SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-15303
ENTRADE INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 52-2153008
-------------------------------- ------------------
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
500 Central Avenue, Northfield, IL 60093
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (847) 784-3300
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
- ------------------------------- ------------------------------
Common Stock, without par value 17,690,779
<PAGE>
ENTRADE INC.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and
March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Changes
in Shareholders' Equity (Deficit)
Three Months Ended March 31, 2000. . . . . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and
March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Condensed Consolidated Financial Statements . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 25
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . . . 30
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 31
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . 31
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 32
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
------
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents. . . . . . . $ 37,995 9,667
Receivables, less allowance for
doubtful accounts of $10 in
2000 and 1999. . . . . . . . . . . . 2,107 812
Inventories. . . . . . . . . . . . . . 51 --
Available-for-sale securities. . . . . 3,242 4,386
Other. . . . . . . . . . . . . . . . . 603 461
----------- ------------
Total current assets . . . . . . 43,998 15,326
----------- ------------
Property, plant and equipment,
net of accumulated depreciation
of $300 and $178, respectively . . . . 8,159 7,363
Other assets:
Intangibles, principally excess
of cost over net assets
acquired, net of accumulated
amortization, of $2,161 and
$1,088, respectively . . . . . . . . 53,321 54,394
Investment in and advances to
affiliates . . . . . . . . . . . . . 14,850 3,554
Other. . . . . . . . . . . . . . . . . 213 121
---------- ----------
Total assets . . . . . . . . . . $ 120,541 80,758
========== ==========
LIABILITIES
-----------
Current liabilities:
Notes payable. . . . . . . . . . . . . $ 2,999 1,229
Current maturities of long-term
debt, including amounts due
to related parties of $0 in
2000 and $7,000 in 1999. . . . . . . 131 9,364
Cash overdraft . . . . . . . . . . . . -- 473
Accounts payable . . . . . . . . . . . 6,286 1,345
Accrued expenses . . . . . . . . . . . 2,237 2,850
Income taxes payable . . . . . . . . . 1,084 1,081
Liabilities of discontinued
operations . . . . . . . . . . . . . 3,875 3,875
Obligations expected to be settled
by the issuance of common stock
to related parties . . . . . . . . . 3,500 --
---------- ----------
Total current liabilities. . . . 20,112 20,217
---------- ----------
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(In thousands, except share data)
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
Long-term debt . . . . . . . . . . . . . 996 7,978
Obligations expected to be settled
by the issuance of common stock
to related parties . . . . . . . . . . 7,000 4,743
Commitments and contingencies. . . . . . -- --
---------- ----------
Total liabilities. . . . . . . . 28,108 32,938
---------- ----------
Mandatorily redeemable convertible
preferred stock. . . . . . . . . . . . 20,047 --
SHAREHOLDERS' EQUITY
--------------------
Preferred stock, $1,000 par value,
authorized 4,000,000 shares;
no shares issued or outstanding
Common stock, no par value;
authorized 40,000,000 shares;
issued 16,618,173 shares in 2000
and 15,082,186 shares in 1999
Additional paid-in capital . . . . . . . 152,947 119,539
Deferred stock compensation. . . . . . . (4,254) (4,929)
Unrealized appreciation of
investments. . . . . . . . . . . . . . 5,962 7,106
Accumulated deficits . . . . . . . . . . (82,269) (73,896)
---------- ----------
Total shareholders' equity . . . 72,386 47,820
---------- ----------
Total liabilities and
shareholders' equity . . . . . $ 120,541 80,758
========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
Three Months Ended
--------------------------
March 31, March 31,
2000 1999
---------- -----------
Net revenues . . . . . . . . . . . . . . $ 3,830 --
---------- ----------
Costs and expenses:
Cost of goods sold, exclusive of
depreciation and amortization. . . . 1,556 --
Selling, general and administrative,
exclusive of $675 and $300 of
compensation related to stock
options. . . . . . . . . . . . . . . 7,823 1,054
Compensation related to stock
options. . . . . . . . . . . . . . . 675 300
Depreciation . . . . . . . . . . . . . 122 --
Amortization of goodwill . . . . . . . 1,073 --
---------- ----------
11,249 1,354
---------- ----------
Operating loss . . . . . . . . . . . . . (7,419) (1,354)
---------- ----------
Other income (expense):
Interest (expense) income, net . . . . (168) 86
Equity loss in affiliates. . . . . . . (782) --
Other income, net. . . . . . . . . . . 33 --
---------- ----------
(917) 86
---------- ----------
Loss before income taxes . . . . . . . . (8,336) (1,268)
Provision for income taxes . . . . . . . (1) --
---------- ----------
Net loss . . . . . . . . . . . . . . . . (8,337) (1,268)
Dividends applicable to:
Redeemable preferred stock . . . . . . -- (64)
Mandatorily redeemable convertible
preferred stock. . . . . . . . . . . (36) --
---------- ----------
Loss applicable to common shares . . . . $ (8,373) (1,332)
========== ==========
Per share loss applicable to
common shares:
Basic and diluted loss applicable
to common shares . . . . . . . . . . $ (0.53) (0.17)
========== ==========
Weighted average number of shares
of common stock outstanding. . . . . 15,869 7,965
========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE>
<TABLE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<CAPTION>
ACCUMULATED
DEFERRED OTHER TOTAL
COMMON STOCK ADDITIONAL STOCK COMPRE- SHARE-
--------------------- PAID-IN COMPEN- HENSIVE ACCUMULATED HOLDERS'
SHARES DOLLARS CAPITAL SATION INCOME DEFICIT EQUITY
---------- ------- ---------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1999 . . . . . . . 15,082,186 -- $119,539 (4,929) 7,106 (73,896) $ 47,820
--------
Comprehensive loss:
Net loss . . . . . -- -- -- -- -- (8,337) (8,337)
Net decrease in
unrealized
appreciation of
investments . . . -- -- -- -- (1,144) -- (1,144)
--------
Comprehensive
loss . . . . . (9,481)
--------
Other changes in
shareholders' equity:
Exercise of
warrants to pur-
chase common
stock . . . . . . 41,167 -- 253 -- -- -- 253
Exercise of options
to purchase
common stock. . . 995,467 -- 3,334 -- -- -- 3,334
Sale of common
stock, net of
selling costs . . 220,368 -- 6,532 -- -- -- 6,532
Payments of notes
with issuance of
common stock. . . 278,985 -- 4,743 -- -- -- 4,743
Deferred stock-
based compensa-
tion expense
recognize . . . . -- -- -- 675 -- -- 675
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - CONTINUED
(Unaudited in thousands, except share data)
ACCUMULATED
DEFERRED OTHER TOTAL
COMMON STOCK ADDITIONAL STOCK COMPRE- SHARE-
--------------------- PAID-IN COMPEN- HENSIVE ACCUMULATED HOLDERS'
SHARES DOLLARS CAPITAL SATION INCOME DEFICIT EQUITY
---------- ------- ---------- --------- ----------- ----------- --------
Beneficial conver-
sion feature from
issuance of redeem-
able preferred
stock . . . . . . -- -- 3,189 -- -- (36) 3,153
Issuance of war-
rants to purchase
common stock. . . -- -- 15,357 -- -- -- 15,357
--------
Other changes
in shareholders'
equity. . . . . 34,047
---------- -------- -------- -------- -------- -------- --------
Balance at
March 31, 2000 . . 16,618,173 -- $152,947 (4,254) 5,962 (82,269) 72,386
========== ======== ======== ======== ======== ======== ========
<FN>
The fair value of warrants granted in the first three months of 2000 and in 1999 was estimated using
the Black-Scholes option pricing model with the following weighted average assumptions:
2000 1999
------ ------
Expected live
(years). . . . . . 3.7 5.0
Interest rate. . . . 6.0% 6.0%
Volatility . . . . . 59.0% 60.0%
Dividend yield . . . -- --
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
ENTRADE INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Three Months Ended
--------------------------
March 31, March 31,
2000 1999
---------- -----------
Net cash flows used by
operating activities . . . . . . . . . $ (2,824) (2,074)
---------- ----------
Cash flows from investing activities:
Advances to NA Acquisition Corp. . . . -- (1,400)
Investment in affiliates . . . . . . . (2,535) --
Increase in inventories. . . . . . . . (51) --
Decrease in restricted cash. . . . . . -- 83
Additions to property, plant
and equipment. . . . . . . . . . . . (918) --
Other. . . . . . . . . . . . . . . . . (92) (335)
---------- ----------
Net cash flows used by
investing activities . . . . . . . . . (3,596) (1,652)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock
options and warrants . . . . . . . . 3,587 1,290
Net proceeds from the sale of
common stock . . . . . . . . . . . . 7,000 --
Net decrease in current maturities
of long-term debt. . . . . . . . . . (5,715) --
Decrease in cash overdraft . . . . . . (473) --
Net proceeds from issuance of
mandatorily redeemable
convertible preferred stock
and warrants . . . . . . . . . . . . 28,579 --
Proceeds from notes payable. . . . . . 1,770 --
---------- ----------
Net cash flows provided by
financing activities . . . . . . . . . 34,748 1,290
---------- ----------
Increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . 28,328 (2,436)
Cash and equivalents,
beginning of period. . . . . . . . . . 9,667 11,753
---------- ----------
Cash and equivalents, end of period. . . $ 37,995 9,317
========== ==========
Supplemental schedule:
Interest paid. . . . . . . . . . . . . $ 267 --
Non-cash investing and
financing activities:
Warrants issued in acquisitions
of businesses. . . . . . . . . . . . $ 9,544 --
Warrants issued in exchange for
services . . . . . . . . . . . . . . 468 --
Common stock issued to settle
obligations to related parties . . . 4,743 --
========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Registrant, Entrade Inc. ("Entrade"), formerly NA Acquisition Corp.,
incorporated in Pennsylvania in February 1999, is a creator of and investor
in business-to-business e-commerce marketplaces in targeted industries.
Entrade has presented financial reports on a condensed consolidated basis
compared to earlier periods of reports of Artra Group Incorporated
("Artra"), a Pennsylvania corporation, which became a wholly owned
subsidiary of Entrade as of September 23, 1999 pursuant to the Agreement
and Plan of Merger described below. 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 ("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 and WorldWide Web NetworX Corporation ("WorldWide")
providing for the merger of a wholly owned subsidiary of Entrade with and
into Artra. At the time of the merger, Entrade owned all of the
outstanding capital stock of entrade.com, Inc. ("entrade.com") and 25% of
the Class A Common Stock of AssetTrade.com, Inc. ("AssetTRADE.com").
On September 22, 1999, Artra's shareholders approved Artra's merger with
Entrade and on September 23, 1999, the merger was completed. As a result
of the merger, Artra became a wholly owned subsidiary of Entrade, and
Entrade's common stock became listed and commenced trading on the New York
Stock Exchange under the symbol "ETA" on September 24, 1999.
Entrade is a business-to-business e-commerce development company
specializing in the creation of electronic commerce, or "e-commerce"
marketplaces. As of March 31, 2000, Entrade has invested in seven e-
commerce marketplaces with an eighth pending shareholder approval.
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Public Liquidations Systems, Inc. and Asset
Liquidation Group, Inc., d/b/a Nationwide Auction Systems ("Nationwide").
Nationwide has been in operation for more than 20 years and is one of the
nation's largest volume public auction firms in the disposition of
municipality, law enforcement, corporate and utility company surplus
property, primarily vehicles and equipment. Nationwide also conducts
auctions of real property and jewelry.
The portion of net revenue in the statement of operations related to
auction and/or sales transactions represents the commission earned on such
transactions rather than the gross transaction value. The gross
transaction value for the three months ended March 31, 2000 for Entrade's
affiliated companies totaled approximately $27,000,000.
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 annual report on Form 10-K.
Accordingly, the accompanying condensed consolidated financial statements
should be read in conjunction with the Entrade annual report on Form 10-K
for the fiscal year ended December 31, 1999 as filed with the Securities
and Exchange Commission. The condensed consolidated balance sheet as of
December 31, 1999 was derived from the audited consolidated financial
statements included in the Entrade annual report on Form 10-K.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all normal recurring adjustments necessary to
present fairly its financial position as of March 31, 2000, and the results
of operations and changes in cash flows for the three-month period ended
March 31, 2000 and March 31, 1999. 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 full fiscal year. The accompanying
condensed consolidated financial statements reflect reclassifications of
prior year amounts to conform to current year presentation.
NOTE 2. CHANGE OF BUSINESS
ENTRADE
On February 23, 1999, Artra entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Entrade, WorldWide, and WWWX Merger
Subsidiary, Inc. ("Merger Sub"), a wholly owned subsidiary of Entrade.
Terms of the Merger Agreement required the Merger Sub to merge into Artra
(the "Merger"), with Artra being the surviving corporation for financial
reporting purposes.
On September 22, 1999, Artra's shareholders approved the transaction and on
September 23, 1999, the Merger was completed. As a result of the Merger,
Artra became a wholly owned subsidiary of Entrade, and the common
shareholders of Artra became holders of 83% of the common stock of Entrade.
Under the terms of the Merger Agreement, the Artra common shareholders
received one share of Entrade no par common stock in exchange for each
share of Artra no par common stock. All stock options and warrants issued
by Artra and outstanding on the closing date of the Merger were converted
on a one for one basis into Entrade stock options and warrants. For
financial reporting purposes, Entrade's condensed consolidated financial
statements are compared to Artra's and Nationwide's financial statements
for earlier periods, with shareholder's equity and share information
restated to reflect the effect of the Merger Agreement and the Nationwide
acquisition referenced below. All shareholders' equity and share
information has been restated to reflect this recapitalization. Entrade's
common stock became listed and commenced trading on the New York Stock
Exchange under the symbol "ETA" on September 24, 1999.
Entrade owns all of the outstanding capital stock of entrade.com and, as of
May 17, 2000, owns 16.62% (computed on a fully diluted basis) of the Class
A Common Stock of AssetTRADE.com. entrade.com is an e-commerce software
technology subsidiary of Entrade that provides an Internet-based business-
to-business transaction engine and related e-commerce solutions for target
markets. AssetTRADE.com provides business-to-business online services that
facilitate the remarketing of industrial machinery, equipment and parts.
These services are designed to enhance the current operation of asset
recovery teams and procurement groups of industrial companies.
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 Common Stock of AssetTRADE.com from WorldWide, in
exchange for 1,800,000 shares of Entrade common stock, $800,000 in cash and
a note for $500,000, paid upon the consummation of the Merger. On
February 16, 1999, Entrade had agreed with Energy Trading Company, a
wholly-owned subsidiary of Peco Energy Company, to issue to Energy Trading
Company 200,000 shares of Entrade common stock, and to pay Energy Trading
Company $100,000, paid upon the consummation of the Merger, in exchange for
certain retained rights Energy Trading Company held in the assets purchased
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 lend Entrade
up to $2,000,000 and advance an additional $250,000 to fund the $800,000
cash payment to WorldWide and to provide funding for entrade.com until the
consummation of the Merger. Under the Merger Agreement, Artra also agreed
to guarantee the $4,000,000 funding for entrade.com.
In August 1999, WorldWide agreed to lend Entrade up to $500,000 to fund
Entrade's operations for the period from the date of the loan to the
closing date under the Merger Agreement. Borrowings totaling $405,000 were
repaid to WorldWide prior to closing the Merger.
The acquisition has been accounted for as a purchase. The operating
results of the acquired entities have been included in Entrade's condensed
consolidated financial statements since the effective date of acquisition,
and the acquired entities losses for the period from February 23, 1999
until the effective date of the Merger in September 1999 have also been
reflected in Entrade's condensed consolidated financial statements. The
amount of the purchase price allocated to intangible assets acquired of
approximately $10 million is being amortized over five years.
WorldWide, which holds 1,800,000 shares of Entrade common stock, is subject
to a lockup under the Merger Agreement for sales or transfers of its
Entrade shares until the first anniversary after the closing of the Merger,
subject to (a) exceptions for pledges or the distribution of up to 25% of
the Entrade shares to WorldWide's shareholders and (b) an agreement entered
into in April 2000 between Entrade and WorldWide that permits WorldWide to
sell up to 50,000 shares of Entrade common stock in each month prior to the
first anniversary after the closing of the Merger. Subject to the lockup
provision applicable to WorldWide, WorldWide shareholders that receive the
distribution may utilize Rule 144 to sell shares.
NATIONWIDE
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Public Liquidations Systems, Inc. and Asset
Liquidation Group, Inc., d/b/a Nationwide Auction Systems ("Nationwide").
Nationwide has been in operation for more than 20 years and is one of the
nation's largest volume public auction firms in the disposition of
municipality, law enforcement, corporate and utility company surplus
property, primarily vehicles and equipment. Nationwide also conducts
auctions of real property and jewelry. Nationwide conducts its auctions at
its facilities or at off-site locations. Nationwide has six auction
facilities located in California, Missouri, Delaware, New Mexico and
Georgia.
The consideration paid for Nationwide consisted of cash of $6,000,000;
1,570,000 shares of Entrade common stock; short-term promissory notes (the
"Notes") in the principal amount of $4,800,000; and promissory notes (the
"Term Notes") in the principal amount of $14,000,000, with a final maturity
of October 1, 2001. The Notes and the Term Notes provide for interest at
an annual rate of 8%. Entrade also issued 80,000 shares of Entrade common
stock in payment of fees to its agent in connection with the closing of the
transaction.
In January 2000, the Notes, net of amounts due from a selling shareholder
of $139,000, plus accrued interest, were converted into 278,985 shares of
Entrade common stock. Accordingly, at December 31, 1999, net amounts due
on the Notes plus accrued interest were reclassified in Entrade's
consolidated balance sheet as obligations expected to be settled by the
issuance of common stock. The total amount reclassified, including accrued
interest, was $4,743,000.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2000, Entrade entered into an agreement with the Nationwide
selling shareholders to convert the Term Notes with a remaining principal
balance of approximately $10,500,000 into 265,621 shares of Entrade common
stock. The Term Notes originally provided for principal payments of
$3,500,000 in October 2000 and $7,000,000 in October 2001. Completion of
this transaction is subject to approval by Entrade shareholders. See
Note 10 "Subsequent Events - Amendment to Note Satisfaction Agreement" for
a description of the current status of the Term Notes.
The Nationwide acquisition has been accounted for as a purchase. The
operating results of Nationwide have been included in Entrade's condensed
consolidated financial statements since the effective date of acquisition.
The amount of the purchase price allocated to intangible assets acquired,
principally goodwill, of approximately $45 million is being amortized over
20 years.
Holders of approximately 1,848,985 shares of common stock that were issued
in the Nationwide acquisition are prohibited from selling more than 978,985
shares until May 31, 2000, subject to adjustment in certain circumstances.
OTHER
Effective October 4, 1999, Entrade acquired all of the Series A Preferred
Stock of printeralliance.com ("Printeralliance Preferred") for cash of
$500,000 and a license to the entrade.com e-commerce software. A privately
owned e-commerce company, printeralliance.com was formed in 1999 to
establish a buying group of independent commercial printers in order to
obtain cost savings on supplies, equipment and other services. The
Printeralliance Preferred shares acquired by Entrade are convertible into a
61% common stock ownership interest in printeralliance.com at the option of
Entrade. Accordingly, the acquisition has been accounted for as a purchase
and the operating results of printeralliance.com have been included in
Entrade's condensed consolidated financial statements since the effective
date of acquisition. The amount of the purchase price allocated to
intangible assets acquired is being amortized over five years. In the
first quarter of 2000, Entrade also invested $1,000,000 to acquire
additional Printeralliance Preferred shares which are convertible into a 3%
common stock ownership interest. This additional investment increased
Entrade's equity interest to 64%.
In October 1999, entrade.com licensed its technology to Pricecontainer.com
in return for a 15% ownership interest. Pricecontainer.com is establishing
itself as an on-line reservation system for a variety of trans-oceanic and
maritime logistics services. Entrade accounts for its investment in
Pricecontainer.com using the cost method.
utiliparts.com is owned 80% by entrade.com and 20% by AssetTRADE.com.
utiliparts.com intends to create an e-commerce marketplace in the utility
industry utilizing entrade.com's e-commerce software, to provide investment
recovery, internal inventory optimization and asset disposition consulting
services.
In January 2000, Entrade entered into an agreement with three individual
shareholders to acquire 15% of the issued and outstanding shares of ATM
Service, which is a licensee of entrade.com's technology, for shares of
Entrade's common stock equal to the greater of 352,941 shares or that
number determined by dividing $6,000,000 by the average closing price for
the common stock for the five trading days preceding the closing date. ATM
Service provides a channel for wholesale redistribution of consumer-
oriented goods under the name ATMCenter.com. The transaction is subject to
various conditions, including Entrade shareholder approval. WorldWide, the
majority owner of ATM Service, is currently the beneficial owner of more
than 10% of the outstanding shares of Entrade common stock.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 10, 2000, Entrade agreed with Associates First Capital
Corporation ("Associates") to organize TruckCenter.com, a new company
designed to create a business-to-business electronic commerce marketplace
for the sale of trucks and related services, including financing,
certification, warranty and third party inspection. The TruckCenter.com
website was launched on April 15, 2000. For the six-month period following
the launch, Associates has agreed to list its truck inventory on the
TruckCenter.com website and not on any other website unaffiliated with
Associates. Subject to its independent underwriting guidelines, Associates
also intends to provide financing for purchasers transacting business over
the TruckCenter.com website. Entrade currently owns all of the outstanding
common stock of TruckCenter.com. Entrade agreed to invest $3,000,000 in
TruckCenter.com in exchange for two convertible notes from TruckCenter.com
each with a face amount of $1,500,000 each. Each note is convertible into
10% (computed on a fully diluted basis) of the common stock of
TruckCenter.com. Entrade has funded an aggregate of approximately
$1,650,000 of the agreed upon $3,000,000 investment with cash and services
as of March 31, 2000. Associates has the option to purchase from Entrade
40% (computed on a fully diluted basis) of the common stock of
TruckCenter.com at par and has indicated an intent to exercise such right.
However, as of May 15, 2000, Associates has not done so. In addition,
Associates has the option through the purchase of one of the $1,500,000
convertible notes held by Entrade to acquire an additional 10% (computed on
a fully diluted basis) of the common stock of TruckCenter.com.
On February 18, 2000, Entrade's wholly-owned subsidiary, entrade.com,
entered into an agreement to acquire 1,011,667 shares of Series A
Convertible Preferred Shares, par value $.001 per share, of
TradeTextile.com ("TradeTextile Preferred"), a warrant to acquire 288,778
shares of the TradeTextile Preferred and a warrant to acquire 333,609
shares of the TradeTextile Preferred in exchange for $3,500,000, to be paid
in installments subject to certain conditions, a warrant to acquire up to
75,000 shares of Entrade common stock and the license to TradeTextile.com
of entrade.com's software technology. Pursuant to the terms of the
agreement, entrade.com will own 35% of TradeTextile.com on a fully-diluted
basis, assuming the full exercise of its warrants to purchase the
TradeTextile Preferred. TradeTextile.com, using the entrade.com
technology, facilitates the online trading of yarns, fabrics, garments, raw
materials, chemicals, and textile quotas, initially targeting the Chinese
textile industry.
On March 9, 2000, Entrade agreed with Textron Financial Corporation, a
subsidiary of Textron Inc., to organize a new entity to be known as
AssetControl.com, which is intended to be a business-to-business electronic
commerce marketplace for the sale of surplus industrial equipment, excess
inventory and commercial real estate. Entrade owns 38% of AssetControl.com
with the remainder owned 47.5% by Textron Financial, 9.5% by ATM Service (a
majority owned subsidiary of WorldWide), and 5% by Safeguard Scientifics
Inc. As part of the consideration for this agreement, Entrade issued to
Textron Financial Corporation a warrant to acquire up to 1,000,000 shares
of Entrade common stock. The warrant initially vests 250,000 shares with
the remaining 750,000 shares scheduled to vest based upon certain
performance standards for AssetControl.com. Entrade may recognize future
charges to operations in the event that the market prices on the vesting
dates of the 750,000 warrants exceeds the warrant exercise price.
NOTE 3. INVESTMENT IN ASSETTRADE.COM
On February 23, 1999, Entrade acquired 25% of the outstanding shares of
Class A Common Stock of AssetTRADE.com, a provider of business-to-business
online services that facilitate the remarketing of industrial machinery,
equipment and parts. See Note 10 to the condensed consolidated financial
statements "Subsequent Events - Purchase and Sale of AssetTRADE.com Shares"
for a description of Entrade's current ownership of AssetTRADE.com shares.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized financial data for AssetTRADE.com for the three months ended (in
thousands) is as follows:
March 31, December 31,
2000 1999
---------- ------------
Revenues . . . . . . . . . . . . . . $ -- --
========== ==========
Operating loss . . . . . . . . . . . $ (3,006) (1,831)
========== ==========
Net loss . . . . . . . . . . . . . . $ (2,870) (1,778)
========== ==========
Current assets . . . . . . . . . . . $ 7,721 4,719
Noncurrent assets. . . . . . . . . . 986 283
---------- ----------
$ 8,707 5,002
========== ==========
Current liabilities. . . . . . . . . $ 1,855 1,030
========== ==========
Noncurrent liabilities . . . . . . . $ -- --
Redeemable preferred stock . . . . . 11,500 5,750
Shareholders' deficit. . . . . . . . (4,648) (1,778)
---------- ----------
$ 8,707 5,002
========== ==========
NOTE 4. INVESTMENT IN COMFORCE CORPORATION
At March 31, 2000 and December 31, 1999, Artra owned 1,525,500 shares of
common stock of Comforce Corporation ("Comforce"), an ownership interest of
approximately 9%, which was classified in Artra's consolidated balance
sheet in current assets as "Available-for-sale securities." At March 31,
2000 and December 31, 1999, the gross unrealized gain relating to Artra's
investment in Comforce, reflected as a separate component of shareholders'
equity, was $5,962,000 and $7,106,000, respectively. The investment in
Comforce common stock is subject to liquidity and market price risks. An
attempt to sell a large number of the Comforce shares over a limited period
could be expected to result in a reduction of the market price of those
shares.
In January 1996, Artra's board of directors approved the sale of 200,000 of
Artra's Comforce common shares to certain 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.
Artra had concluded that, for reporting purposes, it had effectively
granted 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 its 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.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The disposition of these 200,000 Comforce common shares resulted in a gain
that was deferred and will not be recognized in Artra's financial
statements until the options to purchase these 200,000 Comforce common
shares are exercised. Prior to the fourth quarter of 1997, no options to
acquire any of the 200,000 Comforce common shares had been exercised.
During the fourth quarter of 1997, options to acquire 59,500 of these
Comforce common shares were exercised resulting in a realized gain of
$225,000. During 1998, options to acquire 84,750 of these Comforce common
shares were exercised resulting in a realized gain of $320,000. During
1999, options to acquire 20,000 of these Comforce common shares were
exercised resulting in a realized gain of $66,000.
At March 31, 2000 and December 31, 1999, options to acquire 37,250 Comforce
common shares, remained unexercised and were classified in Artra's
consolidated balance sheet as other receivables with aggregate values of
$73,000 based upon the value of proceeds to be received upon future
exercise of the options.
NOTE 5. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
ENTRADE
In March 2000, Entrade raised approximately $28,579,000 in net proceeds
from the sale of 30,000 shares of Entrade's Series A mandatorily redeemable
convertible non-voting preferred stock (the "Series A Preferred Stock").
The investors also received warrants to purchase 400,000 shares of Entrade
common stock at an exercise price of approximately $41.38 per share,
subject to adjustment in certain circumstances. The Series A Preferred
Stock, $1,000 par value, bore a 6% dividend payable at Entrade's option in
either cash or common stock. For the first 15 months after issuance of the
Series A Preferred Stock, and subject to certain registration rights and
other conditions, Entrade had the right to convert all or part of the
Series A Preferred Stock at the lesser of $78.73 per share or 91% of the
lowest closing sale price of Entrade's common stock during the two
consecutive trading days ending on the date of the election. In addition,
Entrade had the right during this period to redeem the preferred stock at
115% of its value. Entrade had to redeem or convert all of the Series A
Preferred Stock within two years of the date of its issuance, and, until
the Series A Preferred Stock was redeemed or converted, Entrade could not
pay dividends on its common stock without the approval of the preferred
stockholders. To the extent that the fair market value of the common stock
received upon conversion of the Series A Preferred Stock would have been
deemed to exceed the carrying value of the Series A Preferred Stock, a
beneficial conversion feature would have existed. A deemed dividend to the
Series A Preferred Stock shareholders would be reflected to the extent of
any beneficial conversion feature which would increase the net loss
available to common shareholders.
The Series A Preferred Stock contained a feature pursuant to which the
maximum conversion price per share and the terms of the warrant adjusted
upon the occurrence of certain events, including in the event that the
price of Entrade's common stock closed at a sale price lower than
approximately $20.69 per share for any 15 trading days in a 20 trading day
period or the price of Entrade's common stock closed at a sale price lower
than $15 per share for any two consecutive trading days. As a result of
either of such events, the maximum conversion price for the Series A
Preferred Stock would adjust to the lesser of 120% of the "Liquidation
Default Date Price" or 91% of the lower closing price of Entrade's common
stock during the two consecutive trading days ending on the date of the
conversion election. The Liquidation Default Date Price was the arithmetic
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
average of the 15 lowest trading prices in such 20-trading day period (in
the case of such trigger) or the middle three of the five trading days
ending on the second consecutive day on which Entrade's common stock closed
at a sale price lower than $15 per share (in the case of such trigger).
Also as a result of any such events, the warrant exercise price would
adjust to a price equal to the Liquidation Default Date Price and the
number of shares issuable upon exercise of the warrant would increase to a
number equal to the prior number times a fraction, the numerator of which
was the prior exercise price of the warrant and the denominator of which is
the revised exercise price of the warrant.
Because the closing sale price of Entrade's common stock on April 13 and
14, 2000 was less than $15.00 per share, the investors had the right to
convert the Series A Preferred Stock at a conversion price equal to the
lesser of $19.44 or 91% of the lower closing sale price of Entrade's common
stock during the two consecutive trading days ending on the date of such
election. Following such event, Entrade had one business day to exercise
its right to redeem the Series A Preferred Stock at 115% of par. Entrade
issued the redemption notice on April 17, 2000.
On April 20, 2000, Entrade caused the conversion of 300 shares of the
Series A Preferred Stock into 31,516 shares of Entrade common stock and
redeemed the remaining 29,700 issued and outstanding shares of that Series
A Preferred Stock for an aggregate payment of approximately $34,280,000.
The redemption of the Series A Preferred Stock will result in a significant
incremental charge to retained earnings and an increase in the loss per
share applicable to common shares in the second quarter of 2000.
The investors' right to receive warrants to purchase 400,000 shares of
Entrade common stock at an exercise price of approximately $41.38 remain
outstanding and have been adjusted in both amount and exercise price. The
investors currently have warrants to purchase approximately 1,021,080
shares of Entrade common stock at an exercise price of approximately $16.21
per share. These warrants will remain outstanding for a period of three
years from the date of issuance and, subject to certain conditions, will
continue to adjust in both share amount and exercise price if Entrade
issues additional shares of its common stock or certain equivalents at a
price per share below the current exercise price of the outstanding
warrants.
NOTE 6. INCOME TAXES
No income tax benefit was recognized in connection with Entrade's 2000 and
1999 pre-tax losses due to Entrade's tax loss carryforwards and the
uncertainty of future taxable income.
At December 31, 1999, Entrade and its subsidiaries had Federal income tax
loss carryforwards of approximately $14,800,000 expiring principally in
2012 - 2019, available to be applied against future taxable income, if any.
In recent years, Entrade 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, Entrade is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should Entrade 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.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7. 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, 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, by the weighted average number of shares of
common stock and common stock equivalents (stock options and warrants),
unless anti-dilutive, during each period.
Earnings (loss) per share for the three months ended March 31, 2000 and
1999 was computed as follows (in thousands, except per share amounts):
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------- --------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
AVERAGE SHARES OUTSTANDING:
Weighted average shares
outstanding. . . . . . . . . 15,869 15,869 7,965 7,965
Common stock equivalents
(options/warrants) . . . . . -- -- -- --
-------- -------- -------- --------
15,869 15,869 7,965 7,965
======== ======== ======== ========
(LOSS):
Net loss . . . . . . . . . . .$ (8,337) (8,337) (1,268) (1,268)
-------- -------- -------- --------
Dividends applicable to:
Redeemable preferred
stock. . . . . . . . . . . -- -- (64) (64)
Mandatorily redeemable
convertible preferred
stock. . . . . . . . . . . (36) (36) -- --
-------- -------- -------- --------
Loss applicable to
common shares. . . . . . . .$ (8,373) (8,373) (1,332) (1,332)
======== ======== ======== ========
PER SHARE AMOUNTS:
Loss per shares applicable
to common shares . . . . . .$ (.53) (.53) (.17) (.17)
======== ======== ======== ========
NOTE 8. LITIGATION
In addition to legal proceedings and claims that arise in the ordinary
course of business, none of which management considers to be material,
Entrade and/or its subsidiaries are involved in the following proceedings.
Artra and its subsidiaries are the defendants in various business-related
litigation and environmental matters and product liability claims. At
March 31, 2000 and December 31, 1999, Artra had accrued current liabilities
of $1,400,000 for potential business-related litigation and environmental
liabilities. No liabilities were accrued for the product liability claims
because no reasonable basis exists on which such claims could be
quantified.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PRODUCT LIABILITY CLAIMS
Since 1983, Artra has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former Artra subsidiary. Reports from outside
counsel indicate, as of March 31, 2000, pending claims asserted by
approximately 40,000 plaintiffs (excluding loss of consortium claims) in 16
states. It is probable that a significant number of additional claims will
be asserted in the future. Artra has no reasonable basis on which to
quantify the potential cost to it of these pending and unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of asbestos and other product liability claims from 1983
through September 1998, when Artra's primary insurance carriers asserted
that Artra's primary insurance coverage for the claims had been exhausted.
Beginning in September 1998, certain of Artra's excess insurance carriers,
under a reservation of the right to deny coverage at a subsequent date,
assumed the defense of the claims and paid defense, settlement and
indemnity costs relating to these claims, pursuant to an interim agreement,
which costs totaled approximately $17,500,000 through December 31, 1999.
The interim agreement expired as of January 31, 2000.
Until January 31, 2000, pursuant to the interim agreement, certain of
Artra's excess insurance carriers funded defense and indemnity costs as
they became due. Under the interim agreement, the claims were administered
by one of Artra's principal excess insurers, which was one of the
participants in the expired interim agreement. Since January 31, 2000,
that excess insurer has not administered the claims or advanced funds for
defense, settlement and indemnity expenses: Between January 1, 2000 and
March 31, 2000, Artra's defense, settlement and indemnity expenses are
estimated to have been approximately $4,500,000, which was either subject
to the interim agreement through January 31, 2000 and advanced by excess
insurers, or is subject to potential reimbursement from the excess
insurers.
