable Shares included in any registration statement, a copy of the registration statement and of each amendment and supplement thereto, including all financial statements and exhibits, and such number of conformed copies of the registration statement and of each amendment thereto, including all financial statement, but excluding exhibits, as such holder may reasonably request. (f) The Company shall furnish to each holder of Registrable Shares included in any registration statement, as soon as possible after the effective date of such registration statement or post-effective amendment thereto and thereafter, from time to time, as many copies of the prospectus (and of any amended or supplemental prospectus) as such holder may reasonably request. If, during such period, any event occurs as a result of which the prospectus, as then amended or supplemented, would include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or it shall be necessary to amend or supplement the prospectus to comply with the law or with the rules and regulations promulgated by the SEC, the Company shall forthwith notify each holder of Registrable Shares included in such registration statement and, at the request of such holder, prepare and furnish to such holder, in such quantity as such holder may reasonably request, an amendment or supplement which shall correct such statement or omission or cause the prospectus to comply with law and with such rules and regulations. (g) The Company shall use its best efforts to cause such registration statement to become effective and shall promptly advise each holder of Registrable Shares included in such registration statement (i) when such registration statement, or any post-effective amendment thereto, shall have become effective, and when any amendment of, or supplement to, the prospectus is filed with the SEC, (ii) when the SEC shall make a request or suggestion for any amendment to such registration statement or the prospectus or for additional information and the nature and substance thereof, and (ii) of the issuance by the SEC of a stop order suspending the effectiveness of such registration statement or the suspension of the order suspending the effectiveness of such registration statement or the suspension of the qualification of the Registrable Shares for sale in any jurisdiction, or of the initiation or threatening of any proceedings for that purpose, and shall use its best efforts to prevent the issuance of any such stop orders, or, if such order shall be issued, to obtain the withdrawal thereof. (h) The Company, when and as requested by any holder of Registrable Shares included in any registration statement, shall take all action necessary to permit the offering of such Registrable Shares under the securities laws of such states as such holder shall designate at the sole expense of the Company; provided, however, that the Company shall not be required to qualify as a foreign corporation or to file a consent to service of process in any state in which it is not then so qualified or in which it has not then filed such consent notwithstanding the Lender's agreement to pay the cost thereof. (i) The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities included in any registration statement pursuant to this Section 4, its officers, partners, directors and each person or entity who control such holder (within the meaning of the Act) against any and all losses, claims, damages, liabilities, expenses or any amounts paid in settlement of any commenced or threatened litigation or investigation or proceeding by any governmental body ("Claims") to which such indemnified party may become subject under the Act or otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, (ii) any omission or alleged omission of a material fact required to be stated therein or a fact necessary to make the statements therein not misleading, or (iii) any violations by the Company of any federal, state or common law statute, rules or regulations applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. (j) In connection with any registration statement in which a holder of registrable Shares is participating, such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, shall indemnify and hold harmless the Company, its directors and officers and each person or entity who controls the Company (within the meaning of the Act) against any Claims to which such indemnified party may become subject under the Act or otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violations by such holder of any federal, state or common law statute, rule or regulation applicable to such holder and relating to action required of or inaction by such holder in connection with any such registration, but only to the extent that such untrue statement or omission is caused by or contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual to each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Shares pursuant to such registration statement. (k) Any person or entity entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any Claim with respect to which it seeks indemnification (but the failure to provide such notice shall not release the indemnifying party of its obligations to indemnify unless the indemnifying party has been prejudiced by the failure to provide such notice) and(ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such Claim, permit such indemnifying party to assume the defense of such Claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent, but such consent shall not be unreasonably withheld. An indemnifying party who is not entitled to, or elects not to, assume the defense of a Claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such Claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such Claim. (l) The indemnification provided for in this Section 4 shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, direct, partner or controlling person or entity of such indemnified party and shall survive the transfer of securities. Each indemnifying party agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the indemnifying party's indemnification is unavailable for any reason. (m) No holder of Registrable Shares may participate in any underwritten registration hereunder unless such holder agrees to sell such holder's Registrable Shares on the basis provided in any underwriting arrangement and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, however, that no holder shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties regarding such holder and such holder's intended method of distribution. (n) The inclusion of Registrable Shares in any registration statement shall not be required if counsel of the Company shall render an opinion, in writing, that all of the Registrable Shares proposed to be included in such registration statement may be publicly distributed without restriction of any kind or, if subject to Rule 144, by the holder thereof without registration under the Act in which case all restrictive legends and stop transfer notices shall be removed. 5. PIGGYBACK REGISTRATION RIGHTS WITH RESPECT TO COMFORCE COMMON STOCK. (a) As used in this Section 5, the term "Registrable Shares" shall means all shares of common stock of Comforce held by Lender or any affiliate of Lender, whether acquired pursuant to this Letter Agreement or otherwise. (b) If Comforce proposes to file with the Securities and Exchange Commission ("SEC") for its own account or for the account of any of the holders of its common stock, a registration statement under the Securities Act of 1933, as amended (the "Act") and the registration form to be used may be used for the registration of Registrable Shares, then Comforce shall give written notice to Lender, not less than 20 days prior to the time such registration statement is to be filed with the SEC, of such proposed registration statement. The notice shall offer to include in such registration statement, to the extent then permissible under the Act, all of the Registrable Shares for the account of the holders of Registrable Shares. Within 10 days after receipt of such notice, each holder of Registrable Shares may deliver a written notice to Comforce requesting that Comforce include in such registration statement Registrable Shares held by such holder and stating the number of Registrable Shares that such holder requests that Comforce include in such registration. Subject to the limitations set forth in Section 5(b), Comforce shall include in such registration all Registrable Shares that holders of Registrable Shares have requested that Comforce register and shall use its best efforts to effect registration under the Act of such Registrable Shares. (c) The right of holders of Registrable Shares to include Registrable Shares in the registration statement provided for herein shall be subject to the following conditions: (i) Comforce, in its sole discretion, shall select the underwriter or underwriters, if any, to manage and administer the sale and distribution of the Registrable Shares to be included in a registration statement filed under the provisions of this Section 5. (ii) Comforce shall have the right to require, in any offering to be made solely, or in part, for its own account, that the holder of Registrable Shares delay any offering or sale of Registrable Shares for a period of 90 days after the first effective date of such registration statement, upon Comforce first having delivered to each holder of Registrable Shares requesting registration the written opinion of its underwriter to the effect that the inclusion of such Registrable Shares in the registration statement may have an adverse effect on the marketing of such offering; provided, however, that in the event of such delay, Comforce shall maintain the effectiveness of the registration statement, for which purpose Comforce shall prepare and file such amendments and supplements to the registration statement and prospectus used in connection therewith as may be necessary to include the Registrable Shares after such 90 day period, and to keep the registration statement effective for a period of 90 days after the effective date of the post-effective amendment pursuant to which the holders of Registrable Shares requesting registration shall be entitled to sell the Registrable Shares. (d) Each holder of Registrable Shares agrees to cooperate with Comforce in the preparation and filing of any registration statement hereunder and shall promptly provide to Comforce such information as it may reasonably request to enable it to comply with any applicable law or regulation to facilitate the preparation of the registration statement. Comforce shall bear all expenses in connection with the preparation and filing of any registration statement provided for herein excluding underwriting fees, discounts and commissions attributable to the sale of Registrable Shares. (e) Comforce shall furnish, without charge, to each holder of Registrable Shares included in any registration statement, a copy of the registration statement and of each amendment and supplement thereto, including all financial statements and exhibits, and such number of conformed copies of the registration statement and of each amendment thereto, including all financial statement, but excluding exhibits, as such holder may reasonably request. (f) Comforce shall furnish to each holder of Registrable Shares included in any registration statement, as soon as possible after the effective date of such registration statement or post-effective amendment thereto and thereafter, from time to time, as many copies of the prospectus (and of any amended or supplemental prospectus) as such holder may reasonably request. If, during such period, any event occurs as a result of which the prospectus, as then amended or supplemented, would include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or it shall be necessary to amend or supplement the prospectus to comply with the law or with the rules and regulations promulgated by the SEC, Comforce shall forthwith notify each holder of Registrable Shares included in such registration statement and, at the request of such holder, prepare and furnish to such holder, in such quantity as such holder may reasonably request, an amendment or supplement which shall correct such statement or omission or cause the prospectus to comply with law and with such rules and regulations. (g) Comforce shall use its best efforts to cause such registration statement to become effective and shall promptly advise each holder of Registrable Shares included in such registration statement (i) when such registration statement, or any post-effective amendment thereto, shall have become effective, and when any amendment of, or supplement to, the prospectus is filed with the SEC, (ii) when the SEC shall make a request or suggestion for any amendment to such registration statement or the prospectus or for additional information and the nature and substance thereof, and (ii) of the issuance by the SEC of a stop order suspending the effectiveness of such registration statement or the suspension of the order suspending the effectiveness of such registration statement or the suspension of the qualification of the Registrable Shares for sale in any jurisdiction, or of the initiation or threatening of any proceedings for that purpose, and shall use its best efforts to prevent the issuance of any such stop orders, or, if such order shall be issued, to obtain the withdrawal thereof. (h) Comforce, when and as requested by any holder of Registrable Shares included in any registration statement, shall take all action necessary to permit the offering of such Registrable Shares under the securities laws of such states as such holder shall designate at the sole expense of Comforce; provided, however, that Comforce shall not be required to qualify as a foreign corporation or to file a consent to service of process in any state in which it is not then so qualified or in which it has not then filed such consent notwithstanding the Lender's agreement to pay the cost thereof. (i) Comforce agrees to indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities included in any registration statement pursuant to this Section 5, its officers, partners, directors and each person or entity who control such holder (within the meaning of the Act) against any and all losses, claims, damages, liabilities, expenses or any amounts paid in settlement of any commenced or threatened litigation or investigation or proceeding by any governmental body ("Claims") to which such indemnified party may become subject under the Act or otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, (ii) any omission or alleged omission of a material fact required to be stated therein or a fact necessary to make the statements therein not misleading, or (iii) any violations by Comforce of any federal, state or common law statute, rules or regulations applicable to Comforce and relating to action required of or inaction by Comforce in connection with any such registration, except insofar as the same are caused by or contained in any information furnished in writing to Comforce by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after Comforce has furnished such holder with a sufficient number of copies of the same. (j) In connection with any registration statement in which a holder of registrable Shares is participating, such holder shall furnish to Comforce in writing such information and affidavits as Comforce reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, shall indemnify and hold harmless Comforce, its directors and officers and each person or entity who controls Comforce (within the meaning of the Act) against any Claims to which such indemnified party may become subject under the Act or otherwise insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violations by such holder of any federal, state or common law statute, rule or regulation applicable to such holder and relating to action required of or inaction by such holder in connection with any such registration, but only to the extent that such untrue statement or omission is caused by or contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual to each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Shares pursuant to such registration statement. (k) Any person or entity entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any Claim with respect to which it seeks indemnification (but the failure to provide such notice shall not release the indemnifying party of its obligations to indemnify unless the indemnifying party has been prejudiced by the failure to provide such notice) and(ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such Claim, permit such indemnifying party to assume the defense of such Claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent, but such consent shall not be unreasonably withheld. An indemnifying party who is not entitled to, or elects not to, assume the defense of a Claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such Claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such Claim. (l) The indemnification provided for in this Section 5 shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, direct, partner or controlling person or entity of such indemnified party and shall survive the transfer of securities. Each indemnifying party agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the indemnifying party's indemnification is unavailable for any reason. (m) No holder of Registrable Shares may participate in any underwritten registration hereunder unless such holder agrees to sell such holder's Registrable Shares on the basis provided in any underwriting arrangement and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, however, that no holder shall be required to make any representations or warranties to Comforce or the underwriters other than representations and warranties regarding such holder and such holder's intended method of distribution. (n) The inclusion of Registrable Shares in any registration statement shall not be required if counsel of Comforce shall render an opinion, in writing, that all of the Registrable Shares proposed to be included in such registration statement may be publicly distributed without restriction of any kind or, if subject to Rule 144, by the holder thereof without registration under the Act in which case all restrictive legends and stop transfer notices shall be removed. 