As filed with the Securities and Exchange Commission on July 20, 1999
Registration No. 333-79175
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM S-4
AMENDMENT NO. 1 TO
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
<PAGE>
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 formation 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. |_|
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. We will hold the meeting at .m., local time, on
August ___, 1999 at .
As you may know, Artra has entered into an agreement with Entrade Inc.
and WorldWide Web NetworX Corporation, providing for the merger of an Entrade
merger subsidiary with Artra. Upon the closing of the merger, Entrade will be
the parent company for Artra and Entrade's business-to-business Internet
e-commerce Company. Artra's current headquarters in Chicago will become
Entrade's headquarters after the merger. Entrade and Artra intend to apply to
list the Entrade common stock on the New York Stock Exchange under the trading
symbol "ATA."
The "Risk Factors" section beginning on page 12 describes material
risks that you should consider in deciding whether to vote for approval of the
merger agreement and the merger.
At the Artra Annual Meeting, in addition to the customary election of
directors and auditors, we will ask you to approve the merger agreement and the
merger. We will also ask you to vote to approve the issuance of up to 727,155
shares of common stock of Entrade after the merger to holders of preferred stock
of an Artra subsidiary. The Artra board of directors has approved the merger
agreement and the merger and recommends that you approve the merger agreement
and the merger.
This document gives you detailed information about the proposed merger.
We encourage you to read the entire document carefully.
This Proxy Statement/Prospectus and proxy card are being mailed to
shareholders of Artra on or about , 1999.
<PAGE>
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,
Mark F. Santacrose
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 AUGUST __, 1999
To the Shareholders of ARTRA GROUP INCORPORATED:
On August ___, 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 or Artra Series A
preferred stock at the close of business on June 25, 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, we will ask you to:
1. Vote upon a proposal to approve and adopt an Agreement and Plan
of Merger dated as of February 23, 1999, as amended, among Artra, Entrade Inc.,
WorldWide Web NetworX Corporation and an Entrade merger subsidiary and to
approve the merger.
2. Vote on the election of nine directors to serve until the 2000
Annual Meeting of Shareholders and until their successors are elected.
3. Ratify the appointment of PricewaterhouseCoopers LLP as Artra's
independent auditors for 1999.
4. Vote on a proposal to approve the issuance of up to 727,155
shares of Entrade common stock in exchange for the outstanding shares of BCA
Holdings Series A preferred stock and BCA Holdings Series B preferred stock. If
the parties terminate the merger agreement before the merger closes, your vote
on this matter will constitute a vote to approve the issuance of up to 727,155
shares of Artra common stock in the proposed exchange offer.
5. Transact any other business that may properly come before the
Artra Annual Meeting and any adjournment, postponement or continuation of the
Artra Annual Meeting.
The accompanying Proxy Statement/Prospectus includes a copy of the
merger agreement and amendments to the merger agreement as Appendix A. Holders
of Artra Series A 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. We
summarized these procedures under "The Artra Annual Meeting -- Artra Preferred
Stock Dissenters' Rights" and are attaching these Sections as Appendix B 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 its 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,
Mark F. Santacrose, President
July , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................................. 1
SUMMARY................................................................................................ 3
The Companies................................................................................. 3
Information About the Merger.................................................................. 4
The Proposed Merger..................................................................... 4
What Artra Shareholders Will Receive in the Merger....................................... 6
Entrade Will Not Issue Fractional Shares in the Merger................................... 6
Accounting Treatment of the Merger....................................................... 6
Important Federal Income Tax Consequences of the Merger.................................. 6
Vote Required to Approve the Merger and the Merger Agreement............................. 7
Artra Reasons for the Merger; Recommendation of the Artra
Board of Directors to the Artra Shareholders............................................. 7
Risks of the Merger...................................................................... 7
Information About the Merger Agreement........................................................ 7
Conditions to the Closing of the Merger.................................................. 7
Reasons Why the Parties Could Terminate the Merger Agreement
Prior to the Closing................................................................... 8
Termination Fees and Expenses............................................................ 9
No Solicitation of Offers from Another Party............................................. 9
Information About the Artra Annual Meeting.................................................... 9
Date, Time, Place and Purposes of the Artra Annual Meeting............................. 9
Record Date for Voting at the Artra Annual Meeting....................................... 10
Voting Rights at the Artra Annual Meeting................................................ 10
Artra Preferred Stock Dissenters' Rights................................................. 10
Other Merger Related Information.............................................................. 11
New York Stock Exchange Listing of Entrade Common Stock.................................. 11
Other Interests of Artra Officers and Directors and WorldWide............................ 11
Officers, Directors and Stockholders in the Merger..................................... 11
Information Concerning the Proposal to Approve the Issuance of
Entrade Common Stock in Exchange for the Outstanding Shares
BCA Holdings Series A Preferred Stock and BCA Holdings
Series B Preferred Stock................................................................. 11
Who Can Help Answer Your Questions............................................................ 11
RISK FACTORS........................................................................................... 12
Risk Factors Relating to Entrade and Its entrade.com Operations............................... 12
(i)
<PAGE>
Entrade is an early stage company. We have no operating history
upon which you may evaluate us....................................................... 12
We anticipate we will incur continued losses for the foreseeable
future............................................................................... 12
We may have difficulty obtaining future funding sources,
if needed, and we might have to accept terms that would
adversely affect shareholders........................................................ 13
Fluctuations in our quarterly results may adversely affect
our stock price...................................................................... 13
We intend to rely heavily on revenues from the utilities and
large industrial manufacturing sectors, and if these revenues
decline we might not be able to launch additional websites
or form new strategic alliances...................................................... 14
We may not develop additional revenue sources............................................ 15
Marketing and distribution alliances may not generate the expected
number of new customers or may be terminated......................................... 15
We may not be able to compete effectively with other providers
of e-commerce services............................................................... 15
We may not be able to protect our proprietary rights and we may
infringe the proprietary rights of others............................................ 16
We may not be able to acquire or maintain effective Web addresses........................ 18
Our business depends on the effective development of the Internet
as an effective e-commerce business and marketing forum............................. 18
We may be subject to legal liability for publishing or distributing
content over the Internet............................................................ 20
We depend on the continual introduction of enhanced software
capabilities and the functionality and capacity of our systems
for services offered by our e-commerce communities................................... 20
Acquisitions and new strategic alliances may disrupt or otherwise
have a negative impact on our business............................................... 21
Our success is dependent on retaining our current key personnel
and attracting additional key personnel.............................................. 21
Our system may not be Year 2000 compliant................................................ 22
The interests of our significant shareholders after the merger
may conflict with our interests and the interests of our
other shareholders................................................................... 23
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........................................ 23
Shares eligible for future sales by our current shareholders may
adversely affect our stock price..................................................... 23
Anti-takeover provisions and our right to issue preferred stock
could make a third party acquisition of us difficult................................. 24
The Entrade common stock price is likely to be highly volatile........................... 24
(ii)
<PAGE>
Risk Factors Related to Artra................................................................. 25
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 ................................................................ 25
Artra's potential environmental liabilities and other potential
liabilities from other claims may result in future costs to
Artra
that are difficult to estimate....................................................... 26
WHERE YOU CAN FIND MORE INFORMATION.................................................................... 27
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE........................................................ 27
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA.................................................................... 29
UNAUDITED PRO FORMA FINANCIAL INFORMATION.............................................................. 31
MARKET FOR ARTRA'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS....................................................................................... 32
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL
ARTRA SHAREHOLDERS AND MANAGEMENT ............................................................ 32
THE ARTRA ANNUAL MEETING............................................................................... 37
Time, Date and Place, Purpose of the Artra Annual Meeting................................ 37
Record Date; Vote Required............................................................... 38
Revocability of Proxies.................................................................. 38
Preferred Stock Dissenters' Rights ...................................................... 39
THE MERGER............................................................................................. 42
Background of the Merger...................................................................... 42
Management of Entrade after the Merger........................................................ 43
Artra Reasons for the Merger.................................................................. 43
Merger Consideration.......................................................................... 44
The Merger Closing Date....................................................................... 45
Federal Income Tax Consequences............................................................... 47
Accounting Treatment.......................................................................... 48
INTERESTS OF CERTAIN PERSONS IN THE MERGER
AND RELATED MATTERS........................................................................... 49
(iii)
<PAGE>
Interests of Artra Officers and Directors..................................................... 49
Interests of Entrade Officers and Directors................................................... 49
Agreement with Broker......................................................................... 50
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................................................ 50
The Merger.................................................................................... 50
The Merger Consideration...................................................................... 50
Representations and Warranties................................................................ 50
Covenants..................................................................................... 52
Conditions to the Merger...................................................................... 55
Termination of the Merger Agreement........................................................... 57
Effect of Termination and Termination Fees.................................................... 58
Related Agreements............................................................................ 59
Employment Agreements......................................................................... 59
COMPARISON OF SHAREHOLDER RIGHTS....................................................................... 63
DESCRIPTION OF ENTRADE CAPITAL STOCK................................................................... 64
General....................................................................................... 64
Authorized Capital Stock...................................................................... 64
Common Stock.................................................................................. 65
Preferred Stock............................................................................... 65
Transfer Agent................................................................................ 66
Anti-Takeover Provisions...................................................................... 66
Limitation of Liability....................................................................... 68
Outstanding Stock Options To Be Assumed by Entrade............................................ 68
Outstanding Warrants To Be Assumed by Entrade ................................................ 70
INFORMATION ABOUT ENTRADE and entrade.com.............................................................. 71
General....................................................................................... 71
Entrade's Acquisition of the entrade.com Assets
and 25% of the Voting Common Stock of asseTrade.com...................................... 71
Overview...................................................................................... 72
entrade.com's Solution........................................................................ 72
entrade.com's Services ...................................................................... 72
Initial Applications of entrade.com's Systems and Technologies................................ 76
Marketing and Strategic Alliances............................................................. 81
Proprietary Rights............................................................................ 81
Competition................................................................................... 81
Employees..................................................................................... 82
Legal Proceedings............................................................................. 82
(iv)
<PAGE>
ENTRADE PLAN OF OPERATIONS............................................................................. 83
MANAGEMENT OF ENTRADE ................................................................................. 84
Executive Compensation........................................................................ 87
Beneficial Ownership of Entrade Common Stock.................................................. 87
ENTRADE RELATED PARTY TRANSACTIONS..................................................................... 87
INFORMATION ABOUT ARTRA................................................................................ 89
General....................................................................................... 89
Employees..................................................................................... 90
Properties.................................................................................... 90
Legal Proceedings............................................................................. 90
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................ 93
ELECTION OF DIRECTORS OF ARTRA......................................................................... 105
MANAGEMENT OF ARTRA.................................................................................... 106
Directors and Executive Officers of Artra................................................ 106
Section 16(a) Beneficial Reporting Compliance ........................................... 109
ARTRA EXECUTIVE COMPENSATION........................................................................... 110
Directors' Compensation....................................................................... 110
Executive Officer Compensation................................................................ 110
Mark F. Santacrose Employment Agreement....................................................... 113
Compensation Committee Interlocks and Insider Participation................................... 114
Report of Compensation Committee.............................................................. 115
COMPARISON OF TOTAL RETURN ON ARTRA
COMMON STOCK WITH CERTAIN INDICES............................................................. 116
ARTRA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 117
ARTRA RATIFICATION OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP.................................................................... 121
PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF ENTRADE
COMMON STOCK IN EXCHANGE FOR THE OUTSTANDING
SHARES OF BCA HOLDINGS SERIES A PREFERRED STOCK
AND BCA HOLDINGS SERIES B PREFERRED STOCK..................................................... 122
(v)
<PAGE>
Background to the Proposal and Determination of the Exchange Rate ............................ 122
Reasons for the Issuance...................................................................... 123
Interests of Artra Executive Officers and Directors in the
Proposed Exchange ....................................................................... 123
Vote Required................................................................................. 124
ARTRA ANNUAL REPORT.................................................................................... 125
SHAREHOLDER PROPOSALS.................................................................................. 125
GENERAL AND OTHER MATTERS ............................................................................. 125
LEGAL MATTERS.......................................................................................... 125
EXPERTS................................................................................................ 126
INDEX TO FINANCIAL STATEMENTS.......................................................................... 127
APPENDICES:
Agreement and Plan of Merger, dated as of February 23, 1999, by and
among Artra Group Incorporated, WorldWide 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
ORBIT System(R) is a registered trademark of entrade.com, Inc., a
wholly owned subsidiary of Entrade.
</TABLE>
(vi)
<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 the designated proxies may
represent your shares 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 to complete the merger?
A: We hope to complete the merger in the third quarter of 1999. We are
working toward completing the merger as quickly as possible after the
Artra Annual Meeting.
Q: Will I owe any federal income tax as a result of the merger?
A: You will not owe any federal income tax on the exchange of shares of
Artra common stock and Artra preferred stock for Entrade common stock
in the merger.
To review federal income tax consequences in greater detail, see page
____.
1
<PAGE>
Q: Who can help answer my questions?
A: If you have any questions about the merger, please call:
Robert S. Gruber, Vice President - Corporate Relations
(212) 628-2554
2
<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 "Questions and Answers About the Merger" on page 1 and "Where You
Can Find More Information" on page 27.
We are attaching a copy of the merger agreement and the amendments to
the merger agreement 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 under an exchange offer of currently outstanding shares of preferred
stock of BCA Holdings, Inc. for an aggregate of approximately 727,155 shares of
Entrade common stock immediately after the closing of the merger. 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. Bagcraft Corporation of America,
a wholly owned subsidiary of Artra, operated the packaging products business.
Artra and Bagcraft completed the sale of Bagcraft's assets 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, or
Entrade common stock if this transaction occurs after the merger, and a $14.0
million note, subject to adjustment, payable over a two-year period subsequent
to the closing of the transaction. The parties have extended the expiration date
of the letter of intent to August 12, 1999 and are negotiating to further extend
the expiration date, if necessary. Artra doe not view the acquisition as
probable as Artra cannot assure you that the parties will complete their due
diligence or enter into a definitive agreement by that date. This proposed
transaction does not have any effect on the merger and will likely not occur, if
at all, until after the merger.
3
<PAGE>
Entrade Inc.
12 Springdale Road
Building 11
Cherry Hill, New Jersey 08003
Telephone: (609) 489-4455
Entrade, a Pennsylvania corporation, was incorporated in February 1999.
Entrade owns all of the outstanding shares of its subsidiary, entrade.com, and
25% of the voting common stock of asseTrade.com.
Entrade intends to operate as an Internet business-to-business
electronic commerce, or "e-commerce," service provider. entrade.com provides
business-to-business e-commerce technologies and related services to facilitate
the purchase and sale of clients' products and services including, inventory,
equipment and other assets. It intends to create and manage industry-specific
websites for marketing, sales and procurement of products and services.
We refer to this kind of website as a "vertical portal," which is a
website dedicated to a specific industry for use by companies in that particular
industry to buy and sell products and services. Under this business model,
entrade.com will generate commissions based upon these transactions and license
fees for its software. entrade.com is directing its initial marketing efforts to
utilities through utiliparts.com and to the heavy equipment industry through
asseTrade.com. entrade.com owns and operates the utiliparts.com website.
asseTrade.com is a strategic alliance in which entrade.com holds a 25% voting
interest. entrade.com developed the asseTrade.com website, which also uses
entrade.com's software.
Following the closing 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 after the merger. We anticipate that
the New York Stock Exchange will list the Entrade common stock under the symbol
"ATA."
Information About the Merger
The Proposed Merger (Page 42)
The merger will result in the combination of Artra with Entrade. As a
result of the merger, Artra will become a wholly owned subsidiary of Entrade.
The following organizational chart sets forth the structure of Entrade and Artra
before the merger and the structure of Entrade after the merger:
4
<PAGE>
Organizational Chart
Prior to the Merger
<TABLE>
<CAPTION>
Artra Group Incorporated Entrade Inc.
Artra Shareholders* WorldWide Energy Trading Company
------------------- --------- ----------------------
<S> <C> <C> <C>
| \ /
| (100%) (90%) \ / (10%)
| \ /
Artra Entrade
- - - -| | | - - - -
| | |
| (100%) | (100%) | (25%)
| | |
Entrade merger subsidiary entrade.com asseTrade.com
After the Merger
Entrade Inc.
Former Artra Shareholders* Worldwide Energy Trading Company
| / /
(83.8%) | / (14.6%) / (1.6%)
| / /
| / /
| / /
Entrade
- - - - - - -| | |- - - - - - - -
| | |
| (100% | (100%) | (25%)
| | |
Artra entrade.com asseTrade.com
- ---------------------------
<FN>
* For purposes of this organizational chart, we have assumed that all
holders of BCA Holdings preferred stock will accept the exchange offer
of Entrade common stock for their BCA Holdings preferred stock shares.
</FN>
</TABLE>
5
<PAGE>
Following the merger:
o Artra's senior management will hold positions with Entrade similar
to their current positions with Artra;
o The board of directors of Entrade will consist of the current
directors of Artra and Robert Kohn, the current Chairman and Chief
Executive Officer of Entrade; and
o Robert Kohn will then resign as Chairman and Chief Executive
Officer of Entrade and become the Chief Executive Officer of the
entrade.com subsidiary.
What Artra Shareholders Will Receive in the Merger (Page 44)
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. After the
merger, the shareholders of Artra will own approximately 10,316,883 shares, or
83.8%, of the outstanding Entrade common stock, and WorldWide 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 16.2%, 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.
Entrade Will Not Issue Fractional Shares in the Merger (Page 44)
Entrade will not issue fractional shares of Entrade common stock in the
merger. Holders of Artra preferred stock otherwise entitled to receive a
fractional share of Entrade common stock following the merger will receive cash
in lieu of any fractional shares, as described in "The Merger -- Merger
Consideration -- No Fractional Shares."
Accounting Treatment of the Merger (Page 48)
Artra and Entrade intend to account for the merger as a purchase.
Important Federal Income Tax Consequences of the Merger (Page 47)
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.
6
<PAGE>
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.
Vote Required to Approve the Merger and the Merger Agreement (Page 38)
We cannot complete the merger unless the holders of Artra common stock
and the holders of Artra Series A preferred stock, voting as separate classes,
vote 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. Artra will not consider abstentions and broker
non-votes as votes cast, and they will have no effect on the outcome of the vote
on the merger agreement and the merger. As of June 30, 1999, the executive
officers and directors of Artra as a group beneficially owned approximately
26.3% of the outstanding shares of Artra common stock, including currently
exercisable options. Also, as of June 30, 1999, executive officers and directors
of Artra as a group beneficially owned approximately 3.8% of the outstanding
shares of Artra preferred stock, and a trust for the benefit of adult children
of Artra's Chairman held approximately 50.4% of the outstanding shares of Artra
preferred stock.
Artra Reasons for the Merger; Recommendatio of the Artra Board of
Directors to the Artra Shareholders (Page 43)
At its meeting 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, the most important of
which was the need to find a company that would develop into an operating
business for Artra after the sale of its Bagcraft subsidiary's business in
November 1998. The Artra board of directors did not seek a fairness opinion in
making this recommendation.
Risks of the Merger (Page 12)
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 12.
Information About the Merger Agreement
Conditions to the Closing of the Merger (Page 55)
o The approval by Artra shareholders;
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o The absence of legal restraints or prohibitions that prevent the
completion of the merger;
o The receipt of all required consents, authorizations, orders,
approvals and written affirmations;
o The listing of all the Entrade common stock on the New York Stock
Exchange, or if listing on the New York Stock Exchange does not
approve the listing, Entrade must file an application for listing
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.
Reasons Why the Parties Could Terminate the Merger Agreement Prior to
the Closing (Page 57)
Artra and WorldWide may terminate the merger agreement prior to the
effective time of the merger by mutual written consent. Either Artra or
WorldWide may terminate the merger agreement if:
o The parties do not close the merger by September 30, 1999;
o Artra's shareholders do not approve the merger agreement and the
merger at the Artra Annual Meeting; or
o A governmental entity prohibits or permanently enjoins the merger.
WorldWide may terminate the merger agreement if:
o The WorldWide board of directors determines, in the exercise of
its good faith judgment as to fiduciary duties to its stockholders
imposed by law, that 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 any breach of the representatives and warranties 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;"
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o Artra fails to perform a material obligation under the merger
agreement and cannot cure that failure within a specified period;
or
o The Artra board of directors withdraws or modifies in a manner
materially adverse to WorldWide its approval or recommendation of
the merger agreement or the merger.
