As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
ENTRADE INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 7319 52-215-3008
--------------------------- ------------------------ ----------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
(609) 489-4455
-------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
__________________________
Robert D. Kohn, President
Entrade Inc.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
(609) 489-4455
--------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Michelle Kramish Kain, Esquire Kathleen M. Shay, Esquire
Michelle Kramish Kain, P.A. Duane, Morris & Heckscher LLP
750 Southwest Third Avenue, Suite 100 4200 One Liberty Place
Fort Lauderdale, FL 33316 Philadelphia, PA 19103-7396
Philip R. Rubin, Esquire
Kwiatt & Ruben, Ltd.
211 Waukegan Rd., Ste. 300
Northfield, IL 60093
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered
in connection with the forma tion of a holding company and there is compliance
with General Instruction G, check the following box. |-|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Proposed Proposed
Title of each class Amount maximum maximum Amount
of securities to be offering price aggregate of
to be registered registered per unit offering price registration fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 16,385,799 $12.4375(2) $203,798,375 $56,656
no par value shares (1)
=======================================================================================================================
<FN>
(1) Based upon the maximum number of shares of common stock of Entrade Inc.
issuable in the merger of WWWX Merger Subsidiary, Inc. with and into ARTRA
GROUP Incorporated, including exercise of any outstanding options and
warrants to purchase common stock and the conversion of all outstanding
shares of common stock, Series A preferred stock and Series B preferred
stock of ARTRA GROUP Incorporated (other than holders of Series A preferred
stock or Series B preferred Stock who assert rights as dissenters under
Pennsylvania law and shares owned directly or indirectly by ARTRA GROUP
Incorporated) into shares of common stock of Entrade Inc.
(2) Pursuant to paragraph (f)(1) of Rule 457, the proposed maximum offering
price per share and the proposed maximum aggregate offering price have been
computed on the basis of $12.4375 per share, the average of the high and
low sales prices of the common stock of ARTRA GROUP Incorporated on the New
York Stock Exchange, Inc. on May 20, 1999.
</FN>
</TABLE>
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION
The information in this proxy statement/prospectus is not complete and may be
changed. Entrade Inc. may not issue its common stock in the merger until the
registration statement containing this proxy statement/prospectus is declared
effective by the Securities and Exchange Commission. This proxy
statement/prospectus is not an offer to sell these securities and it is not a
solicitation of an offer to buy these securities in any state where the offer or
sale is not permitted.
ARTRA GROUP INCORPORATED
500 Central Avenue
Northfield, Illinois 60093
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of ARTRA GROUP Incorporated to be held at ____ __.m., local time, on June _____,
1999 at __________________________________.
As you may be aware, ARTRA GROUP Incorporated has entered into an
agreement with Entrade Inc. and WorldWide Web NetworX Corporation, which is
referred to as WWWX, providing for the merger of a subsidiary of Entrade with
Artra. Upon consummation of the merger, Entrade will be the parent company for
Artra and entrade.com and will hold 25% of the voting stock of asseTrade.com.
Entrade's headquarters will be located at Artra's current head quarters.
At the Artra Annual Meeting, in addition to the customary election of
directors and auditors, you will be asked to approve the merger agreement and
the merger. A copy of the merger agreement and an amendment to the merger
agreement is attached as Appendix A to the Proxy Statement/Prospectus
accompanying this letter.
In the proposed merger, you will receive one share of Entrade common
stock for each share of Artra common stock and 329 shares of Entrade common
stock for each share of Artra Series A preferred stock and Artra Series B
preferred stock. Approximately 10,165,466 shares of Entrade common stock will be
issued to Artra shareholders in the merger. WWWX currently owns 1,800,000
shares, or 90%, of the outstanding Entrade common stock and another share holder
of Entrade, Energy Trading Company, a subsidiary of PECO Energy Company, owns
the remaining 10%. If the merger is completed, Artra will become a wholly owned
subsidiary of Entrade. After the merger, the shareholders of Artra will own
approximately 10,165,466 shares, or approximately 83.6%, of the outstanding
Entrade common stock, and WWWX and Energy Trading Company will own an aggregate
of 2,000,000 shares, or approximately 16.4%, of the outstanding Entrade common
stock.
Entrade will assume each outstanding stock option plan, stock option
and warrant to purchase Artra common stock, without changing the terms and
conditions of the stock options and warrants assumed, and Entrade will
substitute shares of Entrade common stock for the shares of Artra common stock
purchasable under each assumed stock option and warrant.
<PAGE>
Following the merger, Artra's senior management will hold positions
with Entrade similar to their current positions with Artra, Artra will operate
as a wholly owned subsidiary of Entrade and the board of directors of Entrade
will consist of the current directors of Artra and Robert Kohn, the current
President and Chief Executive Officer of Entrade. Mr. Kohn will then become the
chief executive officer of Entrade's other subsidiary, entrade.com.
Entrade owns all of the outstanding capital stock of entrade.com, Inc.
and 25% of the Class A (voting) common stock of asseTrade.com, Inc. entrade.com
is a business-to-business Internet e-commerce and on-line auction company
seeking to provide asset disposition solutions for the utility industry and
large industrial manufacturing sectors. asseTrade.com proposes to develop and
implement comprehensive asset/inventory recovery, disposal, remarketing and
management solutions for corporate clients through advanced Internet electronic
business applica tions, including on-line auctions.
The merger cannot be completed unless the holders of Artra common
stock, and the holders of Artra Series A preferred stock and the holders of
Artra Series B preferred stock, voting as separate classes, approve the merger
agreement and the merger by the affirmative vote of a majority of the votes cast
in person or by proxy by the holders of each class at the Artra Annual Meeting.
The Artra board of directors has approved the merger agreement and the merger
and recommends that you approve the merger agreement and the merger. Your vote
is very impor tant.
This document gives you detailed information about the proposed merger.
We encourage you to read the entire document carefully. Please see "Where You
Can Find More Information" on page 1 for additional information about Artra on
file with the Securities and Exchange Com mission.
The "Risk Factors" section beginning on page 14 describes certain risks
that you should consider in deciding whether to vote for approval of the merger
agreement and the merger.
In accordance with Pennsylvania law, holders of Artra preferred stock
are entitled to exercise dissenters' rights in connection with the merger.
Please review the "The Artra Annual Meeting -- Artra Preferred Stock Dissenters'
Rights" section beginning on page ___.
If you are entitled to vote on the merger, a proxy card is enclosed for
your signature. It is important that your shares be represented at the Artra
Annual Meeting, regardless of the number of shares you hold. Therefore, please
complete, sign and date the enclosed proxy card and return it in the enclosed
envelope as soon as possible, whether or not you plan to attend the Artra Annual
Meeting. Returning the proxy card will not affect your right to revoke your
proxy as described in the accompanying Proxy Statement/Prospectus or to attend
the Artra Annual Meeting and vote in person. If you sign, date and mail your
proxy card without indicating how you want to vote, your proxy will count as a
vote in favor of the merger agreement and the merger. You may vote at the Artra
Annual Meeting if you own shares as of the close of business on ________, 1999.
<PAGE>
This Proxy Statement/Prospectus and proxy card are being mailed to
shareholders of Artra on or about _____________, 1999.
On behalf of the Artra board of directors, I thank you for your support
and ask you to vote in favor of the merger agreement and the merger.
Sincerely,
Peter R. Harvey,
President
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Entrade common stock to be issued
under this Proxy Statement/Prospectus or determined if this Proxy
Statement/Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this Proxy Statement/Prospectus is _________, 1999.
<PAGE>
ARTRA GROUP INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE , 1999
To the Shareholders of ARTRA GROUP INCORPORATED:
On June ___, 1999, Artra Group Incorporated will hold an Annual Meeting
of Shareholders at ________________________. The Artra Annual Meeting will begin
at ____, local time.
Only shareholders who owned Artra common stock, Artra Series A
preferred stock or Artra Series B preferred stock at the close of business on
__________, 1999 are entitled to notice of and to vote at the Artra Annual
Meeting or any adjournment that may take place. At the Artra Annual Meeting you
will be asked to:
i. Vote on the election of nine directors to serve until the 2000
Annual Meeting of Shareholders and until their successors are elected.
ii. Vote upon a proposal to approve and adopt an Agreement and
Plan of Merger dated as of February 23, 1999, as amended, among Artra, WWWX
Merger Subsidiary ("Merger Sub"), Entrade Inc. and WorldWide Web NetworX
Corporation, pursuant to which Merger Sub will be merged with and into Artra,
with Artra being the surviving corporation and a wholly owned subsidiary of
Entrade, and approve the merger.
iii. Ratify the appointment of PricewaterhouseCoopers LLP as
Artra's independent auditors for 1999.
iv. Transact such other business as may properly come before the
Artra Annual Meeting and any adjournment, postponement or continuation of the
Artra Annual Meeting.
Your vote is very important. Please vote as soon as possible by
completing the proxy card and returning it in the enclosed envelope. If you
decide to attend the meeting in person, you can withdraw your proxy and vote at
that time.
Approval and adoption of the merger agreement and the merger will
require the affirmative vote of a majority of the votes cast in person or by
proxy by the holders of Artra common stock, the affirmative vote of a majority
of the votes cast in person or by proxy by the holders of Artra Series A
preferred stock and the affirmative vote of a majority of the votes cast in
person or by proxy by the holders of Artra Series B preferred stock, voting as
separate classes, at the Artra Annual Meeting, provided a quorum is present.
Holders of Artra preferred stock have the right to dissent from the
merger and to obtain payment for their shares by following the procedures
prescribed in Sections 1571 to 1580 of the Pennsylvania Business Corporation Law
of 1988, a copy of which is attached as Appendix B to, and summarized under "The
Artra Annual Meeting -- Artra Preferred Stock Dissenters' Rights" in, the
accompanying Proxy Statement/Prospectus.
The Board of Directors of Artra has carefully considered the terms of
the merger agreement and has unanimously concluded that such terms are fair and
that the proposed merger is in the best interests of Artra and its shareholders.
Accordingly, the Board of Directors unanimously recommends that shareholders
vote FOR the proposal to approve and adopt the merger agreement and the merger
at the Artra Annual Meeting.
By Order of the Board of Directors,
Peter R. Harvey, President
June __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION....................................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................................... 2
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE........................................... 3
SUMMARY................................................................................... 5
The Companies.................................................................... 5
The Proposed Merger.............................................................. 6
What Artra Shareholders Will Receive in the Merger............................... 7
Fractional Shares................................................................ 7
Conditions to the Merger......................................................... 7
Termination of the Merger Agreement.............................................. 8
Termination Fees and Expenses.................................................... 9
The Artra Annual Meeting......................................................... 9
Record Date for Voting at the Artra Annual Meeting............................... 9
Vote Required to Approve the Merger and the Merger Agreement..................... 10
Revocability of Proxies.......................................................... 10
Completion of the Merger......................................................... 10
Artra Reasons for the Merger; Recommendation of the Artra
Board of Directors to the Artra Shareholders............................ 10
Risks of the Merger.............................................................. 11
New York Stock Exchange Listing of Entrade Common Stock.......................... 11
Other Interests of Artra Officers and Directors and WWWX Officers,
Directors and Stockholders in the Merger................................ 11
No Solicitation.................................................................. 12
Artra Preferred Stock Dissenters' Rights......................................... 12
Accounting Treatment............................................................. 12
Important Federal Income Tax Consequences........................................ 13
Who Can Help Answer Your Questions............................................... 13
RISK FACTORS.............................................................................. 14
Risk Factors Relating to Entrade and Its entrade.com Operations.................. 14
We have no operating history upon which you may evaluate us................. 14
We anticipate we will incur continued losses for the foreseeable
future.................................................................. 14
We may need to seek future funding sources.................................. 15
Fluctuations in our quarterly results may adversely affect
our stock price......................................................... 16
(i)
<PAGE>
We intend to rely heavily on revenues from the utilities and
large industrial manufacturing sectors, and if these revenues
decline our business would be adversely affected........................ 16
We may not develop additional revenue sources............................... 16
Marketing and distribution alliances may not generate the expected
number of new customers or may be terminated............................ 16
We may not be able to compete effectively with other providers
of e-commerce services.................................................. 17
We may not be able to protect our proprietary rights and we may
infringe the proprietary rights of others............................... 18
We may not be able to acquire or maintain effective Web addresses........... 19
Our business depends on the effective development of the Internet
as an effective e-commerce business and marketing forum................ 20
We may be subject to legal liability for publishing or distributing
content over the Internet............................................... 23
Capacity constraints on our technology, transaction processing system
and network hardware and software may be difficult to project........... 24
Our market is characterized by rapid technological change................... 24
Effectively managing our growth may be difficult............................ 24
Acquisitions may disrupt or otherwise have a negative impact on
our business............................................................ 24
We may not be able to consummate future acquisitions........................ 25
Our success is dependent on our key personnel............................... 25
Our system may not be Year 2000 compliant................................... 25
The interests of our controlling shareholders after the merger
may conflict with our interests and the interests of our
other shareholders...................................................... 26
Our minority interest in asseTrade.com and the potential for deadlock
in shareholder and board actions may impede the growth
and development of asseTrade.com's operations........................... 26
Shares eligible for future sales by our current shareholders may
adversely affect our stock price........................................ 26
Anti-takeover provisions and our right to issue preferred stock
could make a third party acquisition of us difficult.................... 27
The Entrade common stock price is likely to be highly volatile.............. 27
Risk Factors Related to Artra.................................................... 28
Lack of compliance with New York Stock Exchange listing criteria
may result in delisting of Artra common stock or, after the merger,
Entrade common stock ................................................... 28
Artra's potential environmental liabilities and other potential
liabilities from other claims may result in future costs to
Artra
that are difficult to estimate.......................................... 28
(ii)
<PAGE>
Artra preferred stock may impact Artra's ability to obtain additional
financing in the future................................................. 29
Merger-Related Risk Factors...................................................... 29
Difficulties of integrating the new holding company structure
after the merger could direct management's attention from
operating the new business.............................................. 29
Substantial expenses resulting from the merger may affect quarterly
results for the quarter in which the merger is consummated.............. 29
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA....................................................... 30
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................................. 32
MARKET FOR ARTRA'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.......................................................................... 33
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL
ARTRA SHAREHOLDERS AND MANAGEMENT ............................................... 33
THE ARTRA ANNUAL MEETING.................................................................. 38
Time, Date and Place, Purpose of the Artra Annual Meeting................... 38
Record Date; Vote Required.................................................. 39
Revocability of Proxies..................................................... 39
Preferred Stock Dissenters' Rights ......................................... 39
THE MERGER................................................................................ 43
Background of the Merger......................................................... 43
Artra Reasons for the Merger..................................................... 44
Merger Consideration............................................................. 44
Effective Time of the Merger..................................................... 45
Federal Income Tax Consequences.................................................. 46
Accounting Treatment............................................................. 48
Effect on Artra Options and Warrants............................................. 48
INTERESTS OF CERTAIN PERSONS IN THE MERGER
AND RELATED MATTERS.............................................................. 48
(iii)
<PAGE>
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................................... 50
The Merger....................................................................... 50
The Merger Consideration......................................................... 50
Certain Representations and Warranties........................................... 51
Certain Covenants................................................................ 53
Conditions to the Merger......................................................... 57
Termination of the Merger Agreement.............................................. 59
Effect of Termination and Termination Fees....................................... 60
Related Agreements............................................................... 61
Employment Agreements............................................................ 61
COMPARISON OF SHAREHOLDER RIGHTS.......................................................... 65
DESCRIPTION OF ENTRADE CAPITAL STOCK...................................................... 66
INFORMATION ABOUT ENTRADE (entrade.com)................................................... 72
General.......................................................................... 72
Entrade's Acquisition of the entrade.com Assets
and 25% of the Voting Common Stock of asseTrade.com......................... 72
Industry Overview................................................................ 73
entrade.com's Solution........................................................... 73
Initial Applications of entrade.com's Systems and Technologies................... 78
Marketing and Strategic Alliances................................................ 82
Proprietary Rights............................................................... 83
Competition...................................................................... 83
Employees........................................................................ 84
Entrade Plan of Operations....................................................... 84
Management of Entrade ........................................................... 84
Executive Compensation........................................................... 85
Beneficial Ownership of Entrade Common Stock..................................... 86
Entrade Certain Transactions..................................................... 87
INFORMATION ABOUT ARTRA................................................................... 88
General.......................................................................... 88
Employees........................................................................ 89
Properties....................................................................... 89
Legal Proceedings................................................................ 89
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 92
ELECTION OF DIRECTORS OF ARTRA............................................................ 103
(iv)
<PAGE>
MANAGEMENT OF ARTRA....................................................................... 104
Directors and Executive Officers of Artra................................... 104
Section 16(a) Beneficial Reporting Compliance .............................. 107
ARTRA EXECUTIVE COMPENSATION.............................................................. 107
Directors' Compensation.......................................................... 107
Executive Officer Compensation................................................... 107
Compensation Committee Interlocks and Insider Participation...................... 110
Report of Compensation Committee................................................. 110
COMPARISON OF TOTAL RETURN ON ARTRA
COMMON STOCK WITH CERTAIN INDICES................................................ 112
ARTRA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................... 113
ARTRA RATIFICATION OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP....................................................... 117
ARTRA ANNUAL REPORT....................................................................... 118
ARTRA SHAREHOLDER PROPOSALS............................................................... 118
GENERAL AND OTHER MATTERS ................................................................ 118
LEGAL MATTERS............................................................................. 118
EXPERTS................................................................................... 118
INDEX TO FINANCIAL STATEMENTS............................................................. 120
APPENDICES:
Agreement and Plan of Merger, dated as of February 23, 1999, by and
among Artra Group Incorporated, WWWX Merger Subsidiary, Inc., NA
Acquisition Corp. (now known as Entrade Inc.) and WorldWide Web
NetworX Corporation; Amendment to Agreement and Plan of Merger
dated as of April 30, 1999; Second Amendment to Agreement
and Plan of Merger dated as of May 14, 1999................................A
Sections 1930 and 1571-1580 of the Pennsylvania
Business Corporation Law of 1988...........................................B
</TABLE>
(v)
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Artra files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any reports, statements or other
information filed by Artra at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the Com
mission at 1-800-SEC-0330 for further information on the public reference rooms.
Artra's filings with the Commission are also available to the public from
commercial document retrieval services and at the web site maintained by the
Commission at http://www.sec.gov.
Entrade filed a registration statement on Form S-4 to register with the
Commission the Entrade common stock to be issued to Artra shareholders in the
merger. This Proxy State ment/Prospectus is a part of the registration
statement. As allowed by the Commission's rules, this Proxy Statement/Prospectus
does not contain all the information you can find in the Registra tion Statement
or the exhibits to the registration statement. This Proxy Statement/Prospectus
summarizes some of the documents that are exhibits to the registration
statement, and you should refer to the exhibits for a more complete description
of the matters covered by those documents.
Artra has supplied all information contained in the Proxy
Statement/Prospectus relating to Artra and Entrade has supplied all such
information relating to Entrade.
Neither Artra nor Entrade has authorized anyone to give any information
regarding the solicitation of consents or the offering of shares of Entrade
common stock that is different from what is contained in this Proxy
Statement/Prospectus. This is not an offer to sell or a solicitation of anyone
to whom it would be unlawful to make an offer or solicitation. You should not
assume that the information contained in this Proxy Statement/Prospectus is
accurate as of any time after the date of this Proxy Statement/Prospectus, and
neither the mailing of this Proxy Statement/Prospectus to shareholders nor the
issuance of Entrade common stock in the merger should create any implication to
the contrary.
ORBIT System(R) is a registered trademark of entrade.com, Inc., a
wholly owned subsidiary of Entrade.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: After carefully reading and considering the information contained in
this document, please fill out, date and sign your proxy card. Then
mail your signed proxy card in the enclosed postage-prepaid return
envelope as soon as possible so that your shares may be represented at
the Artra Annual Meeting.
Q: If my shares of Artra common stock are held in "street name" by my
broker, will my broker vote my shares for me?
A: Your broker will vote your shares only if you instruct your broker on
how to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares.
Q: Can I change my vote after I have mailed my signed proxy card?
A: You can change your vote at any time before your proxy is voted at the
Artra Annual Meeting. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card. If you
choose either of these two methods, you must submit your notice of
revocation or your new proxy card to the Secretary of Artra. Third, you
can attend the Artra Annual Meeting and vote in person. Simply
attending the meeting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q: Should I send in my Artra stock certificates now?
A: No. Artra will send you written instructions on how to receive your new
Entrade stock certificates after the merger is completed.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible
after the Artra Annual Meeting. We hope to complete the merger in the
second quarter of 1999.
Q: Please explain what I will receive in the merger.
A: If the merger is completed, Artra shareholders will receive shares of
Entrade common stock, as follows: (i) each share of Artra common stock
will become one share of Entrade common stock; and (ii) each share of
Artra preferred stock will become 329 shares of Entrade common stock in
the merger.
2
<PAGE>
Q: Will I owe any federal income tax as a result of the merger?
A: No federal income tax will be due on the exchange of shares of Artra
common stock and Artra Series A preferred stock for Entrade common
stock in the merger.
To review federal income tax consequences in greater detail, see page
- ----.
Q: Who can help answer my questions?
A: If you have any questions about the merger, please call:
Edwin Rymek, Corporate Secretary
Artra Group Incorporated
500 Central Avenue
Northfield, Illinois 60093
(847) 441-6650
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Proxy Statement/Prospectus contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"). These statements, which include statements regarding expected advantages
and other effects of the merger and the anticipated business operations of
Entrade described in "Summary," "Risk Factors," "The Merger -- Artra Reasons for
the Merger," "Information About Entrade (entrade.com) -- Entrade Plan of Opera
tions," "Management of Entrade," and elsewhere in this Proxy
Statement/Prospectus relate to expectations concerning matters that are not
historical facts. Words such as "projects," "be lieves," "anticipates," "plans,"
"expects," "intends," estimates" and similar words and expressions are intended
to identify forward-looking statements. Important factors that would cause
actual results to differ materially from such expectations ("Cautionary
Statements") are set forth under "Risk Factors" beginning on page 14 and
include:
o No operating history for entrade.com;
o Probability of continued losses for entrade.com for the
foreseeable future;
o Need for future funding;
o Fluctuations in quarterly results;
o Dependence on utilities and large manufacturing industries;
o Need to develop additional revenue sources;
3
<PAGE>
o A highly competitive environment with providers of Internet
services;
o Difficulties in protecting proprietary rights and effective Web
addresses;
o Effective development of the Internet as an effective e-commerce
business and market ing forum; and
o Dependence on key personnel.
All forward-looking statements attributable to Artra are expressly
qualified in their entirety by the Cautionary Statements described herein. All
forward-looking statements attributable to Entrade are expressly qualified in
their entirety by the Cautionary Statements described herein. Neither Artra nor
Entrade undertakes any obligation to update any forward-looking statements. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Proxy Statement/Prospectus.
4
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the proposed merger fully and for a more
complete description of the terms of the proposed merger, you should carefully
read the entire Proxy Statement/Prospectus and the documents we have referred
you to. See "Where You Can Find More Information" on page 1. The merger
agreement and the amendment to the merger agreement is attached as Appendix A to
this Proxy Statement/Prospectus. We encourage you to read the merger agreement.
It is the legal document that governs the proposed merger.
The information included in this Proxy Statement/Prospectus assumes the
exchange of currently outstanding shares of preferred stock of BCA Holdings,
Inc. for an aggregate of 2,210.18 shares of Artra Series B preferred stock prior
to the record date for the Artra Annual Meeting. BCA Holdings, Inc. is a
subsidiary of Artra.
The Companies
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, Illinois 60093
Telephone: (847) 441-6650
Artra is a Pennsylvania corporation incorporated in 1933. In recent
years through November 20, 1998, Artra operated as a manufacturer of packaging
products principally serving the food industry. The packaging products business
was conducted by Artra's wholly owned subsidiary, Bagcraft Corporation of
America. The assets of Bagcraft Corporation of America were sold on November 20,
1998, and Artra received net cash proceeds of approximately $28 million.
Approximately $15.2 million was used to pay Artra debt obligations. Artra
currently has no active business operations.
In April 1999, Artra entered into a letter of intent to purchase all of
the common stock of two companies that are in the business of conducting
auctions of a wide array of vehicles, personal property, real estate and
equipment for commercial and governmental clients under the name Nationwide
Auction Systems. The purchase price will consist of $10.8 million cash payable
at the closing of the transaction, 1,570,000 shares of Artra common stock and a
$14.0 million note, subject to adjustment, payable over a two-year period
subsequent to the closing of the transaction. The letter of intent expires on
June 1, 1999. No assurance can be given that the parties will complete their due
diligence or enter into a definitive agreement by that date.
Entrade Inc.
12 Springdale Road
Building 11
Cherry Hill, New Jersey 08003
Telephone: (609) 489-4455
5
<PAGE>
Entrade, a Pennsylvania corporation, was incorporated in February 1999.
Entrade, through its wholly owned subsidiary, entrade.com, intends to operate as
an Internet business-to- business electronic commerce, or "e-commerce," service
provider. entrade.com provides business-to-business e-commerce transaction
technologies, customized to meet client-specific applications. Additionally, it
intends to create and manage industry-specific e-commerce market ing, sales,
procurement and trading communities in select commercial sectors. entrade.com is
directing its initial commercial and marketing efforts to the heavy equipment
industry and utility sectors and intends to develop other e-commerce community
groups in other industry-specific sectors.
entrade.com's initial principal focus is to offer customized solutions
for corporate asset recovery and inventory management through a mix of
e-commerce applications. These applica tions provide asset management systems,
industry-sector trade communities for the sale and exchange of assets and
commercial services for on and off-line industrial equipment asset auctions. Its
primary home site, entrade.com, is the central link to business-to-business
services provided through two affiliated sites, utiliparts.com and
asseTrade.com. These sites blend real-time, e- commerce Internet technologies to
provide asset recovery for large industrial and utility businesses and related
trade groups.
Following the consummation of the merger and the other transactions
contemplated by the merger agreement, Entrade will serve as the holding company
for Artra, entrade.com and 25% of the voting common stock of asseTrade.com.
Artra's current headquarters at 500 Central Avenue, Northfield Illinois 60093
will become the headquarters for Entrade upon consummation of the merger. It is
anticipated that the Entrade common stock will be listed on the New York Stock
Exchange under the symbol "ATA."
The Proposed Merger (Page 43)
Artra, Entrade, WWWX and WWWX Merger Subsidiary, Inc. ("Merger Sub"), a
wholly owned subsidiary of Entrade, have entered into the merger agreement dated
February 23, 1999. The merger agreement provides that Merger Sub will merge with
and into Artra, with Artra continuing as the surviving corporation.
Following the merger, Artra's senior management will hold positions
with Entrade similar to their current positions with Artra, Artra will operate
as a wholly owned subsidiary of Entrade, and the board of directors of Entrade
will consist of the current directors of Artra and Robert Kohn, the current
President and Chief Executive Officer of Entrade. Robert Kohn will then become
the chief executive officer of entrade.com. Entrade owns all of the outstanding
capital stock of entrade.com and 25% of the voting common stock of
asseTrade.com. entrade.com is a business-to-business Internet e-commerce and
on-line auction company seeking to provide asset disposition solutions for the
utility industry and large industrial manufacturing sectors. asseTrade.com
proposes to develop and implement comprehensive asset/inventory recovery,
6
<PAGE>
disposal, remarketing and management solutions for corporate clients through
advanced Internet electronic business applications, including on-line auctions.
The merger cannot be completed unless the holders of Artra common
stock, the holders of Artra Series A preferred stock and the holders of Artra
Series B preferred stock, voting as separate classes, approve the merger
agreement and the merger by the affirmative vote of a majority of the votes cast
in person or by proxy by the holders of each class at the Artra Annual Meeting.
What Artra Shareholders Will Receive in the Merger (Page 50)
If the merger is completed, Artra shareholders will receive one share
of Entrade common stock for each share of Artra common stock and 329 shares of
Entrade common stock for each share of Artra preferred stock they own.
Approximately 10,165,466 shares of Entrade common stock will be issued to Artra
shareholders in the merger. After the merger, the shareholders of Artra will own
approximately 10,165,466 shares, or 83.6%, of the outstanding Entrade common
stock, and WWWX and the other current shareholder of Entrade, Energy Trading
Company, a subsidiary of PECO Energy, will own an aggregate of 2,000,000 shares,
or 16.4%, of the outstanding Entrade common stock.
Entrade will assume each outstanding stock option plan, stock option
and warrant to purchase Artra common stock, without changing the terms and
conditions of the stock options and warrants assumed, and Entrade will
substitute shares of Entrade common stock for the shares of Artra common stock
purchasable under each assumed stock option and warrant.
Fractional Shares (Page 51)
Fractional shares of Entrade common stock will not be issued in the
merger. Holders of Artra preferred stock otherwise entitled to receive a
fractional share of Entrade common stock following the merger will be paid cash
in lieu of such fractional shares, as described in "The Merger -- Merger
Consideration -- No Fractional Shares."
Conditions to the Merger (Page 57)
o The approval by Artra shareholders;
o The absence of legal restraints or prohibitions that prevent the
completion of the merger;
o The receipt of all consents, authorizations, orders, approvals and
written affirmations of certain persons;
7
<PAGE>
o The listing of all the Entrade common stock on the New York Stock
Exchange, or if such listing is not approved, an application for
listing shall have been filed with the Nasdaq National Market
System;
o The absence of any material adverse change in the business or
financial condition of Entrade or Artra;
o The assignment of employment agreements; and
o No material breach of any representations and warranties by any
party to the merger agreement.
Termination of the Merger Agreement (Page 59)
The merger agreement may be terminated prior to the Effective Time of
the merger by mutual written consent or by either Artra or WWWX if:
o The merger is not consummated by September 30, 1999;
o The approval of Artra's shareholders is not obtained at the Artra
Annual Meeting; or
o The merger is prohibited or permanently enjoined by a
governmental entity.
WWWX may terminate the merger agreement if:
o The WWWX board of directors determines, in the exercise of its
good faith judgment as to fiduciary duties to its stockholders
imposed by law, that such termination is required, including by
reason of the receipt of an alternative proposal regarding a
business combination of Entrade with another party;
o Any of Artra's representations and warranties is not true and
correct, if such breach would have or would be reasonably likely
to have a material adverse effect on Artra, as described in "The
Merger Agreement and Related Agreements -- Termination of the
Merger Agreement;"
o Artra fails to perform a material obligation under the merger
agreement and such failure cannot be cured within a specified
period; or
o The Artra board of directors shall have withdrawn or modified in
a manner materially adverse to WWWX its approval or
recommendation of the merger agreement or the merger.
Artra may terminate the merger agreement if:
8
<PAGE>
o The WWWX board of directors shall have withdrawn or modified in a
manner materi ally adverse to Artra its approval or
recommendation of the merger agreement or the merger;
o Any of WWWX's or Entrade's representations and warranties is not
true and correct, if such breach would have or would be
reasonably likely to have a material adverse effect on Entrade,
as described in "The Merger -- The Merger Agreement and Related
Agreements -- Termination of the Merger Agreement;" or
o WWWX or Entrade fails to perform a material obligation under the
merger agreement and such failure cannot be cured within a
specified period.
Termination Fees and Expenses (Page 60)
If the Artra shareholders fail to approve the merger and the merger
agreement, all obliga tions of WWWX and Entrade to repay the amounts loaned to
either or both of them by Artra under the loan agreement (see page 84) shall
terminate.
The Artra Annual Meeting (Page 38)
Date: __________, 1999
Time: 10 a.m, local time
Place: _________________
Purposes:
1. To elect nine directors to serve until Artra's 2000 Annual
Meeting of Shareholders and until their successors are elected;
2. To vote upon the proposal to approve and adopt the merger and
the merger agreement;
3. To ratify the appointment of PricewaterhouseCoopers LLP as
Artra's independent accountants for 1999; and
4. To transact such other business as may properly come before the
Artra Annual Meeting and any adjournment, postponement or continuation of the
Artra Annual Meeting.
Record Date for Voting at the Artra Annual Meeting (Page 39)
As an Artra shareholder, you may vote at the Artra Annual Meeting or
sign a proxy card if you owned shares of Artra common stock or Artra preferred
stock as of the close of business on ___________, 1999, the Artra record date.
On the Artra record date, 8,729,895 shares of Artra common stock, 1,849.34
shares of Artra Series A preferred stock and 2,210.15 shares of
9
<PAGE>
Artra Series B preferred stock were outstanding. You will have one vote for each
share of Artra common stock, Artra Series A preferred stock and Artra Series B
preferred stock you own for purposes of each matter voted upon at the Artra
Annual Meeting. You will be allowed to cumulate your votes in the election of
directors at the Artra Annual Meeting, which means that you have the right, in
person or by proxy, to multiply the number of votes you are entitled to cast by
the number of directors to be elected, and to cast the whole number of the votes
for one candidate or to distribute them among two or more candidates.
Vote Required to Approve the Merger and the Merger Agreement (Page 39)
The merger cannot be completed unless the holders of Artra common
stock, the holders of Artra Series A preferred stock vote and the holders of
Artra Series B preferred stock, voting as separate classes, to approve the
merger agreement and the merger by the affirmative vote of a majority of the
votes cast in person or by proxy by the holders of each class at the Artra
Annual Meeting. Abstentions and broker non-votes will not be considered votes
cast and will have no effect on the outcome of the vote on the merger agreement
and the merger. The Artra board of directors has approved the merger agreement
and the merger and recommends that you approve the merger agreement and the
merger. As of May 20, 1999, the executive officers and directors of Artra as a
group beneficially owned approximately 25.2% of the outstanding shares of Artra
common stock, including currently exercisable options, approximately 3.8% of the
outstanding shares of Artra Series A preferred stock and approximately 57.9% of
the outstanding shares of Artra Series B preferred stock.
Revocability of Proxies (Page 39)
You may revoke your proxy at any time prior to the Artra Annual Meeting
by executing a new proxy card prior to the Artra Annual Meeting or by attending
the Artra Annual Meeting in person and voting. Merely attending the meeting will
not revoke your proxy.
Completion of the Merger (Page 45)
Artra, Entrade and WWWX expect to complete the merger as soon as
practicable after the Artra shareholders approve the merger and the other
conditions to the merger have been met.
Artra Reasons for the Merger; Recommendation of the Artra Board of Directors to
the Artra Shareholders (Page 44)
At its meetings on February 15, 1999, the board of directors of Artra
concluded that the merger was in the best interests of Artra and its
shareholders and determined to recommend that the shareholders of Artra approve
the merger agreement and the merger. In reaching these conclusions and
recommendations, the board considered a number of factors, including:
o The need to find a new operating business for Artra after the sale
of its Bagcraft subsidiary's business in November 1998.
10
<PAGE>
o The desire to acquire an operating company that would satisfy New
York Stock Exchange listing requirements and preserve Artra's or
its successor's listing.
o The desire for Artra to avoid being classified as an investment
company under the Investment Company Act of 1940.
o The desire for Artra to be at the forefront of the fast-paced
trend of conducting busi ness operations over the Internet and to
find a business-to-business, e-commerce, Internet business.
o The relative credibility of the entrade.com and asseTrade.com
technology that had been developed at the direction of a major
utility company, PECO Energy.
o The potential to conduct Internet business with top Fortune 1000
companies that are clients of Henry Butcher USA, Inc. and Michael
Fox International, Inc., respectively.
Risks of the Merger (Page 14)
In considering whether to approve the merger agreement and the merger,
you should consider all of the risks of the merger, including the risks that the
potential benefits of the merger may not be realized, that Entrade's business
may not be successful and the market price of the Entrade common stock may
fluctuate and could decline in the future.
We encourage you to read the Risk Factors set forth in this Proxy
Statement/Prospectus beginning on page 14.
New York Stock Exchange Listing of Entrade Common Stock
Entrade and Artra are preparing to file a listing application with the
New York Stock Exchange for the listing of the shares of Entrade common stock
that will be issued and outstanding after the merger and shares of Entrade
common stock reserved for issuance under the Artra options and warrants to be
assumed by Entrade in the merger. The proposed trading symbol for the Entrade
common stock is "ATA."
Other Interests of Artra Officers and Directors and WWWX Officers, Directors and
Stock holders in the Merger (Page 48)
In considering the recommendations of Artra's board of directors that
you approve the merger agreement and the merger, you should note that certain
officers of Artra and certain officers, directors and stockholders of WWWX have
interests in the merger that are different from, or in addition to, your
interests.
Current officers and directors of Artra will receive options and
warrants to purchase shares of Entrade common stock upon consummation of the
merger in exchange for options and warrants
11
<PAGE>
to purchase shares of Artra common stock currently held by them. Also, Artra
officers and directors currently hold an aggregate of approximately 3.8% of the
outstanding shares of Artra Series A preferred stock and an aggregate of
approximately 57.9% of the outstanding shares of Artra Series B preferred stock,
which will be converted in the merger to 329 shares of Entrade common stock for
each share of Artra preferred stock held. Therefore, directors and executive
officers of Artra will receive an aggregate of approximately 444,675 shares of
Entrade common stock for outstanding shares of Artra preferred stock. Also
trusts whose beneficiaries include adult children of John Harvey will receive an
aggregate of approximately 306,644 shares of Entrade common stock for
outstanding shares of Artra preferred stock held by them. See "Infor mation
Regarding Beneficial Ownership of Principal Artra Shareholders and Management."
On February 23, 1999, Artra entered into employment agreements with
Robert D. Kohn, Benjamin R. Kafka, Gary Lerman and Mark L.M. Quinn, providing
for the employment of those individuals for three-year terms. In connection with
such employment, Mr. Kohn received nonqualified stock options for the purchase
of 1,000,000 shares of Artra common stock at an exercise price of $2.75 per
share, and Messrs. Kafka, Lerman and Quinn each received non qualified stock
options for the purchase of 200,000 shares of Artra common stock at an exercise
price of $2.75 per share. Robert D. Kohn is the President and a director of WWWX
and benefi cially owns 4,840,000 shares, or approximately 26.8%, of the
outstanding shares of common stock of WWWX. Benjamin R. Kafka and Mark L.M.
Quinn beneficially own 767,500 shares and 630,000 shares, respectively, of WWWX
common stock, or approximately 4.2% and 3.5%, respectively, of the outstanding
shares of WWWX common stock. Mr. Kafka and Mr. Quinn are also officers,
directors and principal shareholders of Positive Asset Remarketing, Inc. and
Global Trade Group, Ltd. Positive Asset Remarketing, Inc. or its designees will
receive 3,500,000 shares of WWWX common stock as consideration for the sale of
another system to WWWX. Therefore, upon the issuance of those shares, Positive
Asset Remarketing, Inc. or its designees will own approximately 16.3% of the
outstanding shares of WWWX common stock. WWWX will own approximately 14.8% of
the outstanding shares of Entrade common stock upon consummation of the merger.
No Solicitation (Page 54)
Entrade and WWWX have agreed, subject to certain exceptions contained
in the merger agreement, not to initiate or engage in discussions regarding a
business combination by Entrade or any subsidiary with another party until the
earlier of the termination of the merger agreement or the date the merger
closes.
Artra Preferred Stock Dissenters' Rights (Page 39)
If a holder of Artra preferred stock does not vote for the merger
agreement and the merger, such holder will have the right under Pennsylvania law
to dissent to the merger and request an appraisal of the value of such holder's
shares of Artra preferred stock in connection with the merger.
12
<PAGE>
In order to preserve this right, any such holder must follow the
procedures discussed in Appendix B.
Accounting Treatment (Page 48)
Artra and Entrade intend the merger to be accounted for as a purchase.
Important Federal Income Tax Consequences (Page 46)
Artra expects that the exchange of Artra common stock and Artra
preferred stock for shares of Entrade common stock in the merger will be tax
free for federal income tax purposes to the shareholders of Artra. However,
holders of Artra preferred stock who receive cash in lieu of fractional shares
will be subject to federal income tax with respect to the cash received. Neither
Artra nor Entrade should become subject to federal income taxes solely as a
result of the merger.
Tax matters are very complicated and the tax consequences to you from
the merger will depend on your own circumstances. You should consult your tax
advisors for a full understanding of all of the tax consequences to you from the
merger.
Who Can Help Answer Your Questions?
If you have questions about the merger you should contact:
Edwin Rymek, Corporate Secretary
Artra Group Incorporated
500 Central Avenue
Northfield, Illinois 60093
Telephone: (847) 441-6650
13
<PAGE>
RISK FACTORS
This Proxy Statement/Prospectus contains certain forward-looking
statements that involve risks and uncertainties. These statements relate to
future plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as "expects," "believes," "anticipates,"
"intends," "plans" and similar expressions. Actual results could differ
materially from those discussed in these statements. Factors that could
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this Proxy Statement/Prospectus.
Risk Factors Relating to Entrade and Its entrade.com Operations.
The following risk factors relate to the business and operations of
Entrade and its entrade.com operations:
We have no operating history upon which you may evaluate us.
We formed Entrade in February 1999 at which time it acquired the
intellectual property of entrade.com and 25% of the voting common stock of
asseTrade.com. These entities had virtually no operating history prior to that
time. Accordingly, we have no operating history upon which you may evaluate us.
In addition, our revenue model is evolving. Initially, our revenues will be
primarily generated from technology license fees, transaction fees from our
asset disposi tion business community sites, transaction fees associated with
on-line auctions and other listing, maintenance and service fees. Our principal
initial targeted markets will be the utilities industry and large industrial
manufacturing sectors. In the future, we expect to generate revenue from
multiple sources, including e-commerce transaction fees and business services.
We may not be able to successfully create industry-specific on-line business
communities that will generate significant license and transaction fees. If we
do not generate such revenue, our business, financial condition and operating
results will be materially adversely affected.
We anticipate we will incur continued losses for the foreseeable
future.
Our lack of any operating history makes predicting our future operating
results, including operating expenses, difficult. Our revenues may not grow. To
date, we have not generated revenues and have not been profitable. We may never
be profitable or, if we become profitable, we may be unable to sustain
profitability. We expect to incur significant losses for the foreseeable future.
Some of our expenses are or will be fixed, including non-cancelable
agreements, equip ment leases and real estate leases. If our revenues do not
increase, we may not be able to compensate by reducing expenses in a timely
manner. In addition, we plan to increase our operating expenses to:
o launch industry-specific on-line business communities;
14
<PAGE>
o increase our sales and marketing operations;
o broaden our customer support and operating software capabilities;
and
o pursue strategic marketing and distribution alliances.
Expenses may also increase due to the potential impact of goodwill and
other charges resulting from any future acquisitions.
We may need to seek future funding sources.
We believe that the license fee revenues and other funding by Artra of
Entrade's operations after the merger will enable Entrade to maintain its
planned operations through 1999. No assurance exists that we will attain
profitability. If revenues from entrade.com's operations are less than
anticipated in 1999 and 2000, funds may have to be raised from additional
financings. We have no commitments for any financing other than from Artra, and
any financing commit ments may result in dilution to our existing shareholders
after the merger. The terms of any future financings may impose restrictions on
our right to declare dividends or on the manner in which we conduct our
business.
Fluctuations in our quarterly results may adversely affect our stock
price.
It is probable that our quarterly operating results will fluctuate
significantly due to many factors, including:
o the uncertain adoption of the Internet as a commercial medium;
o potential dependence on the general development of the e-commerce
market;
o reluctance of corporate information technology groups to
transition from existing internal corporate computer networks to
Internet-based e-commerce systems;
o the pace of deregulation in the utility industry;
o uncertainties relating to the pace of consolidation within the
electric utility industry;
o the effect of deregulation and industry consolidation on the
decision-making processes of management within the utility
industry relating to capital expenditures and client acquisition;
o market competition;
o management of our growth; and
15
<PAGE>
o risks associated with potential acquisitions.
Many of these factors are beyond our control. If our operating results
in one or more quarters do not meet the securities analysts' or your
expectations, the price of Entrade common stock could be materially adversely
affected.
We intend to rely heavily on revenues from the utilities and large
industrial manufac turing sectors, and if these revenues decline our
business would be adversely affected.
We intend to rely on revenues generated from technology licenses fees,
transaction fees from our asset disposition business community sites,
transaction fees associated with on-line auctions and other listing, maintenance
and service fees. Our principal initial targeted markets will be the utility
industry and large industrial manufacturing sectors. Our ability to increase our
revenues may depend, among other things on many factors, including:
o the development of a large base of global buyers and sellers of
assets through our industry-specific on-line business communities;
o the acceptance by utilities and large industrial manufacturing
sectors of the Internet as a legitimate medium for asset transfers
and distribution;
o uncertain acceptance of our e-commerce related methodologies and
service applications by internal corporate information technology
groups;
o the transition of traditional methodologies based on internal
corporate computer networks to Internet-based e-commerce systems;
o the acceptance of our fee structures within the utility industry;
and
o current and future competitors offering similar services.
We may not develop additional revenue sources.
If we do not generate increased revenue from on-line business
communities, our business, financial condition and operating results could be
materially adversely affected. We plan to generate revenues through revenue
sharing relationships with strategic marketing partners with whom we form
industry-specific business communities. To generate significant revenues from
Internet business-to-business e-commerce, we will have to continue to build
these relationships.
16
<PAGE>
Marketing and distribution alliances may not generate the expected
number of new customers or may be terminated.
We intend to use marketing, distribution and strategic trade-group
alliances with other Internet companies to create traffic on our on-line
business communities and, consequently, to generate revenues. These marketing
and distribution alliances will allow us to link our on-line business
communities to Internet search engines and web sites. The success of these
relationships depends on the amount of increased traffic we receive from the
alliance partners' web sites. These arrangements may not generate the expected
number of new customers. We also cannot assure you that we will be able to renew
these marketing and distribution alliance agreements. If any of these agreements
are terminated, the traffic on on-line business communities could decrease. We
plan to enter into partnerships with strategic industry-related partners to
build industry-specific business communities in addition to our primary initial
focus on the utility and large manufacturing sectors, but we cannot assure you
that we will be able to enter into any new partnerships.
We may not be able to compete effectively with other providers of
e-commerce services.
We believe that the strongest potential competition does not come from
traditional service groups but rather the evolution of the Internet and the
types of business-to-business service providers that evolution will create. As
applications for business-to-business e-commerce begin to proliferate and
mature, entrade.com will compete with other technology companies and traditional
service providers that seek to integrate on-line business technologies with
their tradi tional service mix.
Competition for Internet products and services and electronic business
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new Web sites at a
relatively low cost. We expect that additional compa nies will offer competing
on-line business communities on a stand-alone or portfolio basis.
Currently, a number of software developers specialize in transaction
software. These software developers, however, do not specifically focus on
either asset recovery applications or our target industrial and utility markets.
Other companies offer asset recovery services and/or asset evaluation and
auction systems. Most of these groups, however, either specialize in certain
industries that we currently do not target or focus on our target markets but
have neither Internet- based e-commerce transaction technologies nor on-line
auction capabilities. Other competitors operate e-commerce transaction and
auction technologies through the Internet, but do not, for the most part,
concentrate on asset recovery services and/or large industrial groups. The
current focus of these groups is principally the business-to-consumer retail
market.
A few groups provide asset recovery for the utility industry. Most
notably, the National Materials Logistic Group, a membership of nuclear
generation facilities, contracts to provide parts and equipment, listing
available assets for sale by and on behalf of member utilities through a
17
<PAGE>
listing service called RAPID. That group specializes in nuclear generation
equipment rather than the broad spectrum of energy generation assets. Similarly,
a few auction groups offer a strong off-line presence and fulfillment
capabilities with large industrial companies.
E-commerce applications are in the early stages of development.
Currently, the principal focus of e-commerce business-to-business groups is to
provide information and generate revenues from advertisement. As e-commerce
evolves, however, we expect that other entrepreneurs and large industry leaders
in specific industry sectors will create other niche business-to-business
services that may compete with our services.
Other competitors may develop Internet products or services that are
superior to, or have greater market acceptance than, our solutions. If we are
unable to compete successfully against our competitors, our business, financial
condition and operating results will be adversely affected.
Some of our competitors have greater financial, marketing and other
resources than ours. Also, other established e-commerce companies with greater
financial, marketing and other resources that currently do not provide on-line
business-to business may decide to add this type of service and compete with us
in the future. This may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, strategic partnerships
and other initiatives.
We may not be able to protect our proprietary rights and we may
infringe the propri etary rights of others.
Proprietary rights are important to our success and our competitive
position. Our ORBIT System has been federally registered as a trademark for use
on specified software. We have also applied for federal registration of
"utiliparts.com" and "entrade.com" as service marks for use in connection with
our electronic commerce services.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. Generally, our domain names for our on-line industry-specific business
communities may not be protectible as trademarks because those names may be
deemed descriptive or generic. If we are unable to protect our proprietary
rights in trademarks, service marks, trade dress and other indications of
origin, competitors will be able to use names and marks that are identical to
ours or sufficiently similar to ours to cause potential customers to become
confused between us and our services and our competitors and their services.
This confusion may result in the diversion of business to our competitors. Also,
to the extent these competitors have problems with the quality of their
services, our reputation for quality may be injured.
Litigation against infringers of our service marks, trademarks and
similar rights may be expensive. Because of the difficulty in proving damages in
trademark litigation, it may be very difficult to recover damages. We have not
conducted searches to determine if our service marks,
18
<PAGE>
trademarks and similar items may infringe on the rights of third parties. If
third parties success fully assert claims of trademark, service mark or other
infringement, we may be required to change our service marks, trademarks,
company names, the design of our sites and materials and our Internet domain
names, as well as to pay damages for any infringement. A change in service
marks, trademarks, company names and Internet domain names may cause customers
to be unable to locate us or not connect our new names and marks with our prior
names and marks, resulting in loss of business.
While our software, text, designs and other works of authorship are
protected by copy right, it is not possible to detect all possible
infringements. Also, copyright protection does not extend to functional features
of software, and so will not be effective to prevent third parties from reverse
engineering the functionality of our software. Our business strategy includes
granting access to the source code for our software to certain licensees;
whenever access to source code is granted, the difficulty associated with
improperly using and modifying software is lessened.
We have not conducted searches to determine if our software infringes
on any patents of third parties. If our software is found to infringe on the
copyrights or patents of third parties, we may be required to pay royalties for
past use and for continued use, or to modify or replace the software to avoid
infringement. There can be no assurance that we would be able to modify or
replace the software. In addition, effective copyright and trademark protection
may be unenforce able or limited in certain countries, and the global nature of
the Internet makes it impossible to control the ultimate destination of our
work. We also license content from third parties and it is possible that we
could become subject to infringement actions based upon the content licensed
from those third parties. We generally obtain representations as to the origin
and ownership of such licensed content; however, this may not adequately protect
us. Any of these claims, with or without merit, could subject us to costly
litigation and the diversion of our technical and management personnel.
Our technology rights constitute ownership of copyrights and trade
secrets embodied in certain unique portions of the software now known as the
ORBIT System software and a license, substantially exclusive, to certain other
components of that software. We are now developing a new version of the ORBIT
System software. We have entered into a contract with a software developer
pursuant to which we are to obtain all rights in the software created by the
developer. While we attempt to determine that the developer is taking
appropriate steps to remain in compli ance with this agreement, there can be no
assurance that the developer will do so.
We may not be able to acquire or maintain effective web addresses.
We currently hold various Internet web addresses relating to our
services and products. These web addresses include entrade.com and
utiliparts.com as well as asseTrade.com through our interest in asseTrade.com.
We may not be able to prevent third parties from acquiring web addresses that
are similar to our addresses, which could materially adversely affect our
business, financial condition and operating results. The acquisition and
maintenance of web addresses generally is regulated by governmental agencies and
their designees. For example, in the United
19
<PAGE>
States, the National Science Foundation has appointed Network Solutions, Inc. as
the exclusive registrar for the ".com," ".net" and ".org" generic top-level
addresses. The regulation of web addresses in the United States and in foreign
countries is subject to change. As a result, we may not be able to acquire or
maintain relevant web addresses in all countries where we conduct business that
are consistent with our brand names and marketing strategy. Furthermore, the
relationship between regulations governing such addresses and laws protecting
trademarks is unclear.
Our business depends on the effective development of the Internet as an
effective e- commerce business and marketing forum.
The Internet poses risks that are applicable to many on-line
businesses, including ours. The following present a description of such risks:
Our success depends on our ability to use an effective Internet
marketing strategy which depends on Internet governance and regulation
which is uncertain.
The future success of our business is dependent on our ability to use
an effective Internet marketing strategy. Because the original role of the
Internet was to link the government's comput ers with academic institutions'
computers, the Internet was historically administered by organiza tions that
were involved in sponsoring research. Private parties have assumed larger roles
in the enhancement and maintenance of the Internet infrastructure. Therefore, it
is unclear what organization, if any, will govern the administration of the
Internet in the future, including the authorization of domain names. The lack of
an appropriate organization to govern the administra tion of the Internet
infrastructure and the legal uncertainties that may follow, pose risks to the
commercial Internet industry and could have a material adverse effect on our
business, financial condition and operating results. In addition, the effective
operation of the Internet and our business is also dependent on the continued
mutual cooperation among several organizations that have widely divergent
interests. These organizations may find that achieving a consensus may become
difficult, impossible, time-consuming and costly. As a result, the following
risks would have a material adverse effect on our business, financial condition
and operating results:
o uncertainty as to the legality of any action we may take, making
business planning and operations difficult;
o the taking of harmful or disruptive actions with respect to the
Internet by other organi zations and individuals;
o a disruption of Internet administration, effective operations and
maintenance, including the inability of users to communicate with
other users or otherwise use the Internet; and
o a delay in infrastructure improvements necessary to the
maintenance and expansion of the Internet.
20
<PAGE>
Although we are not subject to direct regulation in the United States
other than federal and state business regulations generally, changes in the
regulatory environment could result in our business being subject to direct
regulation by the Federal Communications Commission or other United States
regulatory agencies. Additionally, as Internet use becomes more internationally
widespread, there is an increased likelihood of international regulation. We
cannot predict whether or to what extent any such new regulation will occur;
however, such regulation could have a material adverse effect on our business,
financial condition and operating results. For example, costs incurred and
decisions rendered as a result of the enactment of new laws or adoption of new
regulations, or investigations and lawsuits based upon new laws or regulations
could have a material adverse effect on our business, financial condition and
operating results.
Our business depends on the growth of the Internet, which is uncertain.
Our market is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited by a number of reasons, such as:
o infrastructure;
o security concerns;
o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, web sites may from time to time experience
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Internet usage, as well as usage of our on-line
business communi ties, could be adversely affected.
Adoption of the Internet as a medium for utilities and large
manufacturing industry asset trading and distribution is uncertain.
The growth of the Internet as a service and solutions provider for
trading and distribution of assets in the utilities and large manufacturing
sectors requires validation of the Internet as an effective medium for this
purpose. This validation has yet to fully occur. Acceptance of the Internet
among utilities and large manufacturing industry managers will also depend on
growth in the virtual business use of the Internet. If widespread virtual
business use of the Internet for those sectors does not develop, or if the
Internet does not develop as an effective and measurable medium for such
services, our business, financial condition and operating results could be
materially adversely affected. For example, critical issues concerning use of
the Internet including
21
<PAGE>
security, reliability, cost, ease of use and quality of service remain
unresolved and may affect the growth of and the degree to which business is
conducted over the Internet.
No standards have been widely accepted to measure the effectiveness of
Internet business solutions. If such standards do not develop, managers may not
use the Internet and or may be reluctant to do so. Our business, financial
condition and operating results would be adversely affected if the market for
Internet asset trading and distribution for these sectors fails to develop or
develops slower than expected.
Our long-term success depends on the development of the on-line
business market which is uncertain.
If Internet business-to-business electronic business commerce does not
grow or grows slower than expected, our business will suffer. Our long-term
success depends on widespread market acceptance of electronic business commerce
within the utilities and large manufacturing sectors.
A number of factors could prevent such acceptance, including the
following:
o Internet business-to-business e-commerce is at an early stage and
managers may be unwilling to shift their purchasing from
traditional vendors to online vendors;
o the necessary network infrastructure for substantial growth in
usage of Internet may not be adequately developed;
o increased government regulation or taxation may adversely affect
the viability of electronic business commerce;
o insufficient availability of telecommunication services or changes
in telecommunication services could result in slower response
times; and
o adverse publicity and industry concern about the security of
electronic commerce transactions could discourage its acceptance
and growth.
Additionally, leading web site, browser providers and other Internet
distribution channels may begin to charge us to provide access to our products
and services. If any of these expenses are not accompanied by increased
revenues, our business, financial condition and operating results would be
materially adversely affected.
Concerns regarding security of transactions and transmitting
confidential information over the Internet may negatively impact our
e-commerce business.
We believe that concern regarding the security of confidential
information transmitted over the Internet, such as business and supply
requirements, credit card numbers and other forms of
22
<PAGE>
payment methods, prevents many potential customers from engaging in online
transactions. If we do not add sufficient security features to future product
releases, our services may not gain market acceptance or there may be additional
legal exposure to us. We intend to include basic security features in some of
our products and services to protect the privacy and integrity of customer data,
such as password requirements for access to portions of our on-line business
communities. We currently use authentication technology, which requires
passwords and other information to prevent unauthorized persons from accessing a
customer's information, or encryption, which transforms information into a
"code" designed to be unreadable by third parties, to protect confidential
information.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins, computer viruses, hackers or
similar problems caused by employees, customers or other Internet users. If a
person circumvents our security measures, that person could misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability. We may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as electronic commerce becomes more prevalent, our
customers will become more concerned about security. If we do not ade quately
address these concerns, this could materially adversely affect our business,
financial condition and operating results.
Our computers and telecommunications equipment are maintained by a
third party server hosting company. Any system interruptions that cause our
on-line business communities to be unavailable to web browsers may reduce their
attractiveness to customers and potential customers and could materially
adversely affect our business, financial condition and operating results. If the
server hosting company does not reasonably maintain these computers and
telecommunications equipment in effective working order and reasonably protect
these systems against the following interruptions, our business, financial
condition and operating results could be materially adversely affected:
o fire;
o natural disaster;
o sabotage;
o power loss;
o telecommunication failure; and
o human error or other disruptive events.
We may be subject to legal liability for publishing or distributing
content over the Internet.
23
<PAGE>
We may be subject to legal claims relating to the content in
industry-specific on-line business communities, or the downloading and
distribution of such content. Claims could also involve matters such as
defamation, invasion of privacy, disclosure of confidential information and
copyright infringement. Providers of Internet products and services have been
sued in the past, sometimes successfully, based on the content of material. In
addition, some of the content provided in our on-line business communities is
drawn from data compiled by other parties, including governmental and commercial
sources, and we re-key the data. This data may have errors. If our content is
improperly used or if we supply incorrect information, it could result in
unexpected liability. Our insurance may not cover claims of this type, or may
not provide sufficient coverage. Our business, financial condition and operating
results could suffer a material adverse effect if costs resulting from these
claims are not covered by our insurance or exceed our coverage.
Capacity constraints on our technology, transaction processing system
and network hardware and software may be difficult to project.
As traffic in our industry-specific on-line business communities
increases, we must expand and upgrade our technology, transaction processing
systems and network hardware and software. We may not be able to accurately
project the rate of increase in our on-line business communities. In addition,
we may not be able to expand and upgrade our systems and network hardware and
software capabilities to accommodate increased use of our on-line business
communities. If we do not appropriately upgrade our systems, network hardware
and software, our business, financial condition and operating results will be
materially adversely affected.
Our market is characterized by rapid technological change.
Our market is characterized by rapid technological change and frequent
new product announcements. To be successful, we must adapt to the changing
market by continually improv ing the responsiveness, services and features of
our on-line, industry-specific business communi ties and by developing new
features to meet customer needs. Our existing technology, transaction processing
systems and network software are currently being upgraded for proprietary
reasons and to address the evolving needs of our clients. While we believe these
upgrades will be effective, there can be no assurance that significant
technological changes will not render our technology obsolete. If we are unable
to successfully respond to these developments or do not respond in a
cost-effective way, our business, financial condition and operating results will
be materially adversely affected.
Effectively managing our growth may be difficult.
We expect to grow rapidly both by adding new products and hiring new
employees. This growth is likely to place a significant strain on our resources
and systems. To manage our growth, we must implement systems and train and
manage our employees. Many of our senior management have only recently joined
us. We cannot assure you that our management will be able to effectively or
successfully manage our growth.
24
<PAGE>
Acquisitions may disrupt or otherwise have a negative impact on our
business.
We plan to make investments in complementary companies, technologies
and assets. Future acquisitions are subject to the following risks:
o acquisitions may cause a disruption in our ongoing business,
distract our management and other resources and make it difficult
to maintain our standards, controls and procedures;
o we may acquire companies in markets in which we have little
experience;
o we may not be able to successfully integrate the services,
products and personnel of any acquisition into our operations;
o we may be required to incur debt or issue equity securities,
which may be dilutive to existing shareholders, to pay for
acquisitions; and
o our acquisitions may not result in any return on our investment
and we may lose our entire investment.
We may not be able to consummate future acquisitions.
Regardless of whether we can identify acceptable acquisition
candidates, we may not be able to consummate future acquisitions for other
reasons such as the availability of capital. If we are unable to consummate
future acquisitions, our business, financial condition and operating results
could be adversely affected.
Our success is dependent on our key personnel.
We believe that our success will depend on continued employment of our
senior manage ment team and key technical personnel. If one or more members of
our senior management team were unable or unwilling to continue in their present
positions, our business, financial condition and operating results could be
materially adversely affected. Most of our senior management have employment
agreements with Artra, which will be assumed by Entrade upon consummation of the
merger, and there can be no assurance of continued employment of such persons
after the terms of these agreements expire.
Our success also depends on having a highly trained sales force and
telesales group. Our telesales group is being formed. We will need to continue
to hire additional personnel as our business grows. A shortage in the number of
trained salespeople could limit our ability to increase sales in our on-line
business communities and to sell services as we launch these on-line business
communities.
25
<PAGE>
We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for employees with technical expertise,
is intense. Our business, financial condition and operating results will be
materially adversely affected if we cannot hire and retain suitable personnel.
Our systems may not be Year 2000 compliant.
We believe that our ORBIT System technology and our internal computer
systems are Year 2000 compliant. We may realize exposure and risk, however, if
the systems on which we are dependent to conduct our operations are not Year
2000 compliant. We are in the process of confirming Year 2000 compliance by our
third party service providers. Our potential areas of exposure include products
purchased from third parties, computers, software, telephone systems and other
equipment used internally. Also, if clients, distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.
In the event that our web-hosting facilities provided by a third party
are not Year 2000 compliant, our production web sites would be unavailable and
we would not be able to deliver services to our users. In the event that the
production and operational facilities that support our web sites are not Year
2000 compliant, some portions of our web sites may become unavailable.
The interests of our controlling shareholders after the merger may
conflict with our interests and the interests of our other
shareholders.
As a result of its stock ownership, WWWX may be in a position to affect
significantly our corporate actions such as mergers or takeover attempts in a
manner that could conflict with the interests of our public shareholders. WWWX
will own 1,800,000 shares or approximately 14.8% of the outstanding shares of
Entrade common stock after the merger. Principals of WWWX also hold stock
options to purchase an aggregate of 1,600,000 shares of Artra common stock.
Our minority interest in asseTrade.com and the potential for deadlock
in stockholder and board actions may impede the growth and development
of asseTrade.com's operations.
We currently hold 25% of the voting common stock of asseTrade.com.
Positive Asset Remarketing, Inc. holds a 25% voting interest, and the remaining
50% is held by Butcher Fox LLC. Our minority interest could reduce our ability
to direct the management and operations of asseTrade.com. Furthermore, voting
interests by the stockholders and board members could become deadlocked. Any
deadlock would impede or prevent the growth and development of asseTrade.com's
operations, which would adversely affect our financial position and operations.
26
<PAGE>
Shares eligible for future sales by our current shareholders may
adversely affect our stock price.
If our shareholders sell substantial amounts of Entrade common stock,
including shares issued upon the exercise of outstanding options and warrants,
in the public market following the merger, then the market price of our common
stock could fall. We also may file one or more registration statements to
register all shares of Entrade common stock under our stock option plans and
warrants that we will be assuming from Artra in the merger. After such
registration state ments are effective, shares issued upon exercise of stock
options and the warrants will be eligible for sale in the public market without
restriction, except that affiliates of Entrade will be required to comply with
the registration requirements under the Securities Act or an exemption from the
registration requirements, such as Rule 144.
Anti-takeover provisions and our right to issue preferred stock could
make a third party acquisition of us difficult.
Entrade is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if such change in control would be beneficial to
shareholders. Our articles of incorporation provide that our board of directors
may issue preferred stock without shareholder approval. The issuance of
preferred stock could make it more difficult for a third party to acquire us.
The Entrade common stock price is likely to be highly volatile.
The market price of Entrade common stock is likely to be highly
volatile as the stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Our shareholders
may not be able to resell their shares of Entrade common stock following periods
of volatility because of the market's adverse reaction to such volatility. The
trading prices of many technology and Internet-related companies' stocks have
reached historical highs within the last 52 weeks and have reflected relative
valuations substantially above historical levels. During the same period, such
companies' stocks have also been highly volatile and have recorded lows well
below such historical highs. We cannot assure you that our stock will trade at
the same levels of other Internet stocks or that Internet stocks in general will
sustain their current market prices.
Factors that could cause such volatility may include, among other
things:
o actual or anticipated variations in quarterly operating results;
o announcements of technological innovations;
o new sales formats or new products or services;
o changes in financial estimates by securities analysts;
27
<PAGE>
o conditions or trends in the utilities and large manufacturing
industry sectors;
o conditions or trends in the Internet industry;
o changes in the market valuations of other Internet companies;
o announcements by us or our competitors of significant
acquisitions, strategic partner ships or joint ventures;
o changes in capital commitments;
o additions or departures of key personnel; and
o sales of Entrade common stock.
Many of these factors are beyond our control. These factors may
materially adversely affect the market price of our common stock, regardless of
our operating performance.
Risk Factors Relating to Artra
Lack of compliance with New York Stock Exchange listing criteria may
result in delisting of Artra common stock or, after the merger, Entrade
common stock.
Artra has fallen below certain of the New York Stock Exchange's
quantitative and other continued listing criteria. Pursuant to the New York
Stock Exchange's request, Artra has provided a definitive action plan
demonstrating Artra's ability to achieve compliance with the New York Stock
Exchange's listing standards, including the succession of Entrade common stock
to such listing after the merger. Based upon a review of that plan, the New York
Stock Exchange is continuing the listing of Artra common stock. Artra and, after
the merger, Entrade will be subject to ongoing quarterly monitoring for
compliance with the plan. Failure to meet any of the quarterly plan projections
could result in the suspension from trading and subsequent delisting of Artra
common stock and, after the merger, Entrade common stock. Artra's plan is
dependent upon consummation of the merger during the third quarter of 1999. If
the merger is not consummated, Artra may not be able to satisfy the listing
requirements of the New York Stock Exchange, and Artra common stock may be
delisted from the New York Stock Exchange.
Artra's potential environmental liabilities and other potential
liabilities from other claims may result in future costs to Artra that
are difficult to estimate.
Certain of the former operations of Artra and its subsidiaries have
been subject to require ments imposed under certain federal, state and local
environmental and health and safety laws and regulations, including the Clean
Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability act ("CERCLA")
and the Occupational Safety and Health Act and comparable state laws, relating
to
28
<PAGE>
waste water discharges, air emissions, solid waste management and disposal
practices, work place safety and real property use and ownership. Liability
under CERCLA is, in most instances, strict, joint and several, meaning that
Artra could be liable for all response costs incurred. As a result of these
environmental matters, Artra and its subsidiaries have, from time to time, been
and currently are involved in administrative and judicial proceedings and
inquiries. The currently pending proceedings relate primarily to claims for
damages with respect to sites and facilities of Baltimore Paint and Chemical
Company, Harvel Industries, Inc., Dutch Boy Paints and Bagcraft Corporation of
America. Artra has provided accruals for certain of these claims. Various
uncertainties, however, with respect to these and other sites and facilities
make it difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. See "Information About Artra -- Legal Proceedings" on page __.
In recent years, Artra has been a party to certain product liability
claims relating to the former The Synkoloid Company subsidiary. Artra's product
liability insurance has covered all such claims settled or adjudicated to date.
Artra currently anticipates that its product liability insurance is adequate to
cover any additional pending claims. If claims exceed the insurance coverage,
however, Artra's financial position could be materially and adversely affected.
Artra preferred stock may impact Artra's ability to obtain additional
financing in the future.
Artra has significant indebtedness, liabilities and obligations arising
from certain outstand ing issues of redeemable Artra preferred stock of Artra
and its subsidiaries. The Artra preferred stock, however, will be converted into
Entrade common stock upon consummation of the merger. The degree to which Artra
is encumbered could have important consequences if the merger is not
consummated, including Artra's ability to obtain additional financing in the
future for working capital, capital expenditures, product development,
acquisitions and general corporate purposes.
Merger-Related Risk Factors
Difficulties of integrating the new holding company structure after the
merger could direct management's attention from operating the new
business.
The anticipated benefits of the proposed merger will depend in part on
the integration of the new operating business of Entrade into the new holding
company structure in which Entrade will be the holding company for Artra,
entrade.com and 25% of the outstanding voting common stock of asseTrade.com. If
serious difficulties are encountered during this integration, manage ment will
have to divert its attention to address these issues, which could have an
adverse effect on Entrade's consolidated operations and financial condition.
Also, because Entrade currently has a minority interest in asseTrade.com,
Entrade will not have the power to direct the management of asseTrade.com which
could adversely impact the ability of Entrade to integrate the new operating
business into the holding company structure.
Substantial expenses resulting from the merger may affect quarterly
results for the quarter in which the merger is consummated.
Artra and Entrade estimate that they will incur aggregate pre-tax costs
of approximately $600,000 associated with the merger and related transactions.
These costs and expenses will affect results of operations in the quarter in
which the merger is consummated.
29
<PAGE>
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA
This table is a consolidated summary of selected financial data of
Artra for the three month periods ended March 31, 1999 and 1998 and for each of
the last five fiscal years. The operations of the Bagcraft subsidiary, which was
sold effective November 20, 1998, are included in discon tinued operations. The
information for fiscal years 1995 and 1994 presents the operations of Arcar
Graphics, Inc. in discontinued operations. The sale of Arcar Graphics, Inc.,
which was acquired effective April 9, 1994, was completed on October 26, 1995.
The information for fiscal years 1995 and 1994 presents the operations of
Artra's former jewelry business in discontinued opera tions.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Fiscal Year Ended (J)
--------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ..................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Earnings (loss) from continuing
operations (A) (B) (C) (D) ... (1,268) (1,779) (5,707) 1,066 (445) (11,113) (5,833)
Earnings (loss) from discontin
ued operations (E) (F) (H) .... -- (138) 38,930 (293) 3,994 (5,820) (23,602)
Extraordinary credits (H) ..... -- -- -- -- 9,424 14,030 8,965
Net earnings (loss) ........... (1,268) (1,917) 33,223 773 12,973 (2,903) (20,470)
Earnings (loss) per share (I):
Basic
Continuing operations ... (.017) (0.24) (0.78) -- (0.19) (1.84) (1.17)
Discontinued operations . -- (0.02) 4.94 (0.04) 0.53 (0.86) (4.14)
Extraordinary credits ... -- -- -- -- 1.25 2.07 1.57
Net earnings (loss) ..... (0.17) (0.26) 4.16 (0.04) 1.59 (0.63) (3.74)
Diluted
Continuing operations ... (0.17 (0.24) (0.78) -- (0.19) (1.84) (1.17)
Discontinued operations . -- (0.02) 4.94 (0.04) 0.53 (0.86) (4.14)
Extraordinary credits ... -- -- -- -- 1.25 2.07 1.57
Net earnings (loss) ..... (0.17) (0.26) 4.16 (0.04) 1.59 (0.63) (3.74)
Weighted average number of
shares outstanding
Basic ................... 7,965 7,952 7,891 7,970 7,525 6,776 5,702
Diluted ................. 7,965 7,952 7,891 7,970 7,525 6,776 5,702
Total assets ................. 17,551 21,268 73,206 77,379 77,949 93,429
Long-term debt ............... -- -- -- 50,619 34,207 34,113 19,673
Debt subsequently discharged . -- -- -- -- -- -- 9,750
Cash dividends ............... -- -- -- -- -- -- --
30
<PAGE>
<FN>
(A) Earnings from continuing operations for the years ended December 31,
1998, December 31, 1997 and December 26, 1996 include realized gains of
$320,000, $2,531,000 and $5,818,000, respectively, from dispositions of
COMFORCE common stock.
(B) Earnings from continuing operations for the year ended December 31,
1997 includes a gain from settlement of litigation of $10,416,000, net
of related legal fees and other expenses, and net related party
compensation/expense reimbursement costs of $2,816,000 (see Notes 15
and 16 to Artra's consolidated financial statements).
(C) Earnings from continuing operations for the year ended December 26,
1996 includes a gain of $838,000 from an exchange of redeemable
preferred stock of its Bagcraft subsid iary.
(D) Artra incurred a compensation charge of $300,000 during the first
quarter of 1999 relating to stock options to certain individuals
employed to manage Artra's entry into the Internet business-to-business
e-commerce and on-line auction business and also had $433,000 of losses
incurred by Entrade.
(E) Earnings from discontinued operations for the year ended December 31,
1998 includes a net gain on disposition of the Bagcraft subsidiary of
$35,985,000 (see Note 3 to Artra's consolidated financial statements).
(F) The loss from discontinued operations for the year ended December 28,
1995 includes a charge to operations of $6,430,000 to write-off the
remaining goodwill of COMFORCE's jewelry business effective June 29,
1995 and a provision of $1,000,000 for loss on disposal of COMFORCE's
jewelry business. The loss from discontinued operations for the year
ended December 28, 1995 includes a gain on sale of Bagcraft's Arcar
subsidiary of $8,483,000.
(G) 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 goodwill at COMFORCE's New Dimensions subsidiary.
(H) The 1996, 1995 and 1994 extraordinary credits represent gains from net
discharge of bank indebtedness.
(I) In 1997, Artra adopted the provisions of SFAS No. 128, "Earnings Per
Share" and restated prior periods accordingly.
(J) In 1997, Artra changed its fiscal year end to December 31. In prior
years, Artra had operated on a 52/53 week fiscal year ending the last
Thursday of December.
</FN>
</TABLE>
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as
of March 31, 1999 presents the financial position of Entrade as if the proposed
merger of Artra with a subsidiary of Entrade and the exchange of Artra common
stock and Artra preferred stock for Entrade common stock had been approved by
Artra's shareholders and was effective as of March 31, 1999.
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1999
(Unaudited in Thousands)
<TABLE>
<CAPTION>
ARTRA Pro Forma
Historical Entrade Inc Adjustments Pro Forma
--------------- --------------- ---------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash and equivalents $9,317 $167 $9,484
Restricted cash and equivalents 962 962
Available-for-sale securities 5,816 5,816
Other 154 19 173
--------------- --------------- ----------------
Total current assets 16,249 186 16,435
--------------- --------------- ----------------
Advances to Entrade Inc. 967 $(1,400)(A) -
433 (B)
Property,plant & equipment, net 294 294
Intangibles, net 2,998 4,625 (C) 8,623
1.000 (E)
Investment in asseTrade.com 3,500 3,500
Other 335 335
--------------- --------------- ---------------- ----------------
$17,551 $6,978 $4,658 $29,187
=============== =============== ================ ================
CURRENT LIABILITIES
Accrued liabilities 574 8 506 (E) 1,088
Common stock put warrants 1,394 1,394
Accounts payable, including amounts
due related parties 339 339
Income taxes payable 1,123 1,123
Note payable 500 500
Due to ARTRA 1,400 (1,400)(A) -
Liabilities of discontinued operations 9,398 (3,933)(D) 5,465
--------------- --------------- ----------------
12,489 2,247 9,909
--------------- --------------- ----------------
Redeemable preferred stock 2,921 (2,921)(D) -
Shareholders' Equity 2,141 4,731 433 (B) 19,278
4,625 (C)
6,854 (D)
494 (E)
--------------- --------------- ---------------- ----------------
$17,551 $6,978 $4,658 $29,187
=============== =============== ================ ================
Notes to the pro forma condensed combined balance sheet:
<FN>
(A) Eliminate ARTRA advances to Entrade Inc.
(B) Reverse Entrade Inc. expenses reported in ARTRA's historical financial
statements.
(C) Reflects the market value of ARTRA common shares issued as consideration
for the Entrade Inc. transaction, net.
Number of ARTRA common shares to be issued 2,000
Market value at February 23, 1999
(less 15% blockage discount) $4.940625
---------
Fair market value of ARTRA common shares to be issued 9,881
Less Entrade equity at February 23, 1999 (5,256)
---------
Adjustment to equity $ 4,625
=========
(D) Exchange ARTRA preferred stock for Entrade Inc. common stock at the rate of
329 Entrade Inc. common shares for each share of ARTRA preferred stock.
(E) Record finder's fee (100,000 Entrade Inc. common shares valued at $4.94 per
share) and other acquisition related costs.
</FN>
</TABLE>
32
<PAGE>
The following unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 1999 is presented proposed
merger of Artra with a subsidiary of Entrade and the exchange of Artra common
stock and Artra preferred stock for Entrade common stock had been approved by
Artra's shareholders and was effective as of January 1, 1999. Entrade Inc. had
no operations and no revenues related to the assets acquired. asseTrade had no
operations and no revenues when the 25% interest was acquired by Entrade.
Accordingly, no pro forma results of operations are presented for the three
months ended March 31, 1998 and the twelve months ended December 31, 1998 as in
the opinion of management such information would not be meaningful.
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(Unaudited in Thousands)
<TABLE>
<CAPTION>
ARTRA Pro Forma
Historical Entrade Inc Adjustments Pro Forma
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $ - $13 $13
---------------- --------------- ----------------
Costs and expenses:
Selling, general and administrative 1,354 376 $600 (A) 2,330
Depreciation and amortization 162 300 (B) 462
---------------- --------------- ----------------
1,354 538 2,792
---------------- --------------- ----------------
Operating loss (1,354) (525) (2,779)
---------------- --------------- ----------------
Other income (expense):
Interest income, net 86 86
---------------- --------------- ----------------
86 - 86
---------------- --------------- ----------------
Loss from continuing operations before income taxes (1,268) (525) (2,693)
Provision for income taxes - -
---------------- --------------- ---------------- ----------------
Loss from continuing operations ($1,268) (525) $900 ($2,693)
================ =============== ================ ================
Per share loss from continuing operations
applicable to common shares:
Basic ($0.17) ($0.24)
========== ==========
Diluted ($0.17) ($0.24)
========== ==========
Weighted average number of shares
of common stock outstanding:
Basic 7,965 11,400
========== ==========
Diluted 7,965 11,400
========== ==========
Notes to the pro forma condensed combined statement of operations:
<FN>
(A) Reflect compensation charge for stock options granted to individuals
employed by ARTRA to manage Entrade's entry into the Internet business
e-commerce and on-line auction business.
(B) Additional amortization of intangible assets, assumes a 5 year life.
(C) Pro form weighted average shares outstanding
Historical 7,965
Shares issed for Entrade Inc. transaction 2,000
Finder's fee for Entrade Inc. transaction 100
ARTRA common shares exchanged for
ARTRA preferred shares 1,335
----------
11,400
==========
</FN>
</TABLE>
32 (a)
<PAGE>
MARKET FOR ARTRA'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Artra common stock is traded on the New York Stock Exchange and
Pacific Stock Exchanges. Artra's continued listing is subject to ongoing
quarterly monitoring by the New York Stock Exchange for compliance with Artra's
business plan. That plan is dependent upon the consummation of the merger during
the third quarter of 1999. As of December 31, 1998, the approximate number of
holders of Artra common stock was 2,300.
The high and low sales prices for Artra common stock, as reported in
the New York Stock Exchange Quarterly Market Statistics reports, during the past
two fiscal years were as follows:
1998 1997
------------------- --------------------
High Low High Low
-------- ------ -------- ------
First quarter 4-1/16 3-3/16 6-3/8 4-1/2
Second quarter 3-15/16 3 5-3/4 3-7/8
Third quarter 4 3-1/4 5-1/8 3-1/2
Fourth quarter 4-1/4 2-1/8 4-1/16 2-1/2
In the first quarter of 1999, the high and low sale prices for Artra
common stock were $10.625 and $4.25. On February 22, 1999, the date preceding
the public announcement of the proposed merger, the high and low sales prices of
the Artra common stock as reported on the New York Stock Exchange were $7.125
and $6.50.
Artra did not pay dividends in 1998 or 1997 and has no plan to pay
dividends on Artra common stock in 1999. There are no legal restrictions
preventing the payment of cash dividends at this time.
As discussed in Note 9 to Artra's consolidated financial statements,
Artra has outstanding redeemable Artra Series A preferred stock. The dividends
accrued on Artra Series A preferred stock as of February 28, 1999 was
$1,275,899.
Artra also has outstanding redeemable Artra Series B preferred stock.
The dividends accrued on Artra series B preferred stock as of February 28, 1999
was $1,016,284.
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL ARTRA SHAREHOLDERS AND
MANAGEMENT
The following table sets forth, as of the record date for the Annual
Meeting, the amount and percentage of Artra common stock, Artra Series A
preferred stock and Artra Series B preferred stock beneficially owned by (i)
each person who is known by Artra to own beneficially
33
<PAGE>
more than 5% of the outstanding shares of Artra common stock, Artra Series A
preferred stock or Artra Series B preferred stock, (ii) each director and
nominee for director, (iii) each executive officer named in the Summary
Compensation Table and (iv) all executive officers and directors of Artra as a
group.
<TABLE>
<CAPTION>
Number of Number of
Artra Shares Entrade Shares
Title of Beneficially Artra Percent Beneficially Entrade
Name of Beneficial Owner Artra Shares Owned of Class To Be Owned** Percent**
- ------------------------ ------------ ----- -------- ------------- ---------
5% Holders:
<S> <C> <C> <C> <C> <C>
The Equitable Companies In Common 559,099 6.4% 559,099 4.6%
corporated(1)
Peter R. Harvey(2) Common 590,243 6.6% 699,882 5.7%
Series B Preferred 333.25 15.1%
John Harvey(3) Common 531,906 5.9% 836,188 6.7%
Series A Preferred 34.82 1.9%
Series B Preferred 890.05 40.3%
Frederick Broling(4) Common 14,234 * 244,859 2.0%
Series A Preferred 49.65 2.7%
Series B Preferred 651.34 29.5%
Leon Gans(5) Series B Preferred 221.35 10.0% 72,824 *
B. Rymer Insurance Trust(6) Series A Preferred 169.74 9.2% 55,844 *
Philip E. Ruben(7) Series A Preferred 949.30 51.3% 312,319 2.6%
Directors(8):
Gerard M. Kenny(9) Common 180,064 2.0% 180,064 1.5%
Maynard K. Louis(10) Common 84,500 1.0% 84,500 *
Edward A. Celano(11) Common 18,700 * 18,700 *
Howard R. Conant(12) Common 324,000 3.7% 324,000 2.6%
Robert L. Johnson(13) Common 17,873 * 21,139 *
Series A Preferred 9.93 *
Mark Santacrose(14) Common 23,555 * 23,555 *
John K. Tull(15) Common 35,143 * 40,587 *
Series A Preferred 16.55 1.0%
Executive Officers(16):
John G. Hamm(17) Common 177,232 2.0% 196,011 1.6%
Series B Preferred 57.08 2.6%
Robert S. Gruber(18) Common 152,354 1.7% 155,624 1.3%
Series A Preferred 9.93 *
James D. Doering(19) Common 147,693 1.7% 147,693 1.2%
All directors and officers as a Common 2,598,782 25.2% 3,043,460 22.1%
group (15 persons)(20) Series A Preferred 71.23 3.8%
Series B Preferred 1,280.38 57.9%
- ------------------
<FN>
* Less than 1% of the outstanding shares.
34
<PAGE>
** Upon consummation of the merger.
(1) The address of The Equitable Companies Incorporated is 1290 Avenue of the
Americas, New York, New York. The shares beneficially owned by The
Equitable Companies consist of 559,100 shares of Artra common stock owned
by four French mutual insurance companies, AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances Vie Mutuelle and
AXA Courtage Assurances Mutuelle, which as a group beneficially own a
majority interest in AXA-UAP, which owns a majority interest in The
Equitable Companies.
(2) Mr. Peter R. Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares of Artra common stock beneficially owned by Mr.
Harvey consist of 374,056 shares held directly by him, of which 373,615 are
shares of Artra common stock, 23,001 shares held as trustee for the benefit
of his nieces, 800 shares owned by his wife and children, 634 shares held
in his 401(k) plan, 7,193 shares held in his individual retirement account,
20,000 shares issuable under an option which expires September 19, 2001 at
an exercise price of $3.65 per share, 15,000 shares issuable under an
option which expires January 8, 2003 at an exercise price of $3.75 per
share and 150,000 shares issuable under an option which expires January 6,
2009 at an exercise price of $4.75 per share. The shares of Artra Series B
preferred stock consist of 68.36 shares held by Peter R. Harvey as trustee
of certain family trusts and 264.89 shares held individually. .
(3) Mr. John Harvey's business address is 500 Central Avenue, Northfield,
Illinois 60093. The shares of Artra common stock beneficially owned by Mr.
Harvey consist of 7,452 shares held in his 401(k) plan, 139,806 shares held
as trustee for the benefit of the Harvey Family Trust, 100,000 shares held
by Mr. Harvey's daughters, 47,603 shares issuable under an option which
expires December 19, 2000 at an exercise price of $3.65 per share, 1,000
shares issuable under an option which expires September 19, 2001 at an
exercise price of $3.65 per share, 4,000 shares issuable under an option
which expires January 8, 2003 at an exercise price of $3.75 per share,
131,000 shares issuable under an option which expires October 4, 2006 at an
exercise price of $5.25 per share, 35,000 shares issuable under an option
which expires January 6, 2009 at an exercise price of $4.75 per share and
an aggregate of 66,045 shares issuable under warrants expiring at various
dates in 2000 and 2001 received in 1995 and 1996 as additional compensation
for 1995 and 1996 short-term loans at exercise prices of $3.75 per share to
$6.25 per share. The shares of Artra Series B preferred stock consist of
16.09 shares held by John Harvey's wife and 872.96 held individually.
(4) Frederick Broling's address is 1147 North Shore Drive, Crystal Lake,
Illinois 60014.
(5) Leon Gans' address is 1044 E. Lawn Court, Teaneck, New Jersey 07666.
(6) The address of B. Rymer Insurance Trust is 300 West Washington, Suite 1106,
Chicago, Illinois 60606.
35
<PAGE>
(7) Philip E. Ruben's address is 211 Waukegan Road, Suite 300, Northfield
Illinois 60606. Of the shares of Artra Series A preferred stock, Mr. Ruben
holds 932.05 shares as trustee of the IBI Trust W/T/A/D 1/15/96 and 44.25
shares individually. The beneficiaries of these trusts are adult children
of John Harvey.
(8) Excludes directors listed under "5% Holders."