Negotiations are continuing with the principal excess insurer and the other
excess insurers regarding the establishment of a permanent funding, claims
administration and coverage agreement. Unless and until such a permanent
agreement is reached, as to which Artra can provide no assurance, Artra
intends, unless litigation should become necessary in light of the
positions of the excess carriers or other circumstances, to: (i) administer
the claims and (ii) fund defense, settlement and indemnity costs to the
extent necessary and then seek reimbursement from the excess insurance
carriers. It is also possible that these excess insurance carriers could
cease making payments at any time on the basis of their various
reservations of rights.
Artra and two of its excess insurers currently have a dispute as to the
existence of certain insurance coverage, in the approximate amount of
$25,000,000, for the period 1968 through 1974. These carriers contend that
the policies for this period, if they ever existed, are "lost." If Artra
or its carriers were to be unable to locate all or some of these policies,
then, absent the negotiation of an agreement with the carriers, as to which
Artra can provide no assurance, a court could find that no coverage existed
for all or some of the periods in question. In that event, a court might
find Artra responsible for funding its pro rata share of payments for
defense and indemnity costs. A similar issue exists with respect to an
unknown amount of primary and excess insurance coverage by unknown insurers
for the period 1947 through 1962, for which Artra has not been able to
locate policies, with potential effect similar to that possible with
respect to the 1968 through 1975 period.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If Artra were unable to conclude a permanent agreement with its excess
insurance carriers regarding the claims or with respect to coverage for the
potential gaps described herein, if Artra were ultimately unsuccessful in
attempting to marshal any such insurance, if a court were to determine that
gaps in coverage exist, or if a court were to determine that Artra is
responsible for a portion of the defense and indemnity costs associated
with those potential gaps in coverage, there could be a material adverse
effect on Artra's financial condition. Artra's financial condition could
also be materially adversely affected to the extent, if any, that its
existing insurance coverage and any to which it might become entitled in
the future is not sufficient to respond fully to the claims.
Artra has the following amounts of excess insurance it believes are
available to indemnify Artra against its liability on some or all of the
claims: (a) approximately $204,000,000 for which Artra has policies, less
amounts expended through March 31, 2000 and such additional amounts as have
been paid or committed since March 31, 2000; (b) an additional amount which
may total as much as $45,000,000 for which Artra thus far has been unable
to locate insurance policies but for which Artra has certain evidence of
coverage, and (c) any potentially applicable coverage in an undetermined
amount for any other policies that may exist over certain years, which
Artra is investigating. There is also potential additional coverage from
two excess insurers, which Artra believes are or may be involved in
insolvency proceedings. In the event Artra were unable to satisfy the
claims through a combination of insurance coverage and its own net assets,
or in the event that Artra does not receive timely reimbursement from its
excess carriers of amounts Artra may be required to expend on defense,
settlement and indemnity payments, it is possible that Artra could be
forced to seek protection under the federal bankruptcy laws and that
Entrade would lose its entire investment in Artra.
If the combination of insurance coverage and Artra's assets are not
sufficient to satisfy asbestos and product liability claims against it, it
is also possible that the plaintiffs presenting the claims could attempt to
pursue legal action against Entrade. Entrade believes that no valid basis
exists for, and it would have meritorious defenses against, the imposition
of Artra's liability for the asbestos and product liability claims against
Entrade, and Entrade would vigorously defend itself against any attempt to
impose such liability. In the event of an unfavorable outcome of such
legal action, however, there could be a material adverse effect upon
Entrade's financial condition and results of operations.
ENVIRONMENTAL MATTERS
EPA NOTICES ALLEGING ENVIRONMENTAL VIOLATIONS
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 Fil-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 Industries, Inc. 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 $7,000,000 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.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LAWSUITS SEEKING RECOVERY OF ENVIRONMENTAL CLEAN-UP COSTS
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 that were stored,
disposed of or otherwise released at the manufacturing facility. This
facility was owned by Baltimore Paint and Chemical Company, formerly a
subsidiary of Artra from 1969 to 1980. Sherwin-Williams's current
projection of the cost of clean-up is approximately $5,000,000 to
$6,000,000. Artra has filed counterclaims against Sherwin-Williams 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 still in 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 in respect to the Operating Industries, Inc. site in Monterey
Park, California. This site is included on the EPA's National Priorities
List. Artra's involvement stemmed from the alleged disposal of hazardous
substances by The Synkoloid Company, a 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 allegedly hazardous substances as a by-product of the
manufacturing process. Artra presently estimates the total liability for
clean-up costs at this site to be approximately $500,000.
If the combination of insurance coverage and Artra's assets are not
sufficient to satisfy environmental claims against it, it is also possible
that the plaintiffs presenting the claims could attempt to pursue legal
action against Entrade. Entrade believes that no valid basis exists for,
and it would have meritorious defenses against, the imposition of Artra's
liability for the environmental claims against Entrade, and Entrade would
vigorously defend itself against any attempt to impose such liability. In
the event of an unfavorable outcome of such legal action, however, there
could be a material adverse effect upon Entrade's financial condition and
results of operations.
OTHER CASES
Bagcraft Packaging, LLC and Packaging Dynamics, LLC filed suit against
Artra and its BCA Holdings, Inc. subsidiary in the Circuit Court of Cook
County, Illinois, on November 22, 1999, alleging that Artra breached a non-
compete agreement entered into in connection with the sale of certain
assets to Bagcraft Packaging, LLC by hiring Mark Santacrose as Chief
Executive Officer and President of Artra. The plaintiffs seek damages in
excess of $5,000,000. Artra is vigorously defending itself in this action.
In addition, on or about March 16, 2000, Christi Mottola Enterprises, Inc.
("CME"), filed a complaint in the Superior Court of California, Orange
County, naming as defendants Don Haidl, Corey Schlossmann, Nationwide
Auction Systems, and Does 1 to 100, alleging interference with contract and
with prospective economic advantage, civil conspiracy and violation of
California's Unfair Business Practices Act. CME seeks 20 percent of
157,000 Entrade shares Haidl allegedly agreed to transfer to JDK &
Associates, Inc. in connection with Entrade's acquisition of Nationwide (or
an equivalent amount as damages), consequential losses, punitive damages
and "restitution and disgorgement of all income, consideration, or
compensation, in any form, received by the defendants in conjunction with
the acquisition of Nationwide by Entrade."
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management does not believe that the outcome of either of these two cases
will have a material adverse effect upon Entrade's financial condition and
results of operations.
NOTE 9. BUSINESS SEGMENTS
Through November 20, 1998, the Company's Artra subsidiary 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 Bagcraft subsidiary, which business was sold on
November 20, 1998.
As discussed in Note 2, on February 23, 1999, Artra entered into an
agreement with Entrade providing for the merger of a wholly-owned
subsidiary of Entrade with and into Artra. On September 22, 1999, Artra's
shareholders approved the transaction and on September 23, 1999, the merger
was completed. As a result of the merger, Artra became a wholly-owned
subsidiary of Entrade.
Entrade is a business-to-business company specializing in the creation of
e-commerce marketplaces.
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Nationwide, which has operated for over 20
years and is one of the nation's largest volume public auction firms in the
disposition of municipality, law enforcement, corporate and utility company
surplus property. In addition to vehicles and equipment, Nationwide
conducts real property and jewelry auctions.
The Company has adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 requires certain
disclosures about operating segments in a manner that is consistent with
how management evaluates the performance of the segments. At March 31,
2000, Entrade's two reportable segments consist of development stage
business services provided principally by the e-commerce marketplaces and
the transaction services business conducted principally by Nationwide.
The following table summarizes financial information for Entrade's
reportable segments for the three months ended March 31, 2000 and 1999,
respectively (in thousands):
March 31, March 31,
2000 1999
---------- ----------
REVENUES:
Development stage business . . . . . . . . . . $ 217 --
Transaction services . . . . . . . . . . . . . 3,613 --
---------- ----------
$ 3,830 --
========== ==========
OPERATING LOSS:
Development stage business . . . . . . . . . . $ (4,132) --
Transaction services . . . . . . . . . . . . . (433) --
Corporate expenses . . . . . . . . . . . . . . (2,179) (1,054)
Compensation related to stock options. . . . . (675) (300)
---------- ----------
Operating loss . . . . . . . . . . . . . . . . . (7,419) (1,354)
Equity in loss of affiliates . . . . . . . . . . (782) --
Interest (expense) income, net . . . . . . . . . (168) 86
Other income, net. . . . . . . . . . . . . . . . 33 --
---------- ----------
Loss before income taxes . . . . . . . . . . . . $ (8,336) (1,268)
========== ==========
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, March 31,
2000 1999
---------- ----------
TOTAL ASSETS:
Development stage business . . . . . . . . . . $ 14,572 --
Transaction services . . . . . . . . . . . . . 55,637 --
Corporate. . . . . . . . . . . . . . . . . . . 35,482 17,551
Investment in and advances to affiliates . . . 14,850 --
---------- ----------
$ 120,541 17,551
========== ==========
CAPITAL EXPENDITURES:
Development stage business . . . . . . . . . . $ 286 --
Transaction services . . . . . . . . . . . . . 330 --
Corporate. . . . . . . . . . . . . . . . . . . 302 --
---------- ----------
$ 918 --
========== ==========
DEPRECIATION AND AMORTIZATION:
Development stage business . . . . . . . . . . $ 534 --
Transaction services . . . . . . . . . . . . . 656 --
Corporate. . . . . . . . . . . . . . . . . . . 5 --
---------- ----------
$ 1,195 --
========== ==========
Nationwide's primary revenue is comprised of consignor commissions and
buyer's premiums. Gross auction proceeds represent the successful bid
price of the merchandise sold. Nationwide's gross auction proceeds for the
period ended March 31, 2000 were $20,553,000.
During the first three months of 2000, there were no significant
intersegment sales. No one customer accounted for more than 10% of the
Company's total revenues. No significant revenues were generated by
development stage business in the first quarter of 2000.
NOTE 10. SUBSEQUENT EVENTS
DIRECTOR RESIGNATION
On April 3, 2000, in order to devote his full attention to establishing
AssetTRADE.com, as a major marketplace for industrial assets, Robert D.
Kohn, who is a founder and the chief executive officer of AssetTRADE.com,
resigned as a director of Entrade and as a director and officer of
entrade.com. His status as an employee of Entrade was also terminated on
April 3, 2000.
FORMATION OF ENTRADE ASIA PACIFIC
On April 5, 2000, Entrade's subsidiary, entrade.com, agreed with a
majority-owned subsidiary of Gondwana Resources NL Pty Ltd. to organize a
new entity known as Entrade Asia Pacific, subject to Gondwana shareholder
approval and their obtaining sufficient funding. Entrade Asia Pacific
intends to develop business-to-business e-commerce marketplaces in the
Asia-Pacific region, targeting opportunities in 18 countries, including
Australia, New Zealand, China, Singapore, the Philippines and South Korea.
entrade.com has agreed to provide Entrade Asia Pacific the exclusive right
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to sublicense the entrade.com technology in the Asia-Pacific region for up
to two years, depending upon compliance with certain conditions, and will
also provide technical and management resources. Gondwana, through its
subsidiary, Gondwanda GlobalNet Asia Pacific Ltd., has agreed to fund a
license of the entrade.com technology for $7,000,000 and provide management
services to the new venture. Of the $7,000,000 license fee, $2,000,000 is
due and payable upon Gondwana shareholder approval, a meeting of which is
currently scheduled for June 9, 2000 and $5,000,000 is due and payable upon
entrade.com's delivery of websites for three e-commerce marketplaces and a
demonstration website. After taking into account estimated projected
investments and other related expenses by Entrade into Entrade Asia
Pacific, Entrade anticipates that it will receive a net of approximately
$3,000,000 from this license. entrade.com and the Gondwana subsidiary will
each own 50% of the new entity and will have the right to elect two of the
four members of the new entity's board of directors. Gondwana's elected
directors will have the right to make a decisive casting vote if the new
entity's board of directors is deadlocked.
PURCHASE AND SALE OF ASSETTRADE.COM SHARES
On April 12, 2000, Entrade entered into a Stock Purchase Agreement with
Positive Asset Remarketing, Inc., a Nevada corporation, and certain other
parties, pursuant to which Entrade terminated a prior agreement to acquire
Positive Asset Remarketing, and agreed to acquire from Positive Asset
Remarketing 7,350,000 shares of the Class A Common Stock of AssetTRADE.com,
Inc., in exchange for a cash payment for $3,488,000 and 964,000 shares of
Entrade's Common Stock, subject to adjustment in certain cases. On
April 20, 2000, Entrade sold 6,000,000 shares of Class A Common Stock of
AssetTRADE.com, for $10,000,000. Entrade expects to recognize a
significant gain from this transaction in the second quarter of 2000. Upon
consummation of the sale, Entrade owns 16.62% (computed on a fully diluted
basis) of the Class A Common Stock of AssetTRADE.com.
REDEMPTION OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
For information regarding the redemption of Entrade's Series A Mandatorily
Redeemable Convertible Preferred Stock, see Note 5.
ISSUANCE OF NOTES AND RELATED WARRANTS
During the week of May 15, 2000, Entrade raised approximately $10,500,000
from the private sale of promissory notes ("Notes") and related warrants to
certain related and unrelated individual accredited investors, including
the former owners of the two Entrade subsidiaries doing business as
Nationwide, one of whom is a Boardmember and two additional Board members.
Entrade also exchanged an additional $1,000,000 of promissory notes under
the same terms of the Notes in exchange for another note obligation of
Entrade. The Notes, due July 15, 2001, bear interest at a rate of fifteen
percent (15%) per annum payable in arrears on a quarterly basis. The Notes
may be pre-paid at any time at Entrade's option, subject to certain pre-
payment fees. Of the total amount of Notes issued, notes with an aggregate
face value of $7,000,000 ("Secured Notes") are secured by 100% of the
issued and outstanding stock of Nationwide. The remaining $4,500,000 of
Notes are unsecured obligations of Entrade, $2,000,000 of the proceeds of
which are in the form of a note which will be funded within 30 days. In
connection with the issuance of the Notes, Entrade will issue warrants to
purchase shares of Entrade common stock, at the rate of warrants to
purchase 40,000 shares per $1,000,000 face amount of Notes. The warrants
have an exercise price of $16.21 per share and are exercisable at any time
until May 15, 2005. Upon maturity of the Notes or the occurrence of an
event of default, the investors have the option to continue to hold the
warrants or to put them to Entrade for an amount equal to five percent (5%)
of the initial principal amount of the Notes.
<PAGE>
ENTRADE INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
AMENDMENT TO NOTE SATISFACTION AGREEMENTS
As partial consideration for the acquisition of Nationwide, Entrade issued
certain promissory notes ("Term Notes") to the sellers ("Sellers") in the
amounts of $12,600,000 and $1,400,000, respectively. Entrade later entered
into an agreement with the Sellers to convert the Term Notes with a
remaining aggregate principal balance of approximately $10,500,000 into
265,621 shares of Entrade common stock.
As a condition of the private sale of the Secured Notes occurring the week
of May 15, 2000, the Sellers were required to participate in the private
sale in the aggregate amount of $2,000,000. The Sellers agreed to purchase
$1,000,000 of the Secured Notes and Entrade agreed to exchange an aggregate
of $1,000,000 of the Term Notes for $1,000,000 of the newly issued Secured
Notes. In addition, in consideration for, among other things, the
additional capital and the continued personal guarantee of certain debt and
a performance bond by one of the Sellers, Entrade is currently
renegotiating with the Sellers the terms of the payoff of the Term Notes
through the issuance of additional shares of Entrade common stock. The
amended agreement to payoff the Term Notes through the issuance of
additional Entrade common stock, when finalized, will be subject to
shareholders approval.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion supplements the information found in the financial
statements and related notes:
GENERAL BUSINESS
Entrade is a business-to-business e-commerce development company
specializing in the creation of electronic marketplaces. Entrade utilizes a
blend of proprietary web enabled business-to-business e-commerce technology
through its subsidiary entrade.com, business development and management
talent, funding and strategic alliances to launch e-commerce marketplaces.
Entrade's model involves working with leaders in target industries to
create neutral marketplaces that bring together multiple sellers and
buyers. Through a diversified portfolio of companies and a "Bricks and
Clicks" strategy, Entrade has developed a competency in asset management,
asset disposition and fulfillment.
Entrade marketplaces are intended to generate multiple revenue streams
including transaction fees, membership and listing fees, fees from
ancillary services such as credit, financing, appraisal, escrow and
warranty, and advertising. Entrade also generates revenue by licensing its
technology through various licensing arrangements.
During the first quarter of 2000, Entrade has continued to execute on its
strategy of creating business-to-business e-commerce marketplaces. The
following table contains a summary as of March 31, 2000 of the e-commerce
companies in which Entrade has an interest and the marketplace each company
is pursuing. In addition, the table indicates the quarter Entrade's
ownership interest in each company began and the period in which each
company launched its website.
Ownership
Interest
(1) at
March 31, Ownership Website
Company e-commerce marketplace 2000 Date Launched
- ------- ---------------------- --------- --------- ----------
AssetControl
.com Sale of surplus indus-
trial equipment, excess
inventory and commercial
real estate 38% Q1 2000 May 2000
AssetTRADE.com Industrial machinery,
equipment and parts
remarketing 14%(2) Q1 1999 April 2000
printeralliance
.com Buying group of indepen-
dent commercial printers
in order to obtain cost
savings on supplies,
equipment and other
services 64%(3) Q4 1999 April 2000
TradeTextile
.com Trading of excess yarns
and fabrics 21% Q1 2000 March 2000
utiliparts.com Asset recovery and
internal inventory
management services
to utility industry 80%(4) Q1 2000 Q2 1999
<PAGE>
Ownership
Interest
(1) at
March 31, Ownership Website
Company e-commerce marketplace 2000 Date Launched
- ------- ---------------------- --------- --------- ----------
TruckCenter
.com Sale of trucks and re-
lated services including
financing 100%(5) Q1 2000 April 2000
Pricecontainer
.com On-line reservation
system designed to
facilitate trans-
oceanic shipping and
logistics 15% Q4 1999 April 2000
- --------------------
(1) On a fully-diluted basis.
(2) See Note 10 to the condensed consolidated financial statements
"Subsequent Events - Purchase and Sale of AssetTRADE Shares"
for a description of Entrade's current ownership in
AssetTRADE.com.
(3) Increased interest from 61% to 64% in the first quarter of
2000.
(4) Does not reflect AssetTRADE.com's ownership interest in
utiliparts.com.
(5) See Note 2 to the condensed consolidated financial statements
"Change of Business - Other" for a description of the
ownership of TruckCenter.com.
On February 10, 2000, Entrade agreed with Associates First Capital
Corporation to organize a new entity to be known as TruckCenter.com to
create a business-to-business electronic commerce marketplace for the sale
of trucks and related services, including financing, certification,
warranty and third party inspection.
On February 18, 2000, Entrade entered into an agreement to acquire shares
of Series A Convertible Preferred Shares of TradeTextile.com.
TradeTextile.com provides business-to-business electronic commerce for the
trading of yarns, fabrics, garments, raw materials, chemicals, and textile
quotas, initially targeting the Chinese textile industry.
On March 9, 2000, Entrade agreed with Textron Financial Corporation, a
subsidiary of Textron Inc., to organize a new entity to be known as
AssetControl.com to create a business-to-business electronic commerce
marketplace for the sale of surplus industrial equipment, excess inventory
and commercial real estate.
On March 20, 2000, Entrade raised approximately $28,579,000 in net proceeds
from the sale of 30,000 shares of its Series A Mandatorily Redeemable
Convertible preferred stock. See Note 10 to the financial statements
"Subsequent Events" and the "Liquidity Capital Resources" section relating
to the redemption of the Series A Mandatorily Redeemable Convertible
Preferred Stock and other matters affecting Entrade's ongoing results of
operations.
<PAGE>
Entrade also owns all of the outstanding capital stock of Nationwide,
operating as a public auction firm for the disposition of municipality, law
enforcement, corporate and utility company surplus property, primarily
vehicles and equipment. In addition, Nationwide conducts auctions of real
property and jewelry. Entrade also owns all of the Series A Preferred
Stock (convertible into a 61% common stock ownership interest) of
printeralliance.com, and in the first quarter of 2000 acquired an
additional 3% interest for $1,000,000 bringing its total interest to 64%.
Entrade also owns a 15% interest in Pricecontainer.com and has continued to
develop the business of utiliparts.com, Inc., in which Entrade holds an 80%
interest.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED
MARCH 31,1999
Revenues of $3,830,000 for the three months ended March 31, 2000 reflect
the results principally from the auction fees and related revenue of the
Nationwide subsidiary which was acquired in the fourth quarter of 1999.
Revenues of $217,000 were earned by the Entrade's e-commerce business in
the first quarter of 2000. The cost of revenues for the three months ended
March 31, 2000 represents the cost of sales of the Nationwide subsidiary.
Selling, general and administrative expenses from operations were
$7,823,000 for the three months ended March 31, 2000 as compared to
$1,054,000 for the three months ended March 31, 1999. The increase from
1999 to 2000 is due primarily to increases in personnel and related costs,
legal, and professional fees related to the development of Entrade's
various e-commerce marketplaces. A portion of these costs were incurred in
exchange for equity interests in some of Entrade's affiliated e-commerce
businesses. Entrade incurred a compensation charge of $675,000 during the
three months ended March 31, 2000 as compared to $300,000 for the same
period in 1999. The compensation charge relates to stock options granted
to certain employees.
During the three months ended March 31, 2000, Entrade had net interest
expense of $168,000 as compared to net interest income of $86,000 during
the three months ended March 31, 1999. Entrade was unable to recognize an
income tax benefit in connection with its first quarter of 2000 due to its
tax loss carryforwards and the uncertainty of future taxable income.
Entrade's cash and cash equivalents increased $28,328,000 during the three
months ended March 31, 2000. Cash flows used by operating activities of
$2,824,000 and cash flows used by investing activities of $3,596,000 were
less than cash flows from financing activities of $34,748,000. Operating
activities used cash flows to fund Entrade's net loss for the three months
ended March 31, 2000. Investing activities used cash flows for the
acquisition of Entrade's assets. Financing activities provided cash flows
from the exercise of stock options, warrants, and private placements
entered into during the first three months of fiscal 2000.
Entrade's consolidated working capital increased by $28,777,000 to
$23,886,000 at March 31, 2000 , as compared to consolidated working capital
of ($4,891,000) at March 31, 1999. Entrade used working capital to fund
operating expenses, and for the acquisition of Entrade's assets. This use
of working capital was partially offset by proceeds from the exercise of
stock options and warrants, and the private placements.
LIQUIDITY AND CAPITAL RESOURCES
Entrade has sustained significant net losses and negative cash flows from
operations in the first quarter of 2000. Entrade's ability to meet its
obligations in the ordinary course of business is dependent upon its
ability to establish profitable operations and to raise additional
financing through public or private equity financing, bank financing or
other sources of capital.
<PAGE>
During December 1999 and January 2000, Entrade raised $13,412,000 in net
proceeds from private placements of equity. In addition, in March 2000,
Entrade raised approximately $28,579,000 in net proceeds from the sale of
the Company's Series A mandatorily redeemable convertible preferred stock
("Series A Preferred Stock"). In April 2000, Entrade sold 6,000,000 shares
of Class A Common Stock of AssetTRADE.com and used the $10,000,000 of
proceeds from such sale, along with cash on hand, to satisfy the redemption
of 29,700 shares of the Series A Preferred Stock issued in March for
approximately $34,280,000, which materially decreased the cash available to
Entrade to finance its continuing e-commerce operations. During the week
of May 15, 2000, Entrade raised approximately $10,500,000 from a private
placement of promissory notes and related warrants to certain individual
accredited investors. See Note 5 - Mandatorily Redeemable Convertible
Preferred Stock and Note 10 - Subsequent Events to the condensed
consolidated financial statements in Item 1 of Part 1 to this Form 10-Q
report.
Management believes that current working capital is sufficient to continue
its current operations into the fourth quarter of this year. If Entrade
desires to make additional strategic acquisitions or invest in additional
joint ventures, Entrade will require additional capital beyond that which
is currently anticipated. Management expects to receive a net amount of
approximately $3,000,000 from Entrade's partner in the Entrade Asia Pacific
joint venture, the formation of which is subject to such partner's
shareholder approval at a meeting currently scheduled for June 9, 2000 and
their obtaining sufficient funding. See Note 10 to the condensed
consolidated financial statements "Subsequent Events - Formation of Entrade
Asia Pacific." In addition, management intends to raise additional capital
in order to fund its operations and execute its e-commerce business plan
beyond mid-fourth quarter of 2000 into 2001. Adequate financing may not be
available to Entrade on favorable terms or at all. If adequate funds are
not available on acceptable terms, or at all, Entrade will not be able to
continue or expand its e-commerce business operations, which would
materially harm its business, results of operations and financial
condition.
Management believes that Entrade's Nationwide subsidiary generates adequate
cash flow and earnings from operations to continue its operations as
currently conducted whether or not Entrade receives adequate financing to
continue its e-commerce operations.
As of March 31, 2000, Entrade currently has commitments to provide
financing to several of its e-commerce marketplaces. Entrade has a
commitment to provide approximately $1,350,000 in cash and services to
TruckCenter.com, $1,000,000 to TradeTextile.com and $300,000 to
printeralliance.com. Management anticipates that Entrade will be able to
satisfy all of these commitments only upon the receipt of additional
funding from outside sources.
OPERATING PLAN
During 1999, Entrade entered the business of developing business-to-
business e-commerce marketplaces primarily through its acquisition of
entrade.com, printeralliance.com and other equity interests. Entrade also
entered the land-based asset disposition public auction business through
its October 1999 acquisition of Nationwide. Entrade intends to expand
these businesses in 2000 through both internal growth and acquisitions.
For a description of the acquisitions, See under the caption "Other" in
Note 2 to Condensed Consolidated Financial Statements included in Item 1 of
Part I of this Form 10-Q report.
<PAGE>
NATIONWIDE AUCTION SYSTEMS
On April 19, 1999, Entrade 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. Nationwide is a public auction firm for the disposition of
municipality, law enforcement, corporate and utility company surplus
property. In addition to vehicles and equipment, Nationwide conducts real
property and jewelry auctions.
On October 19, 1999, Entrade completed the acquisition of all of the
outstanding capital stock Nationwide. Entrade paid the following amounts
to close the transaction: (a) 1,570,000 shares of Entrade common stock;
(b) promissory notes (the "Notes") with a total principal amount of
$4,800,000, maturing on November 29, 1999; (c) $6,000,000 cash; and (d)
promissory notes (the "Term Notes") with a total principal amount of
$14,000,000, maturing October 1, 2001. The Notes and the Term Notes bear
interest at an annual rate of 8%. Entrade paid the cash portion of the
purchase price out of cash in its accounts. Entrade also issued 80,000
shares of Entrade common stock in payment of fees to its agent in
connection with the closing of the transaction.
In January 2000, the Notes, net of amounts due from a selling shareholder
of $139,000, plus accrued interest, were converted into 278,985 shares of
Entrade common stock. Accordingly, at December 31, 1999, net amounts due
on the Notes plus accrued interest were reclassified in the Entrade's
consolidated balance sheet as obligations expected to be settled by the
issuance of common stock. The total amount reclassified, including accrued
interest, was $4,743,000.
In March 2000, Entrade entered into an agreement with the Nationwide
selling shareholders to convert the Term Notes with a remaining principal
balance of approximately $10,500,000 into 265,621 shares of Entrade common
stock. The Term Notes originally provided for principal payments of
$3,500,000 in October 2000 and $7,000,000 in October 2001. Completion of
this transaction is subject to approval by Entrade's shareholders.
The Nationwide acquisition has been accounted for as a purchase. The
operating results of Nationwide have been included in Entrade's
consolidated financial statements since the effective date of acquisition.
The amount of the purchase price allocated to intangible assets acquired,
principally goodwill, of approximately $45 million is being amortized over
20 years.
Holders of approximately 1,848,985 shares of common stock that were issued
in the Nationwide acquisition are prohibited from selling more than 978,985
shares until May 31, 2000, subject to adjustment in certain circumstances.
Entrade also entered into an employment agreement with an individual to
serve as an executive officer of Nationwide. The initial term of the
employment agreement is three years. The term will automatically be
extended on each anniversary of the agreement commencing the third
anniversary for one year unless either party gives notice that it does not
wish to extend the employment term not later than 90 days preceding such
anniversary date. In connection with such employment, this individual was
issued a nonqualified stock option for the purchase of 200,000 shares of
Entrade common stock at an exercise price of $9.00 per share. The option
became exercisable in full on the date of the closing of the Nationwide
acquisition. As of the closing date of the Nationwide acquisition, this
individual was appointed as a director of Entrade.
LITIGATION
Entrade and/or its subsidiaries are involved in several legal proceedings.
See Note 8 to Consolidated Financial Statements "Litigation," included in
Item 1 of Part I of this Form 10-Q report.
<PAGE>
NET OPERATING LOSS CARRYFORWARDS
In recent years, Entrade 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 change in the ownership of a
corporation's common stock occurs.
In management's opinion, Entrade is not currently subject to such
limitations regarding the utilization of its Federal income tax loss
carryforwards. Should Entrade continue to issue a significant number of
shares of common stock, it could trigger a limitation that would prevent it
from utilizing a substantial portion of its federal income tax loss
carryforwards.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Registrant since December 31, 1999. Artra's investment in Comforce common
stock is subject to liquidity and market price risks.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by Part II, Item 1 of Form 10-Q is hereby
incorporated by reference to Note 8 to Entrade's condensed consolidated
financial statements for the quarter ended March 31, 2000, included in
Item 1 of Part I of this Form 10-Q report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first quarter of 2000, Entrade issued unregistered shares of its
common stock, as follows:
Between December 21, 1999 and January 28, 2000, Entrade completed the sale
of an aggregate of 422,243 shares of its common stock for an aggregate
consideration of $13,960,000 to unaffiliated institutional and individual
accredited investors. Net proceeds were $13,412,000. These securities
were sold to a limited number of accredited investors pursuant to an
exemption from registration under the Act, pursuant to Regulation D
promulgated thereunder.
On March 27, 2000, Entrade closed a private placement financing transaction
with several institutional accredited investors. Under the terms of the
private placement, Entrade issued 30,000 shares of redeemable convertible
preferred stock, with an initial par value of $1,000 per share. The non-
voting preferred stock bore a 6% dividend, which Entrade could pay, at its
election, in either cash or common stock. For the first fifteen months
after issuance of the preferred stock, and subject to certain registration
requirements and other restrictions, Entrade had the right to elect to
redeem, all or part of the preferred stock at the lesser of $78.73 or 91%
of the lower closing sale price of Entrade's common stock during the two
consecutive trading days ending on the date of such election. In addition,
Entrade had the right, during such period, to redeem the preferred stock at
115% of par. Entrade had to redeem or convert all of the preferred stock
within two years of the date of its issuance, and, until the preferred
stock was redeemed or converted, Entrade could not pay dividends on its
common stock without the approval of the preferred stockholders. In
conjunction with the agreement, Entrade also issued warrants to the
investors to purchase 400,000 shares of its common stock at $41.375 per
share. These securities were sold to several accredited investors pursuant
to an exemption from registration under the Act, pursuant to Regulation D
promulgated thereunder. Proceeds were to be used for general corporate
purposes. Subsequently, on April 20, 2000, Entrade redeemed 29,700 shares
of the preferred stock and issued 31,516 shares of common stock upon
conversion of the remaining share of the preferred stock. Pursuant to the
terms of the warrants, the investors now have a right to acquire 1,021,080
shares of common stock at $16.20833 per share. See Note 5 and Note 11 to
the Condensed Consolidated Financial Statements included in Item 1 of
Part 1 of this Form 10-Q report.
In addition, Entrade issued:
A warrant for the purchase of 1,000,000 shares of common stock was
issued to Textron Financial Corporation in conjunction with the formation
of AssetControl.com, Inc. The exercise price of the warrant is $39.65 per
share.
A warrant for the purchase of 25,000 shares of common stock was
issued to a supplier of printeralliance.com. These warrants vest according
to performance targets based on the number of customers provided by the
supplier. The exercise price of the warrants is $37.75 per share.
Warrants for the purchase of an aggregate of 12,500 shares of common
stock were issued to certain finders in conjunction with the private
placement conducted by Entrade in December 1999 and January 2000. The
exercise price of the warrants is $32.00 per share.
<PAGE>
A warrant for the purchase of 75,000 shares of common stock was
issued to entrade.com, Inc. and assigned to TradeTextile.com, Inc. in
conjunction with the formation of TradeTextile. The exercise price of the
warrants is $36.94.
A warrant for the purchase of 8,000 shares of common stock was issued
to a finder in conjunction with the private placement conducted by Entrade
in December 1999 and January 2000. The exercise price of the warrant is
$55.65 per share.
Warrants for the purchase of an aggregate of 400,000 shares of common
stock was issued to the purchasers of the Mandatorily Redeemable
Convertible Preferred Stock issued by Entrade in March 2000. The initial
exercise price of the warrants was approximately $41.38 per share. On
April 20, 2000, pursuant to the adjusted terms of these warrants, the
warrants became exercisable for an aggregate of 1,021,080 shares of common
stock at an exercise price of approximately $16.21 per share.
All of the above warrants were issued pursuant to an exemption from
registration under Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
2.1 Statement with respect to shares of Series A Convertible
Preferred Stock of Entrade Inc. as filed with the Secretary of Commonwealth
of the Commonwealth of Pennsylvania on March 24, 2000. (3)
3.2 Amended and Restated Bylaws as of September 23, 1999.
10.1 Lease Agreement dated as of January 1, 2000 between Entrade
Inc. and the John Harvey Family Trust.
10.2 Lease Agreement dated as of January 1, 2000 between Artra Group
Incorporated and the John Harvey Family Trust.