Artra may terminate the merger agreement if:
o The WorldWide board of directors withdraws or modifies in a manner
materially adverse to Artra its approval or recommendation of the
merger agreement or the merger;
o Any of WorldWide's or Entrade's representations and warranties is
not true and correct, if any breach of the representations and
warranties 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 WorldWide or Entrade fails to perform a material obligation under
the merger agreement and cannot cure that failure within a
specified period.
Termination Fees and Expenses (Page 58)
If the Artra shareholders fail to approve the merger and the merger
agreement, all obligations of WorldWide and Entrade to repay the amounts loaned
to either or both of them by Artra under the loan agreement (see page 58) will
terminate.
No Solicitation of Offers from Another Party (Page 54)
Entrade and WorldWide have agreed, subject to 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.
Information About the Artra Annual Meeting (Page 37)
Date, Time, Place and Purposes of the Artra Annual Meeting
Date: __________, 1999
Time: 10 a.m, local time
Place: _________________
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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 any other business that 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 38)
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 June 25, 1999, the Artra record date. On
the Artra record date, 8,880,223 shares of Artra common stock and 1,849.34
shares of Artra Series A preferred stock were outstanding.
Voting Rights at the Artra Annual Meeting (Page 38)
You will have one vote for each share of Artra common stock and Artra
preferred stock you own for purposes of each matter voted upon at the Artra
Annual Meeting. You may 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 that you may 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.
Artra Preferred Stock Dissenters' Rights (Page 39)
If a holder of Artra preferred stock does not vote for the merger
agreement and the merger, that holder will have the right under Pennsylvania law
to dissent to the merger and request an appraisal of the value of that holder's
shares of Artra preferred stock in connection with the merger.
In order to preserve this right, a dissenting holder must follow the
procedures discussed in Appendix B.
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Other Merger Related Information
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 Entrade will have outstanding after the merger and shares of Entrade common
stock reserved for issuance under the Artra options and warrants that Entrade
will assume in the merger. The proposed trading symbol for the Entrade common
stock is "ATA."
The Entrade listing, if approved by the Exchange, will be as successor
to the Artra listing. As the successor to the Artra listing, the Exchange will
review the continued listing of Entrade on a quarterly basis for compliance with
the business plan submitted by Artra and Entrade to the Exchange. See "Risk
Factors -- 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."
Other Interests of Artra Officers and Directors and WorldWide Officers,
Directors and Stockholders in the Merger (Page 49)
In considering the recommendations of Artra's board of directors that
you approve the merger agreement and the merger, you should note that officers
of Artra and officers, directors and stockholders of WorldWide have interests in
the merger that are different from, or in addition to, your interests. See
"Interests of Certain Persons in the Merger."
Information Concerning the Proposal to Approve the Issuance of Entrade Common
Stock in Exchange for the Outstanding Shares of BCA Holdings Preferred Stock
(Page 122)
At the Artra Annual Meeting, we will also ask you to approve the
issuance of up to 717,155 shares of Entrade common stock in exchange for all of
the outstanding shares of BCA Holdings Series A preferred stock and BCA Holdings
Series B preferred stock. If the merger closes and you approve this proposal,
Entrade will issue these shares of Entrade common stock for the BCA Holdings
preferred stock after the merger to those holders of BCA Holdings preferred
stock who accept the exchange offer. If the merger does not close, Artra will
issue up to 717,155 shares of Artra common stock for the BCA Holdings preferred
stock, if you approve this proposal.
Who Can Help Answer Your Questions?
If you have questions about the merger you should contact:
Robert S. Gruber, Vice President - Corporate Relations
(212) 628-2554
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RISK FACTORS
You should carefully consider the following risk factors and the other
information in this Proxy Statement/Prospectus before deciding how to vote. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of the Entrade common stock could decline due
to any of these risks, and you may lose all or part of your investment.
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:
Entrade is an early stage company. 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. Our lack of operating history and
evolving revenue model make it difficult to evaluate our future prospects and
evaluate our business strategy. This means that you will have only limited
information upon which to base an investment and voting decision on the merger
agreement and the merger.
We will encounter risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets. Many of these risks
are described in more detail in this "Risk Factors" section. We may not
successfully address any of these risks. If we do not successfully address these
risks, our business would be seriously harmed.
We anticipate we will incur continued losses for the foreseeable
future.
We expect to incur significant losses for the foreseeable future. To
date, we have generated only minimal revenues and have not been profitable. Our
revenues may not grow. We expect to derive revenues from our utiliparts.com
website, which is based on an unproven business model. We may never be
profitable or, if we become profitable, we may be unable to sustain
profitability.
The anticipated losses may result from our plan to increase our
operating expenses to:
o launch additional on-line websites where clients from specific
industries can purchase and sell equipment, inventory and other
assets;
o increase our sales and marketing operations;
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o broaden our customer support and software capabilities; and
o pursue strategic marketing and distribution alliances.
Some of our expenses are or will be fixed, including non-cancelable
agreements, equipment 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. Expenses may also increase due to the potential impact of goodwill and
other charges from any future acquisitions. Continued losses may result in our
inability to develop additional strategic alliances and business-specific
websites, which is important to our plan to generate and grow future revenues.
We may have difficulty obtaining future funding sources, if needed, and
we might have to accept terms that would adversely affect shareholders.
No assurance exists that we will attain profitability. If revenues from
entrade.com's operations are less than anticipated in 1999 and 2000, we may need
to raise funds from additional financings. We have no commitments for any
financing other than from Artra, and any financing commitments may result in
dilution to our existing shareholders after the merger.
We may have difficulty obtaining additional funding, and we may have to
accept terms that would adversely affect our shareholders. For example, 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. Also, lending
institutions or private investors may impose restrictions on a future decision
by us to make capital expenditures, acquisitions or significant asset sales.
We may not be able to locate additional funding sources at all.
If we cannot raise funds on acceptable terms, if and when needed, we
may not be able to develop or enhance our services to customers, launch
additional websites, take advantage of future opportunities for strategic
alliances within a particular industry, grow our business or respond to
competitive pressures or unanticipated requirements, which could seriously harm
our business.
Fluctuations in our quarterly results may adversely affect our stock
price.
Our quarterly operating results will likely vary significantly in the
future. We believe that period-to-period comparisons of our results of
operations will not be meaningful in the short term and should not be relied
upon as indicators of future performance. Our operating results will likely fall
below the expectations of securities analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.
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Our quarterly operating results may vary depending on a number of
factors, including:
o demand of buyers and sellers to use our websites to list and
purchase equipment, inventory and parts;
o our ability in both the short and long term to overcome reluctance
of companies to use the Internet to buy and sell equipment,
inventory, parts and other assets;
o actions taken by our competitors, including new product
introductions and enhancements;
o size and timing of sales of our services;
o our ability to control costs;
o budget cycles of buyers and sellers of equipment, inventory and
parts and changes in these budget cycles; and
o general economic factors.
For example, our quarterly revenues are subject to fluctuation because
the potential for the listing and selling of large expensive equipment, such as
multiple sales of steam generators, could be significantly greater in some time
periods than others. As a result, our quarterly operating results may fluctuate
significantly. Also, launching one or more additional websites in one or more
consecutive quarters might increase our costs significantly compared to other
quarters.
We intend to rely initially on revenues from the utilities and large
industrial companies, and if we do not generate revenues from these two
markets, or the revenues are lower than we anticipate, we might not
have the resources to launch additional websites or form new strategic
alliances.
We intend to rely on revenues generated from technology licenses fees,
commission fees from our websites and maintenance and service fees. Our
principal initial targeted markets will be the utility industry and large
industrial manufacturing companies. If we do not generate revenue from these two
markets or they are lower than we anticipate, we may not be able to successfully
create other industry-specific websites that will generate additional license
and commission fees.
Our inability to generate and increase revenues in these initial
markets may depend on many factors, including:
o corporations may be reluctant to use our e-commerce websites;
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o a large number of buyers and sellers of assets on our websites in
these markets, both domestically and internationally, may not
develop;
o buyers might not accept purchasing "new" third party equipment and
parts without associated original equipment warranties or
aftermarket services programs;
o export/import regulations and fees could hamper or halt the
international shipment and transfer of electric generation
equipment, particularly nuclear generation equipment; and
o current and future competitors could offer similar services.
We may not be able to form other strategic alliances or other
business-specific websites to offset the inability to generate and grow revenues
in these two markets due to lack of sufficient financial resources or expertise
in the newly targeted industry.
We may not develop additional revenue sources.
We plan to generate revenues through revenue sharing relationships with
strategic partners with whom we would form websites for the sale of assets and
services to particular industries. To generate significant revenues from
Internet business-to-business e-commerce, we will have to continue to build
these business relationships through our contacts within that industry and the
expertise of our current or future personnel in that industry. If we are not
able to build these relationships with strategic partners, we will have
difficulty developing additional business specific websites in order to generate
revenues.
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 websites to
Internet search engines and other websites. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' websites.
These arrangements may not generate the number of new customers we
expect. 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 other on-line websites might not grow and could decrease.
We may not be able to compete effectively with other providers of
e-commerce services.
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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 traditional 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 websites at a
relatively low cost. We expect that additional companies will establish
competing on-line business communities on a stand-alone basis.
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, well-known
leaders in specific industries will create other niche business-to-business
services that may compete with our services. These large industry leaders,
particularly major original equipment manufacturers of utility and industrial
equipment, would have better name recognition in the market that we may target.
Also, their larger financial resources may enable them to market to potential
buyers and sellers of equipment, inventory, parts and other assets and launch
more widespread marketing campaigns that would make it more difficult for us to
compete.
We may not be able to protect our proprietary rights, and we may
infringe the proprietary rights of others.
Proprietary rights are important to our success and our competitive
position. Our ORBIT System is a federally registered 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, we may not be able to protect our domain names for our
on-line industry-specific websites as trademarks because those names may be too
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 confusion among potential customers 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, this confusion may injure our
reputation for quality.
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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 whether our service marks,
trademarks and similar items may infringe on the rights of third parties. If
third parties successfully assert claims of trademark, service mark or other
infringement, the third party or a court or other administrative body may
require us 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 difficulties for our customers in locating us or
not connecting our new names and marks with our prior names and marks, resulting
in loss of business.
While we seek to protect our software, text, designs and other works of
authorship by copyright, it is not possible to detect all possible
infringements. Also, copyright protection does not extend to functional features
of software and will not be effective to prevent third parties from duplicating
our software's capabilities through engineering research and development.
We may under limited circumstances grant access to the source code for
our software to some of our licensees. We believe that whenever we grant access
to source code, it is easier for those receiving access to the software to
improperly use and modify the software. This access increases the risk of
infringement to our software and may prevent us from receiving royalties from
unauthorized users of the software.
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 a third party, the third party or a court or other
administrative body could require us to pay royalties for past use and for
continued use, or to modify or replace the software to avoid infringement. We
cannot assure you that we will be able to modify or replace the software.
In addition, effective copyright and trademark protection may be
unenforceable or limited in some 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. The representations as to the origin and ownership of
licensed content that we generally obtain 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.
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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 result in diversion or the loss of
potential or existing customers.
Governmental agencies and their designees regulate the acquisition and
maintenance of web addresses generally. For example, in the United 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 website 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 these 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 computers with academic institutions'
computers, the Internet was historically administered by organizations 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 administration of
the Internet infrastructure and the legal uncertainties that may follow, pose
risks to the commercial Internet industry and our specific website business. 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, including the government, Internet service
providers and developers of system software and software language. These
organizations may find that achieving a consensus may become difficult,
impossible, time-consuming and costly.
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 the Federal Communications Commission or
other United States regulatory agencies directly
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regulating our business. Additionally, as Internet use becomes more
internationally widespread, there is an increased likelihood of international
regulation. For example, import/export regulations and related costs may limit
the growth of our utiliparts.com business.
We cannot predict whether or to what extent any new regulation
affecting e-commerce will occur. New regulation could increase our costs. For
example, we do not collect sales or other similar taxes with respect to the
equipment, inventory and other products sold through our on-line communities.
One or more states may seek to impose sales tax collection obligations on
out-of-state companies like us that engage in or facilitate e-commerce. States
and local governments have made proposals that would impose additional taxes on
the sale of goods and services over the Internet. A successful assertion by one
or more states or any foreign country that we should collect sales and other
taxes on the exchange of equipment, inventory and other goods on our system
could increase costs that we could have difficulty recovering from users of our
website.
Adoption of the Internet as a medium for utilities and large
manufacturing industry asset trading and distribution is uncertain.
The growth of the Internet for trading and distribution of assets and
equipment for utilities and large manufacturing companies requires validation of
the Internet as an effective medium for this purpose. This validation has yet to
fully occur. For example, critical issues concerning use of the Internet
including security, reliability, cost, ease of use and quality of service remain
unresolved and could adversely affect the growth of and the degree to which
business is conducted over the Internet and our websites.
We may face increased access costs from browser providers and Internet
distribution channels.
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 losses
may increase.
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, including, for example, business and
supply requirements, credit card numbers and other forms of 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 we may face additional legal exposure.
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Despite the measures we have taken in the areas of encryption and
password or other authentication software devices, 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. These risks may
require us to make significant investments and efforts to protect against or
remedy security breaches, which would increase the costs of maintaining our
websites.
Our computers and telecommunications equipment are maintained by a
third party server hosting company. Any system interruptions may cause our
on-line websites to be unavailable to web browsers and may reduce their
attractiveness to our customers and potential customers.
Also, we could experience delays in switching to a new service
provider. Any delays in response time or performance problems would cause users
of our system to perceive our service as not functioning properly and cause them
to use other methods to sell or procure equipment, excess inventory and other
assets.
We may be subject to legal liability for publishing or distributing
content over the Internet.
We may be subject to legal claims relating to the content in our
industry-specific on-line websites, or the downloading and distribution of
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, we draw some of the content provided in our on-line
business communities 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. Costs from these claims that are not
covered by our insurance or exceed our coverage would damage our business and
limit our financial resources.
We depend on the continual introduction of enhanced software
capabilities and the functionality and capacity of our systems for
services offered by our e-commerce communities.
As traffic in our on-line websites 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 websites. 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 websites. If we do not appropriately upgrade our systems,
network hardware and software on an ongoing basis, we may have difficulty
retaining our customers and competing effectively.
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The life cycles of the software used to support our e-commerce services
are difficult to predict because the market for our e-commerce websites for
sales and procurement of equipment, inventory and assets is new and emerging and
is characterized by changing customer needs and industry standards. The
introduction of on-line products employing new technologies and industry
standards could render our existing system obsolete and unmarketable. For
example, entrade.com's new software system that we intend to launch in the third
quarter of 1999 is written in the Microsoft's SLQ7.0 computer language. If a new
software language becomes the industry standard, we may need to rewrite the
software to remain competitive. We may not be able to respond in a
cost-effective way and lose business as a result.
Acquisitions and new strategic alliances 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 relatively new management team and other resources
and make it difficult to maintain our standards, controls and
procedures;
o we may acquire companies or make strategic alliances 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 or new alliance 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.
Our success is dependent on retaining our current key personnel and
attracting additional key personnel, particularly in the areas of
sales, technical services and customer support.
We believe that our success will depend on continued employment of our
senior management team and key technical personnel for the development of our
on-line services and the attraction of large businesses to use our on-line
websites for the purchase and sale of equipment, inventory and assets. Because
our management team as a unit is relatively new, it has a limited track record
upon which you can evaluate them. Their experience in e- commerce asset sales
and procurement is important to the establishment of our on-line websites in
various industries.
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We may not be able to retain these persons after the terms of their
employment agreements expire or their services could be lost for other reasons.
The loss of the services of one or more of our management personnel could
seriously harm our business.
Our success also depends on having a highly trained sales force,
telesales group and technical and customer support personnel. We will need to
continue to hire additional personnel as our business grows. We have perceived a
shortage in the number of trained sales, technical and customer support
personnel in the on-line service industry. This shortage could limit our ability
to increase sales in our on-line websites and to sell services as we launch
additional websites. Competition for personnel, particularly for employees with
technical expertise, is intense. New hires also frequently require extensive
training before they achieve desired levels of productivity. If we cannot hire
and retain suitable personnel, we may not be able to effectively expand and
develop new business communities or support those that are developed, resulting
in loss of customers and revenues.
Our systems may not be Year 2000 compliant.
We may realize exposure and risk if the systems on which we are
dependent to conduct our operations are not Year 2000 compliant. We are in the
process of completing the testing of our internal computer systems and our
internal computer software and our non-IT systems for year 2000 compliance and
anticipate that we will complete all testing by the end of September 1999.
We are in the process of confirming Year 2000 compliance by our third
party service providers through surveys circulated to them. We expect to
complete this survey process by the end of September 1999. 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 these 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 websites may become unavailable. Our
contingency plans include hosting the production websites directly from our
office or from a development or staging server that is Year 2000 compliant.
While we believe that we will be able to transfer our servers to another service
provider within a two to three- day period if it is necessary to implement this
plan, we cannot assure you that we can complete that transfer without
significant disruption.
22
<PAGE>
The interests of our significant shareholders after the merger may
conflict with our interests and the interests of our other
shareholders.
As a result of its stock ownership, WorldWide may be in a position to
affect significantly our corporate actions, including, for example, mergers or
takeover attempts, in a manner that could conflict with the interests of our
public shareholders. WorldWide will own 1,800,000 shares or approximately 14.6%
of the outstanding shares of Entrade common stock after the merger. Principals
of entrade.com, who will resign from their positions with WorldWide after the
merger, also hold stock options to purchase an aggregate of 1,600,000 shares of
Artra common stock. Although this may not necessarily constitute a controlling
block, the significant block represented could impact significant corporate
transactions and delay or prevent a third party from acquiring control over us.
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.
Due to our minority interest in asseTrade.com, we may experience a
reduction or loss in the value we derive from asseTrade.com both as an
investment and as a potential source of business, customers and services for our
websites. 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.
Shares eligible for future sales by our current shareholders may
adversely affect our stock price.
If our existing shareholders sell substantial amounts of Entrade common
stock, including shares issued on the exercise of outstanding options and
warrants, in the public market following the merger, then the market price of
our common stock could fall. Our current shareholders are:
Name of Number of Shares
Entrade Shareholder Of Entrade Common Stock
------------------- -----------------------
WorldWide 1,800,000 shares
Energy Trading Company 200,000 shares
WorldWide is subject to a lockup under the merger agreement for sales
or transfers of its Entrade shares until February 2000, subject to exceptions
for pledges or the distribution of up to 25% of the Entrade shares to
WorldWide's shareholders, who would also be subject to the lockup. After this
period, these shareholders will be able to utilize Rule 144 to sell shares
commencing in February 2000.
23
<PAGE>
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 assume from Artra in the merger. After such registration statements 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 after the merger must 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 a change in control would be beneficial to shareholders.
For a discussion of these anti-takeover provisions, see "Description of Entrade
Capital Stock -- Anti-Takeover Provisions."
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. Our board of
directors may issue preferred stock with voting or conversion rights that may
have the effect of delaying, deferring or preventing a change of control of us
and would adversely affect the market price of the Entrade common stock and
voting and other rights of holders of Entrade common stock. We currently have no
plans to issue any preferred stock.
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 this volatility. The
trading prices of many technology and Internet-related companies' stocks have
reached historical highs within the 18 months and have reflected relative
valuations substantially above historical levels. During the same period, these
companies' stocks have also been highly volatile and have recorded lows well
below those 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 this volatility may include, among other
things:
24
<PAGE>
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;
o conditions or trends in the utilities and large manufacturing
industries;
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 partnerships 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 had fallen below the New York Stock Exchange's quantitative and
other continued listing criteria. These criteria included the New York Stock
Exchange's net tangilble assets and average three-year net income requirements.
Also, after the sale of Artra's Bagcraft subsidiary, Artra has lacked an ongoing
operating business as required under the New York Stock Exchange's rules. At the
New York Stock Exchange's request, Artra has provided a definitive action plan
demonstrating Artra's ability to achieve compliance with the Exchange's listing
standards, including the succession of Entrade common stock to this 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 the closing of the merger during the third
quarter of 1999. If the merger is not completed, 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.
25
<PAGE>
The New York Stock Exchange has informed us that on June 3, 1999, the
board of directors of the New York Stock Exchange approved new quantitative
continued listing
standards. The New York Stock Exchange has filed these new standards for
approval with the Commission. These new standards focus on market
capitalization, stockholders' equity and share price. The New York Stock
Exchange will continue to review Entrade's status for a period of twelve months
after the closing of the merger.