(9) The shares of Artra common stock beneficially owned by Mr. Kenny consist of
75,652 shares held by Kenny Construction Company, 14,411 shares held by
Clinton Industries, 12,500 shares issuable under an option which expires
May 28, 2008 at an exercise price of $3.125 per share, 2,500 shares
issuable under an option which expires February 1, 2009 at an exercise
price of $5.375 per share and 75,001 shares issuable under a warrant held
by Clinton Industries which expires November 10, 1999 at an exercise price
of $4.00 per share. Mr. Kenny is Executive Vice President, Director and
beneficial owner of 16.66% of the issued and outstanding stock of Kenny
Construction Company. He is also the General Partner and a 14.28%
beneficial owner of Clinton Industries, a limited partnership. See "Artra
Certain Relationships and Related Transactions -- Gerald M. Kenny" on Page
115.
(10) The shares of Artra common stock beneficially owned by Mr. Louis consist of
17,500 shares held directly by him, 12,500 shares issuable under an option
which expires May 28, 2008 at an exercise price of $3.125 per share, 2,500
shares issuable under an option which expires February 1, 2009 at an
exercise price of $5.375 per share and warrants to purchase 52,000 shares
of ARTRA common stock at prices of $5.125 to $8.00 per share which warrants
expire on various dates commencing in 1999 and ending June 13, 2001.
(11) The shares of Artra common stock beneficially owned by Mr. Celano consist
of 3,700 shares held directly by him, 12,500 shares issuable under an
option which expires May 28, 2008 at an exercise price of $3.125 per share
and 2,500 shares issuable under an option which expires February 1, 2009 at
an exercise price of $5.375 per share.
(12) Mr. Conant holds 150,000 shares of Artra common stock directly and 20,000
shares in his individual retirement account. Mr. Conant's wife holds 9,000
shares of Artra common stock. The shares of Artra common stock beneficially
owned by Mr. Conant also include 12,500 shares issuable under an option
which expires May 28, 2008 at an exercise price of $3.125 per share, 2,500
shares issuable under an option which expires February 1, 2009 at an
exercise price of $5.375 per share and warrants to acquire 130,000 shares
of Artra common stock at prices of $3.9375 to $5.875 per share which
warrants expire on various dates in 2001 and 2002.
(13) The shares of Artra common stock beneficially owned by Mr. Johnson consist
of 2,873 shares held directly by him, 12,500 shares issuable under an
option which expires May 28, 2008 at an exercise price of $3.125 per share
and 2,500 shares issuable under an option which expires February 1, 2009 at
an exercise price of $5.375 per share.
36
<PAGE>
(14) The shares of Artra common stock beneficially owned by Mr. Santacrose
consist of 10,000 shares owned by him directly, 1,055 shares in his
individual retirement account, 10,000 shares issuable under an option which
expires January 6, 2009 at an exercise price of $4.75 per share and 2,500
shares issuable under an option which expires February 1, 2009 at an
exercise price of $5.375 per share.
(15) The shares of Artra common stock beneficially owned by Mr. Tull consist of
22,643 shares held directly by him, 10,000 shares issuable under an option
which expires January 6, 2009 at an exercise price of $4.75 per share and
2,500 shares issuable under an option which expires February 1, 2009 at an
exercise price of $5.375 per share.
(16) Excludes executive officers listed under "Directors."
(17) The shares of Artra common stock beneficially owned by Mr. Hamm consist of
50 shares held directly by him, 93 shares held by him and his wife jointly,
1,639 shares held in his 401(k) plan, 2,767 shares held in his individual
retirement account, 25,000 shares issuable under an option which expires
December 19, 2000 at an exercise price of $3.65 per share, 1,000 shares
issuable under an option which expires September 19, 2001 at an exercise
price of $3.65 per share, 13,200 shares issuable under an option which
expires January 8, 2003 at an exercise price of $3.75 per share, 101,250
shares issuable under an option which expires October 4, 2006 at an
exercise price of $5.25 per share and 35,000 shares issuable under an
option which expires January 6, 2009 at an exercise price of $4.75 per
share.
(18) The shares of Artra common stock beneficially owned by Mr. Gruber consist
of 20,190 shares held directly by him, 943 shares held in his 401(k) plan,
1,221 shares held in his individual retirement account, 8,000 shares
issuable under an option which expires December 19, 2000 at an exercise
price of $3.65 per share, 1,000 shares issuable under an option which
expires September 19, 2001 at an exercise price of $3.65 per share, 12,000
shares issuable under an option which expires January 8, 2003 at an
exercise price of $3.75 per share, 97,750 shares issuable under an option
which expires October 4, 2006 at an exercise price of $5.25 per share and
11,250 shares issuable under an option which expires January 6, 2009 at an
exercise price of $4.75 per share.
(19) The shares of Artra common stock beneficially owned by Mr. Doering consist
of 1,693 shares held in his 401(k) plan, 22,500 shares issuable under an
option which expires December 19, 2000 at an exercise price of $3.65 per
share, 31,000 shares issuable under an option which expires January 8, 2003
at an exercise price of $3.75 per share and 57,500 shares issuable under an
option which expires October 4, 2006 at an exercise price of $5.25 per
share and 35,000 shares issuable under an option which expires January 6,
2009 at an exercise price of $4.75 per share.
37
<PAGE>
(20) The shares of Artra common stock held by this group include an aggregate of
1,577,099 shares that such persons have the right to purchase under
currently exercisable stock options.
</FN>
</TABLE>
THE ARTRA ANNUAL MEETING
Time, Date and Place; Purpose of the Artra Annual Meeting
The Artra Annual Meeting will be held at __ __.m., prevailing time, on
June , 1999, at ________________________, for the following purposes:
(1) To elect nine directors to serve until the 2000 Annual Meeting of
Shareholders and until their successors are elected;
(2) To consider and vote upon a proposal to approve and adopt the
merger and the merger agreement dated as of February 23, 1999, as amended, among
Artra, Merger Sub, Entrade and WWWX, a copy of which is attached as Appendix A
to this Proxy Statement/Prospectus.
Pursuant to the merger agreement:
o Merger Sub, a wholly owned subsidiary of Entrade, will merge with
and into Artra, and Artra will become a wholly owned subsidiary of
Entrade;
o each share of Artra common stock that is issued and outstanding at
the time the merger is consummated (the "Effective Time") will be
converted into one share of Entrade common stock;
o each share of Artra preferred stock that is issued and outstanding
at the Effective Time, other than shares held by shareholders who
perfect their statutory dissenters' rights, will be converted into
329 shares of Entrade common stock, with cash to be paid in lieu
of the issuance of any fractional share of Entrade common stock;
o each outstanding stock option plan and stock option of Artra will
be assumed by Entrade, without changing the terms and conditions
of the stock options so assumed, and Entrade will substitute
shares of Entrade common stock for the shares of Artra common
stock purchasable under each such assumed stock option;
o each outstanding warrant to purchase Artra common stock will be
assumed by Entrade, without changing the terms and conditions of
the warrants so assumed, and Entrade will substitute shares of
Entrade common stock for the shares of Artra common stock
purchasable under such assumed warrant; and
o the outstanding shares of common stock of Merger Sub currently
held by Entrade will be canceled.
38
<PAGE>
As a result, after the consummation of the merger and the other
transactions contemplated by the merger agreement:
o Artra will be a wholly owned subsidiary of Entrade; and
o the current holders of Artra common stock and Artra preferred
stock will become holders of Entrade common stock.
(3) To ratify the appointment of PricewaterhouseCoopers LLP as Artra's
independent auditors for 1999; and
(4) To transact such other business as may properly come before the
Artra Annual Meeting and any adjournment, postponement or continuation thereof.
Record Date; Vote Required
The Board of Directors has fixed the close of business on , 1999 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting. On the record date, 8,729,895 shares of Artra common
stock; 1,849.34 shares of Artra Series A preferred stock and 2,210.15 shares of
Artra Series B preferred stock were outstanding. Artra shareholders will have
one vote for each share of Artra common stock and Artra Series A preferred
stock.
Approval and adoption of the merger agreement and the merger will
require the affirmative vote of a majority of the votes cast in person or by
proxy by the holders of Artra common stock, the affirmative vote of a majority
of the votes cast in person or by proxy by the holders of Artra Series A
preferred stock and the affirmative vote of a majority of the votes cast in
person or by proxy by the holders of Series B preferred stock, voting as
separate classes at the Annual Meeting, provided a quorum of each class is
present. Abstentions and broker non-votes will not be deemed votes cast on the
proposal and will have no effect on the outcome of the vote. Revocability of
Proxies
An Artra shareholder who submits a proxy may revoke the proxy at any
time prior to the Artra Annual Meeting, in one of three ways. First, Artra
shareholders can send a written notice to the Secretary of Artra, 500 Central
Avenue, Northfield, Illinois 60093, stating that they are revoking their proxy.
Second, the Artra shareholder can complete and submit a new proxy card. If a
shareholder chooses either of these two methods, the shareholder must submit a
notice of revocation or a new proxy card to the Secretary of Artra. Third, the
Artra shareholder can attend the Artra Annual Meeting and vote in person. Merely
attending the Artra Annual Meeting will not revoke the proxy. If an Artra
shareholder has instructed a broker to vote the shares, the shareholder must
follow directions received from the shareholder's broker to change the vote.
39
<PAGE>
Artra Preferred Stock Dissenters' Rights
Holders of Artra preferred stock have the right to dissent from the
merger and to obtain payment for their shares by following the procedures
prescribed in Sections 1571 to 1580 of the Pennsylvania Business Corporation Law
of 1988 (the "BCL"), a copy of which is attached as Appendix B to this Proxy
Statement/Prospectus.
Pursuant to these provisions, holders of Artra preferred stock have the
right to dissent from the merger, and to obtain payment of the "fair value" (as
defined therein) of their Artra preferred stock if the merger is consummated.
The term "fair value" means the value of Artra preferred stock immediately
before completion of the merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the merger.
The following summary of the steps to be taken if the right to dissent
is to be exercised is qualified in its entirety by the full text of Section 1930
and Subchapter D of Chapter 15 of the BCL, which are attached as Appendix B to
this Proxy Statement/Prospectus. Each step must be taken in the indicated order
and in strict compliance with the applicable provisions of the statute in order
to perfect dissenters' rights. The failure of any shareholder to comply with the
aforesaid steps will result in the shareholder receiving the consideration
contem plated by the merger agreement. Any holder of Artra preferred stock who
contemplates exercising the right to dissent is urged to read carefully the
provisions of Section 1930 and Subchapter D of Chapter 15 of the BCL.
A dissenting holder of Artra preferred stock must send any written
notice or demand that is required in connection with the exercise of dissenters'
rights, whether before or after the Effective Date, to the Secretary of Artra,
500 Central Avenue, Northfield, Illinois 60093.
A holder of Artra preferred stock who wishes to dissent:
o must file with Artra prior to the vote of shareholders on the
merger at the Artra Annual Meeting a written notice of intention
to demand that he be paid the fair value for his shares of Artra
preferred stock if the merger is effected;
o must effect no change in the beneficial ownership of his Artra
preferred stock from the date of such filing through the Effective
Date; and
o must refrain from voting his Artra preferred stock to approve the
merger.
Neither a proxy nor a vote against approval of the merger will
constitute the necessary written notice of intention to dissent. A beneficial
owner of Artra preferred stock whose shares are held of record in "street name"
by a brokerage firm or other nominee must obtain the written consent of such
record holder to such beneficial owner's exercise of dissenters' rights and must
submit such consent to Artra no later than the time of the filing of his notice
of intention to dissent.
40
<PAGE>
If the merger is approved by the required vote of Artra's shareholders
at the Artra Annual Meeting, Artra will mail a notice to all dissenters who gave
due notice of intention to demand payment and who refrained from voting in favor
of the merger. The notice will state where and when a demand for payment must be
sent and certificates for Artra preferred stock must be deposited in order to
obtain payment, and will include a form for demanding payment and a copy of
Subchapter D of Chapter 15 of the BCL. The time set for receipt of the demand
for payment and deposit of stock certificates will not be less than 30 days from
the date of mailing of the notice.
A holder of Artra preferred stock who fails to timely demand payment or
fails to timely deposit stock certificates, as required by Artra's notice, will
not have any right to receive payment of the fair value of his Artra preferred
stock.
Promptly after completion of the merger, or upon timely receipt of
demand for payment if the merger already has been completed, Entrade will either
remit to dissenters who have made demand and have deposited their stock
certificates the amount that Entrade, as successor to Artra, estimates to be the
fair value of the Artra preferred stock or give written notice that no such
remittance is being made. The remittance or notice will be accompanied by:
o a closing balance sheet and an income statement of Artra for a
fiscal year ending not more than 16 months before the date of
remittance, together with the latest available interim financial
statements;
o a statement of Entrade's estimate of the fair value of the Artra
preferred stock; and
o notice of the right of the dissenter to demand payment or
supplemental payment under the BCL, as the case may be,
accompanied by a copy of Subchapter D of Chapter 15 of the BCL.
If Entrade does not remit the estimated fair value for shares with
respect to which demand for payment has been made and stock certificates have
been deposited, then Entrade will return any certificates that have been
deposited. Returned certificates, and any certificates subsequently issued in
exchange, will be marked to record the fact that demand for payment has been
made. Transferees of shares so marked shall not acquire any rights in Artra or
Entrade other than those rights held by the original dissenter after such
dissenter demanded payment of fair value.
If a dissenter believes that the amount stated or remitted by Entrade
is less than the fair value of the Artra preferred stock, he may send Entrade
his own estimate of the fair value of the Artra preferred stock, which shall be
deemed to be a demand for payment of the amount of the deficiency. If Entrade
remits payment of its estimated value of a dissenter's Artra preferred stock and
the dissenter does not file his own estimate within 30 days after the mailing by
Entrade of its remittance, the dissenter will be entitled to no more than the
amount remitted to him by Entrade.
41
<PAGE>
Within 60 days after the latest to occur of completion of the merger,
timely receipt by Artra or Entrade, as the case may be, of any demands for
payment, or timely receipt by Artra or Entrade, as the case may be, of any
estimates by dissenters of fair value, if any demands for payment remain
unsettled, Artra or Entrade, as the case may be, may file in the Court of Common
Pleas of Philadelphia County an application requesting that the fair value of
the Artra preferred stock be determined by the court. In that case, all
dissenters, wherever residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their shares, and a copy of
the application shall be served on each such dissenter.
If Artra or Entrade, as the case may be, were to fail to file the
described application, then any dissenter, on behalf of all dissenters who have
made a demand and who have not settled their claim against Artra or Entrade, as
successor, may file an application in the name of Artra or Entrade, as
successor, at any time within the 30-day period after the expiration of the
60-day period and request that the fair value be determined by the court. The
fair value determined by the court may, but need not, equal the dissenters'
estimates of fair value. If no dissenter files such an application, then each
dissenter entitled to do so shall be paid Artra's or Entrade's, as the case may
be, estimate of the fair value of the Artra preferred stock and no more, and may
bring an action to recover any amount not previously remitted, plus interest at
a rate the court finds fair and equitable.
Artra and/or Entrade, as the case may be, intend to negotiate in good
faith with any dissenting shareholder. If after negotiation, a claim cannot be
settled, then Artra and/or Entrade, as successor, intends to file an application
requesting that the fair value of the Artra preferred stock be determined by the
court.
The holders of Artra common stock do not have dissenters' rights with
respect to the merger.
42
<PAGE>
THE MERGER
Background of the Merger
On November 20, 1998, Artra completed the sale of the business assets
of Bagcraft in which Artra received, after paying Bagcraft obligations, net cash
proceeds of approximately $28.0 million. Artra thereupon began actively
investigating new business opportunities, including strategic alliances and
business combinations.
On December 1, 1998, an acquaintance of Peter Harvey, Jeffrey Newman,
contacted Peter Harvey regarding an Internet concept that was potentially
available for purchase. During the first two weeks of December 1998, members of
management of Artra had preliminary discussions with Robert Kohn, a principal of
WWWX, and Warren Rothstein, a stockholder of WWWX, regarding a description of
entrade.com, asseTrade.com and utiliparts.com, for which Mr. Kohn had assisted
in the development of technology while associated with PECO Energy. Mr. Kohn
explained that PECO Energy had decided in mid-1998 to sell the intellectual
property assets of entrade.com to Global Trade Group and WWWX. He also described
the ownership of asseTrade.com by Positive Asset Remarketing, Inc., WWWX and a
joint venture formed by Henry Butcher USA, Inc. ("Butcher") and Michael Fox
International, Inc. ("Fox"). Mr. Kohn also explained his desires to be
associated with a publicly held company such as Artra.
Initial discussions regarding a proposed structure for a possible
acquisition of entrade.com, a portion of asseTrade.com and other assets between
Peter Harvey and Robert Kohn commenced on December 13 and continued on almost a
daily basis thereafter. At a meeting on December 18, 1998, in Philadelphia,
Artra management, WWWX management and advisers to the companies met to discuss
specific terms of the proposed transaction. Artra, together with legal counsel,
commenced due diligence and continued with a series of discussions with
management of WWWX concerning the terms of the proposed transaction.
On January 6, 1999, the board of directors of Artra held a meeting at
which Robert Kohn made a presentation regarding the proposed businesses to be
acquired and the proposed terms of the transaction. Artra's board of directors
determined to continue discussions with WWWX.
Discussions resumed between the parties during the ensuing month
regarding the price and structure of the transaction and the employment by Artra
of Messrs. Kohn, Kafka, Lerman and Quinn, including the granting of options by
Artra to such persons, and the funding by Artra of the entrade.com business.
On February 15, 1999, the board of directors of Artra held a meeting at
which various merger terms and documents were discussed and reviewed in detail.
Following the discussions, the Artra board of directors determined that the
proposed merger was in the best interests of Artra and its shareholders and
approved the form of merger agreement, subject to approval by the Artra
shareholders, and authorized the officers of the corporation to finalize the
structure and terms of the merger agreement and the related agreements. On
February 19, 1999 and February 23, 1999,
43
<PAGE>
the merger agreement and related documents were finalized and executed by the
parties. A press release announcing the execution of the merger agreement was
issued on February 23, 1999. The parties amended the merger agreement on April
30, 1999 to clarify certain matters relating to WWWX.
Artra Reasons for the Merger
At its meetings on February 15, 1999, the board of directors of Artra
concluded that the merger was in the best interests of Artra and its
shareholders and determined to recommend that the shareholders of Artra approve
the merger agreement and the merger. In reaching these conclusions and
recommendations, the Artra board of directors considered a number of factors,
including:
o The need to find a new operating business for Artra after the sale
of Artra's Bagcraft subsidiary's business in November 1998.
o The desire to acquire a company that would satisfy New York Stock
Exchange listing requirements and preserve Artra's or its
successor's listing.
o The desire for Artra to avoid being classified as an investment
company under the Investment Company Act of 1940.
o The desire for Artra to be at the forefront of the fast-paced
trend of conducting business operations over the Internet and to
find a business-to-business, e-commerce, Internet business.
o The relative credibility of the entrade.com and asseTrade.com
technology that had been developed at the direction of a major
utility company, PECO Energy.
o The potential to conduct Internet business with top Fortune 1000
companies that are clients of Henry Butcher USA, Inc. and Michael
Fox International, Inc., respectively.
Management of Artra had received information regarding other
acquisition candidates, of which approximately six other businesses were
considered possible candidates. For the reasons listed above, however, Artra's
management considered the entrade.com business and the 25% voting stock interest
in asseTrade.com as the preferred alternative.
Merger Consideration
Pursuant to the merger agreement:
o each share of Artra common stock that is issued and outstanding at
the Effective Time will be converted into one share of Entrade;
44
<PAGE>
o each share of Artra Series A preferred stock and Series B
preferred stock that is issued and outstanding at the Effective
Time, other than shares held by shareholders who perfect their
statutory dissenters' rights, will be converted into 329 shares of
Entrade common stock; no fractional shares of Entrade common stock
will be issued to holders of Artra preferred stock, and holders of
Artra preferred stock will be paid cash in lieu of any such
fractional shares;
o each outstanding stock option plan and stock option of Artra will
be assumed by Entrade, without changing the terms and conditions
of the stock options so assumed, and Entrade will substitute
shares of Entrade common stock for the shares of Artra common
stock purchasable under each such assumed stock option; and
o each outstanding warrant to purchase Artra common stock will be
assumed by Entrade, without changing the terms and conditions of
the warrants so assumed, and Entrade will substitute shares of
Entrade common stock for the shares of Artra common stock
purchasable under such assumed warrant.
The Artra board of directors determined the exchange rate of 329 shares
of Entrade common stock for each share of Artra preferred stock as follows: the
Artra board of directors had approved a proposed issuance of 1,500,000 shares of
Artra common stock for each share of Artra preferred stock and all outstanding
shares of preferred stock issued by Artra's subsidiaries in January 1999. The
exchange ratio was based upon a formula using the total principal and
accumulated dividends on such preferred stock and the then market price per
share of Artra common stock. The Artra board of directors determined to fix this
exchange ratio at that time notwithstanding any future accumulations of
dividends on the preferred shares after February 28, 1999. In May 1999, Artra
offered shares of Artra Series B preferred stock to the holders of outstanding
shares of preferred stock issued by Artra's subsidiary in accordance with this
ratio.
Effective Time of the Merger
The merger will become effective upon the filing of the Articles of
Merger with the Secretary of the Commonwealth of Pennsylvania or such later date
as is specified in the Articles of Merger. The filing of the Articles of Merger
will occur as soon as practicable on or after the satisfaction or waiver of the
conditions to the merger specified in the merger agreement, unless another date
is agreed to in writing by the parties. Subject to certain limitations, the
merger agreement may be terminated by either Artra or WWWX if, among other
reasons, the merger has not been consummated on or before September 30, 1999.
See "The Merger Agreement and Related Agreements -- Conditions to the Merger"
and "-- Termination of the Merger Agreement."
As soon as practicable after the Effective Time, each holder of an
outstanding certificate representing shares of Artra common stock and Artra
preferred stock will, upon surrender to the exchange agent of such certificate
and acceptance of the certificate by the exchange agent, be entitled to receive
a certificate representing shares of Entrade common stock, as outlined above.
The exchange agent will accept such certificates when duly executed and
completed in accordance
45
<PAGE>
with the instructions on the election form, together with such other documents
as may reasonably be required by the exchange agent. After the Effective Time,
there will be no further transfer on the records of Artra or its transfer agent
of certificates representing shares of Artra common stock and Artra preferred
stock that have been converted pursuant to the merger agreement into shares of
Entrade common stock. If such certificates are presented to Artra for transfer,
they will be canceled against delivery of certificates for Entrade common stock.
Until surrendered as contem plated by the merger agreement, each certificate for
shares of Artra common stock and Artra preferred stock will be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender shares of Entrade common stock contemplated by the merger agreement.
No interest will be paid or will accrue on any cash payable in lieu of any
fractional shares of retained Artra preferred stock.
No dividends or other distributions with respect to retained
certificates representing shares of Artra common stock or Artra preferred stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered certificate for shares of Artra common stock or Artra preferred
stock with respect to the shares of retained Artra common stock or Artra
preferred stock represented thereby and no cash payment in lieu of fractional
shares will be paid to any such holder pursuant to the merger agreement until
the surrender of the certificate in accordance with the merger agreement.
Subject to the effect of applicable laws, following surrender of any such
certificate, the holder of the certificate representing whole shares of retained
Artra common stock or Artra preferred stock issued in connection therewith will
be paid, without interest, (i) at the time of such surrender or as promptly
thereafter as practicable, the amount of any cash payable in lieu of a
fractional share of retained Artra preferred stock to which such holder is
entitled pursuant to the merger agreement and the proportionate amount of
dividends or other distribu tions, if any, with a record date after the
Effective Time theretofore paid with respect to such whole shares of retained
Artra common stock or Artra preferred stock and (ii) at the appropriate payment
date, the proportionate amount of dividends or other distributions, if any, with
a record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such whole shares of
retained Artra common stock or Artra preferred stock.
Federal Income Tax Consequences
The following is a summary of certain federal income tax consequences
applicable to holders of Artra common stock and Artra preferred stock. This
summary is based upon the provisions of the Internal Revenue Code of 1986,
applicable Treasury Regulations thereunder, judicial decisions and current
administrative rulings.
No rulings have been or will be requested from the Internal Revenue
Service with respect to any of the matters discussed herein, and no opinions of
counsel are being issued or sought with respect to these matters. There can be
no assurance that future legislation, regulations, adminis trative rulings or
court decisions will not adversely affect the accuracy of the statements
contained herein.
46
<PAGE>
Treatment of Holders of Artra Common Stock and Artra Preferred Stock
The following discussion does not address all aspects of federal income
taxation that may be important to particular taxpayers in light of their
personal investment circumstances or to taxpayers subject to special treatment
under the federal income tax laws, including life insurance companies, foreign
persons, tax-exempt entities, and holders who acquired their Artra common stock
or Artra preferred stock pursuant to the exercise of employee stock options or
otherwise as compensation, and does not address any aspect of state, local or
foreign taxation. This summary also assumes that the Artra common stock and
Artra preferred stock will be held as capital assets at the Effective Time.
Exchange of Artra common stock and Artra preferred stock for Entrade
common stock
The merger, which is occurring in connection with the asset transfers
to Entrade by WWWX and Energy Trading Company, should be treated for federal
income tax purposes as a transfer of property to Entrade by the holders of Artra
common stock and Artra preferred stock governed by Section 351 of the Code. As
such, a holder of Artra common stock who, pursuant to the merger, exchanges
Artra common stock for Entrade common stock will not recognize gain or loss upon
such exchange. The tax basis of the Entrade common stock received by such holder
will be equal to the tax basis of the Artra common stock surrendered and the
holding period of the Entrade common stock will include the holding period of
the Artra common stock surrendered. A holder of Artra preferred stock who,
pursuant to the merger, exchanges Artra preferred stock for Entrade common stock
will not recognize gain or loss upon such exchange. The tax basis of the Entrade
common stock received by such holder will be equal to the tax basis of the Artra
Series A preferred stock surrendered and the holding period of the Entrade
common stock will include the holding period of the Artra preferred stock
surrendered. A holder of Artra preferred stock who receives cash in lieu of
fractional shares of Entrade common stock should be treated as having received
such fractional shares pursuant to the merger and then as having exchanged such
fractional shares for cash in a redemption of Entrade common stock. Any gain or
loss attributable to fractional shares should be capital gain or loss. The
amount of such gain or loss should be equal to the difference between the
ratable portion of the tax basis of the Artra preferred stock surrendered in the
merger that is allocated to such fractional shares and the cash received in lieu
thereof. Any such capital gain or loss will constitute long-term capital gain or
loss if the Artra preferred stock has been held by the holder for more than one
year at the Effective Time.
Reporting Requirements
Each holder of Artra common stock and Artra preferred stock that
receives Entrade common stock in the merger will be required to retain records
and file with such holder's federal income tax return a statement setting forth
certain facts relating to the transaction.
THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION
ONLY AND MAY NOT APPLY TO ALL HOLDERS OF ARTRA COMMON STOCK OR
47
<PAGE>
ARTRA PREFERRED STOCK. SUCH HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER.
Accounting Treatment
The merger will be accounted for using the purchase method of
accounting.
Effect on Artra Options and Warrants
As provided in the merger agreement, at the Effective Time, Entrade
will assume all rights and obligations of Artra under Artra's stock option
plans, outstanding stock options and warrants to purchase shares of Artra common
stock as in effect at the Effective Time and will continue such plans in
accordance with their terms. Each outstanding option, warrant or right to
purchase shares of Artra common stock will be assumed in such manner that it is
converted into an option, warrant or right to purchase shares of the Entrade
common stock, to be exercisable upon the same terms and conditions as then are
applicable to such Artra stock option or warrant. To the extent that any such
Artra stock option constituted an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code immediately prior to the Effective
Time, such option will continue to qualify as an incentive stock option to the
maximum extent permitted by Section 422 of the Internal Revenue Code.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED MATTERS
On February 23, 1999, Artra entered into Employment Agreements with
Robert D. Kohn, Benjamin R. Kafka, Gary Lerman and Mark L.M. Quinn, providing
for the employment of those individuals for three-year terms. In connection with
such employment, Mr. Kohn received nonqualified stock options for the purchase
of 1,000,000 shares of Artra common stock at an exercise price of $2.75 per
share, and Messrs. Kafka, Lerman and Quinn each received nonqualified stock
options for the purchase of 200,000 shares of Artra common stock at an exercise
price of $2.75 per share. Robert D. Kohn is the President and a director of WWWX
and beneficially owns 4,840,000 shares, or approximately 26.8%, of the
outstanding shares of common stock of WWWX. Benjamin R. Kafka and Mark L.M.
Quinn beneficially own 767,500 shares and 630,000 shares, respectively, of WWWX
common stock, or approximately 4.2% and 3.5%, respectively, of the outstanding
shares of WWWX common stock. Mr. Kafka and Mr. Quinn are also officers,
directors and principal shareholders of Positive Asset Remarketing, Inc. and
Global Trade Group, Ltd. Positive Asset Remarketing, Inc. or its designees will
receive 3,500,000 shares of WWWX common stock as consideration for the sale of
another system to WWWX. Therefore, upon the issuance of those shares, Positive
Asset Remarketing, Inc. or its designees will own approximately 16.3% of the
outstanding shares of WWWX common stock. WWWX currently holds 90% of the
outstanding shares of Entrade common stock. Upon consum mation of the Merger,
WWWX will own approximately 17% of the outstanding Entrade common stock.
48
<PAGE>
Current officers and directors of Artra will receive options and
warrants to purchase shares of Entrade common stock upon consummation of the
merger in exchange for options and warrants to purchase shares of Artra common
stock currently held by them. Also, Artra officers and directors currently hold
an aggregate of approximately 3.8% of the outstanding shares of Artra preferred
stock, which will be converted in the merger to 329 shares of Entrade common
stock for each share of Artra preferred stock held. Therefore, directors and
executive officers of Artra will receive an aggregate of approximately 444,675
shares of Entrade common stock in the merger for outstanding shares of Artra
preferred stock. Also, trusts whose beneficiaries include adult children of John
Harvey will receive an aggregate of approximately 306,444 shares of Entrade
common stock for outstanding shares of Artra preferred stock. See "Information
Regarding Beneficial Ownership of Principal Artra Shareholders and Management."
Pursuant to a letter agreement between Artra and Jeffrey Newman, Artra
agreed to pay Mr. Newman a "finder's fee" as compensation for his services in
brokering the transactions contemplated by the merger. Upon and subject to
consummation of the merger, Mr. Newman will receive, at his election, either a
cash payment of $275,000, or 100,000 shares of Entrade common stock. If Mr.
Newman elects to receive stock, the issuance of the 100,000 shares will dilute
all shareholders of Entrade.
49
<PAGE>
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following is a brief summary of the material provisions of the
merger agreement and the amendment to the merger agreement dated April 30, 1999,
copies of which are attached as Appendix A to this Proxy Statement/Prospectus
and are incorporated herein by reference. This summary is qualified in its
entirety by reference to the full and complete text of the merger agreement.
The Merger
The merger agreement provides that Merger Sub will be merged with and
into Artra. As a result of the merger, Artra will become a wholly owned
subsidiary of Entrade. The merger will become effective upon the filing of the
Articles of Merger relating to the merger with the Secre tary of the
Commonwealth of Pennsylvania or such other time and date as Artra, Entrade and
WWWX agree.
The Merger Consideration
Artra Common Stock and Artra Preferred Stock
At the Effective Time and without any action on the part of the
shareholders:
o each outstanding share of Artra common stock will be converted
into one share of Entrade common stock, and each outstanding
certificate representing shares of Artra common stock shall
represent an equivalent number of shares of Entrade common stock;
o each share of Artra common stock held as treasury stock will be
canceled; and
o each outstanding share of Artra preferred stock will be converted
into 329 shares of Entrade common stock, and each outstanding
certificate representing shares of Artra preferred stock shall
represent 329 shares of Entrade common stock for each share of
Artra preferred stock, except shares held by shareholders who
perfect their statutory dissenters rights.
Options and Other Rights to Purchase Artra Common Stock
At the Effective Time, Entrade will assume all rights and obligations
of Artra under Artra's stock option plans as in effect at the Effective Time and
will continue such plans in accordance with their terms. Each outstanding
option, warrant or right to purchase shares of Artra common stock will be
assumed in such manner that it is converted into an option, warrant or right to
purchase shares of Entrade common stock on the same terms and conditions. To the
extent that any Artra stock option constituted an "incentive stock option,"
within the meaning of Section 422 of the Internal Revenue Code, immediately
prior to the Effective Time, such option
50
<PAGE>
will continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Internal Revenue Code.
Fractional Shares
No fractional shares of the Entrade common stock and no scrip or
certificates will be issued in connection with the merger. In lieu of the
issuance of any fractional shares of Entrade preferred stock, a check for cash
equal to such fraction of a share multiplied by the closing price of Entrade
common stock on the New York Stock Exchange, or other applicable exchange as
provided in the merger agreement, on the first day Entrade common stock is
traded after the Effective Time will be issued.
Certain Representations and Warranties
The merger agreement contains customary representations and warranties
by Artra as to, among other things:
o due organization and good standing;
o corporate authority to enter into the merger agreement and related
agreements;
o authorized capital stock;
o ownership of subsidiaries;
o the lack of certain investments or interests;
o compliance with charters, bylaws and the law;
o the filing of certain documents with the Commission;
o the accuracy of financial statements;
o title to properties;
o the absence of certain undisclosed liabilities;
o material contracts;
o the absence of certain litigation;
o the absence of material changes or events;
o tax matters;
51
<PAGE>
o the absence of material labor disputes;
o insurance coverage; and
o broker agreements.
The merger agreement contains representations and warranties by WWWX,
Entrade and the Merger Sub as to, among other things:
o due organization and good standing;
o corporate authority to enter into the merger agreement and related
agreements;
o authorized capital stock;
o ownership of subsidiaries;
o the lack of certain investments or interests;
o financial condition;
o title to properties;
o the absence of certain undisclosed liabilities;
o material contracts;
o intangible assets;
o compliance with charters, bylaws, and the law;
o the absence of certain litigation;
o tax matters;
o employee benefit plans;
o material contracts;
o the absence of certain litigation;
o the absence of material changes or events;
o tax matters;
52
<PAGE>
o employee benefit plans;
o the absence of material labor disputes;
o insurance coverage; and
o broker agreements.
Certain Covenants
Conduct of Business Pending the Merger
The merger agreement contains customary covenants relating to the
merger. WWWX has agreed that, prior to the Effective Time, WWWX, Entrade and its
subsidiaries will conduct their operations according to their usual, regular and
ordinary course of business. Specifically, WWWX has agreed, among other things:
o to use its reasonable efforts to preserve its assets, business
organization and goodwill and to cause Entrade and each of its
subsidiaries to do the same;
o not to amend the Articles of Incorporation or Bylaws of Entrade or
any of its subsidiaries;
o to promptly notify Artra of any material breach of any
representation or warranty contained in the merger agreement;
o to promptly deliver to Artra true and correct copies of all
monthly financial statements of WWWX, Entrade and each of its
subsidiaries;
o not to permit Entrade or any of its subsidiaries to issue any
shares of capital stock, effect any stock split or otherwise
change its capitalization, grant, confer or award any option,
warrant, conversion right or other right to acquire shares of its
capital stock or grant, confer or award any bonuses or other forms
of cash incentives to any officer, director or key employee,
except as consistent with past practice;
o not to permit Entrade to effect any increase any compensation
under any employment agreement with any present or future
officers, directors or employees, except for normal increases
consistent with past practice, grant any severance or termination
pay to, or enter into any employment or severance agreement with,
any officer or director or amend any such agreement in any
material respect, adopt any new employee benefit plan or amend any
existing employee benefit plan in any material respect;
o not to permit Entrade or any of its subsidiaries to declare, set
aside or pay any divi dend or make any other distribution or
payment with respect to any shares of Entrade's
53
<PAGE>
capital stock or other ownership interests or directly or
indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of its subsidiaries, or commit to
take such action;
o not to permit Entrade or any of its subsidiaries to dispose of any
assets except in the ordinary course of business;
o not to incur or permit Entrade or any of its subsidiaries to incur
any material amount of indebtedness or make any loans or advances,
capital contributions to or investments in any other person other
than pursuant to the loan agreement with Artra;
o not to permit Entrade or any of its subsidiaries to mortgage or
otherwise encumber any of their properties or assets except as
would not be reasonably likely to have any material adverse
effect;
o not to make any change and not permit Entrade or any of its
subsidiaries to make any change to its accounting practices; and
o not to permit Entrade or any of its subsidiaries to enter into any
joint venture, produc tion or marketing arrangements without
consulting Artra.
Artra has agreed that, prior to the Effective Time, it will, among
other things:
o not issue any shares of its capital stock or effect any stock
split other than pursuant to an Artra Stock option plan or except
through the exercise of outstanding options or warrants;
o promptly notify Entrade of any breach of any representation or
warranty in the merger agreement; and
o promptly deliver to WWWX true and correct copies of any report,
statement or schedule filed with the Commission subsequent to the
date of the merger agreement.
Alternative Proposals
Pursuant to the merger agreement, WWWX and Entrade each agreed that,
prior to the Effective Time:
o neither it nor any of its subsidiaries will, nor will it or any of
its subsidiaries, permit their respective officers, directors,
employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained
by it or any of its subsidiaries) to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer, including any proposal or
offer to its shareholders, with respect to a merger, acquisition,
consolidation or similar
54
<PAGE>
transaction involving, the purchase of (i) all or any significant
portion of the assets of Entrade or of any subsidiary of Entrade,
(ii) any of the outstanding shares of Entrade common stock or
preferred stock or (iii) any of the outstanding shares of the
capital stock or other equity interest of any subsidiary of
Entrade, or engage in any negotia tions concerning, or provide any
confidential information or data to, or have any discussions with,
any person relating to any such proposal, or otherwise facilitate
any effort or attempt to make or implement any such proposal; and
o it will notify Artra immediately if it receives any such inquiries
or proposals. The Board of Directors of WWWX, however, may furnish
information to, or enter into discussions or negotiations with,
any person or entity that makes an unsolicited bona fide proposal,
if, and only to the extent that (i) the board of directors of WWWX
determines in good faith that such action is required for the
board of directors to comply with its fiduciary duties to
shareholders imposed by law, (ii) prior to taking such actions,
WWWX provides written notice to Artra to the effect that it is
furnishing information to, or entering into discussions or
negotiations with, such person or entity and (iii) WWWX keeps
Artra informed of the status and all material information with
respect to any such discussions or negotiations.
Meeting of Shareholders
The merger agreement provides that Artra will take all necessary
action, in accordance with applicable law and its articles of incorporation and
bylaws, to promptly convene a meeting of shareholders. The board of directors of
Artra has agreed to recommend such approval and to take all lawful action to
solicit such approvals.
Indemnification and Insurance
The merger agreement provides that WWWX, Entrade and the Merger Sub
will indemnify Artra from any and all losses and expenses, including reasonable
attorneys' fees and expenses and costs of suit arising out of inaccurate
representations and warranties and out of breaches of covenants, agreements and
certifications made by or on behalf of WWWX, Entrade and/or the Merger Sub in
the merger agreement or in any document delivered by any of them under the
merger agreement or arising out of or resulting from any occurrence with respect
to Entrade or any of its subsidiaries or assets prior to the Effective Time and
not disclosed in the merger agreement.
Artra will defend and hold harmless WWWX, Entrade and the Merger Sub
from and against any and all losses and expenses, including reasonable
attorneys' fees and expenses and costs of suit arising out of inaccurate
representations and warranties and out of breaches of covenants, agreements and
certifications made by or on behalf of Artra in the merger agreement or in any
document delivered by Artra under the merger agreement or arising out of or
resulting from any occurrence with respect to Artra and any of its subsidiaries
or assets prior to the Effective Time and not disclosed in the merger agreement.
55
<PAGE>
Filings, Other Actions; Inspection of Records
The merger agreement provides for cooperation among the parties with
respect to govern mental approvals, inspection of records and publicity.
Listing Application
The merger agreement provides that Entrade will promptly prepare and
submit to the New York Stock Exchange a listing application covering the shares
of Entrade common stock issuable in the merger, and will use reasonable efforts
to obtain, prior to the Effective Time, approval for the listing of Entrade
common stock, subject to official notice of issuance. If the shares of Entrade
common stock issuable in the merger are not approved for listing on the New York
Stock Exchange prior to the Effective Time, Artra has agreed to prepare and file
an application with the National Association of Securities Dealers, Inc. to list
the shares of Entrade common stock on the Nasdaq National Market System, and
will use all reasonable efforts to obtain, prior to the Effective Time, approval
for such listing of Entrade common stock.
Expenses
The merger agreement provides that, whether or not the merger is
consummated, all costs and expenses incurred in connection with the merger
agreement and the transactions described therein will be paid by the party
incurring such expenses except as expressly provided in the merger agreement and
except that (i) the filing fee in connection with the filing of the Form S-4
registration statement or Proxy Statement/Prospectus with the Commission and
(ii) the expenses incurred in connection with printing and mailing the Proxy
Statement/Prospectus will be borne by Artra.
Takeover Statute
The merger agreement states that if any "fair price," "moratorium,"
"control share acquisition" or other form of antitakeover statute or regulation
becomes applicable to the transac tions described in the merger agreement,
Entrade and the members of the board of directors of Entrade will grant such
approvals and take such actions as are reasonably necessary so that the
transactions described in the merger agreement may be consummated as promptly as
practicable on the terms described in the merger agreement and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
transactions described in the merger agreement.
entrade.com Financing
Pursuant to the merger agreement, from and after the Effective Time,
Artra agreed to commit to provide Entrade with guaranteed financing for the
working capital needs of entrade.com, in an amount equal to at least $4,000,000,
with credit for all working capital contributions to entrade.com funded by the
loans from Artra made pursuant to the terms of the loan agreement.
56
<PAGE>
Lock-Up Provisions
Pursuant to the merger agreement, WWWX agreed that until the first
anniversary of the Effective Time it will not directly or indirectly assign,
transfer, offer, sell, agree to sell, make any short sale, pledge or otherwise
dispose of any shares of Entrade common stock or engage in any hedging or other
transactions with respect to its Entrade common stock that may have a material
impact on the market price of its Entrade common stock or that is designed to
result in a disposi tion of its Entrade common stock. WWWX is entitled, however,
from and after the Effective Time, to make bona fide pledges of its Entrade
common stock to an institutional lender or nationally recognized brokerage
house, and make a one-time pro rata distribution of up to 25% of its Entrade
common stock to the shareholders of WWWX, subject to the same lock-up provi
sions to which WWWX is bound.
Conditions to the Merger
The obligations of Artra, WWWX, Entrade and Merger Sub to consummate
the merger are conditioned on the fulfillment of the following at or prior to
the Effective Time:
o the merger agreement and the transactions described therein have
been approved by the shareholders of Artra;
o none of the parties to the merger agreement are subject to any
order or injunction of a court of competent jurisdiction that
prohibits the consummation of the transactions described in the
merger agreement;
o the Form S-4 registration statement becomes effective and will be
effective at the Effective Time, and no stop order suspending
effectiveness of the Form S-4 has been issued, no action, suit,
proceeding or investigation by the Commission to suspend the
effectiveness thereof has been initiated and continuing, or, to
the knowledge of Entrade, threatened, and all necessary approvals
under state securities laws relating to the issuance or trading of
Entrade common stock to be issued to the Artra shareholders in
connection with the merger have been received;
o all consents, authorizations, orders and approvals of, or filings
or registrations with, any governmental commission, board or other
regulatory body required in connection with the execution,
delivery and performance of the merger agreement have been
obtained or made, except for filings in connection with the merger
and any other documents required to be filed after the Effective
Time and except where, in the opinion of Artra or WWWX, the
failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material
adverse effect on the business, results of operations or financial
condition of Artra and Entrade and their respective subsidiaries,
taken as a whole, following the Effective Time;
57
<PAGE>
o Entrade common stock to be issued to the Artra shareholders in
connection with the merger has been approved for listing on the
New York Stock Exchange, subject only to official notice of
issuance, or if such listing has not been approved, listing on the
Nasdaq National Market System has been applied for;
o the employment agreements between Artra and Robert D. Kohn,
Benjamin Kafka, Mark Quinn and Gary Lerman have been assigned by
Artra to Entrade; and
o the board of directors of the Entrade has been elected in
accordance with the merger agreement, and the Articles of
Incorporation and Bylaws of the Entrade have been amended to cause
them to be in compliance with any applicable provision or require
ment of the Pennsylvania Business Corporation Law, the New York
Stock Exchange and the Nasdaq National Market System, if
applicable.
The obligation of Artra to consummate the merger is conditioned on the
fulfillment of the following at or prior to the Effective Time:
o each of WWWX, Entrade and the Merger Sub have performed in all
material respects the respective agreements contained in the
merger agreement required to be performed on or prior to the
Effective Time, and the representations and warranties of WWWX,
Entrade and the Merger Sub contained in the merger agreement and
in any document delivered in connection with the merger agreement
are true and correct as of the Effective Time;
o from the date of the merger agreement through the Effective Time,
there has not occurred any change in the financial condition,
business or operations of Entrade or any of its subsidiaries that
would have or would be reasonably likely to have a material
adverse effect;
o Artra and Entrade receive written affirmations from Global Trade
Group, Ltd. and all of its shareholders that their
representations, warranties, covenants and indemnifica tions set
forth in the Acquisition Agreement dated January 29, 1999 between
Global Trading Group, Ltd., its shareholders and WWWX inure to the
benefit of and are enforceable by Artra and Entrade as if
originally given to Artra and Entrade;
o Artra and Entrade receive written affirmations from Positive Asset
Remarketing, Inc. and all of its shareholders that their
representations, warranties, covenants and indem nifications set
forth in the Acquisition Agreement dated January 29, 1999 between
Positive Asset Remarketing, Inc., its Shareholders and WWWX inure
to the benefit of and are enforceable by Artra and Entrade as if
originally given to Artra and Entrade; and
o Entrade causes asseTrade.com to be converted into or re-created as
a Delaware limited liability company.
58
<PAGE>
o a certain non-competition agreement between Entrade and Robert D.
Kohn will be in effect without modification, amendment or default.
The obligations of WWWX and Entrade to consummate the merger are
conditioned on the fulfillment of the following:
o Artra has performed in all material respects its agreements
contained in the merger agreement and the loan agreement required
to be performed on or prior to the Effective Time, and the
representations and warranties of Artra contained in the merger
agree ment and in any document delivered in connection therewith
are true and correct as of the Effective Time; and
o from the date of the merger agreement through the Effective Time,
there is no change in the financial condition, business or
operations of Artra and its subsidiaries, taken as a whole, that
would have or would be reasonably likely to have a material
adverse effect.
Termination of the Merger Agreement
The merger agreement is subject to termination, prior to the Effective
Time, before or after the approval of the merger agreement by the shareholders
of Artra, by the mutual consent of Artra and WWWX.
The merger agreement may be terminated and the merger may be abandoned
by action of the board of directors of Artra or the board of directors of WWWX
if:
o the merger is not consummated by September 30, 1999;
o the approval of Artra's shareholders has not been obtained; or
o a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission has issued an order, decree or
ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions described in
the merger agreement and such order, decree, ruling or other
action has become final and non-appealable; provided, that the
party seeking to terminate the merger agreement used all
reasonable efforts to remove such injunction, order or decree; and
provided, that the terminating party has not breached in any
material respect its obligations under the merger agreement in any
manner that has proximately contributed to the failure to
consummate the merger by September 30, 1999.
Under Section 6.3 of the merger agreement, the merger agreement may be
terminated and the merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of WWWX, if:
59
<PAGE>
o in the exercise of its good faith judgment as to fiduciary duties
to its shareholders imposed by law, the board of directors of WWWX
determines that such termination is required by reason of an
alternative proposal being made; provided that WWWX promptly
notifies Artra of WWWX's intention to terminate the merger
agreement or enter into a definitive agreement with respect to any
alternative proposal, but in no event may such notice be given
less than 48 hours prior to the public announcement of WWWX's
termination of the merger agreement;
o there has been a breach by Artra of any representation or warranty
contained in the merger agreement that would have or would be
reasonably likely to have a material adverse effect;
o there has been a material breach of any material covenants or
agreements set forth in the merger agreement on the part of Artra,
which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by WWWX to
Artra; or
o the board of directors of Artra has withdrawn or modified in a
manner materially adverse to WWWX its approval or recommendation
of the merger agreement or the merger.
Under Section 6.4 of the merger agreement, the merger agreement may be
terminated and the merger may be abandoned at any time prior to the Effective
Time, before or after the approval by the shareholders of Artra, by action of
the board of directors of Artra, if:
o the board of directors of WWWX has withdrawn or modified in a
manner materially adverse to Artra its approval or recommendation
of the merger agreement or the merger;
o there has been a breach by WWWX or Entrade of any representation
or warranty contained in the merger agreement that would have or
would be reasonably likely to have a material adverse effect; or
o there has been a material breach of any of the material covenants
or agreements set forth in the merger agreement on the part of
WWWX, Entrade or the Merger Sub, which breach is not curable or,
if curable, is not cured within 30 days after written notice of
such breach is given by Artra to WWWX.
Effect of Termination and Termination Fees
In the event that the merger agreement is terminated and the merger is
abandoned, all obligations of the parties will terminate, except the obligations
of the parties pursuant to the merger agreement relating to expenses and except
for the general interpretation provisions of the merger agreement. In the event
of termination of the merger agreement solely because the
60
<PAGE>
requisite approval of Artra's shareholders has not been obtained, all
obligations of WWWX and Entrade to repay the amounts loaned to either or both of
them by Artra under the loan agreement will terminate and the loans made by
Artra to WWWX and to Entrade under the loan agreement will be forgiven as a
"break-up" fee to WWWX and Entrade equal to the aggregate amount of the loan as
defined in the loan agreement. Moreover, in the event of termination of the
merger agreement pursuant to Section 6.3 or 6.4 of the merger agreement, nothing
will prejudice the ability of the non-breaching party from seeking damages from
any other party for any willful breach of the merger agreement, including
without limitation, reasonable attorneys' fees and the right to pursue any
remedy at law or in equity.
Related Agreements
Concurrently with the execution of the merger agreement, Entrade
acquired certain intellectual property necessary for the conduct of
entrade.com's e-commerce business and 25% of the shares of the voting common
stock of asseTrade.com from WWWX in exchange for 1,800,000 shares of Entrade
common stock, $800,000 in cash and a note for $500,000, payable upon the
consummation of the merger or the earlier termination of the merger agreement.
On February 19, 1999, Entrade had agreed with Energy Trading Company, a wholly
owned subsid iary of PECO Energy, to issue to Energy Trading Company 200,000
shares of Entrade common stock, and to pay Energy Trading Company $100,000 in
cash upon consummation of the merger, in exchange for certain retained rights
Energy Trading Company held in entrade.com's e-com merce business.
Entrade also agreed with both WWWX and Energy Trading Company that it
would provide a minimum of $4,000,000 in funding for entrade.com. Under separate
loan agreements, Artra agreed to loan Entrade up to $2,000,000 to fund the
$800,000 cash payment to WWWX and to provide funding for entrade.com until the
consummation of the merger or the earlier termina tion of the merger agreement.
Under the merger agreement, Artra agreed to guaranty $4,000,000 funding for
entrade.com if the merger is consummated. The total consideration for the
purchased assets, therefore, will be 2,000,000 shares of Entrade common stock
and an aggregate of $5,400,000 in cash, notes and committed funding.
Employment Agreements
Concurrently with the execution of the merger agreement, Artra entered
into employment agreements with Robert D. Kohn, Benjamin R. Kafka, Gary Lerman
and Mark L.M. Quinn providing for the employment of those individuals for
three-year terms. Robert D. Kohn is the President and a director of WWWX and
beneficially owns 4,840,000 shares, or approximately 26.8%, of the outstanding
shares of common stock of WWWX. Benjamin R. Kafka and Mark L.M. Quinn
beneficially own 767,500 shares and 630,000 shares, respectively, of WWWX common
stock, or approximately 4.2% and 3.5%, respectively, of the outstanding shares
of WWWX common stock. Mr. Kafka and Mr. Quinn are also officers, directors and
principal shareholders of Positive Asset Remarketing, Inc. and Global Trade
Group, Ltd. Positive Asset Remarketing, Inc. or its designees will receive
3,500,000 shares of WWWX common stock as
61
<PAGE>
consideration for the sale of another system to WWWX. Therefore, upon the
issuance of those shares, Positive Asset Remarketing, Inc. or its designees will
own approximately 16.3% of the outstanding shares of WWWX common stock.
Robert D. Kohn
Robert D. Kohn has an employment agreement with Artra for a term that
commenced February 23, 1999 and ends February 17, 2002. The employment agreement
provides for:
o an annual salary of not less than $165,000 which may be increased
from time to time by the board of directors of Artra; and
o an option to purchase 1,000,000 shares of Artra common stock at an
exercise price of $2.75 per share.
Mr. Kohn has agreed to keep proprietary and confidential information
secret and confiden tial and not to use any confidential information for his own
benefit or to the detriment of Artra without Artra's prior written consent,
regardless of whether such information was discovered or developed by Mr. Kohn.
Mr. Kohn also agreed during the term of the employment agreement and for an
additional period of one year after termination or expiration, unless terminated
pursuant to a change in business purpose, that neither he nor any corporation or
entity in which he may be interested will at anytime engage in any competitive
business or solicit, hire or contract for services or employ any of the
executives of Artra. If Mr. Kohn violates the non-competition provision of the
employment agreement, the one year restrictive period will be extended for the
duration of the violation.
In the event of Mr. Kohn's death during the term of the employment
agreement, Mr. Kohn's estate is entitled to receive any earned but unpaid
portion of Mr. Kohn's base salary for the period up to Mr. Kohn's death and any
accrued benefits under any Artra executive benefit plan which benefits will be
paid in accordance with the terms of those plans. In the event of Mr. Kohn's
total disability during the term of the employment agreement for a period of 180
consecu tive days or for any 180 days within a period of 360 consecutive days,
Artra has the right to terminate Mr. Kohn's employment upon 30 days written
notice. In such event, upon expiration of the 30 days written notice, Mr. Kohn
is entitled to receive any earned but unpaid portion of his base salary for the
period up to the date of termination and any accrued benefits under any Artra
executive benefit plan which benefits will be paid in accordance with the terms
of those plans.
In the event Mr. Kohn is terminated for cause, Mr. Kohn is entitled to
receive any earned but unpaid portion of his base salary for the period up to
the date of termination and any accrued benefits under any Artra executive
benefit plan which benefits will be paid in accordance with the terms of those
plans.
Artra may terminate Mr. Kohn's employment any time after September 30,
1999 but prior to December 31, 1999 if the merger has not been consummated by
September 30, 1999 and Artra
62
<PAGE>
determines that it otherwise has not made substantial progress toward
accomplishing the merger by September 30, 1999. In the event of Mr. Kohn's
termination for this reason, Mr. Kohn is entitled to receive any earned but
unpaid portion of his base salary for the period up to the date of termination
and any accrued benefits under any Artra executive benefit plan, which benefits
will be paid in accordance with the terms of those plans.
Artra may terminate Mr. Kohn at any time upon ten business days' prior
written notice for any reason other than those specified in the employment
agreement. If Artra terminates the employment of Mr. Kohn for such other
reasons, Mr. Kohn is entitled to receive any earned but unpaid portion of his
base salary for the period up to the date of termination; a severance payment
equal to the lesser of (i) an amount equal to Mr. Kohn's base salary for a
period of 24 months or (ii) an amount equal to Mr. Kohn's base salary for the
balance of the term of the employment agreement, if any, provided that the
severance payment will in no event be less than an amount equal to Mr. Kohn's
base salary for a period of six months; and any accrued benefits under any Artra
executive benefit plan, which benefits will be paid in accordance with the terms
of those plans.
Benjamin Kafka
Benjamin Kafka has an employment agreement with Artra for a term that
commenced February 23, 1999 and ends February 17, 2002. The employment agreement
provides for:
o an annual base salary of $125,000 which may be increased from time
to time by the board of directors of Artra; and
o an option to purchase 200,000 shares of Artra common stock at an
exercise price of $2.75 per share;
Gary Lerman
Gary Lerman has an employment agreement with Artra for a term that
commenced February 23, 1999 and ends February 17, 2002. The employment agreement
provides for:
o an annual salary of not less than $125,000 which may be increased
from time to time by the board of directors of Artra; and
o an option to purchase 200,000 shares of Artra common stock at an
exercise price of $2.75 per share;
63
<PAGE>
Mark L.M. Quinn
Mark L.M. Quinn has an employment agreement with Artra for a term that
commenced February 23, 1999 and ends February 17, 2002. The employment agreement
provides for:
o an annual salary of not less than $125,000 which may be increased
from time to time by the board of directors of Artra; and
o an option to purchase 200,000 shares of Artra common stock at an
exercise price of $2.75 per share.
The employment agreements of Messrs. Kafka, Lerman and Quinn contain
substantially similar terms relating to confidentiality, death and termination
of those summarized above under the description of Mr. Kohn's employment
agreement with Artra.
64
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Artra and Entrade are both Pennsylvania corporations and, therefore,
Pennsylvania law governs the rights of shareholders of both corporations.
Differences between the Articles of Incorporation and Bylaws of Entrade and the
Amended and Restated Articles of Incorporation and Bylaws of Artra, however,
will result in various changes in the rights of shareholders of Artra as
shareholders of Entrade.
The following is a summary of certain material differences between the
rights of sharehold ers of Artra under the Amended and Restated Articles of
Incorporation and Bylaws of Artra and the rights of shareholders of Entrade
under the Articles of Incorporation and Bylaws of Entrade. This summary does not
purport to be a complete description of the provisions discussed and is
qualified in its entirety by the BCL, the Amended and Restated Articles of
Incorporation and Bylaws of Artra and the Articles of Incorporation and Bylaws
of Entrade, to which the sharehold ers of Artra are referred.
Cumulative Voting
The Amended and Restated Articles of Incorporation of Artra provide
that shareholders of Artra may cumulate their votes for the election of
directors. The Articles of Incorporation of Entrade provide that shareholders of
Entrade do not have the right to cumulate their votes for the election of
directors. Therefore, the holders of more than one-half of the outstanding
shares of Entrade common stock will be able to elect all the directors of
Entrade then standing for election and holders of the remaining shares will not
be able to elect any director.
Voting by Ballot
The Amended and Restated Articles of Incorporation of Artra provide
that shareholders of Artra must elect directors by written ballot. The Bylaws of
Entrade provide that unless demand is made by a shareholder of Entrade before
the voting begins, shareholders of Entrade need not elect directors by written
ballot.
Directors
The Bylaws of Artra provide that the number of directors of Artra shall
be at least six but no more than nine, with the exact number to be determined by
a majority of the directors of Artra in office. The number of directors of Artra
is currently fixed at nine. The Bylaws of Entrade provide that the number of
directors of Entrade shall be determined by the Entrade Board of Directors from
time to time.
Preferences
If the proposed merger is consummated, each share of Artra preferred
stock that is issued and outstanding at the Effective Time, other than shares
held by shareholders who perfect their
65
<PAGE>
statutory dissenters rights, will be canceled and converted automatically into
the right to receive 329 shares of Entrade common stock. Holders of Artra
preferred stock have certain redemption rights and are entitled to certain
preferences as to the payment of dividends and the payment upon the dissolution,
liquidation or winding up of Artra. Holders of Entrade common stock do not have
dividend or liquidation preferences or redemption rights. The rights,
preferences and privileges of holders of Entrade common stock will be subject to
the rights of the holders of any series of Entrade preferred stock that Entrade
may issue in the future.
DESCRIPTION OF ENTRADE CAPITAL STOCK
General
The summary of the terms of the stock of Entrade set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of Entrade and the
provisions of Pennsylvania law.
Authorized Capital Stock
The total number of shares of all classes of stock that Entrade has
authority to issue is 44,000,000 shares, of which 40,000,000 are shares of
common stock, without par value, and 4,000,000 are shares of preferred stock,
$1,000 par value per share. At February 23, 1999, 2,000,000 shares of common
stock were issued and outstanding and no shares of preferred stock were
outstanding.
The additional shares of authorized stock available for issuance by
Entrade might be issued at such times and under such circumstances as to have a
dilutive effect on earnings per share and on the equity ownership of the holders
of Entrade common stock. The ability of the Entrade board of directors to issue
additional shares of stock could enhance the Entrade board of directors' ability
to negotiate on behalf of the shareholders in a takeover situation and also
could be used by the Entrade board of directors to make a change in control more
difficult, thereby denying shareholders the potential to sell their shares at a
premium and entrenching current management.
Common Stock
Holders of Entrade common stock are entitled to one vote per share on
all matters voted on generally by the shareholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any series of Entrade preferred stock, the holders of such shares
possess all voting power. The Articles of Incorporation of Entrade provide that
the shareholders of Entrade do not have the right to cumulate their votes for
the election of directors. Thus, the holders of more than one-half of the
outstanding shares of Entrade common stock will be able to elect all the
directors of Entrade then standing for election and holders of the remaining
shares will not be able to elect any director.
66
<PAGE>
Subject to any preferential rights of any series of Entrade preferred
stock, holders of shares of Entrade common stock are entitled to receive
dividends on such stock out of assets legally available for distribution when,
as and if authorized and declared by the Entrade board of directors and to share
ratably in the assets of Entrade legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding up.
Holders of Entrade common stock have no preemptive or subscription
rights and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. The rights, preferences and privileges
of holders of Entrade common stock will be subject to the rights of the holders
of any series of Entrade preferred stock that Entrade may issue in the future.
Preferred Stock
The Entrade board of directors is authorized to issue the 4,000,000
authorized shares of Entrade preferred stock from time to time in one or more
series. The Entrade board of directors, without further approval of the holders
of Entrade common stock, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, sinking funds and any other rights, preferences, privileges and
restrictions applicable to each such series of Entrade preferred stock. The
Entrade board of directors could authorize the issuance of shares of Entrade
preferred stock with terms and conditions which could discour age a takeover or
other transaction that holders of some or a majority of shares of Entrade common
stock might believe to be in their best interests or in which such holders might
receive a premium for their shares of stock over the then market price of such
shares. As of the date hereof, no shares of Entrade preferred stock are
outstanding and the Entrade board of directors has no present intention to issue
any shares of Entrade preferred stock after the Effective Time.
Transfer Agent
After the merger, the initial transfer agent and registrar for the
Entrade common stock will be ChaseMellon Shareholder Services, LLC. .
Anti-Takeover Provisions
The Articles of Incorporation of Entrade provide that in the event that
the holders of the stock of Entrade outstanding and entitled to vote at a
meeting with respect to a particular matter are entitled to vote on (i) a
proposal that Entrade enter into a merger or consolidation with any person, or
that Entrade sell, lease or exchange substantially all of its assets and
property to any such person, and such person and his or its affiliates, singly
or in the aggregate, own or control, directly or indirectly, five percent or
more of the voting stock of Entrade, or (ii) a proposal to reclassify
securities, recapitalize or any other transaction (except redemptions permitted
by the terms of the security to be redeemed or repurchased by Entrade of its
securities for cancellation or for its treasury) designed to decrease the number
of holders of the voting stock of Entrade remaining after any person has
acquired five percent of the voting stock of Entrade, the affirmative vote of
67
<PAGE>
the holders of shares of the voting stock of Entrade representing at least 80%
of the votes entitled to be cast at a meeting of the shareholders is required
for the approval of such proposal; provided, however, that the foregoing
requirements shall not apply to any such merger, consolidation or sale of assets
and property (i) that has been approved by a resolution duly adopted by a
majority of the Entrade directors in office, although less than a quorum, and
the affirmative vote of the holders of shares of voting stock of Entrade
representing at least a majority of the votes entitled to be cast at a meeting
of shareholders called for such purpose, or (ii) between Entrade and another
corporation, 50% or more of the voting stock of which is owned by Entrade, if
Entrade is the survivor or purchaser.
The affirmative vote of the holders of shares of the voting stock of
Entrade representing at least 80% of the votes entitled to be cast at a meeting
of the shareholders, or (ii) the affirmative vote of at least 80% of the Entrade
directors in office, although less than a quorum, and the affirmative vote of
the holders of shares of the voting stock of Entrade representing at least a
majority of the votes entitled to be cast at such meeting of shareholders is
required to amend the provision described above that requires an 80% vote for
mergers and other fundamental corporate changes under certain circumstances. The
Articles of Incorporation of Entrade also contain a provision that shareholders
do not have cumulative voting rights with respect to election of directors.
Also, Entrade's Bylaws require any shareholder who desires to nominate
a candidate for election as a director to provide certain information in writing
concerning such person not later than 120 days before the first anniversary of
the date of the preceding annual meeting of share holders.
Pennsylvania has also enacted certain laws that may be deemed to be
"anti-takeover" in effect. One provision permits directors, in considering the
best interests of Entrade, to consider the effects of any action upon its
employees, suppliers, customers, shareholders and creditors and the communities
in which Entrade maintains facilities. The effect of this provision is to put
the considerations of these constituencies on parity with one another, with the
result that no one group, including shareholders, is required to be the dominant
or controlling concern of directors in determining what is in the best interests
of Entrade. This provision applies to all Pennsylvania corporations. Other
provisions under Pennsylvania law that may be deemed to be anti-takeover in
effect include the authorization for the adoption of shareholder rights or
"poison pill" plans and the prohibition of shareholders' calling a special
meeting of shareholders, taking action by less than unanimous written consent or
proposing an amendment to the Articles of Incorporation of Entrade.
Entrade is subject to certain additional anti-takeover provisions under
Pennsylvania law. A summary of these anti-takeover provisions is as follows:
Business Combinations. This provision prohibits any person or group
that acquires at least 20% of the voting power of a corporation from effecting a
business combination with the corporation, such as a merger, an asset sale and
certain recapitalizations, for a period of up to five
68
<PAGE>
years from the date such control was acquired. The corporation's board of
directors may opt out of this provision on a case-by-case basis by approving a
particular business combination prior to the date such person or group acquires
20% of the voting power.
Control-Share Acquisitions. This provision prevents a person or group
that crosses certain stock ownership thresholds of 20%, 33-1/3% or 50% for the
first time from voting certain shares beneficially owned by the person unless
voting power is restored to such shares by a vote of all shareholders and a vote
of disinterested shareholders at a shareholders meeting. Also, any business
combinations occurring after the restoration of voting power will require the
acquiring person to pay severance compensation to Pennsylvania employees of the
corporation whose employment is terminated, other than for willful misconduct
connected with the work of the employee, within 90 days before or 24 months
after the restoration of voting power.
Disgorgement. This provision requires any person or group that acquires
20% or more of the voting power of a corporation to disgorge to the corporation
all profits realized from the sale of equity securities of the corporation
within 18 months after acquiring this control status if the person or group
purchased equity securities of the corporation within 24 months prior to, or 18
months after, the acquisition of control status.
The Articles of Incorporation of Entrade provide that certain other
anti-takeover provisions under Pennsylvania law are not be applicable to
Entrade.
Limitation of Liability
As permitted by the provisions for indemnification of directors and
officers under Pennsyl vania law, which applies to Entrade, Entrade's Bylaws
provide for indemnification of directors and officers for all expense, liability
and loss (including without limitation attorneys' fees, judgments, fines, taxes,
penalties and amounts paid in settlement) reasonably incurred or suffered by
such person in any threatened, pending or completed action, suit or proceeding
(including without limitation an action, suit or proceeding by or in the right
of Entrade), whether civil, criminal, administrative, investigative or through
arbitration, unless the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful miscon duct
or recklessness.
The right to indemnification provided in Entrade's Bylaws includes the
right to have the expenses incurred by such person in defending any proceeding
paid by Entrade in advance of the final disposition of the proceeding to the
fullest extent permitted by Pennsylvania law; provided that, if Pennsylvania law
continues so to require, the payment of such expenses incurred by such person in
advance of the final disposition of a proceeding may be made only upon delivery
to Entrade of an undertaking, by or on behalf of such person, to repay all
amounts so advanced without interest if it is ultimately determined that such
person is not entitled to be indemnified under Entrade's Bylaws or otherwise.
Indemnification under such provisions continues as to a person who has ceased to
be a director or officer of Entrade and inures to the benefit of his or her
heirs, executors and administrators.
69
<PAGE>
Entrade's Bylaws also avail directors of the Pennsylvania law limiting
directors' liability for monetary damages for any action taken or any failure to
take any action to those cases where they have breached their fiduciary duty
under Pennsylvania law and such breach constitutes self-dealing, willful
misconduct or recklessness. This limitation of liability does not apply to the
responsibilities or liabilities of a director pursuant to any criminal statute
or to the liabilities of a director for payment of taxes pursuant to local,
Pennsylvania or federal law.
Outstanding Stock Options To Be Assumed by Entrade
The 1985 and 1996 Option Plans
Artra's Restated 1985 Stock Option Plan and Artra's 1996 Stock Option
Plan provide for the grant of options to purchase Artra common stock that are
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code and non-qualified options to key employ ees and non-employee
directors of Artra, its subsidiaries and affiliated entities.
As of April 30, 1999, Artra had outstanding options to purchase an
aggregate of 342,603 shares of Artra common stock granted to Artra's employees
under the 1985 Plan, which are intended to qualify as incentive stock options,
at exercise prices of $3.65 and $3.75. All of the options granted under the 1985
Plan are fully vested and expire on either December 19, 2000, September 19, 2001
or January 8, 2003. The 1985 Plan will remain in effect until all options
granted under the 1985 Plan have been satisfied by the issuance of shares or the
expiration of the outstanding options, but no new Options may be granted under
the 1985 Plan.
As of April 30, 1999, Artra had outstanding options to purchase an
aggregate of 936,000 shares of Artra common stock granted to Artra's employees
under Artra's 1996 Plan, which are intended to qualify as incentive stock
options at exercise prices of $5.25 and $4.75. All of the options granted under
the 1996 Plan are fully vested and expire on either October 4, 2006 or January
6, 2009.
The 1996 Disinterested Directors Stock Option Plan
As of April 30, 1999, Artra had outstanding nonqualified options to
purchase an aggregate of 100,000 shares of Artra common stock granted to Artra's
directors under Artra's 1996 Disinterested Directors Plan at an exercise price
of $3.125. All of the options granted under the 1996 Disinterested Directors
Plan are fully vested and expire on either May 28, 2008 or January 6, 2009.
The 1999 Non-Qualified Stock Option Plan
As of February 23, 1999, Artra granted options to purchase an aggregate
of 1,600,000 shares of Artra common stock to Robert D. Kohn, Benjamin R. Kafka,
Gary L. Lerman and Mark L.M. Quinn under Artra's 1999 Plan at an exercise price
of $2.75 per share. The options become
70
<PAGE>
exercisable in three equal installments commencing December 1, 1999, February
18, 2000 and February 18, 2001. The options will expire on the earlier to occur
of:
(1) February 23, 2009;
(2) the date of the employee's termination of employment for cause;
(3) the expiration of three months from the date of the employee's
termination other than for cause or voluntary resignation unless such
termination results from the employee's retirement, death or disability; or
(4) the expiration of one year from the date of the employee's
termination by reason of his retirement, death or disability.
Outstanding Warrants To Be Assumed by Entrade
As of April 30, 1999, Artra had outstanding warrants to purchase an
aggregate of 1,241,730 shares of Artra common stock. All of the warrants granted
are fully vested and will be assumed by Entrade upon consummation of the Merger.
Artra granted miscellaneous warrants between March 31, 1992 and October
21, 1998. The miscellaneous warrants have expiration dates ranging from June 15,
1999 to October 26, 2003 and exercise prices ranging from $3.00 to $8.00. Artra
also granted warrants on each of April 15, 1996, May 21, 1997, June 16, 1997,
July 15, 1997, December 1, 1997, December 19, 1997 and January 14, 1998 in
connection with the issuance by Artra of certain promissory notes, as follows:
Exercise
Date Granted Expiration Date Price
- ------------ --------------- -----
May 21, 1997 May 23, 1999 $3.75
June 16, 1997 June 15, 1999 $3.75
July 15, 1997 August 13, 1999 $3.75
December 1, 1997 November 30, 1999 $3.00
December 19, 1997 December 18, 1999 $3.00
January 14, 1998 February 14, 2000 $3.00
The holders of these warrants have the option to sell their unexercised
purchase rights under the warrants to Artra during specified periods for
purchase prices ranging from $1.50 to $3.00.
The holders of the warrants have certain registration rights as set
forth in the warrants. The warrants do not confer upon the holders thereof any
voting or other rights of a shareholder of Artra. Upon notice to the holders of
the warrants, Artra has the right to reduce the exercise price and extend the
expiration date of the warrants. Appropriate adjustment to the outstanding
71
<PAGE>
warrants and to the number and kind of shares subject to the warrants are
provided for in the event of a stock split, reverse stock split, stock dividend,
combination or reclassification and certain other types of corporate
transactions involving Artra, including a merger or a sale of substantially all
of the assets of Artra.
INFORMATION ABOUT ENTRADE INC. (entrade.com)
General
Entrade, a Pennsylvania corporation, was incorporated February 1999.
Entrade, through its wholly owned subsidiary, entrade.com, intends to operate as
an Internet business-to-business electronic commerce, or "e-commerce," service
provider. entrade.com provides business-to- business e-commerce transaction
technologies, customized to meet client-specific applications. Additionally, it
intends to create and manage industry-specific e-commerce marketing, sales,
procurement and trading communities in select commercial sectors. entrade.com is
directing its initial commercial and marketing efforts to certain industrial and
utility sectors and intends to develop other e-commerce community groups in
other industry-specific sectors.
entrade.com's initial principal focus is to offer customized solutions
for corporate asset recovery and inventory management through a mix of
e-commerce applications. These applica tions provide asset management systems,
industry-sector trade communities for the sale and exchange of assets and
commercial services for on and off-line industrial equipment asset auctions. Its
primary home site, entrade.com, is the central link to business-to-business
services provided through two affiliated sites, utiliparts.com and
asseTrade.com. These sites blend real-time, e- commerce Internet technologies to
provide asset recovery for strategic partners, consisting of large industrial
and utility businesses and related trade groups.
Upon consummation of the merger, Entrade will be the holding company of
Artra and entrade.com, which Entrade will hold as separate subsidiary entities,
and 25% of the voting common stock of asseTrade.com. The following discussion
sets forth a business description of the operations of entrade.com.
Entrade's Acquisition of the entrade.com Assets and 25% of the Voting Common
Stock of asseTrade.com
In February 1999, Entrade acquired from WWWX all of the assets of the
former BarterOne LLC and a 25% voting stock interest in asseTrade.com, Inc. WWWX
had acquired all of the membership interests in BarterOne LLC in January and
February of 1999, under separate agreements with Global Trade Group, Ltd., an
asset recovery and re-marketing specialist, and Energy Trading Company, a
subsidiary of PECO Energy. Following those acquisitions, BarterOne LLC was
dissolved and WWWX took direct title to its assets.
72
<PAGE>
BarterOne had been formed in December 1996 by Energy Trading Company
and Global Trade Group, Ltd., to develop software and related products and
services that would enable users, primarily in the electric and gas utility
industry, to effect barter transactions via an e-commerce system. Energy Trading
Company provided the initial capital and executive support necessary for the
development of the software, while Global Trade Group, Ltd. provided software
develop ment, business development, marketing and field support services. The
result was the develop ment of the ORBIT System software, a vehicle for
e-commerce in a wide spectrum of industries.
Contemporaneously with the development of the ORBIT System through
BarterOne, an affiliate of Global Trade Group, Ltd., Positive Asset Remarketing,
Inc., forged an alliance with a joint venture entity, Butcher Fox LLC, formed by
Henry Butcher USA, Inc. ("Butcher") and Michael Fox International, Inc. ("Fox"),
to provide entrade.com's on-line technologies and business methodologies to the
Butcher and Fox industrial clients. In October 1998, these parties formed
asseTrade.com, which was initially owned 50% by Positive Asset Remarketing, Inc.
and 50% by Butcher Fox LLC. WWWX acquired 25% of the voting common stock of
asseTrade.com from Positive Asset Remarketing, Inc. at the same time it acquired
BarterOne LLC, and then transferred those shares to Entrade in February 1999.
asseTrade.com holds a perpetual license from entrade.com to the ORBIT System and
an on-line auction technology. Each of Butcher and Fox has agreed to conduct all
of its on-line auction sales through asseTrade.com.
Overview
Companies that will have the greatest success in business in the future
will be those companies that can best manipulate information technology to
garner real-time access to informa tion about their identified marketplace.
Large industrial corporations are constantly seeking cost and operating
efficiencies through asset and inventory management to remain competitive.
Traditional channels of communication for those purposes have included mail,
telephone and fax and, to a lesser extent, more complex and costly methods such
as Electronic Data Interchange (EDI) and Value Added Network (VAN).
The development of Internet and e-commerce applications provides
significant cost and operating efficiencies for a company's asset and inventory
management, operations and marketing, sales and distribution functions. By
providing a readily accessible global network and standard for communication,
the Internet is expected to assist businesses in lowering the cost of creating
new marketing channels and effecting commercial transactions and procurement
operations. Also, small and medium-sized businesses can more readily participate
in all levels of e-commerce transactions.
entrade.com's Solution
entrade.com's plan is to link complimentary industries through the
extended family of entrade.com site communities that will enable each member
with e-commerce applications to transact on-line exchanges of core products,
core services, assets, inventories and equipment. A component part of its own
strategic blueprint is to fully develop synergistic client communities.
73
<PAGE>
The result would be a global business-to-business affinity group represented by
a web of comple mentary companies seeking trade among themselves in a controlled
and secure environment.
entrade.com has initially targeted the nation's electric utility
industry as well as large manufacturing concerns to provide inventory management
and asset disposition programs, including the development of global industrial
business-to-business auctions. These assets include plant, equipment and
machinery, surplus parts, excess capacities and excess/surplus production
inventories.
entrade.com's Technologies
entrade.com's technologies cover a wide spectrum of services involving
Internet e-com merce. entrade.com provides potential clients with a real-time,
multi-level access provisioning software with the following on-line full-cycle
transaction capabilities:
o Asset Tracking Platforms: Clients will be able to track assets
through their distribution chain. Applications are particularly
relevant in "floor plan" and "consignment" distribution
arrangements between manufactures and distributors.
o Corporate Intranet Systems: Clients will be able to deploy the
entrade.com transac tion platforms within their own multiple-site
environments. A company will be able to integrate its global
database of corporate inventories and operating assets into
entrade.com's e-commerce transaction platforms. Companies' defined
internal manu facturing, inventory management and procurement
communities can be linked in a real- time 24 hour/7 day
transactional environment. Inventory and asset optimization is
achieved through the sharing, transfer and exchange of common
inventories held in multiple locations through the corporate
manufacturing network. Similar internal corporate applications
exist within the procurement, logistic, marketing and distribu
tion functions of a global enterprise. Additionally, applications
exist between multiple- site corporate networks and their
respective vendor and distributor base.
o Extranet-based Industry-Specific Trade Communities: utiliparts.com
and asseTrade.com represent the initial application of the ORBIT
System technology in the development of industry-specific
business-to-business trade communities. In parallel with
client-specific activities, entrade.com seeks to create marketing,
sales and trade communities in select commercial sectors.
utiliparts.com and asseTrade.com are industry-specific e-commerce
trade communities that provide participating companies with a wide
range of new markets through which primary products, excess
capacities or excess inventory and assets can be channeled.
Through these on-line business-to- business communities,
entrade.com can also provide services for companies that do not
seek customized solutions. Current communities, utiliparts.com and
asseTrade.com, primarily cater to large industrial groups seeking
disposition of assets and inventories. Other industry communities
offering different value propositions are also being consid ered.
74
<PAGE>
o Investment Recovery via Auction: Through asseTrade.com's auction
site, entrade.com can arrange for client-specific on-line auctions
based on minimum price conditions prescribed by the client.
Alternatively, through the international network of industry-
specific trade specialists, entrade.com can seek markets or
organize "offshore" and "private" auctions on behalf of clients.
entrade.com offers a wide array of asset evaluation, appraisal and
registration services. The next generation of the ORBIT System
technology will have enhanced open bid features, which will
incorporate real- time bid capabilities for each community or
client-specific site.
o E-commerce Catalogue Sales Platforms: Companies can create virtual
storefronts for the marketing of core products and services,
excess assets, surplus inventories or excess capacities.
entrade.com will provide the technology through license agreements
and client-specific customizations of the ORBIT System technology
through service agreements. The initial focus is with large
industries, though entrade.com is creating a sales strategy and
sales force to penetrate the retail, service and public
institutional sectors.
o Client Acquisition/Retention: entrade.com is prepared to represent
utilities in selling energy, energy services or performance-based
energy contracts to its industrial clients by structuring
transactions to include client assets as a small component part of
the payment. entrade.com believes that this will provide a
powerful and competitive differentiator in retaining or acquiring
key customers. Utilities are seeking new industrial accounts in
the deregulated era of electricity.
o Off-line Consulting: entrade.com and entrade.com alliances
represent a broad range of skills and knowledge relating to
electric utility operations, electric utility company development,
industrial asset appraisal, evaluation and disposition and global
trade. entrade.com will also seek opportunities to provide this
expertise to clients through consulting agreements.
entrade.com will target initial client constituencies principally in
heavy industry and the utility and energy sectors. Utilizing the experience
gained in these sectors in tandem with its commercial and technology models,
entrade.com expects to construct almost identical industry sector communities
and client-specific asset recovery applications for other sectors and markets.
By combining its proprietary technology with off-line commercial
methodologies, entrade.com provides industrial, commercial and service
corporations with the tools necessary to deliver comprehensive Internet
e-commerce applications into their current global operations. To date,
entrade.com's technology development and market emphasis have focused on:
o Corporate asset/investment recovery; o Direct corporate procurement;
o Community development for intra-industry trading;
o Just-in-time product distribution;
75
<PAGE>
o Open bid auction;
o Catalogue sales; and
o Competitive marketing.
entrade.com believes that its cost-efficient electronic transaction
technologies for compre hensive asset and inventory management will result in:
o improved inventory management efficiencies;
o internal and external global networking of available products,
supplies and services;
o streamlined transaction and documentation capabilities;
o asset registration and asset tracking;
o centralized electronic global inventory verification and evaluation;
o creation of new marketing channels for clients; and
o 24 hour/7 days per week global electronic communication links.
The ORBIT System
The ORBIT System (On-line Reciprocal Business and Industry Transaction
System) technology provides a full-cycle on-line solution for the rapidly
emerging business-to-business e- commerce marketplace. At the technology's core
is a profiling system that shapes the product and marketing information
presented to each user. The ORBIT System allows vendors to tailor their
electronic offerings to match each customer's specific demographic profile and
their purchasing preference.
The ORBIT System technology has been built with a fully integrated
modular architecture, making it exceptionally flexible and scaleable. After the
core modules are installed, a vendor can add new applications as needed, with
the new modules being functional and fully integrated into the system upon
installation.
The ORBIT System includes a full-cycle commercial transaction
functionality through which products, inventories and corporate assets can be
catalogued, transferred, traded, sold, auctioned, purchased and tracked in a
secure, 24-hour, real-time Internet environment. Flexible pricing modules allow
open bid, bulk pricing and variable discounting features. A comprehensive range
of administrative, financial, commercial and support features are included,
which can stand on their own or be integrated into existing databases.
The ORBIT System offers the following commercial features:
o trading, competitive open bid, procurement and sales functions;
o user-friendly transaction processing modules;
o asset registration and tracking functions;
o cataloging and pricing formats;
o comprehensive search and query options;
76
<PAGE>
o real-time inventory reconciliation functions;
o automated request for proposal (RFP) and request for quote (RFQ)
modules;
o credit and accounting options;
o comprehensive inventory database maintenance;
o real-time payment options;
o dual or alternate currency options;
o customer statement modules; and
o multiple fee and billing formats.
The following list describes the administrative features of the ORBIT
System:
o full point-of-sale transaction and account reconciliation;
o billing and order processing;
o fully integrated, on-line internal credit approval system;
o general ledger postings;
o historic accounting functions;
o tracking/shipping/forwarding functions;
o report generation;
o customized database for historical evaluations;
o self-administered add, delete and edit;
o virtual storefront identity and customized branding;
o consolidated procurement and processing documentation;
o real-time inventory adjustment;
o comprehensive help section and tutorials;
o customized pictorial catalogue;
o easy administrator access and data management;
o direct "link" capabilities to other corporate-defined web sites;
o extensive "search" capabilities;
o comprehensive e-mail and communication;
o in-house and CD-ROM training and orientation programs; and
o e-mail and pager notification.
The ORBIT System also offers the following operating features:
o compatibility with existing database systems;
o workflow integration;
o standards-based open architecture;
o communication platforms;
o multiple, advanced languages;
o security and encryption;
o multiple pricing options;
o depleting and bulk volume inventory formats; and
o comprehensive search formats.
77
<PAGE>
Current ORBIT System Upgrade
entrade.com is currently upgrading the ORBIT System technology
utilizing software components that have recently been made commercially
available. entrade.com believes that the newly enhanced technology will allow it
to continually present innovative e-commerce solutions and will provide a
heightened electronic platform to support its commercial methodologies. All
existing features of entrade.com's current e-commerce technology will be
enhanced and redefined. The enhanced software will include competitive open bid
and bulk purchasing capabili ties.
The MARS System
The MARS System is an Internet based e-commerce application that offers
two distinct forms of Internet auction processes: A business-to-business mode
and a business-to-consumer mode. The MARS System has been built with a fully
integrated modular architecture for en hanced flexibility and scaleability. It
contains a profiling system that shapes the product and marketing information
presented to each user. It allows vendors to tailor their electronic offerings
to match each customer's specific demographics profile and purchasing
preference.
The MARS System contains multiple transaction fee functionality for:
o monthly flat rate system usage; o transaction flat fee per vendor or
buyer; o tiered percentage transaction fee per vendor or buyer; or o
any combination of these usages.
The MARS System enables product information to be supplemented with
hyper-links to other Internet sites for the direct access to visual or
supportive marketing material. Users will be able to update product information
as needed, except for information relating to auctions that are in process.
Initial Applications of entrade.com's Systems and Technologies
entrade.com is commencing the marketing and use of its systems and
technologies through two affiliated sites: utiliparts.com and asseTrade.com.
utiliparts.com
utiliparts.com is an operating unit of entrade.com. Through a linked
web site, www.utiliparts.com, it provides e-commerce asset management solutions
to the utility and large manufacturing industries.
The nation's electric power industry through deregulation is in the
midst of a commercial and operational metamorphosis. Utilities looking to create
and sustain a competitive advantage
78
<PAGE>
have identified cost efficiencies and client acquisition/retention as critical
components to their core survival and growth strategies. Industry regulations
have fostered indifferent surplus inventory practices due to flexible cost-based
rate structures resulting in large surplus utility inventories in the United
States. Utilities that do not address these inefficiencies operate at a
significant disad vantage in a competitive environment. Companies understand the
need to create an effective asset recovery and asset maintenance program early
in the deregulation cycle to assure their competitive advantage.
utiliparts.com's purpose is to develop and implement comprehensive and
customized asset recovery and inventory management solutions for the utility
industry by combining Internet e- commerce technology with innovative commercial
methodologies and seasoned off-line commer cial applications. Offered programs
fully enhance corporate cost efficiencies for utilities relating to inventory
management, surplus asset disposition, after-market sales and procurement
programs, generation capacity utilization, client acquisition and client
retention.
utiliparts.com has designed its core program to include a wide spectrum
of functional services and applications using Internet e-commerce as the
enabler. Contained within the trading center module of the available systems is
a full-cycle, real-time after market platform for the purchase and sale of
electric generation equipment and parts. These electric generation assets would
be currently owned and made available for remarketing by clients participating
in the programs. Utility companies can participate as both buyer and seller.