10.3 Subscription and Investment Representation Agreement entered
into by Flybridge & Company - Sun America Growth Opportunities Fund on
December 20, 1999 and accepted by Entrade on December 21, 1999. (1)
10.4 Subscription and Investment Representation Agreement entered
into by Parisa Company - Style Select Series Aggressive Growth Portfolio on
December 20, 1999 and accepted by Entrade on December 21, 1999. (1)
10.5 Subscription and Investment Representation Agreement entered
into by Fleetfooted & Company - SunAmerica Small Company Growth Fund on
December 20, 1999 and accepted by Entrade on December 21, 1999. (1)
10.6 Subscription and Investment Representation Agreement entered
into by Flagline & Company - SunAmerica Series Trust Aggressive Growth
Portfolio on December 20, 1999 and accepted by Entrade on December 21,
1999. (1)
10.7 Subscription and Investment Registration Agreement entered into
by Sisyphus & Company - Style Select Series Mid-Cap Growth Portfolio on
December 20, 1999 and accepted by Entrade on December 21, 1999. (1)
10.8 Subscription and Investment Registration Agreement entered into
by Stewart Greenebaum on December 23, 1999 and accepted by Entrade on
December 23, 1999. (1)
<PAGE>
10.9 Subscription and Investment Registration Agreement entered into
by James Filler on December 30, 1999 and accepted by Entrade on December
30, 1999. (1)
10.10 Subscription and Investment Registration Agreement entered into
by Elliott Associates, L.P. and Westgate International, L.P. on December
30, 1999 and accepted by Entrade on December 30, 1999. (1)
10.11 Form of Warrant to Purchase Common Stock. (1)
10.12 Subscription and Investment Registration Agreement entered into
by Lunn Partners Multiple Opportunities portfolio L.P. on January 3, 2000
and accepted by Entrade on January 3, 2000. (1)
10.13 Subscription and Investment Registration Agreement entered into
by Dr. Richard A. Chafetz on January 3, 2000 and accepted by Entrade on
January 5, 2000. (1)
10.14 Subscription and Investment Representation Agreement entered
into by A.T. Kearney on January 28, 2000 and accepted by Entrade on January
28, 2000. (2)
10.15 Stock Purchase Agreement dated January 26, 2000 among Entrade,
Inc., Warren Rothstein, Thomas Settineri and Gary Levi. (2)
10.16 Warrant to Purchase Common Stock dated as of February 7, 2000
granted to Braden Sutphin Ink Company. (4)
10.17 Investment Agreement dated as of February 18, 2000 among
entrade.com, Inc. and TradeTextile.com. (2)
10.18 Term Sheet dated as of February 10, 2000 between Entrade and
Associates Commercial Corporation. (2)
10.19 Operating Agreement of AssetControl.com, LLC made as of
March 9, 2000. (5)
10.20 Contribution Agreement dated as of March 9, 2000 between
Entrade Inc. and AssetControl.com. (5)
10.21 Non-competition Agreement dated as of March 9, 2000 among
AssetControl.com, LLC, Textron Financial Corporation, Entrade Inc. and ATM
Service, Ltd. (5)
10.22 Warrant and Form of Warrant to Purchase Common Stock of Entrade
Inc. dated as of March 9, 2000 between Entrade Inc. and Textron Financial
Corporation. (5)
10.23 Employment Agreement dated March 9, 2000 between Entrade and
Carrie L. Shea.
10.24 Employment Agreement dated March 9, 2000 between Entrade and
Norman Smagley.
10.25 Promissory Note Satisfaction Agreement dated as of March 10,
2000, between Entrade Inc. and Don Haidl. (5)
10.26 Promissory Note Satisfaction Agreement dated as of March 10,
2000, between Entrade Inc. and Corey Schlossmann. (5)
10.27 Form of Warrant to Purchase Common Stock of Entrade Inc. dated
March 24, 2000, issued to certain investors. (3)
10.28 Registration Rights Agreement, dated as of March 24, 2000,
among Entrade Inc. and the investors named therein. (3)
<PAGE>
10.29 Securities Purchase Agreement, dated as of March 24, 2000,
among Entrade Inc. and the investors listed on the Schedule of Buyers
attached thereto. (3)
10.30 Joint Venture and Shareholder's Agreement dated as of April 5,
2000 between entrade.com, Inc., GlobalNet Asia Pacific Ltd and Entrade Asia
Pacific Pty Ltd. (6)
10.31 Master Software License Agreement dated as of April 5, 2000
between Entrade Asia Pacific Pty Ltd and entrade.com, Inc. (6)
10.32 Stock Purchase Agreement dated as of April 12, 2000 among
Entrade Inc., Positive Asset Remarketing, Inc., a Nevada corporation,
Positive Asset Remarketing, Inc., a Massachusetts corporation, Robert D.
Kohn, Benjamin Kafka and Mark Quinn. (6)
10.33 Stock Purchase Agreement, dated as of April 19, 2000 between
Entrade Inc. and Internet Capital Group, Inc. (7)
10.34 Note and Warrant Purchase Agreement dated as of May 15, 2000
between Entrade Inc. and the investors named therein.
10.35 Pledge Agreement dated as of May 15, 2000 between Entrade Inc.
and Doerge Capital Management, Inc., a division of Balis, Lewittes &
Coleman.
10.36 Registration Rights Agreement dated as of May 15, 2000 between
Entrade Inc. and the investors named therein.
10.37 Collateral Agency Agreement dated as of May 15, 2000 between
Doerge Capital Management, Inc., a division of Balis, Lewittes & Coleman
and the secured parties named therein, as acknowledged by Entrade Inc.
10.38 Creditors Agreement dated May 15, 2000 between Entrade and the
parties named therein.
10.39 Form of Secured Promissory Note dated May 15, 2000 issued to
certain investors.
10.40 Form of Warrant to Purchase Common Stock dated May 15, 2000
issued to certain investors.
10.41 Form of Subscription Agreement dated May 15, 2000 between
Entrade Inc. and certain investors.
10.42 Form of Unsecured Promissory Note dated May 16, 2000 between
Entrade Inc. and certain investors.
10.43 Form of Warrant to Purchase Common Stock dated May 16, 2000
issued to certain investors.
10.44 Form of Subscription Agreement dated May 16, 2000 between
Entrade Inc. and certain investors.
10.45 Form of Registration Rights Agreement dated as of May 16, 2000
between Entrade Inc. and certain investors.
27 Financial Data Schedule.
- --------------------
(1) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on January 25, 2000.
(2) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 2, 2000.
<PAGE>
(3) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 29, 2000.
(4) Incorporated by reference to Form S-1 (Registration No. 333-96523)
filed with the Securities and Exchange Commission on February 10, 2000.
(5) Incorporated by reference to Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000.
(6) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on April 17, 2000.
(7) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on April 20, 2000.
(b) Reports on Form 8-K:
The registrant filed the following current reports on Form 8-K during
the quarter ended March 31, 2000:
(1) A Form 8-K was filed on January 25, 2000 to report under
Item 5 that among other things, Entrade had completed the sale of a certain
number of its shares to unaffiliated institutional and individual
accredited investors.
(2) A Form 8-K was filed on March 2, 2000 to report under
Item 5, among other things, that Entrade had completed the sale of a
certain number of its shares to unaffiliated institutional accredited
investors, that Entrade entered into certain agreements related to e-
commerce marketplaces and about Artra's asbestos litigation.
(3) A Form 8-K was filed on March 29, 2000 to report under
Item 5 that Entrade had issued 30,000 shares of Series A Convertible
Preferred Stock and related warrants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunder duly authorized.
ENTRADE INC.
Registrant
Dated: May 22, 2000 /s/ Mark F. Santacrose
----------------------------------------
Mark F. Santacrose
President and Chief Executive Officer
Dated: May 22, 2000 /s/ Norman Smagley
----------------------------------------
Norman Smagley
Executive Vice President and
Chief Financial Officer
EXHIBIT 3.2
- -----------
AMENDED AND RESTATED
BY-LAWS
OF
ENTRADE INC.
AMENDED AND RESTATED SEPTEMBER 23, 1999
<PAGE>
Table of Contents
-----------------
Page
----
Article 1 - Corporation Office . . . . . . . . . . . . . . . . . . . 1
Article 2 - Shareholder Meetings . . . . . . . . . . . . . . . . . . 1
Article 3 - Quorum of Shareholders . . . . . . . . . . . . . . . . . 2
Article 4 - Voting Rights. . . . . . . . . . . . . . . . . . . . . . 3
Article 5 - Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 6 - Record Date. . . . . . . . . . . . . . . . . . . . . . . 5
Article 7 - Shareholder List . . . . . . . . . . . . . . . . . . . . 6
Article 8 - Judges of Election . . . . . . . . . . . . . . . . . . . 6
Article 9 - Consent of Shareholders in Lieu of Meeting . . . . . . . 7
Article 10 - Directors . . . . . . . . . . . . . . . . . . . . . . . 7
Article 11 - Removal of Directors. . . . . . . . . . . . . . . . . . 7
Article 12 - Vacancies on Board of Directors . . . . . . . . . . . . 8
Article 13 - Powers of Board . . . . . . . . . . . . . . . . . . . . 8
Article 14 - Meetings of the Board of Directors. . . . . . . . . . . 8
Article 15 - Action by Written Consent . . . . . . . . . . . . . . . 9
Article 16 - Compensation of Directors . . . . . . . . . . . . . . . 9
Article 17 - Liability of Directors. . . . . . . . . . . . . . . . . 9
Article 18 - Officers. . . . . . . . . . . . . . . . . . . . . . . . 10
Article 19 - The Chairman of the Board and Vice Chairman . . . . . . 11
Article 20 - The President . . . . . . . . . . . . . . . . . . . . . 11
Article 21 - The Vice President. . . . . . . . . . . . . . . . . . . 12
Article 22 - The Secretary . . . . . . . . . . . . . . . . . . . . . 12
Article 23 - The Treasurer . . . . . . . . . . . . . . . . . . . . . 12
Article 24 - Assistant Officers. . . . . . . . . . . . . . . . . . . 12
Article 25 - Indemnification of Officers, Directors,
Employees and Agents. . . . . . . . . . . . . . . . . . 12
Article 26 - Shares; Share Certificates. . . . . . . . . . . . . . . 15
Article 27 - Transfer of Shares. . . . . . . . . . . . . . . . . . . 15
Article 28 - Lost Certificates . . . . . . . . . . . . . . . . . . . 15
Article 29 - Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 16
Article 30 - Manner of Giving Written Notice; Waivers of Notice. . . 16
Article 31 - Amendments. . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
ENTRADE INC.
ARTICLE 1
CORPORATION OFFICE
------------------
SECTION 1.1 The Corporation shall have and continuously maintain in
the Commonwealth of Pennsylvania a registered office at an address to be
designated from time to time by the Board of Directors which may, but need
not, be the same as its place of business.
SECTION 1.2 The Corporation may also have offices at such other
places as the Board of Directors may from time to time designate or the
business of the Corporation may require.
ARTICLE 2
SHAREHOLDER MEETINGS
--------------------
SECTION 2.1 All meetings of the shareholders shall be held at such
time and place, within or without the Commonwealth of Pennsylvania, as may
be determined from time to time by the Board of Directors and need not be
held at the registered office of the Corporation.
SECTION 2.2 An annual meeting of the shareholders for the election
of directors and the transaction of such other business as may properly be
brought before the meeting shall be held in each calendar year at such time
and place as may be determined by the Board of Directors.
SECTION 2.3 Special meetings of the shareholders may be called at
any time by resolution of the Board of Directors, which may fix the date
and place of the meeting. If the Board of Directors does not fix the date,
time or place of the meeting, it shall be the duty of the Secretary to do
so. A date fixed by the Secretary shall not be more than 60 days after the
date of the adoption of the resolution of the Board of Directors calling
the special meeting.
SECTION 2.4 Written notice of each meeting other than an adjourned
meeting of shareholders, stating the place and time, and, in the case of a
special meeting of shareholders, the general nature of the business to be
transacted, shall be provided to each shareholder of record entitled to
vote at the meeting at such address as appears on the books of the
Corporation. Such notice shall be given, in accordance with the provisions
of Article 29 of these Bylaws, at least (i) ten days prior to the day named
for a meeting to consider a fundamental change under Chapter 19 of the
Pennsylvania Business Corporation Law of 1988 (the "BCL") or (ii) five days
prior to the day named for the meeting in any other case.
SECTION 2.5
(a) Whenever the Corporation has been unable to communicate
with a shareholder for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder
has otherwise failed to provide the Corporation with a current address, the
giving of notice to such shareholder pursuant to Section 2.4 of these
Bylaws shall not be required. Any action or meeting that is taken or held
without notice or communication to that shareholder shall have the same
validity as if the notice or communication had been duly given. Whenever a
shareholder provides the Corporation with a current address this Subsection
2.5(a) shall cease to be applicable to such shareholder.
<PAGE>
(b) The Corporation shall not be required to give notice to
any shareholder pursuant to Section 2.4 hereof if and for as long as
communication with such shareholder is unlawful.
SECTION 2.6 The Board of Directors may provide by resolution with
respect to a specific meeting or with respect to a class of meetings that
one or more shareholders may participate in such meeting or meetings of
shareholders by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting can
hear one another. Participation in the meeting by such means shall
constitute presence in person at the meeting. Any notice otherwise
required to be given in connection with any meeting at which participation
by conference telephone or other communications equipment is permitted
shall so specify.
ARTICLE 3
QUORUM OF SHAREHOLDERS
----------------------
SECTION 3.1 A meeting of shareholders duly called shall not be
organized for the transaction of business unless a quorum is present.
SECTION 3.2 The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting
shall constitute a quorum for purposes of consideration and action on such
matter.
SECTION 3.3 The shareholders present at a duly organized meeting may
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
SECTION 3.4 If a meeting of shareholders cannot be organized because
a quorum is not present, those present in person or by proxy, may, except
as otherwise provided by statute, adjourn the meeting to such time and
place as they may determine, without notice other than an announcement at
the meeting, until the requisite number of shareholders for a quorum shall
be present in person or by proxy.
SECTION 3.5 Notwithstanding the provisions of Sections 3.1, 3.2, 3.3
and 3.4 of these Bylaws:
(a) Any meeting at which directors are to be elected may be
adjourned for such period as the shareholders present and entitled to vote
shall direct.
(b) Those shareholders entitled to vote who attend a meeting
called for election of directors that has been previously adjourned for
lack of a quorum, although less than a quorum as fixed in these Bylaws,
shall nevertheless constitute a quorum for the purpose of electing
directors.
(c) Those shareholders entitled to vote who attend a meeting
that has been previously adjourned for one or more periods aggregating at
least 15 days because of an absence of a quorum, although less than a
quorum as fixed in these Bylaws, shall nevertheless constitute a quorum for
the purpose of acting upon any matter set forth in the notice of the
meeting if the notice states that those shareholders who attend the
adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.
<PAGE>
ARTICLE 4
VOTING RIGHTS
-------------
SECTION 4.1 Except as may be otherwise provided by the Corporation's
Articles of Incorporation, at every meeting of shareholders, every
shareholder entitled to vote thereat shall be entitled to one vote for
every share having voting power standing in his name on the books of the
Corporation on the record date fixed for the meeting.
SECTION 4.2 Except as otherwise provided by statute or by the
Corporation's Articles of Incorporation, at any duly organized meeting of
shareholders the vote of the holders of a majority of the votes cast shall
decide any question brought before such meeting.
SECTION 4.3 Unless demand is made before the voting begins by a
shareholder entitled to vote at any election for directors, the election of
such directors need not be by ballot.
SECTION 4.4
(a) Shareholder Proposals Relating to Nominations for and Election
of Directors.
(1) A Shareholder may propose one or more candidates for
nomination as a candidate for election by Shareholders as a director at any
meeting of Shareholders at which Directors are to be elected. Such
proposal may only be made by notice in writing, delivered in person or by
first class United States mail postage prepaid or by reputable overnight
delivery service, to the Board of Directors of the Company to the attention
of the Secretary of the Company at the principal office of the Company,
within the time limits specified in this Section 4.4(a).
(2) In the case of an annual meeting of Shareholders, any
such written proposal of nomination must be received by the Secretary of
the Company not less than 90 calendar days nor more than 120 calendar days
before the first anniversary of the date on which the Company first mailed
its proxy statement to Shareholders for the annual meeting of Shareholders
in the immediately preceding year; provided, however, that in the case of
an annual meeting of Shareholders that is called for a date which is not
within 30 calendar days before or after the first anniversary date of the
annual meeting of Shareholders in the immediately preceding year, any such
written proposal of nomination must be received by the Board of Directors
within five business days after the earlier of the date the Company shall
have mailed notice to its Shareholders that an annual meeting of
Shareholders will be held, issued a press release, filed a periodic report
with the Securities and Exchange Commission, or otherwise publicly
disseminated notice that an annual meeting of Shareholders will be held.
(3) In the case of a special meeting of Shareholders, any
such written proposal of nomination must be received by the Secretary of
the Company within five business days after the earlier of the date that
the Company shall have mailed notice to its Shareholders that a special
meeting of Shareholders will be held, issued a press release, filed a
periodic report with the Securities and Exchange Commission, or otherwise
publicly disseminated notice that a special meeting of Shareholders will be
held.
(4) Such written proposal of nomination shall set forth (A)
the name and address of the Shareholder who intends to make the nomination
(the "Nominating Shareholder"), (B) the name, age, business address, and,
if known, residence address of each person so proposed, (C) the principal
occupation or employment for the past five years of each person so
proposed, (D) the number of shares of capital stock of the Company
beneficially owned within the meaning of Securities and Exchange Commission
<PAGE>
Rule 13d-1 by each person so proposed and the earliest date of acquisition
of any such capital stock, (E) a description of any arrangement or
understanding between each person so proposed and the Nominating
Shareholder with respect to such person's proposal for nomination and
election as a director and actions to be proposed or taken by such person
as a director, (F) the written consent of each person so proposed to serve
as a director if nominated and elected as a Director, and (G) such other
information regarding each such person as would be required under the proxy
solicitation rules of the Securities and Exchange Company if proxies were
to be solicited for the election as a Director of each person so proposed.
(5) If a written proposal of nomination submitted to the
Secretary of the Company fails, in the reasonable judgment of the Board of
Directors or the Nominating Committee of the Board of Directors, to contain
the information specified in clause (4) hereof or is otherwise deficient,
the Secretary shall, as promptly as is practicable under the circumstances,
provide written notice to the Nominating Shareholder of such failure or
deficiency in the written proposal of nomination and such Nominating
Shareholder shall have five business days from receipt of such notice to
submit a revised written proposal of nomination that corrects such failure
or deficiency in all material respects.
(7) A Shareholder-proposed candidate for nomination for
election as a Director by Shareholders shall not be considered or acted
upon for election as a Director at such meeting of Shareholders unless the
procedures of this subsection (a) have been satisfied.
(b) Shareholder Proposals Relating to Other Than Nominations for
and Elections of Directors.
(1) A Shareholder of the Company may bring a matter (other
than a nomination of a candidate for election as a director which is
covered by subsection (a) of this Section 4.4) (a "Shareholder Matter")
before a meeting of Shareholders only if (A) such Shareholder Matter is a
proper matter for Shareholder action and such Shareholder shall have
provided notice in writing, delivered in person or by first class United
States mail postage prepaid or by reputable overnight delivery service, to
the Board of Directors of the Company to the attention of the Secretary of
the Company at the principal office of the Company, within the time limits
specified in this Section 4.4(b), or (B) the Shareholder complies with the
provisions of Rule 14a-8 under the Securities Exchange Act of 1934 relating
to inclusion of Shareholder proposals in the Company's proxy statement.
(2) In the case of an annual meeting of Shareholders, any
such written notice of presentation of a Shareholder Matter must be
received by the Board of Directors not less than 90 calendar days nor more
than 120 calendar days before the first anniversary of the date on which
the Company first mailed its proxy statement to Shareholders for the annual
meeting of Shareholders in the immediately preceding year; provided,
however, that in the case of an annual meeting of Shareholders that is
called for a date which is not within 30 calendar days before or after the
first anniversary date of the annual meeting of Shareholders in the
immediately preceding year, any such written notice of presentation of a
Shareholder Matter must be received by the Secretary of the Company within
five business days after the earlier of the date the Company shall have
mailed notice to its Shareholders that an annual meeting of Shareholders
will be held, issued a press release, filed a periodic report with the
Securities and Exchange Commission or otherwise publicly disseminated
notice that an annual meeting of Shareholders will be held.
(3) In the case of a special meeting of Shareholders, any
such written notice of presentation of a Shareholder Matter must be
received by the Secretary of the Company within five business days after
the earlier of the date the Company shall have mailed notice to its
Shareholders that a special meeting of Shareholders will be held, issued a
press release, filed a periodic report with the Securities and Exchange
Commission, or otherwise publicly disseminated notice that a special
meeting of Shareholders will be held.
<PAGE>
(4) Such written notice of presentation of a Shareholder
Matter shall set forth information regarding such Shareholder Matter
equivalent to the information regarding such Shareholder Matter that would
be required under the proxy solicitation rules of the Securities and
Exchange Commission if proxies were solicited for Shareholder consideration
of such Shareholder Matter at a meeting of Shareholders.
(5) If a written notice of presentation of a Shareholder
Matter submitted to the Board of Directors fails, in the reasonable
judgment of the Board of Directors, to contain the information specified in
clause (4) hereof or is otherwise deficient, the Chairperson of the Board
of Directors shall, as promptly as is practicable under the circumstances,
provide written notice to the Shareholder who submitted the written notice
of presentation of a Shareholder Matter of such failure or deficiency in
the written notice of presentation of a Shareholder Matter and such
Shareholder shall have five business days from receipt of such notice to
submit a revised written notice of presentation of a Shareholder Matter
that corrects such failure or deficiency in all material respects.
(6) Only Shareholder Matters submitted in accordance with the
foregoing provisions of this Section 4.4(b) shall be eligible for
presentation at such meeting of Shareholders, and any Shareholder Matter
not submitted to the Board of Directors in accordance with such provisions
shall not be considered or acted upon at such meeting of Shareholders.
ARTICLE 5
PROXIES
---------
SECTION 5.1 Every shareholder entitled to vote at a meeting of
shareholders may may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder or his
duly authorized attorney-in-fact and filed with the Secretary of the
Corporation. A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy
to the contrary, but the revocation of a proxy shall not be effective until
written notice thereof has been given to the Secretary of the Corporation.
An unrevoked proxy shall not be valid after three years from the date of
its execution unless a longer time is expressly provided therein. A proxy
shall not be revoked by the death or incapacity of the maker, unless before
the vote is counted or the authority is exercised, written notice of such
death or incapacity is given to the Secretary of the Corporation.
SECTION 5.2 Where two or more proxies of a shareholder are present,
the Corporation shall, unless otherwise expressly provided in the proxy,
accept as the vote of all shares represented thereby the vote cast by a
majority of them and, if a majority of the proxies cannot agree whether the
shares represented shall be voted or upon the manner of voting the shares,
the voting of the shares shall be divided equally among those persons.
ARTICLE 6
RECORD DATE
-----------
SECTION 6.1 The Board of Directors may fix a time prior to the date
of any meeting of shareholders as a record date for the determination of
the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall not be more than 90
days prior to the date of the meeting of shareholders. Only shareholders
of record on the date so fixed shall be entitled to notice of, or to vote
at, such meeting, notwithstanding any transfer of shares on the books of
the Corporation after any record date fixed as aforesaid. The Board of
Directors may similarly fix a record date for the determination of
shareholders of record for any other purpose, such as the payment of a
distribution or a conversion or exchange of shares.
<PAGE>
SECTION 6.2 The Board of Directors may by resolution adopt a
procedure whereby a shareholder of the Corporation may certify in writing
to the Corporation that all or a portion of the shares registered in such
shareholder's name are held for the account of a specified person or
persons. Such resolution may set forth: (a) the classification of
shareholder who may certify; (b) the purpose or purposes for which the
certification may be made; (c) the form of certification and information to
be contained therein; (d) if the certification is with respect to a record
date, the time after the record date within which the certification must be
received by the Corporation; and (e) such other provisions with respect to
the procedure as are deemed necessary or desirable. Upon receipt by the
Corporation of a certification complying with the procedure, the persons
specified in the certification shall be deemed, for the purposes set forth
in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
ARTICLE 7
SHAREHOLDER LIST
----------------
SECTION 7.1 The officer or agent having charge of the share transfer
books of the Corporation shall make a complete alphabetical list of the
shareholders entitled to vote at any meeting, with their addresses and the
number of shares held by each. The list shall be produced and kept open at
the time and place of the meeting for inspection by any shareholder during
the entire meeting, except that if the Corporation has 5,000 or more
shareholders, in lieu of the making of the list the Corporation may make
the information available at the meeting by other means.
SECTION 7.2 Failure to comply with the provisions of Section 7.1 of
these Bylaws shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote
thereat to examine the list.
SECTION 7.3 The original transfer books for shares of the
Corporation, or a duplicate thereof kept in the Commonwealth of
Pennsylvania, shall be prima facie evidence as to who are the shareholders
entitled to examine the list or transfer books for shares or to vote at any
meeting.
ARTICLE 8
JUDGES OF ELECTION
------------------
SECTION 8.1 Prior to any meeting of shareholders, the Board of
Directors may appoint judges of election, who may but need not be
shareholders, to act at such meeting or any adjournment thereof. If judges
of election are not so appointed, the presiding officer of any such meeting
may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of judges shall be one or three.
No person who is a candidate for an office to be filled at the meeting
shall act as a judge of election.
SECTION 8.2 In case any person appointed as a judge of election
fails to appear or fails or refuses to act, the vacancy so created may be
filled by appointment made by the Board of Directors in advance of the
convening of the meeting or at the meeting by the presiding officer
thereof.
<PAGE>
SECTION 8.3 The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum and the authenticity, validity and
effect of proxies. The judges of election shall also receive votes or
ballots, hear and determine all challenges and questions in any way arising
in connection with the right to vote, count and tabulate all votes,
determine the result and do such other acts as may be proper to conduct the
election or vote with fairness to all shareholders. The judges of election
shall perform their duties impartially, in good faith, to the best of their
ability and as expeditiously as practicable. If there are three judges of
election, the decision, act or certificate of a majority shall be the
decision, act or certificate of all.
SECTION 8.4 On request of the presiding officer of the meeting or of
any shareholder, the judges of election shall make a report in writing of
any challenge, question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by
them shall be prima facie evidence of the facts found by them.
ARTICLE 9
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
------------------------------------------
SECTION 9.1 Any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting if, prior or
subsequent to the action, a written consent or consents thereto signed by
all of the shareholders who would be entitled to vote at a meeting for such
purpose shall be filed with the Secretary of the Corporation.
ARTICLE 10
DIRECTORS
----------
SECTION 10.1 The number of directors shall be determined by the
Board of Directors from time to time. Each director shall be a natural
person of full age and need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the Corporation.
SECTION 10.2 The Board of Directors may elect a Chairman of the
Board. The Chairman of the Board of Directors shall preside at all
meetings of shareholders and directors.
SECTION 10.3 Except as otherwise provided in Article 12 of these
Bylaws, directors shall be elected by the shareholders. The candidates
receiving the highest number of votes from the shareholders shall be
elected. Each director shall be selected for a term of one year and until
his successor has been selected and qualified or until his earlier death,
resignation or removal. A decrease in the number of directors shall not
have the effect of shortening the term of any incumbent director.
ARTICLE 11
REMOVAL OF DIRECTORS
--------------------
SECTION 11.1 The entire Board of Directors or any individual
director may be removed from office without assigning any cause by the vote
of the shareholders entitled to elect directors. If any directors are so
removed, new directors may be elected at the same meeting.
SECTION 11.2 The Board of Directors may remove and declare vacant
the office of a director who has been judicially declared of unsound mind
or who has been convicted of an offense punishable by imprisonment for a
term of more than one year.
<PAGE>
ARTICLE 12
VACANCIES ON BOARD OF DIRECTORS
-------------------------------
SECTION 12.1 Vacancies on the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be
filled by a majority vote of the remaining members of the Board of
Directors, though less than a quorum, or by a sole remaining director, and
each person so elected shall be a director to serve for the balance of the
unexpired term.
SECTION 12.2 If one or more directors shall resign from the Board of
Directors effective at a future date, the directors then in office,
including those who have so resigned, shall have the power by a majority
vote to fill the vacancies, to take effect when the resignations become
effective.
ARTICLE 13
POWERS OF BOARD
---------------
SECTION 13.1 The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things
as are directed or required to be exercised and done by statute, the
Articles of Incorporation or these Bylaws.
SECTION 13.2 The Board of Directors may, by resolution adopted by a
majority of the directors in office, establish one or more committees
consisting of one or more directors as may be deemed appropriate or
desirable by the Board of Directors to serve at the pleasure of the Board.
Any committee, to the extent provided in the resolution of the Board of
Directors pursuant to which it was created, shall have and may exercise all
of the powers and authority of the Board of Directors, except that no
committee shall have any power or authority as to the following:
(a) The submission to shareholders of any action requiring approval
of shareholders;
(b) The creation or filling of vacancies in the Board of Directors;
(c) The adoption, amendment or repeal of these Bylaws;
(d) The amendment or repeal of any resolution of the Board of
Directors that by its terms is amendable or repealable only by the Board of
Directors; and
(e) Action on matters committed by the Bylaws or resolution of the
Board of Directors to another committee of the Board of Directors.
ARTICLE 14
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
SECTION 14.1 A meeting of the Board of Directors may be held
immediately following the annual meeting of shareholders at which directors
have been elected without the necessity of notice to the directors.
SECTION 14.2 Meetings of the Board of Directors shall be held at
such times and places within or without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time appoint or as may be
designated in the notice of the meeting. One or more directors may
participate in any meeting of the Board of Directors, or of any committee
thereof, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear one another. Participation in a meeting by such means shall
constitute presence in person at the meeting.
<PAGE>
SECTION 14.3 Special meetings of the Board of Directors may be
called by the Chairman of the Board or President of the Corporation on one
day's notice to each director, either by telephone, or if in writing, in
accordance with the provisions of Article 29 of these Bylaws. Special
meetings shall be called by the Chairman of the Board, President or
Secretary in like manner and on like notice upon the written request of a
majority of the directors in office.
SECTION 14.4 At all meetings of the Board of Directors a majority of
the directors in office shall constitute a quorum for the transaction of
business, and the acts of a majority of the directors present and voting at
a meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or
by the Articles of Incorporation or by these Bylaws.
ARTICLE 15
ACTION BY WRITTEN CONSENT
-------------------------
SECTION 15.1 Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if, prior
or subsequent to the action, a consent or consents thereto signed by all of
the directors is filed with the Secretary of the Corporation.
ARTICLE 16
COMPENSATION OF DIRECTORS
-------------------------
SECTION 16.1 Directors, as such, may receive a stated salary for
their services or a fixed sum and expenses for attendance at regular and
special meetings, or any combination of the foregoing as may be determined
from time to time by resolution of the Board of Directors, and nothing
contained herein shall be construed to preclude any director from receiving
compensation for services rendered to the Corporation in any other
capacity.
ARTICLE 17
LIABILITY OF DIRECTORS
----------------------
SECTION 17.1 A director of the Corporation shall stand in a
fiduciary relation to the Corporation and shall perform his duties as a
director, including his duties as a member of any committee of the Board of
Directors upon which he may serve, in good faith, in a manner he reasonably
believes to be in the best interests of the Corporation, and with such
care, including reasonable inquiry, skill and diligence, as a person of
ordinary prudence would use under similar circumstances. In performing his
duties, a director shall be entitled to rely in good faith on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by any of the following:
(a) one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented;
(b) legal counsel, public accountants or other persons as to matters which
the director reasonably believes to be within the professional or expert
competence of such persons; or (c) a committee of the Board of Directors
upon which he does not serve, duly designated in accordance with law, as to
matters within its designated authority, which committee the director
reasonably believes to merit confidence. A director shall not be
considered to be acting in good faith if he has knowledge concerning the
matter in question that would cause his reliance to be unwarranted.
SECTION 17.2 In discharging the duties of their respective
positions, the Board of Directors, committees of the Board of Directors and
individual directors may, in considering the best interests of the
Corporation, consider to the extent they deem appropriate:
<PAGE>
(a) The effects of any action upon any or all groups affected
by such action, including shareholders, employees, suppliers, customers and
creditors of the Corporation, and upon communities in which offices or
other establishments of the Corporation are located;
(b) The short-term and long-term interests of the
Corporation, including benefits that may accrue to the Corporation from its
long-term plans and the possibility that these interests may be best served
by the continued independence of the Corporation;
(c) The resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of the Corporation; and
(d) All other pertinent factors.
The Board of Directors, committees of the Board and individual
directors shall not be required, in considering the best interests of the
Corporation or the effects of any action, to regard any corporate interest
or the interests of any particular group affected by such action as a
dominant or controlling interest or factor. The consideration of these
factors shall not constitute a violation of Section 17.1 hereof.
SECTION 17.3 Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
SECTION 17.4 A director of the Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure
to take any action, unless: (a) the director has breached or failed to
perform the duties of his office under Sections 17.1 through 17.3 hereof;
and (b) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
SECTION 17.5 The provisions of Section 17.4 hereof shall not apply
to: (a) the responsibility or liability of a director pursuant to any
criminal statute; or (b) the liability of a director for the payment of
taxes pursuant to local, state or federal law.
SECTION 17.6 Notwithstanding any other provisions of these Bylaws,
the approval of shareholders shall be required to amend, repeal or adopt
any provision as part of these Bylaws that is inconsistent with the purpose
or intent of Sections 17.1, 17.2, 17.3, 17.4, 17.5 or 17.6 of this Article
17, and, if any such action shall be taken, it shall become effective only
on a prospective basis from and after the date of such shareholder
approval. [Article 17 was adopted by sole incorporator February 16, 1999.]
ARTICLE 18
OFFICERS
----------
SECTION 18.1 The Corporation shall have a President, a Secretary and
a Treasurer, or persons who shall act as such, regardless of the name or
title by which they may be designated, elected or appointed and may have
such other officers, including a Chairman of the Board, a Vice Chairman of
the Board, and assistant officers as the Board of Directors may authorize
from time to time. The President and Secretary shall be natural persons of
full age. The Treasurer may be a corporation, but if a natural person
shall be of full age. It shall not be necessary for the officers to be
directors. Any number of offices may be held by the same person. Each
officer shall hold office at the pleasure of the Board of Directors and
until his successor has been elected and qualified or until his earlier
death, resignation or removal. Any officer may resign at any time. The
resignation shall be effective upon receipt of notice thereof by the
Corporation or at such subsequent time as may be specified in the notice of
resignation. The Corporation may secure the fidelity of any or all of the
officers by bond or otherwise.
<PAGE>
SECTION 18.2 Except as otherwise provided in the Articles of
Incorporation, an officer shall perform his duties as an officer in good
faith, in a manner he reasonably believes to be in the best interests of
the Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by
reason of having been an officer of the Corporation.
SECTION 18.3 Any officer or agent of the Corporation may be removed
by the Board of Directors with or without cause. The removal shall be
without prejudice to the contract rights, if any, of any person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors.
ARTICLE 19
THE CHAIRMAN OF THE BOARD AND VICE CHAIRMAN
-------------------------------------------
SECTION 19.1 The Chairman of the Board shall be a director of the
Corporation. The Chairman of the Board shall preside at all meetings of
the shareholders and of the Board of Directors. Unless otherwise directed
by the Board of Directors from time to time, the Chairman shall have the
power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of shareholders of or with respect to any action
of shareholders of any other corporation in which the Corporation may hold
securities and otherwise to exercise any and all rights and powers which
the Corporation may possess by reason of its ownership of securities in
such other corporation.
SECTION 19.2 The Vice Chairman of the Board shall be a director of
the Corporation and shall serve as Chairman of the Executive Committee of
the Board of Directors. The Vice Chairman of the Board, subject to the
provisions of these By-laws and to the direction of the Board of Directors,
shall perform such duties and have such powers as may from time to time be
assigned to him by the Chairman of the Board or the Board of Directors.
The Vice Chairman of the Board shall perform the duties and exercise the
powers of the Chairman of the Board in the absence or disability of the
Chairman.
ARTICLE 20
THE PRESIDENT
-------------
SECTION 20.1 In the absence of the Chairman of the Board of
Directors and the Vice Chairman of the Board of Directors, the President
shall preside at all meetings of shareholders and directors. He shall be
the chief executive officer of the Corporation; shall be responsible for
the general and active management of the business of the Corporation; shall
see that all orders and resolutions of the Board of Directors are put into
effect, subject, however, to the right of the Board of Directors to
delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the
Corporation; shall have the authority to execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the Corporation; and
perform such other duties as from time to time may be assigned to the
President by the Board of Directors.