If the New York Stock Exchange suspends trading in and delists the
Artra common stock, or after the merger the Entrade common stock, Artra or
Entrade would attempt to list the shares on another exchange or quotation system
such as Nasdaq. We cannot assure you that we can successfully effect this new
listing. As a result, if we are not able to effect this listing, you may face
difficulty in trading your shares and lower share prices.
Artra's potential environmental liabilities and other potential
liabilities from other claims may result in future costs to Artra that
are difficult to estimate.
Former operations of Artra and its subsidiaries have been subject to
requirements imposed under 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 and the Occupational Safety and Health
Act and comparable state laws, relating to 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. Artra
has provided accruals for 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 these activities if undertaken. See "Information
About Artra -- Legal Proceedings" on page 90.
In recent years, Artra has been a party to product liability asbestos
claims relating to the former The Synkoloid Company subsidiary. As of September
1998, Artra's primary insurance carriers had paid approximately $13 million in
claims related to Synkoloid products, at which point the primary carriers
asserted that primary insurance coverage had been exhausted. Artra's excess
insurance carriers have assumed the defense of all Synkoloid product liability
claims from that date. Through March 31, 1999, these carriers had paid
approximately $4.4 million to settle claims. Artra is not able to quantify the
potential costs of claims that remain outstanding or unasserted. If claims
exceed the insurance coverage, Artra's financial position could be adversely
affected and Artra's ability to fund its operations or those of its current or
future affiliates would be impaired. See "Information About Artra -- Legal
Proceedings" on page 90.
26
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Artra files annual, quarterly and current reports, proxy statements and
other information with 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 Commission 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 Statement/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 Registration 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 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.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Proxy Statement/Prospectus contains "forward-looking statements."
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 and entrade.com -- Entrade Plan of
Operations," "Management of Entrade," and elsewhere in this Proxy
Statement/Prospectus relate to expectations concerning matters that are not
historical facts. We intend to identify forward-looking statements with words
such as "projects," "believes," "anticipates," "plans," "expects," "intends,"
estimates" and similar words and
27
<PAGE>
expressions. We have set forth important factors that would cause actual results
to differ materially from these expectations "Risk Factors" beginning on page
14. These factors 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;
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 marketing forum; and
o Dependence on key personnel.
All forward-looking statements attributable to Artra are expressly
qualified in their entirety by these factors as described in this Proxy
Statement/Prospectus. All forward-looking statements attributable to Entrade are
expressly qualified in their entirety by these factors as described in this
Proxy Statement/Prospectus. 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.
28
<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 discontinued 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 operations.
<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 ............... -- -- -- -- -- -- --
29
<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 subsidiary.
(D) Artra incurred a compensation charge of $300,000 during the first
quarter of 1999 relating to stock options to four 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>
30
<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.
The following unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 1999 is presented as if 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 had no
operations and no revenues related to the assets acquired. asseTrade.com 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 this information would not be meaningful.
31
<PAGE>
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 Entrade Inc. common shares to be
issued as consideration for the Entrade Inc. transaction, net.
Number of common shares to be issued 2,000
Market value at February 23, 1999
(less 15% blockage discount) $4.940625
---------
Fair market value of 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>
31 (a)
<PAGE>
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
Entrade Inc. common shares exchanged for
ARTRA preferred shares 1,335
----------
11,400
==========
</FN>
</TABLE>
31 (b)
<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 on the closing 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. On July 16, 1999, the high and low sales prices of Artra common stock
as reported on the New York Stock Exchange were $11.8125 and $12.625,
respectively.
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 preferred stock. The dividends accrued on
Artra preferred stock as of February 28, 1999 was $1,275,899.
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 and Artra preferred
stock by (1) each person who is known by Artra to own beneficially more than 5%
of the outstanding shares of Artra common stock and Artra preferred stock, (2)
each director and nominee for director, (3) each executive officer named in the
Summary Compensation Table and (4) all executive officers
32
<PAGE>
and directors of Artra as a group. The table also shows the number and
percentage of shares of Entrade common stock that these persons will own at the
closing of the merger, including the shares of Entrade common stock that these
persons will receive in exchange for BCA Holdings preferred stock.
<TABLE>
<CAPTION>
Number of
Number of Entrade Shares Entrade
Artra Shares Beneficially Percent
Title of Beneficially Artra Percent To Be Owned After the
Name of Beneficial Owner Artra Shares Owned of Class After the Merger Merger
- ------------------------ ------------ ----- -------- ---------------- ------
5% Holders:
<S> <C> <C> <C> <C>
The Equitable Companies Common 559,099 6.3% 559,099 4.5%
Incorporated(1)
Peter R. Harvey(2) Common 590,243 6.5% 699,893 5.6%
John Harvey(3) Common 531,906 5.8% 836,191 6.6%
Series A Preferred 34.82 1.9%
B. Rymer Insurance Trust(4) Series A Preferred 169.74 9.2% 55,844 *
Philip E. Ruben(5) Series A Preferred 949.30 51.3% 312,319 2.5%
Directors(6):
Gerard M. Kenny(7) Common 180,064 2.0% 180,064 1.5%
Maynard K. Louis(8) Common 84,500 1.0% 84,500 *
Edward A. Celano(9) Common 18,700 * 18,700 *
Howard R. Conant(10) Common 324,000 3.7% 324,000 2.6%
Robert L. Johnson(11) Common 17,873 * 21,139 *
Series A Preferred 9.93 *
Mark F. Santacrose(12) Common 222,500 2.5% 222,500 1.8%
John K. Tull(13) Common 35,143 * 40,587 *
Series A Preferred 16.55 1.0%
Executive Officers(14):
John G. Hamm(15) Common 177,232 2.0% 196,002 1.6%
Robert S. Gruber(16) Common 152,354 1.7% 155,624 1.3%
Series A Preferred 9.93 *
James D. Doering(17) Common 147,693 1.6% 147,693 1.2%
All directors and officers as a Common 2,797,727 26.3% 3,242,479 23.0%
group (15 persons)(18) Series A Preferred 71.23 3.8%
- ------------------
<FN>
* Less than 1% of the outstanding shares.
(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,
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<PAGE>
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 373,615 shares held directly by him, 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 Entrade common stock also include 22,500 shares that
Peter Harvey will receive after the merger as trustee for family trusts in
exchange for BCA Holdings preferred stock and 87,150 shares that he will
receive individually in exchange for BCA Holdings preferred stock.
(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 Entrade common stock include 5,625 shares
that John Harvey's wife will receive after the merger for BCA Holdings
preferred stock and 287,205 that John Harvey will receive after the merger
individually for BCA Holdings preferred stock.
(4) The address of B. Rymer Insurance Trust is 300 West Washington, Suite 1106,
Chicago, Illinois 60606.
(5) Philip E. Ruben's address is 211 Waukegan Road, Suite 300, Northfield
Illinois 60606. Of the shares of Artra 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.
(6) Excludes directors listed under "5% Holders."
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(7) 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 -- Gerard M. Kenny" on Page
118.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) The shares of Artra common stock beneficially owned by Mr. Santacrose
consist of 10,000 shares owned by him directly, 10,000 shares issuable
under an option which expires January 6, 2009 at an exercise price of $4.75
per share, 2,500 shares issuable under an option which expires February 1,
2009 at an exercise price of $5.375 per share and 200,000 issuable under an
option which expires June 28, 2009 at an exercise price of $10 per share.
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<PAGE>
(13) 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.
(14) Excludes executive officers listed under "Directors."
(15) 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. The shares of Entrade common stock also include 18,770 shares that
Mr. Hamm will receive after the merger in exchange for BCA Holdings
preferred stock.
(16) 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.
(17) 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.
(18) The shares of Artra common stock held by this group include an aggregate of
1,777,099 shares that these persons have the right to purchase under
currently exercisable stock options.
</FN>
</TABLE>
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<PAGE>
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 August ___, 1999, at for the following purposes:
(1) 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, Entrade, WorldWide and a subsidiary of Entrade. Appendix A to this Proxy
Statement/Prospectus contains a copy of the merger agreement.
Under the terms of the merger agreement:
o The Entrade merger subsidiary 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 closing of the merger will be converted into one share of
Entrade common stock;
o each share of Artra preferred stock that is issued and outstanding
at the closing time of the merger, 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 instead 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, and Entrade will substitute shares of
Entrade common stock for the shares of Artra common stock
purchasable under each 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, and Entrade will substitute shares of Entrade common
stock for the shares of Artra common stock purchasable under each
assumed warrant; and
o the outstanding shares of common stock of Merger Sub currently
held by Entrade will be canceled.
As a result, after the closing of the merger and the other transactions
contemplated by the merger agreement:
o Artra will be a wholly owned subsidiary of Entrade; and
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<PAGE>
o the current holders of Artra common stock and Artra preferred
stock will become holders of Entrade common stock.
(2) To elect nine directors to serve until the 2000 Annual Meeting of
Shareholders and until their successors are elected;
(3) To ratify the appointment of PricewaterhouseCoopers LLP as Artra's
independent auditors for 1999; and
(4) To approve the issuance of up to 727,155 shares of Entrade common
stock in exchange for the outstanding shares of BCA Holdings Series A preferred
stock and BCA Holdings Series B preferred stock. If the parties terminate the
merger agreement before the merger closes, your vote on this matter will
constitute a vote on the issuance of up to 727,155 shares of Artra common stock
in the proposed exchange offer.
(5) To transact any other business that 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 June 25, 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 and 1,849.34 shares of Artra Series A preferred stock were
outstanding. Artra shareholders will have one vote for each share of Artra
common stock and Artra 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 and the affirmative vote of a
majority of the votes cast in person or by proxy by the holders of Artra
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.
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<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, a copy of which is attached as Appendix B to this Proxy
Statement/Prospectus.
Under 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 in the statute, of their Artra preferred stock if the merger is
consummated. Subject to the procedures described in this section and the
Pennsylvania Business Corporation Law, the board of directors of Artra will
determine initially the fair value of the Artra preferred stock. 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 Pennsylvania Business Corporation Law,
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 contemplated 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 Pennsylvania Business Corporation Law.
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 the holder's filing through the
effective time of the merger; 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
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<PAGE>
shares are held of record in "street name" by a brokerage firm or other nominee
must obtain the written consent of that record holder to the beneficial owner's
exercise of dissenters' rights and must submit that consent to Artra no later
than the time of the filing of his notice of intention to dissent.
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 Pennsylvania Business Corporation Law. 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
remittance is being made. The factors that the board of directors could consider
in deciding not to remit payment at that time include the number of shares
involved and the board's perception at that time of the likelihood that the
payments will be accepted by the shareholders without objection. 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 Pennsylvania Business Corporation
Law accompanied by a copy of Subchapter D of Chapter 15 of the
Pennsylvania Business Corporation Law.
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 that
dissenter demanded payment of fair value.
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<PAGE>
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
treated as 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.
Within 60 days after the latest to occur of:
o completion of the merger,
o timely receipt by Artra or Entrade of any demands for payment, or
o timely receipt by Artra or Entrade of any estimates by dissenters
of fair value,
if any demands for payment remain unsettled, Artra or Entrade, whichever one
receives the demand, may file in the Court of Common Pleas of Philadelphia
County an application requesting that the court determine the fair value of the
Artra preferred stock. 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 dissenter whose demands have not been settled.
If Artra or Entrade were to fail to file the described application,
then any dissenter, on behalf of all dissenters 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 an
application of this type, then each dissenter entitled to do so shall be paid
Artra's or Entrade's 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 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.
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<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.
Artra's investigation for new business opportunities was conducted by
management, primarily Peter Harvey and John Hamm. These persons reviewed
numerous business plans submitted to them through contacts initiated by existing
shareholders, management of Artra and other transaction advisers. Artra did not
use an investment banker or similar financial adviser in the investigation
process.
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
WorldWide, and Warren Rothstein, a stockholder of WorldWide, 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 WorldWide.
He also described the ownership of asseTrade.com by Positive Asset Remarketing,
Inc., WorldWide and a joint venture formed by Henry Butcher USA, Inc. and
Michael Fox International, Inc. 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, 1998 and continued on
almost a daily basis thereafter. At a meeting on December 18, 1998, in
Philadelphia, Artra management, WorldWide 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 WorldWide 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 WorldWide.
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 those persons, and the funding by Artra of the entrade.com business.
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<PAGE>
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, 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 matters
relating to WorldWide.
Management of Entrade After the Merger
Upon the closing of the merger, the management of Entrade will be as
follow:
o The board of directors of Entrade will consist of the current
directors of Artra, and Robert Kohn will be added as a director;
and
o Artra's senior management will hold positions with Entrade similar
to their current positions with Artra;
o Robert Kohn will resign as Chairman and Chief Executive Officer of
Entrade and become the chief executive officer of the entrade.com
subsidiary.
For information about the current directors and executive officers of
Artra, see "Management of Artra." For information about the current management
of Entrade, see "Management of Entrade."
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 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.
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<PAGE>
o The potential to conduct Internet business with top Fortune 1000
companies that are clients of Butcher and Fox, 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
Artra Common Stock and Artra Preferred Stock
At the time of the merger and without any action on the part of the
shareholders:
o Holders of Artra common stock will receive one share of Entrade
common stock for each share of Artra 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 Holders of Artra preferred stock will receive 329 shares of
Entrade common stock for each share of Artra preferred 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 time of the merger, Entrade will assume all rights and
obligations of Artra under Artra's stock option plans as in effect at that time
and will continue those plans in accordance with their terms. Entrade will
assume each outstanding option, warrant or right to purchase shares of Artra
common stock in a 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 merger, the stock option will continue to qualify as an incentive
stock option to the maximum extent permitted by Section 422 of the Internal
Revenue Code.
Fractional Shares
Entrade will not issue fractional shares of the Entrade common stock
with the merger. In lieu of the issuance of any fractional shares of Entrade
preferred stock, Entrade will issue a check for cash equal to the fraction of a
share multiplied by the closing price of Entrade
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<PAGE>
common stock on the New York Stock Exchange, or other applicable exchange as
provided in the merger agreement, on the first trading day for Entrade common
stock after the merger.
Determination of the Exchange Ratios
The Artra board of directors and Entrade determined the one-to-one
exchange ratio by:
o considering the relative holdings of Entrade's current two
shareholders after the merger and the value of Entrade's business
to the combined enterprise after the merger; and
o comparing the percentage interest immediately after the merger
that the current Entrade shareholders would have in Entrade common
stock with the interest that the former Artra shareholders,
including holders of Artra preferred stock and preferred stock of
Artra's BCA Holdings subsidiary, would have in Entrade common
stock.
Artra's board of directors determined that the ratio, therefore, was fair to
Artra shareholders.
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 all shares of Artra preferred stock and all outstanding
shares of preferred stock issued by Artra's subsidiaries on January 6, 1999. The
exchange ratio was based upon a formula using the total principal and
accumulated dividends on those shares of 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. See "Proposal to
Approve the Issuance of Shares of Entrade Common Stock in Exchange for the
Outstanding Shares of BCA Holdings Series A Preferred Stock and BCA Holdings
Series B Preferred Stock -- Background to the Proposal and Determination of the
Exchange Rate."
The Merger Closing Date
The merger will become effective upon the filing of the Articles of
Merger with the Secretary of the Commonwealth of Pennsylvania or a later date
that 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 the limitations
included in the merger agreement, the merger agreement may be terminated by
either Artra or WorldWide if, among other reasons, the merger has not closed by
on or before September 30, 1999. See "The Merger Agreement and Related
Agreements -- Conditions to the Merger" and "-- Termination of the Merger
Agreement."
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Exchange of Certificates
As soon as practicable after the merger closing date, each holder of an
outstanding certificate representing shares of Artra common stock and Artra
preferred stock will, upon surrender to the exchange agent of that 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 those certificates when duly executed
and completed in accordance with the instructions on the election form, together
with any other documents that the exchange agent may reasonably require. After
the merger closing date, 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 under the merger
agreement into shares of Entrade common stock.
If these certificates are presented to Artra for transfer, they will be
canceled against delivery of certificates for Entrade common stock. Until
surrendered as contemplated by the merger agreement, each certificate for shares
of Artra common stock and Artra preferred stock at any time after the merger
closing date will represent only the right to receive, upon the holder's
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.
Payments of Any Dividends or Other Distributions on Entrade Common
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 merger closing date 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 Entrade common stock represented
by those certificates. Also, no cash payment in lieu of fractional shares will
be paid to any holder until the surrender of the holder's certificate in
accordance with the merger agreement.
Subject to the effect of applicable laws, following surrender of any of
these certificates, the holder of the certificate representing whole shares of
Entrade common stock issued in connection with shares of Entrade common stock
will be paid, without interest:
o at the time of the holder's surrender or as promptly as
practicable, the amount of any cash payable instead of a
fractional share of Entrade common stock to which that holder
is entitled under the terms of the merger agreement; and
o at the time of the holder's surrender or as promptly as
practicable or at the appropriate payment date, the
proportionate amount of dividends or other distributions, if
any, with a record date after the merger closing date but
prior to the date of the holder's surrender and a payment date
prior to or subsequent to
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the holder's surrender payable with respect to the holder's
whole shares of Entrade common stock.
Federal Income Tax Consequences
The following is a summary of the material 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 in this section. Future
legislation, regulations, administrative rulings or court decisions could
adversely affect the accuracy of the statements contained in this section.
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 upon 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 merger closing date.
Exchange of Artra common stock and Artra preferred stock for Entrade
common stock
Artra will receive an opinion from Duane, Morris & Heckscher LLP that
the merger, which is occurring in connection with the asset transfers to Entrade
by WorldWide and Energy Trading Company, will 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 a
transfer of property under Section 351, a holder of Artra common stock who
exchanges Artra common stock solely for Entrade common stock in the merger will
not recognize gain or loss upon the exchange. The tax basis of the Entrade
common stock received by the holder will be equal to the tax basis of the Artra
common stock exchanged for the Entrade common stock, and the holding period of
the Entrade common stock will include the holding period of the Artra common
stock exchanged for the Entrade common stock.
A holder of Artra preferred stock who exchanges Artra preferred stock
for Entrade common stock in the merger will not recognize gain or loss upon the
exchange. The tax basis of the Entrade common stock received by the holder will
be equal to the tax basis of the Artra preferred stock exchanged for Entrade
common stock and the holding period of the Entrade common stock will include the
holding period of the Artra preferred stock exchanged for
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Entrade common stock. A holder of Artra preferred stock who receives cash in
lieu of fractional shares of Entrade common stock should be treated as having
received those fractional shares in the merger and then as having exchanged
those 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 that 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 those fractional shares and the cash received in
lieu thereof. Any resulting 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 merger closing date.
An opinion of counsel represents counsel's best judgment and is not
binding on the Internal Revenue Service or the courts. Accordingly, neither
Entrade nor Artra can assure you that the Internal Revenue Service will agree
with counsel's conclusions, that the Internal Revenue Service will not challenge
the tax treatment of the merger or that such challenge, if made, will not be
successful.
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 the holder's federal income tax return a statement setting forth
facts relating to the transaction identified in the instructions to the return.
This federal income tax discussion is for general information only and
may not apply to all holders of Artra common stock or Artra preferred stock. We
urge you to consult your own tax advisors as to the specific tax consequences of
the merger.
Accounting Treatment
Entrade and Artra will account for the merger using the purchase method
of accounting.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED MATTERS
Interests of Artra Officers and Directors
Current officers and directors of Artra will receive options and
warrants to purchase shares of Entrade common stock upon the closing 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 23,363 shares of Entrade
common stock in the merger for outstanding shares of Artra Series A preferred
stock. Also, trusts whose beneficiaries include adult children of John Harvey,
which holds approximately 50.4% of the outstanding shares of Artra preferred
stock, will receive an aggregate of approximately 306,644 shares of Entrade
common stock for outstanding shares of Artra preferred stock. See "Information
Regarding Beneficial Ownership of Principal Artra Shareholders and Management."
Interests of Entrade Officers and Director
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, which Entrade will
assume after the merger. Each of these persons is currently an officer of
entrade.com. See "The Merger Agreements and Related Agreements -- Employment
Agreements" and "Management of Entrade."
In connection with these employment agreements, these persons received
nonqualified stock options for the purchase of an aggregate of 1,600,000 shares
of Artra common stock, which will be assumed by Artra upon the closing of the
merger. See "Description of Entrade Capital Stock -- Outstanding Stock Options
To Be Assumed by Entrade -- The 1999 NonQualified Stock Option Plan."