Items available for remarketing include manufactured electric generation
products, most discounted below manufac tured list prices. Most items are
classified as "new." The majority of utiliparts.com's available listings
originate from overstocked, unused inventories held by utilities in the United
States. Refurbished, serviceable, repairable parts and parts available from
foreign utilities are also available through the system.
The utiliparts.com service menu for utility companies includes:
Corporate Intranet inventory and asset management systems:
utiliparts.com's technologies are structured to provide secure access in a full
transaction Internet environment to pre-assigned internal corporate procurement,
inventory management and asset recovery groups regardless of location or time.
These internal groups can access complete global inventories in formats
configured and organized to their preference. Once accessed, these internal
groups can query, communicate, transact, transfer, ship, document and account
for internal inventory transfers in a real-time environment.
Extranet supply networks: Assets can be catalogued and listed on the
utiliparts.com web site and listed for sale, exchange or credit based on
flexible pricing modules and open bid procedures.
Investment recovery via auction: Those clients seeking to accelerate
the disposition of select inventories can arrange for private on-line auctions.
Off-line asset evaluation, asset financing and disposition services are also
available through entrade.com's strategic partnerships.
79
<PAGE>
Internal client acquisition/retention: utiliparts.com is prepared to
represent utilities in selling energy, energy services or performance-based
energy contracts to its industrial clients.
After-market procurement services: utiliparts.com provides a functional
after-market for parts and equipment re-ordering and maintenance programs.
Off-line consulting: utiliparts.com has engaged former senior
utility-industry specialists to complement entrade.com's off-line trade
expertise and global network of industrial re-marketing groups to provide
off-line consulting for utilities seeking asset recovery solutions to alleviate
excessive inventories of plant and operating equipment.
Vendor participation programs: Many large equipment/service suppliers
in the United States have difficult entry points with utilities because many
energy generation assets will not operate on uniform standard parts and service.
Manufacturers have, in some regard, preempted the market. However, they have a
significant difficulty in retaining client loyalty and goodwill relating to
disposition of unused excess inventories. This becomes more acute in a
deregulated environment. entrade.com intends to work with utilities and
suppliers to work down, re-market and re-deploy unused inventory and equipment
in order to support justification for new operation methods and suppliers.
Use of utiliparts.com
utiliparts.com creates an on-line service for selling excess
inventories and other assets at a higher rate of return than can be typically
realized. utiliparts.com provides for multiple payment options such as: cash,
purchase credit, purchase order, credit card and/or any combination of same.
utiliparts.com provides for several other identified levels of service in
Internet e-com merce. All applications can be of value to an organization's
infrastructure and beneficial to their strategic placement in the marketplace.
In developing the technology for implementation in a single industry
application such as the utility industry, entrade.com has strategically
considered the following:
Purchase and sales of inventories: In keeping with the competitiveness
of the utility industry, utiliparts.com will be introduced as a listing service
for the re-marketing of excess inventories (generation, transmission,
distribution) currently held by electric and gas utilities. Purchases and sales
will all be done anonymously, in "real-time" and at market-driven prices. As an
on-line spot market for applicable inventories, utiliparts.com will enable a
comprehensive auction/open bid process to take place.
Pricing of inventories; fees: Pricing of all inventories will always be
market driven and will be subject to direct negotiation between sellers and
potential buyers within the utiliparts.com communication center. The basis of
the on-line asset recovery and inventory distribution utility program will be
supply and demand, with only current economic and operational factors as
variables in setting and agreeing to the purchase price of listed products.
80
<PAGE>
utiliparts.com does not currently intend to take an ownership position
of any material listed on the system. utiliparts.com does not intend to become
involved in the pricing of any of the listed inventories and, in order to keep a
high level of integrity, will strive to be an impartial transaction arena for
companies.
utiliparts.com's principal compensation is based on transaction fees,
with a nominal set-up fee charged upon registration. utiliparts.com does not
currently plan to charge utilities a monthly or annual membership, subscription
or access fee. All sellers of inventories will automatically be registered as
buyers and transactions can be accomplished immediately.
Shipment of inventories: Since the function of the ORBIT System is
virtual and in "real-time" and as excess parts listed on the system are in
warehouses, shipments can be arranged on a timely basis. If a utility needs to
use one of its own listed parts or pieces of equipment, it can easily arrange
for the specific listing to be deleted from the respective database. Access to
priority shipment of all parts will be available for emergency purposes.
Research and Reporting: The ORBIT System will also be able to analyze
and create reports on pricing and the movement of inventories listed on the
system. Information on product availability, purchasing and shipping activities
will all be collected, analyzed and disseminated as research reports to
interested parties. Policies for use of the system have been developed and will
be strictly enforced.
Current Status and Implementation of utiliparts.com
utiliparts.com is initially marketing its established on-line asset
recovery programs to Fortune 1000 public utilities. These utilities have the
greatest excess inventory problems and can benefit from the services offered by
utiliparts.com. entrade.com is providing office space in the Philadelphia and
Boston areas to base the utiliparts.com operations.
entrade.com coordinates its utiliparts.com efforts through a national
sales and marketing team. As a complement to this team, entrade.com has also
organized a group of retired utility experts, who collectively bring practical
know-how and many years of hands-on utility experience. These individuals are
retired from a major electric utility and will function as commissioned
independent operators. This group will be responsible for contacting their
long-time associates and counterparts at the identified Fortune 1000 utilities
to sell listed parts and equipment, arrange listings of new parts and equipment
and to arrange appointments for the sales manager and other involved senior
management. This group will also be responsible for the appraisal of any and all
equipment and parts inventories that are included in Entrade's on-line listings
and which are accepted for remarketing. entrade.com believes that this group
will effectively market entrade.com's services to a somewhat rigid and
conservative industry. It will also serve as a template for entrade.com to
establish similar industry-specific marketing and support teams.
81
<PAGE>
asseTrade.com
The ORBIT System and the MARS System technologies and related business
methodolo gies have been applied to a strategic alliance called asseTrade.com.
Entrade holds 25% of the voting common stock of asseTrade.com.
asseTrade.com provides comprehensive business-to-business on-line
services that facilitate the remarketing of corporate and other investment
assets. These services enhance the current operation of corporate asset recovery
teams and procurement groups of industrial companies. The technology is
customized for real-time on-line transactions and transfers of plant, equipment
and inventory. These competencies, combined with a technical support team,
provide a comprehen sive e-business solution for clients seeking to optimize the
value of their asset recovery programs.
asseTrade.com is initially focused on providing the following
Internet-based electronic business platforms as specific business-to-business
custom application services for the collective client-base of Butcher and Fox as
well as other Fortune 1000/Global 2000 companies that have similarly specific
needs, such as:
o valuation of corporate/investment assets;
o electronic on-line registration and listing of corporate/investment
assets; and
o development of corporate Intranet programs for the re-distribution
of a company's assets on an internal global basis.
asseTrade.com is licensing the ORBIT System and the MARS System from
entrade.com, and will be in the position to facilitate and enhance relationships
within its existing sales channels.
Marketing and Strategic Alliances
entrade.com intends to continue developing the infrastructures that
have already been established, including utiliparts.com in the utility industry
and asseTrade.com in a broader general industrial marketplace. Its planned
objective is to identify and establish similar strategic alliances with other
industry leading companies to establish its technology and business models
within identified industries.
entrade.com has also begun developing sales and marketing programs that
will promote the capabilities of its technology and other commercial
methodologies that are not related to the on-line management and disposition of
corporate investment assets. entrade.com has identified the following key
services to direct the technology:
o catalogue sales;
o centralized procurement services;
o just-in-time supply chain management; and
o offset trade for large multinational corporations.
82
<PAGE>
With the formation of asseTrade.com, entrade.com has implemented its
planned objective of identifying and establishing strategic alliances with
industry leading companies. entrade.com believes that these alliances will
facilitate the commercial establishment of entrade.com's technol ogy and
business models and create market penetration and growth. entrade.com intends to
continue to analyze and identify industries as potential markets for
entrade.com's technology and services that have needs similar to the utility
industry. By continually developing new strategic partnerships and alliances,
entrade.com believes it can build on the existing client loyalties and
distribution channels independently established by the companies included within
the alliance. By utilizing these established distribution channels, clients and
markets, entrade.com believes it will be able to successfully gain a broad
market acceptance in building business-to-business Internet on-line communities
without the need for a labor-intensive marketing and sales network.
Comprehensive marketing packages are being produced, and companies that
currently have large to mid-sized mail order catalogue operations will be
targeted for licensing.
Proprietary Rights
entrade.com holds a federal trademark registration and common law
rights in the ORBIT System mark for use on certain software. entrade.com also
holds common law rights in the marks "utiliparts.com" and "entrade.com" for use
in connection with e-commerce services. entrade.com is seeking federal
registration of those marks as service marks. entrade.com does not own any
patents or patent applications.
Competition
Entrade believes the strongest potential competition does not come from
traditional service groups but rather the evolution of the Internet and the
types of business-to-business service providers that evolution will create. As
applications for business-to-business e-commerce begin to proliferate and
mature, entrade.com will compete with other technology companies and traditional
service providers that seek to integrate on-line business technologies with
their tradi tional service mix.
entrade.com believes that it currently competes favorably with existing
competitors by virtue of the greater scope and functionality of its e-commerce
solutions.
Currently, a number of software developers specialize in transaction
software. These software developers, however, do not specifically focus on
either asset recovery applications or entrade.com's target markets in heavy
industry and electric generation. Other companies offer asset recovery services
and/or asset evaluation and auction. Most of these groups, however, either
specialize in certain industries that entrade.com currently does not target or
focus on entrade.com's target markets but have neither Internet-based e-commerce
transaction technologies nor on-line auction capabilities. Other competitors
operate e-commerce transaction and auction technologies through the Internet,
but do not, for the most part, concentrate on asset recovery
83
<PAGE>
services and/or large industrial groups. The current focus of these groups is
principally the business-to-consumer retail market.
A few groups provide asset recovery for the utility industry. Most
notably, the National Materials Logistic Group, a membership of nuclear
generation facilities, contracts to provide parts and equipment, listing
available assets for sale by and on behalf of member utilities through a listing
service called RAPID. entrade.com believes it competes favorably with that
service because, unlike that service, entrade.com's service provides transaction
functionality and the complimentary service of auction capabilities.
Additionally, that group specializes in nuclear generation equipment rather than
the broad spectrum of energy generation assets.
Similarly, a few auction groups offer a strong off-line presence and
fulfillment capabilities with large industrial companies. However, since they do
not provide Internet e-commerce transaction technology services, they cannot be
considered direct competitors.
E-commerce applications are in the early stages of development.
Currently, the principal focus of e-commerce business-to-business groups is to
provide information and generate revenues from advertisement. As e-commerce
evolves, however, entrade.com expects that other entrepre neurs and large
industry leaders in specific industry sectors will create other niche
business-to- business services that may compete with entrade.com's services.
Employees
As of April 1, 1999, Entrade had approximately 20 full-time employees.
Entrade consid ers its relationships with its employees to be good. None of its
employees are covered by collective bargaining agreements.
Legal Proceedings
Entrade is not a party to any material legal proceedings.
ENTRADE PLAN OF OPERATIONS
Entrade commenced operations in February 1999. Therefore, Entrade
cannot report on its results of operations for any prior period. The following
is a description of Entrade's proposed plan of operation for approximately the
next 12 months. No assurance can be given that Entrade will be successful in
implementing this proposed plan of operation. See "Risk Factors" commenc ing on
page 14.
Concurrently with the execution of the merger agreement, Entrade
acquired certain software and other assets necessary for the conduct of
entrade.com's e-commerce business and 25% of the shares of voting common stock
of asseTrade.com (collectively, the "Purchased Assets") from WWWX, in exchange
for 1,800,000 shares of Entrade common stock, $800,000 in cash and a note for
$500,000, payable upon the consummation of the merger or the earlier
84
<PAGE>
termination of the merger agreement. On February 19, 1999, Entrade agreed with
Energy Trading Company to issue to Energy Trading Company 200,000 shares of
Entrade common stock, and to pay Energy Trading Company $100,000 in cash upon
consummation of the merger, in exchange for certain retained rights Energy
Trading Company held in the Purchased Assets. Entrade also agreed with both WWWX
and Energy Trading Company that it would provide a minimum of $4,000,000 in
funding for entrade.com.
Under separate loan agreements, Artra agreed to loan Entrade up to
$2,000,000 to fund the $800,000 cash payment to WWWX and to provide funding for
entrade.com until the consum mation of the merger or the earlier termination of
the merger agreement. Under the merger agreement, the Company agreed to guaranty
$4,000,000 in funding for entrade.com if the merger is consummated. The total
consideration for the Purchased Assets will be 2,000,000 shares of Entrade
common stock and an aggregate of $5,400,000 in cash, notes and committed
funding.
Entrade does not expect that it will be required to raise additional
funds during the next twelve months due to its belief that it will have
sufficient working capital to complete the planned technology development cycle
as well as fund day-to-day operations through the capital resources of Artra.
entrade.com has made capital purchases including desk-top computers,
laptops, servers, printers, fax machines and related equipment to support its
operations to date. It is expected that Entrade will add other equipment only if
a significant number of additional employees are hired. entrade.com's labor
budget provides for a full administration, billing and accounting to be
performed in-house and the appropriate number of employees will be added to
support these tasks. Such services will ultimately be offered to strategic
alliance and joint venture business units under fixed monthly maintenance and
support contracts.
In addition to its Cherry Hill, New Jersey, headquarters, entrade.com
has opened or plans to open four field offices to manage and oversee marketing
and sales operations. These locations are Philadelphia, Boston, Chicago and New
York, with all capital, labor and variable costs included in the expense
categories. Key individual sales managers have been allocated to oversee the
sales office set up and to initially contract sales representatives on a
commission basis.
MANAGEMENT OF ENTRADE
Robert D. Kohn, age 48, serves as Chairman and Chief Executive Officer
of Entrade. Mr. Kohn has entered into an employment agreement with Artra. After
the merger, Mr. Kohn will become a full-time employee of Entrade and will serve
as the chief executive officer of Entrade's subsidiary, entrade.com. Mr. Kohn is
a former strategic planner of Business Develop ment for Marketing & Sales for
PECO Energy. Prior to PECO, Mr. Kohn held various executive positions in
emerging growth public companies and specialized in mergers and acquisitions,
strategic alliances, strategic planning and financial public relations. From
1989 until it was sold in 1993, Mr. Kohn served as Chairman, Chief Executive
Officer and in other executive capacities of Global Entertainment and made
various acquisitions, alliances and licensing arrangements.
85
<PAGE>
From 1983 to 1987, Mr. Kohn was one of four founders of ORFA Corporation of
America, a Nasdaq National Market company, and held such positions as President,
Chief Operating Officer and Chief Financial Officer. Mr. Kohn is a Certified
Public Accountant.
Gary Lerman, age 47, will serve as President and Chief Operating
Officer of entrade.com. Mr. Lerman has entered into an employment agreement with
Artra. After the merger, Mr. Lerman will become a full-time employee of Entrade.
Mr. Lerman is a former strategic planner for PECO Energy Company. Mr. Lerman has
over twenty years of direct commodity and trading experience in over 40
countries throughout Europe, Asia and Latin America. His emerging market
experiences have focused on trade, global procurement, bar ter/countertrade,
marketing, sales and strategic alliances with or on behalf of global industrial
multi-nationals. Mr. Lerman has held executive positions with global commodity
groups, Chiquita Brands International and ARAMARK Corporation.
Benjamin R. Kafka, age 44, will serve as Executive Vice President and
Director of Business Development for entrade.com. Mr. Kafka has entered into an
employment agreement with Artra. After the merger, Mr. Kafka will become a
full-time employee of Entrade. Mr. Kafka has had many years experience in
international trade, representing domestic companies for foreign product sales
and forming strategic alliances and joint ventures with global multi-national
companies and government authorities on a global basis. Mr. Kafka also has
experience in strategic planning, product development and project management
while serving as Manager of Project Marketing for ORFA Corporation of America, a
Nasdaq National Market company from 1984 to 1990. Mr. Kafka is the former
Executive Vice President and Managing Director of Global Trade Group Ltd. Mr.
Kafka's experience includes corporate business development, negotiating and
marketing.
Mark L.M. Quinn, age 38, will serve as Executive Vice President and
Chief Technology Officer for entrade.com. Mr. Quinn has entered into an
employment agreement with Artra. After the merger, Mr. Quinn will become a
full-time employee of Entrade. Mr. Quinn has been the owner and executive
manager of retail trade companies and other service orientated entities and
responsible for financial operations, product development, manufacturing and the
overall senior management of the various companies. Mr. Quinn is the former
President and a Director of Global Trade Group Ltd. Mr. Quinn's experience
includes being the primary developer of the ORBIT System and developing
customized trade based solutions for companies such as IBM and PECO.
William J. Armstrong, age 67, serves as a key utility industry
consultant for utiliparts.com. Mr. Armstrong has over 38 years of public utility
experience, including 26 years of nuclear power generation experience. Mr.
Armstrong, a published author of articles specific to the nuclear power
industry, is the former Chief Operating Engineer, Project Manager and Deputy
Nuclear Plant Manager of Boston Edison's Pilgrim Station in Plymouth,
Massachusetts. His activities included, but were not limited to: developing and
implementing training programs for licensed nuclear operating supervisors,
serving as project manager for major turbine generator renovation programs and
overseer of hydrogen water chemistry programs and the establishment
86
<PAGE>
of various other corporate wide operating policies. Mr. Armstrong is licensed by
the Nuclear Regulatory Commission and the Commonwealth of Massachusetts as a
Senior Reactor Operator, First Class Operating Engineer and a Nuclear Power
Plant Senior Supervisory Engineer.
Executive Compensation
Employment Agreements
Concurrently with the execution of the merger agreement, Artra entered
into employment agreements with Robert D. Kohn, Benjamin R. Kafka, Gary Lerman
and Mark L.M. Quinn providing for the employment of those individuals for
three-year terms. Mr. Kohn will receive an annual salary of $165,000 and
nonqualified stock options for the purchase of 1,000,000 shares of Artra common
stock at an exercise price of $2.75 per share, and Messrs. Kafka, Lerman and
Quinn will each receive an annual salary of $125,000 and nonqualified stock
options for the purchase of 200,000 shares of Artra common stock at an exercise
price of $2.75 per share. Robert D. Kohn is the President and a director of WWWX
and beneficially owns 4,840,000 shares, or approximately 26.8%, of the
outstanding shares of common stock of WWWX. Benjamin R. Kafka and Mark L.M.
Quinn beneficially own 767,500 shares and 630,000 shares, respectively, of WWWX
common stock, or approximately 4.2% and 3.5%, respectively, of the outstanding
shares of WWWX common stock. Mr. Kafka and Mr. Quinn are also officers,
directors and principal shareholders of Positive Asset Remarketing and Global
Trade Group. Positive Asset Remarketing or its designees will receive 3,500,000
shares of WWWX common stock as consideration for the sale of another system to
WWWX. Therefore, upon the issuance of those shares, Positive Asset Remarketing
or its designees will own approximately 16.3% of the outstanding shares of WWWX
common stock.
Beneficial Ownership of Entrade Common Stock
Upon the closing of the merger, Entrade will become a publicly traded
holding company that owns Artra and its current subsidiaries, entrade.com and
25% of the voting common stock of asseTrade.com. WWWX currently owns 1,800,000
shares, or 90% of the outstanding shares of Entrade common stock and Energy
Trading Company owns 200,000 shares, or 10%, of the outstanding shares of
Entrade common stock. Upon consummation of the merger, WWWX will own 1,800,000
shares, or approximately 14.8%, of Entrade's outstanding common stock, Energy
Trading Company will own 200,000 shares, or approximately 1.6%, of Entrade's
outstanding common stock and the current shareholders of Artra will own
approximately 10,165,466 shares, or approximately 83.6%, of Entrade's
outstanding common stock.
87
<PAGE>
ENTRADE CERTAIN TRANSACTIONS
Robert D. Kohn, President of Entrade, is also President and a director
of WWWX. Mr. Kohn does not have an employment agreement with WWWX. Concurrently
with the execution of the merger agreement, Mr. Kohn entered into a three-year
employment agreement with Artra. Upon consummation of the merger, Mr. Kohn will
resign all positions with WWWX and become employed solely by Entrade. Mr. Kohn
will continue to beneficially own 4,840,000 shares of common stock of WWWX or
approximately 26.2% of the outstanding shares of common stock of WWWX. In
addition, Mr. Kohn will receive up to an additional 475,000 shares of WWWX
common stock as consideration for his assignment to Energy Trading Company in
1998 of his 4.5% ownership interest in BarterOne LLC and certain accrued, unpaid
compensation and benefits relative to his employment by PECO Energy, the parent
company of Energy Trading Company.
Gary Lerman currently owns 71,000 shares of common stock of WWWX, which
he purchased in open market transactions. In addition, Mr. Lerman will receive
up to 475,000 shares of WWWX common stock in consideration for his assignment to
PECO Energy of his 4.5% ownership interest in BarterOne LLC that had been
granted to him in 1998 in consideration for a reduction in salary and the
relinquishment of certain benefits relative to his employment by PECO Energy.
Upon issuance of such shares to Mr. Lerman, he will own an aggregate of 546,000
shares of WWWX common stock or approximately 2.9% of the outstanding shares of
WWWX.
Benjamin Kafka and Mark L.M. Quinn are officers, directors and
principal shareholders of Positive Asset Remarketing and Global Trade Group.
Pursuant to an agreement between Positive Asset Remarketing and WWWX, WWWX will
issue an aggregate of 3,500,000 shares of common stock to Positive Asset
Remarketing, Inc. or its designees. If all such shares are issued to Positive
Asset Remarketing, Inc. or its designees, it will own approximately 16.3% of the
outstanding shares of WWWX common stock. Positive Asset Remarketing currently
holds a 25% voting stock interest in asseTrade.com.
For a description of the transactions between WWWX and Entrade, see the
discussion under "Information About Entrade (entrade.com) -- Entrade's
Acquisition of the entrade.com Assets and 25% of the Voting Common Stock of
asseTrade.com."
INFORMATION ABOUT ARTRA
General
Artra is a Pennsylvania corporation incorporated in 1933. Upon
consummation of the merger, Artra will be a wholly owned subsidiary of Entrade.
In recent periods through November 20, 1998, Artra operated in one industry
segment as a manufacturer of packaging products principally serving the food
industry. The packaging products business was conducted by Artra's wholly-owned
subsidiary, Bagcraft Corporation of America.
88
<PAGE>
Effective August 26, 1998, Artra and its wholly-owned subsidiary BCA
Holdings, Inc., the parent of Bagcraft, agreed to sell the business assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The transaction was completed on November 20, 1998 and Artra received gross
consideration of approximately $88.1 million in cash. A substantial portion of
the cash proceeds received were used to pay certain Bagcraft debt obligations,
includ ing, but not limited to amounts owed under Bagcraft's credit agreement.
See Note 8 to Artra's consolidated financial statements. After paying the
Bagcraft obligations noted above, Artra received net cash proceeds of
approximately $28.0 million from the sale of Bagcraft's assets. Approximately
$15.2 million of the cash received was used to pay Artra debt obligations.
Artra does not intend to be deemed an "investment company" as defined
by the Investment Company Act of 1940 and, accordingly, has actively
investigated new business opportunities, including the transactions under the
merger agreement.
At December 31, 1998, Artra held approximately 9% of the outstanding
common stock of COMFORCE Corporation, formerly The Lori Corporation. Prior to
September 28, 1995, COMFORCE/Lori was a majority owned subsidiary of Artra
operating as a designer and distribu tor of popular-priced fashion costume
jewelry and accessories. In September 1995, COMFORCE discontinued its jewelry
business and later in 1995 entered the telecommunications and computer technical
staffing and consulting services business. COMFORCE subsequently expanded this
business through various acquisitions. After the issuance of the COMFORCE common
shares, plus the effects of other transactions, Artra's ownership interest in
COMFORCE common stock was reduced to approximately 25% at December 28, 1995.
Accordingly, the accounts of COMFORCE and its majority-owned subsidiaries were
deconsolidated from Artra's consolidated financial statements. See Note 5 to
Artra's consolidated financial statements for a further discussion of Artra's
investment in COMFORCE.
In April 1999, Artra entered into a letter of intent to purchase all of
the common stock of two companies that are in the business of conducting
auctions of a wide array of vehicles, personal property, real estate and
equipment for commercial and governmental clients under the name Nationwide
Auction Systems. The purchase price will consist of $10.8 million cash payable
at the closing of the transaction, 1,570,000 shares of Artra common stock and a
$14.0 million note, subject to adjustment, payable over a two-year period
subsequent to the closing of the transaction. The letter of intent expires on
June 1, 1999. No assurance can be given that the parties will complete their due
diligence or enter into a definitive agreement by that date.
Employees
At December 31, 1998, Artra employed approximately 11 persons. Artra
considers its relationships with its employees to be good.
Properties
89
<PAGE>
At December 31, 1998, the only property used by Artra was its
headquarters facility of approximately 7,000 sq. ft. in Northfield, Illinois. In
December 1995 the building was purchased by a trust owned by John Harvey,
Chairman of Artra's board of directors. The lease for this property expired in
December 1998, and Artra is currently renting its headquarters on a
month-to-month basis.
Legal Proceedings
Artra and its subsidiaries are the defendants in various
business-related litigation and environmental matters. At March 31, 1999,
December 31, 1998 and December 31, 1997, Artra had accrued current liabilities
of $1,500,000, $1,500,000 and $1,800,000, 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 Artra's financial statements.
In November 1993, Artra filed suit in the Circuit Court of the
Eighteenth Judicial Circuit for the state of Illinois against Salomon Brothers,
Inc., Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J.
Zimmerman, D.P. Kelly & Associates, L.P., Donald P. Kelly, James F. Massey and
William Rifkind relating to the acquisition of Envirodyne Industries, Inc. in
1989 by Emerald Acquisition Corp. Effective December 31, 1997, the above parties
reached a settlement agreement and all pending litigation was dismissed. Artra
recognized a gain from the settlement agreement of $10,416,000, net of related
legal fees and other expenses.
The discontinued Bagcraft subsidiary's Chicago facility has been the
subject of allegations that it violated laws and regulations associated with the
Clean Air Act. The facility has numerous sources of air emissions of volatile
organic materials associated with its printing operations and is required to
maintain and comply with permits and emissions regulations with regard to each
of these emission sources.
In November 1995, the EPA issued a Notice of Violation against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. In May 1998 Bagcraft paid $170,000 to formally
extinguish this claim.
In April 1994, the EPA notified Artra 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 of Harvel
Industries, Inc., 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 Plastics Division to Envirodyne Indus tries, Inc. The alleged waste
disposal occurred in 1977 and 1978, at which time Harvel Indus tries, Inc. was a
majority-owned subsidiary of Artra. In May 1994, Envirodyne Industries, Inc. 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
90
<PAGE>
committee formed by the named potentially responsible parties has estimated the
liability respect ing the activities of Clearshield Plastics Division 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 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
1969 to 1980. Sherwin-Williams Company's current projection of the cost of
clean-up is approximately $5 to $6 million. Artra has filed counterclaims
against Sherwin-Williams Company and cross claims against other former owners of
the property. Artra also is vigorously defending this action and has raised
numerous defenses. Currently, the case is in its early stages of discovery and
Artra 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 the 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 subsidiary of Baltimore Paint and Chemical Company, which was
formerly owned by Artra. The Synkoloid Company 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. Artra is presently unable determine what,
if any, additional liability it may incur in this matter.
In recent years, Artra has been a party to certain product liability
claims relating to the former The Synkoloid Company subsidiary. Artra's product
liability insurance has covered all such claims settled to date. As of March 31,
1999, Artra anticipates that its product liability insurance is adequate to
cover any additional pending claims.
Several cases have arisen from Artra's purchase of Dutch Boy Paints,
which owned a facility in Chicago that it purchased from NL Industries. In a
case titled City of Chicago v. NL Industries, Inc. and Artra, filed in the
Circuit Court of Cook County, Illinois, the City of Chicago brought a nuisance
action and alleged that Artra (and NL Industries, Inc.) had improperly stored,
discarded and disposed of hazardous substances at the Dutch Boy site, and that
Artra had con veyed the site to Goodwill Industries to avoid clean-up costs. The
Company is currently negotiating with the City of Chicago to settle this claim,
91
<PAGE>
and the City of Chicago has reduced its settle ment demand to approximately
$350,000.
Artra and NL Industries, Inc. have counter sued each other and have
filed third party actions against the subsequent owners of the property. Artra
is presently unable to determine its liability, if any, in connection with this
case. The parties were conducting discovery, but the case was stayed pending the
resolution of the EPA action described below.
In 1986, in a case titled People of the State of Illinois v. NL
Industries, Inc., Artra, et al., the Cook County State's attorney filed suit
seeking response costs in excess of $2,000,000 and treble punitive damages for
costs expended by the Illinois EPA in remediating contamination at the Dutch Boy
site, alleging that all former owners contributed to the contamination. In 1989,
the Circuit Court dismissed the action, holding that the state had failed to
exhaust its administrative procedures. The case was refiled but later dismissed
by the Circuit Court for lack of diligence. In 1992, this holding was reversed
by the Illinois Supreme Court. In 1996, the Illinois Appellate Court affirmed
the District Court's decision to dismiss the case based on lack of diligence on
the part of the State of Illinois. The State of Illinois has filed a Petition
for Rehearing, which was granted. The Circuit Court denied the State of
Illinois' motion to reinstate, which was affirmed by the Appellate Court. The
State of Illinois filed a petition for time to appeal the Appellate Court's
decision, which was denied by the Illinois Supreme Court.
On November 17, 1995, the EPA issued letters to Artra, NL Industries
and others alleging that they were potentially responsible parties with respect
to releases at the Dutch Boy facility in Chicago and demanding that they
remediate the site. NL Industries entered into a consent decree with EPA in
which it agreed to remediate the site. Artra is presently unable to determine
its liability, if any, in connection with this case.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion supplements the information found in Artra's
financial statements and related notes.
Results of Operations
Artra changed significantly during the fourth quarter of fiscal year
1998. It exited its one industry segment, the packaging products business,
conducted by its discontinued Bagcraft subsidiary, and is actively investigating
new business opportunities. Artra's consolidated financial statements for the
years ended December 31, 1997 and December 26, 1996 have been reclassified to
report separately the results of operations of the Bagcraft subsidiary in
discontinued operations.
92
<PAGE>
Three Months Ended March 31, 1999 v. Three Months Ended March 31, 1998
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $1,134,000 for the three months ended March 31, 1999 as compared to
$622,000 for the three months ended March 31, 1998. Artra incurred a
compensation charge of $300,000 during the first quarter of 1999 relating to
stock options to certain individuals employed to manage Artra's entry into the
Internet business-to-business e-commerce and on-line auction business and also
had $433,000 of losses incurred by Entrade.
During the three months ended March 31, 1999, Artra had net interest
income of $86,000 as compared to net interest expense of $1,134,000 during the
three months ended March 31, 1998. Artra used a significant portion of the cash
proceeds received from the November 1998 sale of the assets of the discontinued
Bagcraft subsidiary to pay off borrowings on various loan agree ments. Artra has
invested a substantial portion of the remaining net proceeds in interest bearing
cash equivalents.
Artra was unable to recognize an income tax benefit in connection with
its 1999 and 1998 pre-tax losses due to its tax loss carryforwards and the
uncertainty of future taxable income.
Discontinued Operations
During the three months ended March 31, 1998, Artra incurred a loss of
$138,000 at the discontinued Bagcraft subsidiary.
Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $2,660,000 for the year ended December 31, 1998 as compared to $5,708,000
for the year ended December 31, 1997. The 1998 decrease in selling, general and
administrative expenses was principally attributable to the 1997 net related
party compensation/expense reimbursement costs of $2,816,000. See the discussion
of Peter R. Harvey advances below.
Interest expense from continuing operations for the year ended December
31, 1998 decreased $2,786,000 as compared to the year ended December 31, 1997.
The 1998 decrease is principally attributable to the repayment of Bagcraft's
obligations as a result of the sale of Bagcraft.
During 1998, certain officers, directors and/or key employees exercised
options to acquire 84,750 shares of COMFORCE common stock from Artra, resulting
in a realized gain of $320,000. These COMFORCE common shares had been removed
from Artra's portfolio of "Available-for-sale securities" in 1996. See Note 5 to
Artra's financial statements for the year ended December 31, 1998 for additional
information about this transaction.
93
<PAGE>
During the year ended December 31, 1997, Artra sold or otherwise
disposed of 302,203 shares of COMFORCE common stock resulting in a realized gain
of $2,531,000.
Effective December 31, 1997, Artra settled certain litigation relating
to the acquisition of Envirodyne Industries, Inc. in 1989 by Emerald Acquisition
Corp. Artra recognized a gain from the settlement agreement of $10,416,000, net
of related legal fees and other expenses.
Discontinued Operations
Earnings from discontinued operations of $38,930,000 for the year ended
December 31, 1998 consisted of earnings from operations of $2,945,000 at the
discontinued Bagcraft subsidiary and a net gain on disposal of Bagcraft of
$35,585,000. The loss from discontinued operations of $293,000 for the year
ended December 31, 1997 consisted of an operating loss at the discontinued
Bagcraft subsidiary. Earnings from operations in 1998 are principally
attributable to a significant reduction in interest expense due to the February
1998 amendment and restatement of Bagcraft's Credit Agreement, due to the
November 1998 repayment of Bagcraft debt from the sale of the Bagcraft assets,
as well as decreased depreciation and amortization expense.
Year Ended December 31, 1997 vs. Year Ended December 26, 1996
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $5,708,000 for the year ended December 31, 1997 as compared to $2,042,000
for the year ended December 26, 1996. The 1997 increase in selling, general and
administrative expenses was principally attributable to net related party
compensation/expense reimbursement costs of $2,816,000. See discussion of Peter
R. Harvey advances below.
Interest expense from continuing operations for the year ended December
31, 1997 increased $1,977,000 as compared to the year ended December 26, 1996.
The 1997 increase is principally attributable to fees and costs associated with
Artra's 1997 loan agreements.
During the year ended December 31, 1997, Artra sold or otherwise
disposed of 302,203 shares of COMFORCE common stock resulting in a realized gain
of $2,531,000. During the year ended December 26, 1996, Artra sold or otherwise
disposed of 331,333 shares of COMFORCE common stock resulting in a realized gain
of $5,818,000.
Effective December 31, 1997, Artra settled certain litigation relating
to the acquisition of Envirodyne Industries, Inc. in 1989 by Emerald Acquisition
Corp. Artra recognized a gain from the settlement agreement of $10,416,000, net
of related legal fees and other expenses.
94
<PAGE>
Discontinued Operations
The loss from discontinued operations of $293,000 for the year ended
December 31, 1997 consisted of a loss from operations at the discontinued
Bagcraft subsidiary. Earnings from discontinued operations of $3,994,000 for the
year ended December 26, 1996 consisted of earnings from operations at the
discontinued Bagcraft subsidiary. The 1997 loss from discontin ued operations
was principally attributable to decreased operating margins at the discontinued
Bagcraft subsidiary and additional interest charges and fees attributable to the
December 1996 amendment and restatement of Bagcraft's Credit Agreement.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Artra's unrestricted cash and cash equivalents increased $5,762,000 to
$11,753,000 at December 31, 1998. Artra had consolidated working capital of
$6,813,000 at December 31, 1998 as compared to a consolidated working capital
deficiency of $435,000 at December 31, 1997. In November 1998, Artra received
cash proceeds from the sale of the assets of the discontinued Bagcraft
subsidiary and used a significant portion of them to pay off borrowings due on
its various loan agreements.
Artra's cash and cash equivalents decreased $2,436,000 during the three
months ended March 31, 1999. Cash flows used by operating activities of
$2,074,000 and cash flows used by investing activities of $1,652,000 exceeded
cash flows from financing activities of $1,290,000. Operating activities used
cash flows to fund Artra's net loss for the quarter ended March 31, 1999 and to
pay liabilities of the discontinued Bagcraft subsidiary. Investing activities
used cash flows for Artra's investment in and advances to Entrade. Financing
activities provided cash flows from the exercise of stock options and warrants.
Artra's consolidated working capital decreased to $3,760,000 at March 31, 1999
as compared to consolidated working capital of $6,813,000 at December 31, 1998.
Artra used working capital to pay off liabilities of the discontinued Bagcraft
subsidiary and for its investment in and advances to Entrade.
Artra does not intend to be deemed an "investment company" as defined
by the Investment Company Act of 1940 and, accordingly, is actively
investigating new business opportunities, including the merger. In order to
finance new business opportunities, Artra could use sources such as its cash and
cash equivalents, its available-for-sale securities, borrowings from various
potential sources and issuances of Artra's equity securities.
Status of Debt Agreements and Operating Plan
Artra Corporate
At December 31, 1997, Artra's corporate entity had outstanding
short-term indebtedness of $15,451,000. In November and December 1998, all such
indebtedness, as well certain additional 1998 borrowings, were repaid with net
proceeds from the sale of the assets of the discontinued Bagcraft subsidiary.
95
<PAGE>
Promissory Notes
1998 Private Placement
In January 1998, Artra completed a private placement of $5,975,000 of
12% promissory notes due January 14, 1999. As additional consideration, the
noteholders received warrants to purchase an aggregate of 119,500 shares of
Artra common stock at a price of $3.00 per share. The warrants expire January
14, 2000. The warrantholders have the right to put these warrants back to Artra
at any time during a six-month period commencing in January 1999 and ending in
July 1999, at a price of $1.50 per share. The cost of this obligation, $179,250
if all warrants are put back to Artra, was accrued in Artra's financial
statements as a charge to interest expense. The proceeds from the private
placement were used principally to pay down other debt obligations. These notes
were repaid in November 1998 with net proceeds from the sale of assets of the
discontinued Bagcraft subsidiary.
1997 Private Placements
In December 1997, Artra completed private placements of $5,375,000 of
12% promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 shares of
Artra common stock at a price of $3.00 per share. The warrants expire in
November and December 1999. The warrantholders have the right to put these
warrants back to Artra at any time during a period commencing in December 1998
and ending in May 1999 at a price of $1.50 per share. The cost of this
obligation, $161,250 if all warrants are put back to Artra, was accrued in
Artra's financial statements as a charge to interest expense. These notes were
repaid in November 1998 with net proceeds from the sale of assets of the
discontinued Bagcraft subsidiary.
In July 1997, Artra completed private placements of $7,475,000 of 12%
promissory notes due in January 1998. As additional consideration, the
noteholders received warrants to purchase an aggregate of 199,311 shares of
Artra common stock at a price of $3.75 per share. The warrants expire in August
1999. The warrantholders have the right to put these warrants back to Artra at
any time during a period commencing in January 1998 and ending in August 1999 at
a price of $3.00 per share. The cost of this obligation, $598,000 if all
warrants are put back to Artra, was amortized in Artra's financial statements as
a charge to interest expense over the period July 1997, the date of the private
placement, through January 1998, the scheduled maturity date of the notes. The
proceeds from the July 1997 private placement were advanced to Peter R. Harvey.
See discussion and disposition of Mr. Harvey's advances in Note 16 to the
consolidated financial statements.
The July 1997 private placement notes were repaid and/or refinanced
with proceeds of the January 1998 private placement of 12% notes and with
proceeds from the litigation settlement discussed in Note 11 to the consolidated
financial statements.
96
<PAGE>
Amounts Due to Related Parties
At December 26, 1996, Artra had outstanding borrowings of $500,000 from
an outside director of Artra evidenced by a short-term note bearing interest at
10%. As additional compensa tion for the loan and a December 1996 extension, the
director received five-year warrants to purchase an aggregate of 50,000 shares
of Artra common stock at prices ranging from $5.00 to $5.875 per share. The
proceeds of the loan were used for working capital.
In January 1997, Artra borrowed an additional $300,000 from this
director evidenced by a short-term note, due December 23, 1997, bearing interest
at 8%. As additional compensation for the loan, the director received a warrant,
expiring in 2002, to purchase 25,000 shares of Artra common stock at a price of
$5.75 per share.
In March 1997, Artra borrowed an additional $1,000,000 from this
director evidenced by a short-term note, due May 26, 1997, bearing interest at
12%. As additional compensation, the lender received an option to purchase
25,000 shares of COMFORCE common stock, owned by Artra's Fill-Mor subsidiary, at
a price of $4.00 per share. The proceeds from this loan were used in part to
repay certain Artra debt obligations.
In April 1997, Artra borrowed $5,000,000 from the above director
evidenced by a note, due April 20, 1998, bearing interest at 10%. As additional
compensation, the director received a warrant to purchase 333,333 shares of
Artra common stock at a price of $5.00 per share. The director had the right to
put this warrant back to Artra at any time during the period April 21, 1998 to
April 20, 2000, for a total purchase price of $1,000,000, which put right was
exercised in 1998 for $1,000,000. The cost of this obligation was amortized in
Artra's financial statements as a charge to interest expense over the period
April 21, 1997, the date of the loan, through April 21, 1998, the date the
warrantholder had the right to put the warrant back to Artra. The proceeds from
this loan were used to repay $1,800,000 of prior borrowings from this director
and pay down other Artra debt obligations.
In June 1997, Artra borrowed an additional $1,000,000 from the above
director evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the director received a warrant to purchase 40,000
shares of Artra common stock at a price of $5.00 per share. The warrantholder
has the right to put this warrant back to Artra at any time during the period
December 10, 1997 to June 10, 1999, for a total purchase price of $80,000, which
put right was exercised in 1998 for $80,000. The cost of this obligation was
amortized in Artra's financial statements as a charge to interest expense over
the period June 10, 1997, the date of the loan, through December 10, 1997, the
date the warrantholder had the right to put the warrant back to Artra. The
proceeds from this loan were used to pay down other Artra debt obligations.
In July 1997, borrowings from this lender were reduced to $3,000,000
with proceeds advanced to Artra from a Bagcraft term loan. In December 1997,
borrowings from this lender were reduced to $2,000,000 with proceeds from other
short-term borrowings.
97
<PAGE>
In April 1998, the $2,000,000 in outstanding borrowings from the above
director was extended by a demand note bearing interest at 10%. As additional
compensation, the director received a warrant to purchase 50,000 shares of Artra
common stock at a price of $3.25 per share.
In August 1998, Artra borrowed an additional $500,000 from the above
director evidenced by a note, due December 20, 1998, bearing interest at 15%. As
additional compensation, the director received a warrant to purchase 20,000
shares of Artra common stock at a price of $3.94 per share.
All borrowings from this director were repaid with proceeds from the
sale of assets of the discontinued Bagcraft subsidiary.
The borrowings from this director were collateralized by a secondary
interest in all of the common stock of BCA Holdings, Inc., the parent of
Bagcraft.
Other
At December 31, 1997, Artra also had outstanding short-term borrowings
from other unrelated parties aggregating $601,000, with interest rates varying
between 10% and 12%.
In April 1998, Artra and its Fill-Mor subsidiary entered into a margin
loan agreement with a financial institution which provided for borrowings of
$1,000,000 with interest at 8.5%, which loan was repaid in November 1998 from
the proceeds of the Bagcraft asset sale. Borrowings under the loan agreement
were collateralized by 490,000 shares of COMFORCE common stock owned by Artra's
Fill-Mor subsidiary. The proceeds of the loan were used for working capital.
In October 1997, a lender agreed to accept 357,270 shares of Artra
common stock in payment of the principal amount of approximately $1,500,000 due
on certain demand notes. In January 1998, the lender returned the 357,270 shares
of Artra common stock to Artra for cash consideration of approximately
$1,500,000.
Advances to Peter R. Harvey
As discussed in Note 16 to Artra's consolidated financial statements,
Artra had total advances due from its president, Peter R. Harvey, of which
$18,226,000 remained outstanding at December 31, 1997, before the offset of such
advances as discussed below. These advances provided for interest at varying
rate from 10.5% to 12%. This receivable from Peter R. Harvey had been classified
as a reduction of common shareholders' equity.
Commencing January 1, 1993 to date, interest on the advances to Peter
R. Harvey had been accrued and fully reserved.
In March 1998, Artra's board of directors ratified a proposal to settle
Mr. Harvey's advances as follows:
98
<PAGE>
Effective December 31, 1997, Mr. Harvey's net advances from Artra were
offset by $2,816,000 ($5,605,000 net of interest accrued and reserved for the
period from 1993 to 1997) to $12,621,000. This offset of Mr. Harvey's advances
represented a combination of compensation for prior year guarantees of Artra
obligations to private and institutional lenders, compensation in excess of the
nominal amounts Mr. Harvey received for the years 1995 to 1997 and reimburse
ment for expenses incurred to defend Artra against certain litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of shares of Artra Series A
preferred stock and BCA Holdings, Inc. preferred stock held by Mr. Harvey.
Redeemable Preferred Stock
Artra has outstanding redeemable Series A Preferred Stock with a
carrying value of $2,921,000 at March 31, 1999. Certain redeemable preferred
stock issues of the BCA Holdings, Inc. and Bagcraft subsidiaries are included in
liabilities of discontinued operations at March 31, 1999. Under the merger
agreement, holders of Artra preferred stock, including persons who elect to
exchange their preferred stock of BCA Holdings for Artra Series B preferred
stock, will receive 329 shares of Entrade common stock for each share of Artra
preferred stock.
Bagcraft
At December 31, 1997, the discontinued Bagcraft subsidiary had
outstanding borrowings under its credit agreement totaling $40,388,000. This
credit agreement, amended and restated February 27, 1998, provided for a
revolving loan agreement and three term loans. Amounts due under this credit
agreement were repaid with proceeds from the sale of assets of the discontinued
Bagcraft subsidiary.
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, consisted of
certain loan agreements payable by Bagcraft directly to the City of Baxter
Springs. At December 31, 1997, the outstanding borrowings under these loans
totaled $9,968,000. Obligations due under these loans were assumed by the buyer
of the assets of the discontinued Bagcraft subsidiary.
Operating Plan
On February 1999, Artra entered into a merger agreement with WWWX and
Entrade, a 90% owned subsidiary of WWWX. As a result of the merger agreement,
Artra will become a wholly owned subsidiary of Entrade, and the shareholders of
Artra will become shareholders of Entrade. Under the terms of the merger
agreement, Artra's shareholders will receive one share of Entrade common stock
in exchange for each share of Artra common stock. Additionally, the Artra
preferred stock shareholders, which shall include persons who elect to exchange
their BCA
99
<PAGE>
preferred stock prior to the merger, will receive 329 shares of Entrade common
stock in exchange for each share of Artra preferred stock. All stock options and
warrants issued by Artra and outstanding on the closing date of the merger will
be converted into Entrade stock options and warrants.
In connection with the execution of the merger agreement, on February
23, 1999, Entrade acquired certain software and intellectual property and 25% of
the shares of Class A Voting Common Stock of asseTrade.com from WWWX, in
exchange for 1,800,000 shares of Entrade common stock, $800,000 in cash and a
note for $500,000, payable upon the consummation of the merger or the earlier
termination of the merger agreement. On February 19, 1999, Entrade had agreed
with Energy Trading Company, a wholly owned subsidiary of Peco Energy, to issue
to Energy Trading Company 200,000 shares of Entrade common stock, and to pay
Energy Trading Company $100,000 in exchange for certain retained rights Energy
Trading Company held in the purchased assets. Entrade also agreed with both WWWX
and Energy Trading Company that it would provide a minimum of $4,000,000 in
funding for entrade.com. Under separate loan agreements, Artra agreed to loan
Entrade up to $2,000,000 to fund the $800,000 cash payment to WWWX and to
provide funding for entrade.com until the consummation of the merger or the
earlier termination of the merger agreement. Under the merger agreement, Artra
agreed to guaranty the $4,000,000 funding for entrade.com if the merger is
consummated.
Artra has adequate funds available to fund its obligations under the
merger agreement and to fund entrade.com's operations for the remainder of 1999.
Capital Expenditures
Artra's corporate entity has no material commitments for capital
expenditures.
Investment in COMFORCE Corporation
Artra, along with its wholly owned Fill-Mor subsidiary, owns a
significant minority interest in COMFORCE Corporation ("COMFORCE"), consisting
of 1,525,500 shares, or approximately 9%, of the outstanding common stock of
COMFORCE as of December 31, 1998 with an aggregate value as of that date of
$8,200,000.
The COMFORCE shares constitute unregistered securities under the
Securities Act. As a result of Artra's former involvement in the operations and
management of COMFORCE, Artra was considered an "affiliate" of COMFORCE under
the Securities Act, and because of this, the number of shares that Artra could
sell without registration under the Securities Act within any three-month period
was limited. For the reasons set forth below, Artra believes that an exemption
from registration under Rule 144(k) promulgated under the Securities Act is now
available to it, and therefore, the limitations under Rule 144 on the number of
restricted shares that Artra could sell within any three-month period without
registrations are no longer applicable to it.
100
<PAGE>
There can be no assurance that the Commission would concur with Artra's
position. Notwithstanding this, Artra does not believe that its ability to sell
COMFORCE shares, or eventually to realize on the value of its COMFORCE shares,
will be affected in a material adverse way, although it may not be able to sell
its COMFORCE shares as quickly as it could if it were to use Rule 144(k), and in
any event, an attempt to sell a large number of its COMFORCE shares over a
limited period could be expected to result in a reduction in the value of such
shares.
In January 1996, Artra's Board of Directors approved the sale of
200,000 of Artra's COMFORCE common shares to certain officers, directors and key
employees of Artra for non-interest bearing notes totaling $400,000. The notes
are collateralized by the related COMFORCE common shares. Additionally, the
noteholders have the right to put their COMFORCE shares back to Artra in full
payment of the balance of their notes. Based upon the preceding factors, Artra
had concluded that, for reporting purposes, it had effectively sold options to
certain officers, directors and key employees to acquire 200,000 of Artra's
COMFORCE common shares. Accordingly, in January 1996, these 200,000 COMFORCE
common shares were removed from Artra's portfolio of "available-for-sale
securities" and were classified in Artra's condensed consolidated balance sheet
as other receivables with an aggregate value of $400,000, based upon the value
of proceeds to be received upon future exercise of the options. The disposition
of these 200,000 COMFORCE common shares resulted in a gain that was deferred and
will not be recognized in Artra's financial statements until the options to
purchase these 200,000 COMFORCE common shares are exercised. Prior to the fourth
quarter of 1997, no options to acquire any of the 200,000 COMFORCE common shares
had been exercised. During the fourth quarter of 1997, options to acquire 59,500
of these COMFORCE common shares were exercised resulting in a realized gain of
$225,000. During 1998, options to acquire 84,750 of these COMFORCE common shares
were exercised resulting in a realized gain of $320,000. At Decem ber 31, 1998,
options to acquire 55,750 COMFORCE common shares remained unexercised and were
classified in Artra's consolidated balance sheet as other receivables with an
aggregate value of $112,000, based upon the value of proceeds to be received
upon future exercise of the options.
During 1997, Artra sold 219,203 shares of COMFORCE common stock in the
market, with the net proceeds of approximately $1,700,000 used for working
capital. During 1997, a lender received 25,000 COMFORCE common shares held by
Artra as additional consideration for a short-term loan. The disposition of
these 244,703 shares COMFORCE common stock resulted in realized gains of
$2,306,000 during the year ended December 31, 1997, with cost determined by
average cost.
During 1996, Artra sold 193,000 shares COMFORCE common stock in the
market, with the net proceeds of approximately $3,700,000 used for working
capital. During 1996 certain lenders received 105,000 shares COMFORCE common
stock held by Artra as additional consider ation for short-term loans. In
October 1996, a lender exercised the conversion rights of a short-term loan and
received 33,333 shares of COMFORCE common stock in settlement of Artra's
obligation. The disposition of these 331,333 shares of COMFORCE common stock
resulted in realized gains of $5,818,000 during the year ended December 26,
1996, with cost determined by average cost.
101
<PAGE>
Litigation
Artra and its subsidiaries are the defendants in various
business-related litigation and environmental matters. See Note 11 to Artra's
consolidated financial statements. At March 31, 1998, December 31, 1998 and
December 31, 1997, Artra had accrued current liabilities of $1,500,000,
$1,500,000 and $1,800,000, 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 Artra's financial statements.
Net Operating Loss Carryforwards
At December 31, 1998, Artra and its subsidiaries had federal income tax
loss carryforwards of approximately $10,000,000 expiring principally in the
years 2010 to 2012, available to be applied against future taxable income, if
any. In recent years, Artra issued shares of Artra 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 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, Artra is not
currently subject to such limitations regarding the utilization of its federal
income tax loss carryforwards. Should Artra continue to issue a signifi cant
number of shares of Artra common stock, it could trigger a limitation that would
prevent it from utilizing a substantial portion of its federal income tax loss
carryforwards.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy; however,
to the extent permitted by competition, Artra generally has passed increased
costs to its customers by increas ing sales prices over time.
Recently Issued Accounting Pronouncements
Effective January 1, 1998, Artra adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting comprehensive income to present a
measure of all changes in equity that result from renegotiated transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources and includes net income. Required changes
are reported in the consolidated statement of operations.
During 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." In February 1998, the FASB issued SFAS No. 132 "Employers'
Disclosures about Pensions and other Postretirement
102
<PAGE>
Benefits. SFAS No. 131 specifies revised guidelines for determining an entity's
operating seg ments and the type and level of financial information to be
disclosed. This standard requires that management identify operating segments
based on the way that management disaggregates the entity for making internal
operating decisions. SFAS No. 132 standardizes the disclosure require ments for
pension and other postretirement benefits.
As a result of the November 1998 sale of the assets of the discontinued
Bagcraft subsid iary, Artra exited its only industry segment, a manufacturer of
packaging products principally serving the food industry. Accordingly, the
guidelines of SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information" are not applicable to Artra's financial statements as of
December 31, 1998. Artra typically does not offer the types of benefit programs
that fall under the guidelines of Statement of Financial Accounting Standards
No. 132 "Employ ers' Disclosures about Pensions and other Postretirement
Benefits."
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. Management has not determined what impact this
standard, when adopted, will have on Artra's financial statements.
Year 2000 Compliance
The Year 2000 issue refers to the inability of many computer programs
and systems to process accurately dates later than December 31, 1999. Unless
these programs are modified to handle the century change, they will likely
interpret the Year 2000 as the year 1900. Artra anticipates that the Year 2000
Issue will not have a material adverse effect on Artra's financial position or
results of operations. Artra has not incurred any significant costs for Year
2000 compliance to date and does not expect to incur any significant additional
costs to complete such compliance. Artra believes that the technology and
internal computer systems of entrade.com are Year 2000 compliant.
ELECTION OF DIRECTORS OF ARTRA
Nine directors are to be elected at the Artra Annual Meeting for a term
of one year expiring in 2000 and until their successors are elected.
The Artra board of directors has nominated Edward A. Celano, Howard R.
Conant, Peter R. Harvey, John Harvey, Gerard M. Kenny, Robert L. Johnson,
Maynard K. Louis, John K. Tull and Mark Santacrose for election as directors for
such terms. See "Information Concerning Directors" for a description of the
business experience of, and other information concerning Edward A. Celano,
Howard R. Conant, Peter R. Harvey, John Harvey, Gerard M. Kenny, Robert L.
Johnson, Maynard K. Louis, John K. Tull and Mark Santacrose. Unless you indicate
to the contrary, the persons named in the accompanying proxy will vote for the
election of these
103
<PAGE>
nominees. Under the merger agreement, upon consummation of the merger, these
directors and Robert D. Kohn will become the directors of Entrade.
If, for any reason, a nominee should be unable to serve as a director
at the time of the meeting, a contingency which is not expected to occur, the
persons designated herein as proxies may vote for the election of any other
person not named herein as a nominee for election to the Artra board of
directors.
Cumulative voting rights exist with respect to election of directors,
which means that each shareholder has the right, in person or by proxy, to
multiply the number of votes which he or she is entitled by the number of
directors to be elected and to cast the whole number of such votes for one
candidate or to distribute them among two or more candidates. Holders of Artra
common stock and Artra preferred stock are entitled to one vote for each share
held and will vote together as one class in the election of directors.
The nine nominees for director receiving the highest number of votes
cast at the Artra Annual Meeting will be elected as directors. Shares held by
brokers or nominees and to which voting instructions have not been received from
the beneficial owner or person otherwise entitled to vote and as to which the
broker or nominee does not have discretionary voting power, i.e., broker
non-votes, will be treated as not present and not entitled to vote for nominees
for election as directors. Votes withheld and broker non-votes will have no
effect on the election of directors because they will not represent votes cast
at the Artra Annual Meeting for the purpose of electing directors.
MANAGEMENT OF ARTRA
Directors and Executive Officers of Artra
Information Regarding Directors
The following table lists the name and age of each nominee for
directors of Artra, each of whom is currently a director, his business
experience, his positions with Artra and certain directorships.
Name Age Positions and Experience
John Harvey 67 Chairman of the Board of Directors and
Chief Executive Officer of Artra;
Director since 1968; Chairman of the
Board of Direc tors, since 1985, a
Director from 1982 to December 1995 and
the Chief Executive Officer from 1990 to
November 1995 of COMFORCE Corporation
(temporary professional employment,
formerly The Lori Corporation); a
Director of Plastic Special ties and
Technologies, Inc. (textiles, hose and
tubing); Director of PureTec
Corporation, the successor by merger to
Ozite,until March 1998, when PureTec was
merged into Teckni-Plex, Inc.
104
<PAGE>
Peter R. Harvey 64 President and Chief Operating Officer
and a Director since 1968; Director of
COMFORCE Corporation (temporary profes
sional employment, formerly The Lori
Corporation) from 1985 to December 1995
and a vice president through January
1996; Director of PureTec Corporation
(textiles, hose and tubing), the
successor by merger to Ozite, until
March of 1998, when PureTec Corporation
was merged into Teckni-Plex, Inc.
Gerard M. Kenny 46 Director since 1988; Executive Vice
President and Director since 1982 of
Kenny Construction Company since 1982
(diver sified heavy construction);
General Partner of Clinton Industries
(investments), a limited partnership,
since 1972.
Edward A. Celano 60 Director since 1996; Executive Vice
President of the Atlantic Bank of New
York since May 1, 1996, Senior Vice
President of National Westminster, USA
from 1984 through April 1996, corporate
finance.
Howard R. Conant 74 Director since 1996; Retired Chairman of
the Board of
Interstate Steel Co., 1970
to 1990, and a consultant to Interstate
through 1992.
Maynard K. Louis 69 Director since 1996; Retired Chairman of
the Board of Lord Label, a printing
company now known as Porter & Chadburn,
from 1965 to 1989, and Vice President of
Porter & Chadburn from 1989 to 1993; and
director of Artra from 1993 through
1995.
Robert L. Johnson 62 Director since 1996; Chairman and Chief
Executive Officer of Johnson Bryce,
Inc., flexible packaging materials of
food prod ucts since 1991; and
previously, for many years, a vice presi
dent of Sears Roebuck & Co. (retailing
company).
Mark Santacrose 39 Director since 1997; President of
Bagcraft Corporation of America (n/k/a
Golden Corp.), flexible packaging
materials of food products, since 1994;
Executive Vice President of Bagcraft
since 1993; following the sale of
substantially all of the assets of
Bagcraft in 1998, President of Bagcraft
Packaging LLC, a subsidiary of Packaging
Dynamics LLC since 1998.
105
<PAGE>
John K. Tull 72 Director since 1998; President of J.K.
Tull Associates LTD., a mergers and
acquisitions firm, since 1986.
COMFORCE Corporation was a 64.3% owned subsidiary of Artra until
December 1995. Artra now owns approximately 9% of COMFORCE Corporation. PureTec
International, Inc. and Plastics Specialities and Technologies, Inc. were
affiliates of Artra. Bagcraft was a wholly owned subsidiary of BCA Holdings,
Inc., a wholly owned subsidiary of Artra. In November 1998, substantially all of
the assets of Bagcraft were sold to Packaging Dynamics LLC, the parent entity of
Bagcraft Packaging LLC.
Information Regarding Executive Officers
Set forth below is information concerning the executive officers and
other key employees of Artra who were in office or employed as of the date of
this Proxy Statement/Prospectus.
Name Age Position
- ---- --- --------
John Harvey 67 Chairman of the Board and Chief Executive Officer
Peter R. Harvey 64 President and Chief Operating Officer
John G. Hamm 60 Executive Vice President
Robert S. Gruber 64 Vice President - Corporate Relations
James D. Doering 62 Vice President, Treasurer and Chief Financial Officer
John Conroy 54 Vice President - Corporate Administration
Lawrence D. Levin 47 Controller
Edwin G. Rymek 68 Secretary
John Harvey is the Chairman and Chief Executive Officer of Artra. See
"Information Regarding Directors" above for a description of Mr. Harvey's
relevant business experience.
Peter R. Harvey is the President and Chief Operating Officer of Artra.
See "Information Regarding Directors" above for a description of Mr. Harvey's
relevant business experience.
John G. Hamm is the Executive Vice President of Artra. Mr. Hamm has
served as Executive Vice President since February 1988 and as the Vice President
- - Finance from 1975 to 1988 of Artra. Mr. Hamm has also served as Vice President
Finance from August 1990 to July 1995 and as a Director from 1984 until July
1995 of Ozite Corporation. Mr. Hamm has also served as a Director of SoftNet
Systems, Inc. from 1985 to February 1999 and a Director of Plastic Specialties
and Technologies, Inc. from 1985 to January, 1996.
Robert S. Gruber is the Vice President - Corporate Relations of Artra.
Mr. Gruber has served as Vice President - Corporate Relations of Artra since
1975 and as a consultant to The Lori Corporation from 1982 to 1995. Mr. Gruber
has also served as a consultant to COMFORCE Corporation during 1996.
James D. Doering is the Vice President, Treasurer and Chief Financial
Officer of Artra. Mr. Doering has served as Vice President since 1980, Treasurer
since 1987, Chief Financial Officer since February 1988 and Controller from 1980
to 1987. Mr. Doering has also served as Vice President and Chief Financial
Officer of COMFORCE Corporation from February 1988 to January 1996.
106
<PAGE>
John Conroy is the Vice President - Corporate Administration of Artra.
Mr. Conroy has served as Vice President - Corporate Administration since March
1990. Prior thereto, he served as Vice President - Corporate Administration of
Sargent-Welch Scientific Company from Septem ber 1988 to December 1989. Mr.
Conroy previously served in various risk management positions with Artra from
1978 to September 1988, most recently as Corporate Risk Director.
Lawrence D. Levin is the Controller of Artra. Mr. Levin has served as
Controller since 1987, Assistant Treasurer and Assistant Secretary since 1980
and Assistant Controller from 1980 to 1987. Mr. Levin has also served as
Controller of COMFORCE from December 1989 to January 1996 and as the Assistant
Chief Financial Officer of COMFORCE Corporation from May 1993 through January
1996.
Edwin G. Rymek is the Secretary of Artra. Mr. Rymek has served as
Secretary of Artra since 1987 and of COMFORCE Corporation from 1982 to 1995.
Officers are appointed by the Artra board of directors and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey and John Harvey who are brothers, there are no
family relationships among the executive officers and directors, nor are there
any arrangements or understandings between any officer and another person
pursuant to which he was appointed to office, except as may be hereinafter
described.
Section 16(a) Beneficial Reporting Compliance
Section 16(a) of the Exchange Act requires that officers and directors
of Artra, as well as persons who own more than 10% of a class of equity
securities of Artra, file reports of their ownership of such securities, as well
as monthly statements of changes in such ownership, with Artra and the
Commission. Based upon written representations received by Artra from its
officers and directors and reports filed with Artra during 1998, Artra believes
that all such filings required during 1998 were made on a timely basis.
ARTRA EXECUTIVE COMPENSATION
Directors' Compensation
Directors who are not employees of Artra are entitled to receive an
annual retainer of $10,000. Each outside director who sits on an established
committee of Artra is entitled to receive $250 per committee meeting attended
and the chairman of a committee is entitled to receive $500 for each meeting.
Employees of Artra who also serve as directors or committee members receive no
additional compensation for such service. During the year ended December 31,
1998, Artra granted to each of Artra's five outside directors stock options to
purchase 12,500 shares of Artra common stock at an exercise price of $3.125 per
share. These options have a term of 10 years from their date of grant.
In 1999, each of Artra's seven outside directors received options to
purchase 2,500 shares of Artra common stock at an exercise price of $5.375 per
share. Also, Mark Santacrose and John Tull each received an additional grant of
options to purchase 10,000 shares of Artra common stock at an exercise price of
$4.75 per share. These options have a term of 10 years from this date of grant.
Executive Officer Compensation
The following table shows all compensation paid by Artra and its
subsidiaries for the fiscal years ended December 31, 1998, December 31, 1997 and
December 26, 1996, to the Chief Executive Officer of Artra and each of its other
most highly compensated executive officers who were serving as executive
officers of Artra as of December 31, 1998, or who would have been included had
he been serving as an executive officer of Artra as of December 31, 1998, and
whose compensation exceeded $100,000 in 1998.
107
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation(1) Awards
--------------------------------------------- ----------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(2) Compensation($)
- --------------------------- ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John Harvey, 1998 $157,404(3) -0- -0- -0- $4,750(4)
Chairman and Chief 1997 190,000 -0- -0- -0- -0-
Executive Officer 1996 137,811 -0- -0- 141,000 5,456
Peter R. Harvey, 1998 $252,000(5) -0- -0- -0- 5,000(4)
President and Chief 1997 17,000 -0- -0- -0- -0-
Operating Officer 1996 17,000 -0- -0- -0- -0-
James D. Doering 1998 $147,000 $11,500(6) -0- -0- 5,000(4)
Vice President, Treasurer and 1997 147,000 -0- -0- -0- 4,750
Chief Financial Officer 1996 133,600 -0- -0- 57,500 6,000
-0-
John G. Hamm, 1998 $147,000 -0- -0- 5,000
Executive Vice President 1997 147,000 -0- -0- -0- 4,750
1996 133,600 -0- -0- 101,250 6,000
-0-
Robert S. Gruber, 1998 $110,400 -0- -0- -0- -0-(4)
Vice President 1997 110,400 -0- -0- -0- 6,000
Corporation Relations 1996 92,000 -0- -0- 97,750 2,868
Mark Santacrose, 1998 $212,648(4) $250,000(7) $340,000(7) -0- 4,750(4)
President Bagcraft Corporation 1997 225,000 -0- 75,000 -0- 144,616
of America 1996 200,000 -0- 17,500 -0- 89,524
- ------------------------
<FN>
(1) No additional annual compensation was paid, no restrictive stock awards
or stock appreciation rights were granted, and no long-term incentive
plan payouts were made to any of the officers listed in the table. Only
compensation earned in 1998 (irrespective of the year in which paid) is
considered in determining inclusion in this table.
(2) All of the options shown in this column were granted under Artra's 1996
Stock Option Plan at an exercise price of $5.25 per share, being the
closing price of Artra common stock on the New York Stock Exchange on
October 4, 1996, the date of grant. These options expire October 4,
2006.
(3) John Harvey requested that his compensation be reduced from $190,000 to
$157,404. For the 1999 fiscal year, his salary has been further reduced
to $120,000.
(4) These amounts include Artra's contributions to the 401(k) plan during
1998, 1997 and 1996.
</FN>
</TABLE>
108
<PAGE>
(5) As of January 31, 1998, Peter R. Harvey settled all outstanding
advances, including accrued interest, made by Artra. See "Certain
Transactions of Artra." Upon completion of such settle ment, the board
of directors of Artra approved an annual salary of $252,000 for Peter
R. Harvey for 1998.
(6) Mr. Doering received a bonus of $11,500 in 1998 representing
compensation relating to the liquidation of certain assets of The Lori
Corporation.
(7) Mr. Santacrose's other compensation of $590,000 represented a
transaction bonus of $250,000 relating to the sale of Bagcraft during
1998 and $340,000 representing partial payment of funds owed to Mr.
Santacrose under the Bagcraft deferred compensation plan. The balance
of amounts due Mr. Santacrose under such plan, approximately $340,000,
were paid in 1999. All salary and bonus amounts paid to Mr. Santacrose
were approved by the board of directors of Artra and Bagcraft.
Artra did not grant options to purchase Artra common stock to any of
the named executive officers during the year ended December 31, 1998.
The following table sets forth information concerning options to
purchase Artra common stock that Artra granted on January 6, 1999 to the
executive officers of Artra who are listed in the Summary Compensation Table:
Option Grants in 1999
Number of
Securities Underlying Exercise Expiration
Name Options Granted Price Date
- ---- ----------------- ------- -------
John Harvey................. 35,000 $4.75 1/06/09
Peter R. Harvey............. 150,000 $4.75 1/06/09
James D. Doering............ 35,000 $4.75 1/06/09
John G. Hamm................ 35,000 $4.75 1/06/09
Robert S. Graber............ 11,250 $4.75 1/06/09
For options granted to Mr. Santacrose see "Directors Compensation"
above.
The following table sets forth information concerning the aggregate
number and values of options held by the Chief Executive Officer and the other
executive officers of Artra listed in the Summary Compensation Table as of
December 31, 1998 which were granted to such officers in consideration of their
services as officers or directors of Artra. No other options held by the Chief
Executive Officer or any other executive officers of Artra listed in the Summary
Compensation Table were exercised in 1998.
109
<PAGE>
Aggregated Option Exercises in 1998 And Option Values As Of December 31, 1998
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options
Fiscal Year-End at Fiscal Year-End(2)
--------------- ---------------------
Shares
Acquired on Value
Name Exercise(#) Realized(1) Exercisable(#) Unexercisable(#) Exercisable Unexercisable
- ---- ----------- ----------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Harvey............ -0- $-0- 221,000 -0- $42,600 -0-
James D. Doering....... -0- -0- 111,000 -0- 22,657 -0-
John G. Hamm........... -0- -0- 140,450 -0- 19,750 -0-
Robert S. Gruber....... -0- -0- 118,750 -0- 10,088 -0-
Mark Santacrose........ -0- -0- -0- -0- -0- -0-
- ------------------------
<FN>
(1) See the notes under "Principal Shareholders" for a description of the
options (includ ing exercise prices) granted to each of the executive
officers listed in this table.
(2) The listed options were issued at per share exercise prices of from
$3.65 per share to $5.25 per share. The market price of Artra common
stock as of the close of trading on December 31, 1998 on the New York
Stock Exchange was $4.1875 per share.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation
Authority to determine the compensation of executive officers is
conferred upon the Artra board of directors or, in the case of officers paid by
Bagcraft Corporation of America by its Board of Directors. The salary of John
Harvey was paid by Bagcraft.
The decisions concerning the cash compensation of Artra's executive
officers, including John Harvey, the Chairman and Chief Executive Officer of
Artra, who was compensated by Bagcraft for his services to Bagcraft and Artra,
were made by Peter R. Harvey, the President and Chief Operating Officer of
Artra. See "Artra Certain Relationships and Related Transactions" for a
description of various transactions and relationships between Artra and each of
these directors.
Report of the Board of Directors of Artra Concerning Compensation
The board of directors of Artra did not consider the compensation of
its officers in 1998 except for decisions relating to compensation for John
Harvey, the Chairman and Chief Executive Officer of Artra, Peter R. Harvey, the
President and Chief Operation Officers of Artra, James D. Doering, the Vice
President, Treasurer and Chief Financial Officer of Artra and Mark Santacrose,
President of Artra's Bagcraft subsidiary.
110
<PAGE>
At the request of John Harvey, the board of directors approved a
reduction in annual salary from $190,000 to $157,404 for 1998 and a further
reduction to $120,000 for 1999. The salary for 1998, as approved by Peter R.
Harvey, was paid by Artra's Bagcraft subsidiary.
Upon approval the settlement of outstanding advances made by Artra to
Peter R. Harvey over the previous several years, the board of directors
established an annual salary for Peter R. Harvey in 1998 of $252,000. In
approving this salary, the Artra board of directors considered that Peter R.
Harvey had not been paid more than a nominal salary amount during the several
years that the advances were outstanding. Once the advances were settled, the
Artra board of directors determined to set a salary consistent with his service
as the Chief Operating Officer of Artra.
Mr. Doering's bonus of $11,500 was paid in consideration of his efforts
relating to the liquidation of certain assets of The Lori Corporation. Mr.
Santacrose's bonus of $250,000 was paid for his efforts relating to the sale of
Bagcraft in 1998.
Respectfully submitted,
John Harvey Maynard K. Louis
Peter R. Harvey Robert L. Johnson
Gerard M. Kenny Mark Santacrose
Edward A. Celano John K. Tull
Howard R. Conant
111
<PAGE>
COMPARISON OF TOTAL RETURN ON ARTRA
COMMON STOCK WITH CERTAIN INDICES
The following graph provides an indicator of cumulative shareholder
return on Artra common stock compared to the Dow Jones Equity Market Index
("DJDOW") and the Dow Jones Industrial Sector Containers and Packaging Index
("DJCTR"). The comparison assumes that with respect to the Artra common stock,
the DJDOW and the DJCTR, $100 was invested at the close of trading on December
30, 1993 and all dividends were reinvested.
Cumulative Total Return
[In the printed version a graph showing the following information appears:]
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
DJDOW $100.00 $100.71 $137.70 $172.90 $227.71 $292.94
DJCTR 100.00 100.72 107.50 136.77 156.03 136.19
Artra 100.00 78.85 78.85 94.23 59.62 64.42
112
<PAGE>
ARTRA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John Harvey and Peter R. Harvey
The Harvey Family Trust is the owner of the real estate at 500 Central,
Northfield, Illinois, the corporate offices of Artra which was acquired by the
Trust in September 1996. Artra rents approximately 7,000 square feet of office
space and 1,000 square feet of warehouse space from the trust at an annual
rental of $126,000 pursuant to a lease expiring in January 1999. Artra may renew
the lease for an additional one-year period at an increased rent in the sum of
$132,000. The building contains approximately 29,500 total square feet. In the
opinion of Artra's manage ment, the Artra rental obligation to the trust does
not exceed the fair market value for similar rentals. John Harvey is the grantor
and beneficiary of the trust. John Harvey and Peter R. Harvey are brothers.
In June 1996, Peter R. Harvey loaned Artra 100,000 shares of Artra
common stock, which had a then fair market value of $587,000. Artra principally
issued these shares to certain lenders as additional consideration for
short-term loans. In September 1996, after Artra's shareholders approved an
increase in the number of authorized common shares, Artra repaid this loan. At
Peter R. Harvey's direction, the 100,000 shares of Artra common stock were
issued in blocks of 25,000 shares to the four daughters of John Harvey.
In March 1998, the Artra board of directors ratified a proposal to
settle Peter R. Harvey's previous advances from Artra in the amount of
$15,437,000 as follows:
(1) Effective December 31, 1997, Peter R. Harvey's net advances from
Artra were offset by $2,816,000 ($5,606,000 net of interest accrued and reserved
for the period from 1993 to 1997) to $12,621,000. This offset of Peter R.
Harvey's advances represented a combination of compensation for prior year
guarantees of Artra obligations to private and institutional lenders,
compensation in excess of the nominal amounts Peter R. Harvey received for the
years from 1995 to 1997 and reimbursement for expenses incurred to defend Artra
against certain litigation.
(2) Effective January 31, 1998, Peter R. Harvey's remaining advances
totaling $12,787,000 were paid with consideration consisting of the following
Artra Series A preferred stock and BCA Holdings, Inc. preferred stock held by
Peter R. Harvey:
Face Value Plus
Security Accrued Dividends
Artra Series A preferred stock, 1,734.28 shares $ 2,751,000
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000
-----------
$12,787,000
===========
113
<PAGE>
In May 1999, pursuant to a determination made by the Artra board of
directors in January 1999, John Harvey and his wife were issued an aggregate of
890.05 shares of Artra Series B preferred stock in exchange for shares of BCA
Holdings Series A and Series B preferred stock held by them, which represented
$1,701,403.27 of total principal and accumulated dividends.
Certain family trusts of which Peter R. Harvey is the trustee were
issued an aggregate of 68.36 shares of Artra Series B preferred stock in
exchange for shares of BCA Holdings Series A and Series B preferred stock held
by them, which represented $115,558,80 of total principal and accumulated
dividends. Peter R. Harvey was issued 264.89 shares of Series B preferred stock
in exchange for shares of BCA Holdings Series B preferred stock beneficially
owned by him, which represented $446,853.62 of total principal and accumulated
dividends.
For additional related-party transactions between Artra and Peter R.
Harvey, see Note 16 to the consolidated financial statements for the year ended
December 31, 1998.
On September 27, 1989, Artra received a proposal to purchase Bagcraft
from Sage Group, Inc., a privately-owned corporation. Effective March 3, 1990, a
wholly owned subsidiary of Artra indirectly acquired from Sage Group, Inc. 100%
of the issued and outstanding common shares of BCA Holdings, Inc., which in turn
owned 100% of the stock of Bagcraft, for total consideration which was delivered
to Ozite as the successor by merger to Sage Group, Inc. upon approval of Artra's
shareholders. The consideration for the Bagcraft acquisition consisted of
772,000 shares of Artra common stock and 3,750 shares of Artra Series A
preferred stock, its $1,000 par value junior non-convertible payment-in-kind
preferred stock bearing a dividend rate of 6%. The issuance of the Artra common
stock and Artra Series A preferred stock as consider ation was approved by
Artra's shareholders at the December 1990 annual meeting of shareholders. Upon
the merger of Sage Group, Inc. into Ozite on August 24, 1990, Ozite became
entitled to receive this consideration, which right Ozite assigned to its PST
subsidiary. Peter R. Harvey and John Harvey were the principal shareholders of
Sage Group, Inc. and Ozite as of the times that the merger agreements were
executed and the mergers consummated. Ozite subsequently repur chased the 3,750
shares of Artra Series A preferred stock in February 1992, of which 1,523 shares
were subsequently assigned to Peter R. Harvey in consideration of his discharge
of certain indebtedness of Ozite to him in April 1992. Peter R. Harvey pledged
these 1,523 shares of Artra Series A preferred stock to Artra. The $4,750,000
price of the 772,000 shares of Artra common stock and 3,750 shares Artra Series
A preferred stock was equal to the fair market value thereof as of January 31,
1991 as determined by an independent investment banking firm engaged by PST to
make such determination. In November 1998, substantially all of the assets of
Bagcraft were sold to Packaging Dynamics LLC, the parent entity of Bagcraft
Packaging LLC.
Peter R. Harvey and John Harvey were significant shareholders of PST's
parent, PureTec. Peter R. Harvey formerly was a Vice President and a director of
PST and a director of PureTec. John Harvey formerly was a director of PST and
PureTec.
114
<PAGE>
Gerald M. Kenny
During 1986 and through August 10, 1988, Artra entered into a series of
short-term borrowing agreements with private investors. Each agreement granted
an investor a put option, principally due in one year, that required Artra to
repurchase any or all of the shares sold at a 15% to 20% premium during a
specified put period.
Kenny Construction Company ("Kenny") entered into a put option
agreement with Artra, which has been extended from time to time, most recently
on November 11, 1992. At such time Artra and Kenny agreed to extend the put
option whereby Kenny received the right to sell to Artra 23,004 shares of Artra
common stock at a put price of $56.76 plus an amount equal to 15% per annum for
each day from March 1, 1991 to the date of payment by Artra, which option was
scheduled to expire on December 31, 1997. Gerard M. Kenny, a director of Artra,
is the Executive Vice President and Chief Executive Officer and a director of
Kenny Construction Company and beneficially owns 16.66% of Kenny's capital
stock.
On March 21, 1989, Artra borrowed $5,000,000 from its bank lender
evidenced by a promissory note. This note has been amended and extended from
time to time. The borrowings on this note were collateralized by, among other
things, a $2,500,000 guaranty by Kenny. Kenny received compensation in the form
of 833 shares of Artra common stock for each month that its guaranty remained
outstanding through March 31, 1994. Under this arrangement, Kenny received
49,980 shares of Artra common stock as compensation for its guaranty.
On March 31, 1994, Artra entered into a series of agreements with its
bank lender and with Kenny. Under the terms of these agreements, Kenny purchased
a $2,500,000 participation in the $5,000,000 note payable to Artra's bank
lender. Kenny's participation is evidenced by a $2,500,000 Artra note (the
"Kenny Note") bearing interest at the prime rate. As consideration for its
purchase of this participation, the bank lender released Kenny from its
$2,500,000 loan guaranty. As additional consideration, Kenny received an option
to put back to Artra the 49,980 shares of Artra common stock received as
compensation for its $2,500,000 Artra loan guaranty at a price of $15.00 per
share. The put option was subject to increase at the rate of $2.25 per share per
annum ($21.188 at December 26, 1996). The put option was exercisable on the
later of the date the Kenny Note is repaid or the date Artra's obligations to
its bank lender were fully paid. During the first quarter of 1996, the
$2,500,000 note and related accrued interest was paid in full, principally with
the proceeds from additional short-term borrowings.
In December 1997, Kenny exercised all of its put options and Artra
repurchased 72,984 shares of Artra common stock for cash of $2,379,000.
Edward A. Celano
In May 1996, Artra borrowed $100,000 from Edward A. Celano, then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997, bearing interest at 10%. The proceeds of the
loan were used for working capital. At
115
<PAGE>
Artra's annual meeting of shareholders, held August 29, 1996, Mr. Celano was
elected to Artra's board of directors. Effective January 17, 1997, Mr. Celano
exercised his conversion rights and received 18,182 shares of Artra common stock
as payment of the principal balance of his note.
Howard Conant
In August 1996, Artra borrowed $500,000 from Howard Conant, then a
private investor, evidenced by an short-term note, due December 23, 1996,
bearing interest at 10%. The loan was collateralized by 125,000 shares of
COMFORCE common stock owned by Artra's Fill-Mor subsidiary. As additional
compensation for the loan, Mr. Conant received a warrant, expiring in 2001, to
purchase 25,000 shares of Artra common stock at a price of $5.00 per share. The
proceeds of the loan were used for working capital. At Artra's annual meeting of
shareholders, held August 29, 1996, Mr. Conant was elected to Artra's board of
directors. In December 1996, the loan was extended until April 23, 1997 and Mr.
Conant received, as additional compensation, a warrant, expiring in 2001, to
purchase 25,000 shares of Artra common stock at a price of $5.875 per share.
In January 1997, Artra borrowed an additional $300,000 from Mr. Conant
evidenced by a short-term note, due December 23, 1997, bearing interest at 8%.
The loan was collateralized by 100,000 shares of COMFORCE common stock owned by
Artra's Fill-Mor subsidiary. As additional compensation for the loan, Mr. Conant
received a warrant, expiring in 2002, to purchase 25,000 shares of Artra common
stock at a price of $5.75 per share.
In March 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 585,000 shares of COMFORCE common stock owned by
Artra's Fill-Mor subsidiary. As additional compensation, Mr. Conant received an
option to purchase 25,000 shares of COMFORCE common stock owned by Artra's
Fill-Mor subsidiary at a price of $4.00 per share, with the right to put the
option back to Artra on or before May 30, 1997 for a total put price of $50,000.
In May 1997, Mr. Conant exercised his rights and put the COMFORCE option back to
Artra for $50,000. The proceeds from this loan were used in part to repay an
Artra/Fill-Mor $2,500,000 bank term loan.
In April 1997, Artra borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998, bearing interest at 10%. As additional compensation,
Mr. Conant received a warrant to purchase 333,333 shares of Artra common stock
at a price of $5.00 per share. Mr. Conant had the right to put this warrant back
to Artra at any time during the period of April 21, 1998 to April 20, 2000, for
a total purchase price of $1,000,000. In May 1998, Mr. Conant sold the warrant
to an unrelated third party who put the warrant back to Artra for a total
purchase price of $1,000,000. The proceeds from this loan were used to repay Mr.
Conant's outstanding borrowings of $1,800,000 and to pay down other Artra debt
obligations.
In June 1997, Artra borrowed an additional $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation, Mr.
Conant received a warrant
116
<PAGE>
to purchase 40,000 shares of Artra common stock at a price of $5.00 per share.
Mr. Conant had the right to put this warrant back to Artra at any time during
the period of December 10, 1997 to June 10, 1998, for a total purchase price of
$80,000, and Mr. Conant put the warrant back to Artra for $80,000 in 1998. The
proceeds from this loan were used to pay down other Artra debt obligations. In
July 1997, borrowings from Mr. Conant were reduced to $3,000,000 with proceeds
advanced to Artra from a Bagcraft term loan as discussed above. In December
1997, borrowings from Mr. Conant were reduced to $2,000,000 with proceeds from
other short-term borrowings. The borrowings from Mr. Conant were collateralized
by 490,000 shares of COMFORCE common stock by Artra's Fill-Mor subsidiary.
In August 1998 Artra borrowed an additional $500,000 from Mr. Conant,
due December 20, 1998, bearing interest at 15%. As additional compensation, the
lender received a warrant to purchase 20,000 shares of Artra common stock at a
price of $3.9375 per share. The proceeds from this loan were used to pay down
other Artra debt obligations.
In November 1998, all borrowings from Mr. Conant were repaid with
proceeds from the sale of the business assets of Bagcraft.
John G. Hamm
In May 1999, pursuant to a determination made by the Artra board of
directors in January 1999, the John G. Hamm was issued 57.08 shares of Artra
Series B preferred stock in exchange for shares of BCA Holdings Series A
preferred stock and Series B preferred stock held by him, which represented
$95,240.83 of total principal and accumulated dividends.
ARTRA RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
The Artra board of directors appointed PricewaterhouseCoopers LLP,
independent certified public accountants, to audit the financial statements of
Artra and its wholly-owned subsidiaries for the fiscal year ending December 31,
1999. PricewaterhouseCoopers has served as principal auditors for Artra since
1962.
This appointment is being presented to shareholders for ratification.
The affirmative vote of the majority of the votes cast at the Artra Annual
Meeting of the holders of shares of Artra common stock and Artra Series A
preferred stock voting together as a class is required to ratify the
appointment.
A representative of PricewaterhouseCoopers LLP is expected to attend
the meeting and will be afforded an opportunity to make a statement if he
desires to do so. He is also expected to be available to respond to appropriate
questions.
The Board of Directors recommends that the shareholders vote FOR the
proposal. Proxies solicited by the Board of Directors will be voted in favor of
this proposal unless a no vote or an abstention is specified.
117
<PAGE>
ARTRA ANNUAL REPORT
This Proxy Statement/Prospectus serves as the Annual Report of Artra
for the year ended December 31, 1998.
SHAREHOLDER PROPOSALS
Any shareholder may notify management of his intention to present a
proposal for action at the next annual meeting by delivery of a notice to be
reviewed by management not less than 120 calendar days in advance of the
solicitation date of Artra's next annual meeting or for action at any other
meeting at a reasonable time before solicitation is made, and any proposal
received by ____________ will be considered for action at the next annual
meeting. Such notices should be submitted to Artra Group Incorporated, 500
Central Avenue, Northfield, Illinois 60093, Atten tion: Corporate Secretary.