6. AGREEMENT TO CAUSE CONVERSION OF CERTAIN PREFERRED STOCK. If either or both of the Notes are not paid in full on or before the Termination Date (as defined in the BCA Note) the Company shall cause all outstanding shares of the Class B Preferred Stock of BCA to be converted into preferred stock of the Company. 7. FURTHER ASSURANCES. The Company shall execute such additional documents and do such further acts or things as may be necessary or appropriate to effectuate the terms of this Letter Agreement. Please acknowledge this Letter Agreement by signing in the space provided below. Very truly yours, ARTRA GROUP INCORPORATED By:______________________ ACKNOWLEDGED: ARABELLA S.A. By:____________________ JOINDER The undersigned, Comforce Corporation, hereby joins in the foregoing Letter Agreement for the purpose of agreeing to be bound by the provisions of Section 5 thereof. COMFORCE CORPORATION By:______________________ EX-10 8 AMENDED AND RESTATE PROMISSORY NOTE EXHIBIT 10.4 AMENDED AND RESTATE PROMISSORY NOTE THIS AMENDED AND RESTATED PROMISSORY NOTE ("Note") dated February 26, 1996 is made by the undersigned, BCA HOLDINGS, INC., a Delaware corporation, in favor of ARABELLA S.A., a Luxembourg holding company ("Holder"). Background: A. The undersigned is a wholly-owned subsidiary of ARTRA Group Incorporated, a Pennsylvania corporation ("ARTRA"). B. Immediately prior to the execution and delivery of this Note by the undersigned, ARTRA was indebted to Bank of America Illinois ("BA") in the aggregate amount of $14,563,639.59, together with accrued interest and fees thereon (the "Prior Indebtedness"), as evidenced by (i) an Amended and Restated Promissory Note dated as of March 21, 1989 in the principal amount of $2,500,000, an Amended and Restated Promissory Note dated as of June 22, 1990 in the principal amount of $7,063,639.59 and an Amended and Restated Promissory Note dated as of July 6, 1988 in the principal amount of $5,000,000 (collectively, the "Prior Notes"); and (ii) various letter agreements. C. All of the Prior Indebtedness was guaranteed by the undersigned pursuant to an Amended and Restated Guaranty dated October 15, 1991. D. Effective as of the date hereof, BA has sold, transferred and assigned to Holder, and Holder has purchased and accepted assignment from BA, of all of BA's right, title and interest in and to the Prior Indebtedness and certain property of ARTRA serving as collateral security therefor. E. Effective as of the date hereof, Holder has forgiven $12,663,639.59 of the Prior Indebtedness on the condition that the undersigned is substituted as obligor, and assumes direct liability, under the Prior Notes, as amended and restated herein. In consideration of the purchase of the Prior Indebtedness by Holder, the forgiveness of a portion of the Prior Indebtedness and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the undersigned agrees with Holder as follows: ON MAY 26, 1996 (the "Termination Date"), the undersigned, for value received, promises to pay to the order of Holder at Siege Social, 35 Rue Glesener, L-1631, Luxembourg R.C. Luxembourg NB49756, or such other place as Holder may from time to time designate in writing to the undersigned, the principal sum of One Million Nine Hundred Thousand and 00/100 Dollars ($1,900,000). The undersigned further promises to pay interest on the aggregate unpaid principal amount hereof from time to time outstanding, from and including the date hereof until the Termination Date, at a rate per annum equal to 12%, all such interest to be due and payable monthly on the 26th day of each month commencing on March 26, 1996 and after maturity (whether by acceleration or otherwise) until paid, at a rate per annum equal to 14%. After maturity, accrued interest shall be payable on demand. Interest shall be calculated for actual days elapsed on the basis of a 360-day year. 1. REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants to Holder as follows: 1.1 Existence. The undersigned is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing and is duly qualified to do business in each state where, because of the nature of its activities or properties, such qualification is required. 1.2 Authorization. The undersigned is duly authorized to execute and deliver this Note and is and will continue to be duly authorized to perform its obligations under this Note. The execution, delivery and performance by the undersigned of this Note and the borrowing hereunder do not and will not require any consent or approval of any governmental agency or authority. 1.3 No Conflicts. The execution, delivery and performance by the undersigned of this Note does not and will not conflict with (a) any provision of law, (b) the certificate of incorporation or by-laws of the undersigned, (c) any agreement binding on the undersigned or (d) any court or administrative order or decree applicable to the undersigned, and does not and will not require, or result in, the creation or imposition of any lien on any asset of the undersigned. 1.4 Validity and Binding Effect. This Note is the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principals of equity limiting the availability of equitable remedies. 1.5 Financial Statements. A copy of the most recent unaudited consolidated and consolidating financial statements of ARTRA are attached hereto as Schedule 1 and such financial statements have been prepared in conformity with generally accepted accounting principles, and present fairly the financial condition of ARTRA and its Subsidiaries as of the date thereof (including all guaranties, indirect obligations and contingent liabilities of ARTRA and its Subsidiaries). 1.6 Capitalization; Subsidiaries. The undersigned has no Subsidiaries (as defined below) except as listed on the Schedule of Subsidiaries attached hereto as Exhibit A. The authorized, issued and outstanding shares of each class of capital stock of the undersigned and its Subsidiaries and the owners of such shares are as set forth in Exhibit A. Except as set forth on Exhibit A, none of the issued and outstanding capital stock of the undersigned or any of its Subsidiaries is subject to any redemption, vesting or repurchase agreement and there are no warrants or options outstanding with respect to such capital stock. The outstanding capital stock of Borrower and its Subsidiaries is duly authorized, validly issued, fully paid and nonassessable. The aggregate stated amount plus accrued and unpaid dividends on the issued and outstanding preferred stock of Bagcraft Corporation of America does not exceed $4,000,000 on the date hereof. For the purposes of this Note and such Schedule of Subsidiaries, the term "Subsidiary" means a partnership, corporation, trust, joint venture, joint stock company, association, unincorporated organization, limited liability company or other entity of which or in which the undersigned and its other Subsidiaries own directly or indirectly 50% or more of (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such entity, if it is a corporation, (b) the capital interest or profits interest of such entity, if it is a partnership, joint venture, limited liability company or similar entity or (c) the beneficial interest of such entity, if it is a trust, association or other unincorporated organization. 1.7 Investments. The undersigned and its Subsidiaries have no Investments (as defined below) except as listed on the Schedule of Investments attached hereto as Exhibit B. The undersigned and its Subsidiaries own the Investments as set forth on Exhibit B attached hereto, including with respect to such of the Investments as are in corporations, the percentages and number of shares of each class stock as are set forth on such Exhibit B. For the purposes of this Note and the Schedule of Investments, the term "Investment" means any investment, made in cash or by delivery of any kind of property or asset, in any entity, including a partnership, corporation, trust, joint venture, joint stock company, association, unincorporated organization or other entity of which or in which the undersigned and its Subsidiaries own directly or indirectly less than 50% of (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such entity, if its is a corporation, (b) the capital interest or profits interests of such entity, if its a partnership, joint venture, limited liability company or similar entity or (c) the beneficial interest of such entity, if it is a trust, association or other unincorporated organization. 1.8 Liens. None of the assets of the undersigned or any direct Subsidiaries is subject to any lien, except liens listed on the Schedule of Liens attached hereto as Exhibit C. 1.9 Litigation; Other Circumstances. No litigation or governmental proceedings are pending or threatened against the undersigned, nor do any other circumstances exist, the results of which might materially and adversely affect its financial condition, except those disclosed to Holder in a Schedule of Litigation attached hereto as Exhibit D. Other than any liability incident to such litigation or proceedings or provided for or disclosed in the financial statements referred to in paragraph 1.5, the undersigned has no material contingent liabilities. 1.10 Indebtedness. The undersigned has no Indebtedness (as defined below) except for: (a) Indebtedness under the terms of this Note and any other Indebtedness of the undersigned to Holder; and (b) other Indebtedness outstanding on the date hereof and listed on Exhibit E. "Indebtedness" of any person means, without duplication, (i) any obligation of such person for borrowed money, including, without limitation, (A) any obligation of such person evidenced by bonds, debentures, notes or other similar debt instruments, and (B) and obligation for borrowed money which is non-recourse to the credit of such person but which is secured by any asset of such person, (ii) any obligation of such person on account of deposits or advances, (iii) any obligation of such person for the deferred purchase price of any property or services, except accounts payable arising in the ordinary course of such person's business, (iv) any obligation of such person as lessee under a capitalized lease, and (v) any Indebtedness of another person secured by a lien on any asset of such first person, whether or not such Indebtedness is assumed by such first person. 2. COVENANTS. From the date of the execution of this Note until this Note and all other liabilities of the undersigned to Holder are paid in full, the undersigned agrees that, unless Holder shall otherwise expressly agree in writing, it will: 2.1 Merger, Purchase and Sale. Not, directly or indirectly: (a) be a party to any merger or consolidation; (b) sell, transfer, convey, lease or otherwise dispose of all or any part of the assets of the undersigned; or (d) purchase or otherwise acquire all or substantially all the assets of any individual, joint venture, trust, partnership, association, unincorporated organization, joint stock company, corporation, limited liability company or other entity (a "Person"). 2.2 Restricted Payments. Not purchase or redeem any shares of its stock and not permit any of its Subsidiaries to purchase or redeem any shares of the capital stock of any Subsidiary; not declare or pay any dividends on any shares of its capital stock (other than stock dividends) and not permit any of its Subsidiaries to declare or pay any dividends on any shares of the capital stock of any Subsidiary; not make any distribution to stockholders as such or set aside any funds for any such purpose and not permit any of its Subsidiaries to make any such distribution; and not prepay, purchase or redeem, and not permit any of its Subsidiaries to purchase, any Indebtedness of the undersigned (other than Indebtedness to Holder). 2.3 Stock. Not permit any Subsidiary to purchase or otherwise acquire any shares of the stock of the undersigned and not take any action, or permit any Subsidiary to take any action, which will result in a decrease in the undersigned's or any Subsidiary's ownership interest in any Subsidiary. 2.4 Liens. Not, directly or indirectly, create or permit to exist any lien with respect to any assets now owned or hereafter acquired except for liens permitted in paragraph 1.8. 2.5 Guaranties. Not, directly or indirectly, become a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to, any undertaking of any other Person, except for: (a) the endorsement, in the ordinary course of collection, of instruments payable to it or its order; and (b) guaranties existing on the date hereof ("Existing Guaranties") by the undersigned of Indebtedness of Subsidiaries, as reflected on Exhibit E, and substitute guaranties (including guaranties of extensions, renewals, restatements or refinancings of Indebtedness of a Subsidiary) which replace Existing Guaranties, so long as the total liability of the undersigned under any such substitute guaranty does not increase the total liability of the undersigned under the Existing Guaranty which was replaced. 2.6 Investments. Not, directly or indirectly, make or permit to exist any Investment in any Person, except for: (a) shares of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business; (b) Investments (other than Investments in the nature of loans or advances) outstanding on the date hereof in Subsidiaries by the undersigned; and (c) other Investments outstanding on the date hereof and listed on Exhibit B. 2.7 Financial Information. Deliver to Holder as soon as available and in any event within 30 days after the end of each month, the unaudited consolidated and consolidating balance sheet of ARTRA and its Subsidiaries and the related statements of income, stockholders' equity and cash flow for such month. 3. PAYMENT GUARANTEE. Payment in full of all liabilities of the undersigned under this Note (including all extensions and renewals) to Holder is unconditionally guaranteed by that certain Guaranty (the "ARTRA Guaranty") made by ARTRA in the favor of Holder. Payment in full of all liabilities of ARTRA under the Guaranty is secured pursuant to a Pledge Agreement dated of even date herewith (the "ARTRA Pledge Agreement") made by ARTRA in favor of Holder. 4. CONDITIONS TO EFFECTIVENESS. This Note shall not become effective until the following conditions have been satisfied: 4.1 Corporate Authority. The undersigned shall have delivered or caused to be have been delivered to Holder (i) duly certified resolutions of the Board of Directors of the undersigned authorizing the execution and delivery of this Note and all other documents to be delivered by the undersigned hereunder and all documents evidencing other necessary corporate action by the undersigned; (ii) a certificate of the secretary or an assistant secretary of the undersigned certifying the names of its officers authorized to sign this Note and other documents and certificates to be delivered by the undersigned hereunder, together with true signatures of such officers, each in form and substance satisfactory to Holder; (iii) duly certified resolutions of the Board of Directors of ARTRA authorizing the execution and delivery of the ARTRA Guaranty and the ARTRA Pledge Agreement and all other documents to be delivered by ARTRA hereunder and all documents evidencing other necessary corporate action by ARTRA; and (iv) a certificate of the secretary or an assistant secretary of ARTRA certifying the names of its officers authorized to sign the ARTRA Guaranty, the ARTRA Pledge Agreement and other documents and certificates to be delivered by ARTRA hereunder, together with true signatures of such officers, each in form and substance satisfactory to Holder. 4.2 Opinion of Counsel. The undersigned shall have delivered to Holder an opinion of counsel for the undersigned and ARTRA dated the date of this Note or such other date as is satisfactory to Holder, which opinion shall be in form and substance satisfactory to Holder. 