<PAGE>
ARTICLE 21
THE VICE PRESIDENT
------------------
SECTION 21.1 The Vice President or, if more than one, the Vice
Presidents in the order, if any, established by the Board of Directors
shall, in the absence or incapacity of the President, have the authority to
exercise all the powers and perform the duties of the President. The Vice
Presidents, respectively, shall also have such other authority and perform
such other duties as may be provided in the Bylaws or as shall be
determined by the Board of Directors or the President. Any Vice President
may, in the discretion of the Board of Directors, be designated as
"executive," "senior" or by departmental or functional classification.
ARTICLE 22
THE SECRETARY
-------------
SECTION 22.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one
or more minute books kept for that purpose and shall perform the duties
customarily performed by the secretary of a corporation and such other
duties as may be assigned to him by the Board of Directors or the
President.
ARTICLE 23
THE TREASURER
-------------
SECTION 23.1 The Treasurer shall be responsible for the custody of
the corporate funds and securities; shall be responsible for full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; and shall perform such other duties as may be assigned to him
by the Board of Directors or the President. He shall give bond in such sum
and with such surety as the Board of Directors may from time to time
direct.
ARTICLE 24
ASSISTANT OFFICERS
------------------
SECTION 24.1 Each assistant officer shall assist in the performance
of the duties of the officer to whom he is assistant and shall perform such
duties in the absence of the officer. He shall perform such additional
duties as the Board of Directors, the President or the officer to whom he
is assistant may from time to time assign him. Such officers may be given
such functional titles as the Board of Directors shall from time to time
determine.
ARTICLE 25
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
------------------------------------------------------------
SECTION 25.1 The Corporation shall indemnify any director or
officer, and may indemnify any other employee or agent, who was or is a
party to, or is threatened to be made a party to, or who is called as a
witness in connection with, any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation,
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic
or foreign corporation for profit or not-for-profit, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys'
<PAGE>
fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or
proceeding unless the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness.
SECTION 25.2 The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article 25 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement,
contract, vote of shareholders or directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office. It is the policy of the Corporation that indemnification of,
and advancement of expenses to, directors and officers of the Corporation
shall be made to the fullest extent permitted by law. To this end, the
provisions of this Article 25 shall be deemed to have been amended for the
benefit of directors and officers of the Corporation effective immediately
upon any modification of the BCL or any modification, or adoption of any
other law that expands or enlarges the power or obligation of corporations
organized under the BCL to indemnify, or advance expenses to, directors and
officers of corporations.
SECTION 25.3 The Corporation shall pay expenses incurred by an
officer or director, and may pay expenses incurred by any other employee or
agent, in defending an action, suit or proceeding referred to in this
Article 25 in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation.
SECTION 25.4 The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article 25 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
SECTION 25.5 The Corporation shall have the authority to create a
fund of any nature, which may, but need not be, under the control of a
trustee, or otherwise secure or insure in any manner, its indemnification
obligations, whether arising under these Bylaws or otherwise. This
authority shall include, without limitation, the authority to: (i) deposit
funds in trust or in escrow; (ii) establish any form of self-insurance;
(iii) secure its indemnity obligation by grant of a security interest,
mortgage or other lien on the assets of the Corporation; or (iv) establish
a letter of credit, guaranty or surety arrangement for the benefit of such
persons in connection with the anticipated indemnification or advancement
of expenses contemplated by this Article 25. The provisions of this
Article 25 shall not be deemed to preclude the indemnification of, or
advancement of expenses to, any person who is not specified in Section 25.1
of this Article 25 but whom the Corporation has the power or obligation to
indemnify, or to advance expenses for, under the provisions of the BCL or
otherwise. The authority granted by this Section 25.5 shall be exercised
by the Board of Directors of the Corporation.
SECTION 25.6 The Corporation shall have the authority to enter into
a separate indemnification agreement with any officer, director, employee
or agent of the Corporation or any subsidiary providing for such
indemnification of such person as the Board of Directors shall determine up
to the fullest extent permitted by law.
SECTION 25.7 As soon as practicable after receipt by any person
specified in Section 25.1 of this Article 25 of notice of the commencement
of any action, suit or proceeding specified in Section 25.1 of this Article
25, such person shall, if a claim with respect thereto may be made against
the Corporation under Article 24 of these Bylaws, notify the Corporation in
writing of the commencement or threat thereof; however, the omission so to
notify the Corporation shall not relieve the Corporation from any liability
<PAGE>
under Article 25 of these Bylaws unless the Corporation shall have been
prejudiced thereby or from any other liability which it may have to such
person other than under Article 25 of these Bylaws. With respect to any
such action as to which such person notifies the Corporation of the
commencement or threat thereof, the Corporation may participate therein at
its own expense and, except as otherwise provided herein, to the extent
that it desires, the Corporation, jointly with any other indemnifying party
similarly notified, shall be entitled to assume the defense thereof, with
counsel selected by the Corporation to the reasonable satisfaction of such
person. After notice from the Corporation to such person of its election
to assume the defense thereof, the Corporation shall not be liable to such
person under Article 25 of these Bylaws for any legal or other expenses
subsequently incurred by such person in connection with the defense thereof
other than as otherwise provided herein. Such person shall have the right
to employ his own counsel in such action, but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of such person unless: (i) the
employment of counsel by such person shall have been authorized by the
Corporation; (ii) such person shall have reasonably concluded that there
may be a conflict of interest between the Corporation and such person in
the conduct of the defense of such proceeding; or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such
action. The Corporation shall not be entitled to assume the defense of any
proceeding brought by or on behalf of the Corporation or as to which such
person shall have reasonably concluded that there may be a conflict of
interest. If indemnification under Article 25 of these Bylaws or
advancement of expenses are not paid or made by the Corporation, or on its
behalf, within 90 days after a written claim for indemnification or a
request for an advancement of expenses has been received by the
Corporation, such person may, at any time thereafter, bring suit against
the Corporation to recover the unpaid amount of the claim or the
advancement of expenses. The right to indemnification and advancements of
expenses provided hereunder shall be enforceable by such person in any
court of competent jurisdiction. The burden of proving that
indemnification is not appropriate shall be on the Corporation. Expenses
reasonably incurred by such person in connection with successfully
establishing the right to indemnification or advancement of expenses, in
whole or in part, shall also be indemnified by the Corporation.
SECTION 25.8 The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article 25.
SECTION 25.9 Notwithstanding any other provisions of these Bylaws,
the approval of shareholders shall be required to amend, repeal or adopt
any provision as part of these Bylaws which is inconsistent with the
purpose or intent of this Article 25, and, if any such action shall be
taken, it shall become effective only on a prospective basis from and after
the date of such shareholder approval. [This Article 25 was adopted
February 16, 1999 by the incorporator as Article 24 in the Corporation's
initial Bylaws.]
<PAGE>
ARTICLE 26
SHARES; SHARE CERTIFICATES
--------------------------
SECTION 26.1 All shares issued by the Corporation shall be
represented by certificates. The share certificates of the Corporation
shall be numbered and registered in a share register as they are issued;
shall state that the Corporation is incorporated under the laws of the
Commonwealth of Pennsylvania; shall bear the name of the registered holder,
the number and class of shares and the designation of the series, if any,
represented thereby; the par value, if any, of each share or a statement
that the shares are without par value, as the case may be; shall be signed
by the President or a Vice President, and the Secretary or the Treasurer or
any other person properly authorized by the Board of Directors, and shall
bear the corporate seal, which seal may be a facsimile engraved or printed.
Where the certificate is signed by a transfer agent or a registrar, the
signature of any corporate officer on such certificate may be a facsimile
engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before
the certificate is issued, such share certificate may be issued by the
Corporation with the same effect as if the officer had not ceased to be
such at the date of its issue.
ARTICLE 27
TRANSFER OF SHARES
------------------
SECTION 27.1 Upon surrender to the Corporation of a share
certificate duly endorsed by the person named in the certificate or by
attorney duly appointed in writing and accompanied where necessary by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the old
certificate canceled and the transfer recorded on the share register of the
Corporation. Except as otherwise provided pursuant to Section 6.2 hereof,
a transferee of shares of the Corporation shall not be a record holder of
such shares entitled to the rights and benefits associated therewith unless
and until the share transfer has been recorded on the share transfer books
of the Corporation. No transfer shall be made if it would be inconsistent
with the provisions of Article 8 of the Pennsylvania Uniform Commercial
Code.
ARTICLE 28
LOST CERTIFICATES
-----------------
SECTION 28.1 Where a shareholder of the Corporation alleges the
loss, theft or destruction of one or more certificates for shares of the
Corporation and requests the issuance of a substitute certificate therefor,
the Board of Directors may direct a new certificate of the same tenor and
for the same number of shares to be issued to such person upon such
person's making of an affidavit in form satisfactory to the Board of
Directors setting forth the facts in connection therewith, provided that
prior to the receipt of such request the Corporation shall not have either
registered a transfer of such certificate or received notice that such
certificate has been acquired by a bona fide purchaser. When authorizing
such issue of a new certificate the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate, or his heirs or
legal representatives, as the case may be, to advertise the same in such
manner as it shall require and/or give the Corporation a bond in such form
and sum and with surety or sureties, with fixed or open penalty, as shall
be satisfactory to the Board of Directors, as indemnity for any liability
or expense which it may incur by reason of the original certificate
remaining outstanding.
<PAGE>
ARTICLE 29
FISCAL YEAR
-----------
SECTION 29.1 The fiscal year of the Corporation shall be as
determined by the Board of Directors.
ARTICLE 30
MANNER OF GIVING WRITTEN NOTICE; WAIVERS OF NOTICE
--------------------------------------------------
SECTION 30.1 Whenever written notice is required to be given to any
person under the provisions of these Bylaws or the BCL, it may be given to
the person either personally or by sending a copy thereof by first class or
express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service,
charges prepaid, or by facsimile (telecopy) transmission, to his address
(or to his telex, TWX, or facsimile number) appearing on the books of the
Corporation or, in the case of written notice to directors, supplied by
each director to the Corporation for the purpose of the notice. If the
notice is sent by mail, telegraph or courier service, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office or courier service for delivery to
that person or, in the case of telex or TWX, when dispatched. If notice is
sent by facsimile, it shall be deemed to have been given upon the
confirmation of the transmission of the facsimile or telecopy.
SECTION 30.2 Any written notice required to be given to any person
under the provisions of statute, the Corporation's Articles of
Incorporation or these Bylaws may be waived in a writing signed by the
person entitled to such notice whether before or after the time stated
therein. Except as otherwise required by statute, and except in the case
of a special meeting, neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice. In the
case of a special meeting of shareholders, the waiver of notice shall
specify the general nature of the business to be transacted. Attendance of
any person, whether in person or by proxy, at any meeting shall constitute
a waiver of notice of such meeting, except where a person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not lawfully called
or convened.
ARTICLE 31
AMENDMENTS
----------
SECTION 31.1 Except as provided in Sections 17.6 and 25.9 hereof,
these Bylaws may be amended or repealed, and new Bylaws adopted, by the
affirmative vote of a majority of the votes cast by the shareholders at any
regular or special meeting duly convened after written notice to the
shareholders that the purpose, or one of the purposes, of the meeting is to
consider the amendment or repeal of these Bylaws and the adoption of new
Bylaws. There shall be included in, or enclosed with, the notice, a copy
of the proposed amendment or a summary of the changes to be effected
thereby.
SECTION 31.2 Except as provided in Sections 17.6 and 25.9 hereof,
and except as provided in Section 1504(b) of the BCL, these Bylaws may be
amended or repealed, and new Bylaws adopted, by the affirmative vote of a
majority of the members of the Board of Directors at any regular or special
meeting duly convened, subject to the power of the shareholders to change
such action of the Board of Directors.
EXHIBIT 10.1
- ------------
LEASE AGREEMENT
500 CENTRAL AVENUE
NORTHFIELD, ILLINOIS
The John Harvey Family Trust ("Landlord")
Entrade, Inc. ("Tenant")
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") made and entered into as of this 1st
day of January, 2000 between The John Harvey Family Trust ("Landlord") and
Entrade, Inc.("Tenant"), a Pennsylvania corporation.
W I T N E S S E T H :
1. PREMISES AND TERM.
In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions, and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord, the approximately twelve thousand
seven hundred (12,700) square feet outlined on the plan attached hereto as
Exhibit 1A (the "Leased Premises") located in the building commonly known
as 500 N. Central Avenue, Northfield, Illinois 60093 (the "Building"),
situated on the real property described in Exhibit 1B attached hereto (the
"Property") which is part of a development in Northfield, Illinois (the
"Development"). The leased premises shall be used for the following
purposes and no others: General office and storage.
TO HAVE AND TO HOLD the same for a term of sixty months ( 60)
commencing on January 1, 2000 and ending on December 31, 2004 unless
terminated or extended pursuant to any provision hereof. Tenant
acknowledges that no representations as to the repair of the leased
premises, nor promises to alter, remodel or improve the leased premises
have been made by Landlord, unless such are expressly set forth in this
Lease.
2. BASE RENT AND SECURITY DEPOSIT.
A. (1) The tenant shall pay to the landlord for the demised
premises during the term of this lease in lawful money of the United States
the sum of Two Hundred Seventy-Nine Thousand, Two Hundred- Forty-Six
Dollars ($279,246.00) for each lease year that this lease is in effect, as
and for a minimum annual rental, which said sum shall be payable in equal
monthly installments of Twenty-Three Thousand, Two Hundred-Seventy and
50/100 Dollars ($23,270.50) each, payable in advance and without notice
commencing on January 1, 2000, being the first day of the first lease year
of the term hereof.
(2) Commencing on January 1, 2001 and annually thereafter
during the term of the Lease the annual minimum rental for such period
shall be that annual minimum rental charged during the proceeding year
increased by the percentage increase in the Consumer Price Index "All
items" United States, popularly known as the Cost of Living Index
(presently published monthly by the Bureau of Labor Statistics of the U.S.
Department of Labor) using said Consumer Price Index (1967 base) for the
first six (6) months of the original term of this Lease as a denominator,
and said Consumer Price Index for the last six (6) months of the original
term of this Lease, as a numerator. This fraction shall be multiplied by
that annual minimum
<PAGE>
rental charged during the last year of the original term of this
Lease and the resulting amount shall be the amount of the annual minimum
rental during said option period. The annual minimum rental shall be
increased during each additional option period following by the resulting
percentage derived from a fraction having as its denominator the Consumer
Price Index (1967 base) for the average first six (6) months of the
original term of this Lease, and as its numerator the Consumer Price Index
(1967 base) for the average last six (6) months of said prior option
period. In no event shall the annual minimum rental charged during any
extended term be less than that rental charged during the last year of the
original term of this Lease. If the base year selected by the U.S.
Department of Labor shall be changed, then the resultant Index shall be
readjusted, so as to reflect the base initially established under this
Lease. If the said Index shall no longer be published or cannot be
adjusted, then another Index generally recognized as authoritative shall be
substituted by agreement between the parties.
Rental payment for any fractional calendar month end of the lease term
shall be prorated.
B. Tenant has deposited with Landlord the sum of 0 Thousand and
no/100 Dollars ($0.00), which sum shall be held by Landlord, without
obligation for interest, as security for the full, timely and faithful
performance of Tenant's covenants and obligations under this Lease, it
being expressly understood and agreed that such deposit is not an advance
rental or a measure of Landlord's damages in case of Tenant's default.
Upon the occurrence of any event of default by Tenant, Landlord may, from
time to time, without prejudice to any other remedy provided herein or
provided by law, use such fund to the extent necessary to make good any
arrears of rent or other payments due Landlord hereunder, and any other
damage, injury, expense or liability caused by any event of Tenant's
default; and Tenant shall pay to such Trust on demand the amount so applied
in order to restore the security deposit to its original amount. Any
remaining balance of such deposit shall be returned by Landlord to Tenant
within thirty (30) days after termination of this Lease when Landlord shall
have determined that all Tenant's obligations under this Lease have been
fulfilled. Subject to the other terms and conditions contained in this
Lease, if the Building is conveyed by Landlord, said deposit may be turned
over to Landlord's grantee and if so, Tenant hereby releases Landlord from
any and all liability with respect to said deposit and its application or
return.
3. TAXES.
Landlord agrees to pay all general and special taxes, assessments,
and governmental charges of any kind and nature whatsoever (collectively
"taxes") lawfully levied against the Property.
4. ELECTRIC SERVICE
To the extent Tenant is not billed directly by a public utility,
Landlord shall pay for all electricity used by Tenant in the leased
premises for lighting, convenience outlets, and other direct uses in
reasonable amounts commensurate with the intended use of the premises.
Tenant shall furnish, at its own expense, all electric light bulbs, tubes
<PAGE>
and ballasts. Tenant will not without the written consent of Landlord use
any apparatus or device in the leased premises which will in any way
increase its usage beyond the amount of electricity which Landlord
determines to be reasonable for use of the leased premises as general
office space, nor connect with electric current (except through existing or
new, at Tenant's sole expense, electrical outlets in the leased premises)
any apparatus or device for the purpose of using electric current. If
Tenant shall require electric current in excess of that which is reasonably
obtainable from existing electric outlets and normal for use of the leased
premises as general office space, then Tenant shall first procure the
consent of Landlord (which consent will not be unreasonably withheld).
Tenant shall pay all costs of installation of all facilities necessary to
furnishing such excess capacity and for such increased electricity usage.
Interruptions of any service shall not be deemed an eviction or
disturbance of Tenant's use and possession of the leased premises or any
part thereof, or render Landlord liable for damages by abatement of rent or
otherwise or relieve Tenant from performance of Tenant's obligations under
this Lease.
5. ALTERATIONS.
All improvements to the leased premises shall be installed at the
cost and expense of Tenant (which cost shall be payable on demand by
Landlord as additional rent), but only in accordance with plans and
specifications which have been previously submitted to and approved in
writing by Landlord, and only by Landlord or by contractors and
subcontractors approved in writing by Landlord (which approval shall not be
unreasonably withheld). In connection with any request for an approval of
alterations by Tenant, Landlord may retain the services of an architect
and/or engineer and Tenant shall reimburse Landlord for the reasonable fees
of such architect and/or engineer. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the term of this Lease and Tenant shall, unless
Landlord elects at the time of approval or otherwise elects as hereinafter
provided, remove all alterations, improvements and partitions erected by
Tenant and restore the leased premises to its original condition by the
date of termination of this Lease or upon earlier vacating of the leased
premises; provided, however, that, if at such time Landlord so elects, such
alterations, additions, improvements and partitions shall become the
property of Landlord as of the date of termination of this Lease or upon
earlier vacating of the leased premises and title shall pass to Landlord
under this Lease as by a bill of sale. All such removals and restoration
shall be accomplished in a good workmanlike manner by contractors approved
in writing by Landlord so as not to damage the primary structure or
structural qualities of the Building. All alterations, additions or
improvements proposed by Tenant shall be constructed in accordance with all
governmental laws, ordinances, rules and regulations and Tenant shall,
prior to construction, provide such assurances to Landlord, including but
not limited to, waivers of lien and surety company performance bonds, as
Landlord shall require to assure payment of the costs thereof and to
protect Landlord against any loss from any mechanics', laborers',
materialmen's or other liens.
<PAGE>
6. SERVICE
A. Landlord agrees to furnish Tenant, while occupying the leased
premises, water, hot and cold at those points of supply provided for
general use of Tenants; heat in season at such times as Landlord normally
furnishes these services to all tenants of the Building, and at such
temperatures and in such amounts as are in accordance with any applicable
statutes, rules or regulations and are considered by Landlord to be
standard, which shall include normal business hours on weekends, and
holidays and such window washing as may from time to time in the Landlord's
judgment be reasonably required; but failure to any extent to furnish or
any stoppage or interruption of these defined services, resulting from any
cause, shall not render Landlord liable in any respect for damages to any
person, property or business, nor be construed as an eviction of Tenant or
work an abatement of rent, nor relieve Tenant from fulfillment of any
covenant or agreement hereof. Should any equipment or machinery furnished
by Landlord cease to function properly, Landlord shall use reasonable
diligence to repair the same promptly, but Tenant shall have no claim for
rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Whenever heat generating
machines or equipment are used by Tenant in the leased premises which
affect the temperature otherwise maintained by the air conditioning
equipment, Landlord reserves the right to install supplementary air
conditioning units in the leased premises (or for the use of the leased
premises) and the expense of such purchase, installation, maintenance, and
repair shall be paid by Tenant upon demand as additional rent.
B. Landlord shall provide janitorial services five (5) nights a
week by a janitorial contractor or employees at all times satisfactory to
Landlord and the Tenant.
7. USE OF PREMISES.
A. Tenant will not occupy or use, nor permit any portion of leased
premises to be occupied or used, for any business or purpose other than
that described above or for any use or purpose which is unlawful in part or
in whole or deemed to be disreputable in any manner, or extra hazardous on
account of fire, nor permit anything to be done which will render void or
in any way increase the rate of fire insurance on the Building or its
contents, and Tenant shall upon notification immediately cease and desist
from such use, paying all costs and expenses resulting therefrom.
B. Tenant shall at its own cost and expense promptly obtain any
and all licenses and permits necessary for any permitted use. Tenant shall
comply with all governmental laws, ordinances and regulations applicable to
the use and its occupancy of the leased premises, and shall promptly comply
with all governmental orders and directives for the correction, prevention
and abatement of any violations or nuisances in or upon, or connected with,
the leased premises, all at Tenant's sole expense. If, as a result of any
change in the governmental laws, ordinances, and regulations, the leased
premises must be altered to lawfully accommodate Tenant's use and
occupancy, such alterations shall be made only with the consent of
Landlord, but the entire cost shall be borne by Tenant; provided, that, the
necessity of Landlord's consent shall in no way create any liability
against Landlord for failure of Tenant to comply with such laws, ordinances
<PAGE>
and regulations. Tenant shall not be responsible for the cost of any
alteration to comply with the Americans with Disabilities Act and the
regulations issued thereunder.
C. Tenant will maintain the Leased Premises (including all
fixtures installed by Tenant, water heaters within the leased premises and
plate glass) in good repair, reasonable wear and tear excepted, and in a
clean and healthful condition, and comply with all laws, ordinances,
orders, rules, and regulations (state, federal, municipal, and other
agencies or bodies having any jurisdiction thereof) with reference to
condition, or occupancy of the leased premises. Any repairs or
replacements shall be with materials and workmanship of the same character,
kind and quality as the original. Tenant will not, without the prior
written consent of Landlord, such consent not to be unreasonably withheld,
paint, install lighting or decorations, or install any signs, window or
door lettering or advertising media of any type on or about the leased
premises.
D. Tenant will conduct its business and control its agents,
employees and invitees in such a manner as not to create any nuisance, nor
interfere with, annoy, or disturb other tenants or Landlord in the
management of the Building.
E. Tenant shall pay upon demand as additional rent the full cost
of repairing any damage to the leased premises, Building or related
facilities resulting from and/or caused in whole or in part by the
negligence or misconduct of Tenant, its agents, servants, employees,
patrons, customers, or any other person entering upon the Development as a
result of Tenant's business activities or resulting from Tenant's default
hereunder.
F. At termination of this Lease, upon its expiration or otherwise,
Tenant shall deliver the leased premises with all improvements located
thereon (except as herein provided) in good repair and condition,
reasonable wear and tear excepted, broom clean, and free from all debris.
8. INSPECTIONS.
Landlord shall have the right to enter the leased premises at any
reasonable time, with prior notice except in the event of an emergency, for
the following purposes: (i) to ascertain the condition of the leased
premises; (ii) to determine whether Tenant is diligently fulfilling
Tenant's responsibilities under this Lease; (iii) to clean and to make such
repairs as may be required or permitted to be made by Landlord under the
terms of this Lease; or (iv) to do any other act or thing which Landlord
deems reasonable to preserve the leased premises and the Building. During
the six (6) months prior to the end of the term hereof and at any time
Tenant is in default hereunder, Landlord shall have the right to enter the
leased premises with prior notice during business hours for the purpose of
showing the premises. Tenant shall give written notice to Landlord at
least thirty (30) days prior to vacating and shall arrange to meet with
Landlord for a joint inspection of the leased premises. In the event of
Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the leased premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
<PAGE>
9. ASSIGNMENT AND SUBLETTING
A. Tenant shall not have the right to assign or pledge this Lease
or to sublet the whole or any part of the leased premises, whether
voluntarily or by operation of law, or permit the use or occupancy of the
leased premises by anyone other than Tenant, without the prior written
consent of Landlord, such consent not to be unreasonably withheld, and such
restrictions shall be binding upon any assignee or subtenant to which
Landlord has consented. In the event Tenant desires to sublet the leased
premises, or any portion thereof, or assign this Lease, Tenant shall give
written notice thereof to Landlord within a reasonable time prior to the
proposed commencement date of such subletting or assignment, which notice
shall set forth the name of the proposed subtenant or assignee, the
relevant terms of any sublease and copies of financial reports and other
relevant financial information of the proposed subtenant or assignee. In
no event may Tenant sublet, nor will Landlord consent to any sublease of,
all or any portion of the leased premises if the rent is determined in
whole or in part based upon the income or profits derived by the sublessee
(other than a rent based on a fixed percentage or percentages of receipts
or sales). Notwithstanding any permitted assignment or subletting, Tenant
shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent herein specified and for compliance with
all of its other obligations under the terms, provisions and covenants of
his Lease. Upon the occurrence of an "event of default" (as hereinafter
defined), if the leased premises or any part thereof are then assigned or
sublet, Landlord, in addition to any other remedies herein provided or
provided by law, may, at its option, collect directly from such assignee or
subtenant all rents due and becoming due to Tenant under such assignment or
sublease and apply such rent against any sums due to Landlord from Tenant
hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder. Tenant shall pay to Landlord, on demand, a
reasonable service charge for the processing of the application for the
consent and for the preparation of the consent. Such service charge shall
be collectible by Landlord only where consent is granted by Landlord.
B. In addition to, but not in limitation of, Landlord's right to
approve of any subtenant or assignee, Landlord shall have the option, in
its sole discretion, in the event of any proposed subletting or assignment,
to terminate this Lease, or in the case of a proposed subletting of less
than the entire leased premises, to recapture the portion of the leased
premises to be sublet, as of the date the subletting or assignment is to be
effective. The option shall be exercised, if at all, by Landlord giving
Tenant written notice thereof within sixty (60) days following Landlord's
receipt of Tenant's written notice as required above. If this Lease shall
be terminated with respect to the entire leased premises pursuant to this
paragraph, the term of this Lease shall end on the date stated in Tenant's
notice as the effective date of the sublease or assignment as if that date
had been originally fixed in this Lease for the expiration of the term
hereof. If Landlord recaptures under this paragraph only a portion of the
leased premises, the rent during the unexpired term shall abate
proportionately based on the rent contained in this Lease as of the date
immediately prior to such recapture. Tenant shall, at Tenant's own cost and
expense, discharge in full any commission obligation which may be due and
owing as a result of any assignment or subletting, whether or not the
leased premises are recaptured pursuant hereto and rented by Landlord to
the proposed tenant or any other tenant. In the event of the recapture of
a portion of the leased premises by Landlord pursuant to the terms of this
paragraph, Tenant shall pay all costs associated with the separation of the
recaptured premises from the portion not recaptured, including, but without
<PAGE>
limitation, the cost of all demising partitions, changes in lighting and
HVAC distribution systems and all reasonable architectural and/or
engineering fees.
C. Any assignment or subletting by Tenant pursuant to subparagraph
9A of all or any portion of the leased premises, or termination of the
Lease for a portion of the leased premises pursuant to subparagraph 9B,
shall automatically operate to terminate each and every right, option, or
election, if any exist, belonging to Tenant, including by way of
illustration, but not limitation, any option to expand its premises or to
extend or renew the term of Tenant's Lease for all or any portion of the
leased premises - i.e., such rights and options shall cease as to both
space sublet or assigned and as to any portion of the original leased
premises retained by Tenant.
D. Notwithstanding the terms of 9A-C above, Tenant shall have the
right to sublet all or any portion of the Premises to any wholly owned
subsidiary or affiliate of Tenant.
10. FIRE AND CASUALTY DAMAGE.
A. If the Building, Improvements, or leased premises are rendered
partially or wholly untenantable by fire or other casualty, and if such
damage cannot, in Landlord's reasonable estimation, be materially restored
within ninety (90) days of such damage, then Landlord or Tenant may, at its
sole option, terminate this Lease as of the date of such fire or casualty.
Landlord or Tenant shall exercise its option provided herein by written
notice within sixty (60) days of such fire or other casualty. For purposes
hereof, the Building or leased premises shall be deemed "materially
restored" if they are in such condition as would not prevent or materially
interfere with Tenant's use of the leased premises for the purpose for
which it was then being used.
B. If this Lease is not terminated pursuant to Paragraph 10A, then
Landlord shall proceed with all due diligence to repair and restore the
Building, improvements or leased premises, as the case may be (except that
Landlord may elect not to rebuild if such damage occurs during the last
year of the term exclusive of any option which is unexercised at the date
of such damage).
C. If this Lease shall be terminated pursuant to this Paragraph
10, the term of this Lease shall end on the date of such damage as if that
date had been originally fixed in this Lease for the expiration of the term
hereof. If this Lease shall not be terminated by Landlord pursuant to this
Paragraph 10 and if the leased premises is untenantable in whole or in part
following such damage, the rent payable during the period in which the
leased premises is untenantable shall be reduced to such extent, if any, as
may be fair and reasonable under all of the circumstances. In the event
that Landlord should fail to complete such repairs and material restoration
within one hundred fifty (150) days after the date of such damage, Tenant
may at its option and as its sole remedy terminate this Lease by delivering
written notice to Landlord, whereupon the Lease shall end on the date of
such notice as if the date of such notice were the date originally fixed in
this Lease for the expiration of the term hereof; provided, however, that
if construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of
God, war, material or labor shortages, governmental regulation or control
<PAGE>
or other causes beyond the reasonable control of Landlord, the period for
restoration, repair or rebuilding shall be extended for the amount of time
Landlord is so delayed.
In no event shall Landlord be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements
which may have been placed in or about the leased premises by Tenant.
Except as otherwise provided by Paragraph 11, any insurance which may be
carried by Landlord or Tenant against loss or damage to the Building or
leased premises shall be for the sole benefit of the party carrying such
insurance and under its sole control.
D. Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed of trust
covering the leased premises, Building or Property requires that any
insurance proceeds be applied to such indebtedness, then Landlord shall
have the right to terminate this Lease by delivering written notice of
termination to Tenant within fifteen (15) days after such requirement is
made by any such holder, whereupon the Lease shall end on the date of such
damage as if the date of such damage were the date originally fixed in this
Lease for the expiration of the term hereof.
E. Each of Landlord and Tenant hereby releases the other from any
and all liability or responsibility to the other or anyone claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire, extended coverage perils, vandalism or malicious
mischief, sprinkler leakage or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have
been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible, including any other tenants or
occupants of the remainder of the Building in which the leased premises is
located; provided, however, that this release shall be applicable and in
force and effect only to the extent that such release shall be lawful at
that time and in any event only with respect to loss or damage occurring
during such times as the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect
or impair said policies or prejudice the right of the releasor to recover
thereunder and then only to the extent of the insurance proceeds payable
under such policies. Each Landlord and Tenant agrees that it will request
its insurance carriers to include in its policies such a clause or
endorsement. If extra cost shall be charged therefor, each party shall
advise the other thereof and of the amount of the extra cost, and the other
party, at its election, may pay the same, but shall not be obligated to do
so. If such other party fails to pay such extra cost, the release
provisions of this paragraph shall be inoperative against such other party
to the extent necessary to avoid invalidation of such releasor's insurance.
F. In the event of any damage or destruction to the Building or
the leased premises by any peril covered by the provisions of this
Paragraph 10, Tenant shall, upon notice from Landlord, remove forthwith, at
its sole cost and expense, such portion or all of the property belonging to
Tenant or his licensees from such portion or all of the Building or the
leased premises as Landlord shall request and Tenant hereby indemnifies and
<PAGE>
holds Landlord harmless from any loss, liability, costs, and expenses,
including attorney's fees, arising out of any claim of damage or injury as
a result of any alleged failure to properly secure the leased premises
prior to such removal and/or such removal.
11. LIABILITY.
Landlord shall not be liable for and Tenant will indemnify and hold
Landlord harmless from any loss, liability, costs and expenses, including
attorney's fees, arising out of any claim of injury or damage on or about
the leased premises caused by the negligence or misconduct or breach of
this Lease by Tenant, its employees, subtenants, invitees or by any other
person entering the leased premises or the Building or Development under
express or implied invitation of Tenant or arising out of Tenant's use of
the leased premises. Landlord shall not be liable to Tenant or Tenant's
agents, employees, invitees or any person entering upon the Development in
whole or in part because of Tenant's use of the leased premises for any
damage to persons or property due to condition, design, or defect in the
Building or its mechanical systems which may exist or occur, except as a
result of Landlord's willful acts or negligence, and Tenant assumes all
other risks of damage to such persons or property. Landlord shall not be
liable or responsible for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot,
strike, insurrection, war, court order, requisition or order of
governmental body or authority, or other matter beyond control of Landlord,
or for any injury or damage or inconvenience, which may arise through
repair or alteration of any part of the Building, or failure to make
repairs, or from any cause whatever except Landlord's willful acts or
negligence. Tenant shall procure and maintain throughout the term of this
Lease a policy of insurance, in form and substance satisfactory to
Landlord, at Tenant's sole cost and expense, insuring both Landlord and
Tenant against all claims, demands or actions arising out of or in
connection with: (i) the leased premises; (ii) the condition of the leased
premises; (iii) Tenant's operations in and maintenance and use of the
leased premises; and (iv) Tenant's liability assumed under this Lease; the
limits of such policy to be in the amount of not less than $1,000,000 per
occurrence in respect of injury to persons (including death) and in the
amount of not less than $500,000 per occurrence in respect of property
damage or destruction, including loss of use thereof. Such policy shall be
procured by Tenant from responsible insurance companies satisfactory to
Landlord. A certified copy of such policy, together with receipt
evidencing payment of the premium, shall be delivered to Landlord prior to
the commencement of this Lease. Not less than thirty (30) days prior to
the expiration date of such policy, a certified copy of a renewal thereof
(bearing notations evidencing the payment of the renewal premium) shall be
delivered to Landlord. Such policy shall further provide that not less
than thirty (30) days written notice shall be given to Landlord before such
policy may be canceled or changed to reduce the insurance coverage provided
thereby.
12. CONDEMNATION.
A. If any substantial part of the Building, improvements, or
leased premises should be taken for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof and the taking would prevent or
materially interfere with the use of the Building or leased premises for
the purpose for which it is then being used, this Lease shall terminate
effective when the physical undertaking shall occur in the same manner as
<PAGE>
if the date of such taking were the date originally fixed in this Lease for
the expiration of the term hereof.