If any shareholder who intends to present a proposal at the 2000 Annual
Meeting does not notify Artra or, after consummation of the merger, Entrade of
the proposal on or before
, 2000, then management proxies will use their discretionary voting
authority to vote on the proposal when the proposal is raised at the 2000 Annual
Meeting, even though there is no discussion of the proposal in the related proxy
statement.
GENERAL AND OTHER MATTERS
Management knows of no matters, other than those referred to in this
Proxy Statement, which will be presented to the Annual Meeting. However, if any
other matters properly come before the Annual Meeting or any adjournment, the
persons named in the accompanying proxy will vote it in accordance with their
best judgment on such matters.
Artra will bear the expense of preparing, printing and mailing this
proxy material, as well as the cost of any required solicitation. In addition to
the solicitation of proxies by use of the mails, Artra may use regular
employees, without additional compensation, to request, by tele phone or
otherwise, attendance or proxies previously solicited.
LEGAL MATTERS
The validity of Entrade common stock registered pursuant to this Proxy
Statement/Prospectus will be passed upon for Entrade by Michelle Kramish Kain,
P.A.
EXPERTS
The financial statements of Artra as of December 31, 1998 and 1997 and
for each of the three fiscal years in the period ended December 31, 1998
included in this Proxy Statement/Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers
118
<PAGE>
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statement of Entrade as of February 23, 1999 included in
this Proxy State ment/Prospectus has been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
Report of Independent Accountants .......................................F-2
Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997.........................F-3
Consolidated Statements of Operations
for each of the three fiscal years in the period
ended December 31, 1998.........................................F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for each of the three fiscal years in the period
ended December 31, 1998.........................................F-6
Consolidated Statements of Cash Flows
for each of the three fiscal years in the period
ended December 31, 1998.........................................F-8
Notes to Consolidated Financial Statements...............................F-10
Schedules:
II. Valuation and Qualifying Accounts .......................F-31
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 (Unaudited)................F-32
Condensed Consolidated Statements of Operations
for periods ended March 31, 1999 and
March 31, 1998 (Unaudited)......................................F-33
Condensed Consolidated Statement of Changes
in Shareholders's Equity (Deficit) for the
periods ended March 31, 1999 and
March 31, 1998 (Unaudited)......................................F-34
Condensed Consolidated Statements of Cash flows
for the periods ended March 31, 1999 and
March 31, 1998 (Unaudited)......................................F-35
Notes to Condensed Consolidated Financial Statements ....................F-36
ENTRADE INC. AND SUBSIDIARY
Report of Independent Accountants .......................................F-44
Consolidated Balance Sheet as of February 23, 1999 ......................F-45
Notes to Consolidated Balance Sheet .....................................F-46
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
ARTRA GROUP Incorporated and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
In our report on the 1997 financial statements, dated March 26, 1998, we
expressed an opinion that indicated substantial doubt as to the ability of the
Company to continue as a going concern. This was the result of the Company
suffering recurring losses and experiencing difficulty in obtaining adequate
financing to replace its existing credit arrangements and satisfy liquidity
requirements. As described in Note 3, as a result of the disposition of the
business assets of Bagcraft Corporation of America, the Company has been able to
retire a significant portion of its obligations. Accordingly, our present
opinion on the 1997 financial statements as presented herein is different from
that expressed in our previous report.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 1, 1999
F-2
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and equivalents $11,753 $5,991
Restricted cash and equivalents 1,045 -
Receivables, less allowance for
doubtful accounts of $275 in 1997 171 10,004
Inventories - 15,749
Available-for-sale securities 8,200 12,013
Other 99 774
------------ ------------
Total current assets 21,268 44,531
------------ ------------
Property, plant and equipment
Land - 417
Buildings - 12,742
Machinery and equipment - 35,657
Construction in progress - 675
------------ ------------
- 49,491
Less accumulated depreciation and amortization - 24,397
------------ ------------
- 25,094
------------ ------------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization
of $2,388 in 1997 - 2,729
Other - 852
------------ ------------
- 3,581
------------ ------------
$21,268 $73,206
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
1998 1997
------------ ------------
LIABILITIES
Current liabilities:
Notes payable, including amounts due to
related parties of $2,000 in 1997 $ - $ 10,726
Current maturities of long-term debt - 4,462
Accounts payable - 5,841
Accrued expenses 568 8,692
Income taxes 1,854 324
Common stock put warrants 1,705 2,966
Redeemable preferred stock - 11,955
Liabilities of discontinued operations 10,328 -
------------ ------------
Total current liabilities 14,455 44,966
------------ ------------
Long-term debt - 50,619
Other noncurrent liabilities - 4,675
Commitments and contingencies
Redeemable preferred stock 2,857 9,110
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares;
issued 8,302,110 shares in 1998
and 8,297,810 shares in 1997 6,227 6,223
Additional paid-in capital 42,734 42,721
Unrealized appreciation of investments 10,920 14,733
Receivable from related party,
including accrued interest - (12,621)
Accumulated deficit (54,300) (87,113)
------------ ------------
5,581 (36,057)
Less treasury stock, 437,882 shares in 1998
and 80,612 shares in 1997, at cost 1,625 107
------------ ------------
3,956 (36,164)
------------ ------------
$21,268 $73,206
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $ -- $ -- $ --
-------- -------- --------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization -- -- --
Selling, general and administrative 2,660 5,708 2,042
Depreciation and amortization -- 7 19
-------- -------- --------
2,660 5,715 2,061
-------- -------- --------
Operating loss (2,660) (5,715) (2,061)
-------- -------- --------
Other income (expense):
Interest expense (3,392) (6,178) (4,201)
Realized gain on disposal of
available-for-sale securities 320 2,531 5,818
Litigation settlement, net -- 10,416 --
Other income (expense), net 25 12 (1)
-------- -------- --------
(3,047) 6,781 1,616
-------- -------- --------
Earnings (loss) from continuing operations
before income taxes (5,707) 1,066 (445)
Provision for income taxes -- -- --
-------- -------- --------
Earnings (loss) from continuing operations (5,707) 1,066 (445)
Earnings (loss) from discontinued operations 38,930 (293) 3,994
-------- -------- --------
Earnings before extraordinary credit 33,223 773 3,549
Extraordinary credit, net discharge of indebtedness -- -- 9,424
-------- -------- --------
Net earnings 33,223 773 12,973
Dividends applicable to
redeemable preferred stock (410) (693) (621)
Reduction of retained earnings
applicable to redeemable common stock -- (400) (390)
-------- -------- --------
Earnings (loss) applicable to common shares $ 32,813 $ (320) $ 11,962
======== ======== ========
Per share earnings (loss)
applicable to common shares:
Basic
Continuing operations ($ 0.78) $ -- ($ 0.19)
Discontinued operations 4.94 (0.04) 0.53
-------- -------- --------
Earnings (loss)
before extraordinary credit 4.16 (0.04) 0.34
Extraordinary credit -- -- 1.25
-------- -------- --------
Net earnings (loss) $ 4.16 ($ 0.04) $ 1.59
======== ======== ========
Weighted average number of shares
of common stock outstanding 7,891 7,970 7,525
======== ======== ========
Diluted
Continuing operations ($ 0.78) $ -- ($ 0.19)
Discontinued operations 4.94 (0.04) 0.53
-------- -------- --------
Earnings (loss) before
extraordinary credit 4.16 (0.04) 0.34
Extraordinary credit -- -- 1.25
-------- -------- --------
Net earnings (loss) $ 4.16 ($ 0.04) $ 1.59
======== ======== ========
Weighted average number of shares
of common stock and common
stock equivalents outstanding 7,891 7,970 7,525
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Receivable Other Share-
Common Stock Additional From Comphre- Treasury Stock holders'
------------------ Paid-in Related hensive Accumulated --------------- Equity
Shares Dollars Capital Party Income (Deficit) Shares Dollars Deficit)
---------- ------- -------- -------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1995 7,102,979 $5,540 $38,526 ($4,318) $21,047 ($98,755) 57,038 ($805) ($38,765)
Comprehensive income (loss):
Net earnings - - - - - 12,973 - - 12,973
Net increase in unrealized
appreciation of investments - - - - 4,672 - - - 4,672
---------
Comprehensive income 17,645
---------
Other changes in shareholders' equity:
Common stock issued
to pay liabilities 125,012 94 362 - - - (120,554) 818 1,274
Common stock issued as
additional consideration
for short-term borrowings 50,544 38 (398) - - - (99,456) 1,021 661
Net increase in receivable
from related party,
including accrued interest - - - (2,150) - - - - (2,150)
Common stock loaned
by related party - - - 587 - - 100,000 (587) -
Repay common stock
loaned by related party 100,000 75 512 (587) - - - - -
Exercise of stock options
and warrants 61,000 46 213 - - - (16,900) 109 368
Common stock received as
consideration for
short-term note - - - - - - 87,500 (608) (608)
Reclassification of
redeemable common stock 185,231 - 996 - - - - - 996
Redeemable preferred
stock dividends - - - - - (621) - - (621)
Redeemable common stock accretion - - - - - (390) - - (390)
---------
Other changes in shareholders' equity (470)
---------
---------- ------- -------- -------- --------- --------- --------- -------- ---------
Balance at December 26, 1996 7,624,766 5,793 40,211 (6,468) 25,719 (86,793) 7,628 (52) (21,590)
Comprehensive income (loss):
Net earnings - - - - - 773 - - 773
Net decrease in unrealized
appreciation of investments - - - - (10,986) - - - (10,986)
---------
Comprehensive (loss) (10,213)
---------
Other changes in shareholders' equity:
Common stock issued
to pay liabilities 444,717 333 1,606 - - - - - 1,939
Net increase in receivable
from related party,
including accrued interest - - - (6,153) - - - - (6,153)
Exercise of stock options
and warrants 39,800 30 148 - - - - - 178
Redeemable common stock
obligation paid by the issuance
of additional common shares 115,543 67 612 - - - - - 679
Exercise of redeemable
common stock put option 72,984 - 55 - - - 72,984 (55) -
Purchase of
redeemable preferred stock - - 89 - - - - - 89
Redeemable preferred stock dividends - - - - - (693) - - (693)
Redeemable common stock accretion - - - - - (400) - - (400)
---------
Other changes in shareholders' equity (4,361)
---------
---------- ------- -------- -------- --------- --------- --------- -------- ---------
Balance at December 31, 1997 8,297,810 6,223 42,721 (12,621) 14,733 (87,113) 80,612 (107) (36,164)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Receivable Other Share-
Common Stock Additional From Comphre- Treasury Stock holders'
------------------ Paid-in Related hensive Accumulated --------------- Equity
Shares Dollars Capital Party Income (Deficit) Shares Dollars Deficit)
---------- ------- -------- -------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,297,810 6,223 42,721 (12,621) 14,733 (87,113) 80,612 (107) (36,164)
Comprehensive income (loss):
Net earnings - - - - 33,223 - - 33,223
Net decrease in unrealized
appreciation of investments - - - - (3,813) - - - (3,813)
----------
Comprehensive income 29,410
----------
Other changes in shareholders' equity:
Repurchase of common stock
previously issued to pay
down short-term notes - - - - - - 357,270 (1,518) (1,518)
Net decrease in receivable
from related party,
including accrued interest - - - 12,621 - - - - 12,621
Exercise of stock options 4,300 4 13 - - - - - 17
Redeemable preferred
stock dividends - - - - - (410) - - (410)
----------
Other changes in shareholders' equity 10,710
----------
---------- -------- --------- --------- ---------- ---------- -------- -------- ----------
Balance at December 31, 1998 8,302,110 $6,227 $42,734 $0 $10,920 ($54,300) 437,882 ($1,625) $3,956
========== ======== ========= ========= ========== ========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 33,223 $ 773 $ 12,973
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation of property, plant and equipment 2,446 4,059 3,622
Amortization of excess of cost over net assets acquired 272 305 305
Decrease in receivable from related party 400 2,816 --
Extraordinary gain from net discharge of indebtedness -- -- (9,424)
Gain on disposal of discontinued operations (35,585) -- --
Amortization of other assets, principally financing costs 1,121 4,754 548
Inventory valuation reserve 21 172 191
Gain on sale of property, plant and equipment -- (70) 78
Gain on sale of idle machinery and equipment -- (932) --
Litigation settlement, net -- (10,416) --
Gain on sale of COMFORCE common stock (320) (2,531) (5,818)
Minority interest 509 1,109 526
Other, principally common stock issued as compensation -- 454 220
Changes in assets and liabilities, net of effects of
businesses acquired and discontinued:
(Increase) decrease in receivables (35) (1,631) 2,630
(Increase) decrease in inventories (2,010) 132 1,476
(Increase) decrease in other current and noncurrent assets (456) 517 (169)
Increase (decrease) in payables and accrued expenses (8,771) 321 (5,980)
Decrease in other current and noncurrent liabilities (1,745) (119) (4,497)
-------- -------- --------
Net cash flows used by operating activities (10,930) (287) (3,319)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of COMFORCE common stock 170 1,821 3,717
Proceeds from sale of Bagcraft assets 89,000 -- --
Increase in restricted cash (1,045) -- --
Net proceeds from litigation settlement -- 9,761 --
Proceeds from sale of property, plant and equipment 537 132
Additions to property, plant and equipment (2,177) (3,066) (2,645)
(Increase) decrease in receivable from related party (8,969) (1,061)
Proceeds from collection of notes receivable -- -- 342
Decrease in restricted cash -- -- 552
Acquistion of AB Specialty, net of deposit -- (1,131) --
AB Specialty acquisition deposit -- -- (1,183)
Proceeds from sale of idle machinery and equipment -- 932 --
-------- -------- --------
Net cash flows from (used by) investing activities 85,948 (115) (146)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
ARTRA GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1998 1997 1996
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase (decrease) in short-term debt ($ 15,451) ($ 1,508) $ 286
Proceeds from long-term borrowings 124,077 146,891 141,896
Reduction of long-term debt (175,019) (133,781) (140,850)
Proceeds from exercise of stock options and warrants 17 178 369
Repurchase of common stock previously issued
to pay down short-term notes (1,518) -- --
Exercise of redeemable common stock put options -- (3,379) (510)
Redemption of detachable put warrants (1,440) (1,728) --
Purchase of redeemable preferred stock -- (426) --
Other 78 (25) 98
--------- --------- ---------
Net cash flows from (used by) financing activities (69,256) 6,222 1,289
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 5,762 5,820 (2,176)
Cash and equivalents, beginning of year 5,991 171 2,347
--------- --------- ---------
Cash and equivalents, end of year $ 11,753 $ 5,991 $ 171
========= ========= =========
Supplemental cash flow information: Cash paid during the year for:
Interest $ 6,087 $ 7,058 $ 5,320
Income taxes paid (refunded), net 189 177 157
Supplemental schedule of noncash investing and financing activities:
ARTRA/BCA redeemable preferred stock received as payment of
Peter Harvey advances $ 12,787 -- --
Issue common stock and redeemable common stock
to pay down current liabilities -- $ 1,939 $ 1,274
Issue common stock to pay
redeemable common stock put obligation -- 679 --
Issue common stock as additional consideration
for short-term borrowings -- -- 661
COMFORCE common stock given to lenders
as additional consideration for short-term borrowings -- 169 1,511
BCA Holdings redeemable preferred stock issued in exchange for
Bagcraft redeemable preferred stock -- -- 8,135
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA Group Incorporated, (hereinafter "ARTRA" or the "Company"), is a
Pennsylvania corporation incorporated in 1933. Through November 20, 1998, ARTRA
operated in one industry segment as a manufacturer of packaging products
principally serving the food industry. The packaging products business was
conducted by the Company's wholly-owned subsidiary, Bagcraft Corporation of
America ("Bagcraft"), which business was sold on November 20, 1998. The Company
does not intend to be deemed an "Investment Company" as defined by the
Investment Company Act of 1940 and, accordingly, is actively investigating new
business opportunities.
In 1997, the Company changed its fiscal year end to December 31. The Company had
operated on 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/Restricted Cash
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents. The fair value of cash and cash equivalents is
assumed to approximate the carrying value of these assets due to the short
duration of these assets.
At December 31, 1998, restricted cash represents amounts deposited in escrow
accounts to pay certain Bagcraft liabilities retained by ARTRA. These accounts
were established in accordance with provisions of the agreement to sell the
assets of the discontinued Bagcraft subsidiary discussed in Note 3.
C. Inventories
Inventories reflected in the Company's consolidated financial statements at
December 31, 1997 were stated at the lower of cost or market. Cost was
determined by the first-in, first-out (FIFO) method.
D. Property, Plant and Equipment
Property, plant and equipment reflected in the Company's consolidated financial
statements at December 31, 1997 were stated at cost. Expenditures for
maintenance and repairs were charged to operations as incurred and expenditures
for major renovations were capitalized. Depreciation was 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 were 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 were applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition was recognized in earnings.
E. Investments in Equity Securities
The Company's investment in COMFORCE Corporation ("COMFORCE", see Note 5) common
stock is classified in current assets as available-for-sale securities and
stated at fair value in accordance with the provisions of
F-10
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". Unrealized holding gains and
losses are included in a separate component of shareholders' equity (deficit)
until realized. The investment in COMFORCE common stock, which represents a
significant portion of the Company's assets at December 31, 1998, is subject to
liquidity and market price risks.
F. Intangible Assets
The net assets of a purchased business were recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) was reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.
Effective for the fiscal year ending December 26, 1996 the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ". The pronouncement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment is
evaluated by comparing future cash flows (undiscounted and without interest
charges) expected to result from the use or sale of the asset and its eventual
disposition, to the carrying amount of the asset. The adoption of SFAS No. 121
did not have a material impact on the Company's financial statements.
G. Revenue Recognition
Sales to customers of the Company's discontinued Bagcraft subsidiary were
recorded at the time of shipment.
H. Income Taxes
Income taxes are accounted for as prescribed in SFAS No. 109 - Accounting for
Income Taxes. Under the asset and liability method of Statement No. 109, the
Company recognizes the amount of income taxes payable. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years those temporary differences are expected to be recovered or
settled.
I. Use of Estimates In Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J. Stock-Based Compensation
Effective for the fiscal year ending December 26, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation". The pronouncement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on new fair value accounting rules. The Company did not adopt the new fair
value accounting, but instead chose to comply with the disclosure requirements
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material impact on the Company's financial statements.
K. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share" for the year ended
December 31, 1997. The pronouncement,
F-11
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
which specifies the computation, presentation, and disclosure requirements for
earnings per share, did not have a material impact on the Company's financial
statements.
L. Recently Issued Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income to present a measure of all changes in equity that result
from renegotiated transactions and other economic events of the period other
than transactions with owners in their capacity as owners. Comprehensive income
is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes net income. Required changes are reported in the consolidated statement
of operations.
During 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information". In
February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and other Postretirement Benefits. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. This standard requires that management
identify operating segments based on the way that management disaggregates the
entity for making internal operating decisions. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits.
As a result of the November 1998 sale of the assets of the discontinued Bagcraft
subsidiary, the Company exited its only industry segment, a manufacturer of
packaging products principally serving the food industry. Accordingly, the
guidelines of SFAS No. 131 - Disclosures About Segments of an Enterprise and
Related Information are not applicable to the Company's financial statements as
of December 31, 1998. The Company typically does not offer the types of benefit
programs that fall under the guidelines of Statement of Financial Accounting
Standards No. 132 - Employers' Disclosures about Pensions and other
Postretirement Benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. Management has not determined what impact this
standard, when adopted, will have on the Company's financial statements.
3. CHANGE OF BUSINESS
Bagcraft
Effective August 26, 1998, ARTRA and its wholly-owned subsidiary BCA Holdings,
Inc. ("BCA", the parent of Bagcraft), agreed to sell the business assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The transaction was completed on November 20, 1998 and ARTRA received gross
consideration of approximately $88,100,000 in cash. The disposition of the
Bagcraft business resulted in a net gain of $35,985,000.
A substantial portion of the cash proceeds received from the Bagcraft
disposition was used to retire or otherwise settle certain Bagcraft debt
obligations, including, but not limited to Bagcraft's credit agreement as
discussed in Note 8. After the disposition of certain Bagcraft obligations noted
above, ARTRA received net proceeds of approximately $28,000,000 from the sale of
Bagcraft. Approximately $15,200,000 of these net proceeds was used to retire
F-12
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ARTRA debt obligations. The Company plans to use the remainder of the proceeds
principally to acquire or participate in new business opportunities.
AB Specialty
Effective January 2, 1997, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration consisting of cash of approximately $2.3 million. The
purchased assets consisted principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement, was accounted for
by the purchase method and, accordingly, the assets and liabilities of AB were
included in the Company's financial statements at their estimated fair market
value at the date of acquisition. The business and related assets of AB were
part of the Bagcraft disposition.
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Bagcraft. The operating results (in
thousands) for fiscal years 1996 - 1998 of the discontinued Bagcraft subsidiary
and net gain on disposal consist of:
1998 1997 1996
--------- --------- ---------
Net sales $ 111,342 $ 125,027 $ 120,699
========= ========= =========
Earnings from operations before
minority interest and income taxes $ 3,534 $ 797 $ 4,672
(Provision) credit for income taxes (80) 19 (152)
Minority interest (509) (1,109) (526)
--------- --------- ---------
Earnings (loss) from operations 2,945 (293) 3,994
--------- --------- ---------
Gain on sale of Bagcraft subsidiary 37,505
Provision for income taxes (1,520)
---------
Gain on disposal of business 35,985
--------- --------- ---------
Earnings(loss)from discontinued operations $ 38,930 $ (293) $ 3,994
========= ========= =========
Liabilities of discontinued operations at December 31, 1998 of $10,328,000
include BCA/Bagcraft redeemable preferred stock issues (see Note 9), contractual
obligations, environmental matters and other future estimated costs for various
discontinued operations. Additionally, liabilities of discontinued operations at
December 31, 1998 includes an adjustment to the sales price of the Bagcraft
business of approximately $900,000.
F-13
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. INVENTORIES
Inventories of the discontinued Bagcraft at December 31, 1997 (in thousands)
consisted of:
Raw materials and supplies $5,901
Work in process 274
Finished goods 9,574
-------
$15,749
=======
5. INVESTMENT IN COMFORCE CORPORATION
At December 31, 1998 and 1997 ARTRA's investment in COMFORCE Corporation
("COMFORCE"), 1,525,500 shares, currently a common stock ownership interest of
approximately 9%, was classified in the Company's consolidated balance sheet in
current assets as "Available-for-sale securities." At December 31, 1998 the
gross unrealized gain relating to ARTRA's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $10,920,000. The investment in
COMFORCE common stock, which represents a significant portion of the Company's
assets at December 31, 1998, is subject to liquidity and market price risks.
In January 1996, the Company's Board of Directors approved the sale of 200,000
of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes
are collateralized by the related COMFORCE common shares. Additionally, the
noteholders have the right to put their COMFORCE shares back to ARTRA in full
payment of the balance of their notes. Based upon the preceding factors, the
Company had concluded that, for reporting purposes, it had effectively sold
options to certain officers, directors and key employees to acquire 200,000 of
ARTRA's COMFORCE common shares. Accordingly, in January 1996 these 200,000
COMFORCE common shares were removed from the Company's portfolio of
"Available-for-sale securities" and were classified in the Company's condensed
consolidated balance sheet as other receivables with an aggregate value of
$400,000, based upon the value of proceeds to be received upon future exercise
of the options. The disposition of these 200,000 COMFORCE common shares resulted
in a gain that was deferred and will not be recognized in the Company's
financial statements until the options to purchase these 200,000 COMFORCE common
shares are exercised. During the fourth quarter of 1997, options to acquire
59,500 of these COMFORCE common shares were exercised resulting in a realized
gain of $225,000. During 1998, options to acquire 84,750 of these COMFORCE
common shares were exercised resulting in a realized gain of $320,000. At
December 31, 1998, options to acquire 55,750 COMFORCE common shares remained
unexercised and were classified in the Company's consolidated balance sheet as
other receivables with an aggregate value of $112,000, based upon the value of
proceeds to be received upon future exercise of the options.
During 1997 ARTRA sold 219,203 COMFORCE common shares in the market, with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender received 25,000 COMFORCE common shares held by the Company as additional
consideration for a short-term loan. The disposition of these 244,703 COMFORCE
common shares resulted in realized gains of $2,306,000 during the year ended
December 31, 1997, with cost determined by average cost.
During 1996 ARTRA sold 193,000 COMFORCE common shares in the market, with the
net proceeds of approximately $3,700,000 used for working capital. During 1996
certain lenders received 105,000 COMFORCE common shares held by the Company as
additional consideration for short-term loans. In October 1996, a lender
exercised the conversion rights of a short-term loan and received 33,333
COMFORCE common shares in settlement of the Company's obligation. The
disposition of these 331,333 COMFORCE common shares resulted in realized gains
of $5,818,000 during the year ended December 26, 1996, with cost determined by
average cost.
F-14
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. EXTRAORDINARY GAIN
ARTRA Debt Restructuring
In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. ARTRA recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock along with proceeds received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. As
additional compensation for its loan and for participating in the above
discharge of indebtedness the unaffiliated company received 150,000 shares of
ARTRA common stock (with a then fair market value of $661,000 after a discount
for restricted marketability) and 25,000 shares of COMFORCE common stock held by
ARTRA (with a then fair market value of $200,000).
The extraordinary gain resulting from the discharge of bank debt is calculated
(in thousands) as follows:
Amounts due the bank:
ARTRA notes $ 12,063
Accrued interest 2,656
--------
14,719
Cash payment to the bank $ 5,050
Less amount applicable to
Peter R. Harvey indebtedness (1,089)
--------
(3,961)
--------
Bank debt discharged 10,758
Less fair market value of ARTRA
common stock issued as consideration
for a loan used in part to fund
the discharge of bank debt (661)
Less fair market value of COMFORCE
common stock issued as consideration
for a loan used in part to fund
the discharge of bank debt (200)
Other fees and expenses (473)
--------
Net extraordinary gain $ 9,424
========
7. NOTES PAYABLE
Notes payable at December 31, 1997 (in thousands) consisted of:
ARTRA 12% promissory notes - 1997 private placements $12,850
Amounts due to related parties, interest at10% 2,000
Other, interest from 10% to 12% 601
-------
15,451
Less ARTRA 12% promissory notes refinanced in January 1998 (4,725)
-------
$10,726
=======
F-15
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Promissory Notes
1998 Private Placement
In January 1998, ARTRA completed a private placement of $5,975,000 of 12%
promissory notes due January 14, 1999. As additional consideration the
noteholders received warrants to purchase an aggregate of 119,500 ARTRA common
shares at a price of $3.00 per share. The warrants expire January 14, 2000. The
warrantholders have the right to put these warrants back to ARTRA at any time
during a six-month period commencing in January 1999 and ending in July 1999, at
a price of $1.50 per share. The cost of this obligation ($179,250 if all
warrants are put back to the Company) was accrued in the Company's financial
statements as a charge to interest expense. The proceeds from the private
placement were used principally to pay down other debt obligations. These notes
were repaid in November 1998 with net proceeds from the sale of assets of the
discontinued Bagcraft subsidiary.
1997 Private Placements
In December 1997, ARTRA completed private placements of $5,375,000 of 12%
promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 ARTRA common
shares at a price of $3.00 per share. The warrants expire in November and
December 1999. The warrantholders have the right to put these warrants back to
ARTRA at any time during a period commencing in December 1998 and ending in May
1999, at a price of $1.50 per share. The cost of this obligation ($161,250 if
all warrants are put back to the Company) was accrued in the Company's financial
statements as a charge to interest expense. These notes were repaid in November
1998 with net proceeds from the sale of assets of the discontinued Bagcraft
subsidiary.
In July 1997, ARTRA completed private placements of $7,475,000 of 12% promissory
notes due in January 1998. As additional consideration the noteholders received
warrants to purchase an aggregate of 199,311 ARTRA common shares at a price of
$3.75 per share. The warrants expire in August 1999. The warrantholders have the
right to put these warrants back to ARTRA at any time during a period commencing
in January 1998 and ending in August 1999, at a price of $3.00 per share. The
cost of this obligation ($598,000 if all warrants are put back to the Company)
was amortized in the Company's financial statements as a charge to interest
expense over the period July 1997 (the date of the private placement) through
January 1998 (the scheduled maturity date of the notes). The proceeds from the
July 1997 private placement were advanced to Peter R. Harvey. See discussion and
disposition of Mr. Harvey's advances in Note 16.
The July 1997 private placement notes were repaid and /or refinanced with
proceeds of the January 1998 private placement of 12% notes and with proceeds
from the litigation settlement discussed in Note 11 to the consolidated
financial statements.
Amounts Due To Related Parties
At December 26, 1996, ARTRA had outstanding borrowings of $500,000 from an
outside director of the Company evidenced by a short-term note bearing interest
at 10%. As additional compensation for the loan and a December 1996 extension,
the director received five year warrants to purchase an aggregate of 50,000
ARTRA common shares at a prices ranging from $5.00 to $5.875 per share. The
proceeds of the loan were used for working capital.
In January 1997, ARTRA borrowed an additional $300,000 from this director
evidenced by a short-term note, due December 23, 1997, bearing interest at 8%.
As additional compensation for the loan, the director received a warrant,
expiring in 2002, to purchase 25,000 ARTRA common shares at a price of $5.75 per
share.
In March 1997, ARTRA borrowed an additional $1,000,000 from this director
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. As
additional compensation, the lender received an option to purchase 25,000 shares
F-16
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
of COMFORCE common stock, owned by the Company's Fill-Mor subsidiary, at a price
of $4.00 per share. The proceeds from this loan were used in part to repay
certain ARTRA debt obligations.
In April 1997, ARTRA borrowed $5,000,000 from the above director evidenced by a
note, due April 20, 1998, bearing interest at 10%. The proceeds from this loan
were used to repay $1,800,000 of prior borrowings from this director and pay
down other ARTRA debt obligations. As additional compensation, the director
received a warrant to purchase 333,333 ARTRA common shares at a price of $5.00
per share. In May 1998, the director exercised the option and put the warrant
back to ARTRA for a total purchased price of $1,000,000. The cost of this
obligation was amortized in the Company's financial statements as a charge to
interest expense over the period April 1997 (the date of the loan) through April
1998 (the date the warrantholder first had the right to put the warrant back to
ARTRA).
In June 1997, ARTRA borrowed an additional $1,000,000 from the above director
evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the director received a warrant to purchase 40,000
ARTRA common shares at a price of $5.00 per share. The warrantholder has the
right to put this warrant back to ARTRA at any time during the period December
10, 1997 to June 10, 1999, for a total purchase price of $80,000. The cost of
this obligation was amortized in the Company's financial statements as a charge
to interest expense over the period June 10, 1997 (the date of the loan) through
December 10, 1997 (the date the warrantholder has the right to put the warrant
back to ARTRA).
The proceeds from this loan were used to pay down other ARTRA debt obligations.
In July 1997, borrowings from this lender were reduced to $3,000,000 with
proceeds advanced to ARTRA from a Bagcraft term loan. In December 1997
borrowings from this lender were reduced to $2,000,000 with proceeds from other
short-term borrowings.
In April 1998, the $2,000,000 in outstanding borrowings from the above director
was extended by a demand note bearing interest at 10%. As additional
compensation, the director received a warrant to purchase 50,000 ARTRA common
shares at a price of $3.25 per share.
In August 1998, ARTRA borrowed an additional $500,000 from the above director
evidenced by a note, due December 20, 1998, bearing interest at 15%. As
additional compensation, the director received a warrant to purchase 20,000
ARTRA common shares at a price of $3.94 per share.
The borrowings from this director were collateralized by a secondary interest in
all of the common stock of BCA (the parent of Bagcraft).
In November 1998, the borrowings from this director were repaid with proceeds
received from the sale of the discontinued Bagcraft subsidiary.
Other
At December 31, 1997, ARTRA also had outstanding short-term borrowings from
other unrelated parties aggregating $601,000, with interest rates varying
between 10 % and 12%.
In April 1998 the Company and its Fill-Mor subsidiary entered into a margin loan
agreement with a financial institution which provided for borrowings of
$1,000,000, with interest at 8.5%. Borrowings under the loan agreement were
collateralized by 490,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. The proceeds of the loan were used for working capital.
This loan was repaid in December 1998 with proceeds received from the sale of
the discontinued Bagcraft subsidiary.
F-17
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In October 1997 a lender agreed to accept 357,270 ARTRA common shares in payment
of the principal amount of approximately $1,500,000 due on certain demand notes.
In January 1998 the lender returned the 357,270 ARTRA common shares to the
Company for cash consideration of approximately $1,500,000.
The weighted average interest rate on all short-term borrowings at December 31,
1997 was 11.5%.
8. LONG-TERM DEBT
Long-term debt at December 31, 1997 (in thousands) consisted of:
Bagcraft:
Credit Agreement:
Term Loan A, interest at the lender's index rate plus .25% $ 20,000
Term Loan B, interest at the lender's index rate plus .75% 5,000
Term Loan C, interest at the lender's index rate plus 1% 7,500
Revolving credit loan, interest at the lender's indexrate 9,313
Unamortized discount (1,425)
City of Baxter Springs, Kansas loan agreements,
interest at varying rates 9,968
-------
50,356
ARTRA 12% promissory notes refinanced in January 1998 4,725
-------
55,081
Current scheduled maturities (4,462)
-------
$50,619
=======
Bagcraft
At December 31, 1997, the discontinued Bagcraft subsidiary had outstanding
borrowings under its credit agreement ("Credit Agreement") totaling $40,388,000.
The Credit Agreement, amended and restated February 27, 1998, provided for a
revolving loan agreement and three term loans. Amounts due under the Credit
Agreement were repaid with proceeds from the sale of assets of the discontinued
Bagcraft subsidiary.
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, consisted of certain
loan agreements payable by Bagcraft directly to the City of Baxter Springs. At
December 31, 1997, the outstanding borrowings under these loans totaled
$9,968,000. Obligations due under these loans were assumed by the buyer of the
assets of the discontinued Bagcraft subsidiary.
F-18
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ARTRA
As discussed in Note 7, $7,475,000 of ARTRA 12% promissory notes due in January
1998 were repaid and /or refinanced principally with proceeds of a January 1998
private placement of 12% notes payable in January 1999. Private placement notes
in the principal amount of $4,725,000 refinanced by the January 1998 private
placement notes were classified as long-term debt at December 31, 1997.
9. REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
Currently payable:
<S> <C> <C>
BCA Holdings preferred stock, Series B,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable on demand with a liquidation preference
of $1,000 per share; authorized 8,135 shares;
issued and outstanding 1,675.79 shares in 1998
and 7,847.79 shares in 1997 $ * 9,831
Bagcraft redeemable preferred stock originally issued
to a related party, $.01 par value, 13.5% cumulative;
including accumulated dividends; redeemable on demand
with a liquidation preference equal to $100 per share;
issued 8,650 shares * $ 2,124
------- -------
$ - $11,955
======= =======
Noncurrent:
ARTRA redeemable preferred stock, Series A,
$1,000 par value, 6% cumulative payment-in-kind,
including accumulated dividends, net of
unamortized discount of $239 in 1998 and $859 in 1997;
redeemable March 1, 2000 at $1,000 per share
plus accrued dividends;
authorized 2,000,000 shares all series;
issued and outstanding 1,849.34 shares in
1998 and 3,583.62 shares in 1997 $ 2,857 $ 4,799
BCA Holdings preferred stock, Series A,
$1.00 par value, 6% cumulative,
including accumulated dividends;
liquidation preference of $1,000 per share;
10,000 shares authorized; issued and outstanding
1,672.15 shares in 1998 and 3,456.18 shares in 1997 * 4,311
------- -------
$ 2,857 $ 9,110
======= =======
</TABLE>
- --------------------------------
* Included in liabilities of discontinued operations at December 31, 1998, see
discussion below.
F-19
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 1990, ARTRA issued 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 as
partial consideration for the acquisition of the discontinued Bagcraft
subsidiary.
In August and September 1997 ARTRA repurchased 166.38 shares of ARTRA Series A
redeemable preferred stock with a carrying value of $209,000 for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000,
which was reflected in the Company's consolidated financial statements as a
credit to additional paid-in capital. The Series A Preferred Stock accrues
dividends at the rate of 6% per annum and is redeemable by ARTRA on March 1,
2000 at a price of $1,000 per share plus accrued dividends. Accumulated
dividends of $1,246,000 and $2,074,000 were accrued at December 31, 1998 and
December 31, 1997, respectively.
BCA Holdings/ Bagcraft
During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related party received 3,675 shares of BCA Series A preferred stock (6%
cumulative, redeemable preferred stock with a liquidation preference equal to
$1,000 per share). At December 31, 1998, liabilities of discontinued operations
included 1,672.18 BCA Series A redeemable preferred shares with accumulated
dividends of $514,000.
Effective February 15, 1996, BCA, Bagcraft and a former related party entered
into an agreement to exchange certain preferred stock between the Companies. Per
terms of the exchange agreement BCA issued 8,135 shares of BCA Series B
preferred stock (13.5% cumulative, redeemable preferred stock with a liquidation
preference equal to $1,000 per share) to the former related party in exchange
for 41,350 shares of Bagcraft redeemable preferred stock. At December 31, 1998,
liabilities of discontinued operations included 1,675.79 BCA Series B redeemable
preferred shares with accumulated dividends of $650,000.
At December 31, 1998, liabilities of discontinued operations included 8,650
shares of Bagcraft 13.5% cumulative, redeemable preferred stock (liquidation
preference equal to $100 per share). Accumulated dividends of $1,315,000 were
accrued at December 31, 1998.
As discussed in Note 16, effective January 31, 1998, Peter R. Harvey exchanged
certain ARTRA/BCA preferred stock to retire advances from ARTRA totaling
$12,787,000.
10. STOCK OPTIONS AND WARRANTS
Stock Option Plans
In August, 1996, ARTRA's shareholders approved a stock option plan (the "1996
Plan") for certain officers, key employees and others who render services to the
Company or its subsidiaries. The 1996 Plan reserves 2,000,000 shares of the
Company's common stock for the granting of options on or before August 29, 2006.
Options granted under the Plan shall be in the form of incentive stock options
("ISOs"), as defined under the Internal Revenue Code of 1986, as amended (the
"Code") or non-statutory options which do not qualify under the Code ("NSOs"),
or both, at the discretion of the Company. The purchase price of options granted
under the 1996 Plan shall be not less than fair market value at the date of
grant for ISOs, not less than 110% of fair market value on the date of grant for
an ISO granted to a shareholder possessing 10% more of the voting stock of the
Company and the fair market value per share on the date of grant in the case of
NSOs. Effective October 4, 1996, the Company issued certain officers and key
employees of ARTRA options to purchase 532,750 shares of ARTRA common stock at
$5.25 per share, the fair market value on the date of grant. The options vested
immediately and expire ten years from the date of grant.
In August 1996, ARTRA's shareholders also approved a 1996 Disinterested
Directors Stock Option Plan (the "1996 Director Plan") for directors of the
Company who are not employees or officers. The 1996 Director Plan reserves
200,000 shares of
F-20
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
the Company's common stock for the granting of NSOs on or before August 29, 2006
at a price equal to fair market value per share on the date of grant. In May
1998 the Company issued its outside directors options to purchase an aggregate
of 62,500 ARTRA common shares at $3.75 per share, the fair market value on the
date of grant. The options vested immediately and expire ten years from the date
of grant.
In July 1985, ARTRA's shareholders approved a stock option plan (the "1985
Plan") for certain officers and key employees of the Company and its
subsidiaries. The 1985 Plan, as amended, reserved 1,000,000 shares of the
Company's common stock and authorized the granting of options on or before
February 1, 1995. The purchase price of such options granted under the 1985 Plan
was not less than the market value at the date of grant for ISOs and not less
than 110% of the market value on the date of grant for an ISO granted to a
shareholder possessing 10% more of the voting stock of the Company.
Effective for the fiscal year ending December 26, 1996, the Company has adopted
the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". In 1998 and 1996 all stock options were granted at an exercise
price equal to fair market value at the date of grant and, accordingly, no
compensation expense has been recognized in connection with the Company's stock
option plans. Had compensation cost for the Company's stock option plan been
determined based on the fair value on the date of grant for awards in 1998 and
1996 consistent with the provisions of SFAS No. 123, the Company's earnings
applicable to common shares would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 26, 1996
---------------------------- ----------------------------
As Reported Pro forma As Reported Pro forma
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Earnings (loss) applicable to common shares:
Continuing operations $ (6,117) $ (6,216) $ (1,456) $ (2,906)
Discontinued operations 38,930 38,930 3,994 3,994
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 32,813 32,714 2,538 1,088
Extraordinary credit -- -- 9,424 9,424
---------- ---------- ---------- ----------
Net earnings $ 32,813 $ 32,714 $ 11,962 $ 10,512
========== ========== ========== ==========
Earnings (loss) per share:
Basic
Continuing operations $ (.78) $ (.79) $ (.19) $ (.39)
Discontinued operations 4.94 4.94 .53 .53
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 4.16 4.15 .34 .14
Extraordinary credit -- -- 1.25 1.25
---------- ---------- ---------- ----------
Net earnings $ 4.16 $ 4.15 $ 1.59 $ 1.39
========== ========== ========== ==========
Diluted
Continuing operations $ (.78) $ (.79) $ (.19) $ (.39)
Discontinued operations 4.94 4.94 .53 .53
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 4.16 4.15 .34 .14
Extraordinary credit -- -- 1.25 1.25
---------- ---------- ---------- ----------
Net earnings $ 4.16 $ 4.15 $ 1.59 $ 1.39
========== ========== ========== ==========
</TABLE>
F-21
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The fair value of stock options granted in 1998 and 1996 was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
1998 1996
---- ----
Expected life (years) 5 5
Interest rate 5.0% 6.5%
Volatility 50.0% 50.0%
Dividend yield - -
Information regarding all stock option plans for the three years in the period
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of year 913,050 917,850 431,500
Options granted 62,500 -- 532,750
Options exercised (4,300) (4,800) (40,400)
Options canceled -- -- (6,000)
---------- ---------- -----------
Options outstanding at end of year 971,250 913,050 917,850
========== ========== ===========
Options exercisable at end of year 971,250 913,050 917,850
========== ========== ===========
Options available for grant at end of year 1,604,750 1,667,250 1,667,250
========== ========== ===========
Weighted average option prices:
Outstanding at beginning of year $ 4.61 $ 4.61 $ 3.89
Options granted $ 3.125 -- $ 5.25
Options exercised $ 3.70 $ 3.70 $ 5.01
Options canceled -- -- $ 10.00
Outstanding at end of year $ 4.52 $ 4.61 $ 4.61
Exercisable at end of year $ 4.52 $ 4.61 $ 4.61
</TABLE>
Significant option groups outstanding at December 31, 1998 and related weighted
average price and remaining life information are as follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
---------- ----------- ----------- ----- ------------
05-27-98 62,500 62,500 $3.125 9
10-04-96 532,750 532,750 $5.25 7
01-08-93 143,500 143,500 $3.75 4
06-22-92 6,000 6,000 $5.25 3
09-19-91 51,667 51,667 $3.65 2
12-19-90 174,833 174,833 $3.65 1
F-22
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Effective January 6, 1999, the Company issued certain officers and key employees
of ARTRA options to purchase 413,250 shares of ARTRA common stock at $4.75 per
share, the fair market value on the date of grant. The options vested
immediately and expire ten years from the date of grant. Additionally, effective
January 6, 1999, the Company issued its outside directors options to purchase an
aggregate of 20,000 ARTRA common shares at $4.75 per share, the fair market
value on the date of grant, to certain outside directors. The options vested
immediately and expire ten years from the date of grant. These outside directors
were not board members at the time of the May 1998 disinterested director option
grants.
Warrants
Information regarding warrants to purchase shares of the Company's common stock
for the three years in the period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Warrants outstanding at beginning of year 2,592,350 1,711,032 1,148,549
Warrants granted 192,500 1,196,894 632,583
Warrants exercised -- (35,000) (37,500)
Warrants put back (500,000) (114,000) --
Warrants expired (214,850) (166,576) (32,600)
---------- ---------- ----------
Warrants outstanding at end of year 2,070,000 2,592,350 1,711,032
========== ========== ==========
$3.00 $3.50 $3.50
Exercise prices per share to to to
$8.00 $8.00 $9.875
</TABLE>
The warrants, exercisable from the date of issue, expire at various dates
through 2003. These warrants were issued principally as additional compensation
for various short-terms loans. At December 31, 1998, warrantholders had the
right to put warrants to purchase 833,144 shares of ARTRA common stock back to
the Company for total consideration of $1,705,000. During 1998 warrants to
purchase 500,000 shares of ARTRA common stock at prices ranging from $3.75 per
share to $5.00 per share were put back to ARTRA for total consideration of
$1,440,000. During 1997 warrants to purchase 114,000 shares of ARTRA common
stock at prices ranging from $5.00 per share to $6.00 per share were put back to
ARTRA for total consideration of $228,000.
11. COMMITMENTS AND CONTINGENCIES
Rental expense from continuing operations was $138,000, $134,000 and $134,000 in
fiscal years 1998, 1997 and 1996, respectively. Effective December 1995, John
Harvey, the Company's Chairman of the board of directors purchased the building
in which the Company leases office for its corporate headquarters. The lease
expired in December 1998 and has been extended on a month-to-month basis. Rental
expense for this lease was $126,000 annually for fiscal years 1998, 1997 and
1996.
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 31, 1998 and December 31,
1997, the Company had accrued current liabilities of $1,500,000 and $1,800,000,
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.
F-23
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The discontinued Bagcraft subsidiary's Chicago facility has been the subject of
allegations that it violated laws and regulations associated with the Clean Air
Act. The facility has numerous sources of air emissions of volatile organic
materials ("VOMs") associated with its printing operations and is required to
maintain and comply with permits and emissions regulations with regard to each
of these emission sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. In May 1998 Bagcraft paid $170,000 to formally
extinguish this claim.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1969 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 recent years, the Company has been a party to certain product liability
claims relating to the former Synkoloid subsidiary. The Company's product
liability insurance has covered all such claims settled to date. As of December
31, 1998, the Company anticipates that its product liability insurance is
adequate to cover any additional pending claims.
Several cases have arisen from ARTRA's purchase of Dutch Boy Paints which owned
a facility in Chicago which it purchased from NL Industries. In a case titled
City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated, filed in
the Circuit Court of Cook County, Illinois, the City of Chicago brought a
nuisance action and alleged that ARTRA (and NL Industries, Inc.) had improperly
stored, discarded and disposed of hazardous substances at the Dutch Boy site,
F-24
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
and that ARTRA had conveyed the site to Goodwill Industries to avoid clean-up
costs. At the time the suit was filed, the City of Chicago claimed that it would
cost $1,000,000 to remediate the site.
ARTRA and NL Industries, Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The Company is
presently unable to determine its liability, if any, in connection with this
case. The parties were conducting discovery but the case was stayed pending the
resolution of the EPA action described below.
In 1986, in a case titled People of the State of Illinois v. NL Industries,
Inc., ARTRA GROUP Incorporated, et al., the Cook County State's attorney filed
suit seeking response costs in excess of $2,000,000 and treble punitive damages
for costs expended by IEPA in remediating contamination at the Dutch Boy site,
alleging that all former owners contributed to the contamination. In 1989, the
Circuit Court dismissed the action, holding that the state had failed to exhaust
its administrative procedures. In 1992, this holding was reversed by the
Illinois Supreme Court. In 1996, the Illinois Appellate Court affirmed the
District Court's decision to dismiss the case based on lack of due diligence on
the part of the State of Illinois. The State of Illinois has filed a Petition
for Rehearing which was granted. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.
On November 17, 1995, the EPA issued letters to ARTRA, NL Industries and others
alleging that they were potentially responsible parties with respect to releases
at the Dutch Boy facility in Chicago and demanding that they remediate the site.
NL Industries entered into a consent decree with EPA in which it agreed to
remediate the site. The Company is presently unable to determine its liability,
if any, in connection with this case.
12. INCOME TAXES
The provision (credit) for income taxes (in thousands) is included in the
statements of operations as follows:
1998 1997 1996
------- ------- -------
Continuing operations $ -- $ -- $ --
Extraordinary credit -- -- 200
Discontinued operations 1,600 (19) 152
------- ------- -------
$ 1,600 $ (19) $ 352
======= ======= =======
A summary of the provision (credit) for income taxes (in thousands) is as
follows:
1998 1997 1996
------- ------- -------
Current:
Federal $ 700 $ -- $ 200
State 900 (19) 152
------- ------- -------
$ 1,600 $ (19) $ 352
======= ======= =======
Due to the utilization of tax loss carryforwards, no Federal income tax expense
is reflected in the Company's financial statements resulting from the 1998
earnings from discontinued operations or the 1996 extraordinary credit, except
for Federal alternative minimum tax. The 1996 extraordinary credit represents a
net gain from discharge of indebtedness.
F-25
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. INCOME TAXES, continued
In 1998, 1997 and 1996, the effective tax rates from operations, including
discontinued operations were 4.5%, (1.0)% and 2.5%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:
1998 1997 1996
-------- -------- --------
Provision (credit) for income taxes
using statutory rate $ 12,013 $ 633 $ 4,709
State and local taxes,
net of Federal benefit 900 (19) 152
Current year tax loss not utilized -- (1,680) --
Deferred finance fee -- 919 127
Amortization of goodwill -- 104 104
Previously unrecognized benefit
from utilizing tax loss carryforwards (12,035) -- (4,767)
Alternative minimum tax 700 -- --
Other 22 24 27
-------- -------- --------
$ 1,600 $ (19) $ 352
======== ======== ========
F-26
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. INCOME TAXES, continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1998 and December 31,
1997 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
<S> <C> <C> <C> <C>
Investment in COMFORCE Corporation $ 36,000 $ 14,000 $ 36,000 $ 14,000
Accrued personnel costs -- -- 1,200 500
Restructuring reserve -- -- 600 200
Environmental reserve -- -- 300 100
Other 2,500 1,000 3,400 1,300
Capital loss carryforward -- -- 3,500 1,400
Net operating loss 10,200 4,000 40,000 15,600
-------- --------
Total deferred tax assets 19,000 33,100
-------- --------
Inventories -- -- (1,900) (700)
Accumulated depreciation -- -- (5,100) (2,000)
Other (800) (300) (800) (300)
-------- --------
Total deferred tax liabilities (300) 3,000
-------- --------
Valuation allowance (18,700) (30,100)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.
At December 31, 1998, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $10,000,000 expiring principally in 2010 -
2012, available to be applied against future taxable income, if any. In recent
years, the Company has issued shares of its common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, the Company is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should the Company continue to issue a
significant number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.
F-27
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution 401 (k) plan covering substantially
all employees. Both employee and employer contributions are generally determined
as a percentage of the covered employee's annual compensation. The total expense
charged to operations relating to this plan amounted to $45,000, $38,000 and
$28,000 in 1998, 1997 and 1996, respectively.
The Company typically does not offer the types of benefit programs that fall
under the guidelines of Statement of Financial Accounting Standards No. 132 -
Employers' Disclosures about Pensions and Other Postretirement Benefits.
14. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share," for the year ended
December 31, 1998. Adoption of this pronouncement, which was applied to prior
periods presented, did not have a material impact on the Company's financial
statements.
Basic earnings (loss) per share is computed by dividing the income available to
common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income available
to common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock and common stock equivalents (redeemable common stock,
stock options and warrants), unless anti-dilutive, during each period.
Earnings (loss) per share for each of the three fiscal years in the period ended
December 31, 1998 was computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 26, 1996
--------------------- --------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding 7,891 7,891 7,970 7,970 7,525 7,525
Common stock equivalents
(options/warrants) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
7,891 7,891 7,970 7,970 7,525 7,525
======== ======== ======== ======== ======== ========
EARNINGS (LOSS):
Earnings (loss) from
continuing operations $ (5,707) $ (5,707) $ 1,066 $ 1,066 $ (445) $ (445)
Dividends applicable to
redeemable preferred stock (410) (410) (693) (693) (621) (621)
Redeemable common stock accretion -- -- (400) (400) (390) (390)
-------- -------- -------- -------- -------- --------
Loss from continuing operations
applicable to common shareholders (6,117) (6,117) (27) (27) (1,456) (1,456)
Earnings (loss) from
discontinued operations 38,930 38,930 (293) (293) 3,994 3,994
-------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary credit 32,813 32,813 (320) (320) 2,538 2,538
Extraordinary credit -- -- -- -- 9,424 9,424
-------- -------- -------- -------- -------- --------
Net earnings (loss) $ 32,813 $ 32,813 $ (320) $ (320) $ 11,962 $ 11,962
======== ======== ======== ======== ======== ========
</TABLE>
F-28
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. EARNINGS PER SHARE, continued
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 26, 1996
-------------------- ------------------ -------------------
Basic Diluted Basic Diluted Basic Diluted
PER SHARE AMOUNTS:
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations
applicable to common shares $ (.78) $ (.78) $ -- $ -- $ (.19) $ (.19)
Earnings (loss) from
discontinued operations 4.94 4.94 (.04) (.04) .53 .53
-------- -------- ------- ------- -------- --------
Earnings (loss) before
extraordinary credit 4.16 4.16 (.04) (.04) .34 .34
Extraordinary credit -- -- -- -- 1.25 1.25
-------- -------- ------- ------- -------- --------
Net earnings (loss) applicable
to common shares $ 4.16 $ 4.16 $ (.04) $ (.04) $ 1.59 $ 1.59
======== ======== ======= ======= ======== ========
</TABLE>
15. LITIGATION
In November, 1993, ARTRA filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois against Salomon Brothers, Inc.,
Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J.
Zimmerman (collectively, "Salomon Defendants"), D.P. Kelly & Associates, L.P.,
("DPK"), Donald P. Kelly ("Kelly Defendants" along with DPK), James F. Massey
and William Rifkind relating to the acquisition of Envirodyne Industries, Inc.
in 1989 by Emerald Acquisition Corp.
Effective December 31, 1997, the above parties reached a settlement agreement
and all pending litigation was dismissed. ARTRA recognized a gain from the
settlement agreement of $10,416,000 ($1.31 per share), net of related legal fees
and other expenses.
The Company and its subsidiaries are the defendants in various other
business-related litigation and environmental matters (see Note 11). Management
does not believe the outcome of these matters will have a material adverse
effect on the Company's financial statements.
16. RELATED PARTY TRANSACTIONS
At December 31, 1997, advances to Peter R. Harvey, ARTRA's president, classified
in the consolidated balance sheet as a reduction of common shareholders' equity,
(in thousands) consisted of:
Total advances, including accrued interest $18,226
Less interest for the period January 1,
1993 to date, accrued and fully reserved (2,789)
-------
15,437
Less compensation/expense reimbursement (2,816)
-------
Net advances $12,621
=======
F-29
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ARTRA had total advances due from its president, Peter R. Harvey, of which
$18,226,000, including accrued interest, remained outstanding at December 31,
1997. These advances provided for interest at varying rate from 10.5% to 12%.
This receivable from Peter R. Harvey had been classified as a reduction of
common shareholders' equity.
Commencing January 1, 1993 to date, interest on the advances to Peter R. Harvey
had been accrued and fully reserved.
In March 1998, ARTRA's Board of Directors ratified a proposal to settle Mr.
Harvey's advances as follows:
Effective December 31, 1997, Mr. Harvey's net advances from ARTRA were
offset by $2,816,000 ($5,605,000 net of interest accrued and reserved
for the period 1993 - 1997) to $12,621,000. This offset of Mr.
Harvey's advances represented a combination of compensation for prior
year guarantees of ARTRA obligations to private and institutional
lenders, compensation in excess of the nominal amounts Mr. Harvey
received for the years 1995 - 1997 and reimbursement for expenses
incurred to defend ARTRA against certain litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of the following
ARTRA/BCA preferred stock held by Mr. Harvey:
Face Value
Plus
Security Accrued Dividends
------------------------------------------------------ -----------------
ARTRA redeemable preferred stock, 1,734.28 shares $ 2,751,000
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000
-------------
$ 12,787,000
=============
For a discussion of certain other related party debt obligations see Note 7.
F-30
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for each of the three fiscal years in the period ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------- --------------- ------------------------------- --------------- ------------
Additions
------------------------------
(a) (b)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
--------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 31, 1998:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 277 $ 21 $ (298)(C) $ -
===== ====== ====== =====
Allowance for doubtful accounts $ 275 $ 45 $ (320)(C) $ -
===== ====== ====== ======
For the fiscal year ended December 31, 1997:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 249 $ 172 $ (144)(B) $ 277
===== ======= ====== =====
Allowance for doubtful accounts $ 512 $ 63 $ (300)(A) $ 275
===== ====== ====== =====
For the fiscal year ended December 26, 1996:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 290 $ 191 $ (232)(B) $ 249
===== ======= ====== =====
Allowance for markdowns $ 250 $ 365 $ (103)(A) $ 512
===== ====== ====== =====
(A) Principally markdowns taken. (B) Principally inventory written off, net of
recoveries. (C) Principally amounts of discontinued operations.
</TABLE>
F-31
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
March 31, December 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 9,317 $ 11,753
Restricted cash and equivalents 962 1,045
Available-for-sale securities 5,816 8,200
Other 154 270
-------- --------
Total current assets 16,249 21,268
Other assets:
Advances to Entrade Inc. 967 --
Other 335 --
-------- --------
$ 17,551 $ 21,268
======== ========
LIABILITIES
Current liabilities:
Accrued expenses $ 574 $ 568
Income taxes 1,123 1,854
Common stock put warrants 1,394 1,705
Liabilities of discontinued operations 9,398 10,328
-------- --------
Total current liabilities 12,489 14,455
-------- --------
Commitments and contingencies
Redeemable preferred stock 2,921 2,857
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares;
issued 8,603,348 shares in 1999
and 8,302,110 shares in 1998 6,453 6,227
Additional paid-in capital 44,409 42,734
Unrealized appreciation of investments 8,536 10,920
Accumulated deficit (55,632) (54,300)
-------- --------
3,766 5,581
Less treasury stock, 437,882 shares, at cost 1,625 1,625
-------- --------
2,141 3,956
-------- --------
$ 17,551 $ 21,268
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1999 1998*
------- -------
<S> <C> <C>
Net sales $ -- $ --
------- -------
Costs and expenses:
Cost of goods sold, exclusive of depreciation and amortization -- --
Selling, general and administrative 1,354 622
------- -------
1,354 622
------- -------
Operating loss (1,354) (622)
------- -------
Other income (expense):
Interest income (expense), net 86 (1,134)
Realized gain on disposal of available-for-sale securities -- 53
Other income (expense), net -- (76)
------- -------
86 (1,157)
------- -------
Loss from continuing operations before income taxes (1,268) (1,779)
Provision for income taxes -- --
------- -------
Loss from continuing operations (1,268) (1,779)
Loss from discontinued operations -- (138)
------- -------
Net loss (1,268) (1,917)
Dividends applicable to redeemable preferred stock (64) (124)
------- -------
Loss applicable to common shares ($1,332) ($2,041)
======= =======
Per share loss applicable to common shares:
Basic
Continuing operations ($ 0.17) ($ 0.24)
Discontinued operations -- (0.02)
------- -------
Net loss ($ 0.17) ($ 0.26)
======= =======
Weighted average number of shares of common stock outstanding 7,965 7,952
======= =======
Diluted
Continuing operations ($ 0.17) ($ 0.24)
Discontinued operations -- (0.02)
------- -------
Net loss ($ 0.17) ($ 0.26)
======= =======
Weighted average number of shares of common stock and
common stock equivalents outstanding 7,965 7,952
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- ---------------------------
* As reclassified for discontinued operations.
F-33
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Additional Other Treasury Stock Shareholders'
------------------ Paid-in Comprehensive Accumulated ----------------- Equity
Shares Dollars Capital Income (Deficit) Shares Dollars (Deficit)
--------- ------- --------- ------------ ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 8,302,110 $6,227 $42,734 $10,920 ($54,300) 437,882 ($1,625) $3,956
----------
Comprehensive income (loss):
Net loss - - - (1,268) - - (1,268)
Net decrease in unrealized
appreciation of investments - - - (2,384) - - - (2,384)
----------
Comprehensive income (loss) (3,652)
----------
Other changes in
shareholders' equity:
Exercise of warrants to
purchase common stock 263,841 198 940 - - - - 1,138
Exercise of options to
purchase common stock 37,397 28 124 - - - - 152
Outstanding stock optons - - 300 - - - - 300
Reverse put liability
for warrants exercised - - 311 - - - - 311
Redeemable preferred
stock dividends - - - - (64) - - (64)
----------
Other changes in
shareholders' equity 1,837
----------
--------- ------- ---------- ----------- ----------- ------- ------- ----------
Balance at March 31, 1999 8,603,348 $6,453 $44,409 $8,536 ($55,632) 437,882 ($1,625) $1,841
========= ======= ========== =========== =========== ======= ======= ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-34
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Three Months Ended
---------------------
March 31, March 31,
1999 1998
-------- --------
Net cash flows used by operating activities ($ 2,074) ($ 2,492)
-------- --------
Cash flows from investing activities:
Advances to Entrade Inc. (1,400) --
Decrease in restricted cash 83 --
Additions to property, plant and equipment -- (449)
Proceeds from sale of COMFORCE common stock -- 28
Other (335) --
-------- --------
Net cash flows used by investing activities (1,652) (421)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 1,290 17
Net decrease in short-term debt -- (1,850)
Proceeds from long-term borrowings -- 36,514
Reduction of long-term debt -- (35,788)
Repurchase of common stock previously issued
to pay down short-term notes -- (1,518)
Redeem detachable put warrant -- (400)
Other -- 18
-------- --------
Net cash flows used by financing activities 1,290 (3,007)
-------- --------
Decrease in cash and cash equivalents (2,436) (5,920)
Cash and equivalents, beginning of period 11,753 5,991
-------- --------
Cash and equivalents, end of period $ 9,317 $ 71
======== ========
Supplemental schedule of noncash
investing and financing activities:
ARTRA/BCA redeemable preferred stock
received as payment ofPeter Harvey advances -- 12,787
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-35
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA Group Incorporated, (hereinafter "ARTRA" or the "Company"), is a
Pennsylvania corporation incorporated in 1933. Through November 20, 1998, ARTRA
operated in one industry segment as a manufacturer of packaging products
principally serving the food industry. The packaging products business was
conducted by the Company's wholly-owned subsidiary, Bagcraft Corporation of
America ("Bagcraft"), which business was sold on November 20, 1998.
As discussed in Note 2, on February 23, 1999, ARTRA entered into an agreement
with Entrade Inc. ("Entrade"), formerly NA Acquisition Corp., and WorldWide Web
NetworX Corporation ("WWWX") providing for the merger of a subsidiary of Entrade
with ARTRA. Entrade, a 90% owned subsidiary of WWWX, owns all of the outstanding
capital stock of entrade.com, Inc. ("entrade.com") and 25% of the Class A Common
Stock of asseTrade.com, Inc. ("asseTrade.com").
entrade.com is an Internet business-to-business electronic commerce
("e-commerce") company seeking to provide asset disposition solutions for the
utility and large industrial manufacturing sectors. asseTrade.com proposes to
develop and implement comprehensive asset/inventory recovery, disposal,
remarketing and management solutions for corporate clients through advanced
Internet electronic business applications, including on-line auctions.
Consummation of the merger is subject to the approval of the shareholders of
ARTRA. The Company expects to complete the transaction during the third quarter
of 1999.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1998 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K.
In the opinion of the Company, the accompanying condensed consolidated financial
statements reflect all normal recurring adjustments necessary to present fairly
the financial position as of March 31, 1999, and the results of operations and
changes in cash flows for the three month periods ended March 31, 1999 and March
31, 1998. Reported interim results of operations are based in part on estimates
that may be subject to year-end adjustments. In addition, these quarterly
results of operations are not necessarily indicative of those expected for the
year.
2. CHANGE OF BUSINESS
Entrade Inc.
On February 23, 1999, ARTRA entered into an Agreement and Plan of Merger (the
"Merger Agreement") with WWWX, Entrade, a 90% owned subsidiary of WWWX, and WWWX
Merger Subsidiary, Inc. ("Merger Sub"), a wholly owned subsidiary of Entrade,
pursuant to which Merger Sub will merge into the Company (the "Merger"), with
the Company being the surviving corporation. As a result of the Merger, the
Company will become a wholly owned subsidiary of Entrade, and the shareholders
of the Company will become shareholders of Entrade. Under the terms of the
Merger Agreement, the Company's shareholders will receive one share of Entrade
Common Stock in exchange for each share of the Company's Common Stock.
Additionally, the ARTRA preferred stock shareholders, which shall include
persons who elect to exchange their BCA Holdings, Inc. ("BCA", a wholly-owned
subsidiary and parent of Bagcraft) preferred stock prior to the merger, will
receive shares of Entrade Common Stock in exchange for shares of their
respective preferred stock issuances (see Note 4 for a further discussion of
preferred stock issuances). All stock options and warrants issued by the Company
and outstanding on the closing date of the Merger will be converted into Entrade
stock options and warrants. Entrade owns all of the outstanding capital stock of
entrade.com and 25% of the Class A Common Stock of asseTrade.com.
F-36
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In connection with the execution of the Merger Agreement, on February 23, 1999,
Entrade acquired certain software and intellectual property and 25% of the
shares of Class A Voting Common Stock of asseTrade.com (collectively, the
"Purchased Assets") from WWWX, in exchange for 1,800,000 shares of Entrade
Common Stock, $800,000 in cash and a note for $500,000, payable upon the
consummation of the Merger or the earlier termination of the Merger Agreement.
On February 19, 1999, Entrade had agreed with Energy Trading Company ("ETCO"), a
wholly owned subsidiary of Peco Energy Company, to issue to ETCO 200,000 shares
of Entrade Common Stock, and to pay ETCO $100,000 in exchange for certain
retained rights ETCO held in the Purchased Assets. Entrade also agreed with both
WWWX and ETCO that it would provide a minimum of $4,000,000 in funding for
entrade.com. Under separate loan agreements, ARTRA agreed to loan Entrade up to
$2,000,000 to fund the $800,000 cash payment to WWWX and to provide funding for
entrade.com until the consummation of the Merger or the earlier termination of
the Merger Agreement. Under the Merger Agreement, the Company agreed to guaranty
the $4,000,000 funding for entrade.com if the Merger is consummated.
Consummation of the merger is subject to the approval of the shareholders of
ARTRA. The Company expects to complete the transaction during the third quarter
of 1999.
Bagcraft
Effective August 26, 1998, ARTRA and its wholly-owned BCA subsidiary, the parent
of Bagcraft, agreed to sell the business assets of Bagcraft. Additionally, the
buyer agreed to assume certain Bagcraft liabilities. The disposition of the
Bagcraft business resulted in a net gain of $35,985,000.
The Company's 1998 consolidated financial statements have been reclassified to
report separately the results of operations of Bagcraft. The operating results
(in thousands) for three months ended March 31, 1998 of the discontinued
Bagcraft subsidiary consist of:
Net sales $ 30,839
==========
Earnings from operations before income taxes
and minority interest $ 63
Provision for income taxes (12)
Minority interest (189)
----------
Loss from discontinued operations $ (138)
==========
Liabilities of discontinued operations at March 31, 1999 and December 31, 1998
of $9,398,000 and $10,328,000, respectively, include BCA/Bagcraft redeemable
preferred stock issues (see Note 4), contractual obligations, environmental
matters and other future estimated costs for various discontinued operations.
F-37
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. INVESTMENT IN COMFORCE CORPORATION
At March 31, 1999 ARTRA's investment in COMFORCE Corporation ("COMFORCE"),
1,525,500 shares, currently a common stock ownership interest of approximately
9%, was classified in the Company's condensed consolidated balance sheet in
current assets as "Available-for-sale securities." At March 31, 1999 the gross
unrealized gain relating to ARTRA's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $8,536,000. The investment in
COMFORCE common stock, which represents a significant portion of the Company's
assets at March 31, 1999 and December 31, 1998, is subject to liquidity and
market price risks.
In January 1996, the Company's Board of Directors approved the sale of 200,000
of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes
are collateralized by the related COMFORCE common shares. Additionally, the
noteholders have the right to put their COMFORCE shares back to ARTRA in full
payment of the balance of their notes. Based upon the preceding factors, the
Company had concluded that, for reporting purposes, it had effectively sold
options to certain officers, directors and key employees to acquire 200,000 of
ARTRA's COMFORCE common shares. Accordingly, in January 1996 these 200,000
COMFORCE common shares were removed from the Company's portfolio of
"Available-for-sale securities" and were classified in the Company's condensed
consolidated balance sheet as other receivables with an aggregate value of
$400,000, based upon the value of proceeds to be received upon future exercise
of the options. The disposition of these 200,000 COMFORCE common shares resulted
in a gain that was deferred and will not be recognized in the Company's
financial statements until the options to purchase these 200,000 COMFORCE common
shares are exercised. During the first quarter of 1998, options to acquire
14,000 of these COMFORCE common shares were exercised resulting in a realized
gain of $53,000. At March 31, 1999, options to acquire 55,750 COMFORCE common
shares remained unexercised and were classified in the Company's condensed
consolidated balance sheet as other current assets with an aggregate value of
$112,000, based upon the value of proceeds to be received upon future exercise
of the options.
4. REDEEMABLE PREFERRED STOCK
ARTRA
In March 1990, ARTRA issued 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 as
partial consideration for the acquisition of the discontinued Bagcraft
subsidiary.
At March 31, 1999 and December 31, 1998, 1,849.34 shares of Series A Preferred
Stock were outstanding with carrying values of $2,921,000 and $2,857,000,
respectively, including accumulated dividends, net of unamortized discount of
$205,000 and $239,000, respectively. 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 $1,276,000 and $1,246,000 were accrued at March 31, 1999 and
December 31, 1998, respectively.
BCA Holdings/ Bagcraft
During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related party received 3,675 shares of BCA Series A preferred stock (6%
cumulative, redeemable preferred stock with a liquidation preference equal to
$1,000 per share). At March 31, 1999 and December 31, 1998, liabilities of
discontinued operations included 1,672.18 BCA Series A redeemable preferred
shares with accumulated dividends of $514,000.
F-38
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Effective February 15, 1996, BCA, Bagcraft and a former related party entered
into an agreement to exchange certain preferred stock between the Companies. Per
terms of the exchange agreement BCA issued 8,135 shares of BCA Series B
preferred stock (13.5% cumulative, redeemable preferred stock with a liquidation
preference equal to $1,000 per share) to the former related party in exchange
for 41,350 shares of Bagcraft redeemable preferred stock. At March 31, 1999 and
December 31, 1998, liabilities of discontinued operations included 1,675.79 BCA
Series B redeemable preferred shares with accumulated dividends of $650,000.
At March 31, 1999 and December 31, 1998, liabilities of discontinued operations
included 8,650 shares of Bagcraft 13.5% cumulative, redeemable preferred stock
(liquidation preference equal to $100 per share). Accumulated dividends of
$1,315,000 were accrued at March 31, 1999 and December 31, 1998.
On February 23, 1999, ARTRA entered into a Merger Agreement with WWWX and
Entrade (see Note 2). As a result of the Merger, the Company will become a
wholly owned subsidiary of Entrade, and the shareholders of the Company will
become shareholders of Entrade. Under the terms of the Merger Agreement, if
approved by the Company's shareholders, the ARTRA preferred stock shareholders,
which shall include persons who elect to exchange their BCA preferred stock
prior to the merger, will receive shares of Entrade Common Stock in exchange for
shares of their respective preferred stock issuances.
5. INCOME TAXES
No income tax benefit was recognized in connection with the Company's 1998 and
1997 pre-tax losses due to the Company's tax loss carryforwards and the
uncertainty of future taxable income.
At December 31, 1998, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $10,000,000 expiring principally in 2010 -
2012, 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, upon exercise of stock options and warrants, 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 on its ability to
utilize its Federal income tax loss carryforwards.
6. EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share". Basic earnings (loss) per share is computed by dividing the income
available to common shareholders, net earnings (loss), less redeemable preferred
stock dividends and redeemable common stock accretion, by the weighted average
number of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income available
to common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock and common stock equivalents (stock options and
warrants), unless anti-dilutive, during each period.
F-39
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Earnings (loss) per share for the three months ended March 31, 1999 and 1998 was
computed as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------------- ------------------
Basic Diluted Basic Diluted
-------- -------- -------- -------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 7,965 7,965 7,952 7,952
Common stock equivalents
(options/warrants) -- -- -- --
======== ======== ======== =======
7,965 7,965 7,952 7,952
======== ======== ======== =======
EARNINGS (LOSS):
Net loss $ (1,268) $ (1,268) $ (1,917) $(1,917)
Dividends applicable to
redeemable preferred stock (64) (64) (124) (124)
======== ======== ======== =======
Loss applicable to common shareholders $ (1,322) $ (1,332) $ (2,041) $(2,041)
======== ======== ======== =======
PER SHARE AMOUNTS:
Net loss applicable to common shares $ (0.17) $ (0.17) $ (0.26) $ (0.26)
======== ======== ======== =======
</TABLE>
7. LITIGATION
The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At March 31, 1999 and December 31, 1998,
the Company had accrued current liabilities of $1,500,000 for potential
business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management does not believe the outcome of these matters will have a material
adverse effect on the Company's financial statements.
The discontinued Bagcraft subsidiary's Chicago facility has been the subject of
allegations that it violated laws and regulations associated with the Clean Air
Act. The facility has numerous sources of air emissions of volatile organic
materials ("VOMs") associated with its printing operations and was required to
maintain and comply with permits and emissions regulations with regard to each
of these emission sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. In May 1998 Bagcraft paid $170,000 to formally
extinguish this claim.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985, Harvel was merged into ARTRA's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. ARTRA has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
F-40
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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
1969 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 recent years, the Company has been a party to certain product liability
claims relating to the former Synkoloid subsidiary. The Company's product
liability insurance has covered all such claims settled to date. As of March 31,
1999, the Company anticipates that its product liability insurance is adequate
to cover any additional pending claims.
Several cases have arisen from ARTRA's purchase of Dutch Boy Paints which owned
a facility in Chicago which it purchased from NL Industries. In a case titled
City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated, filed in
the Circuit Court of Cook County, Illinois, the City of Chicago brought a
nuisance action and alleged that ARTRA (and NL Industries, Inc.) had improperly
stored, discarded and disposed of hazardous substances at the Dutch Boy site,
and that ARTRA had conveyed the site to Goodwill Industries to avoid clean-up
costs. At the time the suit was filed, the City of Chicago claimed that it would
cost $1,000,000 to remediate the site. The Company is currently negotiating with
the City of Chicago to settle this claim.
ARTRA and NL Industries, Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The Company is
presently unable to determine its liability, if any, in connection with this
case. The parties were conducting discovery but the case was stayed pending the
resolution of the EPA action described below.
On November 17, 1995, the EPA issued letters to ARTRA, NL Industries and others
alleging that they were potentially responsible parties with respect to releases
at the Dutch Boy facility in Chicago and demanding that they remediate the site.
NL Industries entered into a consent decree with EPA in which it agreed to
remediate the site. The Company is presently unable to determine its liability,
if any, in connection with this case.
8. OTHER INFORMATION
On February 23, 1999, the Company entered into three-year employment agreements
with three individuals to manage the Company's entry into the Internet
business-to-business e-commerce and on-line auction business. In connection with
such employment, the three individuals will receive nonqualified stock options
for the purchase of 1,800,000 shares of the Company's Common Stock at an
exercise price of $2.75 per share. The options vest in three equal installments
over a period ending February 18, 2001. During the three months ended March 31,
1999, the Company recognized compensation expense of $300,000 related to these
stock options.
F-41
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ARTRA has fallen below certain of the New York Stock Exchange's quantitative and
other continued listing criteria. Pursuant to the New York Stock Exchange's
request, ARTRA has provided a definitive action plan demonstrating ARTRA's
ability to achieve compliance with the New York Stock Exchange's listing
standards, including the succession of Entrade common stock to such listing
after the merger. Based upon a review of that plan, the New York Stock Exchange
is continuing the listing of ARTRA common stock. ARTRA will be subject to
ongoing quarterly monitoring for compliance with the plan. Failure to meet any
of the quarterly plan projections could result in the suspension from trading
and subsequent delisting of ARTRA common stock. ARTRA's plan is dependent upon
consummation of the merger during the third quarter of 1999. If the merger is
not consummated, ARTRA may not be able to satisfy the listing requirements of
the New York Stock Exchange, and ARTRA common stock may be delisted from the New
York Stock Exchange.
9. SUBSEQUENT EVENTS
On April 19, 1999, ARTRA entered into a letter of intent to purchase all of the
issued and outstanding common stock of Public Liquidations Systems, Inc. and
Asset Liquidation Group, Inc., d/b/a as Nationwide Auction Systems Corp. The
purchase price shall consist of cash of $10,800,000 payable at closing,
1,570,000 shares of ARTRA common stock and a $14,000,000 note, subject to
adjustment, payable over a two year period subsequent to the closing of the
transaction. Consummation of the transaction is subject to certain conditions,
including performance of the buyer's and seller's due diligence and negotiation
of a definitive asset purchase agreement. The letter of intent, as extended,
expires on May 24. This potential acquisition is not as yet deemed probable as
no assurance can be given that the parties will complete their due diligence or
enter into a definitive agreement by that date.
During April 1999, warrants were exercised to purchase approximately 560,000
shares of ARTRA common stock, resulting in proceeds to the Company of
approximately $2,400,000. These warrants were issued principally as additional
compensation for various short-terms loans, all of which were repaid before the
end of 1998.
F-42
<PAGE>
Entrade Inc. and subsidiary
(formerly NA Acquisition Corp.)
CONSOLIDATED BALANCE SHEET
FEBRUARY 23, 1999
<PAGE>
Entrade Inc. and subsidiary
Index to Financial Statements
Page(s)
Report of Independent Accountants F-44
Consolidated Balance Sheet as of February 23, 1999 F-45
Notes to Consolidated Balance Sheet F-46 - F-48
F-43
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entrade Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly, in
all material respects, the financial position of Entrade Inc. (formerly NA
Acquisition Corp.) and subsidiary at February 23, 1999 (inception), in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Company's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERCOOPERS LLP
May 13, 1999
F-44
<PAGE>
Entrade Inc. and subsidiary
Consolidated Balance Sheet
as of February 23, 1999
ASSETS
Cash $ 600,000
----------
Total current assets 600,000
----------
Investment in asseTrade 3,500,000
Intangible asset 3,156,224
----------
Total assets $7,256,224
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 100,000
Promissory note payable 500,000
Loan payable 1,400,000
----------
Total current liabilities 2,000,000
Shareholders' equity:
Preferred stock, $1,000 par value, 4,000,000 shares
authorized, no shares issued or outstanding --
Common stock, no par value, 40,000,000 shares authorized,
2,000,000 issued and outstanding 5,256,224
----------
Total liabilities and shareholders' equity $7,256,224
==========
The accompanying notes are integral part of this balance sheet.
F-45
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet
1. Formation of the Company and Acquisitions
Entrade Inc., formerly NA Acquisition Corp., ("Entrade" or "the
Company"), a Pennsylvania corporation, was incorporated in February of
1999 as a 90% owned subsidiary of WorldWide Web NetworX Corporation
("WWWX"). Entrade, through its wholly owned subsidiary, entrade.com, Inc.
("entrade.com") intends to operate as a business-to-business internet
electronic commerce ("e-commerce") service provider.
Upon incorporation, Entrade acquired from WWWX all of the assets of
BarterOne LLC. In addition, the Company also acquired from WWWX a 25%
interest in asseTrade.com, Inc. ("asseTrade"), a company that intends to
provide business to business internet e-commerce services. WWWX had
acquired all of the membership interests in BarterOne LLC in January and
February of 1999, under separate agreements with Global Trade Group, Ltd.
and Energy Trading Company, a subsidiary of PECO Energy Corporation.
Following those acquisitions, BarterOne LLC was dissolved and WWWX took
direct title to its assets.
BarterOne LLC had been formed in December 1996 by Energy Trading Company
and Global Trade Group, Ltd., to develop software and related products
and services that would enable users, primarily in the electric and gas
utility industry, to effect barter transactions via an e-commerce system.
Energy Trading Company provided the initial capital and executive
support, while Global Trade Group, Ltd. provided software development.
In October 1998, Positive Asset Remarketing, Inc. (an affiliate of Global
Trade Group) forged an alliance with a joint venture entity, Butcher Fox
LLC, formed by Henry Butcher USA, Inc. ("Butcher") and Michael Fox
International, Inc. ("Fox"), to provide BarterOne LLC's on-line
technologies and business methodologies to the Butcher and Fox industrial
clients. In December 1998, these parties formed asseTrade. Positive Asset
Remarketing, Inc. transferred a 25% voting interest in asseTrade to WWWX
in January 1999.
Entrade purchased BarterOne LLC and the 25% interest in asseTrade
(collectively the "acquired assets") from WWWX in exchange for 2,000,000
shares of Entrade common stock, of which 200,000 were received by Energy
Trading Company pursuant to a tri-party agreement between WWWX, Energy
Trading Company and Entrade, $800,000 in cash and a note for $500,000. As
WWWX and Entrade are under common control, Entrade recorded the value of
the net assets and interest acquired in these transactions at WWWX's
carrying value. The amount of purchase price paid to WWWX by Entrade in
excess of WWWX's carrying value for the assets of entrade and interest in
asseTrade has been recorded by Entrade as a reduction in common stock.
F-46
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
1. Formation of the Company and Acquisitions, continued
Proposed Merger
Entrade, WWWX, and WWWX Merger Subsidiary, Inc. a wholly owned subsidiary
of Entrade ("Merger Sub"), have entered into an agreement to merge ("the
merger agreement") the Merger Sub into ARTRA Group Incorporated, a
publicly traded Pennsylvania corporation ("ARTRA"). The agreement is
subject to ARTRA shareholder approval. Entrade and WWWX have provided for
certain changes in capital structure of Entrade if the merger is not
consummated. The merger agreement provides that all shares of ARTRA
common stock shall be converted into shares of Entrade common stock on a
one for one basis and that ARTRA will guarantee funding of at least
$4,000,000 for the working capital needs of Entrade. In addition, each
share of the outstanding redeemable preferred stock of ARTRA shall be
exchanged for 329 shares of Entrade common stock. Concurrently with the
merger closing, Entrade is required to make a cash payment to Energy
Trading Company ("ETCO") in the amount of $100,000. If for any reason,
the merger is not consummated on or before September 30, 1999, then
Entrade is required to issue to ETCO sufficient additional shares of its
common stock so that ETCO will hold a 33 1/3% interest in all of the
issued and outstanding capital stock of Entrade. In such event, WWWX and
Entrade will amend the articles of incorporation and by-laws of Entrade
so that ETCO will have all of the same protections as a minority
shareholder of Entrade as were accorded to Global Trade Group, Ltd. under
the terms of a prior operating agreement for BarterOne LLC. Any dilution
of ownership of Entrade shall be on a pari passu basis.
Upon the completion of the proposed merger ARTRA will continue as the
surviving corporation. ARTRA will be a wholly owned subsidiary of
Entrade.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and equivalents represent cash and short-term, highly liquid
investments with original maturities three months or less.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, entrade.com Intercompany transactions
and accounts have been eliminated in consolidation.
Use of Estimates
The financial statements are prepared in conformity with generally
accepted accounting principles and, accordingly, include amounts that are
based on management's best estimates and judgments. Actual results could
differ from these estimates.
F-47
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
2. Summary of Significant Accounting Policies, continued
Intangible Assets
Intangible assets represent principally intellectual property which will
be amortized over a period of five years on a straight line basis. The
Company reviews intangibles for impairment by comparing future cash flows
(undiscounted and without interest) expected to result from the use of
the assets and their eventual disposition, to the carrying amount of the
assets.
Equity interest
The Company has a 25% interest in asseTrade.com. This investment has been
recorded based upon the fair value of the consideration paid for the
investment by WWWX. The Company periodically reviews the carrying value
of this investment for impairment. Upon commencement of operations of
asseTrade, Entrade will reflect 25% of asseTrade results on an equity
basis.
3. Loan Agreement
In February 1999 the Company entered into a loan agreement with ARTRA
under which the Company may borrow up to a maximum of $2,000,000. The
proceeds of the loan are to be used for the following purposes: (a)
$800,000 to fund the cash purchase price for the assets acquired from
WWWX and (b) the balance to fund the working capital needs of
entrade.com. The initial loan of $1,400,000 can be increased by three
additional $200,000 increments subject to certain conditions related to
timing of closing under the merger agreement. Advances under the merger
agreement are collateralized by a perfected first priority lien and
security interest in all of the assets of the Company. The loan bears
interest at the applicable Federal rate, which accrues monthly and is
added to the principal balance. The entire outstanding principal balance
of the loan is due and payable in one lump sum on the date that is the
earlier of the closing date, as defined in the merger agreement, or the
date on which the merger agreement is otherwise terminated and the merger
abandoned. At February 23, 1999 the balance due on the loan was
$1,400,000.
4. Promissory Note
As part of the purchase of the assets of entrade.com from WWWX, the
Company entered into a non-interest-bearing promissory note with WWWX in
the amount of $500,000. The principal amount of the note is payable on
the earlier of the closing date of the merger, as defined in the merger
agreement, or the date on which the merger agreement is otherwise
terminated and the merger abandoned.
5. Related Party Transactions
Certain shareholders of WWWX, the parent company of Entrade, and certain
officers of Entrade and entrade.com have, or have had, a direct or
beneficial ownership interest in BarterOne LLC, asseTrade, Global Trade
Group Ltd, and Positive Asset Remarketing, Inc.
Certain officers of Entrade and entrade.com have entered into employment
agreements with ARTRA.
F-48
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
ARTRA GROUP INCORPORATED,
WORLDWIDE WEB NETWORX CORPORATION,
NA ACQUISITION CORP.
AND
WWWX MERGER SUBSIDIARY, INC.