Name of Option Holder Number of Shares Exercise Price
--------------------- ---------------- --------------
Robert D. Kohn 1,000,000 $2.75
Benjamin R. Kafka 200,000 $2.75
Gary Lerman 200,000 $2.75
Mark L.M. Quinn 200,000 $2.75
WorldWide currently holds 90% of the outstanding shares of Entrade
common stock. Upon the closing of the Merger, WorldWide will own approximately
14.7% of the outstanding Entrade common stock. For a description of the
transactions between WorldWide and Entrade, see the discussion under
"Information About Entrade and entrade.com -- Entrade's Acquisition of the
entrade.com Assets and 25% of the Voting Common Stock of asseTrade.com."
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Robert D. Kohn, Benjamin R. Kafka, Gary Lerman and Mark L.M. Quinn also
own shares of common stock of WorldWide. For a description of these
relationships, see "Entrade Related Party Transactions."
Agreement with Broker
Under 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 completion 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. Mr.
Newman has notified Artra that he has elected to receive shares of Entrade
common stock.
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following is a brief summary of the material provisions of the
merger agreement and the amendments to the merger agreement dated April 30, 1999
and May 14, 1999. We have attached copies of the merger agreement and the
amendment as Appendix A to this Proxy Statement/Prospectus, and we incorporate
them into this Proxy Statement/Prospectus 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 the Entrade merger subsidiary formed
for purposes of the merger 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 Secretary of the Commonwealth of Pennsylvania or a later time
and date as Artra, Entrade and WorldWide may agree.
The Merger Consideration
See "The Merger -- Merger Consideration" on page 44.
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;
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o ownership of subsidiaries;
o the lack of investments or interests as described in the merger
agreement;
o compliance with charters, bylaws and the law;
o the filing of documents with the Commission as described in the
merger agreement;
o the accuracy of financial statements;
o title to properties;
o the absence of undisclosed liabilities as described in the merger
agreement;
o material contracts;
o the absence of material litigation;
o the absence of material changes or events;
o tax matters;
o the absence of material labor disputes;
o insurance coverage; and
o broker agreements.
The merger agreement contains representations and warranties by
WorldWide, Entrade and the Entrade subsidiary 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 investments or interests as described in the merger
agreement;
o financial condition;
o title to properties;
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o the absence of undisclosed liabilities as described in the merger
agreement;
o material contracts;
o intangible assets;
o compliance with charters, bylaws, and the law;
o the absence of material litigation;
o tax matters;
o employee benefit plans;
o material contracts;
o the absence of material changes or events;
o tax matters;
o employee benefit plans;
o the absence of material labor disputes;
o insurance coverage; and
o broker agreements.
Covenants
Conduct of Business Pending the Merger
The merger agreement contains customary covenants relating to the
merger. WorldWide has agreed that, prior to the closing of the merger,
WorldWide, Entrade and its subsidiaries will conduct their operations in the
ordinary course of business. Specifically, WorldWide 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;
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o to promptly deliver to Artra true and correct copies of all
monthly financial statements of WorldWide, 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, or grant any option or other right to
acquire shares of its capital stock;
o not to permit Entrade or any of its subsidiaries to grant 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 increase compensation under any
employment agreement with any present or future officers,
directors or employees or enter into or amend in any material
respect any compensation-related agreement or benefit plan;
o not to permit Entrade or any of its subsidiaries to declare, set
aside or pay any dividend or make any other distribution or
payment with respect to any shares of Entrade's capital stock or
other ownership interests;
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 to or
investments in any other person except for indebtedness under 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;
o not 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, production or marketing arrangements without
consulting Artra.
Artra has agreed that, prior to the effective time of the merger, it
will, among other things:
o not issue any shares of its capital stock or effect any stock
split other than under 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
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o promptly deliver to WorldWide true and correct copies of any
report, statement or schedule filed with the Commission subsequent
to the date of the merger agreement.
Alternative Proposals
Under the merger agreement, WorldWide and Entrade each agreed that,
prior to the closing of the merger:
o neither it nor any of its subsidiaries may initiate or solicit any
inquiries for an alternative proposal to the merger with Artra
regarding Entrade, its subsidiaries or their assets or otherwise
facilitate any effort to make or implement any alternative
proposal; and
o it will notify Artra immediately if it receives any alternative
proposals.
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 approval of the merger and to take all lawful
action to solicit approval by shareholders.
Indemnification and Insurance
The merger agreement provides that WorldWide, Entrade and the Entrade
merger subsidiary will indemnify Artra for breaches of covenants, agreements and
certifications made by or on behalf any of them.
Artra will indemnify WorldWide, Entrade and the Entrade subsidiary for
breaches of covenants, agreements and certifications made by or on behalf of
Artra.
Filings, Other Actions; Inspection of Records
The merger agreement provides for cooperation among the parties with
respect to governmental 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 merger, approval for the listing of Entrade common
stock, subject to official notice of issuance.
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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 merger, Artra
has agreed to 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 approval for the
Nasdaq 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 in the merger agreement will be paid by
the party incurring the expenses except as expressly provided in the merger
agreement and except that Artra will pay for the filing fee in connection with
the filing of the Form S-4 registration statement with the Commission and the
expenses incurred in connection with printing and mailing this Proxy
Statement/Prospectus.
Takeover Statute
The merger agreement states that Entrade will act to eliminate or
minimize the effects of any anti-takeover statute or regulation that becomes
applicable to the merger.
entrade.com Financing
Artra has agreed to commit to provide Entrade after the merger 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 under the terms of the loan
agreement.
Lock-Up Provisions
WorldWide has agreed that until the first anniversary of the effective
time of the merger it will not directly or indirectly transfer or agree to
transfer in any manner 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 disposition of its Entrade common stock. WorldWide
may 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
WorldWide, subject to these lock-up provisions.
Conditions to the Merger
Before closing the merger Artra, WorldWide, Entrade and the Entrade
merger subsidiary must satisfy the following conditions:
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o the Artra shareholders approve the merger agreement and the
transactions described in the merger agreement;
o no court issues an order or injunction that prohibits the closing
of the transactions described in the merger agreement;
o the Form S-4 registration statement becomes effective, the
Commission has not issued or threatened to issue a stop order
suspending the effectiveness of the Form S-4 and the parties
obtain 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 the merger;
o the parties obtain all other required governmental approvals;
o the New York Stock Exchange approves for listing the Entrade
common stock to be issued to the Artra shareholders in connection
with the merger, or, if this listing has not been approved,
Entrade applies for listing on the Nasdaq National Market System;
o Artra assigns to Entrade the employment agreements between Artra
and Robert D. Kohn, Benjamin Kafka, Mark Quinn and Gary Lerman;
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
requirement of the Pennsylvania Business Corporation Law, the New
York Stock Exchange and the Nasdaq National Market System, if
applicable.
The obligation of Artra to close the merger is conditioned on the
fulfillment of the following:
o each of WorldWide, Entrade and the Entrade subsidiary performs
their agreements contained in the merger agreement, and their
representations and warranties contained in the merger agreement
and in any document delivered in connection with the merger
agreement are true and correct as of that time;
o no change occurs in the financial condition, business or
operations of Entrade or any of its subsidiaries that would 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 indemnifications set
forth in the Acquisition Agreement dated January 29, 1999 between
Global Trading Group, its shareholders and WorldWide inure to the
benefit of and are enforceable by Artra and Entrade as if
originally given to Artra and Entrade;
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o Artra and Entrade receive written affirmations from Positive Asset
Remarketing, Inc. and all of its shareholders that their
representations, warranties, covenants and indemnifications set
forth in the Acquisition Agreement dated January 29, 1999 between
Positive Asset Remarketing, its shareholders and WorldWide inure
to the benefit of and are enforceable by Artra and Entrade as if
originally given to Artra and Entrade;
o Entrade causes asseTrade.com to be converted into a Delaware
limited liability company; and
o the non-competition agreement between Entrade and Robert D. Kohn
is in effect without modification or default.
The obligations of WorldWide and Entrade to consummate the merger are
conditioned on the fulfillment of the following:
o Artra performs its agreements contained in the merger agreement
and the loan agreement up to the closing of the merger, and the
representations and warranties of Artra contained in the merger
agreement and in any document delivered in connection with the
merger agreement are true and correct as of that time; and
o there is no change in the financial condition, business or
operations of Artra and its subsidiaries, taken as a whole, that
would have a material adverse effect.
Termination of the Merger Agreement
The parties may mutually agree to terminate the merger agreement prior
to the closing of the merger, before or after the approval of the merger
agreement by the shareholders of Artra.
Either the Artra board of directors or the WorldWide board of directors
may terminate the merger agreement, if:
o the merger is not closed by September 30, 1999;
o the Artra shareholders do not approve the merger agreement and the
merger; or
o a United States or any state governmental authority issues an
order prohibiting the transactions of the merger agreement, if the
party seeking to terminate has used all reasonable efforts to
remove the prohibition.
Under Section 6.3 of the merger agreement, the WorldWide board of
directors may terminate the merger agreement, if:
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o in the exercise of its good faith judgment as to fiduciary duties
to its shareholders imposed by law, the board of directors of
WorldWide determines that the termination is required by reason of
an alternative proposal being made and WorldWide has notified
Artra of the proposal in a timely manner;
o Artra breaches any representation or warranty contained in the
merger agreement that would have a material adverse effect;
o Artra breaches of any material covenant or agreement in the merger
agreement, which breach is not curable or, if curable, is not
cured within 30 days WorldWide gives after written notice of the
breach; or
o the board of directors of Artra withdraws or modifies in a manner
materially adverse to WorldWide its approval or recommendation of
the merger agreement or the merger.
Under Section 6.4 of the merger agreement, the Artra board of directors
may terminate the merger agreement before or after the approval by the
shareholders of Artra, if:
o the board of directors of WorldWide withdraws or modifies in a
manner materially adverse to Artra its approval or recommendation
of the merger agreement or the merger;
o WorldWide or Entrade breaches any representation or warranty
contained in the merger agreement that would have a material
adverse effect; or
o WorldWide or Entrade breaches any material covenant or agreement
set forth in the merger agreement, which breach is not curable or,
if curable, is not cured within 30 days after Artra gives written
notice of the breach.
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 under the merger agreement relating to expenses and except for
the general interpretation provisions of the merger agreement.
If the merger agreement terminates solely because the Artra
shareholders have not approved the merger agreement and the merger, all
obligations of WorldWide 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 WorldWide and to Entrade under the loan agreement will be forgiven
as a "break-up" fee to WorldWide and Entrade equal to the aggregate amount of
the loan as defined in the loan agreement.
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If the merger agreement terminates as described in 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 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 WorldWide in exchange for 1,800,000 shares of Entrade common
stock, $800,000 in cash and a note for $500,000, payable upon the closing of the
merger or the earlier termination of the merger agreement. The agreement would
remain in effect after any termination of the merger agreement.
On February 19, 1999, Entrade 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 cash upon closing of the merger, in exchange for retained rights
Energy Trading Company held in entrade.com's e- commerce business. In the event
of termination of the merger, Energy Trading Company will receive additional
shares of Entrade common stock so that it would obtain a 33.33% interest in
Entrade instead of the $100,000 cash payment.
Entrade also agreed with both WorldWide 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 WorldWide and to provide funding for entrade.com
until the closing of the merger or the earlier termination of the merger
agreement. Under the merger agreement, Artra agreed to guaranty $4,000,000
funding for entrade.com if the merger is closed. 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. See
"--Effect of Termination and Termination Fees" for the effect of termination of
the merger agreement on these agreements.
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. For information regarding relationships of these persons with
WorldWide and other entities related to Entrade, see "Entrade Certain
Transactions."
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Robert D. Kohn Employment Agreement
Basic Terms
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.
Confidentiality and Non-Competition Provisions
Mr. Kohn has agreed to keep proprietary and confidential information
secret and confidential 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 the 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 because of 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.
Payment in the Event of Death or Disability
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
consecutive 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 that 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.
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Termination Provisions
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 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 any reason other
than those specified in the employment agreement, Mr. Kohn is entitled to
receive:
o any earned but unpaid portion of his base salary for the period up
to the date of termination;
o a severance payment equal to the lesser of (a) an amount equal to
Mr. Kohn's base salary for a period of 24 months or (b) 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
o 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.
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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.
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. In the event of termination of the merger agreement, the
employment agreements provide that Artra could terminate the employment
agreements on ten days' notice on or before December 31, 1999.
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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 the material differences between the
rights of shareholders 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 Pennsylvania Business Corporation Law, the
Amended and Restated Articles of Incorporation and Bylaws of Artra and the
Articles of Incorporation and Bylaws of Entrade, to which the shareholders of
Artra are referred.
Cumulative Voting
Artra
Shareholders of Artra may cumulate their votes for the election of
directors. Cumulative Voting enables minority shareholders to elect a
representative to the Artra board of directors.
Entrade
Entrade 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 Artra
shareholders of Artra must Unless a shareholder of elect directors by written
ballot. Entrade demands before the voting begins, shareholders of Entrade need
not elect directors by written ballot.
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Directors
Artra
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.
Entrade
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
Artra
Holders of Artra preferred stock have redemption rights and are
entitled to preferences over holders of Artra common stock as to the payment of
dividends and the payment upon the dissolution, liquidation or winding up of
Artra. The Artra board of directors has the authority to issue additional shares
of preferred stock without seeking shareholder approval.
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. The Entrade board of
directors has the authority to issue preferred stock without seeking shareholder
approval.
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 times and under circumstances that would 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,
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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 shares of
Entrade common stock 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.
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 these shares 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 those 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 authorized 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 discourage 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 those holders
might receive a premium for their shares of stock over the then market price of
those 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.
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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
Charter 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:
o 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 person, and the 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
o 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 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 the proposal;
provided, however, that these requirements do not apply to any described merger,
consolidation or sale of assets and property:
o 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 that purpose;
or
o 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.
Any amendment to this anti-takeover provision requires either:
o 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
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o 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 the
meeting of shareholders.
The Articles of Incorporation of Entrade also contain a provision that
shareholders do not have cumulative voting rights with respect to election of
directors.
Bylaw Anti-Takeover Provisions
Entrade's Bylaws require any shareholder who desires to nominate a
candidate for election as a director to provide background information in
writing concerning the proposed nominee not later than 120 days before the first
anniversary of the date of the preceding annual meeting of shareholders.
Anti-Takeover Provisions under Pennsylvania Law
Pennsylvania has also enacted laws that may be considered
"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 considered
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 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, including a merger, an asset sale and
recapitalizations described in the statute, for a period of up to five years
from the date the person acquired that voting power. 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 the person or group acquires
20% of the voting power.
Control-Share Acquisitions. This provision prevents a person or group
that crosses the stock ownership thresholds of 20%, 33-1/3% or 50% for the first
time from voting shares
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beneficially owned by the person unless voting power is restored to those 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 other
anti-takeover provisions under Pennsylvania law are not applicable to Entrade.
Limitation of Liability
As permitted by the provisions for indemnification of directors and
officers under Pennsylvania 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 the
officer or director 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
misconduct or recklessness.
The right to indemnification provided in Entrade's Bylaws includes the
right to have the expenses incurred by an officer or director 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 the expenses incurred
by the officer or director 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
the officer or director, to repay all amounts so advanced without interest if it
is ultimately determined that the officer or director is not entitled to be
indemnified under Entrade's Bylaws or otherwise. Indemnification under these
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.
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 the breach constitutes self-dealing, willful
misconduct or recklessness. This limitation of liability does not apply to the
responsibilities or liabilities of a director under any criminal statute or to
the liabilities of a director for payment of taxes under local, Pennsylvania or
federal law.
Outstanding Stock Options To Be Assumed by Entrade
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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 employees and non-employee
directors of Artra, its subsidiaries and affiliated entities.
As of June 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 June 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 June 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 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;
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(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 the 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.
Options Issued in June 1999 to Mark Santacrose
On June 28, 1999, the Artra board of directors granted to Mark
Santacrose an option to purchase 200,000 shares of Artra common stock at an
exercise price of $10.00 per share and 100,000 shares of Artra common stock at
an exercise price of $12.875 per share. The Artra board of directors granted
these options in connection with Mr. Santacrose's new employment with Artra as
President and Chief Executive Officer. See "Artra Executive Compensation -- Mark
F. Santacrose Employment Agreement."
Outstanding Warrants To Be Assumed by Entrade
As of June 30, 1999, Artra had outstanding warrants to purchase an
aggregate of 1,091,402 shares of Artra common stock. All of the warrants granted
are fully vested and will be assumed by Entrade upon the closing of the Merger.
Artra granted miscellaneous warrants between March 31, 1992 and October
21, 1998. As of June 30, 1999, miscellaneous warrants to purchase an aggregate
of 807,420 shares of Artra common stock were outstanding with expiration dates
ranging from June 15, 1999 to October 26, 2003 and exercise prices ranging from
$3.00 to $8.00.
The remaining warrants to purchase an aggregate of 283,982 shares of
Artra common stock, granted from 1997 to 1998 in connection with the issuance of
promissory notes, have expiration dates ranging form August 13, 1999 to January
14, 2000 and exercise prices ranging from $3.00 to $3.75 per share. 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 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
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 other described corporate transactions
involving Artra, including a merger or a sale of substantially all of the assets
of Artra.
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INFORMATION ABOUT ENTRADE INC. AND entrade.com
General
Entrade, a Pennsylvania corporation, was incorporated February 1999.
Entrade intends to operate as an Internet business-to-business electronic
commerce, or "e-commerce," service provider. entrade.com licenses and provides
business-to-business e-commerce software and related services to clients to
facilitate the purchase and sale of clients' products and services including,
inventory, equipment and other assets. It has also created and manages industry-
specific websites for marketing, sales and procurement of products and services.
We refer to this kind of website as a "vertical portal," which is a
website dedicated to a specific industry for use by companies in that particular
industry to buy and sell products and services. Under this business model,
entrade.com will generate commissions based upon these transactions and license
fees for its software. entrade.com is directing its initial marketing efforts to
utilities through utiliparts.com and to the heavy equipment industry through
asseTrade.com.
Upon the closing 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 WorldWide all of the assets of
the former BarterOne LLC and a 25% voting stock interest in asseTrade.com, Inc.
WorldWide 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 WorldWide took direct title to its assets.
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
development, business development, marketing and field support services.
The result was the development of the ORBIT System software.
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
Butcher and Fox to provide entrade.com's on-line technologies and business model
to the Butcher and Fox industrial clients. In October
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1998, these parties formed asseTrade.com, which was initially owned 50% by
Positive Asset Remarketing, Inc. and 50% by Butcher Fox LLC. WorldWide 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
are those companies that can best utilize information technology to garner
access to information about their identified marketplace. Large industrial
corporations are constantly seeking cost and operating efficiencies 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, including Electronic Data Interchange (EDI), which consists of a
computer network for exchanging information among a defined group of persons or
companies.
The development of Internet and e-commerce applications provides
additional cost and operating efficiencies for a company's asset and inventory
management, operations and marketing, sales and distribution functions. By
providing easy access to a global network, the Internet is expected to assist
businesses in lowering the cost of creating new marketing channels and buying
and selling products and services. Also, small and medium-sized businesses can
more readily participate in all levels of e-commerce.
entrade.com's Solution
entrade.com has a two-prong business strategy:
o To use its proprietary e-commerce software to create commission
fee income through the purchase and sale of products and services
in specific markets; and
o To license and service its proprietary e-commerce software for the
purchase and sale of products and services and internal management
of inventories to industrial, wholesale and retail companies.
entrade.com has initially targeted the nation's electric utility
industry as well as large manufacturing concerns to provide inventory management
and plant and equipment sale and purchase programs, including
business-to-business auctions. These assets include plant, equipment and
machinery, surplus parts, excess capacities and excess/surplus production
inventories.
entrade.com's Services
entrade.com's current portfolio of services include:
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o Management within an industry's supply train for vendors,
distributors and manufacturers to automate purchasing requisitions
and order fulfillment;
o Custom Intranet applications for companies to manage, track and
distribute inventories among multi-locations within a company;
o Request-for-proposal management for purchasing agents to
consolidate and negotiate purchasing contracts;
o Internet auctions for clients to list and dispose of inventory and
assets;
o Catalog listings for individual companies to advertise and sell
current product lines via the Internet;
o Consultation and design of client-specific business software for
e-commerce;
o Direct marketing tools to support licensees and/or strategic
partners in advertising products and services; and
o Advertising using banners on webpages for companies to promote
products and services on entrade.com's company-owned websites.