B. If part of the Building, improvements, or leased premises shall
be taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and this Lease is not terminated as provided in
the subparagraph above, this Lease shall not terminate but the rent payable
hereunder during the unexpired portion of this Lease shall be reduced to
such extent, if any, as may be fair and reasonable under all of the
circumstances and Landlord shall undertake to restore the Building,
improvements, and leased premises to a condition suitable for Tenant's use,
as near to the condition thereof immediately prior to such taking as is
reasonably feasible under all the circumstances.
C. In the event of any such taking or private purchase in lieu
thereof, Landlord and Tenant shall each be entitled to receive and retain
such separate awards and/or portion of lump sum awards as may be allocated
to their respective interests in any condemnation proceedings; provided
that Tenant shall not be entitled to receive any award for Tenant's loss of
its leasehold interest, the right to such award being hereby assigned by
Tenant to Landlord.
13. HOLDING OVER.
Tenant, will at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the leased premises or any part thereof after such
termination, then Landlord may, at its option, serve written notice upon
Tenant that such holding over constitutes any one of (i) renewal of this
Lease for one year, and from year to year thereafter, or (ii) creation of a
month to month tenancy, upon the terms and conditions set forth in this
Lease, or (iii) creation of a tenancy at sufferance, in any case upon the
terms and conditions set forth in this Lease; provided however, that the
monthly rental (or daily rental under (iii)) shall, in addition to all
other sums which are to paid by Tenant hereunder, whether or not as
additional rent, be equal to double the rental being paid monthly to
Landlord under this Lease immediately prior to such termination (prorated
in the case of (iii) on the basis of a 365 day year for each day Tenant
remains in possession). If no such notice is served, then a tenancy at
sufferance shall be deemed to be created at the rent in the preceding
sentence. Tenant shall also pay to Landlord all damages sustained by
Landlord resulting from retention of possession by Tenant, including the
loss of any proposed subsequent tenant for any portion of the leased
premises. The provisions of this paragraph shall not constitute a waiver
by Landlord of any right of re-entry as herein set forth; nor shall receipt
of any rent or any other act in apparent affirmance of the tenancy operate
as a waiver of the right to terminate this Lease for a breach of any of the
terms covenants, or obligations herein on Tenant's part to be performed.
14. QUIET ENJOYMENT.
Landlord represents that it has full right and authority to enter
into this Lease and that Tenant, while paying the rental and performing its
other covenants and agreements herein set forth, shall peaceably and
quietly have, hold and enjoy the leased premises for the term hereof
without hindrance or molestation from Landlord subject to the terms and
<PAGE>
provisions of this Lease. Landlord shall not be liable for any
interference or disturbance by other tenants or third persons, nor shall
Tenant be released from any of the obligations of this Lease because of
such interference or disturbance.
15. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, whether such sum be any
installment of the rent herein reserved, any other amount treated as
additional rent hereunder, or any other payment or reimbursement to
Landlord required herein, whether or not treated as additional rent
hereunder, and such failure shall continue for a period of five ( 5) days
from the date such payment was due; or
(b) Tenant shall fail to comply with any term, provision or
covenant of this Lease other than by failing to pay when or before due any
sum of money becoming due to be paid to Landlord hereunder, and shall not
cure such failure within thirty (30) days (forthwith, if the default
involves a hazardous condition) after written notice thereof to Tenant, or
if such cure cannot be effected within such thirty (30) day period, if
Tenant shall fail to commence such cure within such thirty (30) day period
and diligently prosecute such cure to completion; or
(c) Tenant shall fail to vacate the leased premises immediately
upon termination of this Lease, by lapse of time or otherwise, or upon
termination of Tenant's right to possession only; or
(d) The leasehold interest of Tenant shall be levied upon under
execution or be attached by process of law or Tenant shall fail to contest
diligently the validity of any lien or claimed lien and give sufficient
security to Landlord to insure payment thereof or shall fail to satisfy any
judgment rendered thereon and have the same released, and such default
shall continue for ten (10) days after written notice thereof to Tenant; or
(e) Tenant shall file a petition in bankruptcy, a petition to take
advantage of any insolvency statute, make an assignment for the benefit of
creditors, make a transfer in fraud of creditors, apply for or consent to
the appointment of a receiver of itself or of the whole or any substantial
part of its property, or file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws, as now in effect or
hereafter amended, or any other applicable law or statute of the United
States or any state thereof; or
(f) A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant a bankrupt, or appointing a receiver
of Tenant, or of the whole or any substantial part of its property, without
the consent of the Tenant, or approving a petition filed against Tenant
seeking reorganization or arrangement of Tenant under the bankruptcy laws
of the United States, as now in effect hereafter amended, or any state
thereof, and such order, judgment or decree shall not be vacated or set
aside or stayed within thirty (30) days from the date of entry thereof, or
<PAGE>
(g) Tenant shall abandon or vacate any substantial portion of the
leased premises
16. REMEDIES.
Upon the occurrence of any such events of default described in
Paragraph 15 hereof or elsewhere in this Lease, Landlord shall have the
option to pursue any one or more of the following remedies with notice:
(a) Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease;
(b) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
leased premises immediately, and deliver possession thereof to Landlord,
and Tenant hereby grants to Landlord license to enter into and upon the
leased premises in such event with or without process of law and to
repossess Landlord of the leased premises as Landlord's estate and to expel
or remove Tenant and any others who may be occupying or within the leased
premises and or remove any and all property therefrom, without being deemed
in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom,
Tenant hereby waiving any right to claim damage for such reentry and
expulsion, and without relinquishing Landlord's rights to rent or any other
right given to Landlord hereunder or by operation of law;
(c) Upon any termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent,
including any amounts treated as additional rent hereunder, and other sums
due and payable by Tenant on the date of termination, plus the sum of (i)
an amount equal to the then present value of the rent, including any
amounts treated as additional rent hereunder, and other sums provided
herein to be paid by Tenant for the residue of the stated term hereof, less
the fair rental value of the leased premises for such residue (taking into
account the time and expense necessary to obtain a replacement tenant or
tenants, including expenses hereinafter described in subparagraph (d)
relating to recovery of the leased premises, preparation for reletting and
for reletting itself), and (ii) the cost of performing any other covenants
which would have otherwise been performed by Tenant;
(d) (i) Upon any termination of Tenant's right to possession only
without termination of the Lease, Landlord may, at Landlord's option, enter
into the leased premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as provided in subparagraph
(b) above, without such entry and possession terminating the Lease or
releasing Tenant, in whole or in part, from any obligation, including
Tenant's obligation to pay the rent, including any amounts treated as
additional rent, hereunder for the full term. In any such case, Tenant
shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the
entire amount of the rent, including any amounts treated as additional rent
hereunder, for the residue of the stated term hereof plus any other sums
provided herein to be paid by Tenant for the remainder of the Lease term;
<PAGE>
(ii) Landlord may, but need not, relet the leased
premises or any part thereof for such rent and upon such terms as Landlord
in its sole discretion, shall determine (including the right to relet the
premises for a greater or lesser term than that remaining under this Lease,
the right to relet the leased premises as a part of a larger area, and the
right to change the character or use made of the leased premises). If
Landlord decides to relet the leased premises or a duty to relet is imposed
upon Landlord by law, Landlord and Tenant agree that Landlord shall only be
required to use the same efforts Landlord then uses to lease other
properties Landlord owns or manages (or if the leased premises is then
managed for Landlord, then Landlord will instruct such manager to use the
same efforts such manager then uses to lease other space or properties
which it owns or manages); provided however, that Landlord (or its manager)
shall not be required to give any preference or priority to the showing or
leasing of the leased premises over any other space that Landlord (or its
manager) may be leasing or have available and may place a suitable
prospective tenant in any such available space regardless of when such
alternative space becomes available; provided further, that Landlord shall
not be required to observe any instruction given by Tenant about such
reletting or accept any tenant offered by Tenant unless such offered
tenant has a creditworthiness acceptable to Landlord, leases the entire
leased premises, agrees to use the leased premises in a manner consistent
with the Lease and leases the leased premises at the same rent and on the
same terms and conditions as in this Lease without the expenditure of the
Landlord for tenant improvements or broker's commissions. In any such
case, Landlord may, but shall not be required to make repairs, alterations
and additions in or to the leased premises and redecorate the same to the
extent Landlord deems necessary or desirable, and Tenant shall, upon
demand, pay the cost thereof, together with Landlord's expenses of
reletting, including without limitation, any broker's commission incurred
by Landlord. If the consideration collected by Landlord upon any such
reletting plus any sums previously collected from Tenant are not sufficient
to pay the full amount of all rent, including any amounts treated as
additional rent hereunder and other sums reserved in this Lease for the
remaining term hereof, together with the cost of repairs, alterations,
additions, redecorating, and Landlord's expenses of reletting and the
collection of the rent accruing therefrom (including attorney's fee and
broker's commission), Tenant shall pay to Landlord the amount of such
deficiency upon demand and Tenant agrees that Landlord may file suit to
recover sums falling due under this section from time to time;
(e) Landlord may, at Landlord's option, enter into and upon the
leased premises, with or without process of law, if Landlord determines in
its sole discretion that Tenant is not acting within a commercially
reasonable time to maintain, repair or replace anything for which Tenant is
responsible hereunder and correct the same, without being deemed in any
manner guilty of trespass, eviction of forcible entry and detainer and
without incurring any liability for any damage resulting therefrom and
Tenant agrees to reimburse Landlord, on demand, as additional rent, for any
expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease;
(f) Any and all property which may be removed from the leased
premises by Landlord pursuant to the authority of the Lease or of law, to
which Tenant is or may be entitled, may be handled, removed and stored, as
the case may be, by or at the discretion of Landlord at the risk, cost and
<PAGE>
expense of Tenant, and Landlord shall in no event be responsible for the
value, preservation or safekeeping thereof. Tenant shall pay to Landlord,
upon demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in Landlord's
possession or under Landlord's control. Any such property of Tenant not
retaken by Tenant from storage within thirty (30) days after removal from
the leased premises shall, at Landlord's option, be deemed conveyed by
Tenant to Landlord under this Lease as by a bill of sale without further
payment or credit by Landlord to Tenant.
In the event Tenant fails to pay any installment of rent, including
any amount treated as additional rent hereunder, or other sums hereunder as
and when such installment or other charge is due, Tenant shall pay to
Landlord on demand a late charge in an amount equal to five percent (5%) of
such installment or other charge overdue in any month to help defray the
additional cost to Landlord for processing such late payments, and such
late charge shall be additional rent hereunder and the failure to pay such
charge within ten (10) days after demand therefor shall be an additional
event of default hereunder. Late charges shall not accumulate monthly for
any single default. The provision of such late charge shall be in addition
to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's
remedies in any matter.
Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided
by law (all such remedies being cumulative), nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, provisions, covenants herein contained. No
act or thing done by Landlord or its agents during the term hereby granted
shall be deemed a termination of this Lease or an acceptance of the
surrender of the leased premises, and no agreement to terminate this Lease
or accept a surrender of said premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord of any violation or breach of
any of the terms, provisions and covenants herein contained shall be deemed
or construed to constitute a waiver of any other violation or breach of any
of the terms, provisions and covenants herein contained. Landlord's
acceptance of the payment of rental or other payments hereunder after the
occurrence of an event of default shall not be construed as a waiver of
such default, unless Landlord so notifies Tenant in writing. Forbearance
by Landlord in enforcing one or more of the remedies herein provided upon
an event of default shall not be deemed or construed to constitute a waiver
of such default of Landlord's right to enforce any such remedies with
respect to such default or any subsequent default. If, on account of any
breach or default by Tenant in Tenant's obligations under the terms and
conditions of this Lease, it shall become necessary or appropriate for
Landlord to employ or consult with an attorney concerning or to enforce or
defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay
any attorney's fees so incurred.
17. LANDLORD'S LIENS.
In addition to any statutory lien for rent in Landlord's favor,
Landlord shall have and Tenant hereby grants to Landlord a continuing
security interest for all rentals and other sums of money becoming due
hereunder from tenant, upon all goods, wares, equipment, fixtures,
furniture, and other tangible personal property of Tenant situated on the
<PAGE>
leased premises, and such property shall not be removed therefrom without
the consent of Landlord until all arrearages in rent as well as any and all
other sums of money then due to Landlord hereunder shall first have been
paid and discharged. In the event of a default under this Lease, Landlord
SHALL HAVE, IN ADDITION TO ANY OTHER REMEDIES PROVIDED HEREIN OR BY LAW,
ALL RIGHTS AND REMEDIES UNDER THE UNIFORM COMMERCIAL CODE, INCLUDING
WITHOUT LIMITATION THE RIGHT TO SELL THE PROPERTY DESCRIBED IN THIS
PARAGRAPH 17 AT PUBLIC OR PRIVATE SALE UPON FIVE (5) DAYS' NOTICE TO
TENANT. Tenant hereby agrees to execute such financing statements and
other instruments necessary or desirable in Landlord's discretion to
percent the security interest hereby created. Any statutory lien for rent
is not hereby waived, the express contractual lien herein granted being in
addition and supplementary thereto.
18. MORTGAGES.
Tenant accepts this Lease subject and subordinate to any mortgage(s)
and deeds of trust now or at any time hereafter constituting a first lien
or charge upon the Property, or the improvements situated thereon,
provided, however, that if the mortgagee, trustee, or holder of any such
mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such
mortgagee, trustee, or trust deed holder, this Lease shall be deemed
superior to such lien whether this Lease was executed before or after said
mortgage or deed of trust so long as such mortgagee, trust deed holder or
trustee enters into a non-disturbance agreement with Tenant in form and
substance satisfactory to Tenant pursuant to which such mortgagee, trust
deed holder or trustee agrees, not to disturb Tenant's possession of the
Premises so long as Tenant is not in default hereunder (after any
applicable notice and/or cure periods). Tenant shall at any time hereafter
on demand execute any instruments, releases or other documents which may be
reasonably required by any such mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage, as may be the
case, but for no other purpose whatsoever (and Tenant expressly disclaims
any obligation to modify the terms of this Lease, to give the mortgagee,
trust deed holder or trustee copies of any notices delivered to Landlord,
or to waive any claims which Tenant may then have or which may arise
thereafter against Landlord or such mortgagee, trust deed holder or
trustee), and provided that such mortgagee, trust deed holder or trustee
enters into a non-disturbance agreement with Tenant as required pursuant to
the preceding sentence.
At the request of either Tenant or Landlord, a short-form or
memorandum of this Lease shall be signed by each party and filed with the
Cook County Recorder of Deeds.
19. INTENTIONALLY DELETED.
20. MECHANIC'S AND OTHER LIENS.
Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in
any manner to bind, the interest of Landlord in the leased premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs, and each such claim shall affect and
<PAGE>
each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this Lease. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account
of any labor performed or materials furnished in connection with any work
performed on the leased premises on which any lien is or can be validly and
legally asserted against its leasehold interest in the leased premises or
the improvements thereon and that it will save and hold Landlord harmless
from any and all loss, liability, cost or expense based on or arising out
of asserted claims or liens against the leasehold estate or against the
right, title and interest of the Landlord in the leased premises or under
the terms of this Lease. Tenant will not permit any mechanic's lien or
liens or any other liens which may be imposed by law affecting Landlord's
or its mortgagees' interest in the leased premises or the Building to be
placed upon the leased premises or the Building arising out of any action
or claimed action by Tenant, and in case of the filing of such lien Tenant
will promptly pay same. If any such lien shall remain in force and effect
for twenty (20) days after written notice thereof from Landlord to Tenant,
Landlord shall have the right and privilege of paying and discharging the
same or any portion thereof without inquiry as to the validity thereof, and
amounts so paid, including expenses and interest, shall be so much
additional rent hereunder due from Tenant to Landlord and shall be paid to
Landlord immediately on rendition of bill therefor. Notwithstanding the
foregoing, Tenant shall have the right to contest any such lien in good
faith and with all due diligence so long as any such contest, or action and
any such mortgagee are, by the expiration of said twenty (20) day period,
the Tenant has furnished such protection, and indemnification against any
loss, liability, cost or expense related to any such lien and the contest
thereof as are satisfactory to Landlord and any such mortgagee.
21. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to the
sending, mailing or delivery of any notice or the making of any payment
shall be deemed to be complied with when and if the following steps are
taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to The John Harvey Family Trust, or to
such other entity at such other address as Landlord may specify from time
to time by written notice delivered in accordance herewith.
(b) Any notice or other document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when: (i) delivered by personal service; (ii) transmitted
by confirmed facsimile; or (iii) deposited in the continental United States
Mail, postage prepaid, certified or registered mail, addressed to the
parties hereto at the respective addresses set out below, or at such other
addresses as they have theretofore specified by written notice delivered in
accordance herewith;
LANDLORD: The John Harvey Family Trust
c/o Peter R. Harvey
500 Central Avenue
Northfield, Illinois 60093
<PAGE>
TENANT: Entrade, Inc.
500 N. Central Avenue, Suite 150
Northfield, IL 60093
All parties included within the terms "Landlord" and "Tenant,"
respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received
such notice.
22. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in
this Lease shall apply to, inure to the benefit of, and be binding upon,
the parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise expressly provided
herein. Landlord shall have the right to assign any of its rights and
obligations under this Lease and Landlord's grantee and Landlord's
successor shall upon such assignment become "Landlord" hereunder; thereby
freeing and relieving the grantor and assignor of all covenants and
obligations of "Landlord" hereunder, provided however, that no successor
Landlord shall be responsible for the return of any security deposit
provided for pursuant to Paragraph 2B unless such successor receives the
deposit. Tenant agrees to furnish promptly on demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of Tenant to enter into this
Lease. Nothing herein contained shall give any other tenant in the
Building of which the leased premises is a part any enforceable rights
either against Landlord or Tenant as a result of the covenants and
obligations of either party set forth herein.
C. The captions inserted in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof.
D. Tenant shall at any time and from time to time within ten (10)
days after written request from Landlord execute and deliver to Landlord or
any prospective Landlord or mortgagee or prospective mortgagee a sworn and
acknowledged estoppel certificate, in form reasonably satisfactory to
Landlord and/or Landlord's mortgagee or prospective mortgagee certifying
and stating as follows: (i) this Lease has not been modified or amended
(or if modified or amended, setting forth such modifications or
amendments); (ii) this Lease (as so modified or amended) is in full force
and effect (or if not in full force and effect, the reasons therefor);
(iii) the Tenant has no offsets or defenses to its performance of the
terms and provisions of this Lease, including the payment of rent (or if
there are any such defenses or offsets, specifying the same); (iv) Tenant
is in possession of the leased premises, if such be the case; (v) if an
assignment of rents or leases has been served upon Tenant by a mortgagee or
a prospective mortgagee, Tenant has received such assignment and agrees to
be bound by the provisions thereof; and (vi) any other accurate statements
reasonably required by Landlord or its mortgagee or prospective mortgagee.
It is intended that any such statement delivered pursuant to this
subsection may be relied upon by any prospective purchaser or mortgagee and
their respective successors and assigns and Tenant shall be liable for all
<PAGE>
loss, cost or expense resulting from the failure of any sale or funding of
any loan caused by any material misstatement contained in such estoppel
certificate.
E. This Lease may not be altered, changed or amended except by a
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof, including
without limitation, all payment obligations with respect to taxes, and all
obligations concerning the condition of the premises. Upon the expiration
or earlier termination of the term hereof, Tenant shall pay to Landlord the
amount, as estimated by Landlord, necessary: (i) to repair and restore the
leased premises as provided herein; and (ii) to discharge the Tenant's
obligation for unpaid real estate taxes and other amounts due Landlord.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant, with Tenant being liable for any additional costs
upon demand by Landlord, or with any excess to be returned to Tenant after
all such obligations have been determined and satisfied. Any security
deposit held by Landlord shall be credited against the amount payable by
Tenant under this subparagraph 22f.
G. If any clause, phrase, provision or portion of this Lease or
the application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not effect, impair or
render invalid or unenforceable the remainder of this Lease nor any other
clause, phrase, provision or portion hereof, nor shall it affect the
application of any clause, phrase, provision or portion hereof to other
persons or circumstances, and it is also the intention of the parties to
this Lease that in lieu of each such clause, phrase provision or portion of
this Lease that is invalid or unenforceable, there be added as a part of
this Lease contract a clause, phrase, provision or portions as similar in
terms to such invalid or unenforceable clause, phrase, provision or portion
as may be possible and be valid and enforceable.
H. Whenever a period of time is herein prescribed for action to be
taken by Landlord, the Landlord shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time,
any delays due to causes of any kind whatsoever which are beyond the
control of the Landlord.
I. Intentionally Omitted
J. Each of the parties (i) represents and warrants to the other
that it has not dealt with any broker or finder in connection with this
Lease and (ii) indemnifies and holds the other harmless from any and all
losses, liability, costs or expenses (including attorney's fees) incurred
as a result of an alleged breach of the foregoing warranty.
<PAGE>
23. CERTAIN RIGHTS RESERVED TO THE LANDLORD.
The Landlord reserves and may exercise the following rights without
affecting Tenant's obligations hereunder:
(a) to change the name or street address of the Building;
(b) to install and maintain a sign or signs on the exterior of the
Building;
(c) to have access for the Landlord and the other tenants of the
Building to any mail chutes located on the leased premises according to the
rules of the United States Post Office;
(d) to reasonably approve all sources furnishing sign painting and
lettering, ice, drinking water, towels, coffee cart service and toilet
supplies, lamps and bulbs used on the leased premises;
(e) to retain at all times pass keys to the leased premises;
(f) to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building;
(g) to close the Building after regular working hours and on the
legal holidays subject, however, to Tenant's right to admittance, under
such reasonable regulations as Landlord may prescribe from time to time,
which may include by way of example but not of limitation, that persons
entering or leaving the Building identify themselves to a watchman by
registration or otherwise and that said persons establish their right to
enter or leave the Building;
(h) to take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the leased premises
or to the Building, as may be necessary or desirable for the safety,
protection or preservation of the leased premises or the Building or the
Landlord's interests, or as may be necessary or desirable in the operation
of the Building; and
(i) to add, remove or modify buildings, roadways, walkways,
landscaping, lakes, grading and other improvements in or to the
Development.
The Landlord may enter upon the leased premises and may exercise any
or all of the foregoing rights hereby reserved without being deemed guilty
of an eviction or disturbance of the Tenant's use or possession and without
being liable in any manner to the Tenant and without abatement of rent or
affecting any of the Tenant's obligations hereunder.
24. TRUSTEE'S EXCULPATION.
It is expressly understood and agreed that nothing in this Lease
contained shall be construed as creating any liability whatsoever against
the Landlord, or its successors and assigns, personally, and in particular
without limiting the generality of the foregoing, there shall be no
personal liability to pay any indebtedness accruing hereunder or to perform
<PAGE>
any covenant, either express or implied, herein contained, and that all
personal liability of Landlord, or its successors and assigns, of every
sort, if any, is hereby expressly waived by Tenant, and every person now or
hereafter claiming any right or security hereunder, and that so far as said
Trustee or its beneficiary, or their successors or assigns, is concerned
the owner of any indebtedness or liability accruing hereunder shall look
solely to the premises hereby leased for the payment thereof.
EXECUTED as of the 30th day of December 1999.
TENANT:
ATTEST/WITNESS: ENTRADE, INC.:
By: _________________________ By: /s/ Mark Santacrose
--------------------------
Title: _________________________ Title: President
--------------------------
LANDLORD:
ATTEST/WITNESS: The John Harvey Family Trust
By: _______________________________ By: /s/ John Harvey
--------------------------
Title:______________________________ Title: Trustee
--------------------------
<PAGE>
EXHIBIT 1B
LEGAL DESCRIPTION
LOT "A" IN K. AND E. RESUBDIVISION OF LOTS 1 TO 9, BOTH INCLUSIVE, AND
LOTS 20, 21 AND 22 IN BLOCK 7 OF UNITED REALTY CO'S FIRST ADDITION TO
WILLOWCREST A SUBDIVISION OF THOSE PARTS OF THE NORTHEAST 1/4 OF THE
NORTHEAST 1/4 OF SECTION 24,, TOWNSHIP 42 NORTH, RANGE 12 EAST OF THE THIRD
PRINCIPAL MERIDIAN, AND THE NORTH 1/2 OF THE SOUTHEAST 1/4 OF THE NORTHEAST
1/4 OF SAID SECTION 24 LYING EAST OF THE RIGHT OF WAY OF PUBLIC SERVICE
COMPANY OF NORTHERN ILLINOIS ALSO SAID OF THE VACATED ALLEY LYING WEST OF
AND ADJOINING LOTS I TO 6, BOTH INCLUSIVE, AND EAST OF THE ADJOINING LOTS 7
AND 22 IN BLOCK 7 AFORESAID, ALL ACCORDING TO THE PLAT THEREOF RECORDED
JANUARY 17, 1961 AS DOCUMENT NUMBER 18064007, IN COOK COUNTY, ILLINOIS
<PAGE>
EXHIBIT 1A
FLOOR PLAN
EXHIBIT 10.2
- ------------
LEASE AGREEMENT
500 CENTRAL AVENUE
NORTHFIELD, ILLINOIS
The John Harvey Family Trust ("Landlord")
Artra Group Incorporated ("Tenant")
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") made and entered into as of this 1st
day of January, 2000 between The John Harvey Family Trust ("Landlord") and
Artra Group Incorporated ("Tenant"), a Pennsylvania corporation.
W I T N E S S E T H :
1. PREMISES AND TERM.
In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions, and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord, the approximately eight hundred
(800) square feet outlined on the plan attached hereto as Exhibit 1A (the
"Leased Premises") located in the building commonly known as 500 N. Central
Avenue, Northfield, Illinois 60093 (the "Building"), situated on the real
property described in Exhibit 1B attached hereto (the "Property") which is
part of a development in Northfield, Illinois (the "Development"). The
leased premises shall be used for the following purposes and no others:
General office and storage. This Lease can be canceled with 90 days
written notice by either party.
TO HAVE AND TO HOLD the same for a term of sixty months ( 60)
commencing on January 1, 2000 and ending on December 31, 2004 unless
terminated or extended pursuant to any provision hereof. Tenant
acknowledges that no representations as to the repair of the leased
premises, nor promises to alter, remodel or improve the leased premises
have been made by Landlord, unless such are expressly set forth in this
Lease.
2. BASE RENT AND SECURITY DEPOSIT.
A. (1) The tenant shall pay to the landlord for the demised
premises during the term of this lease in lawful money of the United States
the sum of Seventeen Thousand, Six Hundred Dollars ($17,600) for each lease
year that this lease is in effect, as and for a minimum annual rental,
which said sum shall be payable in equal monthly installments of One
Thousand, Four Hundred-Sixty-Six and 66/100 Dollars ($1,466.66) each,
payable in advance and without notice commencing on January 1, 2000, being
the first day of the first lease year of the term hereof.
(2) Commencing on January 1, 2001 and annually thereafter
during the term of the Lease the annual minimum rental for such period
shall be that annual minimum rental charged during the proceeding year
increased by the percentage increase in the Consumer Price Index "All
items" United States, popularly known as the Cost of Living Index
(presently published monthly by the Bureau of Labor Statistics of the U.S.
Department of Labor) using said Consumer Price
<PAGE>
Index (1967 base) for the first six (6) months of the original term
of this Lease as a denominator, and said Consumer Price Index for the last
six (6) months of the original term of this Lease, as a numerator. This
fraction shall be multiplied by that annual minimum rental charged during
the last year of the original term of this Lease and the resulting amount
shall be the amount of the annual minimum rental during said option period.
The annual minimum rental shall be increased during each additional option
period following by the resulting percentage derived from a fraction having
as its denominator the Consumer Price Index (1967 base) for the average
first six (6) months of the original term of this Lease, and as its
numerator the Consumer Price Index (1967 base) for the average last six (6)
months of said prior option period. In no event shall the annual minimum
rental charged during any extended term be less than that rental charged
during the last year of the original term of this Lease. If the base year
selected by the U.S. Department of Labor shall be changed, then the
resultant Index shall be readjusted, so as to reflect the base initially
established under this Lease. If the said Index shall no longer be
published or cannot be adjusted, then another Index generally recognized as
authoritative shall be substituted by agreement between the parties.
Rental payment for any fractional calendar month end of the lease term
shall be prorated.
B. Tenant has deposited with Landlord the sum of 0 Thousand and
no/100 Dollars ($0.00), which sum shall be held by Landlord, without
obligation for interest, as security for the full, timely and faithful
performance of Tenant's covenants and obligations under this Lease, it
being expressly understood and agreed that such deposit is not an advance
rental or a measure of Landlord's damages in case of Tenant's default.
Upon the occurrence of any event of default by Tenant, Landlord may, from
time to time, without prejudice to any other remedy provided herein or
provided by law, use such fund to the extent necessary to make good any
arrears of rent or other payments due Landlord hereunder, and any other
damage, injury, expense or liability caused by any event of Tenant's
default; and Tenant shall pay to such Trust on demand the amount so applied
in order to restore the security deposit to its original amount. Any
remaining balance of such deposit shall be returned by Landlord to Tenant
within thirty (30) days after termination of this Lease when Landlord shall
have determined that all Tenant's obligations under this Lease have been
fulfilled. Subject to the other terms and conditions contained in this
Lease, if the Building is conveyed by Landlord, said deposit may be turned
over to Landlord's grantee and if so, Tenant hereby releases Landlord from
any and all liability with respect to said deposit and its application or
return.
3. TAXES.
Landlord agrees to pay all general and special taxes, assessments,
and governmental charges of any kind and nature whatsoever (collectively
"taxes") lawfully levied against the Property.
4. ELECTRIC SERVICE
To the extent Tenant is not billed directly by a public utility,
Landlord shall pay for all electricity used by Tenant in the leased
premises for lighting, convenience outlets, and other direct uses in
reasonable amounts commensurate with the intended use of the premises.
Tenant shall furnish, at its own expense, all electric light bulbs, tubes
<PAGE>
and ballasts. Tenant will not without the written consent of Landlord use
any apparatus or device in the leased premises which will in any way
increase its usage beyond the amount of electricity which Landlord
determines to be reasonable for use of the leased premises as general
office space, nor connect with electric current (except through existing or
new, at Tenant's sole expense, electrical outlets in the leased premises)
any apparatus or device for the purpose of using electric current. If
Tenant shall require electric current in excess of that which is reasonably
obtainable from existing electric outlets and normal for use of the leased
premises as general office space, then Tenant shall first procure the
consent of Landlord (which consent will not be unreasonably withheld).
Tenant shall pay all costs of installation of all facilities necessary to
furnishing such excess capacity and for such increased electricity usage.
Interruptions of any service shall not be deemed an eviction or
disturbance of Tenant's use and possession of the leased premises or any
part thereof, or render Landlord liable for damages by abatement of rent or
otherwise or relieve Tenant from performance of Tenant's obligations under
this Lease.
5. ALTERATIONS.
All improvements to the leased premises shall be installed at the
cost and expense of Tenant (which cost shall be payable on demand by
Landlord as additional rent), but only in accordance with plans and
specifications which have been previously submitted to and approved in
writing by Landlord, and only by Landlord or by contractors and
subcontractors approved in writing by Landlord (which approval shall not be
unreasonably withheld). In connection with any request for an approval of
alterations by Tenant, Landlord may retain the services of an architect
and/or engineer and Tenant shall reimburse Landlord for the reasonable fees
of such architect and/or engineer. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the term of this Lease and Tenant shall, unless
Landlord elects at the time of approval or otherwise elects as hereinafter
provided, remove all alterations, improvements and partitions erected by
Tenant and restore the leased premises to its original condition by the
date of termination of this Lease or upon earlier vacating of the leased
premises; provided, however, that, if at such time Landlord so elects, such
alterations, additions, improvements and partitions shall become the
property of Landlord as of the date of termination of this Lease or upon
earlier vacating of the leased premises and title shall pass to Landlord
under this Lease as by a bill of sale. All such removals and restoration
shall be accomplished in a good workmanlike manner by contractors approved
in writing by Landlord so as not to damage the primary structure or
structural qualities of the Building. All alterations, additions or
improvements proposed by Tenant shall be constructed in accordance with all
governmental laws, ordinances, rules and regulations and Tenant shall,
prior to construction, provide such assurances to Landlord, including but
not limited to, waivers of lien and surety company performance bonds, as
Landlord shall require to assure payment of the costs thereof and to
protect Landlord against any loss from any mechanics', laborers',
materialmen's or other liens.
<PAGE>
6. SERVICE
A. Landlord agrees to furnish Tenant, while occupying the leased
premises, water, hot and cold at those points of supply provided for
general use of Tenants; heat in season at such times as Landlord normally
furnishes these services to all tenants of the Building, and at such
temperatures and in such amounts as are in accordance with any applicable
statutes, rules or regulations and are considered by Landlord to be
standard, which shall include normal business hours on weekends, and
holidays and such window washing as may from time to time in the Landlord's
judgment be reasonably required; but failure to any extent to furnish or
any stoppage or interruption of these defined services, resulting from any
cause, shall not render Landlord liable in any respect for damages to any
person, property or business, nor be construed as an eviction of Tenant or
work an abatement of rent, nor relieve Tenant from fulfillment of any
covenant or agreement hereof. Should any equipment or machinery furnished
by Landlord cease to function properly, Landlord shall use reasonable
diligence to repair the same promptly, but Tenant shall have no claim for
rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Whenever heat generating
machines or equipment are used by Tenant in the leased premises which
affect the temperature otherwise maintained by the air conditioning
equipment, Landlord reserves the right to install supplementary air
conditioning units in the leased premises (or for the use of the leased
premises) and the expense of such purchase, installation, maintenance, and
repair shall be paid by Tenant upon demand as additional rent.
B. Landlord shall provide janitorial services five (5) nights a
week by a janitorial contractor or employees at all times satisfactory to
Landlord and the Tenant.
7. USE OF PREMISES.
A. Tenant will not occupy or use, nor permit any portion of leased
premises to be occupied or used, for any business or purpose other than
that described above or for any use or purpose which is unlawful in part or
in whole or deemed to be disreputable in any manner, or extra hazardous on
account of fire, nor permit anything to be done which will render void or
in any way increase the rate of fire insurance on the Building or its
contents, and Tenant shall upon notification immediately cease and desist
from such use, paying all costs and expenses resulting therefrom.
B. Tenant shall at its own cost and expense promptly obtain any
and all licenses and permits necessary for any permitted use. Tenant shall
comply with all governmental laws, ordinances and regulations applicable to
the use and its occupancy of the leased premises, and shall promptly comply
with all governmental orders and directives for the correction, prevention
and abatement of any violations or nuisances in or upon, or connected with,
the leased premises, all at Tenant's sole expense. If, as a result of any
change in the governmental laws, ordinances, and regulations, the leased
premises must be altered to lawfully accommodate Tenant's use and
occupancy, such alterations shall be made only with the consent of
Landlord, but the entire cost shall be borne by Tenant; provided, that, the
<PAGE>
necessity of Landlord's consent shall in no way create any liability
against Landlord for failure of Tenant to comply with such laws, ordinances
and regulations. Tenant shall not be responsible for the cost of any
alteration to comply with the Americans with Disabilities Act and the
regulations issued thereunder.