DATED AS OF FEBRUARY 23, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - THE MERGER...................................................1
1.1 The Merger...................................................2
1.2 Effective Time...............................................2
1.3 The Closing..................................................2
1.4 Directors....................................................2
1.5 Officers.....................................................3
1.6 Options and Other Rights to Purchase Artra Common Stock......3
1.7 Dissenters Rights............................................3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF WWWX,
THE ACQUISITION CORP. AND THE MERGER SUB.....................4
2.1 Existence; Good Standing; Corporate Authority................4
2.2 Authorization, Validity and Effect of Agreements.............4
2.3 Capitalization...............................................4
2.4 Subsidiaries.................................................5
2.5 Other Interests..............................................5
2.6 Financial Condition..........................................5
2.7 Title to Properties..........................................6
2.8 Absence of Undisclosed Liabilities...........................6
2.9 Material Contracts...........................................6
2.10 Intangible Assets............................................7
2.11 No Conflict; Required Filings and Consents...................8
2.12 Litigation...................................................8
2.13 Taxes........................................................9
2.14 Employee Benefit Plans.......................................9
2.15 Labor Matters...............................................10
2.16 Insurance...................................................10
2.17 No Brokers..................................................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF ARTRA.....................10
3.1 Existence; Good Standing; Corporate Authority...............10
3.2 Authorization, Validity and Effect of Agreements............11
3.3 Capitalization..............................................11
3.4 Subsidiaries................................................11
3.5 Other Interests.............................................12
3.6 No Conflict; Required Filings and Consents..................12
3.7 SEC Documents...............................................13
3.8 Title to Properties.........................................13
3.9 Absence of Undisclosed Liabilities..........................14
3.10 Material Contracts..........................................14
3.11 Litigation..................................................14
i
<PAGE>
Page
----
3.12 Absence of Certain Changes..................................14
3.13 Taxes.......................................................15
3.14 Employee Benefit Plans......................................15
3.15 Labor Matters...............................................15
3.16 Insurance...................................................16
3.17 No Brokers..................................................16
ARTICLE 4 - COVENANTS...................................................16
4.1 Alternative Proposals.......................................16
4.2 Interim Operations..........................................17
4.3 Meetings of Stockholders....................................18
4.4 Filings, Other Action.......................................19
4.5 Inspection of Records.......................................19
4.6 Publicity...................................................19
4.7 Registration Statements.....................................19
4.8 Listing Application. .......................................20
4.9 Further Action..............................................21
4.10 Affiliate Letters...........................................21
4.11 Expenses....................................................21
4.12 Takeover Statute............................................21
4.13 Conveyance Taxes............................................21
4.14 Entrade Funding.............................................22
4.15 Section 351 Qualification...................................22
4.16 "Lock-Up" Provisions........................................22
ARTICLE 5 - CONDITIONS..................................................22
5.1 Conditions to Each Party's Obligation to Effect the Merger..22
5.2 Conditions to Obligation of WWWX, the Acquisition Corp.
and the Merger Sub to Effect the Merger.....................23
5.3 Conditions to Obligation of Artra to Effect the Merger......24
ARTICLE 6 - TERMINATION.................................................25
6.1 Termination by Mutual Consent...............................25
6.2 Termination by Either Artra or WWWX.........................25
6.3 Termination by WWWX.........................................25
6.4 Termination by Artra........................................26
6.5 Effect of Termination and Abandonment.......................26
6.6 Extension, Waiver...........................................26
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS AND
WARRANTIES, INDEMNIFICATION.................................27
7.1 Survival of Representations and Warranties..................27
ii
<PAGE>
Page
----
7.2 Indemnification.............................................27
7.3 Procedure for Claims........................................27
7.4 Third Party Claims..........................................28
ARTICLE 8 - GENERAL PROVISIONS..........................................28
8.1 Notices.....................................................28
8.2 Assignment; Binding Effect..................................29
8.3 Entire Agreement............................................29
8.4 Amendment...................................................29
8.5 Governing Law...............................................29
8.6 Counterparts................................................29
8.7 Headings....................................................29
8.8 Interpretation..............................................29
8.9 Waivers.....................................................30
8.10 Incorporation...............................................30
8.11 Severability................................................30
8.12 Enforcement of Agreement....................................30
8.13 Subsidiaries................................................30
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of February
23, 1999 among Artra Group Incorporated ("Artra"), a Pennsylvania corporation;
WorldWide Web NetworX Corporation ("WWWX"), a Delaware corporation; NA
Acquisition Corp. (the "Acquisition Corp."), a Pennsylvania corporation and a
wholly owned subsidiary of WWWX; and WWWX Merger Subsid iary, Inc. (the "Merger
Sub"), a Pennsylvania corporation and a wholly owned subsidiary of the
Acquisition Corp.
Recitals:
The Boards of Directors of Artra and WWWX have approved and deem it
advisable and in the best interests of their respective companies and
shareholders to consummate the merger (the "Merger") described in this
Agreement. Pursuant to the Merger, the Merger Sub will merge into Artra, which
will result in Artra becoming a wholly owned subsidiary of the Acquisition
Corp., and the outstanding shares of Common Stock and Preferred Stock of Artra
will be converted into shares of Common Stock of the Acquisition Corp. on a
share-for-share basis.
For federal income tax purposes, it is intended that the Merger qualify
as an exchange under the provisions of Section 351 of the United States Internal
Revenue Code of 1986, as amended (the "Code").
On February 23, 1999, the Acquisition Corp. acquired from WWWX all of
the assets formerly held by BarterOne, LLC ("BarterOne"), a Delaware limited
liability company acquired by WWWX and dissolved prior to the date hereof (the
"BarterOne Assets"), and 25% of the outstanding shares of Class A voting common
stock of AsseTrade.com, Inc. ("AsseTrade"), a Delaware corporation. Also on the
date hereof, the Acquisition Corp. is acquiring certain retained interests of
Energy Trading Company ("ETCO"), a Delaware corporation, arising out of the sale
of its membership interest in BarterOne to WWWX. Concurrently with the execution
and delivery of this Agreement, and in order to induce WWWX and the Acquisition
Corp. to enter into this Agreement, Artra is entering into a Loan Agreement (the
"Loan Agreement") with the Acquisition Corp. Pursuant to the Loan Agreement,
Artra will lend the Acquisition Corp. up to $2,000,000 to purchase the BarterOne
Assets and the AsseTrade interests, and to finance the working capital needs of
its business operations related to the BarterOne Assets (referred to herein as
"Entrade").
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Pursuant to the Plan of Merger in the form of Exhibit A
hereto (the "Plan of Merger"), at the Effective Time, the Merger Sub shall be
merged with and into Artra (the "Merger") in accordance with the applicable
provisions of the laws of the Commonwealth of
<PAGE>
Pennsylvania. Artra shall be the surviving corporation in the Merger and shall
continue its corporate existence under the laws of the Commonwealth of
Pennsylvania. As a result of the Merger, Artra shall become a wholly owned
subsidiary of the Acquisition Corp. At the Effective Time: (a) each outstanding
share of Common Stock, no par value, of Artra ("Artra Common Stock") shall be
converted into one share of Common Stock, no par value, of the Acquisition Corp.
("Acquisition Corp. Common Stock"); (b) each outstanding share of Series A
Preferred Stock, $1,000 par value, of Artra ("Artra Preferred Stock") shall be
converted into 329 shares of Acquisition Corp. Common Stock; (c) each share of
Artra Common Stock held as treasury stock shall be canceled; and (d) each
outstanding share of Common Stock, $.01 par value, of the Merger Sub shall be
canceled. Upon such conversion, all outstanding shares of Artra Common Stock and
Artra Preferred Stock shall be canceled and cease to exist, each certificate
theretofore representing any shares of Artra Common Stock shall, without any
action on the part of the holder thereof, be deemed to represent an equivalent
number of shares of Acquisition Corp. Common Stock and each certificate
theretofore representing any shares of Artra Preferred Stock shall, without any
action on the part of the holder thereof, be deemed to represent 329 shares of
Acquisition Corp. Common Stock for each share of Artra Preferred Stock. No
fractional shares of Acquisition Corp. Common Stock and no scrip or certifi
cates therefor will be issued in connection with the Merger. Any former holder
of Artra Common Stock or Artra Preferred Stock who would otherwise be entitled
to receive a fraction of a share of Acquisition Corp. Common Stock shall
receive, in lieu thereof, a check for cash in an amount equal to such fraction
of a share multiplied by the closing price of Acquisition Corp. Common Stock on
the New York Stock Exchange ("NYSE") (or other applicable exchange as
hereinafter provided) on the first day Acquisition Corp. Common Stock is traded
after the Effective Time (hereinafter defined).
1.2 Effective Time. The term "Effective Time" shall mean the time and
date which is (A) the date and time of the filing of the articles of merger
relating to the Merger with the Secretary of the Commonwealth of Pennsylvania
(or such other date and time as may be specified in such certificate as may be
permitted by law) or (B) such other time and date as Artra and WWWX may agree.
1.3 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the transactions described in this Agreement (the "Closing")
shall take place (a) at the offices of Duane, Morris & Heckscher LLP, One
Liberty Place, 1650 Market Street, Philadelphia, Pennsylvania 19103-7396, at
10:00 a.m., local time, on the first business day following the day on which the
last to be fulfilled or waived of the conditions set forth in Article 5 shall be
fulfilled or waived in accordance herewith or (b) at such other time, date or
place as Artra and WWWX may agree. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
1.4 Directors. The directors of Artra immediately prior to the
Effective Time shall resign as directors of Artra and shall become the directors
of the Acquisition Corp. as of the Effective Time and until their successors are
duly appointed or elected in accordance with applicable law. For as long as
WWWX's percentage ownership of Acquisition Corp. Common Stock calculated on a
fully diluted basis is at least 5%, Acquisition Corp. shall use its best efforts
to cause the designee nominated by WWWX and mutually acceptable to WWWX and the
Board of Directors of Acquisition
2
<PAGE>
Corp., who shall initially be Robert D. Kohn, to be elected to the Board of
Directors of Acquisition Corp.
1.5 Officers. The officers of Artra immediately prior to the Effective
Time shall resign as officers of Artra and shall become the officers of the
Acquisition Corp. as of the Effective Time and until their successors are duly
appointed in accordance with applicable law.
1.6 Options and Other Rights to Purchase Artra Common Stock. At the
Effective Time, each outstanding option, warrant or right to purchase shares of
Artra Common Stock (an "Artra Option") shall be assumed in such manner that it
is converted into an option, warrant or right to purchase shares of Acquisition
Corp. Common Stock (an "Acquisition Corp. Option"). Each such Acquisition Corp.
Option shall be exercisable upon the same terms and conditions as then are
applicable to such Artra Option. It is the intention of the parties that, to the
extent that any such Artra Option constituted an "incentive stock option"
(within the meaning of Section 422 of the Code) immediately prior to the
Effective Time, such option continue to qualify as an incentive stock option to
the maximum extent permitted by Section 422 of the Code, and that the assumption
of the Artra Options provided by this Section 1.6 satisfy the conditions of
Section 424(a) of the Code. At the Effective Time, the Acquisition Corp. shall
assume all rights and obligations of Artra under Artra's stock option plans as
in effect at the Effective Time and shall continue such plans in accordance with
their terms.
1.7 Dissenters Rights.
(a) The holders of shares of Artra Common Stock shall not be
entitled to appraisal rights under the Pennsylvania Business Corporation Law
(the "PBCL").
(b) Notwithstanding anything in this Agreement to the
contrary, any shares of Artra Preferred Stock that are issued and outstanding as
of the Effective Time and that are held by a shareholder who has exercised and
has not failed to perfect or effectively withdrawn or lost his right (to the
extent such right is available by law) to demand and to receive the "fair value"
of such shares (the "Dissenting Shares") under the PBCL shall not be converted
into shares of Acquisition Corp. Common Stock unless and until the holder shall
have failed to perfect, or shall have effectively withdrawn or lost his right to
dissent from the Merger under the PBCL and to receive such consider ation as may
be determined to be due with respect to such Dissenting Shares pursuant to and
subject to the requirements of the PBCL. If any such holder shall have so failed
to perfect or have effectively withdrawn or lost such right, each share of such
holder's Artra Preferred Stock shall thereupon be deemed to have been converted
into and to have become, as of the Effective Time, 329 shares of Acquisition
Corp. Common Stock. Artra shall give the Acquisition Corp. (i) prompt notice of
any notice or demand for appraisal or payment for shares of Artra Preferred
Stock received by Artra and (ii) the opportunity to participate in and direct
all negotiations and proceedings with respect to any such demands or notices.
Any payment required to be made to an Artra Preferred Stockholder shall be an
obligation of Artra.
3
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF WWWX,
THE ACQUISITION CORP. AND THE MERGER SUB
Except as set forth in the disclosure letter delivered to Artra at or
prior to the execution hereof (the "Acquisition Corp. Disclosure Letter"), WWWX,
the Acquisition Corp. and the Merger Sub jointly and severally represent and
warrant to Artra as of the date of this Agreement as follows:
2.1 Existence; Good Standing; Corporate Authority. Each of WWWX, the
Acquisition Corp. and the Merger Sub, and each of their respective Subsidiaries,
is a corporation or limited liability company duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of WWWX, the Acquisition Corp. and the
Merger Sub, and each of their respective Subsidiaries, is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
business, results of operations or financial condition of the Acquisition Corp.
and its Subsidiaries (a "WWWX Material Adverse Effect"). Each of WWWX, the
Acquisition Corp. and the Merger Sub, and each of their respective Subsidiaries,
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. The copies of the
Articles or Certificates of Incorporation and Bylaws, Operating Agreements
and/or other applicable governing documents of WWWX, the Acquisition Corp., the
Merger Sub, and each of their respective Subsidiaries, previously made available
to Artra, are true and correct and have not been modified or amended except as
set forth therein.
2.2 Authorization, Validity and Effect of Agreements. Each of WWWX, the
Acquisition Corp. and the Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement and all agreements and documents
to be executed by it as described herein. Subject only to the approval of this
Agreement and the transactions described herein by the holders of WWWX voting
securities, the consummation by WWWX, the Acquisition Corp. and the Merger Sub
of the transactions described herein has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
described herein (when executed and delivered pursuant hereto for value
received) will constitute, the valid and binding obligations of WWWX, the
Acquisition Corp. and the Merger Sub enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
2.3 Capitalization. The authorized capital stock of WWWX consists of
100,000,000 shares of Common Stock, $.001 par value, of which 11,035,186 shares
are issued and outstanding. The authorized capital stock of the Acquisition
Corp. consists of 40,000,000 shares of Acquisition Corp. Common Stock, no par
value, of which 2,000,000 shares are issued and outstanding, and 4,000,000
shares of Preferred Stock, $1,000 par value, of which no shares are outstanding.
The authorized capital stock of the Merger Sub consists of 1000 shares of Common
Stock, of which 100 shares are
4
<PAGE>
issued and outstanding. Neither the Acquisition Corp. nor the Merger Sub has any
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of the Acquisition
Corp. or the Merger Sub on any matter. All issued and outstanding shares of
Acquisition Corp. Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned of record and
beneficially by WWWX. All issued and outstanding shares of Common Stock of the
Merger Sub are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights and are owned of record and beneficially by the
Acquisition Corp. Except as set forth in the Acquisition Corp. Disclosure
Letter, there are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Acquisition Corp. or any of its
Subsidiaries to issue, transfer or sell any shares of their respective capital
stock or membership interests.
2.4 Subsidiaries. Except as set forth in the Acquisition Corp.
Disclosure Letter, the Acquisition Corp. owns directly or indirectly all of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect a majority of directors or others
performing similar functions with respect to such Acquisition Corp. Subsidiary)
of each of the Acquisition Corp.'s Subsidiaries, free and clear of all liens,
pledges, security interests, claims or other encumbrances other than liens
imposed by local law which are not material. Each of the outstanding shares of
capital stock or other equity interest of each of the Acquisition Corp.'s
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable.
The following informa tion for each Subsidiary of the Acquisition Corp. has been
previously provided to Artra: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized capital stock or total equity capital; and
(iii) the number of issued and outstanding shares of capital stock or total
equity capital.
2.5 Other Interests. Except for interests in the Acquisition Corp.
Subsidiaries, neither the Acquisition Corp. nor any Acquisition Corp. Subsidiary
owns directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, joint venture, business, trust or entity (other
than non-controlling investments in the ordinary course of business and
corporate partnering, development, cooperative marketing and similar
undertakings or arrangements entered into in the ordinary course of business).
2.6 Financial Condition. Set forth in the Acquisition Corp. Disclosure
Letter are true and complete lists of the assets and liabilities of the
Acquisition Corp. on the date hereof and as anticipated to exist at the
Effective Time of the Merger. The Entrade Business Plan and AsseTrade Business
Plan delivered to Artra together present fairly the financial condition, results
of operations, business, properties, assets, liabilities and future prospects of
the Acquisition Corp. and the Acquisi tion Corp. Subsidiaries as of the dates
thereof and for the periods indicated therein, there has been no material
adverse change in the financial condition or future prospects of the Acquisition
Corp. or the Acquisition Corp. Subsidiaries as reflected therein, and no fact is
known to WWWX or the Acquisition Corp. that materially adversely affects or in
the future may materially adversely affect
5
<PAGE>
the financial condition or future prospects of the Acquisition Corp. or any
Acquisition Corp. Subsidiary.
2.7 Title to Properties. Except as set forth in the Acquisition Corp.
Disclosure Letter, the Acquisition Corp. and each of the Acquisition Corp.
Subsidiaries owns outright, and has good and marketable title to, all of its
assets, including without limitation all computer software and related technical
information and other intellectual property rights necessary to conduct the
Entrade business, free and clear of all liens, pledges, mortgages, security
interests, conditional sales contracts or other encumbrances or conflicting
claims of any nature whatsoever. None of such assets are subject to restrictions
with respect to the transferability thereof and the Acquisition Corp.'s title
thereto will not be affected in any way by the transactions described in the
Agreement. WWWX has complete and unrestricted power and right to sell such
assets to the Acquisition Corp. Neither the Acquisition Corp. nor any of its
Subsidiaries owns any real property or any interest in real property.
2.8 Absence of Undisclosed Liabilities. Neither the Acquisition Corp.
nor any Acquisition Corp. Subsidiary has any material liabilities, obligations
or guaranties accrued, absolute, contingent or otherwise, except as disclosed in
the Acquisition Corp. Disclosure Letter.
2.9 Material Contracts. The Acquisition Corp. Disclosure Letter
contains a true and correct list of each contract, agreement, commitment or
obligation (a) which involves or may involve the payment to or from the
Acquisition Corp. or any Acquisition Corp. Subsidiary of amounts in excess of
$100,000 per year, (b) any license, franchise or distribution agreement, which
involves or may involve payments to or from the Acquisition Corp. or any
Acquisition Corp. Subsidiary in excess of $100,000 per year, (c) any lease of
tangible personal property, which involves or may involve payments to or from
the Acquisition Corp. or any Acquisition Corp. Subsidiary in excess of $100,000
per year and (d) any contract between the Acquisition Corp. or any of its
Subsidiaries and any affiliate of WWWX, the Acquisition Corp. or any of their
Subsidiaries (collectively the "Acquisition Corp. Material Contracts"). Each of
the Acquisition Corp. Material Contracts constitutes a valid and binding
obligation of the parties thereto, is in full force and effect and will continue
in full force and effect following the consummation of the transactions
described herein and thereby, in each case without breaching the terms thereof
or resulting in the forfeiture or impairment of any rights thereunder and
without the consent, approval or act of, or the making of any filing with, any
other party (except as set forth in the Acquisition Corp. Disclosure Letter).
Neither the Acquisition Corp. nor any Acquisition Corp. Subsidiary is in, or to
the knowledge of WWWX or the Acquisition Corp. alleged to be in, breach or
default under, nor is there or is there alleged to be any basis for termina tion
of, any Acquisition Corp. Material Contract and, to the knowledge of WWWX and
the Acquisition Corp., no other party to any Acquisition Corp. Material Contract
has breached or defaulted thereunder, and no event has occurred and no condition
or state of facts exists which, with the passage of time or the giving of notice
or both, would constitute such a default or breach by the Acquisition Corp., any
Acquisition Corp. Subsidiary or, to the knowledge of WWWX and the Acquisi tion
Corp., by any such other party. Neither the Acquisition Corp. nor any
Acquisition Corp. Subsidiary is currently renegotiating any Acquisition Corp.
Material Contract or paying liquidated damages in lieu of the performance
thereunder.
6
<PAGE>
2.10 Intangible Assets. The Acquisition Corp. Disclosure Letter sets
forth a list of (a) all patents, copyrights, trade names, trademarks, service
marks and names (registered or unregistered), and applications and registrations
therefor, (b) all research, development and commercially practiced processes,
trade secrets, know-how, inventions, and engineering and other technical
information, (c) all computer programs, software and data bases, (d) all
information, drawings, specifications, designs, plans, financial, marketing and
business data and plans, other proprietary, confidential or intellectual
information or property and all copies and embodiments thereof in whatever form
or medium and (e) all customer and membership lists owned by or licensed to the
Acquisition Corp. or any Acquisition Corp. Subsidiary (items (a) through (e) are
defined, collectively, as "Intangible Assets") as well as a list of all
registrations thereof and pending applications therefor. Each of the Intangible
Assets owned by the Acquisition Corp. or any Acquisition Corp. Subsidiary is
owned free and clear of any and all liens and encumbrances and, to the knowledge
of WWWX and the Acquisition Corp., no other Person or entity has any claim of
ownership with respect thereto. The Acquisition Corp. and each Acquisition Corp.
Subsidiary has adequate licenses or other valid rights to use all of the
Intangible Assets that it does not own and that are material to the conduct of
its business as currently proposed. To the knowledge of WWWX and the Acquisition
Corp., the use of the Intangible Assets by the Acquisition Corp. or any
Acquisition Corp. Subsidiary does not and will not conflict with, infringe upon,
violate or interfere with any intellectual property rights or claimed
intellectual property rights of any other Person or entity, nor, to the
knowledge of WWWX and the Acquisition Corp., is any other Person or entity
infringing upon, violating or interfering with any intellectual property rights
or claimed intellectual property rights of the Acquisition Corp. or any
Acquisition Corp. Subsidiary. Neither WWWX, the Acquisition Corp. nor any
Acquisition Corp. Subsidiary has received notice of any claim of infringement or
violation of any third party's copy rights, patents, trade secrets, trademarks
or other proprietary rights relating to the Intangible Assets nor, to the
knowledge of WWWX or the Acquisition Corp., is there any basis for any such
claim of right or interest in the Intangible Assets or otherwise adverse to the
Acquisition Corp.'s or any Acquisition Corp. Subsidiary's unqualified right to
exclusively own and fully utilize any of the Intangible Assets. To the knowledge
of WWWX and the Acquisition Corp., there are no pending or threatened suits,
legal proceedings, claims or governmental investigations against or with respect
to any of the Intangible Assets or any component thereof. Each of the Intangible
Assets will perform in substantial conformity with its specifications as
identified in any and all documentation provided to Artra. To the knowledge of
WWWX and the Acquisition Corp., the Intangible Assets do not and will not
contain any "backdoor" or concealed access or any "software locks" or any
similar devices which, upon the occurrence of a certain event, the passage of a
certain amount of time, or the taking of any action (or the failure to take any
action) by or on behalf of any Person or entity, will cause any of the
Intangible Assets to be destroyed, erased, damaged or otherwise made inoperable.
To the knowledge of WWWX and the Acquisition Corp., the Intangible Assets are
and will be free from defects in operation or otherwise relating to the year
2000, date data century recognition calculations that accommodate same century
and multi-century formulas and date values, and century correct date data
interface values, and will accurately process date and time data (including but
not limited to, calculation, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap
year calculation, and, to the knowledge of WWWX and the Acquisition Corp., when
used in combination with other information technology, will
7
<PAGE>
accurately process date and time data if the other information technology
exchanges date and time data with it.
2.11 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by WWWX, the
Acquisition Corp. and the Merger Sub do not, and the consummation by WWWX, the
Acquisition Corp. and the Merger Sub of the transactions described herein will
not, (i) conflict with or violate the certificate of incorporation or by-laws or
equivalent organizational documents of WWWX, the Acquisition Corp., the Merger
Sub or any of their Subsidiaries, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to WWWX, the Acquisition Corp.,
the Merger Sub or any of their Subsidiaries or by which any property or asset of
WWWX, the Acquisition Corp., the Merger Sub or any of their Subsidiaries is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, result in the loss of a material benefit under, or give to others any
right of purchase or sale, or any right of termination, amendment, acceleration,
increased payments or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of WWWX, the Acquisition Corp., the
Merger Sub or any of their Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which WWWX, the Acquisition Corp., the Merger Sub or
any of their Subsidiaries is a party or by which WWWX, the Acquisition Corp.,
the Merger Sub or any of their Subsidiaries or any property or asset of WWWX,
the Acquisition Corp., the Merger Sub or any of their Subsidiaries is bound or
affected, , in each case except for any such defaults or violations that would
not, individually or in the aggregate, have a WWWX Material Adverse Effect.
WWWX, the Acquisition Corp., the Merger Sub and their Subsidiaries have obtained
all licenses, permits and other authorizations and have taken all actions
required by applicable law or governmental regulations in connection with their
business as now conducted, except where the failure to obtain any such item or
to take any such action would not have, individually or in the aggregate, a WWWX
Material Adverse Effect.
(b) The execution and delivery of this Agreement by WWWX, the
Acquisition Corp. and/or the Merger Sub do not, and the performance of this
Agreement and the consummation by WWWX, the Acquisition Corp. and/or the Merger
Sub of the transactions described herein will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign (each a "Governmental
Entity"), except for (i) applicable requirements, if any, of theSecurities Act
of 1933 (the "Securities Act"), the Exchange Act of 1934 (the "Exchange Act"),
state securities laws and state takeover laws, (ii) filing of appropriate merger
documentation as Pennsylvania law shall require, and (iii) applicable
requirements of the Code and state and local tax laws.
2.12 Litigation. There are no actions, suits or proceedings pending
against WWWX, the Acquisition Corp., the Merger Sub or any of their Subsidiaries
or, to the knowledge of WWWX or the Acquisition Corp., threatened against WWWX,
the Acquisition Corp., the Merger Sub or any of their
8
<PAGE>
Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that are likely to have a
WWWX Material Adverse Effect.
2.13 Taxes.
(a) Except as set forth in the Acquisition Corp. Disclosure
Letter, each of WWWX, the Acquisition Corp., the Merger Sub and each of their
Subsidiaries has filed all material tax returns and reports required to be filed
by it, or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, and all tax returns and reports
are complete and accurate in all respects, except to the extent that such
failures to file, have extensions granted that remain in effect, or be complete
and accurate in all respects, as applicable, individually or in the aggregate,
would not have a WWWX Material Adverse Effect. WWWX, the Acquisition Corp., the
Merger Sub and each of their Subsidiaries has paid (or WWWX or the Acquisition
Corp. has paid on its behalf) all taxes shown as due on such tax returns and
reports, and no deficiencies for any taxes have been proposed, asserted or
assessed against WWWX, the Acquisition Corp., the Merger Sub or any of their
Subsidiaries that are not adequately reserved for, except for inadequately
reserved taxes and inadequately reserved deficiencies that would not,
individually or in the aggregate, have a WWWX Material Adverse Effect. No
requests for waivers of the time to assess any taxes against WWWX, the
Acquisition Corp., the Merger Sub or any of their Subsidiaries have been granted
or are pending.
(b) Neither WWWX, the Acquisition Corp., the Merger Sub or any
of their Subsidiaries has knowingly taken any action or has any knowledge of any
fact or circumstance that is reasonably likely to prevent the Merger from
qualifying as an exchange governed by Section 351 of the Code.
(c) As used in this Section 2.13, "taxes" shall include all
federal, state, local and foreign income, franchise, property, sales, use,
excise and other taxes, including obligations for withholding taxes from
payments due or made to any other Person or entity and any interest, penalties
or additions to tax.
2.14 Employee Benefit Plans. Except as described in the Acquisition
Corp. Disclosure Letter: (i) all employee benefit plans or programs maintained
for the benefit of the current or former employees or directors of WWWX, the
Acquisition Corp., the Merger Sub or any of their Subsidiaries that are
sponsored, maintained or contributed to by WWWX, the Acquisition Corp., the
Merger Sub or any of their Subsidiaries (if any), or with respect to which WWWX,
the Acquisition Corp., the Merger Sub or any of their Subsidiaries has any
liability, including without limitation any such plan that is an "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), are in compliance with all applicable
requirements of law, including ERISA and the Code, and (ii) neither WWWX, the
Acquisition Corp., the Merger Sub nor any of their Subsidiaries has any
liabilities or obligations with respect to any such employee benefit plans or
programs, whether accrued, contingent or otherwise, nor to the knowledge of WWWX
or the Acquisi tion Corp. are any such liabilities or obligations expected to be
incurred. The execution of, and
9
<PAGE>
performance of the transactions described in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any benefit plan, policy, arrangement or agreement or any trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee. The only severance agree ments or severance policies applicable to
WWWX, the Acquisition Corp., the Merger Sub or any of their Subsidiaries are the
agreements and policies specifically referred to in the Acquisition Corp.
Disclosure Letter.
2.15 Labor Matters. There is no labor strike, labor dispute, work
slowdown, stoppage or lockout actually pending, or to the knowledge of WWWX or
the Acquisition Corp., threatened against or affecting WWWX, the Acquisition
Corp., the Merger Sub or any of their Subsidiaries. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of WWWX or
the Acquisition Corp., threatened against WWWX, the Acquisition Corp., the
Merger Sub or any of their Subsidiaries relating to their business.
2.16 Insurance. The Acquisition Corp. Disclosure Letter contains a
complete and accurate list and description of all policies of fire, liability,
product liability and other forms of insurance presently in effect insuring the
Acquired Corp., its Subsidiaries and their respective assets.
2.17 No Brokers. Neither WWWX, the Acquisition Corp. nor the Merger Sub
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of WWWX, the Acquisition Corp., Artra or
the Merger Sub to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions described herein. Neither
WWWX, the Acquisition Corp. nor the Merger Sub is aware of any claim for payment
of any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions described herein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF ARTRA
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to WWWX (the "Artra Disclosure Letter") or in the Artra
Reports (as defined below), Artra represents and warrants to WWWX, the
Acquisition Corp. and the Merger Sub as of the date of this Agreement as
follows:
3.1 Existence; Good Standing; Corporate Authority. Artra is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Artra is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary, except
10
<PAGE>
where the failure to be so qualified or to be in good standing would not have a
material adverse effect on the business, results of operations or financial
condition of Artra and its Subsidiaries taken as a whole (an "Artra Material
Adverse Effect"). Artra has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
Each of the Subsidiaries of Artra is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate or partnership
power and authority to own its properties and to carry on its business as it is
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good standing would not have
an Artra Material Adverse Effect. The copies of the Articles of Incorporation
and Bylaws of Artra previously made available to WWWX are true and correct, and
have not been modified or amended except as set forth therein.
3.2 Authorization, Validity and Effect of Agreements. Artra has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents described herein. Subject only to the approval
of this Agreement and the transactions described herein by the holders of Artra
Common Stock, the consummation by Artra of the transactions described herein has
been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents described herein (when executed
and delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of Artra, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
3.3 Capitalization. The authorized capital stock of Artra consists of
20,000,000 shares of Artra Common Stock and 2,000,000 shares of Artra Preferred
Stock. As of February 17, 1999, there were 7,975,206 shares of Artra Common
Stock and 1,849.34 shares of Artra Preferred Stock issued and outstanding, plus
494,017 shares of Artra Common Stock held in Artra's treasury. Since such date,
no additional shares of capital stock of Artra have been issued, except pursuant
to Artra's 1995 stock option and 1996 disinterested director stock option plan
(the "Artra Option Stock Plans"). Except as set forth in the Artra Disclosure
Letter, Artra does not have any outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Artra on any matter. All such issued and outstanding shares
of Artra Common Stock and Artra Preferred Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as
described in this Agreement and as set forth in the Artra Disclosure Letter,
there are not at the date of this Agreement any existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements or
commitments that obligate Artra or any of its Subsidiaries to issue, transfer or
sell any shares of capital stock of Artra or any of its Subsidiaries (other than
under the Artra Option Plans).
3.4 Subsidiaries. Except as set forth in the Artra Disclosure Letter,
Artra owns directly or indirectly each of the outstanding shares of capital
stock of each of its Subsidiaries (or other
11
<PAGE>
ownership interests having by their terms ordinary voting power to elect a
majority of directors or others performing similar functions with respect to
such Subsidiary). Each of the outstanding shares of capital stock of each of
such Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is owned, directly or indirectly, by Artra, free and clear of
all liens, pledges, security interests, claims or other encumbrances other than
liens imposed by local law which are not material. The following information for
each such Subsidiary has been previously made available to WWWX, if requested
and if applicable: (i) its name and jurisdiction of incorporation or organiza
tion; (ii) its authorized capital stock or share capital; and (iii) the number
of issued and outstanding shares of capital stock or share capital.
3.5 Other Interests. Except as set forth in the Artra Disclosure Letter
and for interests in the Artra Subsidiaries, neither Artra nor any Artra
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or entity (other than (i) passive investments in securities in the ordinary
course of business and corporate partnering, development, cooperative marketing
and similar undertakings and arrangements entered into in the ordinary course of
business and (ii) other investments of less than $1,000,000).
3.6 No Conflict; Required Filings and Consents.
(a) Except as set forth in the Artra Disclosure Letter: the
execution and delivery of this Agreement by Artra does not, and the consummation
by Artra of the transactions described herein will not, (i) conflict with or
violate its articles of incorporation or by-laws, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Artra or any
Artra Subsidiary or by which any property or asset of Artra or any Artra
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material benefit under, or give to
others any right of purchase or sale, or any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of Artra or any Artra
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Artra or any Artra Subsidiary is a party or by which Artra or any Artra
Subsidiary or any property or asset of Artra or any Artra Subsidiary is bound or
affected, , in each case except for any such conflicts, defaults or violations
that would not, individually or in the aggregate, have an Artra Material Adverse
Effect. Artra and its Subsidiaries have obtained all licenses, permits and other
authoriza tions and have taken all actions required by applicable law or
governmental regulations in connec tion with their business as now conducted,
except where the failure to obtain any such item or to take any such action
would not have, individually or in the aggregate, an Artra Material Adverse
Effect.
(b) The execution and delivery of this Agreement by Artra do
not, and the performance of this Agreement and the consummation by Artra of the
transactions described herein will not require any consent, approval,
authorization or permit of, or filing with or notification to any Governmental
Entity, except for (i) applicable requirements, if any, of the Securities Act,
the
12
<PAGE>
Exchange Act, state securities laws and state takeover laws, and the NYSE, (ii)
filing of appropriate merger documentation as Pennsylvania law shall require,
and (iii) applicable requirements of the Code and state and local tax laws.
3.7 SEC Documents.
(a) Artra has filed all forms, reports and documents required
to be filed by it with the Securities and Exchange Commission (the "SEC") since
December 31, 1996 (collectively, the "Artra Reports"). As of their respective
dates, the Artra Reports, and any such reports, forms and other documents filed
by Artra with the SEC after the date of this Agreement (i) complied, or will
comply, as to form in all material respects with the applicable requirements of
the Securities Act, the Exchange Act, and the rules and regulations thereunder
and (ii) did not, or will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The representation in clause (ii) of the
preceding sentence shall not apply to any misstatement or omission in any Artra
Report filed prior to the date of this Agreement that was superseded by a
subsequent Artra Report filed prior to the date of this Agreement that
specifically corrected such misstatement or omission in the applicable Artra
Report.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Artra Reports (including the related notes
and schedules) fairly presents the consolidated financial position of Artra and
its Subsidiaries as of its date, and each of the consoli dated statements of
income, retained earnings and cash flows included in or incorporated by
reference into the Artra Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of Artra and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments that would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Neither Artra nor
any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a balance sheet of Artra or in the
notes thereto, prepared in accordance with generally accepted accounting
principles consistently applied, except for (i) liabilities and obligations that
were reserved on or reflected in (including the notes to), the consoli dated
balance sheet of Artra as of December 31, 1998, (ii) liabilities arising in the
ordinary course of business since December 31, 1998, and (iii) liabilities or
obligations which would not, individually or in the aggregate, have an Artra
Material Adverse Effect.
3.8 Title to Properties. Except as set forth in the Artra Disclosure
Letter, Artra and each of the Artra Subsidiaries owns outright, and has good and
marketable title to, all of its assets, free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts or other encumbrances
or conflicting claims of any nature whatsoever. None of such assets are subject
to restrictions with respect to the transferability thereof and Artra's title
thereto will not be affected
13
<PAGE>
in any way by the transactions described in the Agreement. Neither Artra nor any
of its Subsidiaries owns any real property or any interest in real property.
3.9 Absence of Undisclosed Liabilities. Neither Artra nor any Artra
Subsidiary has any liabilities, obligations or guaranties accrued, absolute,
contingent or otherwise, except as disclosed in the Artra Disclosure Letter or
the Artra Reports, none of which is material and adverse.
3.10 Material Contracts. The Artra Disclosure Letter contains a true
and correct list of each contract, agreement, commitment or obligation (a) which
involves or may involve the payment to or from Artra or any Artra Subsidiary of
amounts in excess of $100,000 per year, (b) any license, franchise or
distribution agreement, which involves or may involve payments to or from Artra
or any Artra Subsidiary in excess of $100,000 per year, (c) any lease of
tangible personal property, which involves or may involve payments to or from
Artra or any Artra Subsidiary in excess of $100,000 per year and (d) any
contract between Artra or any of its Subsidiaries and any affiliate of Artra or
any of the Artra Subsidiaries (collectively the "Artra Material Contracts").
Each of the Artra Material Contracts constitutes a valid and binding obligation
of the parties thereto, is in full force and effect and will continue in full
force and effect following the consummation of the transactions described herein
and thereby, in each case without breaching the terms thereof or resulting in
the forfeiture or impairment of any rights thereunder and without the consent,
approval or act of, or the making of any filing with, any other party (except as
set forth in the Artra Disclosure Letter). Neither Artra nor any Artra
Subsidiary is in, or to the knowledge of Artra alleged to be in, breach or
default under, nor is there or is there alleged to be any basis for termination
of, any Artra Material Contract and, to the knowledge of Artra, no other party
to any Artra Material Contract has breached or defaulted thereunder, and no
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a default
or breach by Artra, any Artra Subsidiary or, to the knowledge of Artra, by any
such other party. Neither Artra nor any Artra Subsidiary is currently
renegotiating any Artra Material Contract or paying liquidated damages in lieu
of the performance thereunder.
3.11 Litigation. Except as set forth in the Artra Disclosure Letter,
there are no actions, suits or proceedings pending against Artra or any Artra
Subsidiaries or, to the knowledge of Artra, threatened against Artra or the
Artra Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that are reasonably likely
to have an Artra Material Adverse Effect.
3.12 Absence of Certain Changes. Except as specifically described in
this Agreement or set forth in the Artra Disclosure Letter, since December 31,
1998, there has not been any: (i) Artra Material Adverse Effect; (ii)
declaration, setting aside or payment of any dividend or other distribu tion
with respect to Artra's capital stock (other than regular quarterly cash
dividends including any increase thereof consistent with past practice); (iii)
material change in Artra's financial condition, or (iv) material change in
Artra's accounting principles, practices or methods.
14
<PAGE>
3.13 Taxes.
(a) Each of Artra and its Subsidiaries has filed all material
tax returns and reports required to be filed by it, or requests for extensions
to file such returns or reports have been timely filed and granted and have not
expired, and all tax returns and reports are complete and accurate in all
respects, except to the extent that such failures to file, have extensions
granted that remain in effect or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have an Artra Material
Adverse Effect. Artra and each of the Artra Subsidiaries has paid (or Artra has
paid on its behalf) all taxes shown as due on such tax returns and reports. The
most recent financial statements contained in the Artra Reports reflect an
adequate reserve for all taxes payable by Artra and its Subsidiaries for all
taxable periods and portions thereof accrued through the date of such financial
statements, and no deficiencies for any taxes have been proposed, asserted or
assessed against Artra and its Subsidiaries that are not adequately reserved
for, except for inadequately reserved taxes and inadequately reserved
deficiencies that would not, individually or in the aggregate, have an Artra
Material Adverse Effect. No requests for waivers of the time to assess any taxes
against Artra or any Artra Subsidiary have been granted or are pending, except
for requests with respect to such taxes that have been adequately reserved for
in the most recent financial statements contained in the Artra Reports, or, to
the extent not adequately reserved, the assessment of which would not,
individually or in the aggregate, have an Artra Material Adverse Effect.
(b) As used in this Section 3.13, "taxes" shall include all
federal, state, local and foreign income, franchise, property, sales, use,
excise and other taxes, including obligations for withholding taxes from
payments due or made to any other Person or entity and any interest, penalties
or additions to tax.
3.14 Employee Benefit Plans. Except as described in the Artra
Disclosure Letter: (i) all employee benefit plans or programs maintained for the
benefit of the current or former employees or directors of Artra or any of its
Subsidiaries that are sponsored, maintained or contributed to by Artra or any of
its Subsidiaries, or with respect to which Artra or any of its Subsidiaries has
any liability, including without limitation any such plan that is an "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), are in compliance with all applicable
requirements of law, including ERISA and the Code, and (ii) neither Artra nor
any of its Subsidiaries has any liabilities or obligations with respect to any
such employee benefit plans or programs, whether accrued, contingent or
otherwise, nor to the knowledge of Artra are any such liabilities or obligations
expected to be incurred. The execution of, and performance of the transactions
described in this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any benefit plan,
policy, arrangement or agreement or any trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any employee. The only severance agreements or
severance policies applicable to Artra or any of its Subsidiaries are the
agreements and policies specifically referred to in the Artra Disclosure Letter.
3.15 Labor Matters. There is no labor strike, labor dispute, work
slowdown, stoppage or lockout actually pending, or to the knowledge of Artra,
threatened against or affecting Artra or any
15
<PAGE>
of its Subsidiaries. There is no unfair labor practice or labor arbitration
proceeding pending or, to the knowledge of Artra, threatened against Artra or
any of its Subsidiaries relating to their business.
3.16 Insurance. The Artra. Disclosure Letter contains a complete and
accurate list and description of all policies of fire, liability, product
liability and other forms of insurance presently in effect insuring Artra, its
Subsidiaries and their respective assets.
3.17 No Brokers. Artra has not entered into any contract, arrangement
or understanding with any person or firm that may result in the obligation of
Artra, the Acquisition Corp., WWWX or the Merger Sub to pay any finder's fee,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
described herein except as set forth in the Artra Disclosure Letter. Other than
the foregoing arrangements, Artra is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions described herein.
ARTICLE 4
COVENANTS
4.1 Alternative Proposals. Prior to the Effective Time, each of WWWX
and the Acquisition Corp. agrees (a) that neither it nor any of its Subsidiaries
shall, nor shall it or any of its Subsidiaries permit their respective officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, initiate, solicit or encourage, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its shareholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, and
purchase of (i) all or any significant portion of the assets of the Acquisition
Corp. or of any Subsidiary of the Acquisition Corp., (ii) any of the outstanding
shares of Acquisition Corp. Common Stock or Preferred Stock or (iii) any of the
outstanding shares of the capital stock or other equity interest of any
Subsidiary of the Acquisition Corp. (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal
(excluding the Merger described in this Agreement), or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; and (b) that it
will notify Artra immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotia tions or
discussions are sought to be initiated or continued with, it; provided, however,
that nothing contained in this Section 4.1 shall prohibit the Board of Directors
of WWWX from furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
Alternative Proposal, if, and only to the extent that, (i) the Board of
Directors of WWWX, determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to shareholders imposed
by law, (ii) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, WWWX provides written
16
<PAGE>
notice to Artra to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, and (iii) WWWX
keeps Artra informed of the status and all material information with respect to
any such discussions or negotiations. Nothing in this Section 4.1 shall (x)
permit WWWX or Artra to terminate this Agreement (except as specifically
provided in Article 6 hereof), (y) permit WWWX or the Acquisition Corp. to enter
into any agreement with respect to an Alternative Proposal for as long as this
Agreement remains in effect (it being agreed that for as long as this Agreement
remains in effect, neither WWWX nor the Acquisition Corp. shall enter into any
agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal (other than a confidentiality agreement in customary
form)), or (z) affect any other obligation of WWWX, the Acquisition Corp. or the
Merger Sub under this Agreement.
4.2 Interim Operations.
(a) Prior to the Effective Time, except as may be set forth in
the Acquisition Corp. Disclosure Letter or as described in any other provision
of this Agreement, unless Artra has consented in writing thereto, WWWX: (i)
shall, and shall cause the Acquisition Corp. and each of its Subsidiaries to
conduct their respective operations according to their usual, regular and
ordinary course; (ii) shall use its reasonable efforts, and shall cause the
Acquisition Corp. and each of its Subsidiaries to use its reasonable efforts, to
preserve intact their assets and business organizations and goodwill, keep
available the services of their respective officers and employees and maintain
satisfactory relationships with those persons having business relationships with
them; (iii) shall not amend the Articles of Incorporation or Bylaws or
comparable governing instruments of the Acquisi tion Corp. or any of its
Subsidiaries; (iv) shall promptly notify Artra of any material breach of any
representation or warranty contained herein or any WWWX Material Adverse Effect;
(v) shall promptly deliver to Artra true and correct copies of all monthly
financial statements of WWWX, the Acquisition Corp. and each of its Subsidiaries
promptly after the end of each month; (vi) shall not permit the Acquisition
Corp. or any of its Subsidiaries to (x) issue any shares of its capital stock,
effect any stock split or otherwise change its capitalization as it existed on
the date hereof, (y) grant, confer or award any option, warrant, conversion
right or other right to acquire any shares of its capital stock or grant, confer
or award any bonuses or other forms of cash incentives to any officer, director
or key employee except consistent with past practice or (z) increase any
compensation under any employment agreement with any of its present or future
officers, directors or employees, except for normal increases consistent with
past practice, grant any severance or termination pay to, or enter into any
employment or severance agreement with any officer or director or amend any such
agreement in any material respect, adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or amend any
existing employee benefit plan in any material respect; (vii) shall not permit
the Acquisition Corp. or any of its Subsidiaries, to (x) declare, set aside or
pay any dividend or make any other distribution or payment with respect to any
shares of the Acquisition Corp.'s capital stock or other ownership interests or
(y) directly or indirectly redeem, purchase or otherwise acquire any shares of
its capital stock or capital stock of any of its Subsidiar ies, or make any
commitment for any such action; (viii) shall not permit the Acquisition Corp. or
any of its Subsidiaries to, sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries) except in the ordinary course
of business, or to acquire any business or assets; (ix) shall
17
<PAGE>
not, and shall not permit the Acquisition Corp. or any of its Subsidiaries to
incur any material amount of indebtedness for borrowed money or make any loans,
advances or capital contributions to, or investments in, any other person other
than pursuant to the Loan Agreement, or issue or sell any debt securities, other
than borrowings under existing lines of credit in the ordinary course of
business; (x) shall not permit the Acquisition Corp. or any of its Subsidiaries
to, authorize or make capital expenditures except as described in the Loan
Agreement; (xi) shall not permit the Acquisition Corp. or any of its
Subsidiaries to mortgage or otherwise encumber or subject to any lien any of
their properties or assets except as would not be reasonably likely to have an
Acquisition Corp. Material Adverse Effect; (xii) shall not, and shall not permit
the Acquisition Corp. or any of its Subsidiaries to, make any change to its
accounting (including tax accounting) methods, principles or practices, except
as may be required by generally accepted accounting principles and except, in
the case of tax accounting methods, principles or practices, in the ordinary
course of business of the Acquisition Corp. or any of its Subsidiaries; and
(xiii) shall not permit the Acquisition Corp. or any of its Subsidiaries to
enter into any joint venture, production or marketing arrangements without
consulting with Artra prior thereto.
(b) Prior to the Effective Time, except as set forth in the
Artra Disclosure Letter or as described in this Agreement, unless WWWX has
consented in writing thereto, Artra: (i) shall not issue any shares of its
capital stock (other than pursuant to any Artra Stock Option Plans) or effect
any stock split of its capital stock; (ii) shall promptly notify the Acquisition
Corp. of any breach of any representation or warranty contained herein or any
Artra Material Adverse Effect; and (iii) shall promptly deliver to WWWX true and
correct copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement.
4.3 Meetings of Stockholders. Each of Artra, WWWX and the Acquisition
Corp. shall take all action necessary in accordance with applicable law and its
Articles or Certificate of Incorporation and Bylaws to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon the approval
of this Agreement, the Plan of Merger and the Merger. The Board of Directors of
each of Artra, WWWX and the Acquisition Corp. shall recommend such approval, and
Artra, WWWX and the Acquisition Corp. shall each take all lawful action to
solicit such approval, including, without limitation, to the extent applicable
to each, timely mailing the Proxy Statement/Prospectus (as defined in Section
4.7); provided, however, that such recommendation or solicitation is subject to
any action (including any withdrawal or change of its recommendation) taken by,
or upon authority of, the Board of Directors of Artra, WWWX or the Acquisition
Corp., as the case may be, in the exercise of its good faith judgment as to its
fiduciary duties to its shareholders imposed by law. As used herein, the
"approval" of the WWWX shareholders shall mean the approval by at least a
majority in interest of all disinterested WWWX shareholders of record entitled
to vote at a duly convened meeting, unless a greater number is otherwise
required by law. "Disinterested WWWX shareholders" shall mean all shareholders
of record other than Robert D. Kohn and any person or entity directly or
indirectly, through one or more intermediaries, controlled by Robert D. Kohn,
and any entity under common control with any such entity controlled by Robert D.
Kohn.
18
<PAGE>
4.4 Filings, Other Action. Subject to the terms and conditions herein
provided, Artra and WWWX shall: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connec tion with the execution and delivery of this
Agreement and the consummation of the transactions described herein and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions described in this Agreement. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of the Artra, WWWX and the
Acquisition Corp. shall take all such necessary action.
4.5 Inspection of Records. From the date hereof to the Effective Time,
each of Artra and WWWX shall: (i) allow all designated officers, attorneys,
accountants and other representatives of the other reasonable access at all
reasonable times to the offices, records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of Artra and WWWX and their respective Subsidiaries, as the case may
be, (ii) furnish to the other, the other's counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such persons may reasonably request and (iii) instruct their
respective employees, counsel and financial advisors to cooperate with the
investigation of the respective businesses of each.
4.6 Publicity. The initial press release relating to this Agreement
shall be a joint press release approved by both parties and thereafter Artra and
WWWX shall, subject to their respective legal obligations (including
requirements of stock exchanges and other similar regulatory bodies), consult
with each other, and use reasonable efforts to agree upon the text of any press
release, before issuing any such press release or otherwise making public
statements with respect to the transactions described herein and in making any
filings with any federal or state governmental or regulatory agency or with any
national securities exchange with respect thereto.
4.7 Registration Statements. Artra and WWWX shall cooperate and
promptly prepare and the Acquisition Corp. shall file with the SEC as soon as
practicable a Registration Statement on Form S-4 (the "Form S-4") under the
Securities Act, with respect to the Acquisition Corp. Common Stock issuable in
the Merger, which shall also serve as the proxy statement with respect to the
meeting of the shareholders of Artra and WWWX in connection with the Merger (the
"Proxy Statement/Prospectus"). In addition, Artra and WWWX shall cooperate and
promptly prepare a Registration Statement or Form S-1 (the "Form S-1") under the
Securities Act, or such other form as may be permitted under applicable SEC
regulations, with respect to the reoffer and resale of shares of Acquisition
Corp. Common Stock presently held by WWWX and ETCO. The respective parties will
cause the Proxy Statement/Prospectus, the Form S-4 and the Form S-1 to comply as
to form in all
19
<PAGE>
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. The Acquisition Corp.
shall use all reasonable efforts, and WWWX and Artra shall cooperate with the
Acquisition Corp., to have the Form S-4 and the Form S-1 declared effective by
the SEC as promptly as practicable, to keep the Form S-4 and the Form S-1
effective as long as is necessary to consummate the Merger and to keep the Form
S-1 effective until the earlier of the date the shares are sold or the date such
shares may be sold pursuant to Rule 144 or similar provision under the
Securities Act. The Acquisition Corp. shall, as promptly as practicable, provide
copies of any written comments received from the SEC with respect to the Form
S-4 or the Form S-1 to Artra and WWWX and advise Artra and WWWX of any verbal
comments with respect to the Form S-4 or the Form S-1 received from the SEC. The
Acquisition Corp. shall use its best efforts to obtain, prior to the effective
date of the Form S-4 or the Form S-1, all necessary state securities law or
"blue sky" permits or approvals required to carry out the transactions described
in this Agreement. The Acquisition Corp. agrees that the Proxy
Statement/Prospectus and each amendment or supplement thereto at the time of
mailing thereof and at the time of the meetings of shareholders of Artra and
WWWX, or, in the case of the Form S-4 or the Form S-1 and each amendment or
supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
the Acquisition Corp. in reliance upon and in confor mity with written
information concerning Artra furnished to the Acquisition Corp. by Artra specifi
cally for use in the Proxy Statement/Prospectus or the Form S-1 or any amendment
or supplement thereto. Artra agrees that the written information concerning it
provided by it for inclusion in the Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the meeting of shareholders of Artra, or, in the case of written information
concerning Artra provided by it for inclusion in the Form S-4 or the Form S-1 or
any amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No amendment or supplement to the Proxy Statement/ Prospectus or
the Form S-4 or the Form S-1 will be made by the Acquisition Corp., WWWX or
Artra without the approval of the other parties. The Acquisition Corp. will
advise Artra and WWWX promptly of the times when the Form S-4 and the Form S-1
have become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the
Acquisition Corp. Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment of
the Proxy Statement/Prospectus, the Form S-4 or the Form S-1 or comments thereon
and responses thereto or requests by the SEC for additional information.
4.8 Listing Application. The Acquisition Corp. shall promptly prepare
and submit to the NYSE a listing application covering the shares of Acquisition
Corp. Common Stock issuable in the Merger, and shall use reasonable efforts to
obtain, prior to the Effective Time, approval for such listing of such Acquired
Corp. Common Stock, subject to official notice of issuance. If the shares of the
Acquisition Corp. Common Stock issuable in the Merger are not approved for
listing on the
20
<PAGE>
NYSE prior to the Effective Time, Artra shall prepare and file an application
with the National Association of Securities Dealers, Inc. to list the shares of
the Acquisition Corp. Common Stock on the National Association of Securities
Dealers Automated Quotation Service National Market System ("NASDAQ/NMS"), and
shall use all reasonable efforts to obtain, prior to the Effective Time,
approval for such listing of such Acquisition Corp. Common Stock on the
NASDAQ/NMS.
4.9 Further Action. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
4.10 Affiliate Letters. At least 30 days prior to the Closing Date,
Artra shall deliver to the Acquisition Corp. a list of names and addresses of
those persons who were, in Artra's reasonable judgment, at the record date for
its shareholders' meeting to approve the Merger, "affiliates" (each such person,
an "Affiliate") of Artra within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. Artra shall use all reasonable
efforts to deliver or cause to be delivered to the Acquisition Corp., prior to
the Closing Date, from each of the Affiliates of Artra identified in the
foregoing list, an Affiliate Letter in form and substance reasonably
satisfactory to the Acquisition Corp. The Acquisition Corp. shall be entitled to
place legends as specified in such Affiliate Letters on the certificates
evidencing any Acquisition Corp. Common Stock to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Acquisition Corp. Common Stock,
consistent with the terms of such Affiliate Letters.
4.11 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
described herein shall be paid by the party incurring such expenses except as
expressly provided herein and except that (a) the filing fee in connection with
the filing of the Form S-4 or Proxy Statement/Prospectus with the SEC and (b)
the expenses incurred in connection with printing and mailing the Form S-4 and
the Proxy Statement/Prospectus, shall be borne by Artra.
4.12 Takeover Statute. If any "fair price", "moratorium", "control
share acquisition" or other form of antitakeover statute or regulation shall
become applicable to the transactions described herein, the Acquisition Corp.
and the members of the Board of Directors of the Acquisition Corp. shall grant
such approvals and take such actions as are reasonably necessary so that the
transactions described herein may be consummated as promptly as practicable on
the terms described herein and thereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions described
herein and thereby.
4.13 Conveyance Taxes. Artra and WWWX shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection
21
<PAGE>
with the transactions described in this Agreement that are required or permitted
to be filed on or before the Effective Time.
4.14 Entrade Funding. From and after the Effective Time, Artra shall
commit to provide the Acquisition Corp. with guaranteed funding for the working
capital needs of Entrade, in an amount equal to at least $4,000,000, with credit
for all working capital contributions to Entrade funded by the loans from Artra
made pursuant to the terms of the Loan Agreement, as the same may be amended
from time to time.
4.15 Section 351 Qualification. None of the parties hereto nor any of
their respective Subsidiaries shall knowingly take any action that may
jeopardize the qualification of the Merger as an exchange governed by Section
351 of the Code.
4.16 "Lock-Up" Provisions. WWWX agrees that, except as set forth
herein, commencing on the date hereof and continuing until the first anniversary
of the Effective Time, it shall not: (a) directly or indirectly assign,
transfer, offer, sell, agree to sell, make any short sale, pledge, hypothe cate
or otherwise dispose (collectively, a "Disposition") of any shares of
Acquisition Corp. Common Stock owned by WWWX on the date hereof ("WWWX Stock"),
or (b) engage in any hedging or other transactions with respect to its WWWX
Stock that may have a material impact on the market price of its WWWX Stock, or
that is designed to result in a Disposition of its WWWX Stock, even if such WWWX
Stock would be disposed of by someone other than WWWX, including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale, or grant of any right (including, without limitation, any put or call
option) with respect to any of its WWWX Stock or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from its WWWX Stock. Notwithstanding
the foregoing, from and after the Effective Time, WWWX shall be entitled to (a)
make bona fide pledges of its WWWX Stock to an institutional lender or
nationally recognized brokerage house, and any such pledgee shall have the right
to liquidate such shares in the exercise of any remedies available to it under
its loan arrange ments with WWWX, without regard to the restrictions set forth
herein, and (b) make a one-time distribution of up to 25% of its WWWX Stock to
the shareholders of WWWX, pro rata in accordance with their respective stock
interests in WWWX as determined by the WWWX Board of Directors.
ARTICLE 5
CONDITIONS
5.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions described herein shall
have been approved in the manner required by applicable law or by the applicable
regulations of any stock exchange or other regulatory body, as the case may be,
by the holders of the issued and outstanding shares of capital stock of Artra
and WWWX.
22
<PAGE>
(b) None of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction that prohibits the
consummation of the transactions described in this Agreement. In the event any
such order or injunction shall have been issued, each party agrees to use its
reasonable efforts to have any such injunction lifted.
(c) The Form S-4 shall have become effective and shall be
effective at the Effective Time, and no stop order suspending effectiveness of
the Form S-4 shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, or, to the knowledge of the Acquisition Corp,
threatened, and all necessary approvals under state securities laws relating to
the issuance or trading of the Acquisition Corp. Common Stock and Preferred
Stock to be issued to the Artra shareholders in connection with the Merger shall
have been received.
(d) All consents, authorizations, orders and approvals of (or
filings or registra tions with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to be
filed after the Effective Time and except where, in the opinion of Artra or
WWWX, as the case may be, the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a material
adverse effect on the business, results of operations or financial condition of
Artra and the Acquisition Corp. (and their respective Subsidiaries), taken as a
whole, following the Effective Time.
(e) The Acquisition Corp. Common Stock to be issued to the
Artra shareholders in connection with the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance, or if such
listing has not been approved, the Acquisition Corp. shall have applied for and
be diligently pursuing listing on the NASDAQ/NMS.
(f) The Employment Agreements between Artra and Robert D.
Kohn, Benjamin Kafka, Mark Quinn and Gary Lerman shall have been assigned by
Artra to, and amended by, the Acquisition Corp.
(g) The Board of Directors of the Acquisition Corp. shall have
been elected in accordance with Section 1.4 hereof, and the Articles of
Incorporation and By-Laws of the Acquisition Corp. shall have been amended to
the extent required to cause them to be in compliance with any then applicable
provision or requirement of the PBCL or the NYSE (or, if applicable, the
NASDAQ/NMS).
5.2 Conditions to Obligation of WWWX, the Acquisition Corp. and the
Merger Sub to Effect the Merger. The obligation of WWWX and the Acquisition
Corp. to effect the Merger shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions:
23
<PAGE>
(a) Artra shall have performed in all material respects its
agreements contained in this Agreement and the Loan Agreement required to be
performed on or prior to the Closing Date, the representations and warranties of
Artra contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing Date, except (i) for
changes specifically permitted by this Agreement and (ii) that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date, and WWWX and the Acquisition
Corp. shall have received a certificate of the President or a Vice President of
Artra, dated the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any change in the financial condition,
business or operations of Artra and its Subsidiaries, taken as a whole, that
would have or would be reasonably likely to have an Artra Material Adverse
Effect.
5.3 Conditions to Obligation of Artra to Effect the Merger. The
obligation of Artra to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) Each of WWWX, the Acquisition Corp. and the Merger Sub
shall have performed in all material respects its respective agreements
contained in this Agreement required to be performed on or prior to the Closing
Date, the representations and warranties of WWWX, the Acquisition Corp. and the
Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct as of the Closing Date, except (i)
for changes specifically permitted by this Agreement and (ii) that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date, and Artra shall have received a
certificate of the President or a Vice President of WWWX, the Acquisition Corp.
and the Merger Sub, dated the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any change in the financial condition,
business or operations of the Acquisition Corp. or any of its Subsidiaries that
would have or would be reasonably likely to have an Acquisition Corp.
Material Adverse Effect.
(c) Artra and the Acquisition Corp. shall have received
written affirmations from Global Trade Group, Ltd. ("GTG") and all of the
shareholders of GTG ("GTG Shareholders") that their representations, warranties,
covenants, and indemnifications set forth in the Acquisition Agreement dated
January 29, 1999 between GTG, the GTG Shareholders and WWWX, shall inure to the
benefit of and be enforceable by Artra and the Acquisition Corp. as if
originally given to Artra and the Acquisition Corp.
(d) Artra and the Acquisition Corp. shall have received
written affirmations from Positive Asset Remarketing, Inc. ("PAR") and all of
the shareholders of PAR ("PAR Shareholders") that their representations,
warranties, covenants, and indemnifications set forth in the Acquisition
24
<PAGE>
Agreement dated January 29, 1999 between PAR, the PAR Shareholders and WWWX,
shall inure to the benefit of and be enforceable by Artra and the Acquisition
Corp. as if originally given to Artra and the Acquisition Corp.
(e) The Acquisition Corp. shall have caused AsseTrade to be
converted into or re-created as a Delaware limited liability company, in
accordance with the terms and conditions of an operating agreement that are
reasonably satisfactory to Artra.
(f) That certain Non-Competition Agreement of even date
herewith, by and between the Acquisition Corp. and Robert D. Kohn, shall be in
effect at the time of the Closing, without modification or amendment, and there
shall have been no default thereunder.
ARTICLE 6
TERMINATION
6.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the shareholders of Artra or WWWX, by
the mutual consent of Artra and WWWX.
6.2 Termination by Either Artra or WWWX. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of Artra if (a) the Merger shall not have been consummated by September 30,
1999, or (b) the approval of either Artra's shareholders or WWWX's shareholders
as required by Section 4.3 shall not have been obtained at a meeting duly
convened therefor or at any adjournment thereof, or (c) a United States federal
or state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions described in
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used all reasonable efforts to
remove such injunction, order or decree; and provided, in the case of a
termination pursuant to clause (a) above, that the terminating party shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger by September 30, 1999.
6.3 Termination by WWWX. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the shareholders of WWWX referred to in Section 4.3, by action
of the Board of Directors of WWWX, if (a) in the exercise of its good faith
judgment as to fiduciary duties to its shareholders imposed by law, the Board of
Directors of WWWX determines that such termination is required, including by
reason of an Alternative Proposal being made; provided that WWWX shall notify
Artra promptly of WWWX's intention to terminate this Agreement or enter into a
definitive agreement with respect to any Alternative Proposal, but in no event
shall such notice be given less than 48 hours prior to the public announcement
of WWWX's termination of this Agreement, or (b) there has been a breach by Artra
25
<PAGE>
of any representation or warranty contained in this Agreement that would have or
would be reasonably likely to have an Artra Material Adverse Effect, or (c)
there has been a material breach of any of the material covenants or agreements
set forth in this Agreement on the part of Artra, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such breach
is given by WWWX to Artra, or (d) the Board of Directors of Artra shall have
withdrawn or modified in a manner materially adverse to WWWX its approval or
recommendation of this Agreement or the Merger.
6.4 Termination by Artra. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the shareholders of Artra referred to in Section 4.3, by action
of the Board of Directors of Artra, if (a) the Board of Directors of WWWX shall
have withdrawn or modified in a manner materially adverse to Artra its approval
or recommendation of this Agreement or the Merger, or (b) there has been a
breach by WWWX or the Acquisition Corp. of any representation or warranty
contained in this Agreement that would have or would be reasonably likely to
have an Acquisition Corp. Material Adverse Effect, or (c) there has been a
material breach of any of the material covenants or agreements set forth in this
Agreement on the part of WWWX, the Acquisition Corp. or the Merger Sub, which
breach is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Artra to WWWX.
6.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article 6,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to Section 4.11 and except for the provisions of Sections
8.2, 8.3, 8.5, 8.7, 8.8, 8.11, 8.12 and 8.13. In the event of the termination of
this Agreement solely pursuant to clause (b) of Section 6.2 because the
requisite approval of Artra's shareholders shall not have been obtained, all
obligations of WWWX and the Acquisition Corp. to repay the amounts loaned to
either or both of them by Artra under the Loan Agreement shall terminate and the
loans made by Artra to WWWX and to the Acquisition Corp. under the Loan
Agreement shall be forgiven as a "break-up" fee to WWWX and the Acquisition
Corp. equal to the aggregate amount of the Loan as defined in the Loan
Agreement. In the event of the termina tion of this Agreement solely pursuant to
clause (b) of Section 6.2 because the requisite approval of WWWX's shareholders
shall not have been obtained, WWWX and Acquisition Corp. shall be jointly and
severally obligated to pay Artra a "break-up" fee of $2,000,000, payable in cash
on the date of such termination, in addition to their obligation to repay the
Loan in full. The parties acknowledge and agree that the foregoing "break-up"
fees represent reasonable estimates of their respective costs and expenses
incurred or to be incurred in connection with the transactions described in this
Agreement. Moreover, in the event of termination of this Agreement pursuant to
Section 6.3 or 6.4, nothing herein shall prejudice the ability of the
non-breaching party from seeking damages from any other party for any willful
breach of this Agreement, including without limitation, reasonable attorneys'
fees and the right to pursue any remedy at law or in equity.
6.6 Extension, Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the
26
<PAGE>
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES, INDEMNIFICATION
7.1 Survival of Representations and Warranties. All representations,
warranties, covenants, stipulations, certifications, indemnities and agreements
contained herein or in any document delivered pursuant hereto shall survive the
consummation of the transactions described in this Agreement.
7.2 Indemnification.
(a) WWWX, the Acquisition Corp. and the Merger Sub shall
defend, indemnify and hold Artra harmless from and against any and all claims,
liabilities, damages, losses, deficiencies and expenses, including reasonable
attorneys' fees and expenses and costs of suit (individually a "Loss" and
collectively "Losses") arising out of any and all inaccurate representations and
warran ties and out of any and all breaches of covenants, agreements and
certifications made by or on behalf of WWWX, the Acquisition Corp. and/or the
Merger Sub in this Agreement or in any document delivered by any of them
hereunder, or arising out of or resulting from any occurrence with respect to
the Acquisition Corp. or any of its Subsidiaries or assets prior to the Closing
Date and not disclosed herein.
(b) Artra shall defend, indemnify and hold WWWX, the
Acquisition Corp. and the Merger Sub harmless from and against any and all
Losses arising out of any and all inaccurate representations and warranties and
out of any and all breaches of covenants and agreements and certifications made
by or on behalf of Artra in this Agreement or in any document delivered by Artra
hereunder, or arising out of or resulting from any occurrence with respect to
Artra or any of its Subsidiaries or assets prior to the Closing Date and not
disclosed herein.
7.3 Procedure for Claims. A party seeking indemnification under this
Article 7 (an "Indemnified Party") shall give notice of the claim for losses and
a brief explanation of the basis thereof to the party alleged to be responsible
for indemnification hereunder (an "Indemnitor"). The Indemnitor shall promptly
pay the Indemnified Party any amount due under this Article 7. The Indemnified
Party may pursue whatever legal remedies may be available for recovery of the
losses claimed from any Indemnitor.
27
<PAGE>
7.4 Third Party Claims. An Indemnified Party shall give any indemnitor
prompt notice of the institution by a third party of any actions, suits or other
administrative or judicial proceedings if the Indemnified Party would be
entitled to claim indemnification under this Article 7 in connection with any
such action, suit or other proceeding. After such notice, any Indemnitor may, or
if so requested by the Indemnified Party, any Indemnitor shall, participate in
any such action, suit or other proceeding or assume the defense thereof, with
counsel satisfactory to the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to participate at its own expense in the
defense of any such action, suit or other proceeding; and provided, further,
that the Indemnitor shall not consent to the entry of any judgment or enter into
any settlement, except with the written consent of the Indemnified Party, that
(a) fails to include as an unconditional term thereof the giving by the claimant
or plaintiff to the Indemnified Party of a release from all liability in respect
of any such action, suit or other proceeding or (b) grants the claimant or
plaintiff any injunctive relief against the Indemnified Party. Any failure to
give prompt notice under this Section 7.4 shall not bar an Indemnified Party's
right to claim indemnification under this Article 7, except to the extent that
an Indemnified Party shall have been harmed by such failure.
ARTICLE 8
GENERAL PROVISIONS
8.1 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Artra: If to WWWX, the Acquisition Corp. or the
Merger Sub:
Artra Group Incorporated WorldWide Web NetworX Corporation
500 Central Avenue 300 Atrium Way, Suite 202
Northfield, IL 60093 Mt. Laurel, NJ 08054
Attention: Peter R. Harvey, Attention: Robert D. Kohn, President
President and COO (609) 627-6893
(847) 441-6959
With copies to: With copies to:
Duane, Morris & Heckscher LLP Michelle Kramish Kain, Esquire
One Liberty Place 750 Southeast Third Avenue
Philadelphia, PA 19103-7396 Ft. Lauderdale, FL 33316-1153
Attention: Sheldon M. Bonovitz, (954) 768-0158
Esquire
(215) 979-1020
28
<PAGE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.2 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
8.3 Entire Agreement. This Agreement, the Plan of Merger, the
Acquisition Corp. Disclosure Letter, and the Artra Disclosure Letter constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
8.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
shareholders of Artra and WWWX, but after any such share holder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
its rules of conflict of laws.
8.6 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.7 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.8 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
29
<PAGE>
8.9 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.10 Incorporation. The Acquisition Corp. Disclosure Letter, the Artra
Disclosure Letter, and the Plan of Merger referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
8.11 Severability. Any term or provision of this Agreement which is
invalid or unenforce able in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unen forceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.12 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court located in the
Commonwealth of Pennsylvania, this being in addition to any other remedy to
which they are entitled at law or in equity.
8.13 Subsidiaries. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation or other organization,
whether incorporated or unincor porated, of which such party directly or
indirectly owns or controls at least one-half of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organiza tion, or any organization of which such party is a
general partner or manager.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
ARTRA GROUP INCORPORATED
By:/s/ Peter R. Harvey
-----------------------------
Title: President
-------------------
WORLDWIDE WEB NETWORX
CORPORATION
By:/s/ Robert D. Kohn
-----------------------------
Title: President
-------------------
NA ACQUISITION CORP.
By:/s/ Robert D. Kohn
-----------------------------
Title: President
-------------------
WWWX MERGER SUBSIDIARY, INC.
By:/s/ Robert D. Kohn
-----------------------------
Title: President
-------------------
31
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment") dated as of April 30, 1999 is made by and among Artra Group
Incorporated ("Artra"), a Pennsylvania corporation; WorldWide Web NetworX
Corporation ("WWWX"), a Delaware corporation; NA Acquisition Corp. (the
"Acquisition Corp."), a Pennsylvania corporation and a wholly owned subsidiary
of WWWX; and WWWX Merger Subsidiary, Inc. (the "Merger Sub"), a Pennsylvania
corporation and a wholly owned subsidiary of the Acquisition Corp.
BACKGROUND
----------
A. The parties to this Amendment entered into that certain Agreement
and Plan of Merger dated as of February 23, 1999 (the "Merger Agreement"),
pursuant to which Merger Sub will be merged with and into Artra, subject to the
terms and conditions thereof (the "Merger").
B. The Merger Agreement provides that each party's obligation to effect
the Merger is subject to, inter alia, the approval of the holders of the issued
and outstanding shares of capital stock of WWWX (the "WWWX Shareholders"), and
further provides that the Board of Directors of WWWX must take all necessary
action to convene a meeting of the WWWX Shareholders to consider and vote upon
approval of the Merger Agreement.
C. Following the execution and delivery of the Merger Agreement,
Delaware counsel for WWWX issued its written opinion to WWWX, that no vote or
other approval of the WWWX Shareholders is required under Delaware law in
connection with the Merger Agreement. The parties wish to amend the Merger
Agreement to delete any provisions therein requiring approval of the Merger or
the Merger Agreement by the WWWX Shareholders, and to make such other changes
therein as are consistent with such amendment. Capitalized terms used but not
defined herein shall have the meanings given to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Amendment. The Merger Agreement is hereby amended as follows:
(a) Section 4.3 of the Merger Agreement is amended to delete
therefrom all references to the convening of a meeting of the WWWX Shareholders
to consider and vote upon approval of the Merger Agreement, and all references
to actions of the Board of Directors of WWWX to recommend and solicit such
approval.
(b) Section 5.1(a) of the Merger Agreement is amended to
delete therefrom the reference to approval by the WWWX Shareholders as a
condition to the obligations of the parties to effect the Merger.
<PAGE>
(c) Section 6.5 of the Merger Agreement is amended to provide
that the $2,000,000 "break-up" fee payable to Artra as set forth in Section 6.5
shall be payable to Artra only in the event that the representations and
warranties of WWWX, the Acquisition Corp. and the Merger Sub in the first
sentence of Section 2 of this Amendment should be determined by WWWX or a court
of competent jurisdiction to be untrue, and the Merger Agreement is thereafter
terminated solely because any required approval of WWWX's shareholders shall not
have been obtained.
(d) The Merger Agreement is further amended to make such
additional changes in the provisions thereof as are necessary to make them
consistent with the foregoing amendments.
2. Representations and Warranties. WWWX, the Acquisition Corp. and the
Merger Sub jointly and severally represent and warrant to Artra that no vote or
other approval of the WWWX Shareholders is required under applicable law, or
under WWWX's certificate or articles of incorporation or by-laws, in connection
with the Merger Agreement.
In addition to the foregoing, each of the parties hereby
represents and warrants to the others as follows:
(a) It has the power to execute and deliver this Amendment and
has taken all necessary action to authorize the execution and delivery of this
Amendment and the performance of the Merger Agreement as amended hereby;
(b) The execution and delivery of this Amendment and the
performance of the Merger Agreement as amended hereby will not violate any
provision of any applicable law or regulation or of any writ or decree of any
court or governmental instrumentality, or its certificate or articles of
incorporation, by-laws, or other similar organizational documents.
3. Reaffirmation. Except as amended hereby, all of the terms, covenants
and conditions of the Merger Agreement are ratified, reaffirmed and confirmed
and shall continue in full force and effect as therein written.
4. Binding Effect This Amendment shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
5. Counterparts; Effectiveness. This Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts.
Each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute one and the same agreement. A facsimile
of an executed copy of this Amendment shall have the same force and effect as an
original executed copy.
- 2 -
<PAGE>
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania without
reference to conflict of law principles.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day
and year first above written.
ARTRA GROUP INCORPORATED
By: /s/ Peter R. Harvey
-----------------------
Title: President
WORLDWIDE WEB NETWORX
CORPORATION
By: /s/ Robert D. Kohn
-----------------------
Title: President
NA ACQUISITION CORP.
By: /s/ Robert D. Kohn
-----------------------
Title: President
WWWX MERGER SUBSIDIARY, INC.
By: /s/ Robert D. Kohn
-----------------------
Title: President
-3-
<PAGE>
APPENDIX B
DISSENTERS RIGHTS PROVISIONS OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW
ss. 1930. Dissenters rights.
(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only. Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation
that is a party to a merger or consolidation pursuant to section 1924(1)(i)
(relating to adoption by board of directors).
(c) Cross references. See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).
SUBCHAPTER D
DISSENTERS RIGHTS
ss. 1571. Application and effect of subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in division).
IV-1
<PAGE>
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held
invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach
of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders
of the shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in that paragraph in
the case of:
(i) Shares converted by a plan if the shares
are not converted solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the adoption of the
plan or the effectuation of the transaction the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
IV-2
<PAGE>
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the other
corporation and with or without the intervention of another corporation or other
person, shall not be entitled to the rights and remedies of dissenting
shareholders provided in this subchapter regardless of the fact, if it be the
case, that the acquisition was accomplished by the issuance of voting shares of
the corporation to be outstanding immediately after the acquisition sufficient
to elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not
be relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
IV-3
<PAGE>
ss. 1572. Definitions.
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have the sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
ss. 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a
IV-4
<PAGE>
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his name.
ss. 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
ss. 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
IV-5
<PAGE>
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
ss. 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
ss. 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
IV-6
<PAGE>
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year ending not
more than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
(3) A notice of the right of the dissenter to demand payment
or supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenters had
after making demand for payment of their fair value.
ss. 1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
ss. 1579. Valuation proceedings generally.
IV-7
<PAGE>
(a) General rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
ss. 1580. Costs and expenses of valuation proceedings.
IV-8
<PAGE>
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
IV-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (i) the director has
breached or failed to perform the duties of his office and (ii) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of Entrade Inc. ("Entrade") and the Bylaws of ARTRA Group
Incorporated ("Artra") provide for (i) indemnification of directors, officers,
employees and agents of the registrant and its subsidiaries and (ii) the
elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
Entrade pursuant to the foregoing provisions, Entrade has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger dated as of February 23,
1999 among Artra, WorldWide Web NetworX Corporation
("WWWX"), NA Acquisition Corp. ("NAAC") (now known as
Entrade Inc.) and WWWX Merger Subsidiary, Inc.;
Amendment to Agreement and Plan of Merger dated as of
April 30, 1999; Second Amendment to Agreement and
Plan of Merger dated as of May 14, 1999 (included as
Annex A to the Proxy Statement/ Prospectus).
Schedules are omitted; Entrade agrees to furnish
copies of such schedules to the Commission upon
request.
3.1 Articles of Incorporation of Entrade.
II-1
<PAGE>
3.2 Bylaws of Entrade.
5. Opinion of Michelle Kramish Kain, P.A.*
10.1 Acquisition Agreement dated as of February 23, 1999
between WWWX and NAAC.
10.2 Bill of Sale and Instrument of Assignment of WWWX
dated February 23, 1999.
10.3 Promissory Note dated as of February 23, 1999 in the
principal amount of $500,000 issued by NAAC to WWWX.
10.4 Agreement dated as of February 16, 1999 among Energy
Trading Company, WorldWide Web NetworX Corporation
and NAAAC.
10.5. Loan Agreement dated as of February 23, 1999 between
Artra and NAAC.
10.6 Promissory Note dated as of February 23, 1999 in the
principal amount of $1,400,000 issued by NAAC to
Artra.
10.7 Guaranty dated as of February 23, 1999 made by WWWX
in favor of Artra to secure the obligations of NAAC.
10.8 Pledge Agreement dated as of February 23, 1999
between Artra and NAAC.
10.9 Security Agreement dated as of February 23, 1999
between Artra and NAAC.
10.10 Employment Agreement dated as of February 23, 1999
between Artra and Robert D. Kohn.
10.11 Employment Agreement as of February 23, 1999 between
Artra and Benjamin Kafka.
10.12 Employment Agreement dated as of February 23, 1999
between Artra and Gary Lerman.
10.13 Employment Agreement dated as of February 23, 1999
between Artra and Mark L.M. Quinn.
II-2
<PAGE>
10.14 1999 Non-qualified Stock Option Plan of Artra and
form of Non-Qualified Stock Option Agreement.
10.15 Finders Agreement between Artra and Jeffrey Newman.
10.16 Agreement dated as of December 11, 1998 among Henry
Butcher USA, Inc., Michael Fox International, Inc.
Butcher Fox, LLC, Positive Asset Remarketing, Inc.
and asseTrade.com, Inc.
10.17 Software License Agreement dated as of December 11,
1998 between asseTrade.com, Inc. and BarterOne LLC
(d/b/a entrade.com).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Michelle Kramish Kain, P.A. (contained in
Exhibit 5).*
23.3 Consent of Edward A. Celano.
23.4 Consent of Gerard Kenny.
23.5 Consent of Peter R. Harvey.
23.6 Consent of Maynard Louis.
23.7 Consent of Robert Johnson.
23.8 Consent of Mark Santacrose.
23.9 Consent of John Harvey.
23.10 Consent of John K. Tull.
23.11 Consent of Howard R. Conant.
99.1 Form of Proxy for the Annual Meeting of Shareholders
of Artra.*
- -------------
* To be filed by Amendment
(b) Financial Statement Schedules.
None required.
II-3
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
II-4
<PAGE>
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the bylaws of the registrant, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on May 24, 1999.
ENTRADE INC.
By:/s/ Robert D. Kohn
--------------------------------------
Robert D. Kohn,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the capacities
and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert D. Kohn President, Chief May 24, 1999
- ---------------------- Executive Officer and
Robert D. Kohn Director (Principal Executive,
Financial and Accounting Officer)
II-6
<PAGE>
EXHIBIT INDEX
-------------
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger dated as of February
23, 1999 among Artra Group Incorporated
("Artra"), WorldWide Web NetworX Corporation
("WWWX"), NA Acquisition Corp. ("NAAC") (now
known as Entrade Inc.), and WWWX Merger
Subsidiary, Inc.; Amendment to Agreement and plan
of Merger dated as of April 30, 1999; Second
Amendment to Agreement and Plan of Merger dated
as of May 14, 1999 (included as Annex A to the
Proxy Statement/Prospectus). Schedules are
omitted; Entrade agrees to furnish copies of such
schedules to the Commission upon request.
3.1 Articles of Incorporation of Entrade.
3.2 Bylaws of Entrade.
5. Opinion of Michelle Kramish Kain, P.A.*
10.1 Acquisition Agreement dated as of February 23,
1999 between WWWX and NAAC.
10.2 Bill of Sale and Instrument of Assignment of WWWX
dated February 23, 1999.
10.3 Promissory Note dated as of February 23, 1999 in
the principal amount of $500,000 issued by NAAC
to WWWX.
10.18 Agreement dated as of February 16, 1999 among
Energy Trading Company, WorldWide Web NetworX
Corporation and NAAC.
10.5. Loan Agreement dated as of February 23, 1999
between Artra and NAAC.
10.6 Promissory Note dated as of February 23, 1999 in
the principal amount of $1,400,000 issued by NAAC
to Artra.
10.7 Guaranty dated as of February 23, 1999 made by
WWWX in favor of Artra to secure the obligations
of NAAC.
10.8 Pledge Agreement dated as of February 23, 1999
between Artra and NAAC.
II-7
<PAGE>
10.9 Security Agreement dated as of February 23, 1999
between Artra and NAAC.
10.10 Employment Agreement dated as of February 23,
1999 between Artra and Robert D. Kohn.
10.11 Employment Agreement as of February 23, 1999
between Artra and Benjamin Kafka.
10.12 Employment Agreement dated as of February 23,
1999 between Artra and Gary Lerman.
10.13 Employment Agreement dated as of February 23,
1999 between Artra and Mark L.M. Quinn.
10.14 1999 Non-qualified Stock Option Plan of Artra and
form of Non- Qualified Stock Option Agreement.
10.15 Finders Agreement between Artra and Jeffrey
Newman.
10.16 Agreement dated as of December 11, 1998 among
Henry Butcher USA, Inc., Michael Fox
International, Inc. Butcher Fox, LLC, Positive
Asset Remarketing, Inc. and asseTrade.com, Inc.
10.17 Software License Agreement dated as of December
11, 1998 between asseTrade.com, Inc. and
BarterOne LLC (d/b/a entrade.com).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Michelle Kramish Kain, P.A. (contained
in Exhibit 5).*
23.3 Consent of Edward A. Celano.
23.4 Consent of Gerard M. Kenny.
23.5 Consent of Peter R. Harvey.
23.6 Consent of Maynard K. Louis.
23.7 Consent of Robert L. Johnson.
23.8 Consent of Mark Santacrose.
II-8
<PAGE>
23.9 Consent of John Harvey.
23.10 Consent of John K. Tull.
23.11 Consent of Howard R. Conant.
99.1 Form of Proxy for the Annual Meeting of
Shareholders of Artra.*
- -------------
* To be filed by Amendment
II-9
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
NA ACQUISITION CORP.
Pursuant to the Business Corporation Law
of 1988 of the Commonwealth of Pennsylvania
FIRST. The name of the Corporation is NA Acquisition Corp.
SECOND. The location and post office address of the Corporation's
registered office in the Commonwealth of Pennsylvania is c/o CT Corporation
System, 1635 Market Street, Philadelphia, Pennsylvania 19103.
THIRD. The Corporation is incorporated under the provisions of the
Business Corporation Law of 1988 of the Commonwealth of Pennsylvania (the
"BCL"). The Corporation shall have unlimited power to engage in and to do any
lawful act concerning any or all lawful business for which corporations may be
incorporated under the BCL.
FOURTH. The term of the Corporation's existence is perpetual.
FIFTH. The number of shares which the Corporation has authority to
issue is 40,000,000 shares of common stock (the "Common Stock"), without par
value, and 4,000,000 shares of preferred stock (the Preferred Stock"), par value
$1,000 per share. The Board of Directors shall have the authority to authorize
the issuance, from time to time without any vote or other action by the
shareholders, of any or all shares of stock of the Corporation of any class at
any time authorized.
(i) Each share of Common Stock shall have equal voting powers
and each such share shall be entitled to one vote in all proceedings in which
shareholders shall be entitled to vote. The shareholders of the Corporation
shall not have the right to cumulate their votes for the election of directors
of the Corporation.
(ii) The Corporation shall not issue any shares of non-voting
common stock.
(iii) The Preferred Stock may be issued from time to time in
one or more series. The designations, preferences, qualifications, privileges,
limitations, options, conversion rights and other special rights shall be as
stated and expressed in this Article FIFTH and, to the extent not so stated and
expressed, shall be fixed by resolution or resolutions providing for the
issuance of such shares duly adopted by the Board of Directors (authority to do
so being hereby expressly granted). Such resolution or resolutions shall (i) fix
the dividend rights of holders of shares of each such series, (ii) fix the terms
on which stock of each such series may be redeemed if the shares of such series
are to be redeemable, (iii) fix the rights of the holders of stock of each such
series upon dissolution or any distribution of assets, (iv) fix the terms or
amount of the sinking fund, if any, to be provided for
<PAGE>
the purchase or redemption of stock of each such series, (v) fix the terms upon
which the stock of each such series may be converted into or exchanged for stock
of any other class or classes of any one or more series of Preferred Stock if
the shares of such series are to be convertible or exchangeable, (vi) fix the
voting rights, if any, of the shares of each such series and (vii) fix such
other designations, preferences and relative, participating, operational or
other special rights, and qualifications, limitations or restrictions thereof
desired to be so fixed.
All shares of any one series of Preferred Stock shall be identical with
each other in all respects except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall
accumulate thereon, and all series of Preferred Stock shall rank equally and be
identical in all respects except as specified in the respective resolutions of
the Board of Directors providing for the initial issue thereof.
Subject to the prior and superior rights of the Preferred Stock as set
forth in any resolution or resolutions of the Board of Directors providing for
the initial issue of a particular issue of Preferred Stock, such dividends
(payable in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to time out of
any funds legally available therefor, and the Preferred Stock shall not be
entitled to participate in any such dividend. No interest shall accrue or be
payable on dividends on Preferred Stock not paid when due.