In combination with its proprietary technology and commercial
operations, entrade.com provides industrial, commercial and service corporations
with the tools necessary to use e- commerce.
Entrade.com's technology and the marketing of the technology, have been
focused on:
o plant and equipment disposition; o remarketing and sale of corporate
assets; o just-in-time product requisitions and order fulfillment;
o automated open bidding procedures for request-for-proposal
management; o catalog sales; o organized on-line auctions; and o
redistribution and exchange of products and services of specific
inventory groups.
entrade.com believes that its e-commerce software applications may
result in:
o improved asset and inventory management efficiency;
o global internal networking and external marketing of available
products, supplies and services; and
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o a faster transaction process due to 24 hour per day/7 days per
week communications capability within a website.
The ORBIT System
The ORBIT System technology provides transaction services for the
rapidly emerging business-to-business e-commerce marketplace. The ORBIT System
allows vendors to customize and promote products and services to current and
potential customers.
The ORBIT System technology allows third party software tools to be
easily added to provide for additional functions.
The ORBIT System facilitates the cataloging, transfer, trading,
selling, auction, purchase or tracking of products, inventories and corporate
assets in a secure, 24-hour, 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 competitive open bid negotiations;
o user-friendly transaction processing and administration;
o cataloging and pricing formats for individual items;
o comprehensive search and query options;
o 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 customer statement and reporting 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 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 real-time inventory adjustment;
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o comprehensive help section and tutorials;
o customized pictorial catalog;
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; and
o e-mail and pager notification.
The ORBIT System also offers the following operating features:
o compatibility with existing database systems;
o multiple languages; and
o security and encryption.
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 contains multiple fee functionality including:
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
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.
New entrade.com software system
entrade.com is in the process of completing a new e-commerce software
system. This new system will operate independently of the ORBIT and MARS
Systems. This new system provides a specific feature for managing and
negotiating bids between corporate buyers and sellers for the purchase and sale
of products and services on the Internet including:
o inventory;
o machinery and equipment; and
o corporate services, including telecommunications, insurance and
media commodity products such as oil, gas, coal, food and raw
materials
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entrade.com is in the final stages of testing this system and intends
to launch this new software system in the second half of 1999. entrade.com
intends to license the new system to corporate customers and utilize the new
system internally on entrade.com's websites.
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 websites: utiliparts.com and asseTrade.com.
Currently, the utiliparts.com website is owned and operated by entrade.com.
entrade.com built the asseTrade.com website and licensed its software for use on
the asseTrade.com website. asseTrade.com is a strategic alliance in which
entrade.com owns a 25% voting interest.
utiliparts.com
utiliparts.com is an operating unit of entrade.com. Through the website
address, www.utiliparts.com, it provides an e-commerce format for the
cataloging, listing, sale and purchase of electric generation, electric
transmission and general utility parts and equipment. Participating utilities
and utility equipment brokers can negotiate and transact sales and purchases
directly on this website.
Deregulation in the electric power industry has fostered indifferent
surplus inventory practices due to flexible cost-based rate structures. These
practices have resulted in large surplus utility inventories throughout the
United States. As the pace of deregulation accelerates, utilities that do not
address these inefficiencies operate at a significant disadvantage in a
deregulated competitive environment. Many utilities are seeking to create
effective asset recovery and asset inventory programs early in the deregulation
cycle to assure their competitive advantage.
utiliparts.com's purpose is to develop and utilize its e-commerce
software to provide asset recovery and internal inventory management services
for the utility industry. utiliparts.com's software programs provide inventory
management and asset remarketing cost efficiencies for utilities. In addition to
services provided through the utiliparts.com website, entrade.com will provide
related services in asset evaluation, asset cataloging and the off-line sale or
auction of surplus equipment.
The majority of utiliparts.com's available listings originate from
overstocked, unused inventories held by utilities in the United States.
utiliparts.com will also make available refurbished, serviceable, repairable
parts and parts available from foreign utilities. Utility companies can
participate as both buyer and seller. Most items listed on utiliparts.com will
be classified as "new," but the assignment and/or transfer of original
manufacturer warranties will be negotiated by the buyers and sellers on a
case-by-case basis.
utiliparts.com's initial commercial marketing focus is three-fold:
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o marketing its proprietary software and related services for use as
an internal inventory management system for individual clients
within the electric utility industry;
o establishing and managing an e-commerce website utilizing
entrade.com's proprietary software; and
o providing auction services for individual utility clients for the
sale of surplus plant and equipment directly through
utiliparts.com and/or entrade.com's affiliated company,
asseTrade.com.
The utiliparts.com service menu for utility companies includes:
Corporate Intranet inventory and asset management systems:
utiliparts.com's software provides a secure central organized database for each
client's inventories in a Internet environment. This allows for preassigned
internal corporate procurement, inventory management and asset recovery teams,
regardless of location or time, to buy, sell or transfer items internally
amongst their own global corporate divisions or operating facilities. These
systems provide greater inventory management efficiencies through the internal
redeployment of non-productive parts and equipment in an instantaneous
environment through which any client-designated employee can participate in
either a primary or support capacity. The entrade.com software automatically
documents transactions through the issuance of order confirmations and also
incorporates activity management report features. A client's management team can
also effectively identify obsolete or non-performing parts and equipment that
can then be assigned to www.utiliparts.com for listing, sale or auction to the
industry website.
www.utiliparts.com: Utility clients can list parts and equipment on
this website for sale based on direct negotiation between buyers and sellers,
which include utilities and brokers. The entrade.com software provides for an
open bid process, which supports continuous real-time negotiations directly
between the buyer and seller.
Investment recovery via auction: Clients seeking to accelerate the sale
of excess surplus inventories can arrange for on-line auctions through
utiliparts.com. Those clients can either participate in general utiliparts.com
auctions or auctions under a private arrangement. Offline asset evaluation and
disposition services are also available through utiliparts.com and other
entrade.com's strategic partnerships including asseTrade.com.
Internal client acquisition/retention: utiliparts.com is prepared to
represent utilities in selling energy, energy services or performance-based
energy contracts to asseTrade.com's industrial clients.
After-market procurement services: www.utiliparts.com will provide
procurement opportunities for domestic and international utilities and related
brokers. utiliparts.com is prepared to manage and implement parts and equipment
searches for and on behalf of
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participating utilities. Additionally, utiliparts.com will seek to provide
on-line procurement services for and on behalf of international utilities
seeking to capitalize on the significant excess surplus of inventories currently
held by North American electric utility groups.
Off-line consulting: utiliparts.com has engaged as consultants former
senior utility-industry specialists to provide plant and equipment evaluation
and cataloging services on an as needed project basis. This group, working on a
commission basis, will also be marketing utiliparts.com services through its
existing network of contacts.
Vendor participation programs: Many large equipment/service suppliers,
principally European and Japanese, have difficult entry points in the United
States with many electric utilities because most energy generation facilities do
not operate with uniform standard parts, equipment or service. United States
manufacturers have, in some regard, preempted the market. However, these United
States groups are having increasing difficulty in retaining client loyalty and
goodwill relating to disposition of unused excess inventories. This difficulty
is becoming 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 new operation methods and suppliers.
Key Features and Operating Strategies of utiliparts.com
utiliparts.com believes that participating utilities can achieve both
transactions for larger volumes of equipment and higher rates of return as
compared to traditional asset disposition methods. Management believes that
these benefits derive from more cost efficient global access to potential buyers
and sellers provided by the Internet and from utiliparts.com's real-time
transaction format, which accelerates and facilitates the sales process.
entrade.com with utiliparts.com is attempting to create buyer markets
among North American electric utilities as well as private, government and joint
venture electric generation groups operating in foreign countries. entrade.com
believes that foreign utilities represent a key buying group for the sale and
redistribution of the large excess parts and equipment inventories that exist in
North America as a consequence of years of industry regulation and associated
practices. Our open bid and transaction software technology also allows
entrade.com to represent and coordinate organized procurement programs for these
international utilities in a real-time office environment.
In developing the technology for implementation in a single industry
application. entrade.com has strategically considered the following:
Purchase and sales of inventories: 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. In order to keep a high level of integrity and neutrality,
entrade.com will strive to be an impartial administrator. All purchases and
sales will be done anonymously at market-driven prices directly between the
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buyer and seller through the open bid technology process available through the
entrade.com software.
Pricing of inventories; fees: Unless client's specifically request
services related to parts and equipment valuation, available through
utiliparts.com consulting services, evaluations and pricing of all items listed
and available for sale on utiliparts.com will be at the seller's discretion with
final pricing subject to direct negotiation between sellers and buyers.
Revenue generation: utiliparts.com's principal compensation is based on
transaction fees. 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. utiliparts.com will also
seek to identify and manage organized buyer programs for international electric
utilities seeking to capitalize on the excess inventories which exist in North
America.
Shipment of inventories: Transactions performed between buyers and
sellers on the entrade.com software is instantly recorded within the product
catalog database, and order confirmation documentation is immediately made
available to both buyer and seller. The item purchased is immediately deleted
from the utiliparts.com catalog of available items. A multiple set of freight
forwarding options is included within the entrade.com software capabilities.
These features enable utiliparts.com to act as a just-in-time procurement system
for utilities in need of immediate or rapid deliveries.
Other Features:
o utilizing entrade.com's e-commerce software, utiliparts.com
provides for multiple payment options, including: cash, purchase
credit, purchase order, credit card and/or any combination of
same;
o prospective buyers are also able to broadcast specific procurement
requirements that are not listed on the site, thereby
instantaneously accessing sellers actively participating on the
system;
o 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; and
Other features that support entrade.com's software licensing business:
entrade.com's software can also analyze and create reports on pricing and the
movement of inventories listed on the system. Information on product
availability, purchasing and shipping activities can be collected, analyzed and
disseminated as research reports to interested parties. Corporate clients
utilizing these features can track internal transfer and procurement activities
among global divisions and disseminate the information to their own defined
internal groups. Operating groups, inventory and procurement groups, financial
support groups and any other group can be promptly incorporated into the
information flow of any ongoing internal transactions.
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Current Status and Implementation of utiliparts.com
utiliparts.com currently lists on its website over 27,000 line items
with an original market value in excess of $50 million. This initial inventory
of listed equipment is comprised of inventories from two North American
utilities and a trade-related broker. This represents the current listing
products available for sale through utiliparts.com. Several programs are in
place to:
o continue development of listing agreements. utiliparts.com is
targeting its initial
marketing and sales focus towards North American utilities;
o actively market licensing agreements to select utilities to use
entrade.com's software as an internal inventory management system;
and
o stimulate and develop potential buyer interest from overseas
energy generation markets.
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 sales and marketing group which operates out of
both locations. As of May 1999, entrade.com has 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 North American 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.com's on-line listings and which are accepted for
remarketing.
asseTrade.com
Entrade holds 25% of the voting common stock of asseTrade.com, a
strategic alliance formed with Butcher and Fox. asseTrade.com has the right to
utilize the ORBIT System and the MARS System.
asseTrade.com provides business-to-business on-line services that
facilitate the remarketing of industrial machinery, equipment and parts. These
services enhance the current operation of asset recovery teams and procurement
groups of industrial companies. The software is customized for real-time on-line
sales and internal transfers of plant, equipment and inventory.
asseTrade.com is initially focused on the client base of Butcher and
Fox as well as other Fortune 500/Global 2000 companies that have similarly
specific needs, including, for example:
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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.
Marketing and Strategic Alliances
entrade.com has developed a business model which includes identifying
strategic partners with their established customer base to form vertical portal
websites and to develop its own vertical portal websites. Under this business
model, entrade.com will generate commissions based upon transaction and license
fees for its software.
To this end, entrade.com, through its internal management team, has
developed and established utiliparts.com in the utility industry and allied with
Butcher and Fox to form asseTrade.com in a broader, general industrial
marketplace. entrade.com, through its internal management team, intends to
continue developing this business model by identifying leading companies within
specific industries.
entrade.com plans to implement its marketing plans through the
resources and personnel of our strategic alliance partners. asseTrade.com is one
example of this business model.
entrade.com, through its own employees, has also begun developing sales
and marketing programs that will promote the capabilities of its software and
other business practices that are not related to the on-line management and sale
of corporate investment assets. entrade.com has identified the following key
services to direct this software:
o catalog sales;
o centralized procurement services; and
o just-in-time supply chain management.
Proprietary Rights
entrade.com holds a federal trademark registration and common law
rights in the ORBIT System mark for use on its 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.com believes that it currently competes favorably with existing
competitors because of the functionality of its e-commerce software and support
services and its business model. entrade.com differentiates from its current
market competitors through the expertise of its strategic partners and internal
management.
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Currently, there are various companies who are licensing transaction
software. Internet companies utilize the software in websites. To date, most of
these Internet companies have focused on consumers. There are many new
business-to-business Internet companies, many of which have begun in 1999 to
create websites. In investigating these new websites, entrade.com believes that
most of these companies do not have the experience of management within the
industries their websites seek to penetrate. Many of these Internet companies
base their competitive strength on their technology. entrade.com, however,
believes that its strength is based on the experience within the targeted
industry of its internal management or its strategic alliance partners.
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.
Other companies operate similar Internet websites that currently list
utility generation parts and equipment for sale and auction. To entrade.com's
knowledge, these companies do not have the business skills, business
methodologies or industry related expertise which entrade.com provides through
its internal operations.
See "Risk Factors -- We may not be ale to compete effectively with
other providers of e-commerce services."
Employees
As of July 1, 1999, entrade.com had 22 full-time employees within the
following departments: management, sales and marketing and technical services.
Technical services consist of creative services, customer support services,
software engineering, network services and product development.
entrade.com employs seven individuals in managerial positions, two in
sales and marketing and 13 as technical staff members. Given the size of
entrade.com and the nature of its business, however, the above employees perform
multiple functions that overlap these categories. entrade.com also utilizes a
team of retired utility executives and engineers as a commissioned based
independent sales force currently for utiliparts.com.
entrade.com considers its relationships with its employees to be good.
None of its employees are covered by collective bargaining agreements.
Legal Proceedings
Entrade commenced operations in February 1999. Entrade is not a party
to any material legal proceedings.
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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" commencing on
page 14.
Concurrently with the execution of the merger agreement, Entrade
acquired 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 from WorldWide, in exchange for 1,800,000 shares of Entrade common
stock, $800,000 in cash and a note for $500,000, payable upon the closing of the
merger or the earlier 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 closing of the merger, in exchange for retained rights
Energy Trading Company held in the assets acquired by Entrade. Entrade also
agreed with both WorldWide 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 WorldWide and to provide funding
for entrade.com until the closing of the merger or the earlier termination of
the merger agreement. Under the merger agreement, Artra agreed to guaranty
$4,000,000 in funding for entrade.com if the merger is closed. The total
consideration for the assets acquired by Entrade will be 2,000,000 shares of
Entrade common stock and an aggregate of $5,400,000 in cash, notes and committed
funding.
entrade.com does not expect that it will be required to raise
additional funds during the next twelve months in excess of the $4,000,000
committed by Artra. entrade.com believes that it will have sufficient working
capital to complete the planned technology development cycle as well as fund
day-to-day operations. Our estimated budget for expenses during the next 12
months is:
o Overhead (including field offices) $ 700,000
o Subcontractor expenses 600,000
o Labor and benefits 1,500,000
o Capital expenditures 300,000
o Software development 400,000
o Undesignated funds 500,000
----------
Total $4,000,000
==========
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.com will add other equipment
only if a significant number of additional employees are
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hired. entrade.com's labor budget provides for a full administration, billing
and accounting to be performed in-house. These 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 overhead
expense category above. Its Chicago office will be Entrade's headquarters.
entrade.com has allocated one senior manager to each of the four field offices
on a full time basis. entrade.com may contract additional sales representatives
on a commission basis as needed.
Management believes that entrade.com can implement its current business
plan through its current employees and subcontractors. As entrade.com develops
additional websites and forms other strategic alliances, it intends to hire five
additional technical employees, one additional project manager and two
additional marketing professionals for each formed strategic alliance and newly
developed operating business unit.
MANAGEMENT OF ENTRADE
Robert D. Kohn, age 48, currently serves as the chairman and chief
executive officer of Entrade. Mr. Kohn has entered into an employment agreement
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with Artra, which Entrade will assume after the merger. Upon the closing of the
merger, Mr. Kohn will resign his positions with Entrade and will serve as the
chief executive officer of Entrade's subsidiary, entrade.com.
o Mr. Kohn has been chairman, president and chief executive officer
of WorldWide, an Internet business-to-business company, since its
inception in September of 1997. Mr. Kohn will resign all of his
positions with WorldWide upon the closing of the merger.
o Mr. Kohn, served as president and chief operating officer of
Global Trade Group at PECO Energy from February 1996 to March 1,
1999, and as a former strategic planner of Business Development
for Marketing & Sales.
o Prior to his service at 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 1993 to 1996, Mr. Kohn served
as president of Equity Resources International, Inc., a financial
services company.
o 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.
o From 1983 to 1987, Mr. Kohn was one of four founders of ORFA
Corporation of America, a Nasdaq National Market company involved
in the waste recycling technology industry, and held positions
including president, chief operating officer and chief financial
officer. Mr. Kohn is a certified public accountant.
Gary Lerman, age 48, has served as president and chief operating
officer of entrade.com since February 1999. Mr. Lerman has entered into an
employment agreement with Artra, which Entrade will assume after the merger.
After the merger, Mr. Lerman will become a full-time employee of entrade.com.
o Mr. Lerman is a former strategic planner for PECO Energy Company.
He was employed with PECO Energy from 1997 until his transition to
entrade.com in 1999.
o From 1995 to 1997, Mr. Lerman served as a consultant for several
other global groups including the Uranium Exchange, a provider of
procurement services to the electric utility industry.
o From 1994 to 1996, Mr. Lerman served as vice president for
international business and as a consultant with ARAMARK, an
institutional food service business.
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o 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, barter/countertrade, marketing, sales and
strategic alliances with or on behalf of global industrial
multi-national corporations. Mr. Lerman has held executive
positions with global commodity groups and Chiquita Brands
International.
Benjamin R. Kafka, age 44, has served as executive vice president and
director of business development for entrade.com. Mr. Kafka has entered into an
employment agreement with Artra, which Entrade will assume after the merger.
After the merger, Mr. Kafka will become a full-time employee of entrade.com. For
approximately five years prior to February 1999, Mr. Kafka served as the
executive vice president and a director of Global Trade Group and Positive Asset
Remarketing.
o Mr. Kafka has had many years of 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.
o 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 involved in the waste recycling industry,
from 1984 to 1990. Mr. Kafka is the former executive vice
president and managing director of Global Trade Group. Mr. Kafka's
experience includes corporate business development, negotiating
and marketing.
Mark L.M. Quinn, age 38, has served as executive vice president and
chief technology officer for entrade.com. Mr. Quinn has entered into an
employment agreement with Artra, which Entrade will assume after the merger.
After the merger, Mr. Quinn will become a full-time employee of entrade.com. For
approximately five years prior to February 1999, Mr. Quinn served as the
president and a director of Global Trade Group and Positive Asset Remarketing.
o 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.
o 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, has served as a key utility industry
consultant for entrade.com's utiliparts.com business unit since February 1999.
Mr. Armstrong has over 38 years of public utility experience, including 26 years
of nuclear power generation experience. Mr.
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Armstrong retired from Boston Edison in 1993 and has worked since that time as a
consultant, including with Global Trade Group since 1996.
o 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 of various other
corporate wide operating policies.
o 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. Entrade will assume each of these agreements upon the closing
of the merger. For a description of these employment agreements, see "The Merger
Agreement and Related Agreements -- Employment Agreements."
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. WorldWide 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 the closing of the merger, WorldWide 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.
ENTRADE RELATED PARTY TRANSACTIONS
At the time the parties entered into the merger agreement, Robert D.
Kohn, Benjamin R. Kafka, Gary Lerman and Mark L.M. Quinn each entered into an
employment agreement with Artra. Entrade will assume these agreements upon the
closing of the merger. See "The Merger Agreement and Related Agreements --
Employment Agreements."