C. Tenant will maintain the Leased Premises (including all
fixtures installed by Tenant, water heaters within the leased premises and
plate glass) in good repair, reasonable wear and tear excepted, and in a
clean and healthful condition, and comply with all laws, ordinances,
orders, rules, and regulations (state, federal, municipal, and other
agencies or bodies having any jurisdiction thereof) with reference to
condition, or occupancy of the leased premises. Any repairs or
replacements shall be with materials and workmanship of the same character,
kind and quality as the original. Tenant will not, without the prior
written consent of Landlord, such consent not to be unreasonably withheld,
paint, install lighting or decorations, or install any signs, window or
door lettering or advertising media of any type on or about the leased
premises.
D. Tenant will conduct its business and control its agents,
employees and invitees in such a manner as not to create any nuisance, nor
interfere with, annoy, or disturb other tenants or Landlord in the
management of the Building.
E. Tenant shall pay upon demand as additional rent the full cost
of repairing any damage to the leased premises, Building or related
facilities resulting from and/or caused in whole or in part by the
negligence or misconduct of Tenant, its agents, servants, employees,
patrons, customers, or any other person entering upon the Development as a
result of Tenant's business activities or resulting from Tenant's default
hereunder.
F. At termination of this Lease, upon its expiration or otherwise,
Tenant shall deliver the leased premises with all improvements located
thereon (except as herein provided) in good repair and condition,
reasonable wear and tear excepted, broom clean, and free from all debris.
8. INSPECTIONS.
Landlord shall have the right to enter the leased premises at any
reasonable time, with prior notice except in the event of an emergency, for
the following purposes: (i) to ascertain the condition of the leased
premises; (ii) to determine whether Tenant is diligently fulfilling
Tenant's responsibilities under this Lease; (iii) to clean and to make such
repairs as may be required or permitted to be made by Landlord under the
terms of this Lease; or (iv) to do any other act or thing which Landlord
deems reasonable to preserve the leased premises and the Building. During
the six (6) months prior to the end of the term hereof and at any time
Tenant is in default hereunder, Landlord shall have the right to enter the
leased premises with prior notice during business hours for the purpose of
showing the premises. Tenant shall give written notice to Landlord at
least thirty (30) days prior to vacating and shall arrange to meet with
Landlord for a joint inspection of the leased premises. In the event of
Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the leased premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
<PAGE>
9. ASSIGNMENT AND SUBLETTING
A. Tenant shall not have the right to assign or pledge this Lease
or to sublet the whole or any part of the leased premises, whether
voluntarily or by operation of law, or permit the use or occupancy of the
leased premises by anyone other than Tenant, without the prior written
consent of Landlord, such consent not to be unreasonably withheld, and such
restrictions shall be binding upon any assignee or subtenant to which
Landlord has consented. In the event Tenant desires to sublet the leased
premises, or any portion thereof, or assign this Lease, Tenant shall give
written notice thereof to Landlord within a reasonable time prior to the
proposed commencement date of such subletting or assignment, which notice
shall set forth the name of the proposed subtenant or assignee, the
relevant terms of any sublease and copies of financial reports and other
relevant financial information of the proposed subtenant or assignee. In
no event may Tenant sublet, nor will Landlord consent to any sublease of,
all or any portion of the leased premises if the rent is determined in
whole or in part based upon the income or profits derived by the sublessee
(other than a rent based on a fixed percentage or percentages of receipts
or sales). Notwithstanding any permitted assignment or subletting, Tenant
shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent herein specified and for compliance with
all of its other obligations under the terms, provisions and covenants of
his Lease. Upon the occurrence of an "event of default" (as hereinafter
defined), if the leased premises or any part thereof are then assigned or
sublet, Landlord, in addition to any other remedies herein provided or
provided by law, may, at its option, collect directly from such assignee or
subtenant all rents due and becoming due to Tenant under such assignment or
sublease and apply such rent against any sums due to Landlord from Tenant
hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder. Tenant shall pay to Landlord, on demand, a
reasonable service charge for the processing of the application for the
consent and for the preparation of the consent. Such service charge shall
be collectible by Landlord only where consent is granted by Landlord.
B. In addition to, but not in limitation of, Landlord's right to
approve of any subtenant or assignee, Landlord shall have the option, in
its sole discretion, in the event of any proposed subletting or assignment,
to terminate this Lease, or in the case of a proposed subletting of less
than the entire leased premises, to recapture the portion of the leased
premises to be sublet, as of the date the subletting or assignment is to be
effective. The option shall be exercised, if at all, by Landlord giving
Tenant written notice thereof within sixty (60) days following Landlord's
receipt of Tenant's written notice as required above. If this Lease shall
be terminated with respect to the entire leased premises pursuant to this
paragraph, the term of this Lease shall end on the date stated in Tenant's
notice as the effective date of the sublease or assignment as if that date
had been originally fixed in this Lease for the expiration of the term
hereof. If Landlord recaptures under this paragraph only a portion of the
leased premises, the rent during the unexpired term shall abate
proportionately based on the rent contained in this Lease as of the date
immediately prior to such recapture. Tenant shall, at Tenant's own cost and
expense, discharge in full any commission obligation which may be due and
owing as a result of any assignment or subletting, whether or not the
leased premises are recaptured pursuant hereto and rented by Landlord to
the proposed tenant or any other tenant. In the event of the recapture of
a portion of the leased premises by Landlord pursuant to the terms of this
paragraph, Tenant shall pay all costs associated with the separation of the
<PAGE>
recaptured premises from the portion not recaptured, including, but without
limitation, the cost of all demising partitions, changes in lighting and
HVAC distribution systems and all reasonable architectural and/or
engineering fees.
C. Any assignment or subletting by Tenant pursuant to subparagraph
9A of all or any portion of the leased premises, or termination of the
Lease for a portion of the leased premises pursuant to subparagraph 9B,
shall automatically operate to terminate each and every right, option, or
election, if any exist, belonging to Tenant, including by way of
illustration, but not limitation, any option to expand its premises or to
extend or renew the term of Tenant's Lease for all or any portion of the
leased premises - i.e., such rights and options shall cease as to both
space sublet or assigned and as to any portion of the original leased
premises retained by Tenant.
D. Notwithstanding the terms of 9A-C above, Tenant shall have the
right to sublet all or any portion of the Premises to any wholly owned
subsidiary or affiliate of Tenant.
10. FIRE AND CASUALTY DAMAGE.
A. If the Building, Improvements, or leased premises are rendered
partially or wholly untenantable by fire or other casualty, and if such
damage cannot, in Landlord's reasonable estimation, be materially restored
within ninety (90) days of such damage, then Landlord or Tenant may, at its
sole option, terminate this Lease as of the date of such fire or casualty.
Landlord or Tenant shall exercise its option provided herein by written
notice within sixty (60) days of such fire or other casualty. For purposes
hereof, the Building or leased premises shall be deemed "materially
restored" if they are in such condition as would not prevent or materially
interfere with Tenant's use of the leased premises for the purpose for
which it was then being used.
B. If this Lease is not terminated pursuant to Paragraph 10A, then
Landlord shall proceed with all due diligence to repair and restore the
Building, improvements or leased premises, as the case may be (except that
Landlord may elect not to rebuild if such damage occurs during the last
year of the term exclusive of any option which is unexercised at the date
of such damage).
C. If this Lease shall be terminated pursuant to this Paragraph
10, the term of this Lease shall end on the date of such damage as if that
date had been originally fixed in this Lease for the expiration of the term
hereof. If this Lease shall not be terminated by Landlord pursuant to this
Paragraph 10 and if the leased premises is untenantable in whole or in part
following such damage, the rent payable during the period in which the
leased premises is untenantable shall be reduced to such extent, if any, as
may be fair and reasonable under all of the circumstances. In the event
that Landlord should fail to complete such repairs and material restoration
within one hundred fifty (150) days after the date of such damage, Tenant
may at its option and as its sole remedy terminate this Lease by delivering
written notice to Landlord, whereupon the Lease shall end on the date of
such notice as if the date of such notice were the date originally fixed in
<PAGE>
this Lease for the expiration of the term hereof; provided, however, that
if construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of
God, war, material or labor shortages, governmental regulation or control
or other causes beyond the reasonable control of Landlord, the period for
restoration, repair or rebuilding shall be extended for the amount of time
Landlord is so delayed.
In no event shall Landlord be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements
which may have been placed in or about the leased premises by Tenant.
Except as otherwise provided by Paragraph 11, any insurance which may be
carried by Landlord or Tenant against loss or damage to the Building or
leased premises shall be for the sole benefit of the party carrying such
insurance and under its sole control.
D. Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed of trust
covering the leased premises, Building or Property requires that any
insurance proceeds be applied to such indebtedness, then Landlord shall
have the right to terminate this Lease by delivering written notice of
termination to Tenant within fifteen (15) days after such requirement is
made by any such holder, whereupon the Lease shall end on the date of such
damage as if the date of such damage were the date originally fixed in this
Lease for the expiration of the term hereof.
E. Each of Landlord and Tenant hereby releases the other from any
and all liability or responsibility to the other or anyone claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire, extended coverage perils, vandalism or malicious
mischief, sprinkler leakage or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have
been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible, including any other tenants or
occupants of the remainder of the Building in which the leased premises is
located; provided, however, that this release shall be applicable and in
force and effect only to the extent that such release shall be lawful at
that time and in any event only with respect to loss or damage occurring
during such times as the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect
or impair said policies or prejudice the right of the releasor to recover
thereunder and then only to the extent of the insurance proceeds payable
under such policies. Each Landlord and Tenant agrees that it will request
its insurance carriers to include in its policies such a clause or
endorsement. If extra cost shall be charged therefor, each party shall
advise the other thereof and of the amount of the extra cost, and the other
party, at its election, may pay the same, but shall not be obligated to do
so. If such other party fails to pay such extra cost, the release
provisions of this paragraph shall be inoperative against such other party
to the extent necessary to avoid invalidation of such releasor's insurance.
F. In the event of any damage or destruction to the Building or
the leased premises by any peril covered by the provisions of this
Paragraph 10, Tenant shall, upon notice from Landlord, remove forthwith, at
its sole cost and expense, such portion or all of the property belonging to
Tenant or his licensees from such portion or all of the Building or the
leased premises as Landlord shall request and Tenant hereby indemnifies and
holds Landlord harmless from any loss, liability, costs, and expenses,
including attorney's fees, arising out of any claim of damage or injury as
<PAGE>
a result of any alleged failure to properly secure the leased premises
prior to such removal and/or such removal.
11. LIABILITY.
Landlord shall not be liable for and Tenant will indemnify and hold
Landlord harmless from any loss, liability, costs and expenses, including
attorney's fees, arising out of any claim of injury or damage on or about
the leased premises caused by the negligence or misconduct or breach of
this Lease by Tenant, its employees, subtenants, invitees or by any other
person entering the leased premises or the Building or Development under
express or implied invitation of Tenant or arising out of Tenant's use of
the leased premises. Landlord shall not be liable to Tenant or Tenant's
agents, employees, invitees or any person entering upon the Development in
whole or in part because of Tenant's use of the leased premises for any
damage to persons or property due to condition, design, or defect in the
Building or its mechanical systems which may exist or occur, except as a
result of Landlord's willful acts or negligence, and Tenant assumes all
other risks of damage to such persons or property. Landlord shall not be
liable or responsible for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot,
strike, insurrection, war, court order, requisition or order of
governmental body or authority, or other matter beyond control of Landlord,
or for any injury or damage or inconvenience, which may arise through
repair or alteration of any part of the Building, or failure to make
repairs, or from any cause whatever except Landlord's willful acts or
negligence. Tenant shall procure and maintain throughout the term of this
Lease a policy of insurance, in form and substance satisfactory to
Landlord, at Tenant's sole cost and expense, insuring both Landlord and
Tenant against all claims, demands or actions arising out of or in
connection with: (i) the leased premises; (ii) the condition of the leased
premises; (iii) Tenant's operations in and maintenance and use of the
leased premises; and (iv) Tenant's liability assumed under this Lease; the
limits of such policy to be in the amount of not less than $1,000,000 per
occurrence in respect of injury to persons (including death) and in the
amount of not less than $500,000 per occurrence in respect of property
damage or destruction, including loss of use thereof. Such policy shall be
procured by Tenant from responsible insurance companies satisfactory to
Landlord. A certified copy of such policy, together with receipt
evidencing payment of the premium, shall be delivered to Landlord prior to
the commencement of this Lease. Not less than thirty (30) days prior to
the expiration date of such policy, a certified copy of a renewal thereof
(bearing notations evidencing the payment of the renewal premium) shall be
delivered to Landlord. Such policy shall further provide that not less
than thirty (30) days written notice shall be given to Landlord before such
policy may be canceled or changed to reduce the insurance coverage provided
thereby.
12. CONDEMNATION.
A. If any substantial part of the Building, improvements, or
leased premises should be taken for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof and the taking would prevent or
materially interfere with the use of the Building or leased premises for
the purpose for which it is then being used, this Lease shall terminate
effective when the physical undertaking shall occur in the same manner as
<PAGE>
if the date of such taking were the date originally fixed in this Lease for
the expiration of the term hereof.
B. If part of the Building, improvements, or leased premises shall
be taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and this Lease is not terminated as provided in
the subparagraph above, this Lease shall not terminate but the rent payable
hereunder during the unexpired portion of this Lease shall be reduced to
such extent, if any, as may be fair and reasonable under all of the
circumstances and Landlord shall undertake to restore the Building,
improvements, and leased premises to a condition suitable for Tenant's use,
as near to the condition thereof immediately prior to such taking as is
reasonably feasible under all the circumstances.
C. In the event of any such taking or private purchase in lieu
thereof, Landlord and Tenant shall each be entitled to receive and retain
such separate awards and/or portion of lump sum awards as may be allocated
to their respective interests in any condemnation proceedings; provided
that Tenant shall not be entitled to receive any award for Tenant's loss of
its leasehold interest, the right to such award being hereby assigned by
Tenant to Landlord.
13. HOLDING OVER.
Tenant, will at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the leased premises or any part thereof after such
termination, then Landlord may, at its option, serve written notice upon
Tenant that such holding over constitutes any one of (i) renewal of this
Lease for one year, and from year to year thereafter, or (ii) creation of a
month to month tenancy, upon the terms and conditions set forth in this
Lease, or (iii) creation of a tenancy at sufferance, in any case upon the
terms and conditions set forth in this Lease; provided however, that the
monthly rental (or daily rental under (iii)) shall, in addition to all
other sums which are to paid by Tenant hereunder, whether or not as
additional rent, be equal to double the rental being paid monthly to
Landlord under this Lease immediately prior to such termination (prorated
in the case of (iii) on the basis of a 365 day year for each day Tenant
remains in possession). If no such notice is served, then a tenancy at
sufferance shall be deemed to be created at the rent in the preceding
sentence. Tenant shall also pay to Landlord all damages sustained by
Landlord resulting from retention of possession by Tenant, including the
loss of any proposed subsequent tenant for any portion of the leased
premises. The provisions of this paragraph shall not constitute a waiver
by Landlord of any right of re-entry as herein set forth; nor shall receipt
of any rent or any other act in apparent affirmance of the tenancy operate
as a waiver of the right to terminate this Lease for a breach of any of the
terms covenants, or obligations herein on Tenant's part to be performed.
14. QUIET ENJOYMENT.
Landlord represents that it has full right and authority to enter
into this Lease and that Tenant, while paying the rental and performing its
<PAGE>
other covenants and agreements herein set forth, shall peaceably and
quietly have, hold and enjoy the leased premises for the term hereof
without hindrance or molestation from Landlord subject to the terms and
provisions of this Lease. Landlord shall not be liable for any
interference or disturbance by other tenants or third persons, nor shall
Tenant be released from any of the obligations of this Lease because of
such interference or disturbance.
15. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, whether such sum be any
installment of the rent herein reserved, any other amount treated as
additional rent hereunder, or any other payment or reimbursement to
Landlord required herein, whether or not treated as additional rent
hereunder, and such failure shall continue for a period of five ( 5) days
from the date such payment was due; or
(b) Tenant shall fail to comply with any term, provision or
covenant of this Lease other than by failing to pay when or before due any
sum of money becoming due to be paid to Landlord hereunder, and shall not
cure such failure within thirty (30) days (forthwith, if the default
involves a hazardous condition) after written notice thereof to Tenant, or
if such cure cannot be effected within such thirty (30) day period, if
Tenant shall fail to commence such cure within such thirty (30) day period
and diligently prosecute such cure to completion; or
(c) Tenant shall fail to vacate the leased premises immediately
upon termination of this Lease, by lapse of time or otherwise, or upon
termination of Tenant's right to possession only; or
(d) The leasehold interest of Tenant shall be levied upon under
execution or be attached by process of law or Tenant shall fail to contest
diligently the validity of any lien or claimed lien and give sufficient
security to Landlord to insure payment thereof or shall fail to satisfy any
judgment rendered thereon and have the same released, and such default
shall continue for ten (10) days after written notice thereof to Tenant; or
(e) Tenant shall file a petition in bankruptcy, a petition to take
advantage of any insolvency statute, make an assignment for the benefit of
creditors, make a transfer in fraud of creditors, apply for or consent to
the appointment of a receiver of itself or of the whole or any substantial
part of its property, or file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws, as now in effect or
hereafter amended, or any other applicable law or statute of the United
States or any state thereof; or
(f) A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant a bankrupt, or appointing a receiver
of Tenant, or of the whole or any substantial part of its property, without
the consent of the Tenant, or approving a petition filed against Tenant
seeking reorganization or arrangement of Tenant under the bankruptcy laws
of the United States, as now in effect hereafter amended, or any state
thereof, and such order, judgment or decree shall not be vacated or set
aside or stayed within thirty (30) days from the date of entry thereof, or
<PAGE>
(g) Tenant shall abandon or vacate any substantial portion of the
leased premises
16. REMEDIES.
Upon the occurrence of any such events of default described in
Paragraph 15 hereof or elsewhere in this Lease, Landlord shall have the
option to pursue any one or more of the following remedies with notice:
(a) Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease;
(b) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
leased premises immediately, and deliver possession thereof to Landlord,
and Tenant hereby grants to Landlord license to enter into and upon the
leased premises in such event with or without process of law and to
repossess Landlord of the leased premises as Landlord's estate and to expel
or remove Tenant and any others who may be occupying or within the leased
premises and or remove any and all property therefrom, without being deemed
in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom,
Tenant hereby waiving any right to claim damage for such reentry and
expulsion, and without relinquishing Landlord's rights to rent or any other
right given to Landlord hereunder or by operation of law;
(c) Upon any termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent,
including any amounts treated as additional rent hereunder, and other sums
due and payable by Tenant on the date of termination, plus the sum of (i)
an amount equal to the then present value of the rent, including any
amounts treated as additional rent hereunder, and other sums provided
herein to be paid by Tenant for the residue of the stated term hereof, less
the fair rental value of the leased premises for such residue (taking into
account the time and expense necessary to obtain a replacement tenant or
tenants, including expenses hereinafter described in subparagraph (d)
relating to recovery of the leased premises, preparation for reletting and
for reletting itself), and (ii) the cost of performing any other covenants
which would have otherwise been performed by Tenant;
(d) (i) Upon any termination of Tenant's right to possession only
without termination of the Lease, Landlord may, at Landlord's option, enter
into the leased premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as provided in subparagraph
(b) above, without such entry and possession terminating the Lease or
releasing Tenant, in whole or in part, from any obligation, including
Tenant's obligation to pay the rent, including any amounts treated as
additional rent, hereunder for the full term. In any such case, Tenant
shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the
entire amount of the rent, including any amounts treated as additional rent
hereunder, for the residue of the stated term hereof plus any other sums
provided herein to be paid by Tenant for the remainder of the Lease term;
<PAGE>
(ii) Landlord may, but need not, relet the leased
premises or any part thereof for such rent and upon such terms as Landlord
in its sole discretion, shall determine (including the right to relet the
premises for a greater or lesser term than that remaining under this Lease,
the right to relet the leased premises as a part of a larger area, and the
right to change the character or use made of the leased premises). If
Landlord decides to relet the leased premises or a duty to relet is imposed
upon Landlord by law, Landlord and Tenant agree that Landlord shall only be
required to use the same efforts Landlord then uses to lease other
properties Landlord owns or manages (or if the leased premises is then
managed for Landlord, then Landlord will instruct such manager to use the
same efforts such manager then uses to lease other space or properties
which it owns or manages); provided however, that Landlord (or its manager)
shall not be required to give any preference or priority to the showing or
leasing of the leased premises over any other space that Landlord (or its
manager) may be leasing or have available and may place a suitable
prospective tenant in any such available space regardless of when such
alternative space becomes available; provided further, that Landlord shall
not be required to observe any instruction given by Tenant about such
reletting or accept any tenant offered by Tenant unless such offered
tenant has a creditworthiness acceptable to Landlord, leases the entire
leased premises, agrees to use the leased premises in a manner consistent
with the Lease and leases the leased premises at the same rent and on the
same terms and conditions as in this Lease without the expenditure of the
Landlord for tenant improvements or broker's commissions. In any such
case, Landlord may, but shall not be required to make repairs, alterations
and additions in or to the leased premises and redecorate the same to the
extent Landlord deems necessary or desirable, and Tenant shall, upon
demand, pay the cost thereof, together with Landlord's expenses of
reletting, including without limitation, any broker's commission incurred
by Landlord. If the consideration collected by Landlord upon any such
reletting plus any sums previously collected from Tenant are not sufficient
to pay the full amount of all rent, including any amounts treated as
additional rent hereunder and other sums reserved in this Lease for the
remaining term hereof, together with the cost of repairs, alterations,
additions, redecorating, and Landlord's expenses of reletting and the
collection of the rent accruing therefrom (including attorney's fee and
broker's commission), Tenant shall pay to Landlord the amount of such
deficiency upon demand and Tenant agrees that Landlord may file suit to
recover sums falling due under this section from time to time;
(e) Landlord may, at Landlord's option, enter into and upon the
leased premises, with or without process of law, if Landlord determines in
its sole discretion that Tenant is not acting within a commercially
reasonable time to maintain, repair or replace anything for which Tenant is
responsible hereunder and correct the same, without being deemed in any
manner guilty of trespass, eviction of forcible entry and detainer and
without incurring any liability for any damage resulting therefrom and
Tenant agrees to reimburse Landlord, on demand, as additional rent, for any
expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease;
(f) Any and all property which may be removed from the leased
premises by Landlord pursuant to the authority of the Lease or of law, to
which Tenant is or may be entitled, may be handled, removed and stored, as
the case may be, by or at the discretion of Landlord at the risk, cost and
<PAGE>
expense of Tenant, and Landlord shall in no event be responsible for the
value, preservation or safekeeping thereof. Tenant shall pay to Landlord,
upon demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in Landlord's
possession or under Landlord's control. Any such property of Tenant not
retaken by Tenant from storage within thirty (30) days after removal from
the leased premises shall, at Landlord's option, be deemed conveyed by
Tenant to Landlord under this Lease as by a bill of sale without further
payment or credit by Landlord to Tenant.
In the event Tenant fails to pay any installment of rent, including
any amount treated as additional rent hereunder, or other sums hereunder as
and when such installment or other charge is due, Tenant shall pay to
Landlord on demand a late charge in an amount equal to five percent (5%) of
such installment or other charge overdue in any month to help defray the
additional cost to Landlord for processing such late payments, and such
late charge shall be additional rent hereunder and the failure to pay such
charge within ten (10) days after demand therefor shall be an additional
event of default hereunder. Late charges shall not accumulate monthly for
any single default. The provision of such late charge shall be in addition
to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's
remedies in any matter.
Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided
by law (all such remedies being cumulative), nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, provisions, covenants herein contained. No
act or thing done by Landlord or its agents during the term hereby granted
shall be deemed a termination of this Lease or an acceptance of the
surrender of the leased premises, and no agreement to terminate this Lease
or accept a surrender of said premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord of any violation or breach of
any of the terms, provisions and covenants herein contained shall be deemed
or construed to constitute a waiver of any other violation or breach of any
of the terms, provisions and covenants herein contained. Landlord's
acceptance of the payment of rental or other payments hereunder after the
occurrence of an event of default shall not be construed as a waiver of
such default, unless Landlord so notifies Tenant in writing. Forbearance
by Landlord in enforcing one or more of the remedies herein provided upon
an event of default shall not be deemed or construed to constitute a waiver
of such default of Landlord's right to enforce any such remedies with
respect to such default or any subsequent default. If, on account of any
breach or default by Tenant in Tenant's obligations under the terms and
conditions of this Lease, it shall become necessary or appropriate for
Landlord to employ or consult with an attorney concerning or to enforce or
defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay
any attorney's fees so incurred.
17. LANDLORD'S LIENS.
In addition to any statutory lien for rent in Landlord's favor,
Landlord shall have and Tenant hereby grants to Landlord a continuing
security interest for all rentals and other sums of money becoming due
hereunder from tenant, upon all goods, wares, equipment, fixtures,
furniture, and other tangible personal property of Tenant situated on the
leased premises, and such property shall not be removed therefrom without
the consent of Landlord until all arrearages in rent as well as any and all
<PAGE>
other sums of money then due to Landlord hereunder shall first have been
paid and discharged. In the event of a default under this Lease, Landlord
SHALL HAVE, IN ADDITION TO ANY OTHER REMEDIES PROVIDED HEREIN OR BY LAW,
ALL RIGHTS AND REMEDIES UNDER THE UNIFORM COMMERCIAL CODE, INCLUDING
WITHOUT LIMITATION THE RIGHT TO SELL THE PROPERTY DESCRIBED IN THIS
PARAGRAPH 17 AT PUBLIC OR PRIVATE SALE UPON FIVE (5) DAYS' NOTICE TO
TENANT. Tenant hereby agrees to execute such financing statements and
other instruments necessary or desirable in Landlord's discretion to
percent the security interest hereby created. Any statutory lien for rent
is not hereby waived, the express contractual lien herein granted being in
addition and supplementary thereto.
18. MORTGAGES.
Tenant accepts this Lease subject and subordinate to any mortgage(s)
and deeds of trust now or at any time hereafter constituting a first lien
or charge upon the Property, or the improvements situated thereon,
provided, however, that if the mortgagee, trustee, or holder of any such
mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such
mortgagee, trustee, or trust deed holder, this Lease shall be deemed
superior to such lien whether this Lease was executed before or after said
mortgage or deed of trust so long as such mortgagee, trust deed holder or
trustee enters into a non-disturbance agreement with Tenant in form and
substance satisfactory to Tenant pursuant to which such mortgagee, trust
deed holder or trustee agrees, not to disturb Tenant's possession of the
Premises so long as Tenant is not in default hereunder (after any
applicable notice and/or cure periods). Tenant shall at any time hereafter
on demand execute any instruments, releases or other documents which may be
reasonably required by any such mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage, as may be the
case, but for no other purpose whatsoever (and Tenant expressly disclaims
any obligation to modify the terms of this Lease, to give the mortgagee,
trust deed holder or trustee copies of any notices delivered to Landlord,
or to waive any claims which Tenant may then have or which may arise
thereafter against Landlord or such mortgagee, trust deed holder or
trustee), and provided that such mortgagee, trust deed holder or trustee
enters into a non-disturbance agreement with Tenant as required pursuant to
the preceding sentence.
At the request of either Tenant or Landlord, a short-form or
memorandum of this Lease shall be signed by each party and filed with the
Cook County Recorder of Deeds.
19. INTENTIONALLY DELETED.
20. MECHANIC'S AND OTHER LIENS.
Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in
any manner to bind, the interest of Landlord in the leased premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs, and each such claim shall affect and
<PAGE>
each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this Lease. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account
of any labor performed or materials furnished in connection with any work
performed on the leased premises on which any lien is or can be validly and
legally asserted against its leasehold interest in the leased premises or
the improvements thereon and that it will save and hold Landlord harmless
from any and all loss, liability, cost or expense based on or arising out
of asserted claims or liens against the leasehold estate or against the
right, title and interest of the Landlord in the leased premises or under
the terms of this Lease. Tenant will not permit any mechanic's lien or
liens or any other liens which may be imposed by law affecting Landlord's
or its mortgagees' interest in the leased premises or the Building to be
placed upon the leased premises or the Building arising out of any action
or claimed action by Tenant, and in case of the filing of such lien Tenant
will promptly pay same. If any such lien shall remain in force and effect
for twenty (20) days after written notice thereof from Landlord to Tenant,
Landlord shall have the right and privilege of paying and discharging the
same or any portion thereof without inquiry as to the validity thereof, and
amounts so paid, including expenses and interest, shall be so much
additional rent hereunder due from Tenant to Landlord and shall be paid to
Landlord immediately on rendition of bill therefor. Notwithstanding the
foregoing, Tenant shall have the right to contest any such lien in good
faith and with all due diligence so long as any such contest, or action and
any such mortgagee are, by the expiration of said twenty (20) day period,
the Tenant has furnished such protection, and indemnification against any
loss, liability, cost or expense related to any such lien and the contest
thereof as are satisfactory to Landlord and any such mortgagee.
21. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to the
sending, mailing or delivery of any notice or the making of any payment
shall be deemed to be complied with when and if the following steps are
taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to The John Harvey Family Trust, or to
such other entity at such other address as Landlord may specify from time
to time by written notice delivered in accordance herewith.
(b) Any notice or other document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when: (i) delivered by personal service; (ii) transmitted
by confirmed facsimile; or (iii) deposited in the continental United States
Mail, postage prepaid, certified or registered mail, addressed to the
parties hereto at the respective addresses set out below, or at such other
addresses as they have theretofore specified by written notice delivered in
accordance herewith;
LANDLORD: The John Harvey Family Trust
c/o Peter R. Harvey
500 Central Avenue
Northfield, Illinois 60093
<PAGE>
TENANT: Artra Group Incorporated
500 N. Central Avenue
Northfield, IL 60093
All parties included within the terms "Landlord" and "Tenant,"
respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received
such notice.
22. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in
this Lease shall apply to, inure to the benefit of, and be binding upon,
the parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise expressly provided
herein. Landlord shall have the right to assign any of its rights and
obligations under this Lease and Landlord's grantee and Landlord's
successor shall upon such assignment become "Landlord" hereunder; thereby
freeing and relieving the grantor and assignor of all covenants and
obligations of "Landlord" hereunder, provided however, that no successor
Landlord shall be responsible for the return of any security deposit
provided for pursuant to Paragraph 2B unless such successor receives the
deposit. Tenant agrees to furnish promptly on demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of Tenant to enter into this
Lease. Nothing herein contained shall give any other tenant in the
Building of which the leased premises is a part any enforceable rights
either against Landlord or Tenant as a result of the covenants and
obligations of either party set forth herein.
C. The captions inserted in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof.
D. Tenant shall at any time and from time to time within ten (10)
days after written request from Landlord execute and deliver to Landlord or
any prospective Landlord or mortgagee or prospective mortgagee a sworn and
acknowledged estoppel certificate, in form reasonably satisfactory to
Landlord and/or Landlord's mortgagee or prospective mortgagee certifying
and stating as follows: (i) this Lease has not been modified or amended
(or if modified or amended, setting forth such modifications or
amendments); (ii) this Lease (as so modified or amended) is in full force
and effect (or if not in full force and effect, the reasons therefor);
(iii) the Tenant has no offsets or defenses to its performance of the
terms and provisions of this Lease, including the payment of rent (or if
there are any such defenses or offsets, specifying the same); (iv) Tenant
is in possession of the leased premises, if such be the case; (v) if an
assignment of rents or leases has been served upon Tenant by a mortgagee or
a prospective mortgagee, Tenant has received such assignment and agrees to
be bound by the provisions thereof; and (vi) any other accurate statements
reasonably required by Landlord or its mortgagee or prospective mortgagee.
It is intended that any such statement delivered pursuant to this
subsection may be relied upon by any prospective purchaser or mortgagee and
<PAGE>
their respective successors and assigns and Tenant shall be liable for all
loss, cost or expense resulting from the failure of any sale or funding of
any loan caused by any material misstatement contained in such estoppel
certificate.
E. This Lease may not be altered, changed or amended except by a
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof, including
without limitation, all payment obligations with respect to taxes, and all
obligations concerning the condition of the premises. Upon the expiration
or earlier termination of the term hereof, Tenant shall pay to Landlord the
amount, as estimated by Landlord, necessary: (i) to repair and restore the
leased premises as provided herein; and (ii) to discharge the Tenant's
obligation for unpaid real estate taxes and other amounts due Landlord.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant, with Tenant being liable for any additional costs
upon demand by Landlord, or with any excess to be returned to Tenant after
all such obligations have been determined and satisfied. Any security
deposit held by Landlord shall be credited against the amount payable by
Tenant under this subparagraph 22f.
G. If any clause, phrase, provision or portion of this Lease or
the application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not effect, impair or
render invalid or unenforceable the remainder of this Lease nor any other
clause, phrase, provision or portion hereof, nor shall it affect the
application of any clause, phrase, provision or portion hereof to other
persons or circumstances, and it is also the intention of the parties to
this Lease that in lieu of each such clause, phrase provision or portion of
this Lease that is invalid or unenforceable, there be added as a part of
this Lease contract a clause, phrase, provision or portions as similar in
terms to such invalid or unenforceable clause, phrase, provision or portion
as may be possible and be valid and enforceable.
H. Whenever a period of time is herein prescribed for action to be
taken by Landlord, the Landlord shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time,
any delays due to causes of any kind whatsoever which are beyond the
control of the Landlord.
I. Intentionally Omitted
J. Each of the parties (i) represents and warrants to the other
that it has not dealt with any broker or finder in connection with this
Lease and (ii) indemnifies and holds the other harmless from any and all
losses, liability, costs or expenses (including attorney's fees) incurred
as a result of an alleged breach of the foregoing warranty.
<PAGE>
23. CERTAIN RIGHTS RESERVED TO THE LANDLORD.
The Landlord reserves and may exercise the following rights without
affecting Tenant's obligations hereunder:
(a) to change the name or street address of the Building;
(b) to install and maintain a sign or signs on the exterior of the
Building;
(c) to have access for the Landlord and the other tenants of the
Building to any mail chutes located on the leased premises according to the
rules of the United States Post Office;
(d) to reasonably approve all sources furnishing sign painting and
lettering, ice, drinking water, towels, coffee cart service and toilet
supplies, lamps and bulbs used on the leased premises;
(e) to retain at all times pass keys to the leased premises;
(f) to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building;
(g) to close the Building after regular working hours and on the
legal holidays subject, however, to Tenant's right to admittance, under
such reasonable regulations as Landlord may prescribe from time to time,
which may include by way of example but not of limitation, that persons
entering or leaving the Building identify themselves to a watchman by
registration or otherwise and that said persons establish their right to
enter or leave the Building;
(h) to take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the leased premises
or to the Building, as may be necessary or desirable for the safety,
protection or preservation of the leased premises or the Building or the
Landlord's interests, or as may be necessary or desirable in the operation
of the Building; and
(i) to add, remove or modify buildings, roadways, walkways,
landscaping, lakes, grading and other improvements in or to the
Development.
The Landlord may enter upon the leased premises and may exercise any
or all of the foregoing rights hereby reserved without being deemed guilty
of an eviction or disturbance of the Tenant's use or possession and without
being liable in any manner to the Tenant and without abatement of rent or
affecting any of the Tenant's obligations hereunder.