4.3 Other Documents. The undersigned shall have delivered or caused to have been delivered to Holder the following documents: (i) the ARTRA Guaranty duly executed by ARTRA; (ii) the ARTRA Pledge Agreement duly executed by ARTRA; (iii) an Amended and Restated Promissory Note, in form and substance satisfactory to Holder, executed by Peter and Jeanne Harvey and payable to the order of Holder in the principal amount of $2,296,830, together with a pledge agreement, in form and substance satisfactory to Holder, executed by Peter and Jeanne Harvey (collectively, the "Harvey Agreements"); (iv) a letter agreement (the "ARTRA Letter Agreement"), in form and substance satisfactory to Holder, duly executed by ARTRA and acknowledged and consented to by Holder, pursuant to which, among other things, ARTRA will transfer certain shares of common stock of ARTRA and of Comforce Corporation to Holder and provide certain registration rights to Holder; (v) an Option to Purchase Shares of Common Stock of Bagcraft Corporation of America, in form and substance satisfactory to Holder, duly executed by the undersigned; (vi) a subordination agreement, in form and substance satisfactory, duly executed by ARTRA; (vii) a Consulting Agreement, in form and substance satisfactory to Holder, duly executed by the undersigned and Holder and joined in by ARTRA for the purpose of guaranteeing the payment obligations of the undersigned thereunder; and (viii) a Preferred Stock Exchange Agreement, in form and substance satisfactory to Holder, duly executed by the undersigned, Bagcraft Corporation of America and Ozite Corporation. 4.4 Preferred Stock. The undersigned shall have filed with the Secretary of State of Delaware Articles of Amendment to the Certificate of Incorporation of the undersigned, in form and substance satisfactory to Holder, and the undersigned shall have delivered to Holder certificates representing 1,865 shares of Class C Preferred Stock, $.01 par value, of the undersigned. 4.5 By-Laws. If required by Holder, the undersigned shall have adopted amendments to its by-laws in form and substance satisfactory to Holder. 4.6 Common Stock. ARTRA shall have delivered to Holder (i) certificates representing 100,000 shares of common stock of ARTRA and (ii) certificates representing 25,000 shares of common stock of Comforce Corporation. 4.7 Schedules. The undersigned shall have delivered to Holder the Schedules contemplated by this Note. 4.8 Fees and Expenses. The undersigned shall have paid to Holder a fee in the amount of $87,500 and an amount equal to the aggregate of Holder's good faith estimate of all attorneys' fees and other disbursements incurred by Holder in connection with the transactions contemplated hereby, which payment shall be subject to adjustment following receipt by Holder of final invoices. 5. Events of Default and Remedies. 5.1 Events of Default. Each of the following shall constitute an Event of Default under this Note: (a) Non-Payment. Default in the payment when due of any principal of, or interest on, this Note or any fee hereunder. (b) Other Obligations. Default in the payment when due, whether by acceleration or otherwise, or in the performance or observance (subject to any applicable grace period) of (i) any obligation or agreement of the undersigned to or with Holder (other than any obligation or agreement of the undersigned under this Note); or (ii) any obligation or agreement of ARTRA to or with Holder. (c) Insolvency. The undersigned becomes insolvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they mature, or applies for, consents to, or acquiesces in,the appointment of a trustee, receiver or other custodian for the undersigned or for a substantial part of the property of the undersigned, or makes a general assignment for the benefit of creditors; or,in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the undersigned or for a substantial part of the property of the undersigned and is not discharged within 45 days; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against the undersigned and, if instituted against the undersigned,is consented to or acquiesced in by the undersigned or remains for 45 days undismissed; or any warrant of attachment or similar legal process is issued against any substantial part of the property of the undersigned which is not released within 45 days of service. (d) Agreements. Default in the performance of any of the undersigned's agreements herein (and not constituting an Event of default under any other paragraphs of this paragraph 5); or the occurrence of any other default or event of default under any other document or instrument, including, without limitation, any security agreement or pledge agreement now or hereafter existing which secures or supports this Note or any other Indebtedness of the undersigned; (e) Representations and Warranties. Any representation or warranty made by the undersigned herein is untrue or misleading in any material respect when made or deemed made; or any schedule, statements, report, notice, certificate or other writing furnished by the undersigned to Holder is untrue or misleading in any material respect on the date as of which the facts set forth therein are stated or certified; or any certification made or deemed made by the undersigned to Holder is untrue or misleading in any material respect on or as of the date made or deemed made. (f) Litigation. Notice is given to the undersigned by Holder that in the opinion of Holder, any litigation, arbitration proceeding or governmental proceeding which has been instituted against or otherwise affects the undersigned or any of its Subsidiaries will, to a material extent, adversely affect the undersigned, and such litigation or proceeding is not dismissed within 10 days after such notice. (g) Cessation of Security Document or Lien. Any security document, including, without limitation, any document or instrument now or hereafter existing which secures or supports this Note or any other Indebtedness of the undersigned to Holder, or any of the liens granted thereunder, shall at any time and for any reason cease to be in full force and effect. (h) Cessation of Other Agreements. The ARTRA Guaranty, the ARTRA Pledge Agreement, the ARTRA Letter Agreement or the Harvey Agreements shall at any time and for any reason cease to be in full force and effect, other than by reason of an express and voluntary release by Holder. (i) Default Under Other Agreements. Default shall occur which respect to the performance of ARTRA's obligations under the ARTRA Guaranty, the ARTRA Pledge Agreement or the ARTRA Letter Agreement or with respect to the performance of Peter and Jeanne Harvey's obligations under the Harvey Agreements. (j) IRS Lien. Any property of the undersigned shall become subject to a lien in favor of the Internal Revenue Service (other than a lien for current taxes not delinquent or taxes being contested in good faith and by appropriate proceedings and as to which reserves or other appropriate provisions as may be required by generally accepted accounting principles are being maintained. 5.2 Remedies. If any Event of Default described in paragraph 5.1 shall have occurred and be continuing, Holder may declare this Note to be due and payable, whereupon this Note shall become immediately due and payable, all without notice of any kind; except that if an Event of Default described in paragraph 5.1(c) occurs, this Note shall become immediately due and payable without declaration or notice of any kind. Holder shall promptly advise the undersigned of any such declaration but failure to do so shall not impair the effect of such declaration. 6. GENERAL. 6.1 Delay. No delay on the part of Holder or any other holder of this Note in the exercise of any power or right shall operate as a waiver thereof, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof,or the exercise of any other power or right. The remedies herein provided are cumulative and not exclusive of remedies provided by law. 6.2 Notices. Any notice hereunder to the undersigned or Holder shall be in writing and,if mailed, shall be deemed to be given when sent by registered or certified mail, postage prepaid, and addressed, if to the undersigned, at 500 Central Avenue, Northfield, IL 60093, and if to Holder, c/o Scorpion Holdings, Inc., 599 Lexington, Suite 2700, New York, NY 10022 Attention: K. McCarthy and N. Brandolini, or at such other address as the undersigned or Holder may, by written notice, designate as its address for purposes of notice hereunder. 6.3 Expenses. The undersigned agrees to reimburse Holder upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses)incurred by Holder in the preparation, negotiation and execution of this Note and any document required to be furnished herewith, and in enforcing the obligations of the undersigned under this Note, and to pay, and save Holder harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution, delivery or issuance of this Note, which obligations of the undersigned shall survive any termination of this Note. 6.4 Law. This Note shall be a contract made under and governed by the internal laws of the State of Illinois without regard to conflicts of law principles. 6.5 Waiver. The undersigned expressly waives any presentment, demand, protest or notice in connection with this Note. 6.6 Successors. this Note shall be binding upon the undersigned and its respective successors and assigns, and shall inure to the benefit of Holder and the successors and assigns of Holder. 6.7 Waiver of Jury Trial. The undersigned hereby waives any rights TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS NOTE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 6.8 Substitution of Instrument. This note is issued in substitution for and replacement of the Prior Notes. Neither the execution nor delivery of this Note shall be construed (a) as a novation of that portion of the indebtedness evidenced by the Prior Note which is now evidenced by this Note or (b) to release, cancel, terminate or otherwise impair the status or priority of the liens or security for the Prior Notes except such liens or security expressly released by Holder. * * * * * IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Promissory Note on the date first written above. BCA HOLDINGS, INC. By:_________________________ EX-10 9 OPTION TO PURCHASE SHARES OF COMMON STOCK EXHIBIT 10.5 This Option and the Common Stock issuable upon exercise hereof have not been registered or qualified for sale under the Securities Act of 1933, as amended, or any state securities law and may not be sold or transferred in the absence of such registration or qualification or an exemption therefrom under such Act and any such applicable state laws. Aggregate Applicable Percentage: 40% AGGREGATE EXERCISE PRICE $250.00 OPTION TO PURCHASE SHARES OF COMMON STOCK OF BAGCRAFT CORPORATION OF AMERICA THIS IS TO CERTIFY that, for value received, Arabella S.A., a Luxembourg holding company (the "Initial Purchaser"), or its registered assigns, is entitled to purchase from BCA HOLDINGS INC., a Delaware corporation ("BCA"), that number of shares of Common Stock, par value $.01 per share, of BAGCRAFT CORPORATION OF AMERICA (the "Company") which after giving effect to such purchase will equal 40% (the "Applicable Percentage") of Common Stock Deemed Outstanding of the Company for an aggregate price of $250.00 (the "Aggregate Exercise Price"), all on and subject to the terms, provisions and conditions herein set forth. All or a portion of this Option is subject to repurchase by BCA pursuant to Section 2 hereof. The initial number of shares of Common Stock of the Company purchasable hereunder is 4,367.816. In consideration of the grant by BCA of this Option, the Initial Purchaser has paid to BCA the sum of $500,000. 1. DEFINITIONS. In addition to the terms defined elsewhere in this Option, the following terms shall have the meanings set forth below: (a) "Common Stock" shall mean the Company's Common Stock, $,01 par value, and any capital stock of any class of the Company hereafter authorized having the right to share in distributions either of earnings or assets of the Company without limit as to amount or percentage. (b) "Common Stock Deemed Outstanding" shall mean, at any date as to which the number of shares is to be determined, (i) all of the shares of Common Stock issued at such date, excluding any shares of Common Stock then owned or held by or for the account of the Company, and (ii) all shares of Common Stock issuable upon the exercise, exchange or conversion of any unexpired right or option (including this Option) to subscribe for, purchase or receive Common Stock or any stock or other securities convertible into or exchangeable for Common Stock, regardless of whether any of the foregoing are actually exercisable on such date. (c) "Holder" shall mean the person in whose name this Option is registered on the books of the Company maintained for such purpose. (d) "Notes" shall mean (i) that certain promissory note dated February 26, 1996 in the principal amount of $1,900,000 made by BCA and payable to the order of the Initial Purchaser; and (ii) that certain promissory note dated February 26, 1996 in the principal amount of $2,296,830 made by Peter Harvey and Jeanne Harvey and payable to the order of the Initial Purchaser. (e) "Payment Date" shall mean the date on which each of the following events shall have occurred: (i) all indebtedness owing to the Initial Purchaser under the Notes shall have been paid in full; and (ii) BCA shall have paid to Holder the Repurchase Price. (f) "Sale of the Company" shall mean a sale of the Company, whether by sale stock or assets, by merger or otherwise. 2. EXERCISE PERIOD. The Applicable Percentage of this Option which is unpurchased by BCA in accordance with Section 3 may be exercised by Holder at any time and from time to time on during the period commencing on July 26, 1996 and ending on February 26, 2006. 3. REPURCHASE RIGHTS. If the Payment Date occurs on or prior to July 25, 1996 (the "Repurchase Termination Date"), BCA may repurchase all or a percentage of this Option determined in accordance with the provisions of this Section 3. (a) If the Payment Date occurs on or prior to May 26, 1996, then BCA may repurchase this Option in full at a price of $550,000 (the "Repurchase Price"). (b) If the Payment Date occurs during any period set forth in the table below, BCA may repurchase at the Repurchase Price that portion of the Option representing the Applicable Percentage set forth opposite such period below: Period Applicable Percentage 05/27/96 through 05/29/96 35.0% 05/30/96 through 06/01/96 33.25 06/02/96 through 06/04/96 31.50 06/05/96 through 06/07/96 29.75 06/08/96 through 06/10/96 28.00 06/11/96 through 06/13/96 26.25 06/14/96 through 06/16/96 24.50 06/17/96 through 06/19/96 22.75 06/20/96 through 06/22/96 21.00 06/23/96 through 06/25/96 19.25 06/26/96 through 06/28/96 17.50 06/29/96 through 07/01/96 15.75 07/02/96 through 07/04/96 14.00 07/05/96 through 07/07/96 12.25 07/08/96 through 07/10/96 10.50 07/11/96 through 07/13/96 8.75 07/14/96 through 07/16/96 7.00 07/17/96 through 07/19/96 5.25 07/20/96 through 07/22/96 3.50 07/23/96 through 07/25/96 1.75 (c) If the Payment Date has not occurred on or before the Repurchase Termination Date, all of BCA's repurchase rights hereunder shall terminate. (d) If the Payment Date shall occur, Holder shall surrender this Option to BCA and, if any portion of the Applicable Percentage has not been repurchased pursuant to this Section 3, BCA shall issue and deliver to Holder a new Option setting forth as the Applicable Percentage on the face of this Option the Applicable Percentage as reduced by the percentage of this Option repurchased, if any. 4. EXERCISE OF OPTION. (a) Subject to the conditions set forth in this Option, this Option may be exercised in whole or in part by the surrender of this Option (with the subscription form at the end hereof duly completed and executed) at the principal office of BCA and upon payment to BCA of the Aggregate Exercise Price or, if exercised in part, upon payment to BCA of a proportionate part of the Aggregate Exercise Price for the shares so purchased. BCA shall pay all reasonable expenses, taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section 4. (b) Notwithstanding any other provision of this Option to the contrary, if an exercise of any portion of this Option is made in connection with a Sale of the Company, such exercise may, at the election of Holder, be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until the consummation of such transaction. 5. MERGERS, CONSOLIDATIONS, ETC. In the case of any consolidation or merger of the Company with another entity or any reorganization or reclassification of the Common Stock or other equity securities of the Company, then, as a condition of such consolidation, merger, reorganization or reclassification, lawful and adequate provision shall be made whereby Holder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore purchasable hereunder, such shares of stock, securities or assets as may be (by virtue of such consolidation, merger, reorganization or reclassification) issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Option. BCA shall not permit the Company to effect any such consolidation or merger, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than the Company) resulting from such consolidation or merger shall assume by written instrument executed and delivered to Holder, the obligation to deliver to Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, Holder may be entitled to receive. 6. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of the Company in dissolution or liquidation except under circumstances when the foregoing Section 5 shall be applicable, BCA shall cause the Company to mail notice thereof to Holder and shall not permit the Company to make any distribution to stockholders until the expiration of 60 days from the date of mailing of such notice and, in any such case, Holder may exercise this Option at the then Applicable Percentage within 60 days from the date of delivery of such notice. 