(d) No holder of stock of the Corporation shall be entitled as
such to any right, preemptive or otherwise to subscribe for, purchase or receive
any part of the shares of stock of the Corporation at any time held in its
treasury or of the unissued shares of stock of the Corporation either authorized
at present or which may at any time hereafter be authorized, or of any issue of
notes, bonds or debentures, whether or not convertible into any class of stock
of the Corporation, or of any issue of warrants, options or rights to subscribe
for shares of any class of stock of the Corporation.
SIXTH. The number of Directors of the Corporation shall be fixed, from
time to time, in the manner provided in the bylaws. No decrease in the number of
directors shall shorten the term of any incumbent director. Any vacancy
occurring in the Board of Directors caused by death, resigna tion or removal,
and any newly created directorship resulting from an increase in the number of
directors, may be filled by a majority of the directors in office, although less
than a quorum. Each director chosen to fill a vacancy or newly created
directorship shall hold office until the next election for which such director
shall have been chosen and until his successor shall be duly elected and
qualified.
SEVENTH. At a meeting of the shareholders, the holders of 50% of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum requisite for the transaction of
business, except as otherwise provided by law.
In the event that the holders of the stock of the Corporation issued
and outstanding and entitled to vote at a meeting with respect to a particular
matter (such stock is hereafter referred to
-2-
<PAGE>
as "Voting Stock" and references thereto shall mean each class of Voting Stock
to the extent the holders of stock of any class are entitled to vote as a class
on any matter) are entitled to vote on:
(i) a proposal that this Corporation enter into a merger or
consolidation with any Person (as hereinafter defined), or
that this Corporation sell, lease or exchange substantially
all of its assets and property, with or without the good will
of the Corporation, to any such Person, and such Person and
his or its affiliates, singly or in the aggregate, own or
control, directly or indirectly, 5% or more of the Voting
Stock at the record date for determining shareholders entitled
to vote, or
(ii) a proposal to reclassify securities, recapitalize or
other transaction (except redemptions permitted by the terms
of the security to be redeemed or repurchased by this
Corporation of its securities for cancellation or for its
treasury) designed to decrease the number of holders of the
Voting Stock remaining after any Person has acquired 5% of
such Voting Stock,
the affirmative vote of the holders of shares of Voting Stock of the Corporation
representing at least 80% of the votes entitled to be cast at a meeting of the
shareholders duly called for the consideration of any such proposal shall be
required for the approval of such proposal; provided, however, that the
foregoing requirements shall not apply to any such merger, consolidation or sale
of assets and property, with or without the goodwill of the Corporation (i)
which shall have been approved by a resolution duly adopted by a majority of the
directors in office, although less than a quorum, and the affirmative vote of
the holders of shares of Voting Stock of the Corporation representing at least a
majority of the votes entitled to be cast at a meeting of shareholders called
for such purpose, or (ii) between the Corporation and another corporation, 50%
or more of the Voting Stock of which is owned by the Corporation, if the
Corporation is the survivor or purchaser.
For the purposes hereof, a "Person" shall mean any corporation,
partnership, association, trust (other than any trust holding stock of the
employees of the Corporation pursuant to any stock purchase, ownership or
employee benefit plan of the Corporation), business entity, estate or individual
or any Affiliate (as hereinafter defined) of any of the foregoing. An
"Affiliate" shall mean any corporation, partnership, association, trust,
business entity, estate or individual who, directly or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a Person. "Control" shall mean the possession, directly or
indirectly, of power to direct or cause the direction of the management and
policies of a Person through the ownership of voting securities, by contract, or
otherwise.
EIGHTH. The provisions of Article SEVENTH and this Article EIGHTH may
not be amended, altered, changed or repealed in any respect unless such
amendment, alteration, change or repeal is approved by (i) the affirmative vote
of the holders of shares of Voting Stock of the Corporation representing at
least 80% of the vote entitled to be cast at a meeting of the shareholders duly
called for the consideration of such amendment, alteration, change or repeal, or
(ii) the affirmative vote of at least 80% of the directors in office, although
less than a quorum, and the affirmative vote of
-3-
<PAGE>
the holders of shares of Voting Stock of the Corporation representing at least a
majority of the votes entitled to be cast at such meeting of shareholders.
NINTH. The provisions of Subchapter E of Chapter 25 of the Pennsylvania
Business Corporation Law of 1988 shall not be applicable to the Corporation.
IN WITNESS WHEREOF, the incorporator has signed these Articles of
Incorporation this 16th day of February, 1999.
/s/ Sara Ream
---------------------------------
Sara Ream, Incorporator
c/o Duane, Morris & Heckscher LLP
305 North Front Street, 5th Floor
Harrisburg, PA 17108
-4-
<PAGE>
Microfilm Number___________ Filed with the Department of State on May 20, 1999
Entity Number______________ ______________________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 91)
In compliance with the requirements of 15 Pa.C.S. ss. 1915
(relating to articles of amendment), the undersigned business corporation,
desiring to amend its Articles, hereby states that:
1. The name of the corporation is: NA Acquisition Corp.
----------------------------------------
----------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider
and the county of venue is (the Department is hereby authorized to
correct the following information to conform to the records of the
Department):
(a) ------------------------------------------------------------------
Number and Street City State Zip
(b) c/o: CT Corporation System Philadelphia
---------------------------------------------------------------
County
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the corporation
is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is:
Pennsylvania Business Corporation Law of 1988
---------------------------------------------
4. The date of its incorporation is: February 16, 1999
--------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
--- Amendment in the Department of State.
The amendment shall be effective on: at
--- -------------- -----------------
Date Hour
6. (Check one of the following):
___ The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. ss. 1914(a) and (b).
X The amendment was adopted by the board of directors pursuant to 15
---
Pa.C.S. ss. 1914(c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is as
---
follows:
RESOLVED, that Article 1 of the Articles of Incorporation of the
Corporation is hereby amended in its entirety, to read as follows:
"FIRST: The name of the Corporation is Entrade Inc."
___ The amendment adopted by the corporation is set forth in full
in Exhibit A attached hereto and made a part hereof.
<PAGE>
DSCB:15-1915 (Rev 91)-2
8. (Check if the amendment restates the Articles):
_______ The resta ted Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
19th day of May , 1999.
- ------ ------------- --
NA ACQUISITION CORP.
--------------------------------------------------
(Name of Corporation)
BY:/s/Robert D. Kohn
-----------------------------------------------
Robert D. Kohn (Signature)
TITLE: President
--------------------------------------------
<PAGE>
[GRAPHIC OMITTED]
DSCB:15-1915 (Rev 91)-3
Department of State
Corporation Bureau
308 North Office Building
Harrisburg, PA 17120-0029
Robert P. Casey Brenda K. Mitchell Charles A. Ottaviano
Governor Secretary of the Commonwealth Director, Corporation Bureau
Instructions for Completion of Form:
A. One original of this form is required. The form shall be completed in
black or blue-black ink in order to permit reproduction. The filing fee
for this form is $52 made payable to the Department of State. PLEASE
NOTE: A separate check is required for each form submitted.
B. Under 15 Pa.C.S. ss. 135(c) (relating to addresses) an actual street or
rural route box number must be used as an address, and the Department
of State is required to refuse to receive or file any document that
sets forth only a post office box address.
C. The following, in addition to the filing fee, shall accompany this form:
(1) Three copies of a completed form DSCB:15-134B\
(Changes-Docketing Statement).
(2) Any necessary copies of form DSCB:17.2 (Consent to
Appropriation of Name) or form DSCB:17.3 (Consent to
Use of Similar Name) shall accompany Articles of
Amendment effecting a change of name and the change
in name shall contain a statement of the complete new
name.
(3) Any necessary governmental approvals.
D. This form and all accompanying documents shall be mailed to:
Department of State
Corporation Bureau
308 North Office Building
Harrisburg, PA 17120-0029
E. To receive confirmation of the file date prior to receiving the
microfilmed original, send either a self-addressed, stamped postcard
with the filing information noted or a self-addressed, stamped envelope
with a copy of the filing document.
EXIBIT 3.2
BY-LAWS
OF
NA ACQUISITION CORP.
ADOPTED FEBRUARY 16, 1999
<PAGE>
BY-LAWS
OF
NA ACQUISITION CORP.
Table of Contents
-----------------
Page
----
Article 1 - Corporation Office................................................1
Article 2 - Shareholder Meetings..............................................1
Article 3 - Quorum of Shareholders............................................2
Article 4 - Voting Rights.....................................................3
Article 5 - Proxies...........................................................4
Article 6 - Record Date.......................................................4
Article 7 - Shareholder List..................................................5
Article 8 - Judges of Election................................................5
Article 9 - Consent of Shareholders in Lieu of Meeting........................6
Article 10 - Directors........................................................6
Article 11 - Removal of Directors.............................................7
Article 12 - Vacancies on Board of Directors..................................7
Article 13 - Powers of Board..................................................7
Article 14 - Meetings of the Board of Directors...............................8
Article 15 - Action by Written Consent........................................8
Article 16 - Compensation of Directors........................................8
Article 17 - Liability of Directors...........................................9
Article 18 - Officers........................................................10
<PAGE>
Article 19 - The President...................................................11
Article 20 - The Vice President..............................................11
Article 21 - The Secretary...................................................11
Article 22 - The Treasurer...................................................12
Article 23 - Assistant Officers..............................................12
Article 24 - Indemnification of Officers, Directors, Employees and Agents....12
Article 25 - Shares; Share Certificates......................................14
Article 26 - Transfer of Shares..............................................15
Article 27 - Lost Certificates...............................................15
Article 28 - Fiscal Year.....................................................16
Article 29 - Manner of Giving Written Notice; Waivers of Notice..............16
Article 30 - Amendments......................................................16
<PAGE>
BY-LAWS
OF
NA ACQUISITION CORP.
Article 1
Corporation Office
Section 1.1 The Corporation shall have and continuously maintain in the
Commonwealth of Pennsylvania a registered office at an address to be designated
from time to time by the Board of Directors which may, but need not, be the same
as its place of business.
Section 1.2 The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate or the business of the
Corporation may require.
Article 2
Shareholder Meetings
Section 2.1 All meetings of the shareholders shall be held at such time
and place, within or without the Commonwealth of Pennsylvania, as may be
determined from time to time by the Board of Directors and need not be held at
the registered office of the Corporation.
Section 2.2 An annual meeting of the shareholders for the election of
directors and the transaction of such other business as may properly be brought
before the meeting shall be held in each calendar year at such time and place as
may be determined by the Board of Directors.
Section 2.3 Special meetings of the shareholders may be called at any
time by resolution of the Board of Directors, which may fix the date and place
of the meeting. If the Board of Directors does not fix the date, time or place
of the meeting, it shall be the duty of the Secretary to do so. A date fixed by
the Secretary shall not be more than 60 days after the date of the adoption of
the resolution of the Board of Directors calling the special meeting.
Section 2.4 Written notice of each meeting other than an adjourned
meeting of shareholders, stating the place and time, and, in the case of a
special meeting of shareholders, the general nature of the business to be
transacted, shall be provided to each shareholder of record entitled to vote at
the meeting at such address as appears on the books of the Corporation. Such
notice shall be given, in accordance with the provisions of Article 29 of these
Bylaws, at least (i) ten days prior to the day named for a meeting to consider a
fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law
of 1988 (the "BCL") or (ii) five days prior to the day named for the meeting in
any other case.
1
<PAGE>
Section 2.5
(a) Whenever the Corporation has been unable to communicate
with a shareholder for more than 24 consecutive months because communications to
the shareholder are returned unclaimed or the shareholder has otherwise failed
to provide the Corporation with a current address, the giving of notice to such
shareholder pursuant to Section 2.4 of these Bylaws shall not be required. Any
action or meeting that is taken or held without notice or communication to that
shareholder shall have the same validity as if the notice or communication had
been duly given. Whenever a shareholder provides the Corporation with a current
address this Subsection 2.5(a) shall cease to be applicable to such shareholder.
(b) The Corporation shall not be required to give notice to
any shareholder pursuant to Section 2.4 hereof if and for as long as
communication with such shareholder is unlawful.
Section 2.6 The Board of Directors may provide by resolution with
respect to a specific meeting or with respect to a class of meetings that one or
more shareholders may participate in such meeting or meetings of shareholders by
means of conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear one another.
Participation in the meeting by such means shall constitute presence in person
at the meeting. Any notice otherwise required to be given in connection with any
meeting at which participation by conference telephone or other communications
equipment is permitted shall so specify.
Article 3
Quorum of Shareholders
Section 3.1 A meeting of shareholders duly called shall not be
organized for the transaction of business unless a quorum is present.
Section 3.2 The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for purposes of consideration and action on such matter.
Section 3.3 The shareholders present at a duly organized meeting may
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 3.4 If a meeting of shareholders cannot be organized because a
quorum is not present, those present in person or by proxy, may, except as
otherwise provided by statute, adjourn the meeting to such time and place as
they may determine, without notice other than an announcement at the meeting,
until the requisite number of shareholders for a quorum shall be present in
person or by proxy.
2
<PAGE>
Section 3.5 Notwithstanding the provisions of Sections 3.1, 3.2, 3.3
and 3.4 of these Bylaws:
(a) Any meeting at which directors are to be elected may be
adjourned for such period as the shareholders present and entitled to vote shall
direct.
(b) Those shareholders entitled to vote who attend a meeting
called for election of directors that has been previously adjourned for lack of
a quorum, although less than a quorum as fixed in these Bylaws, shall
nevertheless constitute a quorum for the purpose of electing directors.
(c) Those shareholders entitled to vote who attend a meeting
that has been previously adjourned for one or more periods aggregating at least
15 days because of an absence of a quorum, although less than a quorum as fixed
in these Bylaws, shall nevertheless constitute a quorum for the purpose of
acting upon any matter set forth in the notice of the meeting if the notice
states that those shareholders who attend the adjourned meeting shall
nevertheless constitute a quorum for the purpose of acting upon the matter.
Article 4
Voting Rights
Section 4.1 Except as may be otherwise provided by the Corporation's
Articles of Incorporation, at every meeting of shareholders, every shareholder
entitled to vote thereat shall be entitled to one vote for every share having
voting power standing in his name on the books of the Corporation on the record
date fixed for the meeting.
Section 4.2 Except as otherwise provided by statute as by the
Corporation's Articles of Incorporation, at any duly organized meeting of
shareholders the vote of the holders of a majority of the votes cast shall
decide any question brought before such meeting.
Section 4.3 Unless demand is made before the voting begins by a
shareholder entitled to vote at any election for directors, the election of such
directors need not be by ballot.
Section 4.4 No shareholder shall be permitted to nominate a candidate
for election as a director unless such shareholder shall provide to the
Secretary of the Corporation (a) information about such candidate that is
equivalent to the information concerning the candidates nominated by the Board
of Directors that was contained in the Corporation's proxy statement for the
immediately preceding annual meeting of shareholders at which directors were
elected if the Corporation distributed a proxy statement to its shareholders in
connection with such election of directors or (b) if the Corporation did not
distribute such a proxy statement, the following information about such
candidate: name, age, any position or office held with the Corporation, a
description of any arrangement between the candidate and any other person(s)
(naming such person(s)) pursuant to which he was nominated as a director,
principal occupation for the five years prior to the election, the number of
shares of the Corporation's stock beneficially owned by the candidate and a
description of any material transaction or series of transactions to which the
3
<PAGE>
Corporation or any of its affiliates is a party and in which the candidate or
any of his affiliates has a direct or indirect material interest, which
description shall specify the candidate's interest in the transaction, the
amount of the transaction and, where practicable, the amount of the candidate's
interest in the transaction. Such information shall be provided in writing not
later than 120 days before the first anniversary of the preceding annual meeting
of shareholders.
Article 5
Proxies
Section 5.1 Every shareholder entitled to vote at a meeting of
shareholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder or his duly
authorized attorney-in-fact and filed with the Secretary of the Corporation. A
proxy, unless coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until written
notice thereof has been given to the Secretary of the Corporation. An unrevoked
proxy shall not be valid after three years from the date of its execution unless
a longer time is expressly provided therein. A proxy shall not be revoked by the
death or incapacity of the maker, unless before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the Secretary of the Corporation.
Section 5.2 Where two or more proxies of a shareholder are present, the
Corporation shall, unless otherwise expressly provided in the proxy, accept as
the vote of all shares represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether the shares represented
shall be voted or upon the manner of voting the shares, the voting of the shares
shall be divided equally among those persons.
Article 6
Record Date
Section 6.1 The Board of Directors may fix a time prior to the date of
any meeting of shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall not be more than 90 days prior
to the date of the meeting of shareholders. Only shareholders of record on the
date so fixed shall be entitled to notice of, or to vote at, such meeting,
notwithstanding any transfer of shares on the books of the Corporation after any
record date fixed as aforesaid. The Board of Directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose, such as the payment of a distribution or a conversion or exchange of
shares.
Section 6.2 The Board of Directors may by resolution adopt a procedure
whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in such shareholder's
name are held for the account of a specified person or persons. Such resolution
may set forth: (a) the classification of shareholder who may certify; (b) the
purpose or purposes for which the certification may be made; (c) the form of
certification and
4
<PAGE>
information to be contained therein; (d) if the certification is with respect to
a record date, the time after the record date within which the certification
must be received by the Corporation; and (e) such other provisions with respect
to the procedure as are deemed necessary or desirable. Upon receipt by the
Corporation of a certification complying with the procedure, the persons
specified in the certification shall be deemed, for the purposes set forth in
the certification, to be the holders of record of the number of shares specified
in place of the shareholder making the certification.
Article 7
Shareholder List
Section 7.1 The officer or agent having charge of the share transfer
books of the Corporation shall make a complete alphabetical list of the
shareholders entitled to vote at any meeting, with their addresses and the
number of shares held by each. The list shall be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the
entire meeting except that if the Corporation has 5,000 or more shareholders, in
lieu of the making of the list the Corporation may make the information
available at the meeting by other means.
Section 7.2 Failure to comply with the provisions of Section 7.1 of
these Bylaws shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list.
Section 7.3 The original transfer books for shares of the Corporation,
or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be prima
facie evidence as to who are the shareholders entitled to examine the list or
transfer books for shares or to vote at any meeting.
Article 8
Judges of Election
Section 8.1 Prior to any meeting of shareholders, the Board of
Directors may appoint judges of election, who may but need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election are not
so appointed, the presiding officer of any such meeting may, and on the request
of any shareholder or his proxy shall, make such appointment at the meeting. The
number of judges shall be one or three. No person who is a candidate for an
office to be filled at the meeting shall act as a judge of election.
Section 8.2 In case any person appointed as a judge of election fails
to appear or fails or refuses to act, the vacancy so created may be filled by
appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
Section 8.3 The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies.
The judges of election shall also receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the
5
<PAGE>
right to vote, count and tabulate all votes, determine the result and do such
other acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as practicable. If
there are three judges of election, the decision, act or certificate of a
majority shall be the decision, act or certificate of all.
Section 8.4 On request of the presiding officer of the meeting or of
any shareholder, the judges of election shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts found by them.
Article 9
Consent of Shareholders in Lieu of Meeting
Section 9.1 Any action required or permitted to be taken at a meeting
of the shareholders or of a class of shareholders may be taken without a meeting
upon the written consent of shareholders who would have been entitled to cast
the minimum number of votes that would be necessary to authorize the action at a
meeting at which all the shareholders entitled to vote thereon were present and
voting. The consents shall be filed with the Secretary of the Corporation. If a
written consent or consents are signed by fewer than all of the shareholders who
would be entitled to vote at a meeting for such purpose, the action shall not
become effective until ten days after written notice of the action has been
given to each shareholder entitled to vote thereon who has not consented
thereto.
Article 10
Directors
Section 10.1 The number of directors shall be determined by the Board
of Directors from time to time. Each director shall be a natural person of full
age and need not be a resident of the Commonwealth of Pennsylvania or a
shareholder of the Corporation.
Section 10.2 The Board of Directors may elect a Chairman of the Board.
The Chairman of the Board of Directors shall preside at all meetings of
shareholders and directors.
Section 10.3 Except as otherwise provided in Article 12 of these
Bylaws, directors shall be elected by the shareholders. The candidates receiving
the highest number of votes from the shareholders shall be elected. Each
director shall be selected for a term of one year and until his successor has
been selected and qualified or until his earlier death, resignation or removal.
A decrease in the number of directors shall not have the effect of shortening
the term of any incumbent director.
6
<PAGE>
Article 11
Removal of Directors
Section 11.1 The entire Board of Directors or any individual director
may be removed from office without assigning any cause by the vote of the
shareholders entitled to elect directors. If any directors are so removed, new
directors may be elected at the same meeting.
Section 11.2 The Board of Directors may remove and declare vacant the
office of a director who has been judicially declared of unsound mind or who has
been convicted of an offense punishable by imprisonment for a term of more than
one year.
Article 12
Vacancies on Board of Directors
Section 12.1 Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority vote of the remaining members of the Board of Directors, though less
than a quorum, or by a sole remaining director, and each person so elected shall
be a director to serve for the balance of the unexpired term.
Section 12.2 If one or more directors shall resign from the Board of
Directors effective at a future date, the directors then in office, including
those who have so resigned, shall have the power by a majority vote to fill the
vacancies, to take effect when the resignations become effective.
Article 13
Powers of Board
Section 13.1 The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
directed or required to be exercised and done by statute, the Articles of
Incorporation or these Bylaws.
Section 13.2 The Board of Directors may, by resolution adopted by a
majority of the directors in office, establish one or more committees consisting
of one or more directors as may be deemed appropriate or desirable by the Board
of Directors to serve at the pleasure of the Board. Any committee, to the extent
provided in the resolution of the Board of Directors pursuant to which it was
created, shall have and may exercise all of the powers and authority of the
Board of Directors, except that no committee shall have any power or authority
as to the following:
(a) The submission to shareholders of any action requiring approval of
shareholders;
(b) The creation or filling of vacancies in the Board of Directors;
(c) The adoption, amendment or repeal of these Bylaws;
(d) The amendment or repeal of any resolution of the Board of Directors
that by its terms is amendable or repealable only by the Board of Directors; and
7
<PAGE>
(e) Action on matters committed by the Bylaws or resolution of the
Board of Directors to another committee of the Board of Directors.
Article 14
Meetings of the Board of Directors
Section 14.1 A meeting of the Board of Directors may be held
immediately following the annual meeting of shareholders at which directors have
been elected without the necessity of notice to the directors.
Section 14.2 Meetings of the Board of Directors shall be held at such
times and places within or without the Commonwealth of Pennsylvania as the Board
of Directors may from time to time appoint or as may be designated in the notice
of the meeting. One or more directors may participate in any meeting of the
Board of Directors, or of any committee thereof, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear one another. Participation in a meeting by
such means shall constitute presence in person at the meeting.
Section 14.3 Special meetings of the Board of Directors may be called
by the Chairman of the Board or President of the Corporation on one day's notice
to each director, either by telephone, or if in writing, in accordance with the
provisions of Article 29 of these Bylaws. Special meetings shall be called by
the Chairman of the Board, President or Secretary in like manner and on like
notice upon the written request of a majority of the directors in office.
Section 14.4 At all meetings of the Board of Directors a majority of
the directors in office shall constitute a quorum for the transaction of
business, and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these Bylaws.
Article 15
Action by Written Consent
Section 15.1 Any action required or permitted to be taken at a meeting
of the Board of Directors may be taken without a meeting if, prior or subsequent
to the action, a consent or consents thereto signed by all of the directors is
filed with the Secretary of the Corporation.
Article 16
Compensation of Directors
Section 16.1 Directors, as such, may receive a stated salary for their
services or a fixed sum and expenses for attendance at regular and special
meetings, or any combination of the foregoing as may be determined from time to
time by resolution of the Board of Directors, and
8
<PAGE>
nothing contained herein shall be construed to preclude any director from
receiving compensation for services rendered to the Corporation in any other
capacity.
Article 17
Liability of Directors
Section 17.1 A director of the Corporation shall stand in a fiduciary
relation to the Corporation and shall perform his duties as a director,
including his duties as a member of any committee of the Board of Directors upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the Corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his duties, a director shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following: (a) one or more officers or employees of the
Corporation whom the director reasonably believes to be reliable and competent
in the matters presented; (b) legal counsel, public accountants or other persons
as to matters which the director reasonably believes to be within the
professional or expert competence of such persons; or (c) a committee of the
Board of Directors upon which he does not serve, duly designated in accordance
with law, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence. A director shall not be
considered to be acting in good faith if he has knowledge concerning the matter
in question that would cause his reliance to be unwarranted.
Section 17.2 In discharging the duties of their respective positions,
the Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Corporation, consider to
the extent they deem appropriate:
(a) The effects of any action upon any or all groups affected
by such action, including shareholders, employees, suppliers, customers and
creditors of the Corporation, and upon communities in which offices or other
establishments of the Corporation are located;
(b) The short-term and long-term interests of the Corporation,
including benefits that may accrue to the Corporation from its long-term plans
and the possibility that these interests may be best served by the continued
independence of the Corporation;
(c) The resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of the Corporation; and
(d) All other pertinent factors.
The Board of Directors, committees of the Board and individual
directors shall not be required, in considering the best interests of the
Corporation or the effects of any action, to regard any corporate interest or
the interests of any particular group affected by such action as a
9
<PAGE>
dominant or controlling interest or factor. The consideration of these factors
shall not constitute a violation of Section 17.1 hereof.
Section 17.3 Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
Section 17.4 A director of the Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless: (a) the director has breached or failed to perform the
duties of his office under Sections 17.1 through 17.3 hereof; and (b) the breach
or failure to perform constitutes self-dealing, willful misconduct or
recklessness.
Section 17.5 The provisions of Section 17.4 hereof shall not apply to:
(a) the responsibility or liability of a director pursuant to any criminal
statute; or (b) the liability of a director for the payment of taxes pursuant to
local, state or federal law.
Section 17.6 Notwithstanding any other provisions of these Bylaws, the
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws that is inconsistent with the purpose or
intent of Sections 17.1, 17.2, 17.3, 17.4, 17.5 or 17.6 of this Article 17, and,
if any such action shall be taken, it shall become effective only on a
prospective basis from and after the date of such shareholder approval.
Article 18
Officers
Section 18.1 The Corporation shall have a President, a Secretary and a
Treasurer, or persons who shall act as such, regardless of the name or title by
which they may be designated, elected or appointed and may have such other
officers, including a Chairman of the Board, and assistant officers as the Board
of Directors may authorize from time to time. The President and Secretary shall
be natural persons of full age. The Treasurer may be a corporation, but if a
natural person shall be of full age. It shall not be necessary for the officers
to be directors. Any number of offices may be held by the same person. Each
officer shall hold office at the pleasure of the Board of Directors and until
his successor has been elected and qualified or until his earlier death,
resignation or removal. Any officer may resign at any time. The resignation
shall be effective upon receipt of notice thereof by the Corporation or at such
subsequent time as may be specified in the notice of resignation. The
Corporation may secure the fidelity of any or all of the officers by bond or
otherwise.
Section 18.2 Except as otherwise provided in the Articles of
Incorporation, an officer shall perform his duties as an officer in good faith,
in a manner he reasonably believes to be in the best interests of the
Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by reason
of having been an officer of the Corporation.
10
<PAGE>
Section 18.3 Any officer or agent of the Corporation may be removed by
the Board of Directors with or without cause. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
Article 19
The President
Section 19.1 In the absence of the Chairman of the Board of Directors,
the President shall preside at all meetings of shareholders and directors. He
shall be the chief executive officer of the Corporation; shall be responsible
for the general and active management of the business of the Corporation; shall
see that all orders and resolutions of the Board of Directors are put into
effect, subject, however, to the right of the Board of Directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the Corporation; shall have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation; and perform such other duties as from time
to time may be assigned to the President by the Board of Directors.
Article 20
The Vice President
Section 20.1 The Vice President or, if more than one, the Vice
Presidents in the order, if any, established by the Board of Directors shall, in
the absence or incapacity of the President, have the authority to exercise all
the powers and perform the duties of the President. The Vice Presidents,
respectively, shall also have such other authority and perform such other duties
as may be provided in the Bylaws or as shall be determined by the Board of
Directors or the President. Any Vice President may, in the discretion of the
Board of Directors, be designated as "executive," "senior" or by departmental or
functional classification.
Article 21
The Secretary
Section 21.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to him by the Board of Directors or the President.
11
<PAGE>
Article 22
The Treasurer
Section 22.1 The Treasurer shall be responsible for the custody of the
corporate funds and securities; shall be responsible for full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
and shall perform such other duties as may be assigned to him by the Board of
Directors or the President. He shall give bond in such sum and with such surety
as the Board of Directors may from time to time direct.
Article 23
Assistant Officers
Section 23.1 Each assistant officer shall assist in the performance of
the duties of the officer to whom he is assistant and shall perform such duties
in the absence of the officer. He shall perform such additional duties as the
Board of Directors, the President or the officer to whom he is assistant may
from time to time assign him. Such officers may be given such functional titles
as the Board of Directors shall from time to time determine.
Article 24
Indemnification of Officers, Directors, Employees and Agents
Section 24.1 The Corporation shall indemnify any director or officer,
and may indemnify any other employee or agent, who was or is a party to, or is
threatened to be made a party to, or who is called as a witness in connection
with, any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such action, suit or
proceeding unless the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
Section 24.2 The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 24 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. It is the policy of the
Corporation that indemnification of, and advancement of expenses to, directors
and officers of the Corporation shall be made to the fullest extent permitted by
law. To this end, the provisions of this Article 24 shall be deemed to have been
amended for the benefit of directors and officers of the Corporation effective
immediately upon any modification of the BCL or any modification, or adoption of
any other law
12
<PAGE>
that expands or enlarges the power or obligation of corporations organized under
the BCL to indemnify, or advance expenses to, directors and officers of
corporations.
Section 24.3 The Corporation shall pay expenses incurred by an officer
or director, and may pay expenses incurred by any other employee or agent, in
defending an action, suit or proceeding referred to in this Article 24 in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation.
Section 24.4 The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 24 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 24.5 The Corporation shall have the authority to create a fund
of any nature, which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification obligations,
whether arising under these Bylaws or otherwise. This authority shall include,
without limitation, the authority to: (i) deposit funds in trust or in escrow;
(ii) establish any form of self-insurance; (iii) secure its indemnity obligation
by grant of a security interest, mortgage or other lien on the assets of the
Corporation; or (iv) establish a letter of credit, guaranty or surety
arrangement for the benefit of such persons in connection with the anticipated
indemnification or advancement of expenses contemplated by this Article 24. The
provisions of this Article 24 shall not be deemed to preclude the
indemnification of, or advancement of expenses to, any person who is not
specified in Section 24.1 of this Article 24 but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for, under the
provisions of the BCL or otherwise. The authority granted by this Section 24.5
shall be exercised by the Board of Directors of the Corporation.
Section 24.6 The Corporation shall have the authority to enter into a
separate indemnification agreement with any officer, director, employee or agent
of the Corporation or any subsidiary providing for such indemnification of such
person as the Board of Directors shall determine up to the fullest extent
permitted by law.
Section 24.7 As soon as practicable after receipt by any person
specified in Section 24.1 of this Article 24 of notice of the commencement of
any action, suit or proceeding specified in Section 24.1 of this Article 24,
such person shall, if a claim with respect thereto may be made against the
Corporation under Article 24 of these Bylaws, notify the Corporation in writing
of the commencement or threat thereof; however, the omission so to notify the
Corporation shall not relieve the Corporation from any liability under Article
24 of these Bylaws unless the Corporation shall have been prejudiced thereby or
from any other liability which it may have to such person other than under
Article 24 of these Bylaws. With respect to any such action as to which such
person notifies the Corporation of the commencement or threat thereof, the
Corporation may participate therein at its own expense and, except as otherwise
provided herein, to the extent that it desires, the Corporation, jointly with
any other indemnifying party similarly notified, shall be
13
<PAGE>
entitled to assume the defense thereof, with counsel selected by the Corporation
to the reasonable satisfaction of such person. After notice from the Corporation
to such person of its election to assume the defense thereof, the Corporation
shall not be liable to such person under Article 24 of these Bylaws for any
legal or other expenses subsequently incurred by such person in connection with
the defense thereof other than as otherwise provided herein. Such person shall
have the right to employ his own counsel in such action, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of such person unless:
(i) the employment of counsel by such person shall have been authorized by the
Corporation; (ii) such person shall have reasonably concluded that there may be
a conflict of interest between the Corporation and such person in the conduct of
the defense of such proceeding; or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action. The Corporation shall not
be entitled to assume the defense of any proceeding brought by or on behalf of
the Corporation or as to which such person shall have reasonably concluded that
there may be a conflict of interest. If indemnification under Article 24 of
these Bylaws or advancement of expenses are not paid or made by the Corporation,
or on its behalf, within 90 days after a written claim for indemnification or a
request for an advancement of expenses has been received by the Corporation,
such person may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim or the advancement of expenses. The right
to indemnification and advancements of expenses provided hereunder shall be
enforceable by such person in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
Expenses reasonably incurred by such person in connection with successfully
establishing the right to indemnification or advancement of expenses, in whole
or in part, shall also be indemnified by the Corporation.
Section 24.8 The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article 24.
Section 24.9 Notwithstanding any other provisions of these Bylaws, the
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws which is inconsistent with the purpose or
intent of this Article 24, and, if any such action shall be taken, it shall
become effective only on a prospective basis from and after the date of such
shareholder approval.
Article 25
Shares; Share Certificates
Section 25.1 All shares issued by the Corporation shall be represented
by certificates. The share certificates of the Corporation shall be numbered and
registered in a share register as they are issued; shall state that the
Corporation is incorporated under the laws of the Commonwealth
14
<PAGE>
of Pennsylvania; shall bear the name of the registered holder, the number and
class of shares and the designation of the series, if any, represented thereby;
the par value, if any, of each share or a statement that the shares are without
par value, as the case may be; shall be signed by the President or a Vice
President, and the Secretary or the Treasurer or any other person properly
authorized by the Board of Directors, and shall bear the corporate seal, which
seal may be a facsimile engraved or printed. Where the certificate is signed by
a transfer agent or a registrar, the signature of any corporate officer on such
certificate may be a facsimile engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise
before the certificate is issued, such share certificate may be issued by the
Corporation with the same effect as if the officer had not ceased to be such at
the date of its issue.
Article 26
Transfer of Shares
Section 26.1 Upon surrender to the Corporation of a share certificate
duly endorsed by the person named in the certificate or by attorney duly
appointed in writing and accompanied where necessary by proper evidence of
succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto and the old certificate canceled and the
transfer recorded on the share register of the Corporation. Except as otherwise
provided pursuant to Section 6.2 hereof, a transferee of shares of the
Corporation shall not be a record holder of such shares entitled to the rights
and benefits associated therewith unless and until the share transfer has been
recorded on the share transfer books of the Corporation. No transfer shall be
made if it would be inconsistent with the provisions of Article 8 of the
Pennsylvania Uniform Commercial Code.
Article 27
Lost Certificates
Section 27.1 Where a shareholder of the Corporation alleges the loss,
theft or destruction of one or more certificates for shares of the Corporation
and requests the issuance of a substitute certificate therefor, the Board of
Directors may direct a new certificate of the same tenor and for the same number
of shares to be issued to such person upon such person's making of an affidavit
in form satisfactory to the Board of Directors setting forth the facts in
connection therewith, provided that prior to the receipt of such request the
Corporation shall not have either registered a transfer of such certificate or
received notice that such certificate has been acquired by a bona fide
purchaser. When authorizing such issue of a new certificate the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
heirs or legal representatives, as the case may be, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such form
and sum and with surety or sureties, with fixed or open penalty, as shall be
satisfactory to the Board of Directors, as indemnity for any liability or
expense which it may incur by reason of the original certificate remaining
outstanding.
15
<PAGE>
Article 28
Fiscal Year
Section 28.1 The fiscal year of the Corporation shall be as determined
by the Board of Directors.
Article 29
Manner of Giving Written Notice; Waivers of Notice
Section 29.1 Whenever written notice is required to be given to any
person under the provisions of these Bylaws or the BCL, it may be given to the
person either personally or by sending a copy thereof by first class or express
mail, postage prepaid, or by telegram (with messenger service specified), telex
or TWX (with answer back received) or courier service, charges prepaid, or by
facsimile (telecopy) transmission, to his address (or to his telex, TWX, or
facsimile number) appearing on the books of the Corporation or, in the case of
written notice to directors, supplied by each director to the Corporation for
the purpose of the notice. If the notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched. If notice is sent by facsimile, it shall be deemed to have been
given upon the confirmation of the transmission of the facsimile or telecopy.
Section 29.2 Any written notice required to be given to any person
under the provisions of statute, the Corporation's Articles of Incorporation or
these Bylaws may be waived in a writing signed by the person entitled to such
notice whether before or after the time stated therein. Except as otherwise
required by statute, and except in the case of a special meeting, neither the
business to be transacted at, nor the purpose of, a meeting need be specified in
the waiver of notice. In the case of a special meeting of shareholders, the
waiver of notice shall specify the general nature of the business to be
transacted. Attendance of any person, whether in person or by proxy, at any
meeting shall constitute a waiver of notice of such meeting, except where a
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting was not
lawfully called or convened.
Article 30
Amendments
Section 30.1 Except as provided in Sections 17.6 and 24.9 hereof, these
Bylaws may be amended or repealed, and new Bylaws adopted, by the affirmative
vote of a majority of the votes cast by the shareholders at any regular or
special meeting duly convened after written notice to the shareholders that the
purpose, or one of the purposes, of the meeting is to consider the amendment or
repeal of these Bylaws and the adoption of new Bylaws. There shall be included
in, or enclosed with, the notice, a copy of the proposed amendment or a summary
of the changes to be effected thereby.
Section 30.2 Except as provided in Sections 17.6 and 24.9 hereof, and
except as provided in Section 1504(b) of the BCL, these Bylaws may be amended or
repealed, and new Bylaws adopted, by the affirmative vote of a majority of the
members of the Board of Directors at any regular or special meeting duly
convened, subject to the power of the shareholders to change such action of the
Board of Directors.
16
EXHIBIT 10.1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is dated as of February
23, 1999, by and between WORLDWIDE WEB NETWORX CORPORATION, a Delaware
corporation ("WWWX") and NA ACQUISITION CORP., a Pennsylvania corporation
("NAAC").
RECITALS
A. Pursuant to (i) a certain Acquisition Agreement (the "GTG
Agreement") dated on or about January 29, 1999 among WWWX, Global Trade Group,
Ltd. ("GTG"), and GTG's shareholders and (ii) a certain BarterOne Membership
Interest Sale Agreement (the "ETCO Agreement") dated December 16, 1998 between
WWWX and Energy Trading Company ("ETCO"), WWWX has acquired all of the
membership interests in BarterOne, LLC, a Delaware limited liability company
("BarterOne") and certain related assets of GTG.
B. Following the closing under the GTG Agreement and the ETCO
Agreement, WWWX caused BarterOne to be dissolved, and, presently holds all of
the assets formerly held by GTG and BarterOne (collectively, the "BarterOne
Assets"), including without limitation certain worldwide, perpetual licensing
rights to the ORBIT System Software (On-Line Reciprocal Business and Inventory
Transaction System), an electronic commerce system to be used as a transaction
tool over the internet ("ORBIT").
C. WWWX, NAAC and ETCO have entered into an Agreement on or about the
date hereof (the "NAAC/ETCO Agreement"), pursuant to which ETCO will be issued
200,000 shares of NAAC Common Stock in satisfaction of a certain "ETCO Retained
Interest" (as defined therein), following the closing under this Agreement.
D. Pursuant to a certain Acquisition Agreement (the "PAR Agreement")
dated on or about January 29, 1999 among WWWX, Positive Asset Remarketing, Inc.
("PAR"), and PAR's shareholders, WWWX acquired from PAR twenty-five percent
(25%) of the issued and outstanding shares of Class A voting common stock of
AsseTrade.com, Inc., a Delaware corporation ("AsseTrade"), together with certain
associated rights under various agreements with the other shareholders of
AsseTrade (collectively, the "AsseTrade Stock Interest").
E. WWWX desires to transfer the BarterOne Assets and the AsseTrade
Stock Interest (collectively, the "Purchased Assets") to NAAC, and NAAC desires
to acquire the Purchased Assets, on the terms and subject to the conditions set
forth herein.
F. For federal income tax purposes, it is intended that the aforesaid
transfer of the Purchased Assets qualify as an exchange under the provisions of
Section 351 of the United States Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
SECTION 1. ACQUISITION AND TRANSFER
1.1 Agreement To Transfer. At the Closing (hereinafter defined), WWWX
shall sell, grant, convey, transfer, assign and deliver to NAAC, upon the terms
and subject to the conditions of this Agreement and in reliance upon the
representations and warranties of NAAC in this Agreement and the Exhibits and
Schedules hereto, free and clear of all liens, encumbrances and charges of any
kind (except as hereinafter expressly provided), the Purchased Assets and, as
consideration therefor, shall receive from NAAC the Purchase Price (hereinafter
defined).
1.2 Agreement To Acquire. At the Closing, NAAC shall acquire from WWWX,
upon the terms and subject to the conditions of this Agreement and in reliance
upon the representations and warranties of WWWX in this Agreement and in the
Exhibits and Schedules hereto, the Purchased Assets and, as consideration
therefor, shall pay to WWWX the Purchase Price (hereinaf ter defined).
SECTION 2. PURCHASE PRICE; NO ASSUMPTION OF LIABILITIES
2.1 Purchase Price. The purchase price for the Purchased Assets (the
"Purchase Price") shall be as follows:
(a) $800,000 shall be paid in immediately available funds at the
Closing to WWWX;
(b) An additional $500,000 shall be paid by delivery to WWWX of NAAC's
Promissory Note in the form attached hereto as Exhibit "A" (the "Note"), which
Note shall be payable in accordance with the terms and conditions stated
therein; and
(c) As further consideration, NAAC shall issue and deliver to WWWX One
Million Eight Hundred Thousand (1,800,000) fully paid and non-assessable shares
of the common stock of NAAC (the "NAAC Stock"), which shares are being issued in
a private placement subject to all applicable Federal and State securities laws,
regulations and restrictions, and shall bear a restrictive legend restricting
transferability under the Securities Act of 1933, as amended (the "Securities
Act").
2.2 No Assumption of Liabilities. NAAC is not assuming or agreeing to
pay or discharge any of the liabilities and obligations of WWWX, whether or not
associated with or arising out of the Purchased Assets, the business of
BarterOne or otherwise, and nothing in this Agreement or otherwise shall be
construed to the contrary. All such liabilities and obligations, whether known
or unknown, direct or contingent, in litigation or threatened or not yet
asserted shall remain the responsibility of WWWX. Without limiting the
generality of the foregoing, WWWX shall remain specifically responsible for (a)
any liabilities with respect to any Taxes (as defined herein)
2
<PAGE>
(b) any obligation for any employee grievance pending at the Closing Date or
accruing prior to the Closing Date, (c) any obligation with respect to any
litigation accruing or arising prior to the Closing Date, and (d) any
obligations for trade accounts payable owed on the Closing Date. Further, in no
event shall NAAC assume or incur any liability or obligation with respect to any
Taxes payable by WWWX incident to or arising as a consequence of the consumma
tion by WWWX of this Agreement.
SECTION 3. CLOSING; TRANSFER PROCEDURES
3.1 Closing. The closing of the acquisition and transfer of the
Purchased Assets (the "Closing") shall be held at 1 p.m., local time, on
February 18, 1999 (the "Closing Date") at the offices of NAAC, or on such other
date and at such other time or place as the parties may agree in writing.
3.2 Transfer of the Purchased Assets. At the Closing, WWWX shall
deliver to NAAC such bills of sale, stock certificates, endorsements,
assignments and instruments of conveyance and transfer, in form and substance
reasonably satisfactory to NAAC, as shall be reasonably required to vest in NAAC
all of WWWX's right, title and interest in and to the Purchased Assets free and
clear of all liens and encumbrances as provided in Section 3.4.
3.3 Purchase Price. At the Closing, NAAC shall pay to WWWX the cash
portion of the Purchase Price and shall issue and deliver to WWWX the Note and
the NAAC Stock, all in accordance with Section 2 hereof.
3.4 Release of Liens. At or prior to the Closing, WWWX shall deliver
all necessary releases of liens and Uniform Commercial Code termination
statements, if any, in forms reasonably acceptable to counsel for NAAC so that
WWWX's title to the Purchased Assets is free and clear of all liens and
encumbrances or as of the Closing will be.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF WWWX
WWWX hereby represents and warrants to NAAC, as follows:
4.1 Organization and Good Standing. WWWX and AsseTrade are both
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware. WWWX owns the AsseTrade Stock Interest free and
clear of any liens, encumbrances or other rights of third parties. The AsseTrade
Stock Interest, together with the 25% Class A voting common stock interest of
PAR, the 50% Class A voting common stock interest of Butcher-Fox, LLC, a
Maryland limited liability company ("Butcher-Fox") owned by Michael Fox
International, Inc. ("Fox") and Henry Butcher USA, Inc. ("Butcher"), and the
shares of Class B non-voting common stock owned by Admiral Asset Group, Inc.
constitute 100% of the issued and outstanding capital stock of AsseTrade, and
there are no outstanding options or rights to purchase or otherwise acquire any
interest in AsseTrade of any kind or character, or any rights or interests
convertible into or exchangeable for, or otherwise entitling anyone to acquire
any such interest. Attached
3
<PAGE>
hereto as Exhibit "B" is a true and complete copy of the Certificate of
Incorporation and By-Laws of AsseTrade and any and all agreements among the
shareholders of AsseTrade, together with all amendments or modifications of any
of the foregoing (the "AsseTrade Documents"). The AsseTrade Documents are in
full force and effect and unmodified except as specifically set forth in Exhibit
B, WWWX has performed all of its obligations to be performed thereunder, and
WWWX has no knowledge of any default or claimed or alleged default, or state of
facts which with notice or lapse of time or both, would constitute a default, in
any obligation of WWWX or of any other party to be performed thereunder.
4.2 Financial Condition. The Entrade Business Plan and the AsseTrade
Business Plan presented to NAAC by WWWX, together with the AsseTrade Documents
and the schedules to this Agreement, collectively represent true and complete
lists of the BarterOne Assets and the assets and liabilities of AsseTrade on the
date hereof and as anticipated to exist at the Closing, and together present
fairly the financial condition, projected results of operations, business,
properties, assets, liabilities and future prospects of the business to be
conducted using the BarterOne Assets ("Entrade"), and the business of AsseTrade,
as of the dates thereof and for the periods indicated therein. There has been no
material adverse change in the financial condition or future prospects of
AsseTrade or the BarterOne Assets, and no fact is known to WWWX which materially
adversely affects or in the future may materially adversely affect the financial
condition or future prospects of AsseTrade or Entrade.
4.3 Title to BarterOne Assets. WWWX owns the BarterOne Assets, and has
good and marketable title thereto including without limitation the ORBIT
software and all related technical information and other intellectual property
rights necessary to the conduct of Entrade's business (collectively, the
"Intangible Assets"), free and clear of all liens, pledges, mortgages, security
interests, conditional sales contracts or other encumbrances or conflicting
claims of any nature whatsoever, except for possible claims of Avenir Internet
Solutions, Inc. ("Avenir") under agreements with BarterOne ("Avenir Claims"), as
hereinafter more particularly addressed, and except for those further matters
(if any) set forth on Schedule 4.3 attached hereto and incorporated herein. In
particular, and not in limitation of the foregoing:
(a) The Intangible Assets do not and will not contain any "backdoor" or
concealed access or any "software locks" or any similar devices which, upon the
occurrence of a certain event, the passage of a certain amount of time, or the
taking of any action (or the failure to take any action) by or on behalf of WWWX
or others, will cause the Intangible Assets to be destroyed, erased, damaged or
otherwise made inoperable;
(b) The Intangible Assets are owned by WWWX exclusively and to WWWX's
knowl edge, do not infringe upon, or misuse, misappropriate or otherwise act
adversely to, the right or the claimed right of any person or entity under or
with respect to the Intangible Assets or any part thereof;
(c) WWWX has not received any notice of any claim of infringement or
violation of any third party's copyrights, patents, trade secrets, trademarks or
other proprietary rights relating
4
<PAGE>
to the Intangible Assets nor, to the knowledge of WWWX, does any basis for any
such claim of right or interest in the Intangible Assets or otherwise adverse to
WWWX's unqualified right to exclusively own and fully utilize the Intangible
Assets exist;
(d) There are no pending or, to the knowledge of WWWX, threatened
suits, legal proceedings, claims or governmental investigations against or with
respect to the Intangible Assets or any component thereof;
(e) Except as set forth on Schedule 4.3, there are no licenses,
assignments, instruments of transfer, pledges, encumbrances or agreements that
are currently outstanding or in effect whereby any interest in or to the
Intangible Assets has been licensed, assigned, transferred, pledged or otherwise
conveyed to any person or entity;
(f) To its knowledge, WWWX's rights to the Intangible Assets are not
being infringed upon or misused or misappropriated by any person or entity;
(g) To the knowledge of WWWX, neither the use and development of the
Intangible Assets, nor the offer for sale, sale and use of services related to
the Intangible Assets, infringes or will infringe upon any intellectual property
right of any third party;
(h) There are no outstanding agreements, confinements or encumbrances
inconsistent with the provisions of this Agreement, whether made or entered into
by the WWWX or BarterOne or otherwise except as set forth on Schedule 4.3;
(i) To the knowledge of WWWX, no information relating to the Intangible
Assets has been disclosed in a manner as to become available to the public;
(j) The Intangible Assets will perform in substantial conformity with
its specifications as identified in any and all documentation provided to NAAC;
(k) To the knowledge of WWWX, the Intangible Assets are and will be
free from defects in operation or otherwise relating to the year 2000, date data
century recognition calcula tions that accommodate same century and
multi-century formulas and date values, and century correct date data interface
values, and will accurately process date and time data (including but not
limited to, calculation, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculation, and when used in combination with other information technology,
will accurately process date and time data if the other information technology
exchanges date and time data with it;
(l) WWWX owns the entire worldwide right, title, and interest in and to
all intellectual property rights in the Intangible Assets, including without
limitation all copyrights in all computer programs and/or other works of
authorship included in the Intangible Assets, and to its knowledge, all patent
rights in and to any and all inventions included in the Intangible Assets, such
patent rights including without limitation all patents and patent applications
directed to such inventions and the
5
<PAGE>
right to file patent applications directed to such inventions, and all rights in
the nature of trade secrets in the Intangible Assets; and
(m) with respect to the Avenir Claims, (i) the ORBIT software can be
rewritten or reconfigured to substitute an alternative "platform" for the
software developed by Avenir, which substitution will have the effect of
removing from the ORBIT software any technology developed by Avenir, thereby
extinguishing any Avenir Claims, (ii) the ORBIT software, thus reconfigured,
will function at least as well as the ORBIT software as presently configured,
and (iii) the aforesaid reconfiguration can be completed within ninety (90) days
following the Closing Date at a cost of approximately $50,000.
4.4 Title to AsseTrade Assets. AsseTrade owns outright, and has good
and marketable title to, all of its assets free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts or other encumbrances
or conflicting claims of any nature whatsoever, except as set forth on Schedule
4.4 attached hereto and incorporated herein.
4.5 Tax Matters. Except as set forth on Schedule 4.5 attached hereto
and incorporated herein, WWWX and AsseTrade have duly and timely filed or will
cause to be duly and timely filed all Tax Returns (as defined herein) through
the taxable year ended December 31, 1998 which are due and required to be filed
and have paid or caused to be paid all Taxes due through the date hereof and any
assessment of Taxes received, except Taxes or assessments that are being
contested in good faith and have been adequately reserved against. WWWX and
AsseTrade have received no notice of, and to the knowledge of WWWX, there is no
pending or threatened proceeding or claim by any governmental agency for
assessment or collection of Taxes from WWWX or AsseTrade. To the knowledge of
WWWX all such Tax Returns have been prepared on the same basis as that of
previous years and in accordance with all applicable laws, regulations and
require ments, and accurately reflect the taxable income (or other measure of
Tax) of WWWX and AsseTrade. To the knowledge of WWWX, WWWX and AsseTrade have
satisfied all Federal, state, local and foreign withholding tax requirements
including but not limited to income, social security and employment tax. There
are no liens for Taxes on any of the Purchased Assets. To the knowledge of WWWX
no transaction described in this Agreement is subject to withholding under
Section 1445 of Code. As used herein, "Tax" or "Taxes" means any federal, state,
local and foreign income, payroll, withholding, excise, sales, use, personal
property, use and occupancy, business and occupation, mercantile, real estate,
gross receipts, license, employment, severance, stamp, premium, windfall
profits, social security (or similar unemployment), disability, transfer,
registration, value added, alternative, or add-on minimum, estimated, or capital
stock and franchise and other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not, and "Tax
Returns" means all returns, reports, forms, declarations, claims for refunds or
other information required to be filed or supplied to any person including a
taxing authority in connection with Taxes (including without limitation
information returns and declara tions of estimated Tax) (Any reference to
"filed" or "file" with respect to Taxes shall also be deemed to include
"supplied" or "supply").
6
<PAGE>
4.6 Litigation. Except as disclosed in Schedule 4.6 attached hereto and
incorporated herein:
(a) There is no dispute, claim, action, suit, proceeding, arbitration
or governmental investigation, either administrative or judicial, pending, or to
the knowledge of WWWX threat ened, against WWWX, AsseTrade or the Purchased
Assets; and
(b) Neither WWWX nor, to the knowledge of WWWX, AsseTrade is in default
with respect to any order, writ, injunction or decree of any court or
governmental department, commis sion, board, bureau, agency or instrumentality,
which involves the possibility of any judgment or liability which may result in
any material adverse change in the financial condition of WWWX, AsseTrade or the
Purchased Assets.
4.7 Absence of Undisclosed Liabilities. There are no liabilities or
obligations accrued, absolute, contingent or otherwise, except as disclosed in
this Agreement or the Exhibits or Schedules hereto or as incurred, consistent
with past business practice, in the normal and ordinary course of business, that
could have a material adverse effect on AsseTrade or the Purchased Assets. For
purposes of this Agreement, material means any matter which could exceed
$100,000.
4.8 Material Contracts. Schedule 4.8 contains a true and correct list
of each contract, agreement, commitment or obligation with respect to the
BarterOne Assets or AsseTrade which involves the payment of amounts in excess of
$100,000 per year, including without limitation all license, franchise or
distribution agreements and any lease of tangible personal property (the
"Material Contracts"). Each of the Material Contracts constitutes a valid and
binding obligation of the parties thereto, is in full force and effect and will
continue in full force and effect following the consummation of the transactions
described herein and hereby, in each case without breaching the material terms
thereof or resulting in the forfeiture or impairment of any rights thereunder
and without the consent, approval or act of, or the making of any filing with,
any other party (except as set forth in Schedule 4.8). Neither WWWX nor, to the
knowledge of WWWX, AsseTrade is in, or to its knowledge alleged to be in, breach
or default under, nor is there or is there alleged to be any basis for
termination of, any Material Contract and, to the knowledge of WWWX, no other
party to any Material Contract has breached or defaulted thereunder, and no
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a default
or breach. Neither WWWX nor, to the knowledge of WWWX, AsseTrade is currently
renegotiating any Material Contract or paying liquidated damages in lieu of the
performance thereunder.
4.9 Intangible Assets. Schedule 4.9 sets forth a list of (a) all
patents, copyrights, trade names, trademarks, service marks and names
(registered or unregistered), and applications and registrations therefor, (b)
all research, development and commercially practiced processes, trade secrets,
know-how, inventions, and engineering and other technical information, (c) all
computer programs, software and data bases owned by or licensed, (d) all
information, drawings, specifica tions, designs, plans, financial, marketing and
business data and plans, other proprietary, confiden tial or intellectual
information or property and all copies and embodiments thereof in whatever form
7
<PAGE>
or medium and (e) all customer and membership lists, included in the BarterOne
Assets or owned by AsseTrade (collectively, "Intangible Assets") as well as a
list of all registrations thereof and pending applications therefor. Each of the
Intangible Assets listed on such Schedule 4.9 as being owned by WWWX or
AsseTrade is owned free and clear of any and all liens and encumbrances and, to
the knowledge of WWWX, no other person or entity has any claim of ownership with
respect thereto. AsseTrade has adequate licenses or other valid rights to use
all of the Intangible Assets which it does not own and which are material to the
conduct of its business. To the knowledge of WWWX, use of the Intangible Assets
by WWWX or AsseTrade, as applicable, does not conflict with, infringe upon,
violate or interfere with any intellectual property rights of any other person
or entity, nor to the knowledge of WWWX, is any other person or entity
infringing upon, violating or interfering with any such intellectual property
rights.
4.10 Compliance with Laws. To the knowledge of WWWX, WWWX and AsseTrade
have complied with and are not in default under, or in violation of, any law,
ordinance, rule, regulation or order (including, without limitation, any
environmental, safety, employee benefit, health or price or wage control law,
ordinance, rule, regulation or order) applicable to the Purchased Assets which
materially adversely affect or, so far as WWWX can now reasonably foresee, may
in the future materially adversely affect, the Purchased Assets.
4.11 Authorization. The execution and delivery of this Agreement, and
the sale, transfer and other actions described herein have been duly authorized
by all necessary action of WWWX's Board of Directors and neither the execution
and delivery of this Agreement nor the consummation of the transactions
described herein by WWWX constitutes a violation or breach of applicable law or
any material contract or instrument to which WWWX is a party or by which it is
bound, or any order, writ, injunction, decree or judgment applicable to it, or
constitutes a default (or would but for the giving of notice or lapse of time or
both, constitute a default) under any material contract or instrument to which
WWWX is a party or by which it is bound, or conflicts with or violates any
provision of the Articles or Certificate of Incorporation or By-Laws of WWWX.
Without limiting the generality of the foregoing provisions, the execution and
delivery by WWWX of this Agreement and the consummation of the transactions
described herein will not (i) result in a violation or default or give to any
other person any rights, including rights of termination, cancellation or
acceleration under any applicable law, rule or regulation, any material
agreement, instrument or policy to which WWWX is a party or may be bound, (ii)
result in any judgment, order, injunction, decree or ruling of any court or
governmental authority to which WWWX is a party or subject or (iii) require any
authorization, consent, approval, exemption or other action by any court or
administrative or governmental body which has not been obtained or any notice to
or filing with any court or administrative or governmental body which has not
been given or done. This Agreement has been duly executed and delivered by WWWX
and constitutes the valid and binding obligation of WWWX enforceable in
accordance with its terms.
4.12 Consents. Except as set forth in Section 4.11, no consent, waiver,
approval, order, permit or authorization of, or declaration or filing with, or
notification to, any person, entity or governmental body is required on the part
of WWWX or AsseTrade in connection with the
8
<PAGE>
execution and delivery by WWWX of this Agreement, or the compliance by WWWX with
any of the provisions hereof.
4.13 Investment Representations.
(a) The shares of NAAC Stock being acquired by WWWX are intended to be
and are being acquired solely for WWWX's account without a view to the current
distribution or resale thereof, and WWWX does not have any contract,
undertaking, agreement or arrangement to sell or otherwise transfer or dispose
of any of such shares in any manner to any person or entity;
(b) WWWX will not sell, transfer or otherwise dispose of any of the
shares of NAAC Stock being acquired by WWWX, in any manner, unless at the time
of such transfer: (i) a registration under the Securities Act of 1933, as
amended (the "Securities Act") and under all other applicable securities laws is
in effect with respect to the shares of the NAAC Stock to be sold, transferred
or disposed of, and WWWX complies with all of the requirements of the Securities
Act and such other applicable securities laws with respect to the proposed
transaction; or (ii) WWWX has obtained and has provided to NAAC satisfactory
evidence that the proposed sale, transfer or disposition does not require
registration under the Securities Act or such other applica ble securities laws;
and
(c) The shares of NAAC Stock being acquired by WWWX have not been
issued by NAAC pursuant to a registration under the Securities Act, and WWWX
must therefore hold such shares indefinitely unless a subsequent registration or
exemption therefrom is available and is obtained. No federal or state agency has
approved or disapproved the issuance of the shares of NAAC Stock being acquired
by WWWX for investment or any other purpose. All of the shares of NAAC Stock
being acquired by WWWX have been issued and sold to WWWX in reliance upon a
specific exemption from the registration requirements of the Securities Act.
4.14 Disclosure. No representation or warranty by WWWX in this
Agreement or in any other Exhibit, Schedule, list, certificate or document
delivered pursuant to this Agreement, contains or will contain at Closing any
untrue statement of material fact or omits or will omit to state any material
fact necessary to make any statement herein and therein not misleading.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF NAAC
NAAC hereby represents and warrants to WWWX, as follows:
5.1 Organization and Good Standing. NAAC is a corporation, duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
5.2 Authorization. The execution and delivery of this Agreement, and
the issuance and delivery of the NAAC Stock in accordance herewith, together
with all other actions described herein, have been duly authorized by all
necessary action of the Board of Directors and shareholder of NAAC, and neither
the execution and delivery of this Agreement nor the consummation of the
9
<PAGE>
transactions described herein (including the issuance and delivery of the NAAC
Stock) by NAAC constitutes a violation or breach of applicable law or any
material contract or instrument to which NAAC is a party or is bound, or any
order, writ, injunction, decree or judgment applicable to it, or constitutes a
default (or would but for the giving of notice or lapse of time or both,
constitute a default) under any material contract or instrument to which NAAC is
a party or by which it is bound, or conflicts with or violates any provision of
the Articles of Incorporation or By-Laws of NAAC. Without limiting the
generality of the foregoing provisions, the execution and delivery by NAAC of
this Agreement and the consummation of the transactions described herein
(including the issuance and delivery of the NAAC Stock) will not (i) result in a
violation or default or give to any other person any rights, including rights of
termination, cancellation or acceleration under any applicable law, rule or
regulation, any material agreement, instrument or policy to which NAAC is a
party or may be bound, (ii) result in any judgment, order, injunction, decree or
ruling of any court or governmental authority to which it is a party or subject
or (iii) require any authorization, consent, approval, exemption or other action
by any court or administrative or governmental body which has not been obtained
or any notice to or filing with any court or administrative or governmental body
which has not been given or done. This Agreement has been duly executed and
delivered by NAAC and constitutes the valid and binding obligation of NAAC
enforceable in accordance with its terms.
5.3 Consents. Except as set forth in Section 5.2, no consent, waiver,
approval, order, permit or authorization of, or declaration or filing with, or
notification to, any person, entity or governmental body is required on the part
of NAAC in connection with the execution and delivery by NAAC of this Agreement,
or the compliance by NAAC with any of the provisions hereof.
5.4 Disclosure. No representation or warranty by NAAC in this Agreement
or in any other Exhibit, Schedule, list, certificate or document delivered
pursuant to this Agreement, contains or will contain at Closing any untrue
statement of material fact or omits or will omit to state any material fact
necessary to make any statement herein and therein not misleading.
SECTION 6. CONDITIONS PRECEDENT TO NAAC'S OBLIGATIONS
All obligations of NAAC under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
unless otherwise waived in writing by NAAC:
6.1 Representations and Warranties. WWWX's representations and
warranties contained in this Agreement or in any list, certificate or document
delivered pursuant to the provisions hereof shall be true at and as of the time
of Closing.
6.2 Performance of Agreements. WWWX shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing, including without limitation
WWWX's obligation to deliver the Purchased Assets free and clear of liens and
encumbrances in accordance with Section 3.4 hereof.
10
<PAGE>
6.3 Adverse Change. There shall not have been a material adverse
change, occurrence or casualty, financial or otherwise, in AsseTrade or the
Purchased Assets, whether covered by insurance or not.
6.4 Closing Deliveries. WWWX shall have delivered the documents and
other items described in Section 3 hereof.
6.5 No Litigation. There shall not be any pending or, to the knowledge
of WWWX, threatened action, proceeding or investigation by or before any court,
arbitrator, governmental body or agency which shall seek to restrain, prohibit
or invalidate the transactions described herein or which, if adversely
determined, would result in a material breach of a representation, warranty or
covenant of any party herein.
6.6 Closing under NAAC/ETCO Agreement. Closing shall have occurred
under the NAAC/ETCO Agreement.
SECTION 7. CONDITIONS PRECEDENT TO WWWX'S OBLIGATIONS
All obligations of WWWX under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
unless otherwise waived in writing by WWWX:
7.1 Representations and Warranties. NAAC's representations and
warranties contained in this Agreement shall be true at and as of the time of
Closing.
7.2 Performance of Agreements. NAAC shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing.
7.3 Closing Deliveries. NAAC shall have paid the Purchase Price for the
Purchased Assets.
7.4 No Litigation. There shall not be any pending or, to the knowledge
of NAAC, threatened action, proceeding or investigation by or before any court,
arbitrator, governmental body or agency which shall seek to restrain, prohibit
or invalidate the transactions described herein or which, if adversely
determined, would result in a material breach of a representation, warranty or
covenant of any party herein.
SECTION 8. FEES AND EXPENSES
8.1 Representation and Indemnity with Respect to Brokers. Each party
hereby represents and warrants to the other that it has not engaged or dealt
with any broker or other person who may be entitled to any brokerage fee or
commission in respect of the execution of this Agreement or the consummation of
the transactions described herein. Without limiting the generality of the
foregoing, each of the parties hereto shall indemnify and hold the other
harmless against any claim,
11
<PAGE>
loss, liability or expense which may be asserted against such other party as a
result of such first mentioned party's dealings, arrangements or agreements with
any such broker or person.
8.2 Expenses of the Transaction. Each party hereto shall pay its own
expenses incidental to the preparation of this Agreement and the consummation of
the transactions described herein.
8.3 Sales, Transfer and Documentary Stamps. NAAC shall be responsible
for payment of all sales, transfer and documentary taxes or stamps, if any, due
as a result of the transfer of the Purchased Assets hereunder.
12
<PAGE>
SECTION 9. INDEMNIFICATION
9.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements made by any party in this
Agreement or in any certificate delivered pursuant hereto shall survive the
Closing.
9.2 Indemnification by WWWX. WWWX shall defend, indemnify and hold NAAC
harmless from and against (a) any and all liabilities and obligations of, or
claims against, the Purchased Assets arising or accruing prior to the Closing,
including without limitation the Avenir Claims, and (b) all actual or potential
claims, demands, liabilities, damages, losses and out-of-pocket expenses
including reasonable attorneys' fees whether or not reduced to judgment, order
or award, caused by or arising out of (i) the breach of any covenant or
agreement of WWWX in this Agreement or in any certificate delivered by it or
them pursuant hereto, or (ii) the failure of any representations or warranties
made by WWWX in this Agreement or in any certificate delivered by it or them
pursuant hereto to have been true and correct when made and on and as of the
Closing Date.
9.3 Indemnification by NAAC. NAAC shall defend, indemnify and hold WWWX
harmless from and against all actual or potential claims, demands, liabilities,
damages, losses and out-of-pocket expenses including reasonable attorneys' fees
whether or not reduced to judgment, order or award, caused by or arising out of
(a) the breach of any covenant or agreement of NAAC in this Agreement or in any
certificate delivered by them pursuant hereto, or (b) the failure of any
representations or warranties made by NAAC in this Agreement or in any
certificate delivered by them pursuant hereto to have been true and correct when
made and on and as of the Closing Date.
9.4 Notice of Indemnification. In the event any legal proceeding shall
be threatened or instituted or any claim or demand shall be asserted by any
person or entity in respect of which payment may be sought by one party hereto
from another party under the provisions of this Section 10, the party seeking
indemnification (the "Indemnitee") shall promptly cause written notice of the
assertion of any such claim of which it has knowledge which is covered by this
indemnity to be forwarded to the other party (the "Indemnitor"); provided,
however, that failure of the Indemnitee to give the Indemnitor notice as
provided in this Section shall not relieve the Indemnitor of its obligations
hereunder except to the extent that the Indemnitor shall have been prejudiced by
such failure. Any notice of a claim by reason of any of the representations,
warranties or covenants contained in this Agreement shall state in reasonable
detail the representation, warranty or covenant with respect to which the claim
is made, the facts giving rise to an alleged basis for the claim, and the amount
of the liability asserted against the Indemnitor by reason of the claim.
9.5 Indemnification Procedure for Third Party Claims. Except as
otherwise provided herein, in the event of the initiation of any legal
proceeding against an Indemnitee by a third party, the Indemnitor shall be
entitled to assume the defense thereof, at the Indemnitor's sole expense. If the
Indemnitor assumes the defense of any legal proceeding, it will not settle the
legal proceeding without the prior written consent of the Indemnitee (which
shall not be unreasonably withheld or delayed). The Indemnitee shall cooperate
in all reasonable respects with the Indemnitor and its
13
<PAGE>
attorneys in the investigation, trial and defense of any legal proceeding and
any appeal arising therefrom (including the filing in the Indemnitee's name of
appropriate cross claims and counter claims). The Indemnitee may, at its own
cost, participate in any investigation, trial and defense of such legal
proceeding controlled by the Indemnitor and any appeal arising therefrom. If
after receipt of a written notice pursuant to Section 9.4 hereof, the Indemnitor
does not undertake to defend any such legal proceeding, the Indemnitee may, but
shall have no obligation to, contest or defend against any legal proceeding and
the Indemnitor shall be bound by the result obtained with respect thereto by the
Indemnitee (including, without limitation, the settlement thereof without the
consent of the Indemnitor). If there are one or more legal defenses available to
the Indemnitee that conflict with those available to the Indemnitor, the
Indemnitee shall have the right, at the expense of the Indemnitor, to assume the
defense of the legal proceeding; provided, however, that in any event the
Indemnitee may not settle such legal proceeding without the consent of the
Indemnitor, which consent shall not be unreasonably withheld or delayed. As used
herein, a "legal proceeding" includes any judicial, administrative or arbitral
action, suit, proceeding (public or private), claim or governmental proceeding.
9.6 Payment of Indemnification Amounts. Amounts payable by the
Indemnitor to the Indemnitee in respect of any claims hereunder shall be payable
by the Indemnitor as incurred by the Indemnitee.
9.7 Right of NAAC Successors to Enforce. WWWX agrees that the
provisions of this Section 9 shall inure to the benefit of, and may be enforced
by, any successor to the interests of NAAC (by assignment, merger, operation of
law or otherwise, and regardless of whether such successor acquires such
interests directly from NAAC), holding all or any part of the Purchased Assets
("NAAC Successor"), to the same extent as if the representations, warranties,
covenants and agreements of WWWX contained in this Agreement had been made
directly to such NAAC Successor. WWWX agrees that they shall execute and deliver
to any NAAC Successor such further agreements, instruments or other documents as
may be reasonably required to affirm the obligations of WWWX and the rights of
such NAAC Successor hereunder.
SECTION 10. POST-CLOSING MATTERS
10.1 Further Assurances. At the request of NAAC or any NAAC Successor
from time to time, WWWX shall, without further cost to NAAC or such NAAC
Successor, at any time and from time to time, promptly do, execute, acknowledge
and deliver, or cause to be done, executed, acknowledged and delivered, to NAAC
or such NAAC Successor, as the case may be, all such further acts, transfers,
assignments, deeds, powers and assurances of title, and additional papers and
instruments, and will do or cause to be done all acts or things as often as may
be proper or necessary or advisable for better assuring, conveying, transferring
and assigning the Purchased Assets (including, without limitation, the
Intangible Assets), and effectively to carry out the intent hereof, and to vest
in NAAC or, as applicable, any NAAC Successor, the entire right, title and
interest in and to all of the Purchased Assets. Without limiting the generality
of the foregoing, WWWX agrees to furnish to NAAC or any NAAC Successor, all
data, formulae, models, programs, software, notes, documents and all other
information regarding the Intangible Assets
14
<PAGE>
in their possession, necessary or useful for NAAC or such NAAC Successor to
develop the Intangible Assets, to utilize the Intangible Assets and to enable
its attorneys to evaluate and properly protect the Intangible Assets.
10.2 Responsibility for Litigation. WWWX shall be responsible for all
present or future litigation and claims for injury and related expenses arising
out of the conduct of the business of BarterOne up to the time of Closing,
including without limitation, any litigation disclosed on Schedule 4.6 hereto
and any litigation arising out of the Avenir Claims.
10.3 Trade Secrets. WWWX shall not at any time after the Closing use
for its own benefit, or divulge to any other person, firm or corporation, any
confidential information or trade secrets relating in any way to the Intangible
Assets, and at the Closing, WWWX shall deliver to NAAC all lists of customers,
books, records, trade secrets, intellectual property and all other property
constituting confidential information belonging to WWWX and in its possession
related to the Purchased Assets. For the purposes hereof, the term "confidential
information" means any and all information related to the Intangible Assets,
customer and marketing relationships, and business and financial information of
BarterOne. WWWX agrees that any violation of any of the covenants in this
Section 10.3 would cause substantial and irreparable injury to NAAC or any NAAC
Successor, whereupon WWWX may be enjoined from any breach or threatened breach
thereof in addition to, but not in limitation of, any of the rights or remedies
to which NAAC or any such NAAC Successor is or may be entitled to at law or in
equity or under this Agreement.
10.4 Right of NAAC Successors to Enforce. WWWX agrees that the
foregoing provisions of this Section 10 shall inure to the benefit of, and may
be enforced by, any NAAC Successor, to the same extent as if the
representations, warranties, covenants and agreements of WWWX contained herein
had been made directly to such NAAC Successor. WWWX agrees that it shall execute
and deliver to any NAAC Successor such further agreements, instruments or other
documents as may be reasonably required to affirm the obligations of WWWX and
the rights of such NAAC Successor hereunder.
10.5 Commitment to Fund Entrade. From and after the Closing, NAAC shall
disburse or guarantee to Entrade a minimum of $4,000,000 in equity funding for
its working capital needs. NAAC shall further use its best efforts to obtain a
guarantee of such funding commitment from a third party as described in Section
2.2.1 of the ETCO Agreement.
SECTION 11. MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Pennsylvania.
The parties hereto agree that jurisdiction shall be proper in the courts of the
Commonwealth of Pennsylvania and consent to jurisdiction and venue therein.
11.2 Assignment. This Agreement shall not be assignable by any party
without the prior written approval of the other party which shall not be
unreasonably withheld. Notwithstanding
15
<PAGE>
the foregoing, NAAC may, without the consent of but with prior notice to WWWX,
assign its rights under Sections 9 and 10 hereof to any NAAC Successor as
provided therein, it being the intent of the parties that any such NAAC
Successor shall be a third party beneficiary of such rights. To the extent
assignable, this Agreement shall be binding upon, and inure to the benefit of,
NAAC, WWWX, and their respective successors and assigns.
11.3 Headings for Reference Only. The section and paragraph headings in
this Agree ment are for convenience of reference only and shall not be deemed to
modify or limit the provisions of this Agreement.
11.4 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered by confirmed fax,
personally, or by recognized overnight courier, or four days after being mailed
by registered mail, return receipt requested, to a party at the following
address (or to such other address as such party may have specified by notice
given to the other party pursuant to this provision):
If to WWWX: WorldWide Web NetworX Corporation
3000 Atrium Way, Suite 202
Mt. Laurel, NJ 08054
Attention: Robert D. Kohn
Fax no. (609) 273-6913
If to NAAC: NA Acquisition Corp.
3000 Atrium Way, Suite 202
Mt. Laurel, NJ 08054
Attention: Robert D. Kohn
Fax no. (609) 273-6913
With a copy to: Duane Morris & Heckscher, LLP
One Liberty Place
Philadelphia, PA 19103
Attention: Sheldon Bonovitz, Esquire
Fax no. (215) 979-1020
11.5 Entire Agreement and Amendment. This document and the Exhibits and
Schedules hereto contain the entire agreement between the parties hereto with
respect to the transactions described herein and supersede all prior or
contemporaneous agreements, understandings, representations and warranties
between the parties and may not be amended except by written instrument executed
by the parties hereto.
11.6 Counterparts. This Agreement 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.
16
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ATTEST: WORLDWIDE WEB NETWORX CORPORATION
By: By:/s/ Robert D. Kohn
--------------------------- --------------------------------
Title: Title: President
------------------- -------------------------
ATTEST: NA ACQUISITION CORP.
By: By:/s/ Robert D. Kohn
--------------------------- --------------------------------
Title: Title: President
------------------- -------------------------
18
EXHIBIT 10.2
BILL OF SALE AND INSTRUMENT OF ASSIGNMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby,
WORLDWIDE WEB NETWORX CORPORATION ("Transferor"), pursuant to that certain
Acquisition Agreement (the "Agreement") of even date herewith by and between
Transferor and NA ACQUISITION CORP. ("Transferee"), hereby transfers, conveys,
assigns and delivers to Transferee, its successors and assigns, forever, good
and marketable right, title and interest in and to the Purchased Assets (as that
term is defined in the Agreement), free and clear of all liens and encumbrances.
Transferor hereby constitutes and appoints Transferee, its successors
and assigns, as Transferor's true and lawful attorney-in-fact, with full power
of substitution, in Transferor's name and stead, but on behalf of and for the
benefit of Transferee, its successors and assigns, to demand and receive any and
all of the Purchased Assets and to give and receive receipts and releases for
and in respect of the same, and from time to time to institute and prosecute, in
Transferor's name or otherwise, at the expense and for the benefit of
Transferee, its successors and assigns, any and all proceedings at law, in
equity or otherwise, which Transferee, its successors or assigns, may deem
proper for the collection or reduction to possession of the Purchased Assets or
for the collection and enforcement of any claim or right of any kind conveyed
and assigned, or intended to be so, pursuant to the Agreement, Transferor hereby
declaring that the foregoing powers are coupled with an interest and are and
shall be irrevocable.
IN WITNESS WHEREOF, Transferor has duly executed this Instrument on
February 23, 1999.
WORLDWIDE WEB NETWORX CORPORATION
By /s/ Robert D. Kohn
----------------------------
Title: President
EXHIBIT 10.3
PROMISSORY NOTE
$500,000 Philadelphia, Pennsylvania
February 23, 1999
FOR VALUE RECEIVED, NA ACQUISITION CORP., a Pennsylvania
corporation ("NAAC"), hereby promises to pay to the order of WORLDWIDE WEB
NETWORX CORPORATION ("WWWX"), the amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00). This Note is being issued in accordance with Section 2.1(b) of
that certain Acquisition Agreement of even date herewith by and between NAAC and
WWWX (the "Agreement"), and evidences NAAC's obligation to pay a portion of the
Purchase Price for the Purchased Assets, as set forth in Section 2.1(b). Terms
capitalized but not defined herein shall have the meanings given to them
respectively in the Agreement.
Reference is made to that certain Agreement and Plan of Merger (the
"Merger Agreement") of even date herewith, by and among NAAC, WWWX, WWWX Merger
Subsidiary, Inc. ("Merger Sub"), and Artra Group Incorporated ("Artra"),
pursuant to which Merger Sub will merge into Artra, and all shares of Artra
stock will be converted into shares of NAAC, under and subject to the terms and
conditions stated therein (the "Merger"). The principal amount of this Note
(without interest) shall be payable in full on the earlier to occur of (a) the
"Closing Date," as defined in the Merger Agreement, or (b) the date on which the
Merger Agreement is otherwise terminated and the Merger abandoned.
NAAC hereby waives the requirements of demand, presentment,
protest, notice of protest and dishonor and all other demands or notices of any
kind in connection with the delivery, acceptance, performance, default, dishonor
or enforcement of this Note.
The construction, interpretation and enforcement of this Note shall
be governed by the internal laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, and intending to be legally bound hereby, NAAC
has caused this Note to be executed by its duly authorized officer as of the day
and year first above written.
Witness/Attest: NA ACQUISITION CORP.
By: By:/s/ Robert D. Kohn
-------------------------- -------------------------------
Title: Title: President
EXHIBIT 10.4
AGREEMENT
THIS AGREEMENT (this "Agreement") is dated as of February 16, 1999, by
and among ENERGY TRADING COMPANY, a PECO Energy Company subsidiary and a
Delaware corporation ("ETCO"), WORLDWIDE WEB NETWORX CORPORATION, a Delaware
orporation ("WWWX"), and NA ACQUISITION CORP., a Pennsylvania corporation
("NAAC"). Each of ETCO, WWWX and NAAC are sometimes referred to herein
individually as a "Party" and, together, as the "Parties."
RECITALS
A. WWWX and ETCO are parties to that certain BarterOne Membership
Interest Sale Agreement (the "BarterOne Sale Agreement") dated December 16,
1998, pursuant to which ETCO has agreed to transfer to WWWX, and WWWX has agreed
to acquire from ETCO, ETCO's 51% membership interest in BarterOne, LLC, d/b/a
entrade.com, a Delaware limited liability company ("BarterOne"), subject to
ETCO's right to an unencumbered equity interest in a new company ("ETCO's
Retained Interest") to be formed by WWWX to hold all of the assets of BarterOne
(the "BarterOne Assets"). Reference is made to Sections 2.2.1 and 2.2.2 of the
BarterOne Sale Agreement for a full statement of the terms and conditions of
ETCO's Retained Interest.
B. WWWX and NAAC intend to enter into an Acquisition Agreement dated or
about the date of this Agreement (the "WWWX/NAAC Agreement"), substantially in
the form attached hereto as Exhibit "A" (with only such modifications therein as
do not have a material adverse effect on ETCO's rights hereunder or on ETCO's
interest in NAAC), pursuant to which, inter alia, WWWX will agree to transfer to
NAAC, and NAAC will agree to acquire from WWWX, all of the BarterOne Assets.
C. WWWX and ETCO are closing under the BarterOne Sale Agreement
concurrently with the execution of this Agreement, and in connection therewith,
the Parties wish to provide for the issue to ETCO of shares of the common stock
of NAAC, in substitution for ETCO's Retained Interest.
D. WWWX and NAAC are presently negotiating with Artra Group
Incorporated, a publicly traded Pennsylvania corporation ("Artra"), to effect a
merger (the "Proposed Merger"), and the Parties wish to further provide for
certain changes in the capital structure of NAAC if the Proposed Merger is not
consummated.
NOW THEREFORE, in consideration of the mutual covenants herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
<PAGE>
SECTION 1. CLOSING UNDER BARTERONE SALE AGREEMENT
1.1 Prior Payments by WWWX. Prior to the date hereof, ETCO has received
from WWWX $250,000 in cash and 416,666 shares of the common stock of WWWX
(together, the "Initial Payment"), in accordance with Section 2.1 of the
BarterOne Sale Agreement.
1.2 Payment at Closing. By its execution of this Agreement, ETCO
acknowledges receipt from WWWX of the Initial Payment, plus an additional
payment of $230,000 in cash ("Final Cash Payment"), as required by Section 2.2.1
of the BarterOne Sale Agreement.
1.3 Transfer. Subject only to its receipt of the Final Cash Payment and
the issue of ETCO's NAAC Shares in accordance with Section 2.2 hereof, ETCO
hereby grants, conveys, transfers, assigns and delivers to NAAC all of its
right, title and interest in and to ETCO's fifty-one percent (51%) membership
interest in BarterOne, free and clear of all liens, encumbrances and charges of
any kind.
SECTION 2. CLOSING UNDER WWWX/NAAC AGREEMENT
2.1 Acquisition Closing. The Parties acknowledge and agree that, within
two weeks following the execution and delivery of this Agreement, WWWX shall
dissolve BarterOne, and transfer all of the BarterOne Assets to NAAC in
accordance with the terms and conditions of the WWWX/NAAC Agreement (the
"Acquisition Closing"). The Parties further acknowledge that NAAC intends to
thereafter transfer the BarterOne Assets into a wholly owned operating company
to be called "entrade.com, Inc." ("entrade"). Neither WWWX nor ETCO shall have
any direct ownership interest in entrade.
2.2 Issue of NAAC Stock to ETCO. Concurrently with the Acquisition
Closing, NAAC shall issue and deliver to ETCO Two Hundred Thousand (200,000)
fully paid and non-assessable shares of the common stock of NAAC ("ETCO's NAAC
Shares"), which shares are being issued in a private placement subject to all
applicable Federal and State securities laws, regulations and restrictions, and
shall bear a legend to that effect. NAAC shall have no more than 2,000,000
shares of its capital stock issued and outstanding prior to the Proposed Merger.
The issue to ETCO of ETCO's NAAC Shares, together with the other agreements set
forth herein, shall be in substitution for ETCO's Retained Interest, and shall
satisfy in full WWWX's obligations under Sections 2.2.1 and 2.2.2 of the
BarterOne Sale Agreement (subject to Section 3.4 hereof).
2.3 No Assumption of Liabilities. NAAC is not hereby assuming any of
the liabilities or obligations of either ETCO or WWWX under the BarterOne Sale
Agreement or otherwise.
SECTION 3. CLOSING OF THE PROPOSED MERGER
3.1 Terms of the Proposed Merger. The Proposed Merger shall by its
terms require that Artra and NAAC shall use all reasonable efforts to cause
ETCO's NAAC Shares to be registered for resale in accordance with filings made
with the Securities and Exchange Commission ("SEC"), and shall further require
that, prior to or concurrently with the closing of the transactions contemplated
2
<PAGE>
thereby (the "Merger Closing"), Artra shall have guaranteed funding of at least
$4,000,000 for the working capital needs of entrade. The Proposed Merger shall
by its terms provide that all shares of Artra common stock shall be converted
into shares of NAAC common stock on a one for one basis.
3.2 Consummation of Proposed Merger. Each of the Parties shall
cooperate together to cause the Proposed Merger to occur in accordance with the
foregoing provisions of this Section 3 and pursuant to an Agreement and Plan of
Merger substantially in the form attached hereto as Exhibit "B" (with only such
modifications therein as do not have a material adverse effect on ETCO's rights
hereunder or on ETCO's interest in NAAC). Without limiting the generality of the
foregoing, each of ETCO and WWWX shall vote their shares of NAAC common stock to
approve the Proposed Merger. In order to facilitate such approval, the execution
and delivery of this Agreement by ETCO and WWWX may be deemed the unanimous
consent of the shareholders of NAAC approving the Proposed Merger as described
herein.
3.3 Merger Closing. Concurrently with the Merger Closing:
(a) NAAC shall make a cash payment to ETCO in the amount of
$100,000; and
(b) ETCO shall surrender to WWWX the 416,666 shares of WWWX
common stock received by ETCO as part of the Initial Payment, and WWWX shall
issue to ETCO in substitution thereof 73,450 shares of WWWX common stock,
subject to ETCO's right to an audit to affirm that WWWX's calculation of the
number of shares to be issued to ETCO hereunder conforms with the provisions of
Section 2.2.4 of the BarterOne Sale Agreement.
3.4 Failure of Proposed Merger. If for any reason the Proposed Merger
is not consummated on or before September 30, 1999, then upon written notice
thereof from ETCO to NAAC, NAAC shall promptly issue to ETCO sufficient
additional shares of its common stock so that ETCO shall thereafter hold a 33
1/3% interest in all of the issued and outstanding capital stock of NAAC. In
such event, WWWX and NAAC shall take all necessary action to amend the Articles
of Incorporation and By-Laws of NAAC as necessary so that ETCO shall have all of
the same protections as a minority shareholder of NAAC as were accorded to
Global Trade Group, Ltd. under the terms of the Operating Agreement for
BarterOne, as the same was amended prior to the date hereof, and any dilution of
ownership of NAAC shall be on a pari passu basis.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Authority. Each of the Parties represents and warrants to the
others that (a) it has the full power and legal right to execute and deliver
this Agreement and to perform its obligations under this Agreement; (b) the
execution, delivery and performance of this Agreement have been authorized by
all necessary action, corporate or otherwise, and do not violate any provisions
of its charter or by-laws or any contractual obligations or requirements of law
binding on it; and (c) this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
3
<PAGE>
4.2 WWWX. WWWX represents and warrants to ETCO and NAAC that all of the
obligations of BarterOne have been satisfied in full on or before the date of
this Agreement, and reaffirms to ETCO that all of its representations and
warranties contained in the BarterOne Sale Agreement are true and correct as of
the date hereof.