24. TRUSTEE'S EXCULPATION.
It is expressly understood and agreed that nothing in this Lease
contained shall be construed as creating any liability whatsoever against
the Landlord, or its successors and assigns, personally, and in particular
without limiting the generality of the foregoing, there shall be no
personal liability to pay any indebtedness accruing hereunder or to perform
<PAGE>
any covenant, either express or implied, herein contained, and that all
personal liability of Landlord, or its successors and assigns, of every
sort, if any, is hereby expressly waived by Tenant, and every person now or
hereafter claiming any right or security hereunder, and that so far as said
Trustee or its beneficiary, or their successors or assigns, is concerned
the owner of any indebtedness or liability accruing hereunder shall look
solely to the premises hereby leased for the payment thereof.
EXECUTED as of the 30th day of December 1999.
TENANT:
ATTEST/WITNESS: ARTRA GROUP INCORPORATED:
By: _________________________ By: /s/ John Conroy
------------------------------
Title: _________________________ Title: President
------------------------------
LANDLORD:
ATTEST/WITNESS: The John Harvey Family Trust
By: _____________________________ By: /s/ John Harvey
------------------------------
Title:___________________________ Title: Trustee
<PAGE>
EXHIBIT 1B
LEGAL DESCRIPTION
LOT "A" IN K. AND E. RESUBDIVISION OF LOTS 1 TO 9, BOTH INCLUSIVE, AND
LOTS 20, 21 AND 22 IN BLOCK 7 OF UNITED REALTY CO'S FIRST ADDITION TO
WILLOWCREST A SUBDIVISION OF THOSE PARTS OF THE NORTHEAST 1/4 OF THE
NORTHEAST 1/4 OF SECTION 24,, TOWNSHIP 42 NORTH, RANGE 12 EAST OF THE THIRD
PRINCIPAL MERIDIAN, AND THE NORTH 1/2 OF THE SOUTHEAST 1/4 OF THE NORTHEAST
1/4 OF SAID SECTION 24 LYING EAST OF THE RIGHT OF WAY OF PUBLIC SERVICE
COMPANY OF NORTHERN ILLINOIS ALSO SAID OF THE VACATED ALLEY LYING WEST OF
AND ADJOINING LOTS I TO 6, BOTH INCLUSIVE, AND EAST OF THE ADJOINING LOTS 7
AND 22 IN BLOCK 7 AFORESAID, ALL ACCORDING TO THE PLAT THEREOF RECORDED
JANUARY 17, 1961 AS DOCUMENT NUMBER 18064007, IN COOK COUNTY, ILLINOIS
<PAGE>
EXHIBIT 1A
FLOOR PLAN
EXHIBIT 10.23
- -------------
ENTRADE INC.
500 CENTRAL AVENUE
NORTHFIELD, ILLINOIS 60093
(847) 441-6650
March 9, 2000
Carrie L. Shea
577 East Spruce Avenue
Lake Forest, Illinois 60045
Dear Carrie:
This letter is intended to set forth the terms and conditions under
which Entrade Inc. is offering to continue to employ you as its Executive
Vice President of Business Development and Marketing. This Agreement
supersedes the letter agreement dated as of November 11, 1999, between you
and the Company.
Parties: Entrade Inc. ("Entrade" or the "Company") and Carrie L.
Shea (identified herein as "you").
Position: Your position will be Executive Vice President of
Business Development and Marketing, reporting to Entrade's President and
its Board of Directors.
Compensation: Your base salary ("base salary") for the remainder of
2000 will be at a rate not less than $200,000 per year, payable in
accordance with Entrade's usual payroll policies, and in no event will your
base salary be less than $200,000 per year during the term of this
agreement. You will be entitled to receive such increases in your base
salary as you and the Entrade Board of Directors may agree.
Stock Options: You have previously been issued an option to acquire
150,000 shares of the Common Stock of Entrade (the "Option"), pursuant to
the Option Agreement dated as of November 11, 1999.
Lost Compensation
Reimbursement: Entrade acknowledges that, in accepting Entrade
employment at this time, you will be forfeiting substantial compensation to
which you would otherwise be entitled. To recompense you for such
forfeited compensation, Entrade shall pay you a bonus of $25,000 before the
end of the first quarter of 2000.
<PAGE>
Reimbursement
of Business
Expenses: The Company will reimburse you for all business-related
expenses that you incur in connection with the performance of your
responsibilities to Entrade.
Other Benefits: You will be eligible to participate in all Entrade
employee benefit plans including group health, dental, long-term
disability, 401(k), and life insurance.
Bonuses: Unless your employment pursuant to this agreement is
earlier terminated by the Company for Cause (as hereinafter defined) or
terminated by you without Good Reason (as hereinafter defined), Entrade
shall pay to you a bonus prior to the end of each calendar year during the
term of this agreement in an amount determined in accordance with the
performance and other criteria set forth in the Bonus Plan to be adopted by
Entrade's Board of Directors.
Additional
Options and
Bonuses: While you are in the employ of the Company, you will be
granted such additional stock option awards and such additional bonuses as
determined from time to time by the Company's Board of Directors.
Term: The initial term of your employment shall commence as of
the date hereof and end as of December 31, 2002 (the "Initial Term").
Commencing on January 1, 2003, and on each anniversary thereafter, the term
of your employment shall automatically be extended for one additional year
(the "extended term") unless, not later than ninety (90) days preceding
such date, you or Entrade 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, Entrade should
terminate your employment for reasons other than Cause or if you terminate
your employment for Good Reason, you or your estate will be entitled post-
termination to a continuation of your base salary at its then current rate
through and until the later of (i) the end of the Initial Term or (ii) for
a period of six months from the date of the notice of termination (which
date shall be deemed and hereafter referred to as the "effective date of
termination.").
If Entrade 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 Entrade 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 or your base salary for a period of six (6) 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 sic (6) months after the effective date of termination.
<PAGE>
Change of
Control: Notwithstanding the provisions of the "Termination"
section hereof, in the event of a "Change in Control" (as hereinafter
defined), you shall be entitled to receive a lump-sum payment equal to your
base salary, at its then current rate, for a period of twenty-four (24)
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 "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of securities of Entrade representing
more than five percent (5%) of the combined voting power of Entrade's
currently outstanding securities as of the date of this Agreement becomes
the beneficial owner, directly or indirectly, of securities of Entrade
representing more than fifty percent (50%) of the combined voting power of
Entrade's then outstanding securities; or (b) the Board of Directors or
stockholders of Entrade approve a merger or consolidation of Entrade with
any other entity, other than (i) a merger or consolidation which would
result in the voting securities of Entrade outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
eight percent (80%) of the combined voting power of the voting securities
of Entrade or such surviving entity outstanding immediately after such
merger or consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of Entrade (or a similar transaction in which
no "person" who is not a beneficial owner, directly or indirectly, of
securities of Entrade representing more than five percent (5%) of the
combined voting power of Entrade's currently outstanding securities as of
the date of this Agreement acquires more than fifty percent (50%) of the
combined voting power of Entrade's then outstanding securities); or (c) the
Board of Directors or stockholders of Entrade approve a plan of complete
liquidation of Entrade or Entrade enters into an agreement for the sale or
other disposition of all or substantially all of Entrade's assets or
otherwise disposes of such assets.
Duties: As Executive Vice President of Business Development and
Marketing, you shall perform such duties that are consistent with your
position as an executive vice president of business development and
marketing of a publicly traded company as you shall be directed to perform
by the President or 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 Entrade operates or by the contracts and
agreements to which Entrade is subject.
You acknowledge that your office will require your full-
time efforts and attention, and that you shall not during
the term of your employment 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
<PAGE>
whether or not such other Person is in competition with
Entrade. Notwithstanding the foregoing, you shall be allowed to manage and
oversee passive investments in noncompeting businesses, provided that such
management and oversight do not interfere with the performance of your
duties for Entrade.
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 Entrade, or any of its
subsidiaries or affiliates, misappropriation of any money or other assets
or properties of Entrade, or that of its subsidiaries or affiliates, (ii)
willful violation of specific and lawful directions from the Entrade's
Board of Directors that are consistent with your duties described above,
(iii) the use of illegal drugs or substances in the work place, or (iv)
excessive tardiness, absenteeism, and/or poor work performance resulting
from the abuse of alcohol.
Good Reason: Good Reason includes any of the following
i. Failure by Entrade 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 Executive
Vice President of Business Development and Marketing;
iii. Diminution that you reasonably determine to be
material in your duties with Entrade, or interference that you reasonably
determine to be material and unreasonable in the performance of your duties
with Entrade, or assignment to you of duties that you reasonably determine
to be inconsistent with the position of Executive Vice President of
Business Development and Marketing of Entrade, unless the same is promptly
remedied to your reasonable satisfaction;
iv. Change in Control of Entrade;
v. Sale of other transfer of all or any substantial
part of Entrade's assets; or
vi. 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.
<PAGE>
Indemnification: Entrade 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 Entrade or
the fact that you are or were at any time serving or designated to serve as
a director, officer, or employee of Entrade or any of its subsidiaries or
affiliated entitles or in any other capacity at the request or on behalf of
Entrade or any of its subsidiaries or affiliated entities or by reason, or
(ii) any act or nonact on your part in connection therewith. The
obligations of Entrade under this Paragraph are absolute and unconditional,
will survive your death or disability, and will survive the termination of
your employment with Entrade 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 Entrade all
attorneys' fees and other costs and expenses in connection with enforcing
this agreement against Entrade and its successors.
Binding Effects: 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 Entrade, its
successors and assigns and will be binding upon, and enforceable against,
Entrade and its successors, including any successor by merger or
consolidation and any entity or entities that acquire all or substantially
all of Entrade's assets, and, unless Entrade makes other arrangements
satisfactory to you for the performance of its obligations under this
Agreement, Entrade 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.
<PAGE>
If the foregoing is acceptable you your, please sign and return a
copy to me.
Very truly yours,
/s/ Mark Santacrose
Mark Santacrose
President
Accepted:
/s/ Carrie L. Shea
- ------------------------------
Carrie L. Shea
Dated: March 9 , 2000
EXHIBIT 10.24
- -------------
ENTRADE INC.
500 CENTRAL AVENUE
NORTHFIELD, ILLINOIS 60093
(847) 441-6650
March 9, 2000
Norman Smagley
923 Marion
Highland Park, IL 60035
Dear Norm:
This letter is intended to set forth the terms and conditions under
which Entrade Inc. is offering to employ you as its Executive Vice
President and Chief Financial Officer, effective as of April 3, 2000.
Parties: Entrade Inc. ("Entrade" or the "Company") and Norman
Smagley (identified herein as "you").
Position: Your position will be Executive Vice President and Chief
Financial Officer, reporting to Entrade's President and its Board of
Directors.
Compensation: Your base salary ("base salary") for the remainder of
2000 will be at a rate not less than $200,000 per year, payable in
accordance with Entrade's usual payroll policies, and in no event will your
base salary be less than $200,000 per year during the term of this
agreement. You will be entitled to receive such increases in your base
salary as you and the Entrade Board of Directors may agree.
Stock Options: You will be granted an option to acquire 150,000 shares
of the Common Stock of Entrade (the "Option"), at the closing price for
such Common Stock on the date you commence your employment, or such other
date as your employment hereunder commences (the "Commencement Date"). The
terms and conditions of the Option shall be set forth in a Stock Option
Agreement to be executed by the parties; provided, however, that the
failure of Entrade to execute such a Stock Option Agreement shall not
relieve Entrade of its obligation to issue the Option otherwise in
accordance with the provisions of this paragraph. The expiration date of
the Option will be ten years from the grant date. The options subject to
the Option shall vest as to 50,000 shares of Common Stock on each of the
first three anniversaries of the Commencement Date and will thereafter be
fully exercisable as to all 150,000 shares of Common Stock.
<PAGE>
Lost Compensation
Reimbursement: Entrade acknowledges that, in accepting Entrade
employment at this time, you will be forfeiting substantial compensation to
which you would otherwise be entitled. To recompense you for such
forfeited compensation, Entrade shall pay you a bonus of $25,000 before the
end of April 2000.
Reimbursement
of Business
Expenses: The Company will reimburse you for all business-related
expenses that you incur in connection with the performance of your
responsibilities to Entrade.
Other Benefits: You will be eligible to participate in all Entrade
employee benefit plans including group health, dental, long-term
disability, 401(k), and life insurance.
Bonuses: Unless your employment pursuant to this agreement is
earlier terminated by the Company for Cause (as hereinafter defined) or
terminated by you without Good Reason (as hereinafter defined), Entrade
shall pay to you a bonus prior to the end of each calendar year during the
term of this agreement in an amount determined in accordance with the
performance and other criteria set forth in the Bonus Plan to be adopted by
Entrade's Board of Directors.
Additional
Options and
Bonuses: While you are in the employ of the Company, you will be
granted such additional stock option awards and such additional bonuses as
determined from time to time by the Company's Board of Directors.
Term: The initial term of your employment shall commence as of
the Commencement Date and end as of the third anniversary of the
Commencement Date (the "Initial Term"). Commencing on the third
anniversary of the Commencement Date and on each anniversary thereafter,
the term of your employment shall automatically be extended for one
additional year (the "extended term") unless, not later than ninety (90)
days preceding such date, you or Entrade 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, Entrade should
terminate your employment for reasons other than Cause or if you terminate
your employment for Good Reason, you or your estate will be entitled post-
termination to a continuation of your base salary at its then current rate
through and until the later of (i) the end of the Initial Term or (ii) for
a period of six months from the date of the notice of termination (which
date shall be deemed and hereafter referred to as the "effective date of
termination.").
<PAGE>
If Entrade 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 Entrade 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 or your base salary for a period of six (6) 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 emplyment until the later of (i) the end of the Initial Term, or (ii)
the date sic (6) months after the effective date of termination.
Change of
Control: Notwithstanding the provisions of the "Termination"
section hereof, in the event of a "Change in Control" (as hereinafter
defined), you shall be entitled to receive a lump-sum payment equal to your
base salary, at its then current rate, for a period of twenty-four (24)
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 "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of securities of Entrade representing
more than five percent (5%) of the combined voting power of Entrade's
currently outstanding securities as of the date of this Agreement becomes
the beneficial owner, directly or indirectly, of securities of Entrade
representing more than fifty percent (50%) of the combined voting power of
Entrade's then outstanding securities; or (b) the Board of Directors or
stockholders of Entrade approve a merger or consolidation of Entrade with
any other entity, other than (i) a merger or consolidation which would
result in the voting securities of Entrade outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
eight percent (80%) of the combined voting power of the voting securities
of Entrade or such surviving entity outstanding immediately after such
merger or consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of Entrade (or a similar transaction in which
no "person" who is not a beneficial owner, directly or indirectly, of
securities of Entrade representing more than five percent (5%) of the
combined voting power of Entrade's currently outstanding securities as of
the date of this Agreement acquires more than fifty percent (50%) of the
combined voting power of Entrade's then outstanding securities); or (c) the
Board of Directors or stockholders of Entrade approve a plan of complete
liquidation of Entrade or Entrade enters into an agreement for the sale or
other disposition of all or substantially all of Entrade's assets or
otherwise disposes of such assets.
<PAGE>
Duties: As Executive Vice President and Chief Financial Officer,
you shall perform such duties that are consistent with your position as an
executive vice president and chief financial officer of a publicly traded
company as you shall be directed to perform by the President or 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
Entrade operates or by the contracts and agreements to which Entrade is
subject.
You acknowledge that your office will require your full-
time efforts and attention, and that you shall not during
the term of your employment 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 Entrade.
Notwithstanding the foregoing, you shall be allowed to manage and oversee
passive investments in noncompeting businesses, provided that such
management and oversight do not interfere with the performance of your
duties for Entrade.
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 Entrade, or any of its
subsidiaries or affiliates, misappropriation of any money or other assets
or properties of Entrade, or that of its subsidiaries or affiliates, (ii)
willful violation of specific and lawful directions from the Entrade's
Board of Directors that are consistent with your duties described above,
(iii) the use of illegal drugs or substances in the work place, or (iv)
excessive tardiness, absenteeism, and/or poor work performance resulting
from the abuse of alcohol.
Good Reason: Good Reason includes any of the following
i. Failure by Entrade 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 Executive
Vice President and Chief Financial Officer;
iii. Diminution that you reasonably determine to be
material in your duties with Entrade, or interference that you reasonably
determine to be material and unreasonable in the performance of your duties
with Entrade, or assignment to you of duties that you reasonably determine
to be inconsistent with the position of Executive Vice President and Chief
Financial Officer of Entrade, unless the same is promptly remedied to your
reasonable satisfaction;
<PAGE>
iv. Change in Control of Entrade;
v. Sale of other transfer of all or any substantial
part of Entrade's assets; or
vi. 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: Entrade 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 Entrade or
the fact that you are or were at any time serving or designated to serve as
a director, officer, or employee of Entrade or any of its subsidiaries or
affiliated entitles or in any other capacity at the request or on behalf of
Entrade or any of its subsidiaries or affiliated entities or by reason, or
(ii) any act or nonact on your part in connection therewith. The
obligations of Entrade under this Paragraph are absolute and unconditional,
will survive your death or disability, and will survive the termination of
your employment with Entrade 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 Entrade all
attorneys' fees and other costs and expenses in connection with enforcing
this agreement against Entrade and its successors.
Binding Effects: 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 Entrade, its
successors and assigns and will be binding upon, and enforceable against,
Entrade and its successors, including any successor by merger or
consolidation and any entity or entities that acquire all or substantially
all of Entrade's assets, and, unless Entrade makes other arrangements
satisfactory to you for the performance of its obligations under this
Agreement, Entrade 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.
<PAGE>
If the foregoing is acceptable you your, please sign and return a
copy to me.
Very truly yours,
/s/ Mark Santacrose
Mark Santacrose
President
Accepted:
/s/ Norman Smagley
- ------------------------------
Norman Smagley
Dated: March 9, 2000
EXHIBIT 10.34
- -------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
This Note and Warrant Purchase Agreement (the "Agreement") is made as
of the 15th day of May, 2000 by and between ENTRADE INC., a Pennsylvania
corporation with its principal place of business at 500 Central Avenue,
Northfield, Illinois 60093 (the "Company") and the persons listed on
Exhibit A attached hereto (individually a "Purchaser" and collectively the
"Purchasers").
RECITALS
--------
A. The Company is undertaking the placement and sale of certain
Secured Promissory Notes due July 15, 2001, in an aggregate amount not to
exceed Seven Million Dollars and No/100 ($7,000,000) (the "Notes") with
Warrants (as hereinafter defined). The Notes are payable in accord with
the terms thereof, with interest at a rate of fifteen percent (15%) per
annum, which interest begins to accrue on the date of the Notes, and is
payable commencing on August 15, 2000, and continuing on the fifteenth
(15th) of November, 2000, the fifteenth (15th) day of February, 2001, the
fifteenth (15th) day of May, 2001, and including July 15, 2001. The Notes
are due and payable in full on July 15, 2001 (the "Maturity Date"). The
Notes shall be secured by a pledge by the Company of one hundred percent
(100%) of all of the issued and outstanding stock of Asset Liquidation
Group, Inc., a Nevada corporation ("ALG"), and Public Liquidation Systems,
Inc., a Nevada corporation ("PLS").
B. Purchaser will receive from the Company a Warrant (the
"Warrant") to purchase common stock of the Company equal to the face amount
of its Note or Notes purchased by the Purchaser divided by twenty five (25)
at a price of Sixteen Dollars and 21/100 ($16.21) per share (the "Warrant's
Shares").
C. The Purchaser acknowledges that it has received in conjunction
with the offer and sale of the Notes and the Warrants information supplied
by the Company to the Purchaser sufficient to allow the Purchaser to make
its own credit analysis of the Company and its own decision to enter into
this Agreement.
In consideration of the mutual promises, representations, warranties
and conditions set forth in the Agreement, the Company and the Purchaser
agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 ISSUE OF NOTES AND WARRANTS.
(a) The Company has authorized the issuance and sale of
up to $7,000,000 on Secured Promissory Notes and up to 280,000 Warrant
Shares pursuant to the provisions of this Agreement.
(b) In reliance upon the Purchaser's representations
and warranties contained in Section 4 hereof, and subject to the terms and
conditions set forth herein, the Company hereby agrees to sell to the
Purchaser the aggregate amount of Notes set forth below the Purchaser's
signature on the page bearing the Purchaser's name. With respect to Don
Haidl and Corey P. Schlossmann, such sale of Notes shall be for cash and an
exchange of obligations owed to Mr. Haidl and Mr. Schlossmann by the
Company.
<PAGE>
(c) In reliance upon the representations and warranties
of the Company contained herein, and subject to the terms and conditions
set forth herein, the Purchaser hereby agrees to purchase the amount of
Notes set forth on the page bearing the Purchaser's name. The Purchaser
shall be liable for only the amount of Notes that appear on the page hereof
that relates to the Purchaser.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING. The closing of the sale and purchase of the
Notes under this Agreement (the "Closing") shall be as of May 15, 2000 (the
"Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser, the Notes
subscribed for by the Purchaser, dated as of the Closing Date, and
Warrants, against payment of the purchase price therefor by wire transfer,
unless other means of payment shall have been agreed upon by the Purchaser
and the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the
date hereof as follows, and all such representations and warranties shall
be true and correct as of the Closing Date as if then made and shall
survive until such time as the Notes have been paid in full (for purposes
of this Section 3, ALG and PLS are each a "Subsidiary" and collectively,
the "Subsidiaries" and representations and warranties made herein as to
"each Subsidiary" or to "Subsidiary" shall mean representations and
warranties as to each such entity):
3.1 ORGANIZATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Company has all requisite power and
authority to own or lease its properties and to conduct its businesses as
now conducted. The Company holds all licenses and permits required for the
conduct of its business as now conducted, which, if not obtained, would
have a material adverse effect on the business, financial condition or
results of operations of the Company taken as a whole. The Company is
qualified as a foreign or domestic corporation and is in good standing in
all states where the conduct of its business or its ownership or leasing of
property requires such qualification, except where failure to so qualify
would not have a material adverse effect on the business, financial
condition or results of operations of the Company taken as a whole.
3.2 AUTHORITY. The Company has all requisite corporate power
and authority to enter this Agreement and to issue the Notes and Warrants,
and that certain Registration Rights Agreement of even date herewith (the
"Registration Rights Agreement") that certain Pledge Agreement of even date
herewith (the "Pledge Agreement"), and that certain Creditors Agreement of
even date herewith (the "Creditors Agreement"), and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement, the Registration Rights Agreement, the Pledge Agreement,
the Creditors Agreement and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Company, and upon their execution and
delivery by the Company, such documents will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except (i) as the indemnification provisions of the
Registration Rights Agreement may be limited by principles of public
policy, and subject as to enforceability to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditor's rights from time to time in effect and subject to
general equity principles or (ii) for obtaining shareholder approval for
the issuance of the Warrants (and common stock to be issued upon exercise
of such Warrants) to Mr. Haidl and Mr. Schlossmann, which is required by
the exchange rules of the New York Stock Exchange.
<PAGE>
3.3 ISSUANCE OF THE NOTES. Except for obtaining shareholder
approval for the issuance of the Warrants (and common stock to be issued
upon exercise of such Warrants) to Mr. Haidl and Mr. Schlossmann, which is
required by the exchange rules of the New York Stock Exchange, the Notes
when issued against payment therefor pursuant to the terms of this
Agreement, and the issuance of the Warrants in conjunction therewith, each
will be: (i) duly and validly authorized and issued, fully paid and
nonassessable; and (ii) free of all liens and encumbrances excepting only
restrictions on transfer created by state and federal law.
3.4 NO CONFLICT WITH LAW OR DOCUMENTS. The execution,
delivery and consummation of this Agreement, the Registration Rights
Agreement, the Pledge Agreement and the transactions contemplated hereby
and thereby will not: (a) conflict with any provisions of the certificate
of incorporation of the Company, as amended to date, or the bylaws of the
Company, as amended to date, or (b) result in any violation of or default
or loss of a benefit under, or permit the acceleration of any obligation
under (in each case, upon the giving of notice, the passage of time, or
both) any mortgage, indenture, lease, agreement or other instrument permit,
franchise, license, judgement order, decree, law, ordinance, rule or
regulation applicable, to the Company, or its properties, including, but
not limited to, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
3.5 CONSENTS, APPROVALS AND PRIVATE OFFERING. Except for (i)
any filings required under federal and applicable state securities laws,
all of which shall have been made as of the Closing Date to the extent
required as of such time, and (ii) for obtaining shareholder approval for
the issuance of the Warrants (and common stock to be issued upon exercise
of such Warrants) to Mr. Haidl and Mr. Schlossmann, which is required by
the exchange rules of the New York Stock Exchange, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
federal, state, local or foreign governmental authority is required to be
made or obtained by the Company in connection with the execution and
delivery of this Agreement, the Registration Rights Agreement, the Pledge
Agreement and the consummation of the transactions contemplated hereby and
thereby.
3.6 LITIGATION. Except as disclosed on Schedule 1, to the
Company's knowledge, there are no actions, suits, proceedings or
investigations pending against or affecting the Company or any subsidiary
that in the aggregate could reasonably be anticipated to result in any
material adverse effect on the Company or any subsidiary.
3.7 ORGANIZATION AND QUALIFICATION. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has the corporate power to carry on its
business as it is now being conducted or currently proposed to be
conducted. Each Subsidiary is duly qualified or licensed to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under license or lease or the nature of its
activities makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed will not have a material adverse
effect on the business, properties, assets, condition (financial or
otherwise), liabilities, operations or prospects of such Subsidiary or a
material adverse effect on such Subsidiary's ability to consummate the
transactions contemplated hereby (a "Subsidiary Material Adverse Effect").
Each Subsidiary is not subject to or obligated under (i) any charter,
by-law, indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation
applicable to it or its respective properties or assets, which would be
breached or violated, or under which there would be a default (with or a
right of termination, cancellation or acceleration of any obligation or the
<PAGE>
loss of a material benefit, by its executing and carrying out this
Agreement or any of the other agreements referenced in Section 3.2 herein,
other than, in the case of clause (ii) only, (A) any breaches, violations,
defaults, terminations cancellations, accelerations or losses which, either
singly or in the aggregate, will not prevent the consummation of the
transactions contemplated hereby and thereby and (B) the laws and
regulations referred to in the next sentence. No filing or registration
with, or authorization, consent or approval of, any public body or
authority is necessary for the consummation of this Agreement or any of
the other agreements referenced in Section 3.2 herein, other than filings,
registrations, authorizations, consents or approvals the failure of which
to make or obtain would not prevent the consummation of the transactions
contemplated hereby or thereby.
3.8 CAPITALIZATION. The Pledged Collateral (as defined in
the Pledge Agreement) includes all of the issued and outstanding shares of
each Subsidiary, all of which is owned by the Company. All issued and
outstanding shares were validly issued and outstanding, fully paid and
nonassessable have been no material changes in such numbers of shares
through the date hereof. As of the date hereof, there are no bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which a Subsidiary's shareholders may vote ("Voting
Debt") issued or outstanding. As of the close of business on the date
hereof there are no options, warrants, calls or other rights, agreements or
commitments presently outstanding obligating each Subsidiary to issue,
deliver or sell shares of its capital stock or debt securities, or
obligating each Subsidiary to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment. There are no
outstanding stock appreciation rights, restricted stock grant or contingent
stock grant, and, there are no other outstanding contractual rights to
which the Subsidiary is a party (other than Subsidiary Benefit Plans) the
value of which is derived from the financial performance of each Subsidiary
or the value of shares of the common stock of each Subsidiary. Each
Subsidiary owns no equity interest, including any partnership, limited
liability company or joint venture interest in any other entity or person.
3.9 FINANCIAL STATEMENTS. The unaudited financial statements
and unaudited interim financial statements of the Subsidiary dated December
31, 1999 and March 31, 2000, respectively, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of the Subsidiary as at the dates thereof
and the results of their operations and changes in financial position for
the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any other
adjustments described therein. Subsidiary has no liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due), including any liability for taxes or for
vacation, except for (i) liabilities set forth on the face of the balance
sheet dated as of March 31, 2000, (the "Most Recent Fiscal Quarter End"),
and (ii) liabilities which have arisen after the Most Recent Fiscal Quarter
End in the ordinary course of business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law) and
none of which are in excess, in any material respect from budgeted amounts.
All of the accounts receivable of the Subsidiary shown on the Most Recent
Fiscal Quarter End balance sheet or arising thereafter arose in the
ordinary course of its business. The values at which accounts receivable
are carried reflect the accounts receivable valuation policy of the
Subsidiary which is consistent with past practice and in accordance with
GAAP (applied on a consistent basis throughout the period involved).
<PAGE>
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 19,
1999, since there has not been any:
(i) change in the condition (business, financial or
otherwise), assets, liabilities, earnings or business of Subsidiary,
except for changes which have occurred in the ordinary course of business
and which have not, individually or in the aggregate, been materially
adverse to Subsidiary;
(ii) (A) change in the number of shares of capital stock
of the Subsidiary issued and outstanding, (B) declaration, setting aside,
or payment of any dividend or other distribution (whether in cash,
securities, property or otherwise) in respect of the Subsidiary's capital
stock, or (C) payment to any stockholder of Subsidiary or any affiliate of
any stockholder of Subsidiary (whether in cash, securities, property or
otherwise) in respect of any service fee, management fee or similar
overhead charge;
(iii) (A) increase in the compensation payable or to
become payable by Subsidiary to any of its officers, directors, employees,
independent contractors or agents (collectively " Personnel"), other than
increases in employee compensation given in the ordinary course of
business, or increases in compensation to management that do no exceed,
annualized with respect to any one individual, $20,000, (B) any bonus,
incentive compensation, service award or other like benefit, granted, made
or accrued, contingently or otherwise, to or for the credit of any
Personnel, or (C) any employee welfare, pension, retirement, profit-sharing
or similar payment or arrangement made or agreed to by the Subsidiary
except pursuant to the plans and arrangements existing on October 19, 1999;
(iv) significant labor trouble, controversies or
unsettled grievances between Subsidiary and any Personnel or any collective
bargaining organization representing or seeking to represent any Personnel;
(v) addition to or modification of the employee benefit
plans, arrangements or practices existing on October 19, 1999, other than
(A) accruals or contributions made in accordance with the normal practices
of the Subsidiary or (B) the extension of coverage to other Personnel who
became eligible after the Most Recent Fiscal Quarter End balance sheet
date;
(vi) mortgage, pledge or subjection to any encumbrance of
any of the Subsidiary's assets except (A) the lien of current real and
personal property taxes incurred but not yet due and payable or (B) liens
or obligations arising in the ordinary course of business securing
obligations not yet due and payable;
(vii) sale, assignment or transfer of any assets of
Subsidiary material, individually or in the aggregate, to its business as
presently conducted (hereinafter, " Business"), other than sales of
inventory in the ordinary course of business;
(viii) waiver of any rights which, in the aggregate, were
of substantial value to the Business, whether or not in the ordinary course
of business;
(ix) any amendment, breach, default, cancellation or
termination, or any threat thereof, of any contract or other agreement
material to the Business by any party thereto, other than in the ordinary
course of business, it being understood and agreed that a consignment
agreement will be considered "material" for purposes of this sub-section
only if it involves annual gross auction proceeds in excess of $100,000;
<PAGE>
(x) liability incurred by Subsidiary except immaterial
liabilities incurred in the ordinary course of business consistent in both
kind and amount with past practices of the Subsidiary;
(xi) any capital expenditure or the execution of any
capital leases with respect to any aspect of the business of Subsidiary, or
any incurring of liability therefor, involving payments in excess of
$250,000 individually or in the aggregate;
(xii) borrowing of any money by Subsidiary, except
pursuant to an existing line of credit with Imperial Bank, or guaranteeing
of any indebtedness of others;
(xiii) lending of any money or otherwise pledging the
credit of Subsidiary except in the ordinary course of business;
(xiv) failure to pay any material current obligations of
the Subsidiary when due and payable in accordance with the respective terms
of such obligations;
(xv) agreement or undertaking by Subsidiary to do any of
the foregoing; or
(xvi) other event or condition of any character which
individually or in the aggregate has materially adversely affected, or any
event or condition known to the Subsidiary which it is reasonable to expect
will, individually or in the aggregate, materially adversely affect in the
future, the condition (business, financial or otherwise), assets,
liabilities, earnings, liquidity, prospects or business of Subsidiary.
3.11 LITIGATION. Except as disclosed on Schedule 1, there is
no legal, administrative, arbitral or other proceeding, claim, action, or
governmental or regulatory investigation of any nature pending or, to the
knowledge of the Subsidiary, threatened against or affecting the Subsidiary
nor is there any reasonable basis for any such proceeding, claim, action or
investigation, which, alone or in the aggregate, could reasonably be
expected to have a Subsidiary Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, instrumentality or arbitrator outstanding against
Subsidiary. There are no controversies pending nor, to the knowledge of
the Subsidiary, any basis for any such controversies, between the
Subsidiary and any of its employees, which controversies have had or may
have a Subsidiary Material Adverse Effect.
3.12 EMPLOYEE BENEFIT PLANS AND OTHER EMPLOYMENT MATTERS.
Subsidiary: (i) does not maintain any material employee benefit or
compensation plans, agreements or arrangements, including "employee benefit
plans," as defined in Section 3(3) of ERISA, and including, but not limited
to, plans, agreements or arrangements relating to former employees,
including, but not limited to, retiree medical plans (together, the
"Subsidiary Benefit Plans") except as described or shown on the financial
statements referenced above, or (ii) is not a party to collective
bargaining agreements. An entity maintains a plan if it sponsors it,
contributes to it, adopts it, or is obligated, actually or contingently, to
contribute to it. Since December 31, 1999, there have been no disputes or
grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation involving the Subsidiary or under
such Subsidiary Benefit Plans, which have not been finally resolved,
settled or otherwise disposed of, nor is there any default, or any
condition which, with notice or lapse of time or both, would constitute
such a default, under any such Plans, by the Subsidiary or, to the best
knowledge of the Subsidiary, any other party thereto, which failure to
resolve, settle or otherwise dispose of or default, alone or in the
aggregate, would have a Subsidiary Material Adverse Effect. Since
December 31, 1999, there have been no strikes, lockouts or work stoppages
or slowdowns, or to the best knowledge of the Subsidiary , jurisdictional
disputes or organizing activity occurring or threatened with respect to the
<PAGE>
business or operations of the Subsidiary or its subsidiaries which have had
or would have a Subsidiary Material Adverse Effect.
3.13 COMPLIANCE WITH APPLICABLE LAWS. To the knowledge of the
Subsidiary, Subsidiary holds all permits, licenses, variances, exemptions,
orders and approvals of all governmental entities (including all
authorizations under environmental laws), except for such permits,
licenses, variances, exemptions, orders and approvals the failure of which
to hold would not have a Subsidiary Material Adverse Effect (the
"Subsidiary Permits"). Except for obtaining shareholder approval for the
issuance of the Warrants (and common stock to be issued upon exercise of
such Warrants) to Mr. Haidl and Mr. Schlossmann, which is required by the
exchange rules of the New York Stock Exchange, the Subsidiary is and at all
time prior hereto has been, in compliance with all applicable laws, rules
and regulations and with the terms of the Subsidiary Permits, except for
such failures to comply, which singly or in the aggregate do not and would
not have a Subsidiary Material Adverse Effect. To the knowledge of the
Subsidiary, no investigation or review by any governmental entity with
respect to the Subsidiary is pending, or, to the knowledge of the
Subsidiary, threatened, nor has any governmental entity indicated an
intention to conduct the same, other than those the outcome of which would
not reasonably be expected to have a Subsidiary Material Adverse Effect.