7. DIVIDENDS. If the Board of Directors of the Company shall declare any dividend or other distribution on its Common Stock except by way of a stock dividend payable on its Common Stock, BCA shall deliver notice thereof to Holder not less than 15 days prior to the record date fixed for determining shareholders entitled to participate in such dividend or other distribution and Holder shall have the right to participate in such dividend or other distribution to the same extent Holder would have participated if it had previously fully exercised this Option prior to such record date. The provisions of this Section 7 shall not apply to distributions made in connection with transactions covered by Section 5. 8. FULLY PAID STOCK; TAXES. BCA covenants that the shares of stock represented by each and every certificate for Common Stock to be delivered on the exercise of the purchase rights herein shall, at the time of such delivery, be duly authorized, validly issued and outstanding and fully paid and nonassessable and free and clear of all pledges, liens, proxies, claims, charges, security interests or other encumbrances (collectively, "Encumbrances"), except for the pledge in favor of General Electric Capital Corporation ("GECC") securing indebtedness owed by the Company to GECC on the date hereof; provided, however, that the foregoing exception shall not apply if this Option is being exercised in connection with a Sale of the Company. BCA further covenants that it shall pay all expenses in connection with, and all federal and state taxes (other than income taxes) which may be imposed in respect of this Option or the shares of Common Stock issued or issuable hereunder. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS. BCA represents and warrants to, and covenants with, Holder as follows: (a) BCA has all necessary corporate power and authority to enter into this Option and to perform its obligations hereunder. (b) The execution, delivery and performance of this Option by BCA have been duly authorized by all necessary action on the part of BCA and this Option has been duly executed and delivered by a duly authorized officer of BCA and constitutes a valid and binding agreement of BCA, enforceable in accordance with its terms. (c) The execution, delivery and performance by BCA of this Option does not and will not constitute a violation of any applicable law or a breach of any provision contained in BCA's certificate of incorporation or by-laws or in any agreement, instrument or document to which it is now or hereafter a party. (d) The execution, delivery of this Option by BCA does not require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority or any other person or entity. (e) BCA is the beneficial and record owner on the date hereof of 9,500 shares of Common Stock of the Company. Such shares are all of the securities of the Company owned of record or beneficially by BCA on the date of this Option and such Shares are owned by BCA free and clear of all Encumbrances, except for a pledge of all such shares in favor of GECC, and BCA has not entered into any voting agreement, voting trust or other arrangement with respect to such shares. (f) If and so long as this Option has not been exercised in full, no shares of Common Stock of the Company held by BCA shall be transferred to any third party and shall be and remain free and clear of all Encumbrances, except for a pledge in favor of GECC securing indebtedness owed by the Company to GECC on the date hereof. (g) If and so long as this Option has not been exercised in full, BCA shall cause to be delivered to Holder as soon as available and in any event within 30 days after the end of each month, the unaudited consolidated and consolidating balance sheet of ARTRA and its Subsidiaries and the related statements of income, stockholders' equity and cash flow for such month. 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. If this Option is exercised in part only, Holder shall be entitled to receive a new Option, registered in the name of Holder or its nominee and setting forth as the Applicable Percentage on the face thereof the Applicable Percentage attributable to the portion of this Option not exercised. This Option may be assigned, in whole or in part, by surrender of this Option to BCA with the assignment or partial assignment, as the case may be, at the end of this Option duly executed. If this Option is partially assigned, a new Option shall be issued to Holder, registered in the name of Holder or its nominee, setting forth as the Applicable Percentage on the face thereof the Applicable Percentage attributable to the portion of this Option not so assigned and containing proportionate adjustments to the Repurchase Price and percentages set forth in Section 3. The assignee shall receive a new Option, registered in the name of such assignee or its nominee and setting forth as the Applicable Percentage on the face thereof the Applicable Percentage attributable to the portion of this Option so assigned and containing proportionate adjustments to the Repurchase Price and percentages set forth in Section 3. 11. REPLACEMENT OPTIONS. If this Option shall be mutilated, lost, stolen or destroyed, BCA shall issue a new Option of like date, tenor and denomination and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Option, or in lieu of the Option lost, stolen or destroyed, upon receipt of evidence and indemnification reasonably satisfactory to the Company of the loss, theft or destruction of such Option. 12. OPTION HOLDER NOT A SHAREHOLDER. This Option does not confer upon Holder any right to vote or to consent or to receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. 13. NOTICES. Except as otherwise expressly provided herein, all notices referred to in this Option shall be in writing and shall be delivered personally, sent by prepaid overnight courier service, sent by telecopy or sent by registered or certified mail, return receipt requested, postage prepaid, shall be deemed to have been given when so delivered, sent or deposited in the U.S. Mail (or, in the case of telecopy, when received), and shall be addressed (i) to BCA, at its principal executive offices and (ii) to Holder, at Holder's address as it appears in the records of BCA (unless otherwise indicated by Holder). 14. SEVERABILITY. Whenever possible, each provision of this Option shall be interpreted in such manner as to be effective under applicable law, but if any provision of this Option is held to be prohibited by or invalid under applicable law in any jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating any other provision of this Agreement. 15. CAPTIONS; GOVERNING LAW. The descriptive headings of the various sections of this Option are for convenience only and shall not affect the meaning or construction of the provisions hereof. All questions concerning the construction, validity, enforcement and interpretation of this Option shall be governed by the internal law of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule. 16. INJUNCTIVE RELIEF. The parties hereto acknowledge that money damages would be an inadequate remedy for breach of this Option because of the difficulty of ascertaining the amount of damage that will be suffered by Holder in the event that BCA breaches its obligations hereunder. Therefore, BCA agrees that Holder may obtain specific performance of this Option and injunctive relief against any breach hereof. IN WITNESS WHEREOF, BCA has caused this Option to be signed and attested by its duly authorized officers and to be dated February 26, 1996. BCA HOLDINGS INC. By ______________________ Its ___________________ EXERCISE BCA HOLDINGS INC. The undersigned, __________________________________, pursuant to the provisions of the within Option, hereby elects to purchase _____________ shares of Common Stock of BAGCRAFT CORPORATION OF AMERICA covered by the within Option. Signature Address Dated: ASSIGNMENT FOR VALUE RECEIVED ____________________________________ hereby sells, assigns and transfers unto ____________________________________ the within Option and all rights evidenced thereby and does irrevocably constitute and appoint _____________________, attorney, to transfer such Option on the books of BCA HOLDINGS INC. Dated: Signature _______________________ Address _______________________ PARTIAL ASSIGNMENT FOR VALUE RECEIVED ____________________________________ hereby sells, assigns and transfers unto ____________________________________ that portion of the within Option and the rights evidenced thereby which will on the date hereof entitle the holder to purchase ______% of the Common Stock Deemed Outstanding of BAGCRAFT CORPORATION OF AMERICA and irrevocably constitutes and appoints _____________________________________, attorney, to transfer that part of such Option on the books of BCA HOLDINGS INC. Dated: Signature _______________________ Address _______________________ EX-10 10 PREFERRED STOCK AGREEMENT EXHIBIT 10.6 PREFERRED STOCK AGREEMENT THIS AGREEMENT FOR CONTRIBUTION TO CAPITAL AND THE SALE AND PURCHASE OF PREFERRED STOCK ("Agreement") is made by and between BCA HOLDINGS INC., a Delaware Corporation ("BCA Holdings") and BAGCRAFT CORPORATION OF AMERICA, a Delaware Corporation ("Bagcraft") as of January 31, 1996 and is executed in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC"). WHEREAS, BCA Holdings, the holder of all of the outstanding common stock of Bagcraft, desires to contribute $4,000,000. redemption value of its Class B Exchangeable Preferred ("B Pref") shares to Bagcraft's capital in connection with the amendment of Bagcraft's credit agreement with General Electric Capital Corporation ("GECC"), the effect of which when combined with the purchase described below, will permit Bagcraft to exchange the B Pref. for 41,350 shares of the existing Bagcraft Cumulative Redeemable Preferred Stock ("BCRPS"). WHEREAS, BCA Holdings desires to sell and Bagcraft desires to purchase $4,135,000 redemption value of BCA Holding's B Pref for a price of $4,135,000. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, the parties agree as follows: 1. COVENANTS AND AGREEMENTS TO PURCHASE, PURCHASE PRICE, CONTRIBUTION TO BAGCRAFT'S CAPITAL a. Purchase of BCA Pref.. Bagcraft hereby agrees to purchase 4,135 shares of the Class B Exchangeable Preferred Stock of BCA Holdings which bear the rights and preferences as set forth on Exhibit 1a at a price of $1000. per share for an aggregate purchase price of Four Million One Hundred Thirty-Five Thousand Dollars ($4,135,000.00). The B Pref are exchangeable for a like number of shares of the ARTRA GROUP Incorporated ("Artra") Class C Exchangeable Preferred stock ("Artra Class C") bearing the rights and preferences as stated on Exhibit 1a (1) attached hereto, and, in the event that Artra defaults on a certain loan to Artra due Scorpion Holdings, Inc. ("Scorpion") in the sum of up to $3,500,000.00, and Scorpion has delivered a notice of default to Artra which has failed to cure the default in all material respects within the time allotted, the BCA Pref. is mandatorily exchangeable for the Artra Class C stock in the manner and pursuant to the terms of the Statement establishing the Artra Class C stock. b. Delivery of Funds. Upon the issuance and delivery of the duly authorized, non-assessable B Pref, and compliance with clause 2 a. below by BCA Holdings, Bagcraft shall pay the purchase price by delivering $4,135,000. in good funds in United States Dollars to BCA Holdings in a manner to be mutually determined. 2. CONTRIBUTION BY BCA HOLDINGS OF B PREF. a. Contemporaneous with the events described in Clause 1, BCA Holdings shall cause to be issued and delivered to Bagcraft, 4,000 additional shares of B Pref which shall represent a contribution to Bagcraft's capital and when combined with the 4,000 B Pref shares, all of the B Pref is intended to be exchanged with Ozite Corporation, a Delaware corporation ("Ozite"), for not less than 82.7% of the BCRPS outstanding and held by Ozite. 3. BUYER REPRESENTATIONS. a. Private Offering. Bagcraft represents and warrants to BCA Holdings as follows: (i) Bagcraft is purchasing the B Pref for Bagcraft's own account and for investment purposes only. Bagcraft is not acquiring the B Pref with a view towards subsequent distribution except as contemplated by a certain letter dated as of January 31, 1996 ("Letter Agreement") from Peter R. Harvey to the former Ozite Corporation preferred stockholders and Ozite. Except as stated, Bagcraft does not have any contract, understanding or arrangement with any person to sell, transfer or grant participation to such person or any third person with respect to the B Pref. (ii) Bagcraft understands that the B Pref (including in all cases in this Agreement, the Artra stock upon conversion) is being offered by BCA Holdings (including Artra) under the private offering exemption of Section 4(2) of the Securities Act and, accordingly, the B Pref is not registered under the Securities Act. Bagcraft agrees that all subsequent offers and sales of the B Pref shall be made pursuant to registration of the B Pref under the Securities Act or pursuant to an exemption from such registration. (iii) Bagcraft acknowledges that it has received and reviewed the information regarding the rights and preferences of the B Pref, as set forth in Exhibit 1 a and the Artra stock as set forth ----------- on Exhibit 1a (1) attached hereto. -------------- (iv) Bagcraft agrees that BCA Holdings, in order to assure compliance with the restrictions against subsequent distribution under the private offering exemption of the Securities Act, shall cause a restrictive legend to be placed on the share certificates evidencing the B Pref. (v) Bagcraft agrees that BCA Holdings and Artra in order to further assure compliance with the aforementioned restrictions against subsequent distribution, shall place a stop-transfer order with their respective transfer agents. (vi) Bagcraft understands that since the B Pref and Artra stock are being offered under the private offering exemption from registration of the Securities Act, BCA Holdings and Artra are relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Bagcraft set forth herein in order to determine the applicability of such exemption and the suitability of Bagcraft to acquire the B Pref and Artra stock. b. Non-contravention. The execution and delivery of this Agreement, acceptance of the B Pref, the exchange of the B Pref for approximately 82.7% of the BCRPS and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by the Bagcraft of any of the terms or provision of, or constitute a default under any indenture, mortgage, deed of trust or other material agreement or instrument to which the Bagcraft is a party or by which its or any of its respective properties or assets are bound, or any existing applicable law, rule or regulation, or any applicable decree, judgment or order of any court, Federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the Bagcraft or any of its properties or assets. c. No Government Recommendation or Approval. Bagcraft understands that no Federal or state governmental agency has passed on or made any recommendation or endorsement of the B Pref or Artra Class C stock. d. Binding Agreement. This Agreement has been duly authorized, validly executed and delivered on behalf of Bagcraft and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. 4. BCA HOLDINGS REPRESENTATIONS. a. Authorized B Pref.. The B Pref when issued and delivered will be duly and validly authorized and issued, fully paid and non-assessable and will not subject the holders thereof to personal liability by reason of being such holders. There are no preemptive rights of any shareholder of the BCA Holdings. BCA Holdings has made no representations regarding the actual market value before or after the consummation of the sale contemplated hereby. b. Designation. The rights and preferences of the B Pref and the rights and preferences of the Artra Class C stock are accurately and completely described on the attached Exhibits 1 a and 1 a (1) respectively c. Binding Agreement. The Purchase Agreement has been duly authorized, validly executed and delivered on behalf of BCA Holdings and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. d. Non-contravention. The execution and delivery of this Agreement and the consummation of the issuance of the B Pref and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by BCA Holdings of any of the terms or provision of, or constitute a default under, the articles of incorporation or by-laws of BCA Holdings or any indenture, mortgage, deed of trust or other material agreement or instrument to which BCA Holdings is a party or by which its or any of its respective properties or assets are bound, or any existing applicable law, rule or regulation or any applicable decree, judgment or order of any court, Federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the BCA Holdings or any of its properties or assets. e. Approvals. BCA Holdings is not aware of any authorization, approval or consent of any governmental body which is legally required for the issuance and sale of the B Pref as contemplated by this Agreement. 