SECTION 5. MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Pennsylvania.
5.2 Entire Agreement and Amendment. This document contains the entire
agreement among the Parties with respect to the transactions contemplated hereby
and supersedes all prior or contemporaneous agreements, understandings,
representations and warranties between the Parties, including without limitation
the BarterOne Sale Agreement, and may not be amended except by written
instrument executed by the Parties.
5.3 Counterparts. This Agreement 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.
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed by their duly appointed officers as of the date first above written.
ENERGY TRADING COMPANY
By: /s/ Robert A. Shin
--------------------------
Title: Vice President
NA ACQUISITION CORP.
By: /s/ Robert D. Kohn
--------------------------
Title: President
WORLDWIDE WEB NETWORX CORPORATION
By: /s/ Robert D. Kohn
--------------------------
Title: President
4
EXHIBIT 10.5
LOAN AGREEMENT
This LOAN AGREEMENT ("Agreement"), dated as of February 23, 1999, is by
and between NA ACQUISITION CORP., a Pennsylvania corporation (the "Borrower")
and ARTRA GROUP INCORPORATED, a Pennsylvania corporation (the "Lender").
RECITALS
A. The Borrower and WorldWide Web NetworX Corporation, a Delaware
corporation ("WWWX," and as hereinafter provided, the "Guarantor") are parties
to an Acquisition Agreement dated on or about the date hereof (the "Acquisition
Agreement"), pursuant to which the Borrower has agreed to acquire from WWWX, and
WWWX has agreed to transfer to the Borrower, certain Assets (as hereinafter
defined).
B. The Lender, the Borrower, and WWWX are parties to an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
WWWX Merger Subsidiary, Inc., a wholly owned subsidiary of the Borrower, will
merge into the Lender (the "Merger").
C. Concurrently with the execution and delivery of the Merger
Agreement, the Lender has agreed to provide certain credit facilities to the
Borrower, for the purposes and on the terms and conditions hereinafter set
forth. This Agreement is the "Loan Agreement" referenced in the recitals to the
Merger Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings in this
Agreement:
"Acquisition Agreement" shall have the meaning given that term in the
Recitals, and shall include all exhibits, amendments, modifications, and
supplements thereto as may be in effect from time to time.
"Agreement" shall mean this Loan Agreement, together with all exhibits,
amendments, modifications, and supplements hereto as may be in effect from time
to time.
"AsseTrade" shall mean AsseTrade.com, Inc., a Delaware corporation.
"AsseTrade Common Stock" shall mean the shares of common stock of
AsseTrade included in the Assets acquired by the Borrower from WWWX pursuant to
the Acquisition Agreement, which shares constitute 25% of the issued and
outstanding shares of voting common stock of AsseTrade.
<PAGE>
"Assets" shall mean all of the assets acquired by the Borrower from
WWWX pursuant to the Acquisition Agreement, including without limitation the
BarterOne Assets and the AsseTrade Common Stock.
"BarterOne" shall mean BarterOne, LLC, a Delaware limited liability
company which has been or will be dissolved by WWWX prior to the Merger.
"BarterOne Assets" shall mean all of the assets which were owned by
BarterOne prior to its dissolution by WWWX, and which are being acquired by the
Borrower from WWWX pursuant to the Acquisition Agreement, including without
limitation the worldwide, perpetual licensing rights to the ORBIT System
Software (On-Line Reciprocal Business and Inventory Transaction System), an
electronic commerce system to be used as a transaction tool over the internet.
"Closing" shall mean the execution and delivery to the Lender of all of
the documents, instruments, and agreements required by the terms of this
Agreement, and the delivery to the Borrower of the initial Loan proceeds.
"Closing Date" shall mean the date on which the Closing takes place.
"Collateral" shall mean the Assets and any and all other property of
the Borrower (whether real or personal), in which a lien or security interest
has been granted to the Lender, pursuant to any of the Loan Documents and all
amendments, modifications, exhibits and schedules to any of the foregoing as may
be in effect from time to time.
"Default" shall mean the occurrence of any fact, condition or event
which with the giving of notice or lapse of time, or both, without cure, would
be an Event of Default.
"entrade" shall mean any entity now or hereafter created by the
Borrower to conduct the entrade Business.
"entrade Business" shall mean the business operations of the Borrower
related to the BarterOne Assets, whether conducted through a wholly owned
subsidiary of the Borrower or otherwise.
"entrade Interest" shall mean the Borrower's shares of capital stock,
membership interests, or other equity interests in entrade.
"Event of Default" shall have the meaning given such term in Article VI
of this Agreement.
"Guaranty" shall mean the Guaranty between WWWX and the Lender, dated
as of the date of this Agreement, in form and substance satisfactory to the
Lender, by which the Guarantor agrees to guarantee and act as surety for the
Obligations.
2
<PAGE>
"Guarantor" shall mean WWWX, as guarantor under the Guaranty.
"Loan" shall have the meaning given such term in Section 2.1 of this
Agreement.
"Loan Documents" shall mean this Agreement, the Note, the Pledge
Agreement, the Security Agreement, the Guaranty, and all other agreements,
amendments, modifications, restatements, certificates, financing statements,
schedules, reports, notices, and exhibits now or hereafter executed or delivered
in connection with any of the foregoing, as may be in effect from time to time.
"Merger Agreement" shall have the meaning given that term in the
Recitals, and shall include all exhibits, amendments, modifications, and
supplements thereto as may be in effect from time to time.
"Note" shall have the meaning given such term in Section 2.5 of this
Agreement.
"Obligations" shall mean the obligations of the Borrower to pay the
principal, any interest and any other liabilities of the Borrower under this
Agreement and the other Loan Documents in accordance with the terms thereof.
"Pledge Agreement" shall mean the pledge agreement between the Borrower
as pledgor and the Lender as pledgee, dated as of the date of this Agreement, in
form and substance satisfactory to the Lender, by which the Borrower pledges the
Pledged Securities to the Lender.
"Pledged Securities" shall mean the AsseTrade Common Stock and (if
applicable) the entrade Interest.
"Security Agreement" shall mean the security agreement between the
Borrower and the Lender, dated as of the date of this Agreement, in form and
substance satisfactory to the Lender, pursuant to which the Borrower grants to
the Lender a first priority lien and security interest in the Assets and any and
all other property now or hereinafter owned by the Borrower, including without
limitation the Borrower's Accounts, Chattel Paper, Contracts, Documents,
Equipment, Fixtures, General Intangibles, Goods, Instruments, Inventory,
Investment Property and Proceeds, as such terms are defined in the Uniform
Commercial Code enacted in the Commonwealth of Pennsylvania ("UCC").
3
<PAGE>
ARTICLE II
CREDIT ACCOMMODATIONS
2.1 Loan. Subject to the terms and conditions hereof and in reliance on
the representations and warranties made by the Borrower and/or WWWX in this
Agreement, the Guaranty and the Merger Agreement, the Lender agrees to lend to
the Borrower up to $2,000,000 (the "Loan"). The Borrower agrees to use the
proceeds of the Loan only for the following purposes:
(a) $800,000 shall be used to fund a portion of the cash
purchase price for the Assets payable to WWWX under the terms of the Acquisition
Agreement; and
(b) the balance shall be used to fund the working capital
needs of the entrade Business.
2.2 Disbursement of Loan Proceeds. At the Closing the Lender shall make
an initial disbursement of the Loan proceeds to the Borrower in the amount of
$800,000, to fund the cash payment to WWWX as set forth in section 2.1(a), plus
$600,000, to fund the working capital needs of the entrade Business during the
first 90 days following the Closing Date, for an aggregate initial disbursement
of $1,400,000. If at the end of the aforesaid 90 day period (a) closing under
the Merger Agreement has not occurred, and the Merger Agreement has not been
otherwise terminated, (b) no Default has occurred and is continuing under this
Agreement or any of the other Loan Documents, and (c) the Borrower has made a
written request for additional funds (collectively, the "Conditions to
Subsequent Disbursements"), then upon receipt of such notice the Lender shall
promptly make a second disbursement of the Loan proceeds to the Borrower in the
amount of $200,000, to fund the working capital needs of the entrade Business
for the following 30 days. The Lender shall thereafter make up to two additional
disbursements of $200,000 each, at the end of the aforesaid 30 day period and at
the end of the next succeeding 30 day period, provided that in each such
instance the Conditions to Subsequent Disbursements have been met at such time.
In no event shall the advances of Loan proceeds hereunder at any time exceed
$2,000,000 in the aggregate, plus accrued interest.
2.3 Payments. Except as otherwise provided in Section 6.5 of the Merger
Agreement, the entire outstanding principal balance of the Loan shall be due and
payable in one lump sum payment on that date (the "Maturity Date") which is the
earlier to occur of (a) the "Closing Date" defined in the Merger Agreement, or
(b) the date on which the Merger Agreement is otherwise terminated and the
Merger abandoned. Payment shall be by wire transfer of good funds to such
account or accounts as the Lender shall by notice in writing advise the
Borrower.
2.4 Interest. During the period from the Closing Date through the
Maturity Date, the Loan shall bear interest at the applicable Federal rate,
which shall accrue monthly and be added to the principal balance. After the
occurrence and during the continuance of an Event of Default, interest on the
outstanding principal balance of the Loan shall accrue and be payable, on
demand,
4
<PAGE>
at a per annum rate (the "Default Rate") equal to the lesser of (a) twelve
percent (12%) per annum, or (b) the maximum rate of interest permissible under
applicable laws.
2.5 Note. The obligations of the Borrower to repay the aggregate
outstanding principal under the Loan and to pay accrued interest thereon shall
be evidenced by a promissory note of the Borrower (the "Note"), in form and
substance satisfactory to the Lender, to be executed and delivered to the Lender
concurrently with the execution and delivery of this Agreement.
2.6 Prepayment. The Borrower shall be permitted to make prepayments
with respect to the Loan without premium or penalty.
2.7 Collateral Security. (a) As security for the prompt payment,
performance, satisfaction and discharge when due of all the Obligations, the
Borrower shall execute and deliver or shall cause to be executed and delivered
to the Lender, concurrently with the execution of this Agreement, the Pledge
Agreement, the Security Agreement, and such other documents and agreements as
may be required to perfect a first-priority lien and security interest in the
Assets, the Pledged Securities, and any and all other assets of the Borrower, in
favor of the Lender.
(b) Notwithstanding the foregoing, it is acknowledged and agreed by the
Lender that, following the Closing, the Borrower may transfer the BarterOne
Assets to entrade. The Lender hereby consents to the aforesaid transfer,
provided that: (i) entrade shall take title to the BarterOne Assets under and
subject to the Lender's first priority lien and security interest therein, and
shall execute and deliver to the Lender such UCC financing statements and other
documents as may be required to assure the continued perfection of the Lender's
security interest therein, and (ii) the entrade Interest shall be pledged to the
Lender under the terms and conditions of the Pledge Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to execute and deliver this Agreement and
to make the Loan available to the Borrower, the Borrower represents and warrants
to the Lender that, as of the date hereof:
3.1 Organization and Good Standing. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and is duly licensed or qualified to do business
as a foreign corporation and is in good standing under the laws of any other
state of the United States in which the character of its properties or in which
the transaction of its business makes such qualification necessary, except where
the failure to be so qualified or to be in good standing would not have a
material adverse effect on its financial condition.
5
<PAGE>
3.2 Authorization, Validity and Effect of Loan Documents. The Borrower
has the requisite corporate power and authority to execute and deliver this
Agreement and the other Loan Documents. The consummation by the Borrower of the
transactions described herein has been duly authorized by all requisite
corporate action, and neither the execution and delivery of this Agreement nor
the consummation of the transactions described herein by the Borrower
constitutes a violation or breach of applicable law or any contract or
instrument to which the Borrower is a party or by which it is bound, or any
order, writ, injunction, decree or judgment applicable to it, or constitutes a
default (or would but for the giving of notice or lapse of time or both,
constitute a default) under any contract or instrument to which the Borrower is
a party or by which it is bound, or conflicts with or violates any provision of
the Articles of Incorporation or By-Laws of the Borrower. Without limiting the
generality of the foregoing provisions, the execution and delivery by the
Borrower of this Agreement and the other Loan Documents and the consummation of
the transactions described herein and therein will not, to the Borrower's
knowledge, (i) result in a violation or default or give to any other person any
rights, including rights of termination, cancellation or acceleration under any
applicable law, rule or regulation, any agreement, instrument or policy to which
the Borrower is a party or may be bound, (ii) result in any judgment, order,
injunction, decree or ruling of any court or governmental authority to which the
Borrower is a party or subject or (iii) require any authorization, consent,
approval, exemption or other action by any court or administrative or
governmental body which has not been obtained or any notice to or filing with
any court or administrative or governmental body which has not been given or
done. This Agreement has been duly executed and delivered by the Borrower and
constitutes the valid and binding obligation of the Borrower enforceable in
accordance with its terms.
3.3 Pending Litigation. There are no actions, suits, proceedings or
investigations pending, or, to the knowledge of the Borrower, threatened against
or affecting the Borrower before any court, arbitrator or administrative or
governmental body which, in the aggregate, would reasonably be expected to
adversely affect any action taken or to be taken by the Borrower under this
Agreement and the other Loan Documents or which, in the aggregate, would
reasonably be expected to materially adversely affect the properties or
financial position of the Borrower, or the ability of the Borrower to perform
its obligations under this Agreement and the other Loan Documents.
3.4 Title to Collateral. The Borrower owns outright, and has good and
marketable title to, all of the Collateral free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts or other encumbrances
or conflicting claims of any nature whatsoever, except as otherwise disclosed in
the Acquisition Agreement.
3.5 No Untrue Statements. To the Borrower's knowledge, neither this
Agreement, the Loan Documents nor any other document, certificate or statement
furnished or to be furnished by the Borrower or by any other party to the Lender
in connection herewith contains, or at the time of delivery will contain, any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
6
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT TO THE LENDER'S OBLIGATIONS
As a condition precedent to the Lender's obligations hereunder, the
Borrower shall deliver or cause to be delivered to the Lender at the Closing the
following:
(a) This Agreement, duly executed by the Borrower;
(b) The Note, duly executed by the Borrower;
(c) The Security Agreement, duly executed by the Borrower;
(d) The Pledge Agreement, duly executed by the Borrower;
(e) The Guaranty, duly executed by WWWX;
(f) Such other documents, instruments, and agreements as
the Lender may reasonably request
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower hereby covenants and agrees that from the Closing Date
until satisfaction in full of the Obligations, unless the Lender shall otherwise
consent in writing, the Borrower shall do the following:
5.1 Use of Proceeds. Use the proceeds of the Loan for the purposes
specified in Section 2.1 of this Agreement.
5.2 Taxes. Pay all taxes, assessments, charges and levies imposed upon
it or on any of its property (including the Collateral) as and when due, and
provide evidence of payment thereof to the Lender if the Lender so requests,
except where contested in good faith by lawful and appropriate proceedings.
5.3 Notice of Litigation or other Proceedings. Give prompt notice to
the Lender of: (a) the existence of any dispute, (b) the institution of any
litigation, administrative proceeding or governmental investigation involving
the Borrower or (c) the entry of any judgment, decree or order against or
involving the Borrower, any of which would materially and adversely affect the
financial condition or property (including the Collateral) of the Borrower or
affect the enforceability of this Agreement or any of the other Loan Documents.
7
<PAGE>
5.4 Notice of Events of Default. Give prompt notice to the Lender if
the Borrower becomes aware of the occurrence of any Default or Event of Default
hereunder or under the Merger Agreement.
5.5 Further Actions. At the Borrower' own expense, cooperate and join
with the Lender in taking all such further actions as the Lender, in its sole
judgment, shall deem necessary to effectuate the provisions of the Loan
Documents.
ARTICLE VI
EVENTS OF DEFAULT
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
6.1 Borrower' Failure to Pay. The Borrower fails to pay any amount of
principal, interest, or other sums as and when due to the Lender under this
Agreement or any of the Loan Documents, whether upon stated maturity,
acceleration, or otherwise.
6.2 Breach of Covenants or Conditions. The Borrower fails to perform or
observe any other material, term, covenant, agreement or condition in this
Agreement or any of the other Loan Documents, and has not remedied and fully
cured such non-performance, non-observance, violation of or non-compliance
within thirty (30) days after the earlier of (a) the date that the Borrower has
knowledge of such violation, or (b) the date that the Borrower has written
notice thereof from the Lender.
6.3 Defaults in Other Agreements. The Borrower fails to perform or
observe any material term, covenant, agreement or condition contained in, or
there shall occur any material default under or as defined in, (a) any other
agreement applicable to the Borrower or by which it is bound which shall not be
remedied within the period of time (if any) within which such other agreement
permits such default to be remedied, unless such default is waived in writing by
the other party thereto or excused as a matter of law; or (b) any agreement the
Borrower has with the Lender, including without limitation the Merger Agreement.
6.4 Agreements Invalid. The validity, binding nature of, or
enforceability of any material term or provision of any of the Loan Documents is
disputed by, on behalf of, or in the right or name of the Borrower or any
material term or provision of any such Loan Document is found or declared to be
invalid, avoidable, or non-enforceable by any court of competent jurisdiction.
6.5 False Warranties; Breach of Representations. Any warranty or
representation made by the Borrower and/or WWWX in this Agreement, the Merger
Agreement, the Guaranty or any other Loan Document or in any certificate or
other writing delivered under or pursuant to this Agreement or any other Loan
Document, or in connection with any provision of this Agreement or
8
<PAGE>
related to the transactions described herein shall prove to have been false or
incorrect or breached in any material respect on the date as of which made.
6.6 Judgments. A final judgment or judgments is entered, or an order or
orders of any judicial authority or governmental entity is issued against the
Borrower (such judgment(s) and order(s) hereinafter collectively referred to as
("Judgment"): (a) for payment of money, which Judgment, in the aggregate would
have a material adverse effect on the financial condition of the Borrower or (b)
for injunctive or declaratory relief which would have a material adverse effect
on the financial condition of the Borrower, and such Judgment is not discharged
or execution thereon or enforcement thereof stayed pending appeal, within thirty
(30) days after entry or issuance thereof, or, in the event of such a stay, such
Judgment is not discharged within thirty (30) days after such stay expires.
6.7 Bankruptcy or Insolvency.
(a) Either the Borrower or the Guarantor becomes insolvent, or
generally fails to pay, or is generally unable to pay, or admits in writing its
inability to pay, its debts as they become due or applies for, consents to, or
acquiesces in, the appointment of a trustee, receiver or other custodian, as the
case may be, of a substantial part of its property, or makes a general
assignment for the benefit of creditors.
(b) Either the Borrower or the Guarantor commences any
bankruptcy, reorganization, debt arrangement, or other case or proceeding under
any state or federal bankruptcy or insolvency law, or any dissolution or
liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any state or federal bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is involuntarily commenced against or
in respect of either the Borrower or the Guarantor, and such involuntary case or
proceeding shall remain undismissed and unstayed for a period of sixty (60)
days, or an order for relief is entered in any such case or proceeding.
(d) A trustee, receiver, or other custodian is appointed for
either the Borrower or the Guarantor of a substantial part of its property.
ARTICLE VII
REMEDIES
7.1 Acceleration; Setoff.
(a) Automatically upon the occurrence of any Event of Default
described in Section 6.7 of this Agreement, and in the sole discretion of the
Lender upon the occurrence of any other Event of Default, the unpaid principal
balance of the Loan, all interest accrued and unpaid thereon (if any), and all
other amounts and Obligations payable by the Borrower under this
9
<PAGE>
Agreement and the other Loan Documents shall immediately become due and payable
in full, all without protest, presentment, demand, or further notice of any kind
to the Borrower, all of which are expressly waived by the Borrower;
(b) Upon the occurrence of any one or more Events of Default,
the Lender may proceed to protect and enforce its rights under this Agreement
and the other Loan Documents by exercising such remedies as are available to the
Lender in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any provision
contained in this Agreement or any of the other Loan Documents or in aid of the
exercise of any power granted in this Agreement or any of the other Loan
Documents; and
(c) The Borrower waives and releases any right to require the
Lender to collect any of the Obligations from any item of its assets and
properties under any theory of marshaling of assets, or otherwise, and
specifically authorizes the Lender to apply any proceeds of such assets and
properties ("Proceeds") against any of the Obligations in any manner that the
Lender may determine.
(d) The Lender shall apply all Proceeds first, to the payment
of the reasonable costs and expenses incurred by the Lender in connection with
collection; second, in payment of the Obligations evidenced by the Note
(including any interest thereon) or any extension, renewal, refinancing or
refunding thereof, first to interest and then to principal; and third, in
payment of Obligations (including interest thereon) other than those described
above; and
(e) If such Proceeds are insufficient to pay all of the
foregoing and any other amounts required by law, the Borrower shall be liable
for any deficiency.
ARTICLE VIII
MISCELLANEOUS
8.1 Remedies Cumulative; No Waiver. The rights, powers and remedies of
the Lender provided in this Agreement and the other Loan Documents are
cumulative and not exclusive of any right, power or remedy provided by law or
equity, and no failure or delay on the part of the Lender in the exercise of any
right, power, or remedy shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power, or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or remedy.
8.2 Notices. Every notice and communication under this Agreement or any
of the other Loan Documents shall be in writing and shall be given by either (a)
hand-delivery, (b) first class mail (postage prepaid), (c) reliable overnight
commercial courier (charges prepaid), or (d) telecopy or other means of
electronic transmission, if confirmed promptly by any of the methods specified
in clauses (a), (b) and (c) of this sentence, to the addresses for notices to
the parties set forth in the Merger Agreement. Notice given by telecopy or other
means of electronic transmission shall be deemed to have been given and received
when sent if sent on a business day, otherwise on the next business day
immediately thereafter. Notice by overnight courier shall be deemed to have been
10
<PAGE>
given and received on the date scheduled for delivery. Notice by mail shall be
deemed to have been given and received three (3) calendar days after the date
first deposited in the United States Mail. Notice by hand delivery shall be
deemed to have been given and received upon delivery. A party may change its
address by giving written notice to the other party as specified herein.
8.3 Survival of Covenants. This Agreement and all covenants,
agreements, representations and warranties made herein and in any certificates
delivered pursuant hereto shall survive the making of the Loan and the execution
and delivery of the Note and shall continue in full force and effect until all
of the Obligations have been fully paid, performed, satisfied and discharged.
8.4 Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts and by the different parties on separate counterparts.
Each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute one and the same agreement.
8.5 Headings. The headings of sections have been included herein for
convenience only and shall not be considered in interpreting this Agreement.
8.6 Judicial Proceedings. Each party to this Agreement agrees that any
suit, action or proceeding, whether claim or counterclaim, brought or instituted
by any party hereto or any successor or assign of any party, on or with respect
to this Agreement or the dealings of the parties with respect hereto, shall be
tried only by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH
SUIT, ACTION OR PROCEEDING. Further, each party waives any right it may have to
claim or recover, in any such suit, action or proceeding, any special,
exemplary, punitive or consequential damages or any damages other than, or in
addition to, actual damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS
SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE LENDER
WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION
WERE NOT A PART OF THIS AGREEMENT.
8.7 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the Commonwealth of Pennsylvania.
8.8 Integration. This Agreement, together with the Merger Agreement and
the other Loan Documents constitute the sole agreement of the parties with
respect to the subject matter hereof and thereof and supersede all oral
negotiations and prior writings with respect to the subject matter hereof and
thereof.
8.9 Amendment and Waiver. No amendment of this Agreement, and no waiver
of any one or more of the provisions hereof shall be effective unless set forth
in writing and signed by the parties hereto. Any such waiver, consent or
approval shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on the Borrower in any case shall
11
<PAGE>
entitle the Borrower to any other or further notice or demand in the same,
similar or other circumstances.
8.10 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto; provided however, that the Borrower shall not assign this Agreement, or
any rights or duties arising hereunder, without the express prior written
consent of the Lender, which consent shall not be unreasonably withheld.
8.11 Severability of Provisions. Any provision in this Agreement that
is held to be inoperative, unenforceable, voidable, or invalid in any
jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable, void
or invalid without affecting the remaining provisions in any other jurisdiction,
and to this end the provisions of this Agreement are declared to be severable.
8.12 Consent to Jurisdiction and Service of Process. The Borrower
hereby consents that any action or proceeding against it be commenced and
maintained in any court within the Commonwealth of Pennsylvania or in the United
States District Court for the Eastern District of Pennsylvania by service of
process on any officer of the Borrower or by mailing a copy of the summons and
complaint by certified mail, return receipt requested, to the address of the
Borrower; and the Borrower hereby agrees that the courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania shall have jurisdiction with respect to the subject matter hereof
and the person of the Borrower. Notwithstanding the foregoing, the Lender, in
its absolute discretion may also initiate proceedings in the courts of any other
jurisdiction in which the Borrower may be found or in which any of its
properties may be located.
8.13 Indemnification.
(a) If, after receipt of any payment of all or any part of the
Obligations, the Lender is compelled to surrender such payment to any person or
entity for any reason (including, without limitation, a determination that such
payment is void or voidable as a preference or fraudulent conveyance, an
impermissible setoff, or a diversion of trust funds), then this Agreement and
the other Loan Documents shall continue in full force and effect, and the
Borrower shall be liable for, and shall indemnify, defend and hold harmless the
Lender with respect to the full amount so surrendered.
(b) The provisions of this Section shall survive the
termination of this Agreement and the other Loan Documents and shall be and
remain effective notwithstanding the payment of the Obligations, the
cancellation of the Note, or any other action which the Lender may have taken in
reliance upon its receipt of such payment. Any cancellation of the Note, or
other such action shall be deemed to have been conditioned upon any payment of
the Obligations having become final and irrevocable.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed on the date first above written.
ATTEST: NA ACQUISITION CORP.
By: __________________________ By: ____________________
Title: Title:
ARTRA GROUP INCORPORATED
By: ____________________
Title:
13
EXHIBIT 10.6
PROMISSORY NOTE
$1,400,000 Philadelphia, Pennsylvania
February 23, 1999
FOR VALUE RECEIVED, NA ACQUISITION CORP., a Pennsylvania
corporation ("Borrower"), hereby promises to pay to the order of ARTRA GROUP
INCORPORATED (the "Lender"), the principal amount of ONE MILLION FOUR HUNDRED
THOUSAND DOLLARS ($1,400,000.00) (the "Loan"), in accordance with the payment
terms and other provisions of that certain Loan and Security Agreement dated the
date hereof by and between the Borrower and the Lender (the "Loan Agreement").
Terms capitalized but not defined herein shall have the meanings given to them
respectively in the Loan Agreement.
This Note is the promissory note referred to in, evidences
indebtedness incurred under, and is entitled to the benefits of the Loan
Agreement. The Loan Agreement, among other things, contains provisions for the
payment of default interest hereunder and for certain security interests granted
by the Borrower. Reference is made to the Loan Agreement and the other Loan
Documents for a statement of terms and conditions under which the Loan evidenced
hereby has been secured.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable, all as
provided therein.
Borrower hereby waives the requirements of demand, presentment,
protest, notice of protest and dishonor and all other demands or notices of any
kind in connection with the delivery, acceptance, performance, default, dishonor
or enforcement of this Note.
The construction, interpretation and enforcement of this Note shall
be governed by the internal laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Borrower has caused this Note to be executed by its duly authorized officer as
of the day and year first above written.
Witness/Attest: NA ACQUISITION CORP.
By: By:/s/ Robert D. Kohn
- ------------------------------ ---------------------
Title: Title: President
EXHIBIT 10.7
GUARANTY
GUARANTY dated February 23, 1999, made by WORLDWIDE WEB
NETWORX CORPORATION, a Delaware corporation (the "Guarantor"), in favor of ARTRA
GROUP INCORPORATED ("Lender") to secure the obligations of NA ACQUISITION CORP.,
a Pennsylvania corporation (the "Borrower").
BACKGROUND
A. The Borrower and the Lender are parties to a Loan Agreement dated of
even date herewith (such agreement, as amended or otherwise modified from time
to time, being hereinafter referred to as the "Loan Agreement") pursuant to
which the Lender has agreed to make a certain loan (the "Loan") to the Borrower.
B. As a condition to entering into the Loan Agreement and making the
Loan, the Lender has required that the Guarantor shall have executed and
delivered to the Lender an instrument guaranteeing the Obligations of the
Borrower under the Loan Agreement, the Note, and the other loan documents
referred to in the Loan Agreement (collectively the "Loan Documents").
C. The Guarantor has determined that the extension of credit to the
Borrower under the Loan Agreement directly benefits, and that its execution,
delivery and performance of this Guaranty is within the corporate purposes and
in the best interests of, the Guarantor.
D. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Loan Agreement.
COVENANTS
NOW, THEREFORE, in consideration of the undertakings of the Lender
pursuant to the Loan Agreement and intending to be legally bound, the Guarantor
hereby agrees as follows:
1. Guaranty. The Guarantor hereby irrevocably, absolutely and
unconditionally guarantees and becomes surety for the Obligations (as that term
is defined in the Loan Agreement).
2. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the
Obligations will be paid strictly in accordance with the terms of the Loan
Documents. The liability of the Guarantor hereunder shall be absolute and
unconditional, irrespective of: (i) any lack of validity or enforceability of
any such Loan Document or any agreement or instrument relating thereto,
including, without limitation, the lack of validity or enforceability of all or
any portion of the liens or security interests granted thereby; (ii) any change
in the time, manner or place of payment of, or in any other term in respect of,
all or any of the Obligations, or any other amendment or waiver of or consent to
any departure from the terms of any such Loan Document;
<PAGE>
(iii) any exchange or release of, or non-perfection of any lien on or security
interest in, any collateral, or any release or amendment or waiver of or consent
to any departure from the terms of any other guaranty for all or any of the
Obligations; (iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower or any other guarantor or
obligor in respect of the Obligations or the Guarantor in respect hereof; or (v)
the absence of any action on the part of the Lender to obtain payment of the
Obligations from the Borrower or from the Guarantor or from any other guarantor
or obligor. Notwithstanding anything contained herein to the contrary, if and
when the Merger (as defined in the Loan Agreement) is consummated, this Guaranty
shall terminate and be of no further force or effect, regardless of whether the
Obligations continue in effect thereafter.
(b) This Guaranty (i) is a continuing guarantee and
shall remain in full force and effect until all of the Obligations have been
paid in full; and (ii) shall continue to be effective or shall be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded, avoided or rendered void as a preferential transfer, impermissible
set-off, fraudulent conveyance or must otherwise be returned or disgorged by the
Lender upon the insolvency, bankruptcy or reorganization of either the Borrower
or the Guarantor or otherwise, all as though such rescinded, avoided or voided
payment had not been made, and notwithstanding any action or failure to act on
the part of the Lender in reliance on such payment.
3. Waivers. The Guarantor hereby waives (i) promptness and diligence;
(ii) notice of the incurrence of any Obligation by the Borrower; (iii) notice of
any actions taken by the Lender or the Borrower under any Loan Document or any
other agreement or instrument relating thereto; (iv) acceptance of this Guaranty
and reliance thereon by the Lender; (v) presentment, demand of payment, notice
of dishonor or nonpayment, protest and notice of protest with respect to the
Obligations, and all other formalities of every kind in connection with the
enforcement of the Obligations or of the obligations of the Guarantor hereunder
or of any other guarantor, the omission of or delay in which, but for the
provisions of this Section 3, might constitute grounds for relieving the
Guarantor of its obligations hereunder; (vi) any requirement that the Lender
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against the Borrower,
the Guarantor, any other person or any collateral; and (vii) notice of any
election by the Lender to sell any of the property mortgaged, assigned or
pledged as security for any of the Obligations at a public or private sale.
4. Subrogation and Similar Rights. The Guarantor waives any right of
subrogation to the claims of the Lender against the Borrower, and any right of
indemnification by or contribution from the Borrower, arising by reason of any
payment made by the Guarantor hereunder or otherwise. If notwithstanding such
waiver, any amount shall be paid to the Guarantor on account of such
subrogation, indemnification or contribution at any time when all of the
Obligations shall not have been paid in full, such amount shall be held in trust
for the benefit of the Lender, shall be segregated from the other funds of the
Guarantor and shall forthwith be paid over to the Lender, to be applied in whole
or in part by the Lender against the
-2-
<PAGE>
Obligations, whether matured or unmatured, in accordance with the terms of the
Loan Agreement.
5. Representations and Warranties. The Guarantor hereby represents and
warrants as follows:
(a) The Guarantor (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation as set forth on the first page hereof; and (ii) has all
requisite corporate power and authority to execute, deliver and perform this
Guaranty.
(b) The execution, delivery and performance by the
Guarantor of this Guaranty are within its corporate power, have been duly
authorized by all necessary corporate action, do not and, to the Guarantor's
knowledge, will not contravene any law or governmental regulation or any
contractual restriction binding on or affecting the Guarantor or any of its
property, and do not and will not result in or require the creation of any lien,
security interest or other charge or encumbrance upon or with respect to any of
its property.
(c) No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or other regulatory
body is required for the due execution, delivery and performance by the
Guarantor of this Guaranty.
(d) This Guaranty is a valid and binding obligation
of the Guarantor, enforceable against the Guarantor in accordance with its
terms.
(e) There is no action, suit or proceeding pending
or, to the Guarantor's knowledge, threatened against or otherwise affecting the
Guarantor before any court, arbitrator or governmental department, commission,
board, bureau, agency or instrumentality which may materially and adversely
affect the Guarantor's ability to perform its obligations hereunder.
6. Miscellaneous.
(a) The Guarantor will make each payment hereunder in
lawful money of the United States of America and in same day funds to the Lender
at its address as set forth in the Loan Agreement.
(b) This Guaranty contains the entire agreement of
the parties hereto with respect to the subject matter hereof. No amendment of
any provision of this Guaranty shall be effective unless it is in writing and
signed by the Guarantor and the Lender, and no waiver of any provision of this
Guaranty, and no waiver or consent to any departure by the Guarantor therefrom,
shall be effective unless it is in writing and signed by the Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
-3-
<PAGE>
(c) No failure on the part of the Lender to exercise,
and no delay in exercising, any right hereunder or under any other Loan Document
shall operate as a waiver hereof or thereof; nor shall any single or partial
exercise of any right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Lender provided
herein and in the other Loan Documents are cumulative and are in addition to,
and not exclusive of, any rights or remedies provided by law. The rights of the
Lender under any of the Loan Documents and under this Guaranty against any party
thereto are not conditional or contingent upon any attempt by the Lender to
exercise any of its rights under any other Loan Document or under this Guaranty
against any such party or against any other person.
(d) Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate such provision to the
extent it is not prohibited or unenforceable in any other jurisdiction, nor
invalidate the remaining provisions hereof or thereof, all of which shall be
liberally construed in favor of the Lender in order to effect the provisions
hereof.
(e) This Guaranty shall (i) be binding on the
Guarantor and its successors and assigns, and (ii) inure, together with all
rights and remedies of the Lender hereunder, to the benefit of the Lender and
its successors, transferees and assigns. Notwithstanding the foregoing clause
(e)(i), none of the rights or obligations of the Guarantor hereunder may be
assigned or otherwise transferred without the prior written consent of the
Lender.
(f) This Guaranty shall be governed by and construed
in accordance with the internal laws, and not the law of conflicts, of the
Commonwealth of Pennsylvania.
(g) The Guarantor agrees that any action or
proceeding against the Guarantor to enforce, or arising out of, this Guaranty
may be commenced in state or federal court in any county in the Commonwealth of
Pennsylvania in which the Lender has an office, or in any other location where
the Guarantor or any of its property is located, and the Guarantor waives
personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and shall
confer personal jurisdiction if served by registered or certified mail.
(h) The paragraph headings used herein are for
convenience only and do not affect or modify the terms and conditions hereof.
7. Judicial Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Guarantor or the Lender, or any of
their successors or assigns, on or with respect to this Agreement or the
dealings of the Guarantor or the Lender with respect hereto, shall be tried only
by a court and not by a jury. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. Further, the Guarantor waives any right it may have to claim or
recover, in any such suit, action or
-4-
<PAGE>
proceeding, any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. THE GUARANTOR
ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF
THIS AGREEMENT AND THAT THE LENDER WOULD NOT EXTEND CREDIT TO THE BORROWER IF
THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by an officer thereunto duly authorized, as of the date first above
written.
Attest: WORLDWIDE WEB NETWORX
CORPORATION
By: ___________________________ By: ___________________________
Title: Title:
-5-
EXHIBIT 10.8
PLEDGE AGREEMENT
NA ACQUISITION CORP., a Pennsylvania corporation (the "Pledgor") and
ARTRA GROUP INCORPORATED, a Pennsylvania corporation (the "Lender"), agree as
follows:
1. Definitions. The following additional definitions apply:
Loan Agreement: That certain Loan Agreement by and between the Pledgor
and the Lender of even date herewith.
Obligations: The term "Obligations" shall have the meaning given that
term in the Loan Agreement.
Pledged Collateral:
(a) All of the Pledgor's rights, title and interest in and to
(but none of the obligations with respect thereto) those shares of capital stock
and limited liability company membership interests described on Schedule A
hereto;
(b) all of the Pledgor's right, title and interest in and to
any certificate, instrument or other evidence of any of the foregoing; and
(c) all proceeds and products of the foregoing, cash and
non-cash.
2. Security Interest. The Pledgor hereby pledges, hypothecates, and
impresses the Pledged Collateral with a lien in favor of the Lender and grants
to the Lender a security interest in the Pledged Collateral, to secure the
punctual payment and performance of all the Obligations.
3. Pledgor's Representations and Warranties. The Pledgor hereby
represents and warrants to the Lender as follows:
(a) The Pledgor is the legal, record and beneficial owner of,
and has good and marketable title to, all of the Pledged Collateral which is
subject to no liens except in favor of the Lender and, except for documents and
instruments evidencing the Lender's security interest in the Pledged Collateral,
no financing statement, security agreement or other lien instrument covering all
or any part of the Pledged Collateral is on file in any public office; and this
Pledge Agreement creates a valid, enforceable first lien on the Pledged
Collateral.
(b) The Pledgor has delivered to the Lender any and all
Pledged Collateral consisting of instruments under Article 9 of the Uniform
Commercial Code (the "Instruments"), perfection of which requires possession by
the Lender. Upon the giving of value by the Lender, the filing of financing
statements on form UCC-1 in the appropriate filing offices, and by virtue of the
Lender's possession of the Instruments, if any, the Lender will obtain a first
priority perfected security interest in the Pledged Collateral.
<PAGE>
(c) The Pledgor has delivered to the Lender any and all
transfer powers and assignments with respect to the Instruments, endorsed in
blank, and taken all such other action as may be required to permit the Lender
to effect a transfer of registration of the Instruments to the Lender or its
nominees as permitted hereunder without further action by the Pledgor.
4. Pledgor's Additional Obligations. The Pledgor covenants and agrees
that:
(a) The Pledgor shall not, directly or indirectly, permit or
suffer to be created or to remain, and shall discharge, or promptly cause to be
discharged, any lien on the Pledged Collateral or any part thereof or interest
therein, other than liens in favor of the Lender. The Pledgor shall, unless the
Lender requests otherwise, appear in and diligently contest at the Pledgor's
sole cost and expense, any action or proceeding which purports to affect the
Lender's right, title and security interest in and to the Pledged Collateral or
the priority or validity of this Agreement.
(b) The Pledgor shall not, directly or indirectly, without the
prior written consent of the Lender in each instance obtained, convey, sell,
assign, transfer, hypothecate, dispose of or grant any option with respect to,
or permit any conveyance, sale, assignment, transfer or disposition, or any
grant of any such option, whether voluntary or involuntary, of ownership or
control of all or any part of any legal or beneficial interest in the Pledged
Collateral or any part thereof.
(c) If, with or without the Lender's consent. any of the
Pledged Collateral hereunder shall at any time and from time to time be
converted into or be evidenced by an Instrument perfection of which requires
possession by the Lender, then the Pledgor shall promptly deliver same to the
Lender, accompanied by transfer powers and assignments with respect thereto,
endorsed in blank, in order to permit the Lender to effect transfer of
registration of the Instruments to the Lender or its nominees as permitted
hereunder without further action by the Pledgor.
5. Certain Rights and Duties of Lender. The Pledgor acknowledges that:
the Lender has no duty of any type with respect to the Pledged Collateral except
for the use of due care in safekeeping any of the Pledged Collateral actually in
the physical custody of the Lender; and prior to the occurrence of any event of
default described in the succeeding paragraph the Lender's rights with respect
to the Pledged Collateral shall be limited to the Lender's rights as a secured
party and Pledgee and the right to perfect its security interest, preserve,
enforce and protect the lien granted hereunder and its interest in the Pledged
Collateral.
6. Events of Default; Remedies. Upon occurrence of a default under any
instrument evidencing any of the Obligations which has not been cured in
accordance with the terms of the respective Loan Documents to which such default
relates, then the Lender, with or without notice to the Pledgor and without
demand for additional collateral, may (a) transfer the Pledged Collateral into
the name of the Lender or its nominee; (b) foreclose upon the Pledged Collateral
in the manner described below; or (c) at its discretion in its own name or in
the name
-2-
<PAGE>
of the Pledgor take any action for the collection of the Pledged Collateral,
including the filing of a proof of claim in insolvency proceedings, and may
receive the proceeds thereof and execute releases therefor. After deducting its
expenses, including reasonable attorney's fees, incurred in the sale or
collection of the Pledged Collateral, the Lender shall apply the proceeds to the
Obligations and shall account to the Pledgor for any surplus. The Pledgor agrees
that the Lender has no obligation to liquidate the Pledged Collateral in any
particular order or to apply the proceeds thereof to any particular portion of
the Obligations.
7. Power of Attorney, Etc. The Pledgor hereby irrevocably constitutes
and appoints the Lender the true and lawful attorney-in-fact for and on behalf
of the Pledgor with full power of substitution and revocation in its own name or
in the name of the Pledgor to make, execute, deliver and record any and all
financing statements, continuation statements. assignments, proofs of claim,
powers of attorney, leases, discharges or other instruments or agreements which
the Lender in its sole discretion may deem necessary or advisable to perfect,
preserve, enforce or protect the lien granted hereunder and its interest in the
Pledged Collateral and to carry out the purposes of this Pledge Agreement,
including but without limiting the generality of the foregoing, any and all
proofs of claim in bankruptcy or other insolvency proceedings of the Pledgor,
with the right to collect and apply to the Obligations all distributions and
dividends made on account of the Pledged Collateral. The rights and powers
conferred on the Lender by the Pledgor are expressly declared to be coupled with
an interest and shall be irrevocable until all the Obligations are paid and
performed in full.
8. Miscellaneous. This Pledge Agreement and the Pledged Collateral
shall not be in any way affected by the extension of time or renewal of any of
the Obligations, the modification in any manner or the taking or release in
whole or in part of any security therefor or the obligations of any endorsers,
sureties, Guarantors or other parties or the granting of any other indulgences
to the Pledgor. No termination of this Pledge Agreement shall be effective in
any event until the Lender in its reasonable discretion determines that the
Obligations of the Pledgor covered by this Pledge Agreement have been satisfied
in full.
9. Notices. Except as otherwise specifically provided for herein, any
notice, demand or communication hereunder shall be given in writing (including
facsimile transmission or telex) and mailed or delivered to each party at its
address set forth in the Loan Agreement in accordance with the terms thereof.
10. Choice of Law. This Pledge Agreement is executed under and shall be
construed in accordance with the local laws (excluding the conflict of laws
rules, so-called) of the Commonwealth of Pennsylvania.
11. Successors and Assigns. This Pledge Agreement shall inure to the
benefit of the Lender and its successors and assigns and shall bind the Pledgor
and the successors, representatives and heirs of the Pledgor.
-3-
<PAGE>
This Pledge Agreement has been executed by the Pledgor and the Lender
as of the18th day of February, 1999.
ATTEST: NA ACQUISITION CORP.
By: ______________________ By: ______________________
Title: Title:
ARTRA GROUP INCORPORATED
By: ______________________
Title:
-4-
<PAGE>
SCHEDULE A
Certificate Number Shares
- ------------------ ------
7,350 shares of Class A
Common Stock of
AsseTrade.com, Inc.
-5-
EXHIBIT 10.9
SECURITY AGREEMENT
This SECURITY AGREEMENT is made and entered into as of this 23rd
day of February 1999, by and among NA ACQUISITION CORP., a Pennsylvania
corporation (the "Borrower"), and ARTRA GROUP INCORPORATED, a Pennsylvania
corporation (the "Secured Party").
BACKGROUND
A. The Borrower and the Secured Party have executed a Loan
Agreement of even date herewith (the "Loan Agreement").
B. The Secured Party is willing to grant the extensions of credit
contemplated by the Loan Agreement only on the condition that the Borrower
executes and delivers this Security Agreement to the Secured Party.
C. Capitalized terms which are used herein without definition shall
have the meanings ascribed to them in the Loan Agreement. Other terms used
herein without definition that are defined in the Uniform Commercial Code, as
enacted in the state in which the collateral is located and in effect on the
date hereof (the "Uniform Commercial Code") shall have the meanings ascribed to
them therein, unless the context requires otherwise.
NOW, THEREFORE, intending to be legally bound, the Borrower and the
Secured Party hereby agree as follows:
Section 1. Creation of Security Interest. The Borrower hereby
grants to the Secured Party a lien and security interest in and to the Assets
(as defined in the Loan Agreement) and the property hereinafter described,
whether now owned or hereafter acquired or arising and wherever located
("Collateral"):
All tangible and intangible personal property of the
Borrower, including but not limited to:
(a) all accounts, accounts receivable, rights under
contracts, chattel paper, instruments, and all obligations due the Borrower for
goods sold or to be sold, consigned or leased or to be leased, or services
rendered or to be rendered ("Accounts");
(b) all inventory, whether raw materials, work-in-process,
finished goods, parts or supplies or otherwise; all goods, merchandise and other
property held for sale or lease or to be furnished under any contract of
service; all documents of title covering any goods which are or are to become
inventory and any such goods which are leased or consigned to others and all
returned, reclaimed or repossessed goods sold, consigned, leased or otherwise
furnished by the Borrower to others ("Inventory");
<PAGE>
(c) all leases and rental agreements for personal property
between the Borrower as lessor (whether by origination or derivation) and any
and all persons or parties as lessee(s), and all rentals, purchase option
amounts, and other sums due thereunder; and all inventory, equipment, goods and
property subject to such leases and rental agreements and all accessions, parts
and tools attached thereto or used therewith and all of the Borrower's residual
or reversionary rights therein;
(d) all machinery, equipment, furniture, fixtures, tools,
motor vehicles, and all accessories, parts and equipment now or hereafter
attached thereto or used in connection therewith, whether or not the same shall
be deemed affixed to real property, and all other tangible personal property
("Equipment");
(e) all general intangibles, which term shall have the
meaning given to it in the Uniform Commercial Code and shall additionally
include but not be limited to all tax refunds, patents, trademarks, rights under
license agreements, service marks, tradenames, copyrights and other intellectual
property and proprietary rights of any kind;
(f) all additions, replacements, attachments, accretions,
accessions, components and substitutions to or for any Inventory or Equipment;
(g) all books and records evidencing or relating to the
foregoing, including, without limitation, billing records of every kind and
description, customer lists, data storage and processing media, software and
related material, including computer programs, computer tapes, cards, disks and
printouts, and including any of the foregoing which are in the possession of any
affiliate or any computer service bureau;
(h) all proceeds, which term shall have the meaning given
to it in the Uniform Commercial Code and shall additionally include but not be
limited to, whatever is received upon the use, lease, sale, exchange, collection
or other utilization or any disposition of the Assets or any of the collateral
described in subparagraphs (a) through (g) above, whether cash or noncash, and
including without limitation, rental or lease payments, accounts, chattel paper,
instruments, documents, contract rights, general intangibles, equipment,
inventory and insurance proceeds; and all such proceeds of the foregoing
("Proceeds").
Section 2. Secured Obligations. The security interest created
herein is given as security for the prompt payment, performance, satisfaction
and discharge of the Obligations (as defined in the Loan Agreement).
Section 3. Representations and Warranties. The Borrower, as of the
date hereof and at the time of each advance or extension of credit under the
Loan Agreement, represents and warrants as follows:
3.01 Good Title to Collateral. The Borrower has good and marketable
title to the Collateral free and clear of all liens and encumbrances other than
the security interests
- 2 -
<PAGE>
granted to the Secured Party hereunder and those encumbrances (if any) set forth
in the Loan Agreement.
3.02 Location of Books and Records. The locations of the
offices where the Borrower maintains its books and records concerning the
Collateral are as set forth in Exhibit A.
3.03 Chief Executive Office. The chief executive offices
of the Borrower are at the address set forth in Exhibit A.
3.04 Location of Inventory and Equipment. All Inventory
and Equipment of the Borrower is located at one or more of the addresses set
forth in Exhibit A.
3.05 Other Representations. As of the date of this
Security Agreement, each representation, warranty or other statement by the
Borrower in, or in connection with, any of the Loan Documents is true and
correct and states all material facts necessary to make it not misleading.
Section 4. Collection, Disposition and Use of Collateral.
4.01 Accounts. The Secured Party hereby authorizes the
Borrower to collect all Accounts from the account debtors. Upon the occurrence
of a default ("Default") as set forth in Section 6 hereof, the authority hereby
given to the Borrower to collect the Proceeds of Accounts in trust for the
Secured Party may be terminated by the Secured Party at any time and Secured
Party shall have the right at any time thereafter, acting if it so chooses in
the Borrower's name, to collect Accounts itself, to sell, assign, compromise,
discharge or extend the time for payment of any Account, and to do all acts and
things necessary or incidental thereto and the Borrower hereby ratifies all such
acts. Upon the occurrence of a Default, at the Secured Party's request, the
Borrower will notify account debtors and any guarantor thereof that the Accounts
payable by such account debtors have been assigned to the Secured Party and
shall indicate on all billings to account debtors that payments thereon are to
be made to the Secured Party.
4.02 Inventory. So long as there has been no Default
hereunder, the Borrower shall be permitted to process and sell its Inventory,
but only to the extent that such processing and sale are conducted in the
ordinary course of the Borrower's business.
4.03 Equipment. So long as there has been no Default
hereunder, the Borrower shall be permitted to use its Equipment in the ordinary
course of its business. No sale, lease or other disposition of any item of
equipment shall be permitted, except in accordance with such terms and
conditions as the Secured Party shall have expressly approved in writing and
except for the sale or other disposition of obsolete Equipment which is no
longer used or useful in the Borrower's business.
Section 5. Power of Attorney. The Borrower hereby appoints the
Secured Party as its lawful attorney-in-fact to do, at the Secured Party's
option, all acts and things which the Secured
- 3 -
<PAGE>
Party may deem reasonably necessary or desirable to effectuate its rights under
this Security Agreement, including without limitation, (a) file financing
statements and otherwise perfect any security interest granted hereby, (b) upon
the occurrence of a Default hereunder, communicate with account debtors and
other third parties for the purpose of protecting or preserving the Collateral,
and (c) upon the occurrence of a Default hereunder which has not been cured in
accordance with the terms of the Loan Agreement, in the Borrower's or the
Secured Party's name, to demand, collect, receive, and receipt for, compound,
compromise, settle and give acquittance for, and prosecute and discontinue or
dismiss, with or without prejudice, any suit or proceeding respecting any of the
Collateral.
Section 6. Default. The occurrence of any one or more of the
following shall be a default ("Default") hereunder:
6.01 Default Under Loan Agreement. The occurrence of an
Event of Default under the Loan Agreement or any of the Loan Documents.
6.02 Failure to Observe Covenants. The failure of the
Borrower to keep, observe or perform any provisions of this Security Agreement,
which failure is not cured and remedied within thirty (30) days after written
notice thereof is given to the Borrower.
6.03 Representations, Warranties. If any representation,
warranty or certificate furnished by the Borrower under or in connection with
this Security Agreement shall, at any time, be materially false or incorrect.
Section 7. Secured Party's Rights Upon Default. Upon the occurrence
of a default hereunder which has not been cured in accordance with the terms of
the Loan Agreement, or at any time thereafter, the Secured Party may immediately
and without notice do any or all of the following, which rights and remedies are
cumulative, may be exercised from time to time, and are in addition to any
rights and remedies available to the Secured Party under the Loan Agreement or
any other Loan Document:
7.01 Uniform Commercial Code Rights. Exercise any and all
of the rights and remedies of a secured party under the Uniform Commercial Code,
including the right to require the Borrower to assemble the Collateral and make
it available to the Secured Party at a place reasonably convenient to the
parties.
7.02 Operation of Collateral. Operate, utilize,
recondition and/or refurbish (at the Secured Party's sole option and discretion
and in any manner) any of the Collateral which is Equipment, for the purpose of
enhancing or preserving the value thereof or the value of any other Collateral.
7.03 Notification of Account Debtors. Notify the account
debtors for any of the Accounts that such Accounts have been assigned to the
Secured Party and that payments are to be made directly to the Secured Party, or
to such post office box as the Secured Party may
- 4 -
<PAGE>
direct. The Borrower shall not compromise, discharge, extend the time for
payment or otherwise grant any indulgence or allowance with respect to any
Account without the prior written consent of the Secured Party.
7.04 Sale of Collateral. Upon five (5) business days'
prior written notice to the Borrower, which the Borrower hereby acknowledges to
be sufficient, commercially reasonable and proper, sell, lease or otherwise
dispose of any or all of the Collateral at any time and from time to time at
public or private sale, with or without advertisement thereof and apply the
proceeds of any such sale first to the Secured Party's expenses in preparing the
Collateral for sale (including reasonable attorneys' fees) and second to the
complete satisfaction of the Obligations. The Borrower waives the benefit of any
marshalling doctrine with respect to the Secured Party's exercise of its rights
hereunder. The Borrower grants a royalty-free license to the Secured Party for
all patents, service marks, trademarks, tradenames, copyrights, computer
programs and other intellectual property and proprietary rights sufficient to
permit Secured Party to exercise all rights granted to Secured Party under this
Section.
Section 8. Notices. Any written notices required or permitted by
this Security Agreement shall be effective if delivered in accordance with of
the Loan Agreement.
Section 9. Miscellaneous.
9.01 No Waiver. No delay or omission by the Secured Party
in exercising any right or remedy hereunder shall operate as a waiver thereof or
of any other right or remedy, and no single or partial exercise thereof shall
preclude any further exercise thereof or the exercise of any other right or
remedy.
9.02 Preservation of Rights. The Secured Party shall have
no obligation or responsibility to take any steps to enforce or preserve rights
against any parties to any Account and such obligation and responsibility shall
be those of the Borrower exclusively.
9.03 Successors. The provisions of this Security Agreement
shall inure to the benefit of and be binding upon the Secured Party and the
Borrower and their respective successors and assigns, provided that the
Borrower's obligations hereunder may not be assigned without the written consent
of the Secured Party.
- 5 -
<PAGE>
9.04 Amendments. No modification, rescission, waiver,
release or amendment of any provisions of this Security Agreement shall be
effective unless set forth in a written agreement signed by the Borrower and an
authorized officer of the Secured Party.
9.05 Governing Law. This Security Agreement shall be
construed under the internal laws of the Commonwealth of Pennsylvania without
reference to conflict of laws principles.
9.06 Severability. If any provision of this Security
Agreement shall be held invalid or unenforceable under applicable law in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of such provision in any other jurisdiction or the validity or
enforceability of any other provision of this Security Agreement that can be
given effect without such invalid or unenforceable provision.
9.07 Judicial Proceedings. Each party to this Agreement
agrees that any suit, action or proceeding, whether claim or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party, on or with respect to this Agreement or the dealings of the parties with
respect hereto, shall be tried only by a court and not by a jury. EACH PARTY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party waives any
right it may have to claim or recover, in any such suit, action or proceeding,
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. THE BORROWER ACKNOWLEDGES AND AGREES
THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT
THE SECURED PARTY WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET
FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed and delivered by their authorized officers the day and
year first above written.
Attest: NA ACQUISITION CORP.
__________________________ By: __________________________
Title:________________________
ARTRA GROUP INCORPORATED
By: __________________________
Title:________________________
- 6 -
<PAGE>
EXHIBIT A
Location of books and records:
300 Atrium Way
Mt. Laurel, NJ 08054
Location of chief executive office:
300 Atrium Way
Mt. Laurel, NJ 08054
Location of Inventory and Equipment:
300 Atrium Way
Mt. Laurel, NJ 08054
- 7 -
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated effective as of February 23, 1999 between
Artra Group, Incorporated, a Pennsylvania corporation (the "Company"), and
Robert D. Kohn (the "Executive"), an individual residing at 23 Rollingwood
Drive, Voorhees, New Jersey 08043.
Recital:
The parties hereto desire to enter into this Agreement to provide for
the employment of the Executive by the Company and for certain other matters in
connection with such employment, all as set forth more fully in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and intending to be legally bound hereby, the parties to this
Agreement hereby agree as follows:
1. Duties. The Company agrees that the Executive shall be employed by
the Company, and the Executive agrees to be so employed, to devote his best
efforts and substantially all of his business time to advance the interests of
the Company and to perform such executive, managerial, administrative and other
duties as are from time to time assigned to him by the President and Chief
Operating Officer of the Company and are consistent with his position as a
senior executive of the Company.
2. Term. Subject to Sections 4 and 5 hereof, the initial term of the
Executive's employment hereunder shall commence on the date of this Agreement
and shall continue for a term of three (3) years, until February 17, 2002
("Expiration Date"). If either party elects not to renew this Agreement
following the Expiration Date, or if the parties are otherwise unable to agree
to mutually acceptable terms for a renewal period within 180 days prior to the
Expiration Date, then (subject to the provisions of Section 17 hereof) this
Agreement shall terminate effective as of the Expiration Date.
3. Compensation.
(a) Salary. During the term of his employment under this
Agreement, the Executive shall be paid an annual salary at the initial rate of
not less than $165,000.00 (the "Base Salary"). The Base Salary may be increased
from time to time by the Board of Directors of the Company (the "Board") in its
sole and absolute discretion. The Board shall review the Base Salary at least
annually at the end of each fiscal year of the Company. The Base Salary shall be
paid in accordance with the Company's regular payroll practices.
(b) Bonuses. At the end of each fiscal year of the Company
that ends during the term of this Agreement, the Board shall consider the award
of a performance bonus to the Executive for such fiscal year. The award of any
bonus shall be in the sole discretion of the Board.
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to
participate in all insurance, vacation and other fringe benefit programs of the
Company to the extent and on the same terms and conditions as are accorded to
other officers and key executives of the Company from time to time. The current
benefits available to key executives of the Company are summa rized on Exhibit
"A" attached hereto.
(d) Reimbursement of Expenses. The Executive shall be
reimbursed for all normal items of travel, entertainment and miscellaneous
business expenses reasonably incurred by him on behalf of the Company, provided
that such expenses are documented and submitted in accordance with the
reimbursement policies of the Company as in effect from time to time.
(e) Stock Options. The Executive and the Company have entered
into a Stock Option Agreement on the date hereof, pursuant to which the
Executive has been granted certain options to purchase shares of the Common
Stock of the Company, on the terms and subject to the conditions set forth
therein.
(f) Entire Compensation. The compensation provided for in this
Agreement shall constitute full payment for the services to be rendered by the
Executive to the Company hereunder.
4. Death or Total Disability of the Executive.
(a) Death. In the event of the death of the Executive during
the term of this Agreement, this Agreement shall terminate effective as of the
date of the Executive's death, and the Company shall not have any further
obligation or liability under this Agreement except that the Company shall pay
to the Executive's estate: (i) any portion of the Executive's Base Salary for
the period up to the Executive's date of death that has been earned but remains
unpaid; and (ii) any benefits that have accrued to the Executive under the terms
of the executive benefit plans of the Company in which he is a participant,
which benefits shall be paid in accordance with the terms of those plans.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Executive, for (i) a period of 180
consecutive days or (ii) for any 180 days within a period of 360 consecutive
days, at any time during the term of this Agreement, the Company shall have the
right to terminate the Executive's employment hereunder by giving the Executive
30 days' written notice thereof, and, upon expiration of such 30-day period, the
Company shall not have any further obligation or liability under this Agreement
except that the Company shall pay to the Executive: (i) any portion of the
Executive's Base Salary for the period up to the date of termination that has
been earned but remains unpaid; and (ii) any benefits that have accrued to the
Executive under the terms of the executive benefit plans of the Company in which
he is a participant, which benefits shall be paid in accordance with the terms
of those plans. The term "Total Disability," when used herein, shall mean a
mental or physical condition that in the reasonable opinion of the Board renders
the Executive unable or incompetent to carry out the essential functions of the
job responsibilities he held or the tasks that he was assigned at the time the
disability was incurred, with or without reasonable accommodation.
-2-
<PAGE>
5. Termination.
(a) Termination by the Company for Cause. The Company may
discharge the Executive and thereby terminate his employment hereunder upon
written notice to the Executive for any of the following reasons: (i) material
violation of any policy regarding substance abuse as may be promulgated by the
Company from time to time; (ii) the willful failure to perform the duties or
responsibilities of his position as those may be delegated or assigned to the
Executive by the President and COO or by the Board; (iii) any material breach of
any covenant or agreement contained in Sections 6, 7 or 8 of this Agreement;
(iv) engaging in intentional conduct that causes material damage to the Company
or its business reputation; (v) conviction (by trial or guilty plea) or a plea
of non-contest, nolo contendere or similar plea to a felony (or misdemeanor
which the Company determines to have or could have a material adverse effect on
the Company or its reputation) which has become non-appealable; (vi)
adjudication as an incompetent; or (vii) misappropriation of any funds or
property of the Company, theft, embezzle ment or fraud; provided, however, that
with respect only to subsections (i) and (ii) above, the Company shall not
discharge the Employee for cause unless the Employee fails, refuses or for any
reason does not cure such violation to the reasonable satisfaction of the
Company within thirty (30) days following written notice from the Company that
there exists a reason for discharge for cause. In the event that the Company
shall discharge the Executive pursuant to this Section 5(a), the Company shall
not have any further obligation or liability under this Agreement, except that
the Company shall pay to the Executive: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; and (ii) any benefits that have accrued to the Executive under
the terms of the executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans.
(b) Termination on Change in Business Purpose. The Company and
the Executive acknowledge and agree that the Executive has been retained by the
Company to assist the Company in its acquisition and development of software and
related products and services to be marketed as tools to effect business to
business transactions via an electronic commerce system (the "Business
Purpose"), primarily through the acquisition of the ORBIT software system and
related assets under a merger agreement with NA Acquisition Corp. If for any
reason the proposed merger has not been consummated by September 30, 1999 and
the Company determines (in its sole discretion) that it has not otherwise made
substantial progress toward accomplishing the merger by that date, then the
Company may at any time after September 30, 1999 but prior to December 31, 1999
discharge the Executive and thereby terminate his employment hereunder, upon ten
business days' prior written notice. If the Company shall terminate the
employment of the Executive pursuant to this Section 5(b), the Executive shall
be entitled to be paid: (i) any portion of the Executive's Base Salary for the
period up to the date of termination that has been earned but remains unpaid;
and (ii) any benefits that have accrued to the Executive under the terms of any
Executive benefit plans of the Company in which he is a participant, which
benefits shall be paid in accordance with the terms of those plans.
(c) Other Termination by the Company. The Company may
discharge the Executive and thereby terminate his employment hereunder at any
time upon ten business days'
-3-
<PAGE>
prior written notice for any reason other than one specified in Sections 5(a) or
5(b) hereof. If the Company shall terminate the employment of the Executive for
any reason other than one specified in Sections 5(a) or 5(b) hereof, the
Executive shall be entitled to be paid: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; (ii) a severance payment equal to the lesser of: (A) an amount
equal to the Executive's Base Salary for a period of twenty-four months, or (B)
an amount equal to the Executive's Base Salary for the balance of the term of
this Agreement, if any, provided that the severance payment shall in no event be
less than an amount equal to the Executive's Base Salary for a period of six
months; and (iii) any benefits that have accrued to the Executive under the
terms of any Executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans. Any severance payment under SubSection 5(c)(ii) hereof shall be paid in
equal monthly installments for that number of months which is the lesser of (A)
24 months or (B) the number of remaining months in the term of this Agreement,
and shall be contingent on the Executive's continued compliance with the
provisions of Sections 6, 7 and 8 hereof.
6. Non-Disclosure and Non-Competition.
(a) Non-Disclosure. The Executive acknowledges that in the
course of performing services for the Company, the Executive will obtain
knowledge of the Company's business plans, products, processes, software,
know-how, trade secrets, formulas, methods, models, prototypes, discoveries,
inventions, improvements, disclosures, names and positions of executives and/or
other proprietary and/or confidential information, and further that the
Executive presently possesses knowledge of proprietary and/or confidential
information of his prior employer(s) which has been acquired by the Company
contemporaneously with the execution of this Agreement (collectively, the
"Confidential Information"). The Executive agrees to keep the Confidential
Information secret and confidential and not to publish, disclose or divulge to
any other party, and the Executive agrees not to use any of the Confidential
Information for the Executive's own benefit or to the detriment of the Company
without the prior written consent of the Company, whether or not such
Confidential Information was discovered or developed by the Executive. The
Executive also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that the Company is obligated to maintain in
confidence.
(b) Non-Competition. The Executive agrees that, during his
employment by the Company hereunder and for an additional period of one year
after the termination or expiration of the Executive's employment hereunder,
neither the Executive nor any corporation or other entity in which the Executive
may be interested as a partner, trustee, director, officer, executive, employee,
agent, shareholder, lender of money or guarantor, or for which he performs
services in any capacity (including as a consultant or independent contractor)
shall at any time during such period (i) be engaged, directly or indirectly, in
any Competitive Business (as that term is hereinaf ter defined) or (ii) solicit,
hire, contract for services or otherwise employ, directly or indirectly, any of
the executives of the Company. Nothing herein contained shall be deemed to
prevent the Executive from investing in or acquiring one per cent or less of any
class of securities of any company if such class of securities is listed on a
national securities exchange or is quoted on the Nasdaq Stock Market. For
purposes of this Section 6(b), the term "Competitive Business" shall
-4-
<PAGE>
mean any business that engages in any respect in the development, production or
marketing of software and related products and services that enable users to
effect barter transactions via an electronic commerce system, or which engages
in any other activities that are competitive with the business or proposed
business of the Company at the time of termination or expiration of this
Agreement. If the Executive violates any provision of this Section 6(b), the one
year restrictive period set forth herein shall be extended for the duration of
any such violation, so that the Company enjoys the full term of such restrictive
period. Notwithstanding the foregoing, the Company acknowledges and agrees that
the provisions of this Section 6(b) shall not apply if the Executive's
employment is terminated by the Company under the provisions of Section 5(b)
hereof.
7. Inventions and Discoveries.
(a) Disclosure. The Executive shall promptly and fully
disclose to the Company, with all necessary detail, all developments, know-how,
discoveries, inventions, improvements, concepts, ideas, formulae, processes and
methods (whether copyrightable, patent able or otherwise) made, received,
conceived, acquired or written by the Executive (whether or not at the request
or upon the suggestion of the Company, solely or jointly with others, during the
period of his employment with the Company that relate to any line of business,
activities or fields of interest or investigation engaged in by the Company)
from time to time during the course of the Executive's employment by the
Company, or that are otherwise made through the use of the Company's time,
facilities or materials (collectively, the "Inventions").
(b) Assignment and Transfer. The Executive agrees to assign
and transfer to the Company all of the Executive's right, title and interest in
and to the Inventions, and the Executive further agrees to deliver to the
Company any and all drawings, notes, specifications and data relating to the
Inventions, and to sign, acknowledge and deliver all such further papers,
including applications for and assignments of copyrights and patents, and all
renewals thereof, as may be necessary to obtain copyrights and patents for any
Inventions in any and all countries and to vest title thereto in the Company and
its successors and assigns and to otherwise protect the Company's interests
therein.
(c) Records. The Executive agrees that in connection with any
research, development or other services performed for the Company, the Executive
will maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of the Company.
8. Company Documentation. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all documentation, disks, programs,
data, records, drawings, manuals, reports, sketches, blueprints, letters, notes,
notebooks and all other writings, electronic data, graphics and tangible
information and materials of a secret, confidential or proprietary information
nature relating to the Company or the Company's business that are in the
possession or under the control of the Executive.
-5-
<PAGE>
9. Injunctive Relief. The Executive acknowledges that his compliance
with the agreements in Sections 6, 7 and 8 hereof is necessary to protect the
good will and other propri etary interests of the Company and that he is one of
the principal executives of the Company and conversant with its affairs, its
trade secrets and other proprietary information. The Executive acknowledges that
a breach of any of his agreements in Sections 6, 7 and 8 hereof will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law; and the Executive agrees that in the event of any breach
of the aforesaid agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.
10. Supersedes Other Agreements. This Agreement supersedes and is in
lieu of any and all other employment arrangements between the Executive and the
Company, but shall not supersede any existing confidentiality or nondisclosure
agreements between the Executive and the Company.
11. Amendments. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.
12. Enforceability. If any provision of this Agreement shall be invalid
or unenforce able, in whole or in part, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted or as if such provision had not
been originally incorporated herein, as the case may be.
13. Construction. This Agreement shall be construed and interpreted in
accordance with the internal laws of the Commonwealth of Pennsylvania.
14. Assignment.
(a) By the Company. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company. The Company shall require each and
every successor (whether direct or indirect, by asset or stock purchase, share
exchange, merger, consolidation or otherwise) to all or substan tially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "the Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as provided above that executes and
delivers the agreement provided for in this Section 14(a) or that otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) By the Executive. This Agreement and the obligations
created hereunder may not be assigned by the Executive, but all rights of the
Executive hereunder shall inure to the
-6-
<PAGE>
benefit of and be enforceable by his heirs, devisees, legatees, executors,
administrators and personal representatives.
15. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified mail, return receipt requested, or delivered by a national overnight
delivery service addressed to the intended recipient as follows:
If to the Company: Artra Group Incorporated
500 Central Avenue
Northfield, IL 60093
Attention: John G. Hamm
If to the Executive: Robert D. Kohn
23 Rollingwood Drive
Voorhees, New Jersey 08043
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
16. Waivers. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or his or its duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.
17. Survival of Covenants. The provisions of Sections 6, 7, 8 and 9
hereof shall survive any termination or expiration of this Agreement.
Furthermore, any provision of this Agreement which provides a benefit to the
Executive and which by the express terms hereof does not terminate upon the
termination of the Executive's employment shall remain binding upon the Company
until such time as such benefits are paid in full to the Executive or his
successors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first above written.
ARTRA GROUP, INCORPORATED
By:____________________________
Title:
/s/ Rober D. Kohn
----------------------------
ROBERT D. KOHN
-8-
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated effective as of February 22, 1999 between
Artra Group, Incorporated, a Pennsylvania corporation (the "Company"), and
Benjamin R. Kafka (the "Executive"), an individual residing at 28 Summit Drive,
Hingham, MA 02043.
Recital:
The parties hereto desire to enter into this Agreement to provide for
the employment of the Executive by the Company and for certain other matters in
connection with such employment, all as set forth more fully in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and intending to be legally bound hereby, the parties to this
Agreement hereby agree as follows:
1. Duties. The Company agrees that the Executive shall be employed by
the Company, and the Executive agrees to be so employed, to devote his best
efforts and substantially all of his business time to advance the interests of
the Company and to perform such executive, managerial, administrative and other
duties as are from time to time assigned to him by the President and Chief
Operating Officer of the Company and are consistent with his position as a
senior executive of the Company.
2. Term. Subject to Sections 4 and 5 hereof, the initial term of the
Executive's employment hereunder shall commence on the date of this Agreement
and shall continue for a term of three (3) years, until February 17, 2002
("Expiration Date"). If either party elects not to renew this Agreement
following the Expiration Date, or if the parties are otherwise unable to agree
to mutually acceptable terms for a renewal period within 180 days prior to the
Expiration Date, then (subject to the provisions of Section 17 hereof) this
Agreement shall terminate effective as of the Expiration Date.
3. Compensation.
(a) Salary. During the term of his employment under this
Agreement, the Executive shall be paid an annual salary at the initial rate of
not less than $125,000.00 (the "Base Salary"). The Base Salary may be increased
from time to time by the Board of Directors of the Company (the "Board") in its
sole and absolute discretion. The Board shall review the Base Salary at least
annually at the end of each fiscal year of the Company. The Base Salary shall be
paid in accordance with the Company's regular payroll practices.
(b) Bonuses. At the end of each fiscal year of the Company
that ends during the term of this Agreement, the Board shall consider the award
of a performance bonus to the Executive for such fiscal year. The award of any
bonus shall be in the sole discretion of the Board.
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to
participate in all insurance, vacation and other fringe benefit programs of the
Company to the extent and on the same terms and conditions as are accorded to
other officers and key executives of the Company from time to time. The current
benefits available to key executives of the Company are summa rized on Exhibit
"A" attached hereto.
(d) Reimbursement of Expenses. The Executive shall be
reimbursed for all normal items of travel, entertainment and miscellaneous
business expenses reasonably incurred by him on behalf of the Company, provided
that such expenses are documented and submitted in accordance with the
reimbursement policies of the Company as in effect from time to time.
(e) Stock Options. The Executive and the Company have entered
into a Stock Option Agreement on the date hereof, pursuant to which the
Executive has been granted certain options to purchase shares of the Common
Stock of the Company, on the terms and subject to the conditions set forth
therein.
(f) Entire Compensation. The compensation provided for in this
Agreement shall constitute full payment for the services to be rendered by the
Executive to the Company hereunder.
4. Death or Total Disability of the Executive.
(a) Death. In the event of the death of the Executive during
the term of this Agreement, this Agreement shall terminate effective as of the
date of the Executive's death, and the Company shall not have any further
obligation or liability under this Agreement except that the Company shall pay
to the Executive's estate: (i) any portion of the Executive's Base Salary for
the period up to the Executive's date of death that has been earned but remains
unpaid; and (ii) any benefits that have accrued to the Executive under the terms
of the executive benefit plans of the Company in which he is a participant,
which benefits shall be paid in accordance with the terms of those plans.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Executive, for (i) a period of 180
consecutive days or (ii) for any 180 days within a period of 360 consecutive
days, at any time during the term of this Agreement, the Company shall have the
right to terminate the Executive's employment hereunder by giving the Executive
30 days' written notice thereof, and, upon expiration of such 30-day period, the
Company shall not have any further obligation or liability under this Agreement
except that the Company shall pay to the Executive: (i) any portion of the
Executive's Base Salary for the period up to the date of termination that has
been earned but remains unpaid; and (ii) any benefits that have accrued to the
Executive under the terms of the executive benefit plans of the Company in which
he is a participant, which benefits shall be paid in accordance with the terms
of those plans. The term "Total Disability," when used herein, shall mean a
mental or physical condition that in the reasonable opinion of the Board renders
the Executive unable or incompetent to carry out the essential functions of the
job responsibilities he held or the tasks that he was assigned at the time the
disability was incurred, with or without reasonable accommodation.
-2-
<PAGE>
5. Termination.
(a) Termination by the Company for Cause. The Company may
discharge the Executive and thereby terminate his employment hereunder upon
written notice to the Executive for any of the following reasons: (i) material
violation of any policy regarding substance abuse as may be promulgated by the
Company from time to time; (ii) the willful failure to perform the duties or
responsibilities of his position as those may be delegated or assigned to the
Executive by the President and COO or by the Board; (iii) any material breach of
any covenant or agreement contained in Sections 6, 7 or 8 of this Agreement;
(iv) engaging in intentional conduct that causes material damage to the Company
or its business reputation; (v) conviction (by trial or guilty plea) or a plea
of non-contest, nolo contendere or similar plea to a felony (or misdemeanor
which the Company determines to have or could have a material adverse effect on
the Company or its reputation) which has become non-appealable; (vi)
adjudication as an incompetent; or (vii) misappropriation of any funds or
property of the Company, theft, embezzle ment or fraud; provided, however, that
with respect only to subsections (i) and (ii) above, the Company shall not
discharge the Employee for cause unless the Employee fails, refuses or for any
reason does not cure such violation to the reasonable satisfaction of the
Company within thirty (30) days following written notice from the Company that
there exists a reason for discharge for cause. In the event that the Company
shall discharge the Executive pursuant to this Section 5(a), the Company shall
not have any further obligation or liability under this Agreement, except that
the Company shall pay to the Executive: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; and (ii) any benefits that have accrued to the Executive under
the terms of the executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans.
(b) Termination on Change in Business Purpose. The Company and
the Executive acknowledge and agree that the Executive has been retained by the
Company to assist the Company in its acquisition and development of software and
related products and services to be marketed as tools to effect business to
business transactions via an electronic commerce system (the "Business
Purpose"), primarily through the acquisition of the ORBIT software system and
related assets under a merger agreement with NA Acquisition Corp. If for any
reason the proposed merger has not been consummated by September 30, 1999 and
the Company determines (in its sole discretion) that it has not otherwise made
substantial progress toward accomplishing the merger by that date, then the
Company may at any time after September 30, 1999 but prior to December 31, 1999
discharge the Executive and thereby terminate his employment hereunder, upon ten
business days' prior written notice. If the Company shall terminate the
employment of the Executive pursuant to this Section 5(b), the Executive shall
be entitled to be paid: (i) any portion of the Executive's Base Salary for the
period up to the date of termination that has been earned but remains unpaid;
and (ii) any benefits that have accrued to the Executive under the terms of any
Executive benefit plans of the Company in which he is a participant, which
benefits shall be paid in accordance with the terms of those plans.
(c) Other Termination by the Company. The Company may
discharge the Executive and thereby terminate his employment hereunder at any
time upon ten business days'
-3-
<PAGE>
prior written notice for any reason other than one specified in Sections 5(a) or
5(b) hereof. If the Company shall terminate the employment of the Executive for
any reason other than one specified in Sections 5(a) or 5(b) hereof, the
Executive shall be entitled to be paid: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; (ii) a severance payment equal to the lesser of: (A) an amount
equal to the Executive's Base Salary for a period of twenty-four months, or (B)
an amount equal to the Executive's Base Salary for the balance of the term of
this Agreement, if any, provided that the severance payment shall in no event be
less than an amount equal to the Executive's Base Salary for a period of six
months; and (iii) any benefits that have accrued to the Executive under the
terms of any Executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans. Any severance payment under SubSection 5(c)(ii) hereof shall be paid in
equal monthly installments for that number of months which is the lesser of (A)
24 months or (B) the number of remaining months in the term of this Agreement,
and shall be contingent on the Executive's continued compliance with the
provisions of Sections 6, 7 and 8 hereof.
6. Non-Disclosure and Non-Competition.
(a) Non-Disclosure. The Executive acknowledges that in the
course of performing services for the Company, the Executive will obtain
knowledge of the Company's business plans, products, processes, software,
know-how, trade secrets, formulas, methods, models, prototypes, discoveries,
inventions, improvements, disclosures, names and positions of executives and/or
other proprietary and/or confidential information, and further that the
Executive presently possesses knowledge of proprietary and/or confidential
information of his prior employer(s) which has been acquired by the Company
contemporaneously with the execution of this Agreement (collectively, the
"Confidential Information"). The Executive agrees to keep the Confidential
Information secret and confidential and not to publish, disclose or divulge to
any other party, and the Executive agrees not to use any of the Confidential
Information for the Executive's own benefit or to the detriment of the Company
without the prior written consent of the Company, whether or not such
Confidential Information was discovered or developed by the Executive. The
Executive also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that the Company is obligated to maintain in
confidence.
(b) Non-Competition. The Executive agrees that, during his
employment by the Company hereunder and for an additional period of one year
after the termination or expiration of the Executive's employment hereunder,
neither the Executive nor any corporation or other entity in which the Executive
may be interested as a partner, trustee, director, officer, executive, employee,
agent, shareholder, lender of money or guarantor, or for which he performs
services in any capacity (including as a consultant or independent contractor)
shall at any time during such period (i) be engaged, directly or indirectly, in
any Competitive Business (as that term is hereinaf ter defined) or (ii) solicit,
hire, contract for services or otherwise employ, directly or indirectly, any of
the executives of the Company. Nothing herein contained shall be deemed to
prevent the Executive from investing in or acquiring one per cent or less of any
class of securities of any company if such class of securities is listed on a
national securities exchange or is quoted on the Nasdaq Stock Market. For
purposes of this Section 6(b), the term "Competitive Business" shall
-4-
<PAGE>
mean any business that engages in any respect in the development, production or
marketing of software and related products and services that enable users to
effect barter transactions via an electronic commerce system, or which engages
in any other activities that are competitive with the business or proposed
business of the Company at the time of termination or expiration of this
Agreement. If the Executive violates any provision of this Section 6(b), the one
year restrictive period set forth herein shall be extended for the duration of
any such violation, so that the Company enjoys the full term of such restrictive
period. Notwithstanding the foregoing, the Company acknowledges and agrees that
the provisions of this Section 6(b) shall not apply if the Executive's
employment is terminated by the Company under the provisions of Section 5(b)
hereof.
7. Inventions and Discoveries.
(a) Disclosure. The Executive shall promptly and fully
disclose to the Company, with all necessary detail, all developments, know-how,
discoveries, inventions, improvements, concepts, ideas, formulae, processes and
methods (whether copyrightable, patent able or otherwise) made, received,
conceived, acquired or written by the Executive (whether or not at the request
or upon the suggestion of the Company, solely or jointly with others, during the
period of his employment with the Company that relate to any line of business,
activities or fields of interest or investigation engaged in by the Company)
from time to time during the course of the Executive's employment by the
Company, or that are otherwise made through the use of the Company's time,
facilities or materials (collectively, the "Inventions").
(b) Assignment and Transfer. The Executive agrees to assign
and transfer to the Company all of the Executive's right, title and interest in
and to the Inventions, and the Executive further agrees to deliver to the
Company any and all drawings, notes, specifications and data relating to the
Inventions, and to sign, acknowledge and deliver all such further papers,
including applications for and assignments of copyrights and patents, and all
renewals thereof, as may be necessary to obtain copyrights and patents for any
Inventions in any and all countries and to vest title thereto in the Company and
its successors and assigns and to otherwise protect the Company's interests
therein.
(c) Records. The Executive agrees that in connection with any
research, development or other services performed for the Company, the Executive
will maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of the Company.
8. Company Documentation. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all documentation, disks, programs,
data, records, drawings, manuals, reports, sketches, blueprints, letters, notes,
notebooks and all other writings, electronic data, graphics and tangible
information and materials of a secret, confidential or proprietary information
nature relating to the Company or the Company's business that are in the
possession or under the control of the Executive.
-5-
<PAGE>
9. Injunctive Relief. The Executive acknowledges that his compliance
with the agreements in Sections 6, 7 and 8 hereof is necessary to protect the
good will and other propri etary interests of the Company and that he is one of
the principal executives of the Company and conversant with its affairs, its
trade secrets and other proprietary information. The Executive acknowledges that
a breach of any of his agreements in Sections 6, 7 and 8 hereof will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law; and the Executive agrees that in the event of any breach
of the aforesaid agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.
10. Supersedes Other Agreements. This Agreement supersedes and is in
lieu of any and all other employment arrangements between the Executive and the
Company, but shall not supersede any existing confidentiality or nondisclosure
agreements between the Executive and the Company.
11. Amendments. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.
12. Enforceability. If any provision of this Agreement shall be invalid
or unenforce able, in whole or in part, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted or as if such provision had not
been originally incorporated herein, as the case may be.
13. Construction. This Agreement shall be construed and interpreted in
accordance with the internal laws of the Commonwealth of Pennsylvania.
14. Assignment.
(a) By the Company. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company. The Company shall require each and
every successor (whether direct or indirect, by asset or stock purchase, share
exchange, merger, consolidation or otherwise) to all or substan tially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "the Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as provided above that executes and
delivers the agreement provided for in this Section 14(a) or that otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) By the Executive. This Agreement and the obligations
created hereunder may not be assigned by the Executive, but all rights of the
Executive hereunder shall inure to the
-6-
<PAGE>
benefit of and be enforceable by his heirs, devisees, legatees, executors,
administrators and personal representatives.
15. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified mail, return receipt requested, or delivered by a national overnight
delivery service addressed to the intended recipient as follows:
If to the Company: Artra Group Incorporated
500 Central Avenue
Northfield, IL 60093
Attention: John G. Hamm
If to the Executive: Benjamin R. Kafka
28 Summit Drive
Hingham, MA 02043
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
16. Waivers. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or his or its duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.
17. Survival of Covenants. The provisions of Sections 6, 7, 8 and 9
hereof shall survive any termination or expiration of this Agreement.
Furthermore, any provision of this Agreement which provides a benefit to the
Executive and which by the express terms hereof does not terminate upon the
termination of the Executive's employment shall remain binding upon the Company
until such time as such benefits are paid in full to the Executive or his
successors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first above written.
ARTRA GROUP, INCORPORATED
By:______________________________
Title:
/s/ Benjamin R. Kafka
-------------------------------
BENJAMIN R. KAFKA
-8-
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated effective as of February 22, 1999 between
Artra Group, Incorporated, a Pennsylvania corporation (the "Company"), and Gary
Lerman (the "Executive"), an individual residing at 923 Sulgrave Lane, Bryn
Mawr, Pennsylvania 19010.
Recital:
The parties hereto desire to enter into this Agreement to provide for
the employment of the Executive by the Company and for certain other matters in
connection with such employment, all as set forth more fully in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and intending to be legally bound hereby, the parties to this
Agreement hereby agree as follows:
1. Duties. The Company agrees that the Executive shall be employed by
the Company, and the Executive agrees to be so employed, to devote his best
efforts and substantially all of his business time to advance the interests of
the Company and to perform such executive, managerial, administrative and other
duties as are from time to time assigned to him by the President and Chief
Operating Officer of the Company and are consistent with his position as a
senior executive of the Company.
2. Term. Subject to Sections 4 and 5 hereof, the initial term of the
Executive's employment hereunder shall commence on the date of this Agreement
and shall continue for a term of three (3) years, until February 17, 2002
("Expiration Date"). If either party elects not to renew this Agreement
following the Expiration Date, or if the parties are otherwise unable to agree
to mutually acceptable terms for a renewal period within 180 days prior to the
Expiration Date, then (subject to the provisions of Section 17 hereof) this
Agreement shall terminate effective as of the Expiration Date.
3. Compensation.
(a) Salary. During the term of his employment under this
Agreement, the Executive shall be paid an annual salary at the initial rate of
not less than $125,000.00 (the "Base Salary"). The Base Salary may be increased
from time to time by the Board of Directors of the Company (the "Board") in its
sole and absolute discretion. The Board shall review the Base Salary at least
annually at the end of each fiscal year of the Company. The Base Salary shall be
paid in accordance with the Company's regular payroll practices.