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These persons also own shares of WorldWide, the current holder of 90%
of the outstanding shares of Entrade common stock. The following table shows
their current holdings:
Shares of Common Percentage
Name of Holder Stock of WorldWide Ownership
-------------- ------------------ ---------
Robert D. Kohn(1) 4,810,000 16.5%
Benjamin R. Kafka(2) 1,625,167 4.2%
Gary Lerman(3) 494,000 1.9%
Mark L.M. Quinn(2) 1,504,167 3.5%
- ---------------------
(1) Mr. Kohn is currently president and a director of WorldWide. He
will resign these positions with WorldWide upon the closing of the
merger and become employed solely by entrade.com. These shares
include 475,000 shares issued in 1999 in connection with the
assignment to Energy Trading Company in 1998 of his 4.5% ownership
interest in BarterOne LLC and other accrued, unpaid compensation
and benefits relative to his employment by PECO Energy, the parent
company of Energy Trading Company.
(2) Benjamin Kafka and Mark L.M. Quinn are also officers, directors
and principal shareholders of Positive Asset Remarketing and
Global Trade Group. Under an agreement between Positive Asset
Remarketing and WorldWide, WorldWide issued 857,667 shares of
WorldWide common stock to Mr. Kafka and 874,167 shares of
WorldWide common stock to a trust of which Mr. Quinn is trustee.
Positive Asset Remarketing currently holds a 25% voting stock
interest in asseTrade.com.
(3) Mr. Lerman will receive 475,000 shares of WorldWide common stock,
which have not yet been issued, 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
other benefits relative to his employment by PECO Energy.
For a description of the transactions between WorldWide and Entrade,
see the discussion under "Information About Entrade and entrade.com -- Entrade's
Acquisition of the entrade.com Assets and 25% of the Voting Common Stock of
asseTrade.com."
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INFORMATION ABOUT ARTRA
General
Artra is a Pennsylvania corporation incorporated in 1933. Upon the
closing 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.
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 liabilities directly related
to Bagcraft's operations. 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 Bagcraft debt
obligations, including, but not limited to amounts owed under Bagcraft's credit
agreement. 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. See Note 8 to Artra's consolidated financial statements.
Artra does not intend to be considered 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 distributor 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 parties have extended the
expiration date of the letter of intent to
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August 12, 1999 and are negotiating to further extend the expiration date, if
necessary. No assurance can be given that the parties will complete their due
diligence or enter into a definitive agreement by that date. This proposed
transaction does not have any effect on the merger and probably will not occur,
if at all, until after the merger. Artra and Entrade believe that Entrade's
on-line auction system has application to the traditional auction business of
Nationwide.
Employees
At December 31, 1998, Artra employed approximately 11 persons. Artra
considers its relationships with its employees to be good.
Properties
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. Upon completion of the merger, Entrade will locate its
corporate headquarters at this location. The parties contemplate that Entrade
will negotiate the terms of a long-term lease agreement with a trust affiliated
with John Harvey.
Legal Proceedings
Artra and its subsidiaries are the defendants in various
business-related litigation and environmental matters and product liability
claims. 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.
Business-Related 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, 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.
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Environmental Matters
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 Industries, Inc. The alleged waste
disposal occurred in 1977 and 1978, at which time Harvel Industries, 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 committee formed by the
named potentially responsible parties has estimated the liability respecting 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
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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, some 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.
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 conveyed the site to Goodwill Industries to avoid clean-up costs. The
Company is currently negotiating with the City of Chicago to settle this claim,
and the City of Chicago has reduced its settlement 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.
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Product Liability Claims
In recent years, Artra has been a party to product liability asbestos
claims relating to the former The Synkoloid Company subsidiary. Artra's product
liability insurance has covered all of these claims settled to date. As of
September 1998, Artra's primary insurance carriers had paid approximately $13
million in claims related to the Synkoloid products, at which point the primary
insurance carriers asserted that primary coverage had been exhausted. Since that
date, Artra's excess insurance carriers assumed the defense of all Synkoloid
product liability claims. Through March 31, 1999, these carriers paid
approximately $4.4 million to settle claims. Artra is not able to quantify the
costs of claims that remain outstanding or unasserted. Artra believes that
available coverage under the excess insurance polices will be sufficient to
cover outstanding and future claims. See "Risk Factors -- Artra's potential
environmental liabilities and potential liabilities from other claims may result
in future costs for Artra that are difficult to estimate."
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.
Three Months Ended March 31, 1999 v. Three Months Ended March 31, 1998
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $1,354,000 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 granted in February 1999 to four 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
period from February 23, 1999, the date of the merger agreement, through March
31, 1999. The entrade losses include business development costs of $223,000,
depreciation and amortization of $70,000 and other administrative costs of
$140,000.
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
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March 31, 1998. Artra used cash proceeds received from the November 1998 sale of
the assets of the discontinued Bagcraft subsidiary to pay off approximately
$15,200,000 of borrowings on various loan agreements. Artra has invested
approximately $7,000,000 as of March 31, 1999 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. No income or loss relating to
discontinued operations was incurred during 1999.
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 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 attributable to the fees and costs associated with Artra's
1997 private placement of $12,850,000 of Artra promissory notes.
During 1998, some of the officers, directors and/or key employees of
Artra 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. None of these persons exercised options to purchase shares of Comforce
common stock from Artra during 1997. See discussion under "Investment in
Comforce Corporation" below for additional information about this transaction.
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. Artra did not sell or otherwise dispose of any shares of Comforce
common stock during 1998.
Effective December 31, 1997, Artra settled 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.
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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 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 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 attributable to fees and costs associated with the private
placements of $12,850,000 of Artra promissory notes.
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 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
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 discontinued operations was
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.
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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 of approximately $28,000,000 from the sale of the assets of the
discontinued Bagcraft subsidiary and used approximately $15,200,000 of these
proceeds 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 approximately $900,000 of liabilities of the discontinued Bagcraft
subsidiary. Investing activities used cash flows of $1,400,000 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.
Operating Plan
On February 1999, Artra entered into a merger agreement with WorldWide
and Entrade, a 90% owned subsidiary of WorldWide. 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 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.
On February 23, 1999, Entrade acquired software and intellectual
property and 25% of the shares of Class A Voting Common Stock of asseTrade.com
from WorldWide, in exchange for 1,800,000 shares of Entrade common stock,
$800,000 in cash and a note for $500,000, payable upon the closing 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
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retained rights Energy Trading Company held in the purchased assets. Entrade
also agreed with both WorldWide 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 lend Entrade up to
$2,000,000 to fund the $800,000 cash payment to WorldWide and to provide funding
for entrade.com until the closing 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 closes.
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.
Artra does not intend to be considered 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
Artra Corporate
At December 31, 1997, Artra's corporate entity had outstanding
short-term indebtedness of $15,451,000. In November and December 1998, Artra
repaid all of its then existing short-term indebtedness with net proceeds from
the sale of the assets of the discontinued Bagcraft subsidiary.
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
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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.
Amounts Due to Related Parties
At December 26, 1996, Artra had outstanding borrowings of $500,000 from
Howard Conant, an outside director of Artra, 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 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 Mr. Conant
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. Artra used the proceeds of this loan for working capital.
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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%. 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. The proceeds from this loan were used in part to pay down Artra
debt obligations.
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 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 Mr. Conant and pay down other Artra
debt obligations.
In June 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
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
had 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 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. In December 1997,
borrowings from Mr. Conant were reduced to $2,000,000 with proceeds from other
short-term borrowings.
In April 1998, the $2,000,000 in outstanding borrowings from Mr. Conant
was extended by a demand note bearing interest at 10%. As additional
compensation, Mr. Conant 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 Mr. Conant
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. Artra used the
proceeds from the loan for working capital.
All borrowings from Mr. Conant were repaid with proceeds from the sale
of assets of the discontinued Bagcraft subsidiary.
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The borrowings from Mr. Conant 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 demand notes held by the lender. 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
those 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.
Peter R. Harvey had received only nominal compensation for his services
as an officer or director of Artra or any of its subsidiaries for the period
October 1990 through December 1997. Additionally, Mr. Harvey had agreed not to
accept any compensation for his services as an officer or director of Artra or
any of its subsidiaries until his obligations to Artra, described above, were
fully satisfied. Additionally, since December 31, 1986, Peter R. Harvey had
guaranteed in excess of $100,000,000 of Artra obligations to private and
institutional lenders and has also incurred significant expenses on behalf of
Artra in defending Artra against litigation. Mr. Harvey also had provided Artra
with collateral in support of his advances.
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
reduced from $18,226,000 to $12,621,000. This reduction consisted of $2,789,000
of interest accrued
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<PAGE>
and reserved for the period from 1993 to 1997 and an offset of $2,816,000. 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 reimbursement for expenses incurred to defend Artra against
litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of shares of Artra preferred
stock and BCA Holdings, Inc. preferred stock held by Mr. Harvey, as set forth in
the following table:
<TABLE>
<CAPTION>
Face Value
Plus
Accrued
Security Dividends Per Share
-------- --------- ---------
<S> <C> <C>
ARTRA redeemable preferred stock, 1,734.28 shares $ 2,751,000 $1,586.25
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000 1,252.22
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000 1,264.10
------------
$ 12,787,000
============
</TABLE>
Redeemable Preferred Stock
Artra has outstanding redeemable Series A Preferred Stock with a
carrying value of $2,921,000 at March 31, 1999. 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 will receive 329 shares of Entrade
common stock for each share of Artra preferred stock. Holders of BCA Holdings
preferred stock will receive shares of Entrade common stock based upon a similar
calculation if they accept Entrade's exchange offer.
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
loan agreements payable by Bagcraft directly to the City of Baxter Springs. At
December 31, 1997, the outstanding borrowings under these
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<PAGE>
loans totaled $9,968,000. Obligations due under these loans were assumed by the
buyer of the assets of the discontinued Bagcraft subsidiary.
Investment in Comforce Corporation
Artra, along with its wholly owned Fill-Mor subsidiary, owns a
significant minority interest in Comforce, consisting of 1,525,500 shares, or
approximately 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. Because of this status, 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. 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.
The Commission might not agree 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). 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 those shares.
In January 1996, Artra's Board of Directors approved the sale of
200,000 of Artra's Comforce common shares to some of the 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 those 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
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<PAGE>
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 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 several lenders received an aggregate of 105,000 shares
Comforce common stock held by Artra 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 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.
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 changes in the ownership of a corporation's
common stock described in the Code occurs.
In the opinion of management, Artra is not currently subject to the
limitations regarding the utilization of its federal income tax loss
carryforwards. Should Artra continue to issue a significant 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.
The merger will not affect Artra's net operating loss carry forwards.
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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 increasing sales prices over time.
Recently Issued Accounting Pronouncements
Effective January 1, 1998, Artra adopted Statement of Financial
Accounting Standards 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 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, 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 "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 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
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handle the century change, they will likely interpret the Year 2000 as the year
1900. The Artra corporate entity has limited data processing requirements which
are handled by personal computers running generic software applications. We
believe that our internal systems are Year 2000 compliant. If these systems are
not Year 2000 compliant, they can be quickly updated with new equipment without
requiring us to incur significant costs. See "Risk Factors" for a description of
Entrade.com Year 2000 Compliance issues.
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 F. Santacrose for election as directors
for terms of one year. Unless you indicate to the contrary, the persons named in
the accompanying proxy will vote for the election of these nominees. Under the
merger agreement, upon the closing of the merger, these directors and Robert D.
Kohn will become the directors of Entrade. See "Information Concerning
Directors" for a description of the business experience of, and other
information concerning these nominees.
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 as proxies may vote for the election of any other person not
named in this Proxy Statement/Prospectus 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 his or her 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.
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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 other directorships held by him.
Name Age Positions and Experience
- ---- --- ------------------------
John Harvey(1) 67 Chairman of the Board of Directors and
Director since 1968, and Chief Executive
Officer of Artra from 1968 to June 1999;
Chairman of the Board of Directors,
since 1985, a Director from 1982 to
December 1995 and the Chief Executive
Officer from 1990 to November 1995 of
Comforce Corporation (temporary
professional employment, formerly The
Lori Corporation); a Director of Plastic
Specialties 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.
Peter R. Harvey(1) 64 Vice Chairman and Chairman of the
Executive Committee since June 1999;
Director since 1968; President and Chief
Operating Officer from 1968 to June
1999; Director of Comforce Corporation
(temporary professional 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.
Mark F. 40 President and Chief Executive Officer
Santacrose(3) since June 28, Director since 1997;
President of Bagcraft Corporation of
America (n/k/a Golden Corp.), flexible
packaging materials of food products,
since 1994 to November 20, 1998;
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 from November 20, 1998 to
June 18, 1999.
Gerard M. Kenny(2)(3) 46 Director since 1988; Executive Vice
President and Director since 1982 of
Kenny Construction Company since 1982
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<PAGE>
(diversified heavy construction);
General Partner of Clinton Industries
(investments), a limited partnership,
since 1972.
Edward A. Celano(1) 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(2)(3) 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(2)(3) 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(1) 62 Director since 1996; Chairman and Chief
Executive Officer of Johnson Bryce,
Inc., flexible packaging materials of
food products since 1991; and
previously, for many years, a vice
president of Sears Roebuck & Co.
(retailing company).
John K. Tull 72 Director since 1998; President of J. K.
Tull Associates LTD., a mergers and
acquisitions firm, since 1986.
(1) Member of the executive committee. Artra's executive committee has the
authority to take all action that can be taken by the full board of
director, consistent with Pennsylvania law, between meetings of the Artra
board of directors.
(2) Member of the audit committee. Artra's audit committee reviews audit
reports and management recommendations made by Artra's independent
accountants.
(3) Member of the compensation committee. Artra's compensation committee has
the authority to review and recommend compensation plans, approve
compensation changes and grant options under and determine participants
in Artra's plans.
John Harvey and Peter R. Harvey are brothers. Artra board of directors
met four times in 1998. None of the directors attended fewer than 75% of the
aggregate number of meetings of the Artra board of directors and the committees
on which he served, except Robert Johnson who attended 50% of the meetings held.
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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
Mark F. Santacrose 40 President and Chief Executive Officer
Peter R. Harvey 64 Vice Chairman and Chairman of the Executive Committee
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 of Artra. See "Information Regarding
Directors" above for a description of Mr. Harvey's relevant business experience.
Mark F. Santacrose is the President and Chief Executive Officer of
Artra. See "Information Regarding Directors" above for a description of Mr.
Santacrose's relevant business experience.
Peter R. Harvey is the Vice Chairman of Artra and Chairman of the
Executive Committee of the Board of Directors 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
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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.
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 September 1988 to December 1989. Mr.
Conroy previously served in various risk management positions with Artra from
1978 to September 1988, most recently as Corporate Risk Director.
Lawrence D. Levin 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 under
which an officer or director was appointed to office.
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 those securities, as
well as monthly statements of changes in the person's 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 these persons filed all reports required under Section 16(a) during 1998 on
a timely basis.
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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 the 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 $100,000 in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation(1) Awards
--------------------------------------------- ----------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) 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 F. Santacrose, 1998 $212,648 $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
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.
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<PAGE>
(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.
(5) As of January 31, 1998, Peter R. Harvey settled all
outstanding advances, including accrued interest, made by
Artra. Upon completion of this settlement, the board of
directors of Artra approved an annual salary of $252,000 for
Peter R. Harvey for 1998. See "Artra Certain Relationships and
Related Transactions."
(6) Mr. Doering received a bonus of $11,500 in 1998 representing
compensation relating to the liquidation of some of the assets
of The Lori Corporation.
(7) Mr. Santacrose also participated in the Bagcraft Unfunded
Deferred Compensation Plan. The 1998 additional compensation
amount includes approximately $340,000 realized from his
participation in this plan, which terminated January 1, 1998.
On January 1, 1998, in consideration of the termination of
the plan, Mr. Santacrose received a warrant to purchase
common stock of Bagcraft. The warrant provided for a receipt
of 2% of the issued and outstanding shares of Bagcraft
common stock, not including the effect of any and all other
outstanding warrants. Mr. Santacrose received approximately
$340,000 upon the redemption of this warrant after the sale
of Bagcraft, which he received in 1999. All salary and bonus
amounts paid to Mr. Santacrose were approved by the board of
directors of Artra and Bagcraft.
</FN>
</TABLE>
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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
<TABLE>
<CAPTION>
Percent of
Total Potential Realizable Value at Assumed
Number of Options Annual Rates of Appreciation for
Securities Granted to Option Term
Underlying Employees Exercise Expiration -------------------------------------
Name Options Granted in 1999 Price Date 0% 5% 10%
- ---- --------------- ------- ----- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John Harvey.............. 35,000 5.7% $4.75 1/06/09 -- $104,650 $265,650
Peter R. Harvey.......... 150,000 24.5% $4.75 1/06/09 -- $448,500 $1,851,000
Mark F. Santacrose....... 200,000 16.3% $10.00 6/28/09 $575,000 $1,260,000 $3,186,000
Mark F. Santacrose....... 100,000 16.3% $12.875 6/28/09 -- $810,500 $2,052,500
James D. Doering......... 35,000 5.7% $4.75 1/06/09 -- $104,650 $431,900
John G. Hamm............. 35,000 5.7% $4.75 1/06/09 -- $104,650 $265,650
Robert S. Gruber......... 11,250 1.8% $4.75 1/06/09 -- $33,638 $85,388
</TABLE>
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 the listed 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.
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<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>
Mark F. Santacrose Employment Agreement
On June 28, 1999, the Artra board of directors entered into an
agreement with Mark F. Santacrose. Under the agreement, Mr. Santacrose agreed to
become the President and Chief Executive Officer of Artra. If the merger closes,
Mr. Santacrose will become the President and Chief Executive Officer of Entrade.
The following is a summary of the terms of the employment agreement.
Term: The initial term is for three years.
Commencing June 28, 2001 and each
anniversary after this date, the term is
automatically extended for one
additional year unless either party
gives written notice to the other within
90 days preceding the anniversary date
that he or it does not desire to extend
the term for the additional one-year
period.
Cash Compensation: Base salary of $250,000 per year,
subject to increase at the discretion of
the Artra board of directors.
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<PAGE>
Stock Options: Option to purchase 200,000 shares of
Artra common stock at $10 per share,
exercisable for ten years commencing
June 28, 1999.
Option to purchase 100,000 shares of
Artra common stock at $12.875 per share,
exercisable commencing June 28, 2000
until June 28, 2009.
In the event that the merger does not
close by January 1, 2000, Artra has
agreed to reprice these options to an
exercise price equal to the average
closing price of Artra's common stock
for 20 days immediately following the
earlier to occur of the date of a public
announcement of the termination or
December 31, 1999.
Compensation Artra has agreed to pay Mr. Santacrose a
Reimbursement: bonus of $100,000 for 1999 to compensate
him for forfeiture of compensation to
which he would have been entitled from
his previous employer.
Termination: If Artra terminates his employment
during the initial term other than for
cause or he terminates the agreement
during the initial term for good reason,
Mr. Santacrose is entitled to the
payment of his base salary through the
later of the end of the initial term or
18 months from the date of the
termination notice. If the termination
occurs during a renewal term, Artra will
pay him a lump sum equal to the sum of
his base salary for a period of 18
months at the effective date of
termination.
Change of Control: In the event of a change of control of
Artra, as defined in the agreement, Mr.
Santacrose would be entitled to receive
a lump-sum payment equal to his base
salary at its then current rate, for a
period of 35 months.
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.
Peter Harvey reviewed and approved decisions concerning the cash
compensation of Artra's officers. The Artra Board of Directors reviewed and
approved the cash compensation of: John Harvey, the Chairman and Chief Executive
Officer; Peter R. Harvey, the President and Chief Operating Officer, James D.
Doering, Vice President, Treasurer and Chief Financial Officer; and Mark F.
Santacrose, President of Bagcraft. See "Artra Certain Relationships and
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<PAGE>
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
Peter Harvey reviewed and approved decisions relating to cash
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 F. Santacrose, President of Artra's Bagcraft subsidiary.
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. John Harvey had requested these salary
reductions because he had transferred more of the day-to-day management
decisions to Peter Harvey. 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 some of the 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. Artra has no established policy regarding the payments of
these bonuses. The Artra board of directors approved the bonus compensation
payments based upon the recommendation of Peter Harvey. Peter Harvey had
recommended these bonuses as incentives to successfully complete the identified
projects.
Artra does not have specific compensation policies applicable to its
officers, other than Artra compensates its officers according to performance
measured against job descriptions and the compensation levels for comparable
employment positions in the general employment marketplace.