5. TRANSFER AGENT INSTRUCTIONS. BCA Holdings' transfer agent or corporate secretary will be instructed to issue one or more share certificates representing the B Pref with a restrictive legend in the name of Bagcraft, Ozite or as contemplated by the Letter Agreement and in such denominations to be specified prior to closing. BCA Holdings further warrants that no instructions other than these instructions and instructions for a stop-transfer instruction have been given to the transfer agent or corporate secretary and that such B Pref shall otherwise be freely transferable on the books and records of BCA Holdings subject to the legends to be placed thereon. Nothing in this Agreement, however, shall affect in any way Bagcraft's obligations and agreement to comply with all applicable securities laws upon resale or transfer of the B Pref. 6. CLOSING DATE. The date of the issuance and the sale of the B Pref (the "Closing") shall be February 15, 1996, or such other mutually agreed date. 7. CONDITIONS TO BCA HOLDINGS' OBLIGATION TO SELL. Bagcraft understands that BCA Holding's obligation to sell the B Pref is conditioned upon: (a) the receipt and acceptance by BCA Holdings of this Agreement for the purchase of B Pref and BCA's contribution of B Pref as evidenced by execution (facsimile signatures in counterparts are acceptable) of this Agreement by any authorized officer or agent of BCA Holdings. (b) the establishment of the Artra Class C preferred which may be exchanged for the B Pref in the event that Artra defaults on a certain loan from Scorpion thereby and the determination that the Artra Class C conforms to the Statement. (c) BCA acknowledges that Bagcraft must conform to the terms and conditions of a certain Limited Consent and Sixth Amendment to Credit Agreement with GECC dated as of January __, 1996 and that a true and correct copy of paragraph 5(m) (as provided to BCA Holding of that Agreement) sets forth the requirements to be complied with by the parties in this transaction, and, therefore BCA Holdings agrees to promptly perform and use all reasonable efforts to cause the satisfaction of all conditions set forth in clause 5(m) of the GECC agreement as so stated. 8.CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. BCA Holdings understands that Bagcraft's obligation to purchase the B Pref is conditioned upon: (a) acceptance by Bagcraft of this Purchase Agreement for the sale of the B Pref as evidenced by execution (facsimile signatures in counterparts are acceptable) of this Agreement by any authorized officer or agent of BCA Holdings and delivery of share certificate or certificates evidencing the B Pref as described herein; (b) the execution, delivery and performance by Ozite, Bagcraft and BCA of the Preferred Stock Exchange Agreement; (c) the acceptance by all of the former Ozite Preferred Stockholders of the Letter Agreement; (d) the consent of General Electric Credit Corporation and other necessary consents to permit the payment by Bagcraft to BCA as required by the Agreement. Bagcraft represents that Bagcraft must conform to the terms and conditions of a certain Limited Consent and Sixth Amendment to Credit Agreement with GECC dated as of January __, 1996 and that a true and correct copy of paragraph 5(m) (as provided to BCA Holding of that Agreement) sets forth the requirements to be complied with by the parties to this transaction. Bagcraft agrees to promptly perform and use all reasonable efforts to cause the satisfaction of all conditions set forth in clause 5(m) of the GECC agreement as so stated. (e) the establishment of the Artra Class C preferred which may be exchanged for the B Pref in the event that Artra defaults on a certain loan from Scorpion thereby and the determination that the Artra Class C conforms to the Statement. 9. Brokerage. All parties respectively represent and warrant to each other that no person employed a broker relative to this Agreement or the transactions contemplated hereby, and Bagcraft and BCA shall indemnify and hold harmless the other from and against any and all commissions, fees or claims of any person employed or retained or claiming to be employed or retained by such other party to bring about, or to represent to such party in, the transactions contemplated hereby. 10. Survival. All representations, warranties, covenants and agreements made by either party or pursuant hereto, except as otherwise expressly stated, shall survive closing. 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received, whether personally, by telegram, telex, facsimile transmission (followed by regular mail) or registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Bagcraft, : Bagcraft Corporation of America addressed to Mark F. Santacrose, Pres. 3900 W. 43rd Chicago, Il. 60632 If to BCA BCA Holdings, Inc. addressed to: %Artra Group Incorporated 500 Central Northfield, Il 60093 12. Benefit. This Agreement shall be binding upon and inure to the benefit of the successors and assign of Bagcraft and BCA. 13. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 14. Severability. Should any term, provision or section hereof be held to be invalid, such invalidity shall not affect any other provisions or sections hereof or thereof which can be given effect without such invalid provision or section, all of which shall remain in full force and effect. 15. Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. 16. Descriptive Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute part of this Agreement. 17. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties hereto and all prior and concurrent agreements, understandings, representations and warranties in regard to the subject matter hereof are and have been merged herein. 18. Governing Law, Jurisdiction, Remedies. The Federal and state courts sitting in Chicago, Illinois shall have exclusive jurisdiction on all matters relating to this Agreement, and shall apply the laws of such state to the claims thereof and, in such application, shall disregard the conflicts of law provisions. Trial by jury is expressly waived. In the event of a breach or threatened breach by any party, the other party shall be entitled to decrees of specific performance, without posting bond or security, in addition to such other remedies as may be available. * * * * * IN WITNESS WHEREOF, this Agreement is duly executed on the date firs written above. BCA HOLDINGS INC. By:_________________________________ Title: _______________________________ BAGCRAFT CORPORATION OF AMERICA By:_________________________________ Title: _______________________________ EX-10 11 PREFERRED STOCK EXCHANGE AGREEMENT EXHIBIT 10.7 PREFERRED STOCK EXCHANGE AGREEMENT AGREEMENT made as of the 31st day of January, 1996 by and between Ozite Corporation ("Ozite") a Delaware Corporation, a subsidiary of Pure Tech International, Inc., a Delaware corporation, BCA Holdings, Inc., a Delaware corporation ("BCA") and Bagcraft Corporation of America, a Delaware Corporation ("Bagcraft"). WHEREAS, Ozite has possession of 41,350 shares of Bagcraft 13 1/2% cumulative redeemable preferred stock (the 41,350 shares referred to hereinafter as the "BCRPS") with a liquidation preference of $100 per share and cumulative dividends in the sum of $217.00 in the aggregate on the BCRPS stock; and WHEREAS, ARTRA GROUP Incorporated, a Pennsylvania corporation, ("ARTRA") is the parent corporation of BCA which is the parent corporation of Bagcraft. ARTRA desires to resolve certain debt matters with a bank lender and in connection with the proposed settlement of that debt, requires access to certain of the cash proceeds derived from Bagcraft's sale of the assets of Arcar Graphics, Inc., a former wholly-owned subsidiary of Bagcraft. In order to permit the debt settlement to proceed, Bagcraft and BCA have entered into an agreement whereby Bagcraft has purchased from BCA 4,135 BCA Class B Exchangeable Preferred stock and BCA has contributed 4,000 shares of the BCA Class B Exchangeable Preferred stock (the 8135 shares are hereinafter referred to as the "B Pref"). The B Pref bear a $1,000 per share liquidation preference and annual cumulative cash dividends of $135 per share when and if declared by BCA and the rights and preferences as set forth on Exhibit B Pref. The B Pref shares are exchangeable for a like number of shares of the ARTRA GROUP Incorporated Preferred stock bearing the rights and preferences as stated on Exhibit ATA Pref. attached hereto, and, in the event that Artra defaults on a certain loan due Scorpion Holdings, Inc. in the sum of up to $3,500,000.00 to Artra, and Scorpion has delivered a notice of default to Artra which has failed to cure the default in all material respects within the time allotted, the BCA Pref is mandatorily exchangeable for the Artra Class C stock in the manner and pursuant to the terms of the Statement establishing the Artra Class C stock; and WHEREAS, Ozite and Bagcraft desire to exchange the BCRPS for the shares of B Pref and such exchange shall be in complete satisfaction of any liability of Bagcraft for redemption of and any cumulative dividends applicable to the BCRPS to the persons listed on Exhibit S/H List who at the present time are to receive the BCRPS from Ozite; and NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the undertakings described in the Preambles and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Exchange for Bagcraft Preferred Stock. (a) Ozite agrees to and will exchange, transfer, assign and deliver the BCRPS to Bagcraft at the Closing, free and clear of all liens, pledges, encumbrances, security interests, claims and equities of every kind including all preferred stock dividends accrued on such shares in full satisfaction thereof and due and owing from Bagcraft on the BCRPS owned of record by Ozite. Bagcraft agrees to accept from Ozite and will exchange for the BCRPS on the terms and subject to the conditions set forth in 1(b) and elsewhere in this Agreement. (b) Bagcraft agrees to and will exchange, transfer, assign and deliver to Ozite at the closing, free and clear of all liens, pledges, encumbrances, security interest, claims and equities of every kind, and Ozite agrees to and will exchange for and accept from Bagcraft, on the terms and subject to the conditions set forth in this agreement, 8,135 shares of BCA Class B Exchangeable Preferred stock as described above with an annual dividend of $135 per share and a liquidation preference of $1,000 per share and having such designations and preferences as contained in all in the Statement of Designation and Preferences to be recorded with the Secretary of State of the State of Delaware and as attached hereto as Exhibit B Pref. 2. Accumulated Dividends, Assignment of Rights. At the closing, in exchange for the BCRPS shares, Bagcraft shall deliver to Ozite the certificates of B Pref issued in the names of the recipients thereof and in the amounts as set forth on Exhibit S/H List and Ozite shall assign to Bagcraft the BCRPS share certificates and any and all rights to receive accumulated or future dividends of cash, property, shares of stock or other consideration that Ozite may have owned or claimed as the owner of the BCRPS shares from the time of issuance to the exchange contemplated by this Agreement. 3. Closing. The closing of the sale shall take place at the offices of ARTRA, 500 Central Avenue, Northfield, Illinois 60093, on or before February 15, 1996. At the closing: (a) Ozite shall deliver to Bagcraft, free and clear of all liens, options,es and security interests, certificates for the BCRPS shares to be exchanged by Ozite, duly endorsed by Ozite. (b) Bagcraft shall deliver to those recipients identified on Exhibit S/H List, 8,135 shares of B Pref, free and clear of all liens, options, encumbrances and security interests to be delivered to Ozite in exchange for the BCRPS. 4. Ozite 's Representations and Warranties. Ozite makes the following representations and warranties, each of which is material and is being relied upon by Bagcraft and shall be true as of the date hereof and shall survive the Closing: (a) Due Organization and Qualification.Ozite is duly organized and validly existing under the laws of the State of Delaware; is qualified in every jurisdiction where the nature of its business requires it to be so qualified and where failure to so qualify would materially and adversely affect its business or assets. (b) Execution of Agreement. (i) The execution, delivery and performance of this Agreement do not and will not result in a breach of or constitute a default under any agreement or instrument or result in the creation of any lien, charge or encumbrance upon any property or assets of Ozite, and do not require the consent or approval of any governmental body, agency, authority or any other person. (ii) The execution, delivery and performance of this Agreement do not and will not result in the acceleration of any indebtedness of Ozite . (c) Authority. Ozite has full power, authority and legal right to enter into and perform this Agreement and cause the distribution of the B Pref shares to the recipients as required by this Agreement. (d) Outstanding Shares; Title to Shares. Ozite is the sole legal and beneficial owner of the BCRPS shares, free and clear of any liens, claims, encumbrances or restrictions of any kind (other than restrictions imposed by the federal and state securities laws), and, to its best information and belief, all of such shares are validly issued and outstanding, fully paid and nonassessable. There are no existing liens, mortgages, security interests or encumbrances on any of the BCRPS shares. Ozite has no judgments outstanding against it with respect to the BCRPS shares. 5. Bagcraft's Representations and Warranties. Bagcraft and BCA make the following representations and warranties, each of which is material and is being relied upon by Ozite and shall be true as of the date hereof and shall survive the Closing: (a) Due Organization and Qualification. Bagcraft and BCA are duly organized and validly existing under the laws of the State of Delaware; are qualified in every jurisdiction where the nature of its business requires them to be so qualified and where failure to so qualify would materially and adversely affect their business or assets. (b) Execution of Agreement. (i) The execution, delivery and performance of this Agreement do not and will not result in a breach of or constitute a default under any agreement or instrument or result in the creation of any lien, charge or encumbrance upon any property or assets of Bagcraft and BCA and do not require the consent or approval of any governmental body, agency, authority or any other person. (ii) The execution, delivery and performance of this Agreement do not and will not result in the acceleration of any indebtedness of Bagcraft or BCA. (c) Authority. Bagcraft and BCA have full power, authority and legal right to enter into and perform this Agreement. (d) Outstanding Shares; Title to Shares. (i) Bagcraft is the original issuer of the BCRPS shares and such shares when issued and currently are free and clear of any liens, claims, encumbrances or restrictions of any kind. (ii) BCA is the original issuer of the B Pref shares and such shares are free and clear of any liens, claims, encumbrances or restrictions of any kind (other than restrictions imposed by the federal and state securities laws), and, upon issuance, all of such B Pref shares will be validly issued and outstanding, fully paid and non-assessable. There are no existing liens, mortgages, security interests or encumbrances on any of the B Pref shares. (e) This Agreement, when executed and delivered, will constitute, a valid, legal and binding obligation of each of BCA and Bagcraft enforceable against BCA and Bagcraft in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally and except as may be limited by applicable principals of equity (whether considered in a suit at law or in equity). 6. Conditions Precedent: 6.1 The obligations of Ozite under this Agreement are subject to the fulfillment prior to or at the closing of each of the following conditions: (a) Representations and Warranties True at Closing. As to Ozite 's obligation to close, Bagcraft's representations and warranties contained in this Agreement shall be true at the time of closing as though such representations and warranties were made at such time. (b) Litigation, Material Adverse Change. During the period from the date hereof to the closing there shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the exchange and delivery of the BCRPS to Bagcraft in exchange for the B Pref by Ozite or any other transaction contemplated hereby, or which might affect the right of Bagcraft to own the BCRPS or Ozite to distribute the B Pref as contemplated and which, in the judgment of Ozite, makes it inadvisable to proceed with the transaction contemplated hereby. (c) Performance. Each party shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by such party prior to or at the Closing. 6.2 The obligations of Bagcraft and BCA under this Agreement are subject to the fulfillment prior to or at the closing of each of the following conditions precedent: (a) Representations and Warranties True at Closing. As to Bagcraft's and BCA's obligations to close, Ozite 's representations and warranties contained in this Agreement shall be true at the time of closing as though such representations and warranties were made at such time. (b) Litigation, Material Adverse Change. During the period from the date hereof to the closing there shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the exchange and delivery of the BCRPS shares to Bagcraft for the B Pref by Ozite and Bagcraft or any other transaction contemplated hereby, or which might affect the right of Bagcraft to own the BCRPS and which, in the judgment of Bagcraft, makes it inadvisable to proceed with the transaction contemplated hereby. (c) Performance. Each party shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by such party prior to or at the Closing. (d) Consent of Former Ozite Preferred Stockholders. Ozite shall deliver to Bagcraft and BCA the consent of the former Ozite preferred holders entitled to receive the BCRPS approving and consenting to the exchange of the B Pref shares for the BCRPS shares. Additionally, the consenting parties shall acknowledge that the B Pref share certificates delivered to them (including any Artra preferred that may be exchanged for the B Pref) shall bear an imprint setting forth that the share certificates have not been registered under any state or federal securities law, are not transferable as a result thereby and that no representations have been made by Bagcraft or BCA as to the market value for the B Pref, BCA's financial capacity to either pay current dividends on the B Pref or to redeem the B Pref shares and cumulative dividends at the maturity date thereof and that there are BCA Class A preferred shares with a redemption value of $3,675,000. that are senior to the B Pref. Attached to and made a part hereof as Exhibit Consent is a true and correct copy of the Consent Agreement to be provided by each former Ozite preferred stockholder as listed on Exhibit S/H List who will receive B Pref stock. 