(b) Bonuses. At the end of each fiscal year of the Company
that ends during the term of this Agreement, the Board shall consider the award
of a performance bonus to the Executive for such fiscal year. The award of any
bonus shall be in the sole discretion of the Board.
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to
participate in all insurance, vacation and other fringe benefit programs of the
Company to the extent and on the same terms and conditions as are accorded to
other officers and key executives of the Company from time to time. The current
benefits available to key executives of the Company are summa rized on Exhibit
"A" attached hereto.
(d) Reimbursement of Expenses. The Executive shall be
reimbursed for all normal items of travel, entertainment and miscellaneous
business expenses reasonably incurred by him on behalf of the Company, provided
that such expenses are documented and submitted in accordance with the
reimbursement policies of the Company as in effect from time to time.
(e) Stock Options. The Executive and the Company have entered
into a Stock Option Agreement on the date hereof, pursuant to which the
Executive has been granted certain options to purchase shares of the Common
Stock of the Company, on the terms and subject to the conditions set forth
therein.
(f) Entire Compensation. The compensation provided for in this
Agreement shall constitute full payment for the services to be rendered by the
Executive to the Company hereunder.
4. Death or Total Disability of the Executive.
(a) Death. In the event of the death of the Executive during
the term of this Agreement, this Agreement shall terminate effective as of the
date of the Executive's death, and the Company shall not have any further
obligation or liability under this Agreement except that the Company shall pay
to the Executive's estate: (i) any portion of the Executive's Base Salary for
the period up to the Executive's date of death that has been earned but remains
unpaid; and (ii) any benefits that have accrued to the Executive under the terms
of the executive benefit plans of the Company in which he is a participant,
which benefits shall be paid in accordance with the terms of those plans.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Executive, for (i) a period of 180
consecutive days or (ii) for any 180 days within a period of 360 consecutive
days, at any time during the term of this Agreement, the Company shall have the
right to terminate the Executive's employment hereunder by giving the Executive
30 days' written notice thereof, and, upon expiration of such 30-day period, the
Company shall not have any further obligation or liability under this Agreement
except that the Company shall pay to the Executive: (i) any portion of the
Executive's Base Salary for the period up to the date of termination that has
been earned but remains unpaid; and (ii) any benefits that have accrued to the
Executive under the terms of the executive benefit plans of the Company in which
he is a participant, which benefits shall be paid in accordance with the terms
of those plans. The term "Total Disability," when used herein, shall mean a
mental or physical condition that in the reasonable opinion of the Board renders
the Executive unable or incompetent to carry out the essential functions of the
job responsibilities he held or the tasks that he was assigned at the time the
disability was incurred, with or without reasonable accommodation.
-2-
<PAGE>
5. Termination.
(a) Termination by the Company for Cause. The Company may
discharge the Executive and thereby terminate his employment hereunder upon
written notice to the Executive for any of the following reasons: (i) material
violation of any policy regarding substance abuse as may be promulgated by the
Company from time to time; (ii) the willful failure to perform the duties or
responsibilities of his position as those may be delegated or assigned to the
Executive by the President and COO or by the Board; (iii) any material breach of
any covenant or agreement contained in Sections 6, 7 or 8 of this Agreement;
(iv) engaging in intentional conduct that causes material damage to the Company
or its business reputation; (v) conviction (by trial or guilty plea) or a plea
of non-contest, nolo contendere or similar plea to a felony (or misdemeanor
which the Company determines to have or could have a material adverse effect on
the Company or its reputation) which has become non-appealable; (vi)
adjudication as an incompetent; or (vii) misappropriation of any funds or
property of the Company, theft, embezzle ment or fraud; provided, however, that
with respect only to subsections (i) and (ii) above, the Company shall not
discharge the Employee for cause unless the Employee fails, refuses or for any
reason does not cure such violation to the reasonable satisfaction of the
Company within thirty (30) days following written notice from the Company that
there exists a reason for discharge for cause. In the event that the Company
shall discharge the Executive pursuant to this Section 5(a), the Company shall
not have any further obligation or liability under this Agreement, except that
the Company shall pay to the Executive: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; and (ii) any benefits that have accrued to the Executive under
the terms of the executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans.
(b) Termination on Change in Business Purpose. The Company and
the Executive acknowledge and agree that the Executive has been retained by the
Company to assist the Company in its acquisition and development of software and
related products and services to be marketed as tools to effect business to
business transactions via an electronic commerce system (the "Business
Purpose"), primarily through the acquisition of the ORBIT software system and
related assets under a merger agreement with NA Acquisition Corp. If for any
reason the proposed merger has not been consummated by September 30, 1999 and
the Company determines (in its sole discretion) that it has not otherwise made
substantial progress toward accomplishing the merger by that date, then the
Company may at any time after September 30, 1999 but prior to December 31, 1999
discharge the Executive and thereby terminate his employment hereunder, upon ten
business days' prior written notice. If the Company shall terminate the
employment of the Executive pursuant to this Section 5(b), the Executive shall
be entitled to be paid: (i) any portion of the Executive's Base Salary for the
period up to the date of termination that has been earned but remains unpaid;
and (ii) any benefits that have accrued to the Executive under the terms of any
Executive benefit plans of the Company in which he is a participant, which
benefits shall be paid in accordance with the terms of those plans.
(c) Other Termination by the Company. The Company may
discharge the Executive and thereby terminate his employment hereunder at any
time upon ten business days'
-3-
<PAGE>
prior written notice for any reason other than one specified in Sections 5(a) or
5(b) hereof. If the Company shall terminate the employment of the Executive for
any reason other than one specified in Sections 5(a) or 5(b) hereof, the
Executive shall be entitled to be paid: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; (ii) a severance payment equal to the lesser of: (A) an amount
equal to the Executive's Base Salary for a period of twenty-four months, or (B)
an amount equal to the Executive's Base Salary for the balance of the term of
this Agreement, if any, provided that the severance payment shall in no event be
less than an amount equal to the Executive's Base Salary for a period of six
months; and (iii) any benefits that have accrued to the Executive under the
terms of any Executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans. Any severance payment under SubSection 5(c)(ii) hereof shall be paid in
equal monthly installments for that number of months which is the lesser of (A)
24 months or (B) the number of remaining months in the term of this Agreement,
and shall be contingent on the Executive's continued compliance with the
provisions of Sections 6, 7 and 8 hereof.
6. Non-Disclosure and Non-Competition.
(a) Non-Disclosure. The Executive acknowledges that in the
course of performing services for the Company, the Executive will obtain
knowledge of the Company's business plans, products, processes, software,
know-how, trade secrets, formulas, methods, models, prototypes, discoveries,
inventions, improvements, disclosures, names and positions of executives and/or
other proprietary and/or confidential information, and further that the
Executive presently possesses knowledge of proprietary and/or confidential
information of his prior employer(s) which has been acquired by the Company
contemporaneously with the execution of this Agreement (collectively, the
"Confidential Information"). The Executive agrees to keep the Confidential
Information secret and confidential and not to publish, disclose or divulge to
any other party, and the Executive agrees not to use any of the Confidential
Information for the Executive's own benefit or to the detriment of the Company
without the prior written consent of the Company, whether or not such
Confidential Information was discovered or developed by the Executive. The
Executive also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that the Company is obligated to maintain in
confidence.
(b) Non-Competition. The Executive agrees that, during his
employment by the Company hereunder and for an additional period of one year
after the termination or expiration of the Executive's employment hereunder,
neither the Executive nor any corporation or other entity in which the Executive
may be interested as a partner, trustee, director, officer, executive, employee,
agent, shareholder, lender of money or guarantor, or for which he performs
services in any capacity (including as a consultant or independent contractor)
shall at any time during such period (i) be engaged, directly or indirectly, in
any Competitive Business (as that term is hereinaf ter defined) or (ii) solicit,
hire, contract for services or otherwise employ, directly or indirectly, any of
the executives of the Company. Nothing herein contained shall be deemed to
prevent the Executive from investing in or acquiring one per cent or less of any
class of securities of any company if such class of securities is listed on a
national securities exchange or is quoted on the Nasdaq Stock Market. For
purposes of this Section 6(b), the term "Competitive Business" shall
-4-
<PAGE>
mean any business that engages in any respect in the development, production or
marketing of software and related products and services that enable users to
effect barter transactions via an electronic commerce system, or which engages
in any other activities that are competitive with the business or proposed
business of the Company at the time of termination or expiration of this
Agreement. If the Executive violates any provision of this Section 6(b), the one
year restrictive period set forth herein shall be extended for the duration of
any such violation, so that the Company enjoys the full term of such restrictive
period. Notwithstanding the foregoing, the Company acknowledges and agrees that
the provisions of this Section 6(b) shall not apply if the Executive's
employment is terminated by the Company under the provisions of Section 5(b)
hereof.
7. Inventions and Discoveries.
(a) Disclosure. The Executive shall promptly and fully
disclose to the Company, with all necessary detail, all developments, know-how,
discoveries, inventions, improvements, concepts, ideas, formulae, processes and
methods (whether copyrightable, patent able or otherwise) made, received,
conceived, acquired or written by the Executive (whether or not at the request
or upon the suggestion of the Company, solely or jointly with others, during the
period of his employment with the Company that relate to any line of business,
activities or fields of interest or investigation engaged in by the Company)
from time to time during the course of the Executive's employment by the
Company, or that are otherwise made through the use of the Company's time,
facilities or materials (collectively, the "Inventions").
(b) Assignment and Transfer. The Executive agrees to assign
and transfer to the Company all of the Executive's right, title and interest in
and to the Inventions, and the Executive further agrees to deliver to the
Company any and all drawings, notes, specifications and data relating to the
Inventions, and to sign, acknowledge and deliver all such further papers,
including applications for and assignments of copyrights and patents, and all
renewals thereof, as may be necessary to obtain copyrights and patents for any
Inventions in any and all countries and to vest title thereto in the Company and
its successors and assigns and to otherwise protect the Company's interests
therein.
(c) Records. The Executive agrees that in connection with any
research, development or other services performed for the Company, the Executive
will maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of the Company.
8. Company Documentation. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all documentation, disks, programs,
data, records, drawings, manuals, reports, sketches, blueprints, letters, notes,
notebooks and all other writings, electronic data, graphics and tangible
information and materials of a secret, confidential or proprietary information
nature relating to the Company or the Company's business that are in the
possession or under the control of the Executive.
-5-
<PAGE>
9. Injunctive Relief. The Executive acknowledges that his compliance
with the agreements in Sections 6, 7 and 8 hereof is necessary to protect the
good will and other propri etary interests of the Company and that he is one of
the principal executives of the Company and conversant with its affairs, its
trade secrets and other proprietary information. The Executive acknowledges that
a breach of any of his agreements in Sections 6, 7 and 8 hereof will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law; and the Executive agrees that in the event of any breach
of the aforesaid agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.
10. Supersedes Other Agreements. This Agreement supersedes and is in
lieu of any and all other employment arrangements between the Executive and the
Company, but shall not supersede any existing confidentiality or nondisclosure
agreements between the Executive and the Company.
11. Amendments. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.
12. Enforceability. If any provision of this Agreement shall be invalid
or unenforce able, in whole or in part, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted or as if such provision had not
been originally incorporated herein, as the case may be.
13. Construction. This Agreement shall be construed and interpreted in
accordance with the internal laws of the Commonwealth of Pennsylvania.
14. Assignment.
(a) By the Company. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company. The Company shall require each and
every successor (whether direct or indirect, by asset or stock purchase, share
exchange, merger, consolidation or otherwise) to all or substan tially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "the Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as provided above that executes and
delivers the agreement provided for in this Section 14(a) or that otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) By the Executive. This Agreement and the obligations
created hereunder may not be assigned by the Executive, but all rights of the
Executive hereunder shall inure to the
-6-
<PAGE>
benefit of and be enforceable by his heirs, devisees, legatees, executors,
administrators and personal representatives.
15. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified mail, return receipt requested, or delivered by a national overnight
delivery service addressed to the intended recipient as follows:
If to the Company: Artra Group Incorporated
500 Central Avenue
Northfield, IL 60093
Attention: John G. Hamm
If to the Executive: Gary Lerman
923 Sulgrave Lane
Bryn Mawr, Pennsylvania 19010
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
16. Waivers. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or his or its duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.
17. Survival of Covenants. The provisions of Sections 6, 7, 8 and 9
hereof shall survive any termination or expiration of this Agreement.
Furthermore, any provision of this Agreement which provides a benefit to the
Executive and which by the express terms hereof does not terminate upon the
termination of the Executive's employment shall remain binding upon the Company
until such time as such benefits are paid in full to the Executive or his
successors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first above written.
ARTRA GROUP, INCORPORATED
By:__________________________________
Title:
/s/ Gary Lerman
-------------------------------
GARY LERMAN
-8-
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated effective as of February 22, 1999 between
Artra Group, Incorporated, a Pennsylvania corporation (the "Company"), and Mark
L. M. Quinn (the "Executive"), an individual residing at 10D Liliac Path, Maple
Shade, New Jersey 08052.
Recital:
The parties hereto desire to enter into this Agreement to provide for
the employment of the Executive by the Company and for certain other matters in
connection with such employment, all as set forth more fully in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and intending to be legally bound hereby, the parties to this
Agreement hereby agree as follows:
1. Duties. The Company agrees that the Executive shall be employed by
the Company, and the Executive agrees to be so employed, to devote his best
efforts and substantially all of his business time to advance the interests of
the Company and to perform such executive, managerial, administrative and other
duties as are from time to time assigned to him by the President and Chief
Operating Officer of the Company and are consistent with his position as a
senior executive of the Company.
2. Term. Subject to Sections 4 and 5 hereof, the initial term of the
Executive's employment hereunder shall commence on the date of this Agreement
and shall continue for a term of three (3) years, until February 17, 2002
("Expiration Date"). If either party elects not to renew this Agreement
following the Expiration Date, or if the parties are otherwise unable to agree
to mutually acceptable terms for a renewal period within 180 days prior to the
Expiration Date, then (subject to the provisions of Section 17 hereof) this
Agreement shall terminate effective as of the Expiration Date.
3. Compensation.
(a) Salary. During the term of his employment under this
Agreement, the Executive shall be paid an annual salary at the initial rate of
not less than $125,000.00 (the "Base Salary"). The Base Salary may be increased
from time to time by the Board of Directors of the Company (the "Board") in its
sole and absolute discretion. The Board shall review the Base Salary at least
annually at the end of each fiscal year of the Company. The Base Salary shall be
paid in accordance with the Company's regular payroll practices.
(b) Bonuses. At the end of each fiscal year of the Company
that ends during the term of this Agreement, the Board shall consider the award
of a performance bonus to the Executive for such fiscal year. The award of any
bonus shall be in the sole discretion of the Board.
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to
participate in all insurance, vacation and other fringe benefit programs of the
Company to the extent and on the same terms and conditions as are accorded to
other officers and key executives of the Company from time to time. The current
benefits available to key executives of the Company are summa rized on Exhibit
"A" attached hereto.
(d) Reimbursement of Expenses. The Executive shall be
reimbursed for all normal items of travel, entertainment and miscellaneous
business expenses reasonably incurred by him on behalf of the Company, provided
that such expenses are documented and submitted in accordance with the
reimbursement policies of the Company as in effect from time to time.
(e) Stock Options. The Executive and the Company have entered
into a Stock Option Agreement on the date hereof, pursuant to which the
Executive has been granted certain options to purchase shares of the Common
Stock of the Company, on the terms and subject to the conditions set forth
therein.
(f) Entire Compensation. The compensation provided for in this
Agreement shall constitute full payment for the services to be rendered by the
Executive to the Company hereunder.
4. Death or Total Disability of the Executive.
(a) Death. In the event of the death of the Executive during
the term of this Agreement, this Agreement shall terminate effective as of the
date of the Executive's death, and the Company shall not have any further
obligation or liability under this Agreement except that the Company shall pay
to the Executive's estate: (i) any portion of the Executive's Base Salary for
the period up to the Executive's date of death that has been earned but remains
unpaid; and (ii) any benefits that have accrued to the Executive under the terms
of the executive benefit plans of the Company in which he is a participant,
which benefits shall be paid in accordance with the terms of those plans.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Executive, for (i) a period of 180
consecutive days or (ii) for any 180 days within a period of 360 consecutive
days, at any time during the term of this Agreement, the Company shall have the
right to terminate the Executive's employment hereunder by giving the Executive
30 days' written notice thereof, and, upon expiration of such 30-day period, the
Company shall not have any further obligation or liability under this Agreement
except that the Company shall pay to the Executive: (i) any portion of the
Executive's Base Salary for the period up to the date of termination that has
been earned but remains unpaid; and (ii) any benefits that have accrued to the
Executive under the terms of the executive benefit plans of the Company in which
he is a participant, which benefits shall be paid in accordance with the terms
of those plans. The term "Total Disability," when used herein, shall mean a
mental or physical condition that in the reasonable opinion of the Board renders
the Executive unable or incompetent to carry out the essential functions of the
job responsibilities he held or the tasks that he was assigned at the time the
disability was incurred, with or without reasonable accommodation.
-2-
<PAGE>
5. Termination.
(a) Termination by the Company for Cause. The Company may
discharge the Executive and thereby terminate his employment hereunder upon
written notice to the Executive for any of the following reasons: (i) material
violation of any policy regarding substance abuse as may be promulgated by the
Company from time to time; (ii) the willful failure to perform the duties or
responsibilities of his position as those may be delegated or assigned to the
Executive by the President and COO or by the Board; (iii) any material breach of
any covenant or agreement contained in Sections 6, 7 or 8 of this Agreement;
(iv) engaging in intentional conduct that causes material damage to the Company
or its business reputation; (v) conviction (by trial or guilty plea) or a plea
of non-contest, nolo contendere or similar plea to a felony (or misdemeanor
which the Company determines to have or could have a material adverse effect on
the Company or its reputation) which has become non-appealable; (vi)
adjudication as an incompetent; or (vii) misappropriation of any funds or
property of the Company, theft, embezzle ment or fraud; provided, however, that
with respect only to subsections (i) and (ii) above, the Company shall not
discharge the Employee for cause unless the Employee fails, refuses or for any
reason does not cure such violation to the reasonable satisfaction of the
Company within thirty (30) days following written notice from the Company that
there exists a reason for discharge for cause. In the event that the Company
shall discharge the Executive pursuant to this Section 5(a), the Company shall
not have any further obligation or liability under this Agreement, except that
the Company shall pay to the Executive: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; and (ii) any benefits that have accrued to the Executive under
the terms of the executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans.
(b) Termination on Change in Business Purpose. The Company and
the Executive acknowledge and agree that the Executive has been retained by the
Company to assist the Company in its acquisition and development of software and
related products and services to be marketed as tools to effect business to
business transactions via an electronic commerce system (the "Business
Purpose"), primarily through the acquisition of the ORBIT software system and
related assets under a merger agreement with NA Acquisition Corp. If for any
reason the proposed merger has not been consummated by September 30, 1999 and
the Company determines (in its sole discretion) that it has not otherwise made
substantial progress toward accomplishing the merger by that date, then the
Company may at any time after September 30, 1999 but prior to December 31, 1999
discharge the Executive and thereby terminate his employment hereunder, upon ten
business days' prior written notice. If the Company shall terminate the
employment of the Executive pursuant to this Section 5(b), the Executive shall
be entitled to be paid: (i) any portion of the Executive's Base Salary for the
period up to the date of termination that has been earned but remains unpaid;
and (ii) any benefits that have accrued to the Executive under the terms of any
Executive benefit plans of the Company in which he is a participant, which
benefits shall be paid in accordance with the terms of those plans.
(c) Other Termination by the Company. The Company may
discharge the Executive and thereby terminate his employment hereunder at any
time upon ten business days'
-3-
<PAGE>
prior written notice for any reason other than one specified in Sections 5(a) or
5(b) hereof. If the Company shall terminate the employment of the Executive for
any reason other than one specified in Sections 5(a) or 5(b) hereof, the
Executive shall be entitled to be paid: (i) any portion of the Executive's Base
Salary for the period up to the date of termination that has been earned but
remains unpaid; (ii) a severance payment equal to the lesser of: (A) an amount
equal to the Executive's Base Salary for a period of twenty-four months, or (B)
an amount equal to the Executive's Base Salary for the balance of the term of
this Agreement, if any, provided that the severance payment shall in no event be
less than an amount equal to the Executive's Base Salary for a period of six
months; and (iii) any benefits that have accrued to the Executive under the
terms of any Executive benefit plans of the Company in which he is a
participant, which benefits shall be paid in accordance with the terms of those
plans. Any severance payment under SubSection 5(c)(ii) hereof shall be paid in
equal monthly installments for that number of months which is the lesser of (A)
24 months or (B) the number of remaining months in the term of this Agreement,
and shall be contingent on the Executive's continued compliance with the
provisions of Sections 6, 7 and 8 hereof.
6. Non-Disclosure and Non-Competition.
(a) Non-Disclosure. The Executive acknowledges that in the
course of performing services for the Company, the Executive will obtain
knowledge of the Company's business plans, products, processes, software,
know-how, trade secrets, formulas, methods, models, prototypes, discoveries,
inventions, improvements, disclosures, names and positions of executives and/or
other proprietary and/or confidential information, and further that the
Executive presently possesses knowledge of proprietary and/or confidential
information of his prior employer(s) which has been acquired by the Company
contemporaneously with the execution of this Agreement (collectively, the
"Confidential Information"). The Executive agrees to keep the Confidential
Information secret and confidential and not to publish, disclose or divulge to
any other party, and the Executive agrees not to use any of the Confidential
Information for the Executive's own benefit or to the detriment of the Company
without the prior written consent of the Company, whether or not such
Confidential Information was discovered or developed by the Executive. The
Executive also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that the Company is obligated to maintain in
confidence.
(b) Non-Competition. The Executive agrees that, during his
employment by the Company hereunder and for an additional period of one year
after the termination or expiration of the Executive's employment hereunder,
neither the Executive nor any corporation or other entity in which the Executive
may be interested as a partner, trustee, director, officer, executive, employee,
agent, shareholder, lender of money or guarantor, or for which he performs
services in any capacity (including as a consultant or independent contractor)
shall at any time during such period (i) be engaged, directly or indirectly, in
any Competitive Business (as that term is hereinaf ter defined) or (ii) solicit,
hire, contract for services or otherwise employ, directly or indirectly, any of
the executives of the Company. Nothing herein contained shall be deemed to
prevent the Executive from investing in or acquiring one per cent or less of any
class of securities of any company if such class of securities is listed on a
national securities exchange or is quoted on the Nasdaq Stock Market. For
purposes of this Section 6(b), the term "Competitive Business" shall
-4-
<PAGE>
mean any business that engages in any respect in the development, production or
marketing of software and related products and services that enable users to
effect barter transactions via an electronic commerce system, or which engages
in any other activities that are competitive with the business or proposed
business of the Company at the time of termination or expiration of this
Agreement. If the Executive violates any provision of this Section 6(b), the one
year restrictive period set forth herein shall be extended for the duration of
any such violation, so that the Company enjoys the full term of such restrictive
period. Notwithstanding the foregoing, the Company acknowledges and agrees that
the provisions of this Section 6(b) shall not apply if the Executive's
employment is terminated by the Company under the provisions of Section 5(b)
hereof.
7. Inventions and Discoveries.
(a) Disclosure. The Executive shall promptly and fully
disclose to the Company, with all necessary detail, all developments, know-how,
discoveries, inventions, improvements, concepts, ideas, formulae, processes and
methods (whether copyrightable, patent able or otherwise) made, received,
conceived, acquired or written by the Executive (whether or not at the request
or upon the suggestion of the Company, solely or jointly with others, during the
period of his employment with the Company that relate to any line of business,
activities or fields of interest or investigation engaged in by the Company)
from time to time during the course of the Executive's employment by the
Company, or that are otherwise made through the use of the Company's time,
facilities or materials (collectively, the "Inventions").
(b) Assignment and Transfer. The Executive agrees to assign
and transfer to the Company all of the Executive's right, title and interest in
and to the Inventions, and the Executive further agrees to deliver to the
Company any and all drawings, notes, specifications and data relating to the
Inventions, and to sign, acknowledge and deliver all such further papers,
including applications for and assignments of copyrights and patents, and all
renewals thereof, as may be necessary to obtain copyrights and patents for any
Inventions in any and all countries and to vest title thereto in the Company and
its successors and assigns and to otherwise protect the Company's interests
therein.
(c) Records. The Executive agrees that in connection with any
research, development or other services performed for the Company, the Executive
will maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of the Company.
8. Company Documentation. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all documentation, disks, programs,
data, records, drawings, manuals, reports, sketches, blueprints, letters, notes,
notebooks and all other writings, electronic data, graphics and tangible
information and materials of a secret, confidential or proprietary information
nature relating to the Company or the Company's business that are in the
possession or under the control of the Executive.
-5-
<PAGE>
9. Injunctive Relief. The Executive acknowledges that his compliance
with the agreements in Sections 6, 7 and 8 hereof is necessary to protect the
good will and other propri etary interests of the Company and that he is one of
the principal executives of the Company and conversant with its affairs, its
trade secrets and other proprietary information. The Executive acknowledges that
a breach of any of his agreements in Sections 6, 7 and 8 hereof will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law; and the Executive agrees that in the event of any breach
of the aforesaid agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.
10. Supersedes Other Agreements. This Agreement supersedes and is in
lieu of any and all other employment arrangements between the Executive and the
Company, but shall not supersede any existing confidentiality or nondisclosure
agreements between the Executive and the Company.
11. Amendments. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.
12. Enforceability. If any provision of this Agreement shall be invalid
or unenforce able, in whole or in part, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted or as if such provision had not
been originally incorporated herein, as the case may be.
13. Construction. This Agreement shall be construed and interpreted in
accordance with the internal laws of the Commonwealth of Pennsylvania.
14. Assignment.
(a) By the Company. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company. The Company shall require each and
every successor (whether direct or indirect, by asset or stock purchase, share
exchange, merger, consolidation or otherwise) to all or substan tially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "the Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as provided above that executes and
delivers the agreement provided for in this Section 14(a) or that otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) By the Executive. This Agreement and the obligations
created hereunder may not be assigned by the Executive, but all rights of the
Executive hereunder shall inure to the
-6-
<PAGE>
benefit of and be enforceable by his heirs, devisees, legatees, executors,
administrators and personal representatives.
15. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified mail, return receipt requested, or delivered by a national overnight
delivery service addressed to the intended recipient as follows:
If to the Company: Artra Group Incorporated
500 Central Avenue
Northfield, IL 60093
Attention: John G. Hamm
If to the Executive: Mark L. M. Quinn
10D Liliac Path
Maple Shade, New Jersey 08052
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
16. Waivers. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or his or its duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.
17. Survival of Covenants. The provisions of Sections 6, 7, 8 and 9
hereof shall survive any termination or expiration of this Agreement.
Furthermore, any provision of this Agreement which provides a benefit to the
Executive and which by the express terms hereof does not terminate upon the
termination of the Executive's employment shall remain binding upon the Company
until such time as such benefits are paid in full to the Executive or his
successors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first above written.
ARTRA GROUP, INCORPORATED
By:_______________________________
Title:
/s/ Mark L. M. Quinn
-------------------------------
MARK L. M. QUINN
-8-
EXHIBIT 10.14
ARTRA GROUP INCORPORATED
1999 NONQUALIFIED STOCK OPTION PLAN
1. Purpose. The purpose of the Artra Group Incorporated 1999
Nonqualified Stock Option Plan (the "Plan") is to further the growth,
development and financial success of Artra Group Incorporated (the "Company")
and the subsidiaries of the Company by providing additional incentives to those
officers and key employees who are responsible for the management of the
business affairs of the Company or subsidiaries of the Company, which will
enable them to partici pate directly in the growth of the capital stock of the
Company. The Company intends that the Plan will facilitate securing, retaining
and motivating management employees of high caliber and potential. To accomplish
these purposes, the Plan provides a means whereby management employees may
receive stock options ("Options") to purchase the Company's Common Stock, no par
value (the "Common Stock").
2. Administration.
(a) Composition of the Committee. The Plan shall be administered by a
committee (the "Committee"), which shall be appointed by, and serve at the
pleasure of, the Company's Board of Directors (the "Board"). From time to time
the Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members (with or without cause), appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer the Plan.
(b) Authority of the Committee. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of the Plan and
to decide all questions of fact arising in its application; to determine the
employees to whom Options shall be granted and the amount, size, exercise price
and other terms of each such grant; to determine the time when Options shall be
granted; and to make all other determinations necessary or advisable for the ad
ministration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees and all other holders
of Options granted under the Plan.
(c) Authority of the Board. Notwithstanding anything to the contrary
set forth in the Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board at its election. All
decisions, determinations and interpretations of the Board shall be final and
binding on all optionees and all other holders of Options granted under the
Plan.
3. Stock Subject to the Plan. Subject to Section 16 hereof, the shares
that may be issued under the Plan shall not exceed in the aggregate 1,600,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under the
Plan.
<PAGE>
4. Eligibility To Receive Options. Persons eligible to receive Options
under the Plan shall be limited to those officers and other key employees of the
Company and any subsidiary of the Company who are in positions in which their
decisions, actions and counsel significantly impact upon the profitability and
success of the Company or any subsidiary of the Company. Directors of the
Company who are not also officers or employees of the Company or any subsidiary
of the Company shall not be eligible to participate in the Plan.
5. Types of Options. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder shall be non-qualified stock options that are not
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") or any amendment
or substitute thereto ("Nonqualified Stock Options").
6. Option Agreements. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with the Plan as
the Committee shall approve from time to time. Options granted hereunder may be
evidenced by a single agreement or by multiple agreements, as determined by the
Committee in its sole discretion. Each option agreement shall contain in
substance the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the Options
represented thereby as Nonqualified Stock Options.
(b) Option Price. Each option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
as determined by the Committee, provided that no Option shall be exercisable
after ten years from the date of grant thereof. The Committee shall have the
power to permit an acceleration of previously established exercise terms,
subject to the requirements set forth herein, upon such circumstances and
subject to such terms and conditions as the Committee deems appropriate.
7. Date of Grant. The date on which an Option shall be deemed to have
been granted under the Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.
8. Exercise and Payment for Shares. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased. The
purchase price of the shares with respect to which an Option is exercised shall
be payable in full with the notice of exercise in cash, Common Stock at fair
market value, or a combination thereof, as the Committee may determine from time
to time and subject to such terms and conditions as may be prescribed by the
Committee for such purpose.
-2-
<PAGE>
The Committee may also, in its discretion and subject to prior notification to
the Company by an optionee, permit an optionee to enter into an agreement with
the Company's transfer agent or a brokerage firm of national standing whereby
the optionee will simultaneously exercise the Option and sell the shares
acquired thereby through the Company's transfer agent or such brokerage firm and
either the Company's transfer agent or the brokerage firm executing the sale
will remit to the Company from the proceeds of sale the exercise price of the
shares as to which the Option has been exercised.
9. Rights upon Termination of Employment. In the event that an optionee
ceases to be an employee of the Company or any subsidiary of the Company for any
reason other than death, retirement, as hereinafter defined, or disability
(within the meaning of Section 22(e)(3) of the Code or any substitute therefor),
the optionee shall have the right to exercise the Option during its term within
a period of three months after such termination to the extent that the Option
was exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee. In
the event that an optionee dies, retires or becomes disabled prior to the
expiration of his Option and without having fully exercised his Option, the
optionee or his successor shall have the right to exercise the Option during its
term within a period of one year after termination of employment due to death,
retirement or disability to the extent that the Option was exercisable at the
time of termination, or within such other period, and subject to such terms and
conditions, as may be specified by the Committee. As used in this Section 9,
"retirement" means a separation from service by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's established plan, policy or practice.
10. General Restrictions. Each Option granted under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) the satisfaction of any tax payment or withholding obligation, or
(iv) an agreement by the recipient of an Option with respect to the disposition
of shares of Common Stock is necessary or desirable as a condition of or in
connection with the granting of such Option or the issuance or purchase of
shares of Common Stock thereunder, such Option shall not be consum mated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
11. Rights of a Shareholder. The recipient of any Option under the
Plan, unless other wise provided by the Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
12. Right to Terminate Employment. Nothing contained in the Plan or in
any option agreement entered into pursuant to the Plan shall confer upon any
optionee the right to continue in the employment of the Company or any
subsidiary of the Company or affect any right that the
-3-
<PAGE>
Company or any subsidiary of the Company may have to terminate the employment of
such optionee.
13. Withholding. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to termination by
the Committee, in its sole discretion, at any time. Any securities so withheld
or tendered will be valued by the Committee as of the date of exercise.
14. Non-Assignability. No Option under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient, such Option shall be exercisable only by such person or
by such person's guardian or legal representative.
15. Non-Uniform Determinations. The Committee's determinations under
the Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under the Plan whether or not such persons are similarly situated.
16. Adjustments.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
-4-
<PAGE>
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.
(c) Sale or Merger. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Com mittee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that each Option holder shall have the
right to exercise his Option as to all of the shares of Common Stock covered by
the Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given notice and opportunity
to exercise the then exercisable portion of his Option prior to such date.
17. Amendment. The Committee may terminate or amend the Plan at any
time, with respect to shares as to which Options have not been granted, subject
to any required shareholder approval or any shareholder approval that the Board
may deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The
Committee may not, without the consent of the holder of an Option, alter or
impair any Option previously granted under the Plan, except as specifically
authorized herein.
18. Reservation of Shares. The Company, during the term of the Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability for the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained.
19. Effect on Other Plans. Participation in the Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary of the Company. Any Options granted pursuant to
the Plan shall not be used in determining the benefits provided under any other
plan of the Company or any subsidiary of the Company unless specifically
provided.
-5-
<PAGE>
20. Duration of the Plan. The Plan shall remain in effect until all
Options granted under the Plan have been satisfied by the issuance of shares or
have been cancelled unexercised, but no Option shall be granted more than ten
years after the date the Plan is adopted by the Company.
21. Forfeiture for Dishonesty. Notwithstanding anything to the contrary
in the Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary of the Company that damaged the
Company or any subsidiary of the Company or that the optionee has disclosed
confidential information of the Company or any subsidiary of the Company, the
optionee shall forfeit all unexercised Options and all exercised Op tions under
which the Company has not yet delivered the certificates. The decision of the
Commit tee in interpreting and applying the provisions of this Section 21 shall
be final. No decision of the Committee, however, shall affect the finality of
the discharge or termination of such optionee by the Company or any subsidiary
of the Company in any manner.
22. No Prohibition on Corporate Action. No provision of the Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any action deemed by the Company or such officer or director to be
appropriate or in the Company's best interest, whether or not such action could
have an adverse effect on the Plan or any Options granted hereunder, and no
optionee or optionee's estate, personal representative or beneficiary shall have
any claim against the Company or any officer or director thereof as a result of
the taking of such action.
23. Indemnification. With respect to the administration of the Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for,
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
or the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee or the Board unless, within 60 days after institution of
any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such
-6-
<PAGE>
member of the Committee or the Board and shall be in addition to all other
rights to which such member may be entitled as a matter of law, contract or
otherwise.
24. Miscellaneous Provisions.
(a) Compliance with Plan Provisions. No optionee or other person shall
have any right with respect to the Plan, the Common Stock reserved for issuance
under the Plan or in any Option until a written option agreement shall have been
executed by the Company and the optionee and all the terms, conditions and
provisions of the Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.
(b) Approval of Counsel. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
Securities Exchange Act of 1934 applies to the Plan or to Options granted under
the Plan, it is the intention of the Company that the Plan comply in all
respects with the requirements of Rule 16b-3, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that, if the Plan shall not so comply, whether on the date of
adoption or by reason of any later amendment to or interpretation of Rule 16b-3,
the provisions of the Plan shall be deemed to be automatically amended so as to
bring them into full compliance with such rule.
(d) Effects of Acceptance of Option. By accepting any Option or other
benefit under the Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan by the Company,
the Board and/or the Committee or its delegates.
(e) Construction. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
-7-
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of ___________, 1999, is made by and between
Artra Group Incorporated (the "Company"), a Pennsylvania corporation, and ______
_______________(the "Employee"), an employee of the Company.
Recitals:
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of the Company's Common Stock; and
WHEREAS, the Company wishes to carry out the Artra Group Incorporated
1999 Stock Option Plan, the terms of which are incorporated by this reference
into, and made a part of, this Agreement; and
WHEREAS, the Committee has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the nonqualified
stock option provided for herein to the Employee as an inducement to the
Employee to commence and remain in the service of the Company or a Subsidiary
and as an incentive for increased efforts during such service;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary:
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the no par value Common Stock of the Company.
"Committee" shall mean the Board of Directors of the Company or the
committee appointed by the Board of Directors of the Company pursuant to the
Plan.
"Employment Agreement" shall mean the Employment Agreement dated the
date hereof between the Employee and the Company.
-8-
<PAGE>
"Option" shall mean the nonqualified stock option granted under this
Agreement to purchase shares of Common Stock.
"Plan" shall mean the Artra Group Incorporated 1999 Stock Option Plan.
"Secretary" shall mean the Secretary of the Company.
"Subsidiary" shall have the meaning set forth in Section 424 of the
Code.
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Employee and the Company or a
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability (within
the meaning of Section 22(e)(3) of the Code) or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company or a
Subsidiary. For purposes of this Agreement, "retirement" shall mean a separation
from service by reason of the Employee's retirement at or after the Employee's
earliest permissible retirement date pursuant to and in accordance with his
employer's established plan, policy or practice. The Committee, in its absolute
discretion, shall determine the effect of all other matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question whether a Termination of Employment resulted from a discharge for
cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
In consideration of the Employee's agreement to remain in the employ of
the Company or a Subsidiary and for other good and valuable consideration, on
the date hereof the Company irrevocably grants to the Employee the Option to
purchase any part or all of an aggregate of 1,000,000 shares of the Company's
Common Stock upon the terms and conditions set forth in this Agreement and the
Plan.
Section 2.2 - Purchase Price
The purchase price of the shares of Common Stock covered by the Option
shall be $______ per share, without commission or other charge.
-9-
<PAGE>
ARTICLE III
EXERCISABILITY OF OPTIONS
Section 3.1 - Commencement of Exercisability
(a) The Option shall vest and become exercisable in three cumulative
installments as follows:
(i) The first installment shall consist of one-third of the
shares covered by the Option and shall become exercisable on ____________, 19__;
(ii) The second installment shall consist of one-third of the
shares covered by the Option and shall become exercisable on ___________, 19__;
and
(iii) The third installment shall consist of one-third of the
shares covered by the Option and shall become exercisable on ____________, 19__.
(b) No portion of the Option that is unexercisable at the Employee's
Termination of Employment shall thereafter become exercisable, unless such
Termination of Employment occurs on or after December 1, 1999 and results from
the Employee's death, disability (within the meaning of Section 22(e)(3) of the
Code) or Termination of Employment pursuant to Section 5(c) of the Employment
Agreement, in which event the Option shall vest and become exercisable in full
as of the date of the Employee's death, Termination of Employment by reason of
disability or Termination of Employment pursuant to Section 5(c) of the
Employment Agreement, as the case may be.
Section 3.2 - Duration of Exercisability
The installments provided for in Section 3.1(a) hereof are cumulative.
Each such installment that becomes exercisable pursuant to Section 3.1(a) hereof
shall remain exercisable until it becomes unexercisable under Section 3.3
hereof.
Section 3.3 - Expiration of Option
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) The expiration of ten years from the date the Option was granted;
(b) The date of the Employee's Termination of Employment if such
Termination of Employment resulted from a discharge for cause or the voluntary
resignation of the Employee;
(c) The expiration of three months from the date of the Employee's
Termination of Employment other than for cause or the voluntary resignation of
the Employee, unless such Termina tion of Employment results from his
retirement, death or disability (within the meaning of Section 22(e)(3) of the
Code), but in no event later than the expiration date set forth in Section
3.3(a) hereof; or
-10-
<PAGE>
(d) The expiration of one year from the date of the Employee's
Termination of Employment by reason of his retirement, death or disability
(within the meaning of Section 22(e)(3) of the Code), but in no event later than
the expiration date set forth in Section 3.3(a) hereof.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Employee, only the Employee may exercise the
Option or any portion thereof. After the death of the Employee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3 hereof, be exercised by the Employee's personal
representative or by any person empowered to do so under the Employee's will or
under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3 hereof; provided, however, that each partial exercise shall be for whole
shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised solely
by delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3
hereof:
(a) Notice in writing signed by the Employee or such other person then
entitled to exercise the Option, or any portion thereof, stating that the Option
or portion is thereby exercised, such notice complying with all applicable rules
established by the Committee;
(b) Full cash payment for the shares with respect to which the Option
or portion is thereby exercised and which are to be delivered to the Employee
pursuant to such exercise; provided, however, that at the discretion of the
Committee, payment may be made in whole or in part in shares of Common Stock of
the Company, which Common Stock will be valued at its then fair market value.
The Employee may also, upon prior notification to the Company and subject to
Section 4.4 hereof, enter into an agreement with the Company's transfer agent or
a brokerage firm of national standing whereby the Employee will simultaneously
exercise the Option, or portion thereof, and sell the shares
-11-
<PAGE>
acquired thereby through such transfer agent or brokerage firm and the transfer
agent or brokerage firm executing the sale will remit to the Company from the
proceeds of sale the exercise price of the shares as to which the Option has
been exercised;
(c) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with the
Securities Act of 1933, as amended, and any other federal or state securities
laws or regulations. The Committee may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such compliance in
cluding, without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(d) In the event that the Option or any portion thereof shall be
exercised pursuant to Section 4.1 hereof by any person other than the Employee,
appropriate proof of the right of such person to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of Common Stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares that have been reacquired by the Company. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
Common Stock purchased upon the exercise of the Option or portion thereof prior
to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which the Common Stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental or regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state or
federal govern mental agency that the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may from time to time establish, in its absolute
discretion, for reasons of administra tive convenience.
Section 4.5 - Rights as Shareholder
The holder of the Option shall not be, nor have any of the rights or
privileges of, a share holder of the Company in respect of any shares
purchasable upon the exercise of any part of the
-12-
<PAGE>
Option unless and until certificates representing such shares shall have been
issued by the Company to such holder.
ARTICLE V
MISCELLANEOUS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board of Directors of the Company may at any time and
from time to time exercise any and all rights and duties of the Committee under
the Plan and this Agreement.
Section 5.2 - Options Not Transferable
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or the
Employee's successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Withholding
All amounts which, under federal, state or local law, are required to
be withheld from the amount payable with respect to any Option shall be withheld
by the Company. Whenever the Company proposes or is required to issue or
transfer shares of Common Stock, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state or local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares.
Section 5.4 - No Right of Continued Employment
Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the
-13-
<PAGE>
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge the Employee at any time for any reason whatsoever, with or without
cause.
Section 5.5 - Shares To Be Reserved
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.6 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Employee shall be addressed to the Employee at the address given
beneath his signature hereto. By a notice given pursuant to this Section 5.6,
either party may hereafter designate a different address for notices to be given
to him or it hereunder. Any notice that is required to be given to the Employee
shall, if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.6. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in the United
States mail or sent by overnight courier (with charges prepaid).
Section 5.7 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpreta tion or construction of this Agreement.
Section 5.8 - Pronouns
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
-14-
<PAGE>
IN WITNESS THEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
Attest: ARTRA GROUP INCORPORATED
_____________________ By:___________________________________
Secretary President
EMPLOYEE
_____________________________
_____________________________
_____________________________
Address
Employee's Taxpayer
Identification Number:
_____________________________
-15-
EXHIBIT 10.15
ARTRA GROUP INCORPORATED
February 18, 1999
Mr. Jeffrey Newman
1970 Bay Boulevard
Atlantic Beach, New York 11509
Re: Finders Agreement
Dear Mr. Newman:
The purpose of this letter is to confirm our understanding and
agreement regarding a finder's fee that will be paid to you by ARTRA Group
Incorporated ("ARTRA") in the event that ARTRA or any of its affiliates
consummates a transaction (a "Transaction") by which ARTRA (or any such
affiliate) acquires certain assets of WorldWide Web NetworX Corporation
("WWWX"), specifically all of the assets formerly held by BarterOne LLC, a
Delaware limited liability company, and 25% of the capital stock of
AsseTrade.com, Inc., a Delaware corporation (together, the "Assets").
It is understood and agreed that, if ARTRA or any of its affiliates
consummates a Transaction as aforesaid, ARTRA will pay to you a finder's fee
equal to $275,000 in cash or, at your option and instead of such cash payment,
ARTRA will issue to you 100,000 shares of unregistered common stock of ARTRA
("ARTRA Shares"). If you elect to accept ARTRA Shares instead of a cash fee,
ARTRA will use its good faith efforts to have the ARTRA Shares converted into
registered shares in connection with the Proposed Merger described below. The
foregoing fee will be paid (or such shares will be issued to you) at the closing
of a Transaction, and shall represent payment in full for all services provided
by you or any of your employees, agents, associates or affiliates to ARTRA or
any of its affiliates in connection with or related to the Transaction. You
represent and warrant that no other person or entity has or will have a claim
for any fee from ARTRA in connection with services provided by or through you or
any of your employees, agents, associates or affiliates, and you will defend,
indemnify and hold ARTRA and its affiliates, and their respective successors and
assigns, harmless with respect to any such claim.
ARTRA is presently negotiating the terms of an Agreement and Plan of
Merger (the "Proposed Agreement") by and among ARTRA, WWWX, NA Acquisition
Corp., a WWWX subsidiary and a Pennsylvania corporation ("NAAC"), and WWWX
Merger Subsidiary, Inc., a wholly owned subsidiary of NAAC (the "Merger Sub"),
pursuant to
<PAGE>
Mr. Jeffrey Newman
Page Two
February 18, 1999
which NAAC would acquire the Assets from WWWX, ARTRA would be merged into the
Merger Sub, and all presently outstanding shares of ARTRA capital stock would be
converted into NAAC capital stock ("NAAC Stock") on a one-for-one basis (the
"Merger"). It is acknowledged and agreed that, if the Merger is approved by the
shareholders of ARTRA and WWWX and is consummated as contemplated by the
Proposed Agreement (the "Merger Closing"), the Merger will constitute a
Transaction, and your fee will be payable at the Merger Closing. In such event,
if you elect to receive the ARTRA Shares as your fee instead of the cash
payment, ARTRA will pay such fee with an equivalent number of shares of NAAC
Stock.
If this letter accurately reflects our agreement and understanding,
please sign the enclosed copy of this letter and return it to me.
Sincerely,
Peter R. Harvey
President and Chief Operating Officer
Agreed and accepted this 18th day of February, 1999.
/s/ Jeffrey Newman
- ------------------------ -----------------------
Witness Jeffrey Newman
S.S. #
----------------------
EXHIBIT 10.16
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered as of the 11th
day of December, 1998 by and between Henry Butcher USA, Inc., a Missouri
corporation with its principal office at 8182 Maryland Avenue, St. Louis,
Missouri 63105 ("Butcher"), Michael Fox International, Inc., a Maryland
corporation having its principal office at 3835 Naylors Drive, Baltimore,
Maryland 21206 ("Fox"), Butcher-Fox, LLC, a Maryland limited liability company
with its principal office at 3835 Naylors Drive, Baltimore, Maryland 21206 ("BF
LLC"), Positive Asset Remarketing, Inc., a Massachusetts corporation with its
principal office at 975 Boston Providence Highway, Sharon, Massachusetts 02067
("PAR"), and asseTrade.com, Inc., a Delaware corporation with its principal
office at 8182 Maryland Avenue, St. Louis, Missouri 63105 (the "Company")
(hereinafter collectively referred to from time to time as the "Parties").
RECITALS
a. Butcher, Fox, BF LLC and PAR are the principal organizers of the
Company and hereby desire to set forth and confirm the basic terms and
conditions on which the Parties shall manage and conduct the business
of the Company.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration (the receipt, adequacy and sufficiency of which are
hereby acknowledged by the Parties by their execution hereof), the Parties
hereto agree as follows:
i. Principal Business Activities. The Company has been formed for the
express purposes set forth in the Company's Certificate of Incorporation.
Subject to the provisions of its Certificate of Incorporation, the Company shall
conduct the following principal activities and provide Global 2000 and other
major corporations with the following services:
o Expert financial valuation and evaluation services for the
identification of corporate assets;
o The development of customized on-line asset management
programs based on the ORBIT System technology and to include
the listing of all applicable corporate assets on a standard
database for the internal marketing, sale and/or trading of
identified corporate assets;
o The sale and/or trading of identified corporate assets between
a company's authorized operating units, divisions and
facilities on a worldwide basis;
o The on-line marketing, remarketing and sales of corporate
assets on a global business basis, to include the development
of an Internet and Electronic commerce platform for
business-to-business on-line auctions and other historically
utilized marketing efforts; and
o The off-line marketing, remarketing and sales of corporate
assets subsequent to on-line marketing, remarketing and sales
efforts.
<PAGE>
ii. ORBIT System Software License.
(i) The Company shall hold and own an exclusive worldwide,
perpetual license to the ORBIT System and any improvements thereto and component
parts thereof (non-exclusive for the electric and gas utility industry and
restricted for electricity related trade applications in the states of
Pennsylvania, New Jersey, Maryland, Delaware and Massachusetts pursuant to the
terms and conditions of a license agreement between BarterOne, L.L.C. and PECO
Energy Company, through its subsidiary Energy Trading Company) for the
development of an Internet based Electronic Business platform as a specific
business-to-business custom application service for on-line Corpo
rate/Investment Asset recovery operations, including, without limitation, the
following activities as they relate to same (i) private corporate
extranet/intranet distribution and Corporate/Investment Asset registration
services, (ii) management, on-line and off-line marketing, remarketing and sales
of corporate/investment assets of companies both as an internal mechanism for
the redistribution of corporate assets and a general business-to-business
commercial remarketing facilitator, (iii) registered on-line
business-to-business open bid process for the resale of corporate assets, and
(iv) virtual web based center for product sales and liquidation services, as
well as the inclusive license rights to utilize the system on a worldwide basis
and at any of the Company's or the Company's clients' locations and on any
number of central processing units. The ORBIT System shall at the time of
transfer to the Company include an auction component. If such a component has
not at that time been developed in connection with the ORBIT System, PAR shall
at such time assign and/or transfer to the company, at no additional cost to the
Company, an exclusive worldwide, perpetual license to the WWWX auction software
currently owned by PAR, for use by the Company on the same terms as the ORBIT
System. PAR hereby expressly agrees that any auction component subsequently
developed in connection with the ORBIT System will be deemed to be a part of the
ORBIT System software licensed to PAR and therefore subject to the assignment
and/or transfer of same to the Company, and any such component shall be promptly
delivered to the Company.
(ii) For purposes of this Agreement, Corporate/Investment
Assets shall mean assets directly or indirectly belonging to any entity and/or
employed or utilized in connection with any entity's business activities,
including, without limitation, equipment, machinery, inventory, etc., and
component parts thereof, excepting diamonds and/or other precious gems, in
finished or unfinished form, precious metals, in raw or finished form, jewelry,
currency in any form, oil, gas, coal and electric power, telecommunications,
cable and water services, and excepting with respect to the use of WWWX auction
software only, computers and computer parts and components sold directly to
Computer Internet Auctions, a Massachusetts corporation ("CIA"), but no other
person or entity, pursuant to the WWWX auction software master license between
PAR and CIA as in effect on the date hereof. PAR hereby represents to Butcher,
Fox and Butcher-Fox, LLC that no person or entity, including CIA, has or will
have the right, pursuant to the WWWX auction software master license or
otherwise, to use or sublicense the WWWX auction software for asset recovery
operations similar to those to be performed by the Company.
iii. Other Licenses. The Company may also hold and own exclusive and
non-exclusive licenses to other products or services that from time to time may
become available to, or be developed by, the Company and which can be utilized
to create new and/or enhanced methodologies and
-2-
<PAGE>
practices for the redistribution and remarketing of corporate/investment assets
and the functionality of an on-line virtual auction center for identifiable
customer bases, both industrial and commercial.
iii. Company Stock Ownership.
(i) Subject to and conditioned upon receipt by the Company of
the consideration therefor as described in paragraphs (b) and (c) of this
Section 3, fifty percent (50%) of the voting capital stock (i.e., Class A Common
Stock) of the Company shall be issued to and owned by PAR and fifty percent
(50%) of the voting capital stock (i.e., Class A Common Stock) of the Company
shall be issued to and owned by BF LLC. The Company shall have no other classes
or series of voting stock. Upon execution of a Strategic Marketing Agreement
between the Company and Admiral Asset Group, Inc. ("Admiral"), and subject to
and conditioned upon receipt by the Company of the consideration therefor as
described in paragraph (d) of this Section 3, and upon the written approval of
the Parties, Admiral will receive a 2% non-voting equity position in the Company
through the ownership of shares of the Company's Class B Common Stock. Nothing
in this Agreement or in any other document shall preclude the issuance of shares
of Class B Common Stock to any other person or entity as the Parties may
mutually agree in writing from time to time. The consideration for the issuance
of the Company's capital stock as aforesaid shall be as follows:
(ii) PAR shall transfer or caused to be transferred to the
Company, as licensee, an exclusive worldwide, perpetual license to the ORBIT
System and the WWWX auction software, as contemplated in Section 2(a) of this
Agreement, without licensing/royalty and/or transaction fees and with the
associated source code to enable specific customization to be developed as
required by the Company's operations. In addition, PAR shall provide or cause to
be provided to the Company the necessary services and material to present the
ORBIT System to targeted companies and to market the Company through its planned
distribution channels, which such services and materials shall be deemed to be
part of the consideration paid by PAR for the initial issuance of voting capital
stock of the Company. After the date hereof, PAR shall, as the Company may
request from time to time, provide or cause to be provided the necessary
services to manage the ATLAS System, customize and brand the ORBIT System as
needed (subject to the ORBIT System software license received by the Company by
or on behalf of PAR), and develop any applicable trade related transactions,
which such services shall not be deemed to be part of the consideration paid by
PAR for the initial issuance of voting capital stock of the Company but shall be
provided at PAR's expense until such time as the Company is financially able to
independently sustain its own operations or until sufficient third party funding
is received. At such time, it is expressly understood and agreed that any
reasonable costs and expenses incurred by PAR in connection with providing such
services to the Company shall, subject to the review of such costs and expenses
by the Parties and receipt of the written approval of the Parties with respect
thereto, be invoiced to the Company by PAR on a quarterly basis and shall
thereupon be paid by the Company to PAR.
(iii) BF LLC shall deliver to the Company an affidavit or
other legally binding instrument stating that BF LLC, through the combined,
complete and extensive global corporate operations and networks of its members
and their affiliates, will provide access to its appropriate lists of industrial
and commercial clients on a global basis. In addition, BF LLC shall provide to
-3-
<PAGE>
the Company the expertise and capability, including the time and efforts of its
members, to introduce appropriate clients to the business activities of the
Company, which such services shall be deemed to be part of the consideration
paid by BF LLC for the initial issuance of voting capital stock of the Company.
From and after the date hereof, BF LLC shall provide to or on behalf of the
Company services with respect to the inventorying, valuing, marketing and
selling of Corporate/Investment Assets which such services shall not be deemed
to be part of the consideration paid by BF LLC for the initial issuance of
voting capital stock of the Company but shall be provided at BF LLC's expense
until such time as the Company is financially able to independently sustain its
own operations or until sufficient third party funding is received. At such
time, it is expressly understood and agreed that any reasonable costs and
expenses incurred by or on behalf of BF LLC in connection with providing such
services to or on behalf of the Company shall, subject to the review of such
costs and expenses by the Parties and receipt of the written approval of the
Parties with respect thereto, be invoiced to the Company by BF LLC on a
quarterly basis and shall thereupon be paid by the Company to BF LLC.
(iv) The consideration paid to the Company by Admiral for the
non-voting capital stock of the Company will be deemed to consist of the
services rendered by Admiral in facilitation of the development and
establishment of the business relationship giving rise to the Company.
(v) The Parties hereby expressly acknowledge and agree that
the property contributed to the Company by BF LLC, as hereinabove described,
shall for all purposes be equivalent in value to the property contributed to the
Company by PAR, as hereinabove described. Furthermore, the Parties hereby
expressly acknowledge and agree that, upon dissolution of the Company, the
Company shall return or distribute to PAR and BF LLC the respective property
previously contributed to the Company by PAR and BF LLC, as the case may be, and
the value of the property contributed by each of the Parties as and to the
extent returned to each of the Parties shall for all purposes be equivalent.
iv. Cross-Marketing Activities: Commercial Exclusivity. The Parties
acknowledge and agree that (i) the Company will market and promote the various
products and services of each of the Parties; (ii) each of the Parties will
exclusively use and promote the various products and services offered by each of
the other Parties as required in their respective business activities; (iii)
Butcher- Fox will exclusively use the Company and/or PAR, or any transferee or
assignee of all of the Company stock issued to PAR, for all of the Internet
electronic business applications of BF LLC; and (iv) PAR, and any transferee or
assignee of any Company stock issued to PAR, will exclusively use the Company
and/or BF LLC, or any transferee or assignee of all of the Company stock issued
to BF LLC, for valuation and disposition of corporate/investment assets and
related activities of PAR and any such assignee or transferee.
v. Expenses. The Parties acknowledge and agree that they will be
individually responsi ble for any and all of their respective expenses
pertaining to the initial activities of the Company and agree to the same until
such time as the Company is financially able to independently sustain its own
operations or until sufficient third party funding is received. At such time,
the Company shall reimburse each of the Parties for their respective accrued
initial activity expenses, provided such
-4-
<PAGE>
expenses are reasonable and reimbursement therefor is approved in writing by all
of the Parties. Expenses reasonably incurred by PAR in connection with the
development of the ATLAS System through customization of the ORBIT System shall
be submitted to each of the Parties promptly after execution hereof and, if and
to the extent approved by all of the Parties in writing, shall be reim bursed by
the Company to PAR at such time as the Company is financially able to
independently sustain its own operations or until sufficient third party funding
is received. Notwithstanding the foregoing or anything else herein to the
contrary, it is expressly understood and agreed that any and all costs related
to the development of the following shall not be reimbursable or reimbursed: (a)
the ORBIT System technology, (b) the customer lists of Butcher; and (c) the
customer lists of Fox. The Parties will each make key personnel available to
develop a business plan, operating budget and pilot program for the Company.
vi. Additional Capital Needs. The Parties acknowledge and agree that
their respective financial advisors shall work with each other and the Company
to analyze the market for third party funding of the Company's operations and to
introduce the Company to identified funding sources and brokers for a possible
initial public offering of the Company capital stock, in all events subject to
any and all limitations set forth in the Company's Certificate of Incorporation
and Bylaws. Any initial public offering of the Company's capital stock shall
occur only upon the mutual written agreement of the Parties. The Parties agree
that the transfer of any equity interest in the Company shall be mutually agreed
to in writing and may result in a dilution of the Parties' respective owner ship
interests.
vii. New Business Opportunities. The Parties recognize the board of
directors of the Company may from time to time consider new business
opportunities related to the ORBIT System software licensed to the Company. The
Parties further recognize that the Company may, subject to the directors'
fiduciary duties to the Company and its stockholders and subject to the
provisions of the Company's Certificate of Incorporation and Bylaws, sublicense
aspects of the Company's ORBIT System software license to other persons or
entities, including the Parties or any of them, to use such software for
purposes not deemed beneficial to the Company and/or consistent with its
business activities, on such terms as the board of directors of the Company may
deem to be in the best interests of the Company.
viii. AMD Test Listing. The Parties acknowledge and agree that Butcher,
prior to the date hereof, has made available to PAR and Global Trade Group, Inc.
("GTG") and/or their respective affiliates, certain information concerning
Butcher's independent liquidation transactions with Advanced Micro Devices, Inc.
("AMD") and that such information has been made available to PAR, GTG and/or
their respective affiliates and included on or in connection with the Auction,
Tracking & Logistical Asset Support (ATLAS) System for test purposes only.
Accordingly, the Parties hereby expressly acknowledge and agree that any and all
commissions, fees and other amounts paid and/or earned in connection with the
AMD transaction, whether before or after the date hereof, and regardless of
whether or not Butcher may hereafter permit in its sole judgment the channeling
of any such amounts through the ATLAS System or otherwise, again for test
purposes only, shall be the sole and exclusive property of Butcher and that no
amounts shall be due to the Company, PAR, GTG, BF LLC or any other entity, by
AMD, Butcher or any other entity, in connection with such transactions.
-5-
<PAGE>
Without limiting the foregoing, should Butcher in its sole judgment choose not
to permit the channel ing of any AMD transaction amounts through the ATLAS
System, any and all commissions, fees and other amounts paid and/or earned in
connection with the AMD transaction, whether before or after the date hereof,
shall be paid to and retained by Butcher and no amount shall be payable or paid
to or otherwise retained by the Company, PAR, GTG, BF LLC or any other entity in
connection with such transaction.
ix. Press Release. The Parties will mutually agree upon the form and
content of any press releases or written public announcements regarding this
Agreement, the organization and manage ment of the Company or any related
matters.
x. No Adverse Business Impact. Notwithstanding anything herein to the
contrary, the Parties hereby expressly understand and agree that under no
circumstances shall the business and activities of the Company be permitted to
interfere with or adversely impact the business and activities of Butcher, Fox,
BF LLC and/or PAR, subject to the assignment and/or transfer of the ORBIT System
and WWWX Auction software licenses from PAR to the Company.
xi. Miscellaneous.
(i) The terms and conditions of this Agreement may not be
amended, modified or extended, nor may any of its terms be waived, except by a
written instrument signed by all of the Parties.
(ii) For the convenience of the Parties, this Agreement may be
executed in multiple counterparts, each of which will be deemed an original, and
all of which will be deemed to be one and the same. A telecopy or facsimile
transmission of a signed counterpart of this Agreement will be sufficient to
bind the party or parties whose signature(s) appear thereon.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above.
HENRY BUTCHER USA, INC.
By:/s/ Robert M. Novelly
----------------------------------
Robert M. Novelly, President
MICHAEL FOX INTERNATIONAL, INC.
By: /s/ William Z. Fox
----------------------------------
William Z. Fox, President
-6-
<PAGE>
BUTCHER-FOX, LLC
By: /s/ William Z. Fox
----------------------------------
William Z. Fox, Manager
By:/s/ Robert M. Novelly
----------------------------------
Robert M. Novelly, Manager
POSITIVE ASSET REMARKETING, INC.
By: /s/ Benjamin R. Kafka
----------------------------------
Benjamin R. Kafka
Executive Vice President
ASSETRADE.COM, INC.
By: /s/ Robert Kohn
----------------------------------
Robert Kohn, President
-7-
EXHIBIT 10.17
SOFTWARE LICENSE AGREEMENT
This Agreement made effective as of this 11th day of December, 1998, by
and between asseTrade.com, Inc., a corporation established pursuant to the laws
of the state of Delaware and having a principal place of business at 8182
Maryland Avenue, 7th Floor, St. Louis, MO 63105 (hereinafter the "Licensee") and
BarterOne LLC (d/b/a entrade.com), a limited liability company established under
the laws of the state of Delaware and having a principal place of business at
1600 Executive Center, Post Office Box 415, Sharon, MA 02067 (hereinafter the
"Licensor") (hereinafter the Licensee and the Licensor are together referred to
from time to time as the "Parties").
WHEREAS the Licensor possesses certain confidential and proprietary
know-how and technology including owing and holding the exclusive worldwide,
perpetual license to the ORBIT(TM) (On-line Reciprocal Business and Inventory
Transaction) System (hereinafter the "Licensed Soft ware"), a customized robust
end-to-end solution for the rapidly emerging business-to-business Electronic
Business market and which offers a multiple payment software application
providing the capability to market goods and services over the internet using
multiple forms of payment and including on-line open bid payment modules, and
WHEREAS the Licensee is engaged in the business of retail and corporate
trade consulting, brokering the sale of goods and services with either a trade,
cash or blend (cash and trade combined) transaction payment mechanism, and is
involved in various other commercial endeavors, and
WHEREAS the Licensor possesses certain confidential and proprietary
know-how and technology relating to the Licensed Software and to associated
technologies and commercial, marketing and sales methodologies, and
WHEREAS, effective as of the date of this Agreement, the Licensee has
been organized as a corporation existing under the laws of the state of
Delaware, which corporation will, among other things, develop and implement
on-line auctions for the disposition of corporate/investment assets, and
WHEREAS the Licensee desires to license the Licensed Software in order
to use and enhance it for specific applications involving on-line auctions, all
on the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained and for other good and valuable consideration (the
receipt, adequacy and sufficiency of which are hereby acknowledged by the
Parties by their execution hereof), the Parties hereby covenant and agree as
follows:
<PAGE>
ARTICLE 1 - INTERPRETATION
1.1 Definitions
In this Agreement and the Schedules (if any) annexed hereto, unless
there is something in the subject matter or context inconsistent herewith, the
following expressions shall have the respective meanings indicated below:
"Agreement" - means this agreement entitled "Software License
Agreement" and all of the Schedules (if any) annexed hereto.
"Code" means the computer programming code. Except as other specified,
Code shall include both Object Code and Source Code.
"Corporate/Investment Assets" means assets directly or indirectly
belonging to any entity and/or employed or utilized in connection with any
entity's business activities, including, without limitation, equipment,
machinery, inventory, etc., and component parts thereof, excepting diamonds
and/or other precious gems, in finished or unfinished form, precious metals, in
raw or finished form, jewelry, currency in any form, oil, gas, coal and electric
power, and telecommunications, cable and water services.
"Documentation" means written materials (and machine-readable text
subject to display or printout) which relate to and describe Code.
"Improvements" means upgrades (including subsequent versions),
enhancements, or other releases, alterations, modifications or customizations,
of software, Code or related technology, including Documentation, with respect
to the Licensed Software.
"Know-How" means inventions (whether patentable or not), improvements,
techniques, devices, data and other information (including, but not limited to
computer source code, flow charts, opinions, drawings, blueprints and
engineering and test specifications). Know-How shall also include user manuals
and other Documentation for computer programs as updated periodically.
"Object Code" means Code that is intended to be directly executable by
a computer after suitable processing but without the intervening steps of
compilation or assembly.
"Source Code" means Code, other than Object Code, and related source
code documenta tion, comments and procedural code, such as job control language,
which may be printed out or displayed in human readable form.
1.2 Entire Agreement - This Agreement including any and all Schedules
(if any) attached hereto constitutes the entire agreement between the Parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, representations, proposals and/or other communications in
respect of the licensing of the Licensed Software, whether oral or written. No
-2-
<PAGE>
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by each of the Parties. The terms of this Agreement shall
prevail over any conflicting, additional or other terms contained in any
purchase order or other written, electronic or oral communication between the
Parties.
1.3 Governing Law - This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts and the Parties
consent and attorn to the jurisdiction of the courts of such state.
1.4 Number and Gender - Words importing the singular include the plural
and vice versa and words importing gender include both genders.
1.5 Headings - The Article and Section headings contained herein are
included solely for convenience, are not intended to be full or accurate
descriptions of the contents thereof and shall not be considered part of this
Agreement or to affect the interpretation hereof.
1.6 Currency - Unless otherwise indicated, all dollar amounts referred
to in this Agree ment are in United States Dollars.
ARTICLE 2 - GRANT OF LICENSE
2.1 Grant of License - Subject to the terms and conditions of this
Agreement, the Licensor hereby grants to the Licensee and the Licensee hereby
accepts from the Licensor, an exclusive worldwide, perpetual license to the
Licensed Software, and any improvements thereto and component parts thereof (non
exclusive for the electric and gas utility industry and restricted for
electricity related trade applications in the states of PA, NJ, MD, DE & MA
pursuant to the terms and condi tions of a license agreement between the
Licensor and PECO Energy Company, through its subsid iary Energy Trading
Company), for the development of an Internet based Electronic Business platform
as a specific business-to-business custom application service for on-line
Corporate/Investment Asset recovery operations, including, without limitation,
the following activities as they relate to same (i) private corporate
extranet/intranet distribution and Corporate/Investment Asset registration
services, (ii) management, on-line and off-line marketing, remarketing and sales
of Corporate/Investment Assets of companies both as an internal mechanism for
the redistribution of corporate and investment assets and a general
business-to-business commercial remarketing facilitator, (iii) registered
on-line business-to-business open bid process for the resale of corporate and
investment assets, and (iv) virtual web based center for product sales and
liquidation services, as well as the inclusive license rights to utilize the
system on a worldwide basis and at any of the Licensee's or the Licensee's
clients' locations and on any number of central processing units, provided that
such use is solely in conjunction with use of the Licensed Software solely for
the purposes herein identified and described in this Section 2.1. The Parties
further agree that,
(a) The Licensee shall have the right to develop and make future
improvements to the Licensed Software for specific custom
applications, and such Improvements shall be
-3-
<PAGE>
proprietary to and for the sole use of the Licensee. The
Licensor will have no liability or obligation towards the
funding of any Improvements to the Licensed Software.
(b) The Licensee shall provide to the Licensor a true, complete
and updated listing of the locations at which the Licensed
Software may be used.
(c) The Licensee shall provide all its own support, maintenance
and hosting of the Licensed Software.
(d) The Licensee will make available to the Licensor, on a
non-exclusive first look basis and at preferential pricing
determined by the Licensee, any and all Improvements and/or
functionality it may develop to the Licensed Software that are
not related to the purposes for which the Licensed Software is
hereby licensed.
2.2 Improvements; Source Code - The license to the Licensed Software
granted pursuant to Section 2.1 above includes any Improvements as well as the
right to alter and/or modify the Licensed Software, and the Licensor shall
promptly deliver to the Licensee any and all Improvements developed by or on
behalf of the Licensor. The Parties agree that the Licensor will at all times
keep possession of all Source Codes for the Licensed Software, except that the
Licensor will provide and transfer to Licensee a full copy of the current Source
Code for the Licensed Software. Upon request from the Licensee and for the
purpose of customizing, enhancing, altering or modifying the Licensed Software,
the Licensor shall promptly deliver to the Licensee a copy of the most
up-to-date Source Code (in machine readable form) for the Licensed Software.
2.3 Restriction on Use - The Licensee may make copies of the Licensed
Software for use on any number of central processing units of the Licensee and
the Licensee's clients and the Licensee may make copies for back up or archive
purposes. Licensee may make as many copies of the Licensor's manuals or similar
materials related to the Licensed Software as Licensee desires.
2.4 Assignment/Sublicense of License
(i) The Licensee shall have the right, as it may
determine from time to time, acting through its board
of directors and in accordance with and subject to
such directors' fiduciary duties to the Licensee and
its stockholders and the provisions of the Licensee's
Certificate of Incorporation and bylaws, as the same
may be amended from time to time, to sublicense the
Licensed Software on a nonexclusive basis for use by
the clients or customers of the Licensee in the
normal course of the Licensee's business.
(ii) In addition, the Parties recognize that the Licensee
may, from time to time, consider new business
opportunities related to the Licensed Software
licensed to the Licensee pursuant to this Agreement.
The Parties further recognize that the Licensee may,
acting through its board of directors and in
accordance with and subject to such directors'
fiduciary duties to the Licensee and its
-4-
<PAGE>
stockholders and the provisions of the Licensee's
Certificate of Incorporation and bylaws, as the same
may be amended from time to time, sublicense or
otherwise arrange for the use of the Licensed
Software to or by other persons or entities,
including without limitation the Licensor or
affiliates of either the Licensee or the Licensor, to
use the Licensed Software for purposes or in
industrial sectors not deemed beneficial to the
Licensee and/or consistent with its business
activities, on such terms as the Licensee, acting
through its board of directors and in accordance with
and subject to such directors' fiduciary duties to
the Licensee and its stockholders and the provisions
of the Licensee's Certificate of Incorporation and
bylaws, as the same may be amended from time to time,
may deem to be in the best interests of the Licensee.
The Li censee's board of directors shall give written
notice to the Licensor and Butcher-Fox, LLC, a
Maryland limited liability company, should the Li
censee's board of directors consider sublicensing or
otherwise arranging for the use of the Licensed
Software to any other person or entity for purposes
or in industrial sectors not deemed beneficial to the
Licensee and/or consis tent with its business
activities as provided pursuant to this paragraph
(ii), which such notice shall set forth the terms and
conditions, including the time parameters (if any),
or any such proposed sublicense or use right.
Thereupon, the Licensor and/or Butcher-Fox, LLC shall
have the right, within ten days of such notice or
such shorter time period as the Licensee shall allow
in light of the requirements of the initiator's
proposal, to make a competing proposal to the
Licensee's board of directors with respect thereto.
(iii) Except as provided in paragraphs (i) and (ii) of this
Section 2.4, neither the Licensor nor the Licensee
shall have the right to assign, transfer or convey,
directly or indirectly, by sub-license or otherwise,
this Agreement or any of the rights and/or
obligations of either party hereunder without the
prior written consent of the other party.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
3.1 Subject to Article 6 hereof, the Licensee acknowledges that the
Licensed Software being provided by the Licensor hereunder, and any improvements
made by the Licensor or Documen tation provided by the Licensor with respect
thereto, are the sole and exclusive property of the Licensor and that the
Licensee acquires no right, title or interest therein.
3.2 The Licensor represents and warrants to the Licensee that: (i) the
Licensor is the sole and exclusive owner of all right, title and interest in and
to the Licensed Software and has sufficient rights to license the Licensed
Software to the Licensee as contemplated in this Agreement; (ii) the Licensor
has the right to enter into this Agreement and grant the rights granted
hereunder and there are no outstanding agreements or understandings of any kind
binding upon the Licensor that are inconsistent with this Agreement or the
rights granted hereunder; (iii) the Licensed Software does not and will not
contain any "backdoor" or concealed access or any "software locks" or any
similar
-5-
<PAGE>
devices which, upon the occurrence of a certain event, the passage of a certain
amount of time, or the taking of any action (or the failure to take action) by
or on behalf of the Licensor, will cause the Licensed Software to be destroyed,
erased, damaged or otherwise made inoperable; (iv) to its best knowledge, the
Licensed Software does not infringe upon or violate the copyrights, patents,
trade secrets, trademarks or other proprietary rights of any third party; (v)
there are no pending or threatened suits, legal proceedings, claims or
governmental investigations against or with respect to the Licensor relating to
the Licensed Software or any component part thereof; (vi) the Licensor has not
received any notice and no notice is threatened or expected of any claim of
infringement or violation of any third party's copyrights, patents, trade
secrets, trademarks or other proprietary rights; (vii) the Licensed Software
will perform in substantial conformity with its specifications as set forth in
the Documentation, which shall not mean that it shall be error-free but may be
subject to simple work-arounds or de-bugging; (viii) the version of the Licensed
Software delivered on the date hereof is the most current and best version of
such software in existence on the date hereof; (ix) any Licensor Improvements
will be developed solely by full time employees of the Licensor acting within
the scope of their employment or by independent contractors who have transferred
to the Licensor by written agreement their ownership rights in the Improvements
or who have granted the Licensor a right to sublicense the Licensor
Improvements.
3.3 The Licensee represents to the Licensor that the Licensee has the
right to enter into this Agreement and fulfill its duties and obligations
hereunder and there are no outstanding agree ments of any kind binding upon the
Licensee that are inconsistent with this Agreement.
3.4 The Licensor hereby agrees to indemnify, defend and hold harmless
the Licensee and its permitted assigns and sub-licensees, and their respective
directors, officers, employees and agents, at the Licensor's sole cost and
expense, from and against any and all losses, expenses, claims, actions,
proceedings, damages or liabilities arising out of, relating to or based upon
any infringement or violation, or alleged infringement or violation, of any
copyright, patent, trademark or other proprietary right of any third party,
arising out of or related to the use by the Licensee or its permitted assigns or
sub-licensees of the Licensed Software or any component part thereof. The
Licensor agrees to pay and all obligations, liabilities, costs and damages of
the Licensee and its permitted assigns and sub-licensees, including, without
limitation, reasonable attorney's fees, which are attributable to any such
claim, action or proceeding if the Licensee or its permitted assigns or
sub-licensees, having actual knowledge thereof, promptly notifies the Licensor
in writing of any such claim, action or proceeding and gives the Licensor sole
control of the defense or settlement of such claim, action or proceeding and
provides Licensor with reasonable non-economic assistance in the defense of any
such claim, action or proceeding. If the Licensed Software or any component part
thereof is held to constitute an infringement or violation of any third party's
proprietary rights and the Licensee's or its permitted assigns' or
sub-licensee's use thereof is or may reasonably be expected to be enjoined, then
the Licensor shall, at the Licensor's option and sole expense, either secure for
the Licensee or its permitted assigns or sub-licensees, as the case may be, the
right to continue to use the Licensed Software and any component part thereof,
or replace or modify same to make them non-infringing.
-6-
<PAGE>
ARTICLE 4 - CONFIDENTIALITY
4.1 The Licensee acknowledges that the Licensed Software is
confidential and considered as trade secret of the Licensor. The Licensee agrees
to maintain the confidentiality of and not to release, disclose or divulge the
Licensed Software or any part thereof to any person without the prior written
consent of the Licensor; provided that the Licensee shall not be obligated to
maintain in confidence that information which:
(i) can be demonstrated by reasonably documented proof to
have been in the possession of the Licensee prior to
receipt thereof from the Licensor or to have been
developed in the course of work entirely independent
of any disclo sure made hereunder or the subject
matter of this Agreement;
(ii) is or becomes part of the public domain other than
through breach of this Agreement or through the fault
of the Licensor;
(iii) is necessarily disclosed in any products sold or
shipped by either of the Parties;
(iv) is or becomes available to the Licensee from a source
other than the Licensor which source has no
obligation to the Licensor in respect thereof; or
(v) is made available by the Licensor in written form to
a third party on an unrestricted basis.
The Licensee shall instruct its employees who have access to the
Licensed Software to comply with the provisions of this Article 4 and the
Licensee shall take at least the same steps to prevent disclosure and misuse of
the Licensed Software as it takes with respect to its own confidential
information.
ARTICLE 5 - COMMERCIAL EXCLUSIVITY
5.1 The Licensor and the Licensee agree to exclusively use and promote
the individual services provided by the other in their separate business
activities. Therefore, the Licensee and Henry Butcher International Limited and
Michael Fox International, Inc. and their respective affiliates will exclusively
use the Licensor for all on-line Electronic Business applications and the
Licensee for all on-line auction applications contemplated by this Agreement and
the Licensor and Positive Asset Remarketing, Inc. and their respective
affiliates will exclusively use the Licensee and/or Henry Butcher International
Limited and Michael Fox International, Inc. for the disposition of
Corporate/Investment Assets pertaining to auctions and private treaty sales. The
Licensor shall pay to the Licensee an amount equal to twenty percent (20%) of
the gross profits derived from any and all business referred to the Licensor by
the Licensee, and the Licensee shall pay to the Licensor an amount equal to
twenty percent (20%) of the gross profits derived from any and all business
referred to the Licensee by the Licensor. Notwithstanding anything to the
contrary contained herein, the Parties recognize that Henry Butcher
International Limited and Michael Fox International, Inc. and their respective
affiliates are presently developing the capability to allow bidders and others
to
-7-
<PAGE>
participate electronically in live auctions conducted or to be conducted by such
companies and the Parties hereby recognize and agree that such activities shall
not be subject to or restricted by the provisions of this Section 5.1. It is
understood by the Parties that Henry Butcher International Limited and Michael
Fox International, Inc. contemplate utilizing technology when developed to
facilitate participation electronically in live auctions and agree that should
the Licensor have such technology available, Henry Butcher International Limited
and Michael Fox International, Inc. shall utilize such technology as long as the
terms, conditions and pricing for use are competitive with other similar
technology available in the marketplace. It is further understood that should
Henry Butcher International Limited and Michael Fox International, Inc. choose
not to use the Licensor's technology referred to in the preceding sentence, then
the Licensor shall have the right to market said technology in the marketplace.
ARTICLE 6 - TERM AND TERMINATION
6.1 This Agreement shall remain in full force and effect until
terminated as hereinafter provided. This Agreement may be terminated by the
Licensor in the event that the Licensee shall be in material breach of any
provisions hereof and shall fail to remedy such material breach within thirty
(30) days after receiving written notice thereof from the Licensor; provided,
however, that, notwithstanding the foregoing, this Agreement may not be
terminated by the Licensor if, with respect to a material breach which is
incapable of cure during such 30 day period, after such 30 day period, the
Licensee is continuing to be diligently and in good faith seeking to cure such
failure, but in any event such attempt to cure shall not exceed a six (6) month
period, commencing upon the date of receipt by the Licensee of the Licensor's
notice of material breach. All rights and licenses granted under or pursuant to
this Agreement by the Licensor to the Licensee are, and shall otherwise be
deemed to be, for purposes of 11 U.S.C. 365, licenses of "intellectual property"
as defined under 11 U.S.C. 101 (56). If a judgment is entered into against the
Licensee in regards to any bankruptcy proceedings, for its own account, under
the Bankruptcy Code, or should the Licensee dissolve and/or wind up its business
and affairs, this Agreement shall terminate. The Parties further agree that, in
the event of a commencement of a bankruptcy proceeding by or against the
Licensor under the Bankruptcy Code, the Licensee shall be entitled to a complete
duplicate of (or complete access to, as appropriate) the Licensed Software and
any such intellectual property and all embodiments of the Licensed Software and
such intellectual property, and same, if not already in its possession, shall be
promptly delivered to the Licensee (i) upon any such commencement of a
bankruptcy proceeding, upon written request therefor by the Licensee, unless the
Licensor elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this
Agreement by or on behalf of the Licensor upon written request therefor by the
Licensee.
6.2 Upon dissolution of or the entry of a judgment in regards to any
bankruptcy proceed ing against the Licensee, all rights to the Licensed Software
and all copies of the Licensed Software that are in the Licensee's possession,
will revert back to and be returned to the Licensor.
-8-
<PAGE>
ARTICLE 7-DISCLAIMER OF WARRANTIES/LIMITATION OF LIABILITY
7.1 DISCLAIMER OF WARRANTIES - OTHER THAN AS SET FORTH IN ARTICLE 3
HEREOF, THE LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OR CONDITIONS OF ANY
KIND CONCERNING THE LICENSED SOFTWARE OR ITS USE, FUNCTION OR OWNERSHIP AND
SHALL NOT BE LIABLE IN ANY MANNER FOR ANY REPRESENTATION OR WARRANTY OR
CONDITION OF ANY KIND WHETHER EXPRESS OR IMPLIED OR COLLATERAL OR WHETHER
ARISING BY OPERA TION OF LAW OR OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MER CHANTABLE QUALITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT
THE LICENSED SOFTWARE WILL BE ERROR FREE.
7.2 LIMITATION OF LIABILITY - LICENSOR SHALL NOT HAVE ANY LIABILITY OF
ANY KIND FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT
OF ANY BREACH OF THIS AGREEMENT EVEN IF LICENSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, EXCEPT AS OTHERWISE PROVIDED IN ARTICLE 3 HEREOF.
ARTICLE 8 - OTHER PROVISIONS
8.1 Binding Effect - This Agreement is binding upon and shall inure to
the benefit of the Parties and their respective permitted successors and
assigns.
8.2 Survival - All representations, warranties, and indemnifications,
and obligations which expressly by their nature survive termination of this
Agreement, shall survive any termination of this Agreement and shall continue in
full force and effect subsequent to and notwithstanding such termination.
8.3 Notice - Any notice given hereunder shall be in writing and given
by personal delivery or sent by registered or certified mail, postage prepaid
and addressed to the Parties at the addresses shown on the first page hereof.
Any notice so given shall be deemed to have been received on the date on which
it was delivered or if sent by mail, on the third business day next following
the mailing thereof. In the event of actual or threatened sustained disruption
of postal service, notice shall not be sent by mail. Either party may change its
address hereunder by giving written notice of such change to the other party in
the manner provided above.
8.4 Counterparts - This Agreement may be executed in counterparts and
shall become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the Parties.
8.5 Independent Contractor - The Parties to this Agreement are each an
independent contractor as to the other and shall not be considered or deemed to
be an agent, employee, joint venturer or partner of the other except as
otherwise expressly agreed to in a writing signed by the Parties. Neither party
shall have authority to contract for or bind the other in any manner and shall
not represent itself as an agent of the other or as otherwise authorized to act
for or on behalf of the other.
IN WITNESS whereof the Parties have duly executed this Agreement as of
the date first written above.
BarterOne, L.L.C. asseTrade.com, Inc.
By: /s/Gary Lerman By: /s/Robert D. Kohn
-------------- -----------------
Name: Gary Lerman Name: Robert D. Kohn
------------- -----------------
Title: President Title: President
-9-
<PAGE>
ACKNOWLEDGEMENT
By executing below, Henry Butcher International Limited, a company
organized under the laws of the United Kingdom, Michael Fox International, Inc.,
a Maryland corporation, and Positive Asset Remarketing, Inc., a Massachusetts
corporation, expressly acknowledge the terms and conditions set forth in Section
5.1 of that certain Software License Agreement dated as of December 11, 1998,
and hereby expressly agree to be bound by their respective obligations and
commitments pursuant to such Section 5.1.
IN WITNESS WHEREOF, this acknowledgement has been executed by the
undersigned as of the 3rd day of February, 1999.
HENRY BUTCHER INTERNATIONAL
LIMITED
By: /s/Robert M. Novelly
------------------------------
Printed Name: Robert M. Novelly
---------------------
MICHAEL FOX INTERNATIONAL, INC.
By: /s/William Z. Fox
------------------------------
Printed Name: William Z. Fox
---------------------
POSITIVE ASSET REMARKETING, INC.
By: /s/Benjamin R. Kafka
-------------------------------
Printed Name: Benjamin R. Kafka
---------------------
-10-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Entrade Inc. of our report dated February 1, 1999 relating to the financial
statements and financial statement schedules of ARTRA Group Incorporated, which
appears in such Registration Statement. In addition, we hereby consent to the
use in such Registration Statement of our report dated May 13, 1999 relating to
the consolidated balance sheet of Entrade Inc. (formerly NA Acquisition Corp.).
We also consent to the references to us under the headings "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Chicago, Illinois
May 24, 1999
EXHIBIT 23.3
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Edward A. Celano
------------------------------
Edward A. Celano
EXHIBIT 23.4
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Gerard Kenny
------------------------------
Gerard Kenny
EXHIBIT 23.5
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Peter R. Harvey
------------------------------
Peter R. Harvey
EXHIBIT 23.6
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Maynard Louis
------------------------------
Maynard Louis
EXHIBIT 23.7
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Robert Johnson
------------------------------
Robert Johnson
EXHIBIT 23.8
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Mark Santacrose
------------------------------
Mark Santacrose
EXHIBIT 23.9
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ John Harvey
------------------------------
John Harvey
EXHIBIT 23.10
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ John K. Tull
------------------------------
John K. Tull
EXHIBIT 23.11
April 23, 1999
Board of Directors of
NA Acquisition Corp.
12 Springdale Road
Building 11
Cherry Hill, NJ 08003
Attention: Robert D. Kohn
Dear Mr. Kohn:
I consent to serve as a director of NA Acquisition Corp. upon
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of February 23, 1999 by and among Artra Group Incorporated, WWWX Merger
Subsidiary, NA Acquisition Corp. and WorldWide Web NetworX Corporation.
Sincerely,
/s/ Howard R. Conant
------------------------------
Howard Conant