Respectfully submitted,
John Harvey Maynard K. Louis
Peter R. Harvey Robert L. Johnson
Gerard M. Kenny Mark F. Santacrose
Edward A. Celano John K. Tull
Howard R. Conant
115
<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 and
the Dow Jones Industrial Sector Containers and Packaging Index. The comparison
assumes that with respect to the Artra common stock, the Equity Market Index and
the Container and Packaging Index, $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
-------- -------- -------- -------- -------- --------
Equity $100.00 $100.71 $137.70 $172.90 $227.71 $292.94
Market Index
Container and 100.00 100.72 107.50 136.77 156.03 136.19
Packaging Index
Artra 100.00 78.85 78.85 94.23 59.62 64.42
116
<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 under 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 management, 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 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, Mr. Harvey's net advances from Artra
were reduced from $18,226,000 to $12,621,000. This reduction consisted of
$2,789,000 of interest accrued and reserved for the period from 1993 to 1997 and
an offset of $2,816,000. 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 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 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
===========
Upon the closing of the merger, John Harvey and his wife will receive
an aggregate of 292,830 shares of Entrade common 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.
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<PAGE>
Four family trusts of which Peter R. Harvey is the trustee will receive
an aggregate of 22,500 shares of Entrade common 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 will receive 87,150 shares of Entrade common stock in exchange for shares
of BCA Holdings preferred stock beneficially owned by him, which represented
$446,853.62 of total principal and accumulated dividends.
For additional information regarding the proposed issuances, see
"Proposal to Approve the Issuance of Shares of Entrade Common Stock for the
Outstanding Shares of BCA Holdings Series A Preferred Stock and the BCA Holdings
Series B Preferred Stock."
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. The total consideration consisted of
772,000 shares of Artra common stock and 3,750 shares of Artra preferred stock.
Upon the merger of Sage Group 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 and Ozite as of the times that the merger agreements were executed
and the mergers consummated. Ozite subsequently repurchased the 3,750 shares of
Artra preferred stock in February 1992, of which 1,523 shares were subsequently
assigned to Peter R. Harvey in consideration of his discharge of indebtedness of
Ozite to him in April 1992. Peter R. Harvey pledged these 1,523 shares of Artra
preferred stock to Artra.
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.
Gerard 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
118
<PAGE>
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 entered into a put option agreement with
Artra, which has been extended from time to time, most recently on November 11,
1992. At that time, Artra and Kenny Construction agreed to extend the put option
whereby Kenny Construction 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
Construction'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 Construction. Kenny Construction 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 Construction 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 Construction. Under the terms of these agreements,
Kenny Construction purchased a $2,500,000 participation in the $5,000,000 note
payable to Artra's bank lender. Kenny Construction's participation is evidenced
by a $2,500,000 Artra note bearing interest at the prime rate. As consideration
for its purchase of this participation, the bank lender released Kenny
Construction from its $2,500,000 loan guaranty. As additional consideration,
Kenny Construction 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 Construction 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 Construction 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 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
119
<PAGE>
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 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
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<PAGE>
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.
Neither Mr. Celano nor Mr. Conant became directors by virtue of any of
the provisions of these loan transactions. Each of them were invited by the
Artra board of directors to serve as directors because of the board's desire to
add two outside directors as suggested by the New York Stock Exchange.
John G. Hamm
Upon closing of the merger, John G. Hamm will receive 18,770 shares of
Entrade common 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 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.
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<PAGE>
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.
PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF ENTRADE
COMMON STOCK IN EXCHANGE FOR THE OUTSTANDING SHARES OF
BCA HOLDINGS SERIES A PREFERRED STOCK AND
BCA HOLDINGS SERIES B PREFERRED STOCK
The Artra board of directors has approved a proposal for the issuance
after the merger of up to 727,155 shares of Entrade common stock in exchange for
all of the outstanding shares of BCA Holdings Series A preferred stock and BCA
Holdings Series B preferred stock.
The Artra board of directors is submitting this proposal to the Artra
shareholders for approval at the Artra Annual Meeting in accordance with the
shareholder approval requirements of the New York Stock Exchange. Because
Entrade expects to succeed to Artra's listing on the New York Stock Exchange,
subject to approval of Entrade's listing application, the approval by Artra's
shareholders is required to satisfy the New York Stock Exchange's requirements
for the listing of the Entrade shares to be issued in the exchange.
If the Artra shareholders do not approve the merger agreement, or if
the parties terminate the merger agreement, Artra intends to offer to exchange
727,155 shares of Artra common stock for the BCA holdings preferred stock. In
that event, the approval of this proposal will be considered the approval, in
the alternative, for the issuance of up to 727,155 shares of Artra common stock
in exchange for all of the outstanding shares of BCA Holdings Series A preferred
stock and BCA Holdings Series B preferred stock.
Background to the Proposal and Determination of the Exchange Rate
Artra owns all of the outstanding shares of common stock of BCA
Holdings. On November 20, 1998, Artra and BCA Holdings completed the sale of the
business assets of Bagcraft, a subsidiary of BCA Holdings. See "Information
About Artra -- General" and Note 3 to Artra's consolidated financial statements
for a further discussion of the disposition of the Bagcraft business.
In January 6, 1999, the Artra board of directors approved the issuance
of up to 1,500,000 shares of Artra common stock for all shares of preferred
stock issued by Artra and BCA Holdings. The Artra board of directors based the
exchange on a formula using the total accumulated dividends on those shares of
preferred stock and the then market price per share of Artra common stock. The
Artra board of directors determined to fix this exchange rate at that time
notwithstanding any future accumulations of dividends on the preferred shares
after February 28, 1999. The Artra board of directors used the same formula for
determining the exchange rate of 329 shares of Entrade common stock for each
share of Artra Series A preferred stock in the merger. See "The Merger -- Merger
Consideration -- Artra Common Stock and Artra Preferred Stock."
122
<PAGE>
As of the date of this Proxy Statement/Prospectus, a total of 1,036.39
shares of BCA Holdings Series A preferred stock and 1,675.795 shares of BCA
Holdings Series B preferred stock are outstanding.
As of February 28, 1999, the total amount of accumulated principal and
dividends on the shares of BCA Holdings preferred stock was $3,728,468.93. This
amount constituted approximately 48.48% of the total principal and accumulated
dividends on all shares of the Artra Series A preferred stock and the BCA
Holdings preferred stock at that time.
Therefore, of the 1,500,000 shares allocated by the Artra board of
directors on January 6, 1999, an aggregate of 727,155 shares will be offered in
exchange for the outstanding shares of BCA Holdings. Based upon the total
principal and accumulated dividends as of February 28, 1999, the stock price at
which the Entrade common stock shares are being issued would be $5.12 per share.
As of January 6, 1999, the date that the Artra board of directors approved the
exchange, the Artra common stock market price was $4.75 per share.
If the merger closes and the Artra shareholders approve this proposal,
Entrade will offer to exchange and issue up to 727,155 shares of Entrade common
stock for the BCA Holdings preferred stock. If the merger closes, this number
would represent approximately 5.9% of the outstanding shares of Entrade common
stock after the merger.
In the alternative, if the parties terminate the merger agreement and
the shareholders approve this proposal, Artra will offer to exchange and issue
up to 727,155 Artra common stock for the BCA Holdings preferred stock. This
number would represent approximately 7.2% of the outstanding shares of Artra
common stock under those circumstances.
Reasons for the Issuance
The Artra board of directors believes that the issuance of the shares
of common stock will be in the best interests of the shareholders of Artra and,
after the merger, Entrade. Currently, the BCA Holdings Series A and Series B
preferred stock, along with the Artra Series A preferred stock, are listed on
the Artra consolidated balance sheets under liabilities as "Redeemable preferred
stock." In general, after the exchange offer is completed this liability will
become equity shown in the stockholders' equity section of the balance sheet.
The Artra board of directors also determined that the issuance of
shares of common stock in exchange for the BCA Holdings preferred stock, if the
holders accept the offer, would be preferable to redeeming the shares of BCA
Holdings preferred stock for cash in the amount of the total principal plus
accumulated dividends.
Interests of Artra Executive Officers and Directors in the Proposed Exchange
Three Artra executive officers and directors hold shares of Artra
preferred stock. The following table sets forth information regarding the shares
of Entrade common stock, or if the
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<PAGE>
merger is not completed, Artra common stock, that will be offered for issuance
to those executive officers and directors of Artra.
<TABLE>
<CAPTION>
Total Principal and
Number of Shares of Accumulated Dividends Number of Shares of
Name of Holder BCA Holdings Preferred Stock As of February 28, 1999 Entrade Common Stock(1)
- -------------- ---------------------------- ----------------------- -----------------------
<S> <C> <C> <C>
John Harvey 474.120 Series A(2) $ 624,540.94 292,840
621.778 Series B(2) 876,862.49
Peter Harvey(3) 36.520 Series A(3) 48,108.36 109,650
364.704 Series B(3) 514,304.06
John G. Hamm 30.390 Series A 40,031.25 18,770
39.858 Series B 56,209.58
All executive officers 541.030 Series A 721,608.55 412,250
and directors as a group 1,026.340 Series B 1,447,376.13
(3 persons)
Non-Affiliates 495.360 Series A 652,518.40 305,895
as a group (3 persons) 649.455 Series B 915,893.85
Totals 1,036.390 Series A 1,365,198.93 727,155
1,675.795 Series B 2,363,270.00
- -------------------
<FN>
(1) These shares are also included in the beneficial ownership table under
"Number of Entrade Shares To Be Beneficially Owned After the Merger"
and "Entrade Percent After the Merger." See "Information Regarding
Beneficial Ownership of Principal Artra Shareholders and Management."
(2) Of these shares, 9.13 shares of BCA Holdings Series A preferred stock
and 11.953 shares of BCA Holdings Series B preferred stock,
exchangeable for 5,625 shares of Entrade common stock, are owned by
John Harvey's wife.
(3) Of these shares, 36.52 shares of BCA Holdings Series A preferred stock
and 47.828 shares of BCA Holdings Series B preferred stock,
exchangeable 22,500 shares of Entrade common stock, are owned by Peter
Harvey as trustee of four trusts for his nieces.
</FN>
</TABLE>
Vote Required
The affirmative vote of a majority of the votes cast at the Artra
Annual Meeting of the holders of shares of Artra common stock and Artra
preferred stock voting together as a class is required to approve this proposal.
Artra will not consider abstentions and broker non-votes as votes cast, and
abstentions and broker non-votes will have no effect on the outcome of the vote
on this proposal.
124
<PAGE>
The Artra Board of Directors recommends that the shareholders vote FOR
this 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.
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. These
notices should be submitted to Artra Group Incorporated, 500 Central Avenue,
Northfield, Illinois 60093, Attention: Corporate Secretary.
If any shareholder who intends to present a proposal at the 2000 Annual
Meeting does not notify Artra or, after the closing 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 the 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 telephone or
otherwise, attendance or proxies previously solicited.
LEGAL MATTERS
The validity of Entrade common stock registered under this Proxy
Statement/ Prospectus will be passed upon for Entrade by Michelle Kramish Kain,
P.A. The federal income tax consequences of the merger to Artra shareholders
will be passed upon by Duane, Morris & Heckscher LLP.
125
<PAGE>
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 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 Statement/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.
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
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
127
<PAGE>
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-48
Consolidated Balance Sheet as of March 31, 1999 (unaudited)..............F-49
Consolidated Statement of Operations for the period
February 23, 1999 (inception) to March 31, 1999 (unaudited).....F-50
Consolidated Statement of Cash Flows for the period
February 23, 1999 (inception) to March 31, 1999 (unaudited).....F-51
Notes to Consolidated Financial Statements...............................F-52
128
<PAGE>
FINANCIAL STATEMENTS
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, less valuation allowance
of $277 in 1997 - 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.
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. Financial Instruments
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. The
fair value of the Company's debt was estimated to be the carrying value of these
liabilities based upon borrowing rates currently available to the Company for
borrowings with similar terms.
D. 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.
E. 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.
F. 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.
G. 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.
H. Revenue Recognition
Sales to customers of the Company's discontinued Bagcraft subsidiary were
recorded at the time of shipment.
I. 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.
J. 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.
K. 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.
L. 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.
M. 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
========= ========= =========
Per share earnings (loss):
Earnings (loss) from operations $ .38 $ (.04) $ .53
Gain on disposal of business 4.56 - -
--------- --------- ---------
Earnings(loss)from
discontinued operations $ 4.94 $ (.04) $ .53
========= ========= =========
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. No income tax expense is reflected in the Company's
financial statements resulting from the extraordinary credit due to the
utilization of tax loss carryforwards, except for Federal alternative minimum
tax:
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 (273)
--------
Extraordinary gain before income taxes 9,624
Income tax provision (200)
--------
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 ($674 per share) and $2,074,000 ($579 per share) 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. Accumulated
dividends were $514,000 ($307 per share) and $854,000 ($247 per share) at
December 31, 1998 and December 31, 1997, respectively.
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. Accumulated dividends were $650,000 ($388 per share) and
$1,984,000 ($253 per share) at December 31, 1998 and December 31, 1997,
respectively.
Both the BCA Series A preferred stock and the BCA Series B preferred stock are
redeemable at the option of the issuer for an amount equal to face value plus
accumulated dividends. The BCA Series B preferred stock was redeemable on June
1, 1997. The Company has proposed to exchange ARTRA common shares for these
preferred stock issues, subject to shareholder approval.
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
Accumulated dividends were $1,315,000 ($152 per share) and ($145 per share) were
accrued at December 31, 1998 and December 31, 1997, respectively.
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. Capital expenditures for ongoing
environmental compliance measures are recorded in the consolidated balance
sheets and related expenses are included in the normal operating expenses of
conducting business. The Company is involved with environmental compliance and
remediation activities at some of its former sites and at a number of
third-party sites. The Company accrues for certain environmental
remediation-related activities for which commitments or clean-up plans have been
developed or for which costs or minimum costs can be reasonably estimated. All
accrued amounts are recorded on an undiscounted basis. 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 August 12, 1999. 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
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
Consolidated Balance Sheet as of March 31, 1999 (Unaudited) F-49
Consolidated Statement of Operations for the period
February 23, 1999 (inception) to March 31, 1999 (Unaudited) F-50
Consolidated Statement of Cash Flows for the period
February 23, 1999 (inception) to March 31, 1999 (Unaudited) F-50
Notes to Consolidated Financial Statements F-52
F-43
<PAGE>
Entrade Inc. and subsidiary
(formerly NA Acquisition Corp.)
CONSOLIDATED BALANCE SHEET
FEBRUARY 23, 1999
<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.
Financial Instruments
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.
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>
Entrade Inc. and subsidiary
Consolidated Balance Sheet
as of March 31, 1999
(Unaudited in Thousands)
CURRENT ASSETS
Cash $ 167
Other 19
-------
Total current assets 186
-------
Property,plant & equipment, net 294
Intangibles, net 2,998
Investment in asseTrade.com 3,500
-------
TOTAL ASSETS $ 6,978
=======
CURRENT LIABILITIES
Accrued liabilities 8
Accounts payable, including amounts due related parties 339
Note payable 500
Due to ARTRA 1,400
-------
2,247
-------
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
Accumulated loss from inception (Februray 23, 1999) (525)
-------
4,731
-------
-------
TOTAL LIABILITIES AND EQUITY $ 6,978
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-49
<PAGE>
Entrade Inc. and subsidiary
Statement of Operations
For the period February 23, 1999 (inception)
to March 31, 1999
(Unaudited in Thousands)
Net sales $ 13
-----
Costs and expenses:
Selling, general and administrative
Business development costs 223
Payroll and related costs 89
Other 64
-----
376
Depreciation and amortization 162
-----
Total costs and expenses 538
-----
Loss from operations before income taxes (525)
Provision for income taxes -
-----
Net loss $(525)
=====
Per share loss:
Basic ($0.26)
=====
Weighted average number of shares
of common stock outstanding 2,000
=====
Diluted
Basic ($0.26)
=====
Weighted average number of shares
of common stock outstanding 2,000
=====
The accompanying notes are an integral part of the consolidated financial
statements.
F-50
<PAGE>
Entrade Inc. and subsidiary
Statement of Cash Flows
For the period February 23, 1999 (inception)
to March 31, 1999
(Unaudited in thousands)
Net cash flows used by operating activities ($ 135)
-------
Cash flows from investing activities:
Assets purchased from WWWX (800)
Additions to property, plant and equipment (298)
-------
Net cash flows used by investing activities (1,098)
-------
Cash flows from financing activities:
ARTRA loan 1,400
-------
Net cash flows used by financing activities 1,400
-------
Increase in cash and cash equivalents 167
Cash and equivalents, beginning of period --
-------
Cash and equivalents, end of period $ 167
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-51
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Financial Statements
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-52
<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. 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 March 31, 1999 the balance due on the loan was $1,400,000.
F-53
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
3. 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.
4. 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.
5. Earnings Per Share
The Company reports earnings (loss) per share under the guidelines of
SFAS No. 128, "Earnings per Share". Basic earnings (loss) per share is
computed by dividing net earnings (loss) by the weighted average number
of shares of common stock outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of shares of common stock and
common stock equivalents, unless anti-dilutive, during the period. There
were no common stock equivalents outstanding during the period.
F-54
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
Earnings (loss) per share for the period February 23, 1999 (inception) to
March 31, 1999 was computed as follows (in thousands, except per share
amounts):
Basic Diluted
-------- --------
AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding 2,000 2,000
Common stock equivalents -- --
-------- --------
2,000 2,000
======== ========
EARNINGS (LOSS):
Net loss $ (525) $ (525)
======== ========
PER SHARE AMOUNTS:
Net loss $ (0.26) $ (0.26)
======== ========
F-55
<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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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
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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
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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
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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.
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(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:
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(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
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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
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<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
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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.
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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
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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.
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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]
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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
-------------------
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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.
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<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
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<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).
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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).
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(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).
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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
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<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.
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(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:
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(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.
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(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.
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(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.
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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.*
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3.2 Bylaws of Entrade.*
5.1 Opinion of Michelle Kramish Kain, P.A.
8.1 Form of Opinion of Duane, Morris & Heckscher LLP re
tax matters.
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 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.*
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.*
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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).*
10.18 Employment Agreement with Mark F. Santacrose dated
June 28, 1999.
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.*
23.12 Consent of Duane, Morris & Heckscher.
99.1 Form of Proxy for the Annual Meeting of Shareholders
of Artra.**
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* Filed with the initial filing of this registration statement on May 24, 1999.
** To be filed by Amendment
(b) Financial Statement Schedules.
None required.
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.
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(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.
(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 Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cherry Hill, State of New Jersey, on July 20, 1999.
ENTRADE INC.
By:/s/ Robert D. Kohn
----------------------------
Robert D. Kohn,
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 Chief Excutive Officer July 20, 1999
- ---------------------- and Director
Robert D. Kohn (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, 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 Appendix 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.*
5.1 Opinion of Michelle Kramish Kain, P.A.
8.1 Form of Opinion of Duane, Morris & Heckscher LLP
re tax matters.
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 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.*
II-7
<PAGE>
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.*
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).*
10.18 Employment Agreement with Mark F. Santacrose
dated June 28, 1999.
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.*
II-8
<PAGE>
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.*
23.12 Consent of Duane, Morris & Heckscher.
99.1 Form of Proxy for the Annual Meeting of
Shareholders of Artra.**
- -------------
* Filed with the initial filing of this registration statement on May 24, 1999.
** To be filed by Amendment.
II-9
EXHIBIT 5.1
July 16, 1999
Entrade, Inc.
12 Springdale Road, Bldg. 11
Cherry Hill, NJ 08003
Entrade, Inc./Registration Statement on Form S-4
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Entrade, Inc.
(hereinafter referred to as the "Issuer"), in connection with the Issuer's
registration statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act") relating to the offering by the
Issuer of up to 16,385,799 shares of common stock (the "Shares") issuable in
connection with the merger as set forth in the Registration Statement.
In connection with this opinion, we have examined the original or a
certified copy of all records of the Issuer and all such agreements,
certificates of public officials, certificates of officers or representatives
and others, and such other documents as we have deemed necessary to form a basis
for the opinion hereinafter expressed. In such examination we have assumed,
without independent investigation, the genuineness of all of the signatures on
original documents and the conformity to original documents of all copies
submitted to us as conformed or photostatic copies. With regard to certain
factual matters, we have relied, without independent investigation or
verification, upon statements and representations of representatives of the
Issuer.