7. Brokerage. All parties respectively represent and warrant to each other that no person employed a broker relative to this Agreement or the transactions contemplated hereby, and Bagcraft and BCA, on the one hand, and Ozite, on the other hand, shall indemnify and hold harmless the other from and against any and all commissions, fees or claims of any person employed or retained or claiming to be employed or retained by such other party to bring about, or to represent to such party in, the transactions contemplated hereby. 8. Survival. All representations, warranties, covenants and agreements made by either party or pursuant hereto, except as otherwise expressly stated, shall survive closing. 9. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received, whether personally, by telegram, telex, facsimile transmission (followed by regular mail) or registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to the Ozite, addressed to: Ozite Corporation F.W. Broling, Chairman 65 Railroad Avenue Ridgefield, NJ 07657 If to Bagcraft, addressed to: Bagcraft Corporation of America Mark F. Santacrose 3900 West 43rd Chicago, IL 60632 If to BCA Holdings, BCA Holdings, Inc. addressed to: Peter R. Harvey 500 Central Northfield, Il., 60093 10. Indemnification. Bagcraft and BCA hereby agree to indemnify Ozite and Ozite's former preferred stockholders identified on Exhibit S/H List, Ozite's respective directors, officers, agents and employees against, and hold each of them harmless from, any and all liabilities or Expenses, as defined herein, incurred or arising or resulting from any breach by Bagcraft or BCA of any provisions of this Agreement. As used herein, the term "Expenses" means all direct and indirect costs of any type whatsoever (including, without limitation, reasonable attorneys' fees), incurred by Ozite or the recipients identified on Exhibit S/H List in settling or satisfying any claim in connection with an indemnified claim or in connection with the investigation, preparation, defense or appeal of any Proceeding. As used herein, the term "Proceeding" means any threatened, pending or completed action or proceeding involving an indemnified claim, whether civil, criminal, administrative or investigative in which Ozite or any of its respective directors, officers, agents, employees or Exhibit S/H List recipients may be or may have been involved as a party, a witness or otherwise. 11. Benefit. This Agreement shall be binding upon and inure to the benefit of the successors and assign of Bagcraft, BCA, Ozite, Artra and the Exhibit S/H List recipients. 12. Counterparts. This Agreement may be executed simul taneously in two or more counterparts, each of which shall be deemed an original. 13. Severability. Should any term, provision or section hereof be held to be invalid, such invalidity shall not affect any other provisions or sections hereof or thereof which can be given effect without such invalid provision or section, all of which shall remain in full force and effect. 14. Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. 15. Descriptive Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute part of this Agreement. 16. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties hereto and all prior and concurrent agreements, understandings, representations and warranties in regard to the subject matter hereof are and have been merged herein. 17. Governing Law, Jurisdiction, Remedies. The Federal and state courts sitting in Chicago, Illinois shall have exclusive jurisdiction on all matters relating to this Agreement, and shall apply the laws of such state to the claims thereof and, in such application, shall disregard the conflicts of law provisions. Trial by jury is expressly waived. In the event of a breach or threatened breach by any party, the other party shall be entitled to decrees of specific performance, without posting bond or security, in addition to such other remedies as may be available. * * * * * IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written. OZITE CORPORATION BAGCRAFT CORPORATION OF AMERICA By: __________________________ By: __________________________ Name: __________________________ Name: __________________________ Title: __________________________ Title: __________________________ BCA HOLDINGS, INC. By: __________________________ Name: _________________________ Title: __________________________ EX-10 12 AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.8 LIMITED CONSENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT This LIMITED CONSENT AND SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of February 1, 1996 is by and between BAGCRAFT CORPORATION OF AMERICA, a Delaware corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders. R E C I T A L S: WHEREAS, Borrower, Agent and Lenders are parties to that certain Credit Agreement dated as of December 17, 1993 (as amended or otherwise modified by a First Amendment to Credit Agreement dated as of December 23, 1993, a Second Amendment to Credit Agreement dated as of March 14, 1994, a Limited Waiver and Consent dated as of April 8, 1994, a Third Amendment to Credit Agreement dated as of April 30, 1994, a Fourth Amendment to Credit Agreement dated as of August 15, 1994, a Consent and Fifth Amendment to Credit Agreement dated as of October 25, 1995 (the "Fifth Amendment"), and as now or hereafter amended, restated, supplemented or otherwise modified and in effect, the "Credit Agreement"), pursuant to which Lenders have made and may hereafter make loans and advances and other extensions of credit to Borrower; WHEREAS, Borrower wishes to amend the Credit Agreement and obtain the consent of Agent and Lenders to permit (a) the redemption of certain outstanding shares of Borrower's preferred stock and the repurchase of all dividends thereon accumulated through the date thereof and (b) the deferred payment of accrued interest due and owing by Borrower under the Credit Agreement; WHEREAS, and Agent and Lenders are willing to amend the Credit Agreement and grant the consent requested above, all subject to the express terms and conditions specified in this Amendment; and WHEREAS, this Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the agreements, promises and covenants set forth below, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have the meanings ascribed to them in Schedule A to the Credit Agreement. In addition, the following terms shall have the following meanings: "Default Interest Amount" shall mean the sum of $299,313.44 currently due and owing by Borrower to Agent, for the benefit of Lenders, representing interest which has accrued under the Credit Agreement at the Default Rate from May 20, 1995 through October 25, 1995. "Redemption Date" shall mean the date of the consummation of the Redemption in accordance with the terms of the Limited Consent and Sixth Amendment to Credit Agreement between Borrower, Agent and Lenders. "Term Loan B Reserve" shall mean an amount equal to $2,000,000; provided, that the Term Loan B Reserve shall be reduced to $0 should Borrower and its Subsidiaries on a consolidated basis maintain a ratio of (I) EBITDA to (ii) the sum of (x) Fixed Charges and (y) Capital Expenditures equal to or greater than the ratio of 1.10 to 1.00 for any trailing twelve (12) Fiscal Month period. Such reduction, if any, in the Term Loan B Reserve shall be effective upon Agent's determination of the foregoing ratio on the basis of financial information required to be delivered in accordance with clauses (a) and/or (c), as applicable, of Schedule 4.1(a)." 2. ACKNOWLEDGMENT. Borrower hereby acknowledges that: (a) the entire Default Interest Amount is currently due and owing by Borrower to Agent and Lenders under the Credit Agreement and (b) on October 25, 1995, Agent applied the entire Net Proceeds received by Agent from Borrower pursuant to the Sale to the outstanding principal balance of the Revolving Credit Loan and other Obligations then due and payable under the Credit Agreement. 3. CONSENT. Notwithstanding any provision of the Credit Agreement to the contrary, Borrower may (a) consummate the Redemption (as defined in Section 5(m) hereof) in accordance with the express terms and conditions of this Amendment, including, without limitation, Section 5(m) hereof, (b) repay the Default Interest Amount in accordance with the express terms and conditions of the Credit Agreement, as amended hereby, including, without limitation, Section 8.1(u) thereof and (C) enter into the transactions with the Kansas Lender consummated in accordance with the correspondence attached as Schedule I hereto and the definitive documents executed between Borrower and the Kansas Lender delivered to Agent at least three (3) days prior to the Redemption Date under a certificate of Borrower's chief financial officer stating that the same are true, correct and complete copies thereof and constitute all documents relating to such transactions, all of which shall be in form and substance satisfactory to Agent. 4. AMENDMENT TO CREDIT AGREEMENT. Borrower, Agent and Lenders hereby agree that the Credit Agreement is hereby amended as follows: (a) The text appearing in the first sentence of Section 1.1(a) after the term "("Borrowing Availability")" is hereby deleted in its entirety and replaced with: ", in any case less the Term Loan B Reserve and such other reserves as Agent may deem appropriate from time to time in its sole and absolute discretion." (b) The first sentence of Section 1.5(b) of the Credit Agreement is hereby deleted in its entirety and replaced with: "In the event that the Revolving Credit Loan is terminated by Borrower at any time prior to January 31, 1997, Borrower shall pay to Agent for the ratable benefit of Lenders a prepayment fee in an amount equal to $500,000." (C) The first sentence of Section 1.5(e) of the Credit Agreement is hereby deleted in its entirety and replaced with: "Within sixty (60) days following the end of Fiscal Year 1996 and each Fiscal Year thereafter, Borrower shall prepay the Term Loans in an amount equal to seventy-five percent (75%) of Excess Cash Flow for such respective Fiscal Year calculated on the basis of Borrower's financial statements for such Fiscal Year delivered to Agent pursuant to Section 4.1 hereof; provided, that the foregoing percentage shall be reduced to fifty (50%) with respect to Excess Cash Flow generated after repayment in full in cash of Term Loan B pursuant to the terms of this Agreement and Schedule B-2 hereof." (d The following is hereby added as the final sentence of Section 1.17 of the Credit Agreement: "A fee of $500 per day per individual (plus all out-of-pocket costs and expenses) in connection with each field audit conducted by Agent pursuant to this Agreement and the other Loan Documents shall be due and payable by Borrower (and, in Agent's sole and absolute discretion, charged against the Revolving Credit Facility)." (e) The text "December 31, 1995" is hereby deleted from Section 8.1(q) of the Credit Agreement and replaced with "December 30, 1996". (f) The following clauses is hereby added to Section 8.1 of the Credit Agreement: "(t) Agent shall not have received by no later than March 31, 1996 a copy of a duly executed termination, release and waiver between Borrower and Kenny Construction Company with respect to that certain Subscription Agreement dated as of March 31, 1994 between such parties and the transactions contemplated pursuant thereto, all in form and substance satisfactory to Agent in its sole and absolute discretion." (g) The financial covenants set forth on Schedule 6.11 of the Credit Agreement are hereby deleted in their entirety and replaced with the financial covenants set forth on Schedule II hereto. (h) The text "December 17, 1996" is hereby deleted from the definition of "Commitment Termination Date" contained in Schedule A of the Credit Agreement and replaced with "September 30, 1997." (I) Clause (d) of Schedule B-2 of the Credit Agreement is hereby deleted in its entirety and replaced with: "(d) The aggregate principal amount of Term Loan B shall be payable to Agent, for the ratable benefit of Lenders, in twenty-three (23) consecutive monthly installments of principal in the amount of Two Hundred Thousand Dollars ($200,000) each, payable on the fifteenth day of each month, commencing on November 15, 1995, with a final installment payable on September 30, 1997 in the principal amount of the greater of Four Hundred Thousand Dollars ($400,000) or the then outstanding principal balance of Term Loan B." (j) The text "One Million Dollars ($1,000,000)" is hereby deleted from clause (a) of Schedule C of the Credit Agreement and replaced with "Three Million Dollars ($3,000,000)". (k) Notwithstanding Section 2(f) of the Fifth Amendment, the Revolving Credit Loan Commitment shall be Eighteen Million Dollars ($18,000,000); it being understood that $4,200,000 thereof shall only be available to Borrower for the Redemption and shall not be so available until the Redemption Date. (L) Notwithstanding Section 6(k)(I) or Section 7(f) of the Fifth Amendment, the Tax Sharing Agreement shall be in the form and substance required by the Credit Agreement without giving effect to the Fifth Amendment; provided that the first $400,000 of any distributions, dividends, payments or other advances payable by Borrower pursuant to the Tax Sharing Agreement shall be permanently retained by Borrower as an offset against the outstanding $400,000 Loan advanced by Borrower to ARTRA in accordance with that certain Acknowledgment and Consent dated as of December 28, 1994 between Borrower and Agent. 5. CONDITIONS TO EFFECTIVENESS. Notwithstanding any other provision contained in this Amendment, the effectiveness of this Amendment shall be conditioned upon the satisfaction of all of the matters set forth in this Section 5 on or prior to the date hereof (except as otherwise expressly specified herein), all in form and substance acceptable to Agent in its sole and absolute discretion: (a) Warranties and Representations. All of the warranties and representations of Borrower contained in the Credit Agreement and in the other Loan Documents (including, without limitation, this Amendment) shall be true and correct in all material respects on and as of the date hereof and on the Redemption Date (except those representations and warranties made expressly as of a different date). (b) No Material Adverse Change. Since the date of the Fifth Amendment through the date hereof and through the Redemption Date, nothing shall have occurred (and neither Agent nor Lenders shall have become aware of any facts or conditions not previously known) which Agent shall determine has, or could be expected to have, a Material Adverse Effect. (C) No Default or Event of Default. As determined by Agent, neither a Default nor an Event of Default shall have occurred and be continuing as of the date hereof or as of the Redemption Date or will result here from. (d) No Litigation. As of the date hereof and as of the Redemption Date, no litigation, investigation or proceeding before any court, governmental agency, or arbitrator shall be pending or threatened against Borrower, any Subsidiary of Borrower, or any officer, director, or executive of Borrower or such Subsidiary (A) in connection with the Credit Agreement or the other Loan Documents or (B) which, if adversely determined, would, in the sole and absolute opinion of Agent, have a Material Adverse Effect, and no injunction, writ, restraining order or other order of any material nature adverse to Borrower or any of its Subsidiaries shall have been issued or threatened by any court or governmental agency. (e) Agreement. Agent shall have received a duly executed original of this Amendment, together with all Schedules attached hereto. (f) First Amendment to Warrant. Agent shall have received a duly executed original of that certain First Amendment to Warrant dated as of the date hereof between Borrower and GE Capital, together with all attachments thereto. (g) Acknowledgment, Agreement and Waiver. As of the Redemption Date, Agent shall have received, in the form supplied by Agent and attached as Schedule III hereto, a duly executed original acknowledgment, agreement and waiver by each holder of any share of Borrower's preferred stock with respect to the prohibition under the Credit Agreement of the payment of dividends on, or redemption of, any preferred stock. (h) Projections. Agent shall have received Borrowers forecasted consolidated