Based upon and subject to the foregoing, we are of the opinion that as
of the date hereof, when (i) the Registration Statement has become effective
under the Securities Act, and (ii) the Shares have been duly issued, delivered
and paid for as contemplated in the Registration Statement, such Shares will be
legally issued, fully paid and non-assessable.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and the use of our name under "Legal Matters" in the
Prospectus constituting a part of the Registration Statement. In giving this
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Michelle Kramish Kain, P.A.
EXHIBIT 8.1
[AN OPINION SUBSTANTIALLY IN THE FORM BELOW WILL BE DELIVERED
AT CLOSING OF THE TRANSACTION DESCRIBED HEREIN, ASSUMING NO
MATERIAL CHANGE IN THE FACTS OR LAW UPON WHICH SUCH OPINION IS
BASED]
[Letterhead of Duane, Morris & Heckscher LLP]
[Date]
Board of Directors
ARTRA GROUP Incorporated
500 Central Avenue
Northfield, Illinois 60093
Board of Directors
Entrade Inc.
12 Springdale Road
Cherry Hill, NJ 08003
Re: Proposed Merger of WWWX Merger Subsidiary, Inc. with and into
ARTRA GROUP Incorporated
Ladies and Gentlemen:
We have acted as counsel to ARTRA GROUP Incorporated , a Pennsylvania
corporation ("Artra") in connection with the Agreement and Plan of Merger, dated
as of February 23, 1999 and amended as of April 30, 1999 and May 14, 1999 (the
"Agreement"), among Artra, WorldWide Web NetworX Corporation, a Delaware
corporation ("WWWX"), NA Acquisition Corp. (now known as Entrade Inc.), a
Pennsylvania corporation and wholly-owned subsidiary of WWWX ("Entrade") and
WWWX Merger Subsidiary, Inc., a Pennsylvania corporation and wholly-owned
subsidiary of Entrade (the "Merger Sub"), whereby Merger Sub will be merged with
and into Artra, with Artra being the surviving corporation (the "Merger").
Entrade was formed for the purpose of acquiring, in exchange for its
common stock and other consideration, certain assets of WWWX, certain retained
interests of Energy Trading Company, a Delaware corporation, and the outstanding
shares of Common Stock and Preferred Stock of Artra pursuant to the proposed
Merger.
<PAGE>
This opinion addresses the material federal income tax consequences of
the Merger to the Artra shareholders.
Except as otherwise defined herein, all terms defined in the Agreement
shall have the same meaning when used in this opinion.
Pursuant to the Agreement and the applicable provisions of laws of the
Commonwealth of Pennsylvania, Merger Sub will merge with and into Artra, with
Artra being the surviving corporation and, upon the Effective Time, each holder
of shares of outstanding Artra Common Stock will receive, in exchange for each
share of Artra Common Stock, one share of Entrade Common Stock and each holder
of Artra Preferred Stock will receive in exchange for each share of Artra
Preferred Stock, 329 shares of Artra Common Stock. Entrade will not issue
fractional shares of its stock. In lieu of fractional shares of Entrade, if any,
each shareholder of Artra who is entitled to a fractional share of Entrade
Common Stock will receive an amount of cash equal to the product of such
fraction multiplied by the closing price of Entrade Common Stock on the New York
Stock Exchange on the first day Entrade Common Stock is traded after the
Effective Time.
In rendering our opinion, we have examined and relied upon but have not
independently verified the accuracy and completeness of the facts, information,
covenants and representations contained in the Agreement and such other
documents as we have deemed necessary or appropriate as a basis for our opinion.
In addition, we have relied upon certain representation letters furnished to us
by Entrade and Artra. Where such statements and representations are made to the
best knowledge and belief of the person making such statement or representation,
we have assumed the facts to be as so stated and represented. We have also
assumed that the Merger will be consummated in accordance with the Agreement and
the Registration Statement, including the Proxy Statement/Prospectus, as filed
with the Securities and Exchange Commission on Form S-4. Our opinion is
conditioned on the initial and continuing accuracy of such facts, information,
covenants, representations, statements and assumptions. In addition, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons, and the
conformity to the originals of all documents submitted to us as copies.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder, pertinent judicial authorities, and
interpretive rulings as we have considered relevant as in effect as of the date
hereof. Statutes, regulations, judicial decisions and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. A material change in the authorities upon which our
opinion is based could affect our conclusions.
*******
Based solely upon the foregoing, we are of the opinion that under
current law for federal income tax purposes:
<PAGE>
(i) The Merger will be treated as a transfer of property to Entrade by
the holders of the Artra Common Stock and the holders of the Artra
Preferred Stock governed by Section 351 of the Code;
(ii) No gain or loss will be recognized by a holder of Artra Common
Stock upon the receipt of Entrade Common Stock solely in exchange for
his or her Artra Common Stock;
(iii) No gain or loss will be recognized by a holder of Artra Preferred
Stock upon the receipt of Entrade Common Stock solely in exchange for
his or her Artra Preferred Stock;
(iv) The basis of the Entrade Common Stock received by a holder of
Artra Common Stock pursuant to the Merger (including any fractional
share interest to which that shareholder may be entitled) will be the
same as the basis of the Artra Common Stock exchanged therefor;
(v) The basis of the Entrade Common Stock received by a holder of Artra
Preferred Stock pursuant to the Merger (including any fractional share
interest to which that holder may be entitled) will be the same as the
basis of the Artra Preferred Stock exchanged therefor;
(vi) The holding period of the Entrade Common Stock received by a
holder of Artra Common Stock pursuant to the Merger (including any
fractional share interest to which that holder may be entitled) will
include the holding period of the Artra Common Stock exchanged
therefor, provided the Artra Common Stock is held as a capital asset by
the holder on the Effective Time;
(vii) The holding period of the Entrade Common Stock received by a
holder of Artra Preferred Common Stock pursuant to the Merger
(including any fractional share interest to which that holder may be
entitled) will include the holding period of the Artra Common Stock
exchanged therefor, provided the Artra Preferred Stock is held as a
capital asset by the holder on the Effective Time;
(viii) A holder of the Artra Common Stock who receives cash in lieu of
a fractional share of Entrade Common should recognize gain or loss
equal to the difference between the cash received and the holder's
basis in that fractional share, and that gain or loss should be capital
gain or loss if the fractional share would have been a capital asset in
the hands of the holder; and
(ix) A holder of the Artra Preferred Stock who receives cash in lieu of
a fractional share of Entrade Common should recognize gain or loss
equal to the difference between the cash received and the holder's
basis in that fractional share, and that gain or loss should be capital
gain or loss if the fractional share would have been a capital asset in
the hands of the holder.
<PAGE>
Except as set forth above, we express no opinion as to the federal,
state, local or foreign tax consequences of the Merger or of any transactions
related thereto. This opinion is solely for your benefit and is not to be used,
quoted, circulated or otherwise referred to without our express written
permission.
Very truly yours,
EXHIBIT 10.18
June 28, 1999
Mr. Mark Santacrose
2201 Prairie Street
Glenview, Illinois 60025
Dear Mark:
This letter is intended to set forth the terms and conditions under
which ARTRA Group Incorporated is offering to employ you as its President and
Chief Executive Officer, effective as of June 28, 1999. Please be advised that
the undersigned has full authority to execute this agreement on behalf of and to
bind ARTRA without any further action of ARTRA's Board of Directors.
Parties: ARTRA Group Incorporated ("ARTRA") and Mark Santacrose
(identified herein as "you"). Both ARTRA and you recognize
that ARTRA intends to undergo certain transactions that will
result in the corporate reorganization of ARTRA, with the
result being that ARTRA will be a wholly-owned subsidiary of
Entrade, Inc. ("Entrade"). It is the intention of both ARTRA
and you that you will be the President and Chief Executive
Officer of Entrade. All references herein to "ARTRA" shall,
after consummation of the intended corporate reorganization,
be deemed to refer to Entrade.
Position: Your position will be President and Chief Executive Officer,
reporting to the ARTRA Board of Directors.
Compensation: Your base salary ("base salary") for the remainder of 1999
will be at a rate not less than $250,000 per year, payable in
accordance with ARTRA's usual payroll policies, and in no
event will your base salary be less than $250,000 per year
during the term of this agreement. You will be entitled to
receive such increases in your base salary as you and the
ARTRA Board of Directors may agree.
<PAGE>
Stock Options: You will be granted (a) an option to acquire 200,000
shares of the Common Stock of ARTRA (the "First Option"), at
$10.00 per share, and (b) an option to acquire 100,000 shares
of the Common Stock of ARTRA, at $12.875 per share (the
"Second Option"). The terms and conditions of both options
shall be in accordance with the Stock Option Plan of ARTRA, as
amended. The expiration date of the options will be ten years
from the grant date. The options subject to the First Option
shall be fully vested as of the grant date and will be
immediately exercisable as to all 200,000 shares of Common A
Stock on the grant date. The options subject to the Second
Option shall be fully vested as of June 28, 2000, and will be
thereafter be fully exercisable as to all 100,000 shares of
Common A Stock on the grant date. The options subject to the
First Options, and after June 28, 2000, the options subject to
the Second Option, (i) shall not be subject to forfeiture for
any reason and (ii) may be exercised at any time prior to the
expiration date of the option, whether or not you remain in
the employ of the Company. The options shall constitute
non-qualified options, pursuant to the Internal Revenue Code
of 1986, as amended (the "Code"). The Company shall take all
steps necessary to ensure that the foregoing options qualify
for the exemption provided in Rule 16b-3 promulgated pursuant
to the 1934 Act, and all shares of stock issuable upon
exercise of the options are to be registered under the 1933
Act so that such shares do not constitute "restricted
securities" under Rule 144 promulgated pursuant to the 1933
Act. Subject, with respect to the Second Option only, the sole
condition that you remain employed pursuant to this agreement
through June 28, 2000, all obligations of the Company under
this Paragraph are absolute and unconditional, will survive
your death or disability, and will survive the termination of
your employment with the Company for any reason (whether such
termination is during or after the term of your employment).
ARTRA agrees that, in the event that its currently-announced
acquisition of entrade.com does not close prior to January 1,
2000, it will reprice the foregoing options to a strike price
equal to the average closing price of ARTRA Common Stock on
the New York Stock Exchange (or any other public market for
such Common Stock if it is not then listed on the New York
Stock Exchange) for the twenty days immediately following the
earlier to occur of (a) the date when ARTRA announces that it
is not proceeding with the acquisition of entrade.com or (b)
December 31, 1999.
Lost Compensation ARTRA acknowledges that in accepting ARTRA
employment at this Reimbursement: time, you will be forfeiting
substantial compensation to which you would otherwise be
entitled. To recompense you for such compensation, ARTRA shall
pay you a bonus of no less than $100,000 before the end of
1999. The obligations of the Company under this Paragraph are
absolute
- 2 -
<PAGE>
and unconditional, will survive your death or disability, and
will survive the termination of your employment with the
Company for any reason (whether such termination is during or
after the term of your employment).
Automotive You will be provided with a car allowance at a reimbursement
Allowance: rate of no less than $600 per month.
Reimbursement of The Company will reimburse you for all business-related
Business expenses that you incur in connection with the performance of
Expenses: your responsibilities to ARTRA.
Other Benefits: You will be eligible to participate in all ARTRA
employee benefit plans including group health, dental,
pension, long-term disability, short-term disability, 40l(k),
and life insurance.
Additional Bonus: While you are in the employ of the Company, you will be
such additional bonus awards as determined from time to time
by the Company's Board of Directors.
Additional While you are in the employ of the Company, you will be
Options: granted such additional stock option awards as determined from
time to time by the Company's Board of Directors.
Board Nomination: You will continue to serve on the Board of
Directors of ARTRA and such other subsidiaries and affiliates
of ARTRA as you deem appropriate for the performance of your
duties.
Term: The initial term of your employment shall commence as of June
28, 1999, and ending June 27, 2002 (the "Initial Term").
Unless sooner terminated pursuant to the terms hereof,
commencing on June 28, 2001, and on each anniversary
thereafter the term of your employment shall automatically be
extended for one additional year ("extended term") unless, not
later than ninety (90) days preceding such date, you or ARTRA
shall give written notice to the other that you or it does not
wish to extend the term of employment for such additional one
year period.
Termination: If at any time during the Initial Term, ARTRA should terminate
your employment for reasons other than Cause (hereinafter
defined) or if you terminate your employment for Good Reason
(hereinafter defined), you or your estate will be entitled
post-termination to a continuation of your base salary, as its
then current rate, through and until the later of (i) the end
of the Initial Term, or (ii) a period of eighteen (18) months
from the date of the notice of termination (which date shall
be deemed and hereafter
- 3 -
<PAGE>
referred to as the "effective date of termination").
If ARTRA elects not to renew the term of your employment for
any additional one year period for any reason other than
Cause, or if your employment shall be terminated during any
extended term either by ARTRA for any reason other than Cause
or by you for Good Reason, you shall be entitled to receive as
severance a lump sum amount equal to the sum of your base
salary for a period of eighteen (18) months at the effective
date of termination.
Upon any termination described in this Section, you will be
entitled to continue to participate in all of the employee
benefit plans and programs in which you were participating
prior to the termination of your employment until the later of
(i) the end of the Initial Term, or (ii) the date eighteen
(18) months after the effective date of termination.
ChangeofControl: In the event of a "Change in Control" (hereinafter defined),
you shall be entitled to receive a lump-sum payment equal to
your base salary, as its then current rate for a period of
thirty-five (35) months. For purposes of this Agreement, a
"Change of Control" shall be deemed to have occurred if (a)
any "person" (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")),
who is not a member of ARTRA as of the date of this Agreement
is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of securities of
ARTRA representing more than fifty percent (50%) of the
combined voting power of ARTRA's then outstanding securities;
or (b) the Managers or members of ARTRA approve a merger or
consolidation of ARTRA with any other entity, other than (i) a
merger or consolidation which would result in the voting
securities of ARTRA outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) at least eighty percent (80%) of the combined voting
power of the voting securities of ARTRA or such surviving
entity outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of ARTRA (or a similar
transaction in which no "person" who is not a member of ARTRA
as of the date of this Agreement acquires more than fifty
percent (50%) of the combined voting power of ARTRA's then
outstanding securities); or (c) the Managers or members of
ARTRA approve a plan of complete liquidation of ARTRA or ARTRA
enters into an agreement for the sale or other disposition of
all or substantially all of ARTRA's assets or otherwise
disposes of such assets.
- 4 -
<PAGE>
Duties: As President and Chief Executive Officer, you shall perform
such duties that are consistent with your position as you
shall be directed to perform by the Board of Directors. In
addition, you shall have the discretion to perform such other
duties that are required by the laws of the jurisdictions in
which ARTRA operates or by the contracts and agreements to
which ARTRA is subject.
You acknowledge that your office will require your full-time
efforts and attention, and that you shall not, during the
Initial Term or any extension, engage in any other business
activity, whether or not such other business activity is for
your own behalf or for any other person, firm, corporation or
other entity (together, a "Person") and whether or not such
other Person is in competition with ARTRA. Notwithstanding the
foregoing, you shall be allowed to manage and oversee passive
investments in noncompeting businesses, provided that such
management and oversight does not interfere with the
performance of your duties for ARTRA.
Cause: Your employment may be terminated at any time for Cause, which
is hereby defined as (i) conduct, at any time, which has
involved criminal dishonesty, conviction of any felony, or
conviction of any lesser crime or offense involving the
property of ARTRA, or any of its subsidiaries or affiliates,
misappropriation of any money or other assets or properties of
ARTRA, or that of its subsidiaries or affiliates, (ii) willful
violation of specific and lawful written directions from the
ARTRA's Board of Directors that are consistent with your
duties described above, or (iii) chronic alcoholism or drug
addiction.
Good Reason: Good Reason includes any of the following:
i. Failure by ARTRA to perform its obligations under
this agreement, unless the same is promptly remedied to your
reasonable satisfaction;
ii. Failure by the Board of Directors at any time to
elect you to, or your removal at any time from, the office of
President or the office of Chief Executive Officer;
iii. Failure to ensure your appointment or election
as a member of the board of directors of ARTRA throughout the
term of your employment and such other subsidiaries and
affiliates of ARTRA as and when you deem appropriate for the
performance of your duties;
iv. Diminution that you reasonably determine to be
material in
- 5 -
<PAGE>
your duties with ARTRA, or interference that you reasonably
determine to be material and unreasonable in the performance
of your duties with ARTRA, or assignment to you of duties
that you reasonably determine to be inconsistent with the
position of President and Chief Executive Officer of ARTRA,
unless the same is promptly remedied to your reasonable
satisfaction;
v. Change in Control of ARTRA, except for the
currently contemplated corporate reorganization pursuant to
which ARTRA will become the wholly-owned subsidiary of
Entrade;
vi. Sale or other transfer of all or any substantial
part of ARTRA's assets, except for the currently contemplated
corporate reorganization pursuant to which ARTRA will become
the wholly-owned subsidiary of Entrade;
vii. If after January 1, 2000, ARTRA has failed to
consummate at least one of the currently-announced
acquisitions of entrade.com and Nationwide prior to January 1,
2000, and a material adverse change has occurred in ARTRA's
business prospects or balance sheet; or
viii. Your death or disability.
Governing Law: Our understandings shall be governed by the laws of the State
of Illinois, exclusive of its choice of law provisions.
Indemnification: ARTRA will indemnify you to the fullest extent permitted by
law, and will advance to you defense costs to the fullest
extent permitted by law, in connection with any and all
actions, suits and proceedings to which you may at any time be
made or threatened to be made a party by reason of (i) the
commencement of your employment with ARTRA or the fact that
you are or were at any time serving or designated to serve as
a director, officer or employee of ARTRA or any of its
subsidiaries or affiliated entities or in any other capacity
at the request or on behalf of ARTRA or any of its
subsidiaries or affiliated entities or by reason, (ii) any act
or nonact on your part in connection therewith, or (iii) the
termination of your employment with Bagcraft Packaging. The
obligations of ARTRA under this Paragraph are absolute and
unconditional, will survive your death or disability, and will
survive the termination of your employment with ARTRA for any
reason (whether such termination is during your term of
employment or after the expiration of the term of your
employment).
Attorneys' fees: You will be entitled to recover from ARTRA all attorneys' fees
and other
- 6 -
<PAGE>
costs and expenses in connection with enforcing this agreement
against ARTRA and its successors.
Binding Effect: This Agreement supersedes all prior negotiations and
represents the entire Agreement of the parties, and our
signatures hereon will bind us hereto. This Agreement inures
to the benefit of ARTRA, its successors and assigns and will
be binding upon, and enforceable against, ARTRA and its
successors, including any successor by merger or consolidation
and any entity or entities that acquire all or substantially
all of ARTRA's assets, and, unless ARTRA makes other
arrangements satisfactory to you for the performance of its
obligations under this Agreement, ARTRA will obtain the
express written assumption of this Agreement by each of its
successors. This Agreement will inure to the benefit of, and
be enforceable by, you and your heirs, legatees, executors,
and personal representatives and, to the extent that they are
entitled to receive any compensation, benefit, payment or
reimbursement under any provision of this Agreement, your
spouse and any other beneficiaries; provided, however, that,
after your acceptance of this Agreement, you will have the
right at any time to amend, modify or terminate this Agreement
and any provision hereof (including any provision of this
Agreement granting any rights to your spouse or any other
beneficiary) without the consent or approval of your spouse or
any other beneficiary.
If the foregoing is acceptable to you, please sign and return a copy to
me.
Very truly yours,
/s/ Peter Harvey
--------------------
Peter Harvey
President
Accepted:
/s/ Mark Santacrose
- -----------------------
Mark Santacrose
Dated: June 28, 1999
- 7 -
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
July 16, 1999
EXHIBIT 23.12
July 20, 1999
Board of Directors
Artra Group Incorporated
500 Central Avenue
Northfield, Illinois 60093
Gentlemen:
We are acting as counsel to Artra Group Incorporated ("Artra") in
connection with the proposed merger of Artra and a merger subsidiary of Entrade
Inc. ("Entrade")
We hereby consent to the filing of our form of tax opinion as Exhibit
8.1 to Entrade's Registration Statement on Form S-4 and to the use of our name
under the section entitled "The Merger -- Federal Income Tax Consequences" and
"Legal Matters" in the Proxy Statement/Prospectus.
/s/ Duane, Morris & Heckscher LLP
Philadelphia, Pennsylvania