balance sheet, income statement and statement of cash flows for Fiscal Year 1996, together with appropriate supporting details and a statement of underlying assumptions, all prepared on a monthly basis consistent with Borrower's historical financial statements and representing management's good faith estimates of future financial performance based on historical performance, all certified as of the date hereof by Borrower's chief financial officer as being true, accurate and complete. (I) Officer's Certificate. Agent shall have received a duly executed original certificate dated as of the date hereof by Borrower's chief financial officer stating, and Borrower hereby represents and warrants, that since the date of the Fifth Amendment, there has been (I) no Material Adverse Effect on the business, operations, financial condition, prospects or projections of Borrower, the industries in which it operates, or any of its Subsidiaries, (ii) no litigation which has commenced which could be expected to have any such Material Adverse Effect or challenge any of the transactions contemplated by the Agreement and the other Loan Documents, (iii) except as expressly permitted by the Credit Agreement, no dividends, distributions, payments, loans, contributions, fees or other transfers of cash, property or other assets to any stockholder or Affiliate of Borrower, including, without limitation, ARTRA or its employees, directors, officers or Affiliates, (iv) no material increase in liabilities, liquidated or contingent, and no material decrease in assets of Borrower or any of its Subsidiaries and (v) no Events of Default have occurred and are continuing. (j) Secretary's Certificate. Agent shall have a duly executed original certificate dated the date hereof by Borrower's corporate secretary or an assistant secretary stating that (I) since the date of the Fifth Amendment, there has been no amendment or other modification (nor any proposal therefor) to Borrower's certificate or articles of incorporation or bylaws and that each of the foregoing is in full force and effect, (ii) the resolutions attached thereto are of its Board of Directors and, as required, stockholders, approving and authorizing the execution, delivery and performance of this Amendment and the other documents and agreements executed in connection herewith or pursuant hereto to which Borrower is a party, and the transactions to be consummated in connection herewith and therewith and that each of the foregoing resolutions is in full force and effect without any modification or amendment, (iii) the officers of Borrower executing this Amendment and the other documents and agreements executed in connection herewith or pursuant hereto to which Borrower is a party are the incumbent officers of the Borrower and, as such, are authorized to execute each of such documents and (iv) Borrower is in good standing in its state of incorporation and in good standing and qualified to conduct business in each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification. (k) Consents and Acknowledgments. Agent shall have received evidence that (I) Borrower has obtained consents and acknowledgments of all Persons whose consents and acknowledgments may be required, including, but not limited to, Borrower's, Parent's, ARTRA's and PST's stockholders and all requisite Governmental Authorities, to the terms, and to the execution and delivery, of this Amendment and the other documents and agreements executed in connection herewith or pursuant hereto to which Borrower is a party, and the transactions to be consummated in connection herewith and therewith and (ii) no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon the consummation of all or any part of such transactions contemplated by this Amendment, nor has any judgment, order, injunction or other restraint been issued or filed, nor is any hearing seeking injunctive relief or other restraint pending or noticed which prohibits or imposing material adverse conditions upon all or any part of the transactions contemplated by this Amendment. (l) Kansas Lender's Consent or Acknowledgment. Agent shall have received a copy of a duly executed and effective (I) consent between Borrower and the Kansas Lender with respect to the terms and conditions of this Amendment and the Redemption, the execution and delivery of all documents and agreements entered into pursuant hereto and thereto, and the consummation of all transactions contemplated hereby and thereby or (ii) acknowledgment of the Kansas Lender that its consent is not required in connection with any of the foregoing. (m) Redemption. On the Redemption Date, (I) Borrower shall have redeemed against surrender of certificates therefor shares of its outstanding preferred stock, and repurchased all dividends accrued thereon through the date thereof, all of which when valued together according to Borrower's most recent set of financial statements delivered to Agent pursuant to the Credit Agreement, shall equal $4,200,000 in the aggregate, and all such certificates shall have been canceled, (ii) all rights of holders of such preferred stock shall have ceased, (iii) such shares of preferred stock shall not be deemed outstanding for any purpose, (iv) Borrower shall have consummated the foregoing transactions for an aggregate amount not to exceed $4,200,000 (including, without limitation, all fees, costs and expenses incurred in connection therewith, and all direct or indirect dividends, distributions, payments, advances, contributions, investments or other transfer of cash, property or other assets made to or in respect of PST, ARTRA, Parent, Peter R. Harvey or any of his family members, or any stockholder, employee, director, officer or Affiliate of any of the foregoing) and (v) each of the foregoing transactions, and all terms and conditions thereof, shall have been duly approved by the board of directors and, if required, the shareholders of Borrower and shall have been consummated in accordance with all applicable law (all of the foregoing referred to herein collectively as the "Redemption"). Agent shall have received copies of canceled certificates representing all shares of Borrower's preferred stock redeemed pursuant to the Redemption, all of which shall be certified by Borrower's secretary as being true, accurate and complete copies thereof. So long as Borrower is in compliance with the foregoing restrictions, Borrower may consummate the Redemption through the purchase of shares of Parent's preferred stock and the simultaneous exchange of such shares for Borrower's preferred stock and all dividends accumulated thereon through the Redemption Date. (n) Funds Flow Memorandum. Agent shall have received copies of the final funds flow memorandum for the Redemption not less than five (5) days prior to the Redemption Date (with drafts thereof distributed to Agent when produced), which shall evidence, in detail satisfactory to Agent in its sole and absolute discretion, all payments (including, without limitation, those specified in clause (iv) of Section 5(m) above) proposed to be made pursuant to or otherwise in respect of the Redemption, all certified as of the Redemption Date by Borrower's chief financial officer as being true, accurate and complete. (o) Fees, Costs and Expenses; Amendment Fee. Agent shall have received payment of all fees, costs and expenses, including, without limitation, attorney's fees and expenses and as otherwise due pursuant to Section 11.3 of the Credit Agreement, incurred by Agent through the date hereof, together with a fully earned and non-refundable amendment fee in the amount of $150,000 as consideration for the execution and delivery of this Amendment by Agent and Lenders. Such amendment fee shall be paid with an advance under the Revolving Loan on the date hereof; provided, that such advance, in and of itself, shall not result in an immediate reduction in Borrowing Availability, but rather, with respect thereto, Borrowing Availability shall reduced by an initial $37,500 on April 15, 1996, an additional $37,500 on July 1, 1996 and a final $75,000 on September 30, 1996. (p) Default Interest Amount. The Default Interest Amount shall be paid with an advance under the Revolving Loan on the date hereof; provided, that such advance, in and of itself, shall not result in an immediate reduction in Borrowing Availability, but rather, with respect thereto, Borrowing Availability shall reduced by an initial $74,828.36 on April 15, 1996, an additional $74,828.36 on July 1, 1996 and a final $149,656.72 on September 30, 1996. (q) Other Requirements. Agent shall have received all certificates, orders, authorizations, consents, affidavits, schedules, instruments, security agreements, financing statements, mortgages, guarantees, opinions, pledges and other documents or instruments which are provided for hereunder, or which Agent may at any time request. 6. WARRANTIES AND REPRESENTATIONS. All of Borrower's warranties and representations contained in this Amendment shall survive the execution, delivery and acceptance of this Amendment by the parties hereto. Borrower expressly reaffirms that each of the representations and warranties set forth in the Credit Agreement continues to be accurate and complete in all material respects, and hereby remakes and incorporates herein by reference each such representation and warranty as though made on the date of the execution of this Amendment and on the Redemption Date. 7. FURTHER ASSURANCES. Borrower hereby agrees, at its expense, to duly execute, acknowledge and deliver to Agent all other documents and instruments and take all such action as Agent may request in order to further effectuate the purposes of this Amendment and to carry out the terms hereof. 8. RELEASES; INDEMNITIES. In further consideration of Agent's and Lenders' execution of this Amendment, Borrower, individually and on behalf of its successors (including, without limitation, any trustee acting on its behalf and any debtor-in-possession with respect to it), assigns, subsidiaries and affiliates, hereby forever releases Agent and Lenders and their respective successors, assigns, parents, subsidiaries, affiliates, officers, employees, directors, agents and attorneys (collectively, the "Releasees") from any and all debts, claims, demands, liabilities, responsibilities, disputes, actions and causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, whether known or unknown, matured or unmatured, fixed or contingent (collectively, "Claims") that Borrower may have against the Releasees which arise from or relate to any actions which the Releasees may have taken or omitted to take on or prior to the date hereof or prior to the Redemption Date with respect to the Obligations, any Collateral, the Credit Agreement, any Loan Document and any third parties liable in whole or in part for the Obligations. Borrower hereby agrees to indemnify and hold the Releasees harmless with respect to any and all liabilities, obligations, losses, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever incurred by the Releasees, or any of them, whether direct, indirect or consequential, as a result of or arising from or relating to any proceeding by, or on behalf of any Person, including, without limitation, officers, directors, agents, trustees, creditors, partners or shareholders of Borrower, whether threatened or initiated, asserting any claim for legal or equitable remedy under any statute, regulation or common law principle arising from or in connection with the negotiation, preparation, execution, delivery, performance, administration and enforcement of the Credit Agreement, any other Loan Document or any other document executed in connection therewith. The foregoing indemnity shall survive the payment in full of the Obligations and the termination of the Credit Agreement and the other Loan Documents. 9. STATUS OF LOAN DOCUMENTS; NO NOVATION; REFERENCE TO CREDIT AGREEMENT. Except as specifically modified and amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. This Amendment is not a waiver or a novation of the Credit Agreement, nor is it to be construed as a release, waiver or modification of any of the terms, conditions, representations, warranties, covenants, rights, powers or remedies set forth in the Credit Agreement or any of the other Loan Documents, except as expressly set forth herein. Upon the effectiveness of this Amendment each reference in (a) the Credit Agreement to "this Amendment," "hereunder," "hereof," or words of similar import and (b) any other Loan Document to "the Credit Agreement" shall, in each case and except as otherwise specifically stated therein, mean and be a reference to the Credit Agreement, as amended and modified hereby pursuant to the terms hereof. 10. ACKNOWLEDGMENT OF VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Borrower expressly acknowledges and agrees that the Credit Agreement and the other Loan Documents are valid and enforceable by Agent and Lenders against Borrower, and expressly reaffirms each of its obligations under the Credit Agreement and each of the Loan Documents, including, without limitation, the Obligations. Borrower further expressly acknowledges and agrees that Agent and Lenders have a valid, duly perfected, first priority and fully enforceable security interest in and lien against each item of Collateral except as otherwise set forth in the Credit Agreement. Borrower agrees that, notwithstanding any prior practice or course of dealing, or any waiver, forbearance or other similar agreement or understanding, whether any of the foregoing were or are oral or written, by or between the parties hereto, it shall not dispute the validity or enforceability of the Credit Agreement or any of the Loan Documents or any of its respective obligations thereunder, or the validity, priority, enforceability or extent of Agent's or any Lender's security interest in or lien against any item of Collateral, in any judicial, administrative or other proceeding. 11. NO AMENDMENTS. No amendment or modification of any provision of this Amendment shall be effective without the written agreement of Agent and Borrower, and no termination or waiver of any provision of this Amendment, or consent to any departure by Borrower therefrom, shall in any event be effective without the written concurrence of Agent. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand upon Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. 12. NO WAIVER. Agent's failure, at any time or times hereafter, to require strict performance by Borrower of any provision or term of the Credit Agreement or the other Loan Documents shall not waive, affect or diminish any right of Agent or Lenders thereafter to demand strict compliance and performance therewith. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in the Credit Agreement or in any of the other Loan Documents, and no Event of Default or Default shall be deemed to have been suspended or waived by Agent unless such suspension or waiver is (a) in writing and signed by Agent and (b) delivered to Borrower, notwithstanding any prior practice or course of dealing, or any waiver, forbearance or other similar agreement or understanding, whether any of the foregoing were or are oral or written, by or between the parties hereto. 13. SOLE BENEFIT OF PARTIES. This Amendment is solely for the benefit of the parties hereto and their respective successors and assigns, and no other Person shall have any right, benefit or interest under or because of the existence of this Amendment. 14. LIMITATION ON RELATIONSHIP BETWEEN PARTIES. The relationship of Agent and Lenders, on the one hand, and Borrower, on the other hand, has been and shall continue to be, at all times, that of creditor and debtor and not as joint venturers or partners. Nothing contained in the Credit Agreement or any other Loan Document, or any instrument, document or agreement delivered in connection therewith, shall be deemed or construed to create a fiduciary relationship between or among the parties hereto. 15. NO ASSIGNMENT. Borrower may not assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Agent and Requisite Lenders. The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of Borrower, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment. 16. SECTION TITLES. The Section and subsection titles contained in this Amendment are included for the sake of convenience only, shall be without substantive meaning or content of any kind whatsoever, and are not a part of the agreement among the parties. 17. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 18. SEVERABILITY. Wherever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. 19. GOVERNING LAW; CONSENT TO JURISDICTION. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AMENDMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER, AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER, AGENT AND LENDERS PERTAINING TO THIS AMENDMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AMENDMENT, PROVIDED, THAT AGENT, LENDERS AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF COOK, CITY OF CHICAGO, ILLINOIS AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AMENDMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND BORROWER HEREBY AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE UPON CT CORPORATION SYSTEM, 208 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH ACTION OR SUIT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON SCHEDULE 11.10 OF THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT THE FOREGOING SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 20. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AMENDMENT OR THE TRANSACTIONS RELATED HERETO. BORROWER WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. 21. CONSULTATION WITH COUNSEL. BORROWER REPRESENTS TO AGENT THAT, PRIOR TO ITS EXECUTION HEREOF, IT HAS DISCUSSED THIS AMENDMENT WITH COUNSEL OF ITS CHOICE, FULLY UNDERSTANDS THIS AMENDMENT, THE IMPLICATIONS HEREOF AND ITS OBLIGATIONS HEREUNDER AND THAT BORROWER'S EXECUTION HEREOF CONSTITUTES ITS FREE WILL AND ACT. IN WITNESS WHEREOF, this Limited Consent and Sixth Amendment to Credit Agreement has been duly executed as of the date first written above. BAGCRAFT CORPORATION OF AMERICA By:___________________________ Title:________________________ GENERAL ELECTRIC CAPITAL CORPORATION By:___________________________ Title:________________________ SCHEDULE II FINANCIAL COVENANTS Borrower shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP, consistently applied: (a) EBITDA. Borrower and its Subsidiaries on a consolidated basis shall have, measured during each of the periods set forth below, EBITDA equal to or greater than the amounts set forth opposite each of such periods: Period EBITDA ------ ------ For the trailing ten (10) Fiscal $2,850,000 Month period ended on the last day of October, 1995 For the trailing eleven(11) Fiscal $3,400,000 Month period ended on the last day of November, 1995 For the trailing twelve (12) Fiscal Month period ended on the last day of each of the following Fiscal Months: December, 1995 $4,200,000 January, 1996 $4,800,000 February, 1996 $5,500,000 March, 1996 $5,245,000 April, 1996 $5,800,000 May, 1996 $6,200,000 June, 1996 $6,500,000 July, 1996 $6,800,000 August, 1996 $7,370,000 September, 1996 $7,815,000 October, 1996 $8,124,000 November, 1996 $8,500,000 December, 1996 $8,800,000 January, 1997 $9,300,000 February, 1997 $9,155,000 March, 1997 $9,400,000 April, 1997 $9,400,000 May, 1997 $9,400,000 June, 1997 $9,360,000 July, 1997 and each $9,350,000 Fiscal Month thereafter (b) EBITDA to Interest Expense. Borrower and its Subsidiaries on a consolidated basis shall have, measured during each of the periods set forth below, a ratio of (i) EBITDA to (ii) Interest Expense equal to or greater than the ratios set forth opposite each of such periods: EBITDA to Period Interest Expense ------ ---------------- For the trailing ten (10) Fiscal 0.82 to 1.00 Month period ended on the last day of October, 1995 For the trailing eleven(11) Fiscal 0.89 to 1.00 Month period ended on the last day of November, 1995 For the trailing twelve (12) Fiscal Month period ended on the last day of each of the following Fiscal Months: December, 1995 1.01 to 1.00 January, 1996 1.15 to 1.00 February, 1996 1.32 to 1.00 March, 1996 1.30 to 1.00 April, 1996 1.50 to 1.00 May, 1996 1.60 to 1.00 June, 1996 1.70 to 1.00 July, 1996 1.90 to 1.00 August, 1996 2.10 to 1.00 September, 1996 2.20 to 1.00 October, 1996 2.40 to 1.00 November, 1996 2.50 to 1.00 December, 1996 2.60 to 1.00 January, 1997 2.70 to 1.00 February, 1997 2.75 to 1.00 March, 1997 2.75 to 1.00 April, 1997 and each 2.80 to 1.00 Fiscal Month thereafter (c) EBITDA to the sum of Fixed Charges and Capital Expenditures. Borrower and its Subsidiaries on a consolidated basis shall have, measured during each of the periods set forth below, a ratio of (i) EBITDA to (ii) the sum of (x) Fixed Charges and (y) Capital Expenditures equal to or greater than the ratios set forth opposite each of such periods: EBITDA to the sum of Fixed Charges and Period Capital Expenditures ------ -------------------- For the trailing ten (10) Fiscal 0.49 to 1.00 Month period ended on the last day of October, 1995 For the trailing eleven(11) Fiscal 0.52 to 1.00 Month period ended on the last day of November, 1995 For the trailing twelve (12) Fiscal Month period ended on the last day of each of the following Fiscal Months: December, 1995 0.57 to 1.00 January, 1996 0.60 to 1.00 February, 1996 0.68 to 1.00 March, 1996 0.65 to 1.00 April, 1996 0.70 to 1.00 May, 1996 0.75 to 1.00 June, 1996 0.75 to 1.00 July, 1996 0.80 to 1.00 August, 1996 0.85 to 1.00 September, 1996 0.85 to 1.00 October, 1996 0.85 to 1.00 November, 1996 0.88 to 1.00 December, 1996 0.92 to 1.00 January, 1997 1.00 to 1.00 February, 1997 1.00 to 1.00 March, 1997 and each 1.05 to 1.00 Fiscal Month thereafter (d) Consolidated Tangible Net Worth. Borrower, its Subsidiaries on a consolidated basis shall have, measured as at each of the dates set forth below, Tangible Net Worth equal to or greater than the amounts set forth opposite each of such dates: Consolidated Date Tangible Net Worth ---- ------------------ At the end of the trailing ten (10) ($3,325,000) Fiscal Month period ended on the last day of October, 1995 At the end of the trailing eleven(11) ($3,315,000) Fiscal Month period ended on the last day of November, 1995 At the end of the trailing twelve (12) Fiscal Month period ended on the last day of each of the following Fiscal Months: December, 1995 ($3,220,000) January, 1996 ($3,319,000) February, 1996 ($5,500,000) March, 1996 ($6,951,000) April, 1996 ($6,820,000) May, 1996 ($6,689,000) June, 1996 ($5,999,000) July, 1996 ($5,992,000) August, 1996 ($5,862,000) September, 1996 ($5,654,000) October, 1996 ($5,541,000) November, 1996 ($5,366,000) December, 1996 ($5,076,000) January, 1997 ($5,000,000) February, 1997 ($4,800,000) March, 1997 ($4,700,000) April, 1997 ($4,600,000) May, 1997 ($4,500,000) June, 1997 ($4,400,000) July, 1997 and each ($4,300,000) Fiscal Month thereafter (e) Maximum Capital Expenditures. Borrower and its Subsidiaries on a consolidated basis shall not make Capital Expenditures that exceed in the aggregate $3,000,000 during any Fiscal Year. (f) Notwithstanding anything contained in the Agreement or any other Loan Document to the contrary, for purposes of calculating compliance with (i) clauses (a), (b) and (c) above, in calculating EBITDA for any period of determination there shall be included therein non-cash ESOP and 401K expenses for such period, as reflected on the books of Borrower in accordance with GAAP, (ii) clauses (c) and (e) above, in calculating Capital Expenditures for any period of determination there shall be excluded therefrom Capital Expenditures made during such period pursuant to Section 1.5(d) of the Credit Agreement and (iii) clause (d) above, in calculating Tangible Net Worth for any period of determination there shall be excluded therefrom any write-downs taken by Borrower or its Subsidiaries with respect to machinery or equipment used to manufacture Inventory consisting of popcorn containers, to the extent properly classified as such on the consolidated financial statements of Borrower and its Subsidiaries in accordance with GAAP. FIRST AMENDMENT TO WARRANT This FIRST AMENDMENT TO WARRANT, dated as of February 1, 1996, is by and between BAGCRAFT CORPORATION OF AMERICA, a Delaware corporation ("Company"), and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York corporation. R E C I T A L S: WHEREAS, GE Capital is the holder of Warrant No. 1 with respect to 1,055.6 shares of the Common Stock of Company issued by Company on December 17, 1993 (the "Warrant"); and WHEREAS, GE Capital and Company desire to amend the Warrant as herein set forth and such amendment is a condition to the amendment of certain credit terms offered by GE Capital to Company, which credit terms have been requested by, and are of substantial benefit to Company: NOW, THEREFORE, for and in consideration of the terms set forth herein and in the premises, the parties hereto agree as follows: 1. Definitions. Except as otherwise set forth herein, all defined terms herein shall have the respective meanings ascribed thereto in the Warrant and the Loan Agreement, as amended. 2. Amendment to Warrant. The Warrant is hereby amended as follows: (a) Each reference to the number "1,055.6" contained in the Warrant is deleted and replaced with a reference to the number "1,419.54". (b) Clauses (A) and (B) appearing in the definition of "Appraised Value" contained in Section 1 of the Warrant and replaced with the following clauses (A) and (B): "(A) shares of preferred stock of the Company which were issued to PST prior to the Closing Date, if any such shares remain outstanding as of the Closing Date ("PST-Held Shares"), and the redemption of certain of such shares in connection with the "Redemption" (as defined in the Limited Consent and Sixth Amendment to Credit Agreement to which Company and Holder are parties), (B) accrued dividends as of the Closing Date on any PST-Held Shares, and the repurchase (but not the forgiveness) of certain of such dividends in connection with the Redemption," (c) The parenthetical phrase appearing in the definition of "Book Value" contained in Section 1of the Warrant is deleted and replaced with the following parenthetical phrase: "(except for those of such shares issued to PST prior to the Closing Date, if any remain then outstanding, accrued dividends thereon as of the Closing Date and the redemption of certain of such shares and the repurchase of certain of such dividends (but not the forgiveness thereof) in connection with the Redemption, or, in the event of a Qualified Transaction, the aggregate principal amount of Qualified Subordinated Debt issued in such Qualified Transaction)" (d) The first parenthetical phrase appearing in the third sentence of clause (c) of the definition of "Current Market Price" contained in Section 1 of the Warrant is deleted and replaced with the following parenthetical phrase: "(except for those of such shares issued to PST prior to the Closing Date, if any remain then outstanding, accrued dividends thereon as of the Closing Date and the redemption of certain of such shares and the repurchase of certain of such dividends (but not the forgiveness thereof) in connection with the Redemption, or, in the event of a Qualified Transaction, the aggregate principal amount of Qualified Subordinated Debt issued in such Qualified Transaction)" (e) The definition of "Expiration Date" contained in Section 1 of the Warrant is deleted and replaced with the definition "shall mean the sixth anniversary of the Closing Date". (f) The word "third" contained in clause (i) of Section 14.1(a) of the Warrant is deleted and replaced with the word "fourth". (g) The following Section 14.1(c) is inserted immediately after Section 14.1(b) of the Warrant: "(c) Notwithstanding any provision contained in this Warrant to the contrary, should Company for any reason fail to perform its obligations arising under Section 14.1 hereof, such obligations shall in all respects continue until Company has fulfilled such obliqations." (h) The word "third" contained in Section 14.2(a) of the Warrant is deleted and replaced with the word"fourth". (i) The open bracket appearing immediately prior to the second sentence of Section 17.1(b) of the Warrant is deleted and inserted immediately prior to the fourth sentence of such Section. (j) The letter attached to the Warrant and referred to in Section 17.2 thereof is replaced with the letter attached hereto. 3. Consent. Holder hereby consents to Company's repurchase of certain PST-Held Shares and accrued dividends thereon in accordance with the Redemption. 4. Additional Conditions. (a) From and after the date hereof, Company shall not, without Holder's prior written consent, amend its certificate of incorporation in any manner which could adversely affect the rights of Holder granted pursuant to the Warrant or the value of the Warrant. (b) On the date hereof, Holder shall receive a duly executed original of the letter attached to this First Amendment to Warrant. 5. Miscellaneous. (a) This First Amendment to Warrant shall be incorporated into the Warrant, and except as exPressly amended hereby, the Warrant shall remain in full force and effect and, as hereby amended, is hereby ratified and confirmed. (b) This First Amendment to Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of Company and the successors and assigns of GE Capital and any subsequent Holder. (c) Wherever possible, each provision of this First Amendment to Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this First Amendment to Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of the Warrant, as amended by this First Amendment to Warrant. (d) THIS FIRST AMENDMENT TO WARRANT SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITlIOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF LAWS. (e) This First Amendment to Warrant shall become effective on the date hereof. IN WITNESS WHEREOF, Company has duly executed and delivered this First Amendment to Warrant as of the date first above written. BAGCRAFT CORPORATION OF AMERICA By: ___________________________________ Name: _________________________________ Title: __________________________________ ATTEST: By: ___________________________________ Name: _________________________________ Title: __________________________________ ACCEPTED: GENERAL ELECTRIC CAPITAL CORPORATION By: ___________________________________ Name: _________________________________ Title: __________________________________ February 1, 1996 To Each Holder of a Warrant to Purchase Common Stock of Bagcraft Corporation of America and all Assignees, Transferees and Successors of such Holder: Reference is made to the Warrant dated as of December 17, 1993 to purchase the Common Stock of Bagcraft Corporation of America, a Delaware corporation (the "Company"), issued pursuant to the Credit Agreement dated as of such date by and between the Company and General Electric Capital Corporation, a New York corporation ("GE Capital"), as agent and lender thereunder (as from time to time amended, replaced, refinanced, restated, superseded, supplemented or otherwise modified). All capitalized terms used in this agreement which are defined in the Warrant are used as defined in the Warrant unless the context otherwise requires. The undersigned, BCA Holdings, Inc., a Delaware corporation ("BCA") and ARTRA GROUP Incorporated, a Pennsylvania corporation ("ARTRA"; collectively, BCA and ARTRA are referred to herein as the "Controlling Stockholders"), warrant, covenant and agree with the holders of the Warrant and the Warrant Stock, their assignees, transferees and successors (the "Warrantholders") as follows: If any Controlling Stockholder proposes any sale (other than pursuant to a public offering) (a "Sale") of all or a portion of its common stock of the Company ("Common Stock") or any class of capital stock of BCA ("BCA Stock") (collectively, Common Stock and BCA Stock are referred to herein as "Controlling Stock"), the Controlling Stockholders shall provide for such Sale on a basis which includes a ratable share of all shares which have been issued or then are issuable under the Warrants (collectively "Warrant Stock") on a pro-rata basis. 1. The Controlling Stockholders shall give each Warrantholder written notice of a proposed Sale of Controlling Stock not less than 45 days before such Sale is to take place. The notice ("Sale Notice") shall set forth: a. the name and address of the Proposed Purchaser; b. the name and address of each Warrantholder as shown on the records of the Company, the number of shares of Warrant Stock held by or issuable to each Warrantholder; c. the number and nature of shares of Controlling Stock proposed to be transferred by the Controlling Stockholders: d. the proposed amount and form of consideration and terms and conditions of payment offered by such Proposed Purchaser: and e. the signed agreement of the Proposed Purchaser acknowledging that he has been informed of this letter agreement and has agreed to purchase Warrant Stock in accordance with the terms hereof. 2. The take-along rights provided in this agreement may be exercised by any Warrantholder (an "Electing Warrantholder") by delivery of a written notice (a "Take-Along-Notice") to the Company or ARTRA (with a copy to each other Warrantholder) within thirty (30) days after receipt of the Sale Notice. A Take-Along Notice shall state the number of shares of Warrant Stock which the Warrantholder wishes to include in such Sale to the Proposed Purchaser. 3. The Warrantholders shall be entitled to sell to the Proposed Purchaser Warrant Stock at the same price per share as the price per share to be paid for Controlling Stock and otherwise on the same terms as are to be applicable to the sale of the Controlling Stock, except as provided in paragraph 5 below. The Warrantholders shall be entitled to sell the same percentage of the Warrant Stock held by them, as that percentage of the Controlling Stock ultimately sold by the Controlling Stockholders (after reductions to permit the sale of the Warrant Stock). 4. Any shares of Warrant Stock purchased from the Warrantholders pursuant to this agreement shall be purchased on terms and conditions which do not include the making of any representations and warranties, indemnities or other similar agreements other than the representations, warranties and indemnities as to the ownership of such shares of Warrant Stock and the due authority to sell such shares. BCA HOLDINGS, INC. ARTRA GROUP INCORPORATED By: By: Title: Title: EX-27 13 FINANCIAL DATA SCHEDULE FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. 0000200243 ARTRA GROUP INCORPORATED 1,000 dollars 12-mos DEC-28-1995 DEC-30-1994 DEC-28-1995 1.000 2,347 1,427 11,147 250 16,634 32,181 44,273 17,335 77,949 58,546 0 18,631 0 5,540 (44,305) 77,949 121,879 121,879 102,508 102,508 26,481 0 9,782 (16,892) 51 (16,943) 10 14,030 0 (2,903) (.63) 0
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