3.14 TAXES. Subsidiary has filed all tax returns required to
be filed by it and has paid (or the Company has paid on its behalf), or has
set up an adequate reserve for the payment of, all taxes required to be
paid in respect of the periods covered by such returns (except where the
failure to pay would not have a Subsidiary Material Adverse Effect). The
information contained in such tax returns is true, complete and accurate in
all material respects. Subsidiary is not delinquent in the payment of any
tax, assessment or governmental charge, except where such delinquency would
not have a Subsidiary Material Adverse Effect. No deficiencies for any
taxes have been proposed, asserted or assessed against the Subsidiary that
have not been finally settled or paid in full, which would have a
Subsidiary Material Adverse Effect, and no requests for waivers of the time
to assess any such tax are pending. The federal income tax returns of the
Subsidiary have been examined by and settled with the Internal Revenue for
all years through 1993. The term "tax" shall include all federal, state,
local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise and other taxes,
duties and assessments of any nature whatsoever together with all interest,
penalties and additions imposed with respect to such amounts. The
Subsidiary has not waived any statute of limitations in respect of taxes or
agreed to any extension of time with respect to a tax assessment or
deficiency. Subsidiary has not filed a consent under Section 341(f) of the
Internal Revenue Code ("Code") concerning collapsible corporations, and
neither has made any payments, nor is obligated to make any payments, and
is not a party to any agreement that under circumstances could obligate it
to make any payments that will not be deductible under Section 280G of the
Code. Subsidiary has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii). Subsidiary has
disclosed on their respective federal income tax returns all positions
taken therein that could give rise to an understatement of federal income
tax within the meaning of Section 6662 of the Code. The Subsidiary (i) is
not a party to any tax allocation or sharing agreement, (ii) has not been a
member of an affiliated group filing a consolidated federal income Tax
Return or (iii) does not have any liability for taxes of any person (other
than itself) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foregoing law), as a transferee or successor,
by contract or otherwise.
<PAGE>
3.15 TITLE. Except as disclosed in the Most Recent Financial
Statements, Subsidiary is the sole and exclusive legal and equitable owner
of all right, title and interest in, and has good title to, or a valid
leasehold or license interest in, all of its material assets (real,
personal and fixed, tangible and intangible), free and clear of any and all
liens, claims, charges or encumbrances other than Permitted Liens. As
used herein, "Permitted Liens" means (i) liens for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate and actual reserves have been established in accordance with
GAAP (applied on a consistent basis and consistent with prior practice) and
are reflected on the Most Recent Financial Statements, (ii) inchoate
mechanics' liens with respect to which no default (or event which, with
notice or lapse of time or both, would constitute a default) exists, and
(iii) other liens arising in the ordinary course of business, which would
not, in the aggregate, have a Subsidiary Material Adverse Effect and which
do not secure obligations for borrowed money.
3.16 INTELLECTUAL PROPERTY. "Intellectual Property" means (i)
all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions
and reexaminations thereof, (ii) all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all
translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrights,
and all applications, registrations and renewals in connection therewith,
(iv) all trade secrets and confidential business information, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals, (v) all computer software and information systems and
programs, (including data and related documentation), whether owned or
leased, (vi) all other proprietary rights and (vii) all copies and tangible
embodiments of the items described in (i) through (vi) (in whatever form or
medium). The Subsidiary is the owner of all right, title and interest free
and clear of all liens or has the right to use pursuant to license,
sublicense, agreement or permission ("License") all such Intellectual
Property necessary to conduct its business in the ordinary course. The
Subsidiary has taken all necessary action to maintain and protect each item
of Intellectual Property that it owns or uses and has never granted any
License or similar right to any third party (other than its affiliates and
employees) with respect to such Intellectual Property. Subsidiary is not in
default (and with the giving of notice or lapse of time or both, will not
be in default) in any material respect under any License to use such
Intellectual Property. Subsidiary has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any party from whom the Subsidiary has obtained the
right to use Intellectual Property pursuant to license, sublease, agreement
or permission or any other third party. Subsidiary has never received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that the
Subsidiary must license or refrain from using any Intellectual Property
rights of any third party). No third party has interfered with, infringed
upon, misappropriated or otherwise come into conflict with any Intellectual
Property rights of the Subsidiary.
3.17 ENVIRONMENTAL. Except for the requirement by the City of
Benicia, California to construct a storm drain to capture run-off, (i) all
present and former activities of the Subsidiary and all real property owned
or leased by Subsidiary (the "Subsidiary Real Property") complies in all
material respects with all applicable Environmental Laws; (ii) none of the
operations of the Subsidiary is subject to any judicial or administrative
proceeding alleging the violation of any Environmental Law; (iii) the
Subsidiary is not the subject of any federal, state or local investigation
concerning any use, release, discharge or disposal of any Hazardous
Substance, except for any such investigation conducted entirely without
notice to the Subsidiary, without entry to any facility of the Subsidiary
and of which the Subsidiary has no knowledge; (iv) to the knowledge of the
Subsidiary, no predecessor-in-title to or former operator of any Subsidiary
<PAGE>
Real Property has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of a hazardous waste or
reporting a spill or release of a Hazardous Substance into the environment;
(v) Subsidiary has no liability under or any Environmental Law, in
connection with the transportation, release, discharge or disposal by or at
the direction of the Subsidiary of any Hazardous Substance into the
environment and no release by the Subsidiary or its affiliates which could
require investigation or remediation has occurred; (vi) none of the
Subsidiary's operations on the Subsidiary Real Property involves the
generation, transportation, treatment, storage or disposal of Hazardous
Substances other than in compliance with all applicable laws, rules and
regulations; and (vii) except in accordance with applicable laws, the
Subsidiary has not disposed of any Hazardous Substance in, on or about the
Subsidiary Real Property or any other location. To the Knowledge of the
Subsidiary, (A) no underground storage tanks have been located on the
Subsidiary Real Property, (B) no Subsidiary Real Property has been used at
any time as a gasoline service station or any other facility for storing,
pumping, dispensing or producing gasoline or any other petroleum products
or wastes and (C) no building or other structure constituting part of the
Subsidiary Real Property contains or contained asbestos. To the knowledge
of the Subsidiary, there are and were no incinerators, septic tanks or
cesspools on the Subsidiary Real Property and all waste from or on the
Subsidiary Real Property was discharged into a public sanitary sewer
system. "Environmental Laws" means federal, state, local and foreign laws,
statutes and ordinances, principles of common law, rules, regulations and
codes, as well as orders, decrees, judgments or injunction issued,
promulgated approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment, or to safety or
health, or to foods or drugs, including, but not limited to, any of the
same relating to (w) generation, treatment, storage, disposal or
transportation of wastes, emissions or discharges or protection of the
environment from the same; (x) noise; (y) exposure to Hazardous Materials;
or (z) regulation of the manufacture, processing, distribution in commerce
or use of chemical substances, food and drug products, ingredients and
additives, insecticides and pesticides, including without limitation the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act, the Federal Hazardous Materials
Transportation Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Federal Oil Pollution Act,
and the regulatory programs of the U.S. Environmental Protection Agency,
the U.S. Food and Drug Administration, the U.S. Department of
Transportation, the U.S. Department of Agriculture, and the U.S.
Occupational Safety and Health Administration, in each case as amended and
including their state and local analogs. "Hazardous Substance" means any
toxic substance or waste, pollutant, hazardous substance or waste,
contaminant, insecticide, pesticide, special waste, industrial substance or
waste, petroleum or petroleum-derived substance or waste, radioactive
substance or waste, or any constituent of any such substance or waste,
including without limitation any such substance or waste regulated under or
defined by or pursuant to any Environmental Law, including petroleum and
petroleum byproducts. "Release" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the environment or into or out of any property,
including the movement of Hazardous Substance thorough or in the air, soil,
surface water, ground water or property.
3.18 TITLE TO ASSETS; LIENS. To the knowledge of the
Subsidiary, (a) the Subsidiary has sufficiently good and valid title to, or
an adequate leasehold interest in, its material tangible personal
properties and assets in order to allow it to conduct, and continue to
conduct, its business as currently conducted or as the Subsidiary proposes
to conduct such business, (b) such material tangible personal assets and
properties are sufficiently free of liens to allow Subsidiary to conduct,
and continue to conduct, its business as currently conducted, or as the
Subsidiary proposes to conduct such business and, (c) the consummation of
the transactions contemplated by this Agreement will not alter or impair
such ability in any respect which individually or in the aggregate would be
reasonably likely to have a Subsidiary Material Adverse Effect. Subsidiary
<PAGE>
enjoys peaceful and undisturbed possession under all material leases,
except for such breaches of the right to peaceful and undisturbed
possession that do not materially interfere with the ability of the
Subsidiary to conduct its business as currently conducted.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents, warrants and covenants with the
Company as follows:
4.1 LEGAL POWER. Purchaser has the requisite power to enter
into this Agreement and the Registration Rights Agreement, to purchase the
Warrants and Notes hereunder, and to carry out and perform its obligations
under the terms of this Agreement and the Registration Rights Agreement.
4.2 DUE EXECUTION. Each of this Agreement and the
Registration Rights Agreement will be valid and binding agreements of the
Purchaser.
4.3 INVESTMENT REPRESENTATIONS.
(a) Purchaser is acquiring the Notes for its own
account, not as nominee or agent, for investment and not with a view to or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Act"),
except pursuant to an effective registration statement under the Act.
(b) Purchaser understands that: (i) neither the Notes
nor the Warrants have been registered under the Act by reason of a specific
exemption therefrom, and may not be transferred or resold except pursuant
to an effective registration statement or exemption from registration; (ii)
each certificate representing the shares issuable pursuant to the Warrants
(unless such shares have been registered prior to the exercise of such
Warrants) will be endorsed with the following legends:
(A) THE SECURITIES REPRESENTED HEREBY HAVE NOT )BEEN
REGISTERED UNDER THE ACT, OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT AN OPINION OF COUNSEL WILL
NOT BE REQUIRED FOR SALES OR TRANSFERS MADE PURSUANT TO RULE 144 UNDER THE
ACT; and
(B) Any legend required to be placed thereon by applicable
federal or state securities laws;
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the
foregoing legends are satisfied.
(c) Purchaser has been furnished with such materials
and has been given access to such information relating to the Company as it
or its qualified representative has requested and has been afforded the
opportunity to ask questions regarding the Company and the Notes, all as
Purchaser has found necessary to make an informed investment decision.
(d) Purchaser is an "accredited investor" as such term
is defined in Rule 501 of the Act.
(e) Purchaser is not a resident of Canada or any
territory thereof.
4.4 USE OF PROCEEDS. Purchasers acknowledge that they have
been advised by the Company that the proceeds of the Notes are to be used
by the Company for working capital.
<PAGE>
5. COVENANTS OF THE COMPANY.
5.1 INFORMATION. The Company will promptly furnish to each
holder of Notes or Warrants: (i) as soon as available, and in any event
within ninety (90) days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for
such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all prepared in accordance with
generally accepted accounting principles and reported on by independent
certified public accountants of recognized national standing; and (ii) as
soon as available, and in any event within forty five (45) days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such quarter and the related
consolidated statements of income and stockholders' equity (together with
any other quarterly financial statements being prepared by the Company at
such time), setting forth in each case in comparative form the figures for
the corresponding quarter and the corresponding portion of the Company's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
5.2 CONDUCTING THE OFFERING. The Company will conduct the offering
under Regulation D of the Act, and the Company represents as follows:
(a) SALES TO ACCREDITED INVESTORS. The Company will only
make offers and sales of the Notes to the Purchaser if the Company
reasonably believes the Purchaser is an "accredited investor" as that term
is defined in Rule 501(a) under the Act.
(b) REGULATION D COMPLIANCE. Offers and sales of Notes will
be made in compliance with Regulation D, and the Company has not and shall
not offer to sell the Notes by any form of general solicitation or general
advertising that is prohibited by Rule 502(c) promulgated under the Act.
(c) COMPLIANCE GENERALLY. The Company has and will observe
all securities laws and regulations applicable to it in any jurisdiction in
which it has or may offer, sell or deliver Notes and it will not, directly
or indirectly, offer, sell or deliver Notes or distribute or publish any
prospectus, circular, advertisement or other offering material in relation
to the Notes in or from any state in the United States or country or
jurisdiction except under circumstances that will result in compliance with
any applicable laws and regulations,
(d) BLUE SKY COMPLIANCE. The Company will comply with the
state securities or blue sky laws of each state in which Notes will be
offered.
5.3 NOTICE OF CERTAIN EVENTS. In case at any time:
(a) The Company declares any cash dividend on its common
stock at a rate in excess of the rate of the last cash dividend theretofore
paid;
(b) The Company pays any dividend payable in stock upon its
common stock or make any distribution (other than regular cash dividends)
to the holders of is common stock;
(c) The Company offers for subscription pro rata to the
holders of its common stock any additional shares of stock of any class or
other rights;
<PAGE>
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company or consolidation or
merger of the Company with another corporation (other than a subsidiary of
the Company in which is the surviving or continuing corporation and no
change occurs in the Company's common stock), or sale of all or
substantially all of its assets to, another corporation; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give
written notice, by first class mail, postage prepaid, addressed to the
holder of each Warrant at the address of such holder as shown on the books
of the Company (i) the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or (ii) the date (or, if not then known, a reasonable approximation
thereof by) on which such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify (or, if not then known,
reasonably approximate) the date as of which the holders of common stock of
record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their common stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as
the case may be. Such written notice shall be given at least ten (10) days
prior to the action in question and not less than ten days prior to the
record date or the date on which the Company's transfer books are closed in
respect thereto. The failure to give the notice required by this Section
5.3 or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The
Purchaser's obligation to purchase the Notes at the Closing is subject to
the fulfillment, at or prior to such Closing, of all of the following
conditions.
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and
as of said date; the business, assets, financial condition and results of
operations of the Company shall not have been adversely affected in any
material way prior to the Closing Date; and the Company shall have
performed all obligations and conditions herein required to be performed by
it on or prior to the Closing Date.
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the Notes pursuant to
this Agreement shall have been duly obtained and shall be effective on and
as of the Closing Date. No stop order or other order enjoining the sale of
the Notes shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission ("SEC"), or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the
Notes shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
<PAGE>
(d) NOTES. The Company shall have entered into and
delivered the Notes.
(e) WARRANTS. The Company shall have entered into and
delivered the Warrants.
(f) REGISTRATION RIGHTS AGREEMENT. The Company shall
have entered into and delivered the Registration Rights Agreement.
(g) PLEDGE AGREEMENT. The Company shall have entered
into the Pledge Agreement and delivered the Pledge Agreement and the shares
of ALG and PLS to the pledgee under the Pledge Agreement to be held for the
benefit of the Purchaser.
(h) CREDITORS AGREEMENT. The Company and each
Purchaser shall have entered into and delivered the Creditors Agreement.
(i) COLLATERAL AGENCY AGREEMENT. The Company shall
have entered into and delivered the Collateral Agency Agreement.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Notes at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct at the Closing Date with the same force and effect as if they had
been made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have
performed and complied with all agreements and conditions herein required
to be performed or complied with by it on or before the Closing Date, and
the Purchaser shall have delivered payment to the Company in respect of his
purchase of Notes and, each Purchaser shall have entered into (i) a
Subscription Agreement, (ii) the Registration Rights Agreement, (iii) the
Collateral Agency Agreement and (iv) the Creditors Agreement (all of which,
except the Subscription Agreement, are referred to in Section 6.1).
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection
with the lawful sale and issuance of the Notes pursuant to this Agreement
shall have been duly owned and shall be effective on and as of the Closing
Date. No stop order or other order enjoining the sale of the Notes shall
have been issued and no proceedings for such purpose shall be pending or,
to the knowledge of the Company, threatened by the SEC or any commissioner
of corporations or similar officer of any state having jurisdiction over
this transaction. At the time of the Closing, the sale and issuance of the
Notes shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the internal laws of the State of Illinois.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and
be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
<PAGE>
7.3 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto, constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically
set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties
hereto and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
7.4 SEPARABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and
to retain as nearly as practicable the intent of the parties, and the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
7.5 AMENDMENT WAIVER. Except as otherwise provided herein,
any term of this Agreement may be amended, and the observance of any term
of this Agreement may be waived (either generally or, in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely), with the written consent of the Company
and the Purchaser. Any amendment or waiver effected in accordance with
this section shall be binding upon each future holder of any security
purchased under this Agreement (including securities into which such
securities have been converted) and the Company.
7.6 NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon personal delivery, on the first business day following mailing
by overnight courier, or on the fifth day following mailing by certified
mail, return receipt requested, postage prepaid, addressed to the Company
at 500 Central Avenue, Northfield, Illinois 60093, with a copy to Duane,
Morris & Heckscher LLP, 227 West Monroe Street, Chicago, Illinois 60606,
Attention: Eric M, Fogel, Esq. and to each Purchaser at the address set
forth opposite such Purchaser's name on Exhibit A hereto.
7.7 ATTORNEY'S FEES. The Company shall pay for all
reasonable attorneys' fees incurred by the Purchasers on their behalf with
respect to the sale of the Notes.
7.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed in original, but all
of which together shall constitute one instrument.
7.10 REPRESENTATION OF MR. HAIDL AND MR. SCHLOSSMANN. Mr.
Haidl and Mr. Schlossmann acknowledge that they have not been represented
by Falk & Sharp, P.C., in connection with the sale of the Notes.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Note and Warrant
Purchase Agreement as of the date and year first above written.
ENTRADE INC.
By:
------------------------------
Its: President
THE HAUGEN FAMILY TRUST
By:
------------------------------
Richard M. Haugen, TTEE
Amount of Note: $400,000
THE OCHS FAMILY TRUST
By:
------------------------------
Peter M. Ochs, TTEE
Amount of Note: $1,000,000
FIRST FRUIT, INC.
By:
------------------------------
Peter M. Ochs, President
Amount of Note: $1,000,000
GENESEE MUTUAL INVESTMENTS, LLC
By:
------------------------------
Paul A. Neff, Manager
Amount of Note: $1,300,000
FOR HIS ADOPTED CHILDREN, INC.
By:
------------------------------
Paul A. Neff, President
Amount of Note: $1,200,000
------------------------------
Donald Haidl
Amount of Note: $1,800,000
------------------------------
Corey Schlossmann
Amount of Note: $200,000
-----------------------------
David Doerge
Amount of Note: $100,000
<PAGE>
EXHIBIT A
PURCHASERS
Name: The Haugen Family Trust
Address: 8 Bluff View
Irvine, California 92612
Name: The Ochs Family Trust
Address: 14 Corporate Plaza
Newport Beach, California 92660
Name: First Fruit, Inc.
Address: 14 Corporate Plaza
Newport Beach, California 92660
Name: Genesee Mutual Investments, LLC
Address: P.O. Box 8475
Newport Beach, California 92658
Name: For His Adopted Children, Inc.
Address: P.O. Box 8475
Newport Beach, California 92658
Name: Donald Haidl
Address: c/o Nationwide Auction Systems
13005 East Temple Avenue
City of Industry, California 91746
Name: Corey Schlossmann
Address: c/o Nationwide Auction Systems
13005 East Temple Avenue
City of Industry, California 91746
Name: David J. Doerge
Address: The Chicago Mercantile Exchange
30 South Wacker Drive
Suite 2112
Chicago, Illinois 60606
<PAGE>
SCHEDULE 1
LITIGATION
----------
In addition to legal proceedings and claims that arise in the ordinary
course of Nationwide Auction Systems, Inc.'s ("Nationwide") business none
of which Nationwide's management considers to be material, Entrade Inc.
("Entrade") or its subsidiaries are involved in the following proceedings.
Artra Group Incorporated ("Artra") and its subsidiaries are the defendants
in various business-related litigation and environmental matters and
product liability claims. At March 31, 2000 and December 31, 1999, Artra
had accrued current liabilities of $1,400,000 for potential
business-related litigation and environmental liabilities. No liabilities
were accrued for the product liability claims because no reasonable basis
exists on which such claims could be quantified.
PRODUCT LIABILITY CLAIMS
Since 1983, Artra has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former Artra subsidiary. Reports from outside
counsel indicate, as of March 31, 2000, pending claims asserted by
approximately 47,000 plaintiffs (excluding loss of consortium claims) in 16
states. It is probable that a significant number of additional claims will
be asserted in the future. Artra has no reasonable basis on which to
quantify the potential cost to it of these pending and unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of the claims from 1983 through September 1998, when Artra's
primary insurance carriers asserted that Artra's primary insurance coverage
for the claims had been exhausted. Beginning in September 1998, certain of
Artra's excess insurance carriers, under a reservation of the right to deny
coverage at a subsequent date, assumed the defense of the claims and paid
defense, settlement and indemnity costs relating to these claims, pursuant
to an interim agreement, which costs totaled approximately $17,500,000
through December 31, 1999. The interim agreement expired as of January 31,
2000.
Until January 31, 2000, pursuant to the interim agreement, certain of
Artra's excess insurance carriers funded defense and indemnity costs as
they became due. Under the interim agreement, the claims were administered
by one of Artra's principal excess insurers, which was one of the
participants in the expired interim agreement. Since January 31, 2000,
that excess insurer has not administered the claims or advanced funds for
defense, settlement and indemnity expenses. Between January 1, 2000 and
March 31, 2000, Artra's defense, settlement and indemnity expenses are
estimated to have been approximately $5,000,000, which was either subject
to the interim agreement through January 31, 2000 and advanced by excess
insurers, or its subject to the potential reimbursement from the excess
insurers.
Negotiations are continuing with the principal excess insurer and the other
excess insurers regarding the establishment of a permanent funding, claims
administration and coverage agreement. Unless and until such a permanent
agreement is reached, as to which Artra can provide no assurance, Artra
intends, unless litigation should become necessary in light of the
positions of the excess carriers or other circumstances, to: (i) administer
the claims and (ii) fund defense, settlement and indemnity costs to the
extent necessary and then seek reimbursement from the excess insurance
carriers. It is also possible that these excess insurance carriers could
cease making payments at any time on the basis of their various
reservations of rights.
<PAGE>
Artra and two of its excess insurers currently have a dispute as to the
existence of certain insurance coverage, in the approximate amount of
$25,000,000, for the period 1968 through 1974. These carriers contend that
the policies for this period, if they ever existed, are "lost." If Artra
or its carriers were to be unable to locate all or some of these policies,
then, absent the negotiation of an agreement with the carriers, as to which
Artra can provide no assurance, a court could find that no coverage existed
for all or some of the periods in question. In that event, a court might
find Artra responsible for funding its pro rata share of payments for
defense and indemnity costs. A similar issue exists with respect to an
unknown amount of primary and excess insurance coverage by unknown insurers
for the period 1947 through 1962, for which Artra has not been able to
locate policies, with potential effect similar to that possible with
respect to the 1968 through 1975 period.
If Artra were unable to conclude a permanent agreement with its excess
insurance carriers regarding the claims or with respect to coverage for the
potential gaps described herein, if Artra were ultimately unsuccessful in
attempting to marshal any such insurance, if a court were to determine that
gaps in coverage exist, or if a court were to determine that Artra is
responsible for a portion of the defense and indemnity costs associated
with those potential gaps in coverage, there could be a material adverse
effect on Artra's financial condition. Artra's financial condition could
also be materially adversely affected to the extent, if any, that its
existing insurance coverage and any to which it might become entitled in
the future is not sufficient to respond fully to the claims.
Artra has the following amounts of excess insurance it believes are
available to indemnify Artra against its liability on some or all of the
claims: (a) approximately $204,000,000 for which Artra has policies, less
amounts expended through December 31, 1999 (believed to be approximately
$17,500,000) and such additional amounts as have been paid or committed
since December 31, 1999; (b) an additional amount which may total as much
as $45,000,000 for which Artra thus far has been unable to locate insurance
policies but for which Artra has certain evidence of coverage, and (c) any
potentially applicable coverage in an undetermined amount for any other
policies that may exist over certain years, which Artra is investigating.
There is also potential additional coverage from two excess insurers, which
Artra believes are or may be involved in insolvency proceedings. In the
event Artra were unable to satisfy the claims through a combination of
insurance coverage and its own assets, or in the event that Artra does not
receive timely reimbursement from its excess carriers of amounts Artra may
be required to expend on defense, settlement and indemnity payments, it is
possible that Artra could be forced to seek protection under the federal
bankruptcy laws.
If Artra's insurance coverage and Artra's other assets are not sufficient
to satisfy the claims against Artra, Entrade could lose its entire
investment in Artra, approximately $10,200,000 at March 31, 2000. If the
combination of insurance coverage and Artra's assets are not sufficient to
satisfy claims against it, it is also possible that the plaintiffs
presenting the claims could attempt to pursue legal action against Entrade.
Entrade believes that no valid basis exists for, and it would have
meritorious defenses against, the imposition of Artra's liability for the
claims against Entrade, and Entrade would vigorously defend itself against
any attempt to impose such liability. In the event of an unfavorable
outcome of such legal action, however, there could be a material adverse
effect upon Entrade's financial condition and results of operations.
<PAGE>
ENVIRONMENTAL MATTERS
EPA NOTICES ALLEGING ENVIRONMENTAL VIOLATIONS
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 to Envirodyne Industries, Inc. 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 $7,000,000
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.
LAWSUITS SEEKING RECOVERY OF ENVIRONMENTAL CLEAN-UP COSTS
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 that were
stored, disposed of or otherwise released at the manufacturing facility.
This facility was owned by Baltimore Paint and Chemical Company, formerly a
subsidiary of Artra from 1969 to 1980. Sherwin-Williams's current
projection of the cost of clean-up is approximately $5,000,000 to
$6,000,000. Artra has filed counterclaims against Sherwin-Williams 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 still in 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 in respect to the Operating Industries, Inc. site in Monterey
Park, California. This site is included on the EPA's National Priorities
List. Artra's involvement stemmed from the alleged disposal of hazardous
substances by The Synkoloid Company subsidiary of Baltimore Paint and
Chemical Company, which was formerly owned by Artra. Synkoloid
manufactured spackling paste, wall coatings and related products, certain
of which generated allegedly hazardous substances as a by-product of the
manufacturing process. Artra presently estimates the total liability for
clean-up costs at this site to be approximately $500,000.
OTHER CASES
Bagcraft Packaging, LLC and Packaging Dynamics, LLC filed suit against
Artra and its BCA Holdings, Inc. subsidiary in the Circuit Court of Cook
County, Illinois, on November 22, 1999, alleging that Artra breached a
non-compete agreement entered into in connection with the sale of certain
assets to Bagcraft Packaging, LLC by hiring Mark Santacrose as Chief
Executive Officer and President of Artra. The plaintiffs seek damages in
excess of $5,000,000. Artra intends to vigorously defend itself in this
action.
<PAGE>
If Artra's assets are not sufficient to satisfy claims against it, it is
also possible that the plaintiffs presenting the claims could attempt to
pursue legal action against Entrade. Entrade believes that no valid basis
exists for, and it would have meritorious defenses against, the imposition
of Artra's liability for the claims against Entrade, and Entrade would
vigorously defend itself against any attempt to impose such liability. In
the event of an unfavorable outcome of such legal action, however, there
could be a material adverse effect upon Entrade's financial condition and
results of operations. These litigation and environmental matters
(exclusive of product liability claims) involve wide ranges of potential
liability have a material adverse effect on Entrade's financial condition
or results of operations. In addition, on or about March 16, 2000, Christi
Mottola Enterprises, Inc. ("CME"), filed a complaint in the Superior Court
of California, Orange County, Case No. 00CC03393, naming as defendants Don
Haidl, Corey Schlossmann, Nationwide Auction Systems, and Does 1 to 100,
alleging interference with contract and with prospective economic
advantage, civil conspiracy and violation of California's Unfair Business
Practices Act. CME seeks 20 percent of 157,000 Entrade shares Haidl
allegedly agreed to transfer to JDK & Associates, Inc. in connection with
Entrade's acquisition of Nationwide (or an equivalent amount as damages),
consequential losses, punitive damages and "restitution and disgorgement of
all income, consideration, or compensation, in any form, received by the
defendants in conjunction with the acquisition of NATIONWIDE by Entrade."
EXHIBIT 10.35
- -------------
PLEDGE AGREEMENT
----------------
This Pledge Agreement dated as of May 15, 2000, is made by ENTRADE
INC., a Pennsylvania corporation (the "Pledgor"), in favor of DOERGE
CAPITAL MANAGEMENT, INC., A DIVISION OF BALIS, LEWITTES & COLEMAN (together
with its successors and assigns, the "Pledgee"), for the benefit of The
Haugen Family Trust, The Ochs Family Trust, First Fruit, Inc., Genesee
Mutual Investments, LLC, For His Adopted Children, Inc., Donald Haidl,
Corey Schlossmann, and David J. Doerge (collectively, the "Payees").
WITNESSETH:
----------
WHEREAS, the Pledgor is the maker of each of those certain Secured
Promissory Notes dated of even date herewith (as the same may be amended or
modified from time to time, collectively, the "Notes"), payable to the
order of certain Payees identified therein, pursuant to which the Payees
are making certain term loans to the Pledgor (collectively, the "Loans");
and
WHEREAS, in connection with the making of the Loans, and as a
condition precedent thereto, the Payees are requiring that Pledgor shall
have executed and delivered this Pledge Agreement and made the pledge
provided for herein.
NOW, THEREFORE, in consideration of the premises hereinabove and the
covenants hereinafter contained, and to induce the Payees to provide the
Loans pursuant to the Notes, and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, it
is hereby agreed as follows:
ARTICLE I: DEFINITIONS
SECTION 1.1 AFFILIATE means, as to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person. For
purposes of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with") of a Person
means the possession, direct or indirect, of the power to vote 50% or more
of the securities having ordinary voting power for the election of
directors of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
SECTION 1.2 CAPITAL EXPENDITURES means, for any Person for any
period without duplication, the sum of all expenditures made, directly or
indirectly, by such Person or any of its Subsidiaries during such period
for equipment, fixed assets, real property or improvements, or for
replacements or substitutions therefor or additions thereto, that have been
or should be, in accordance with GAAP, reflected as additions to property,
plant or equipment on a consolidated balance sheet of such Person.
SECTION 1.3 CURRENT ASSETS OF ANY PERSON means all assets of such
Person that would, in accordance with GAAP, be classified as current assets
of such Person, after deducting adequate reserves in each case in which a
reserve is proper in accordance with GAAP.
SECTION 1.4 CURRENT LIABILITIES OF ANY PERSON means all items that
in accordance with GAAP would be classified as current liabilities of such
Person, excluding, however, the current portion of long-term debt and
capitalized leases of such Person.
<PAGE>
SECTION 1.5 DEBT OF ANY PERSON means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (excluding
normal trade payables not overdue that are incurred in the ordinary course
of such Person's business), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), (e)
all obligations of such Person as lessee under leases that have been or
should be, in accordance with GAAP, recorded as capital leases
("Capitalized Leases"), (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g)
all obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of such Person or any
warrants, rights or options to acquire such capital stock, valued, in the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (h)
all obligations of such Person in respect of hedge or swap agreements
(provided that the obligations under such agreements shall be recorded on a
net basis and marked to market on a current basis), (i) all Debt referred
to in any of clauses (a) through (h) above that is guaranteed directly or
indirectly by such Person, or in effect guaranteed directly or indirectly
by such Person through an agreement (A) to pay or purchase such Debt or to
advance or supply funds for the payment or purchase of such Debt, (B) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss, (C)
to advance or supply funds to maintain working capital or equity capital of
another Person or otherwise to maintain the net worth or solvency of such
Person (including any agreement in the nature of a support arrangement to
pay for property or services irrespective of whether such property is
received or such services are rendered) or (D) otherwise to assure a
creditor against loss, and (j) all Debt referred to in any of clauses (a)
through (h) above that is secured by (or for which the holder of such Debt
has an existing right, contingent or otherwise, to be secured by) any Lien
on property (including accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Debt.
SECTION 1.6 EBITDA means, for any Person for any fiscal period, net
income (or net loss) plus the sum of (a) interest expense, (b) income-tax
expense, (c) depreciation expense, (d) amortization expense, (e)
extraordinary losses included in net income, (f) losses on the sale of
assets other than inventory sold in the ordinary course of business and (g)
noncash charges, less the sum of (a) extraordinary gains included in net
income, (b) gains on the sale of assets other than inventory sold in the
ordinary course of business and (c) noncash gains, in each case determined
in accordance with GAAP for such period.
SECTION 1.7 GAAP means generally accepted accounting principles in
the United States of America as in effect as of the date of, and used in,
the preparation of the financial statements of ALG (as defined herein) and
PLS (as defined herein) for the period ending March 31, 2000 attached
hereto as Exhibit A.
SECTION 1.8 GOVERNMENTAL RULE means any treaty, law, rule,
regulation, ordinance, order, code, interpretation, judgment, writ,
injunction, decree, determination, award, directive, guideline, request,
policy or similar form of decision of any governmental Person or
arbitrator.
<PAGE>
SECTION 1.9 LIABILITIES. References in this Pledge Agreement to
"Liabilities" shall mean any and all indebtedness and liabilities or
obligations of the Pledgor to Payees, due or to become due, now existing or
hereafter arising, pursuant to and evidenced by or arising out of the
Notes, that certain Note and Warrant Purchase Agreement of even date
herewith (the "Note and Warrant Purchase Agreement"), that certain
Creditors Agreement of even date herewith (the "Creditors Agreement"), and
this Pledge Agreement (whether for principal, interest, costs, expenses, or
fees).
SECTION 1.10 LIEN means any lien, security interest or other charge
or encumbrance of any kind, or any other type of preferential arrangement,
including the lien or retained security title of a conditional vendor and
any easement, right of way or other encumbrance on title to real property.
SECTION 1.11 LOAN DOCUMENTS. References in this Pledge Agreement to
"Loan Documents" shall mean the Notes, the Note and Warrant Purchase
Agreement, the Creditors Agreement, this Pledge Agreement and each and
every instrument, document, or agreement delivered to Pledgee or Payees by
the Pledgor in connection with the Loans and the Notes, as any of the same
may be amended or modified from time to time.
SECTION 1.12 MATERIAL CONTRACT means, as to ALG or PLS, each
contract to which such Person is a party that is either (a) a contract for
the purchase or sale of goods or services (i) that, if lost, would not be
replaceable promptly by commercially reasonable substitutes and (ii) the
loss of which, if not so replaced, could reasonably be expected to have a
material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of ALG and PLS
or any of their subsidiaries, or (b) any other contract (i) involving
aggregate consideration payable to or by such Person of $500,000 or more or
(ii) the loss of which could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the such Person.
SECTION 1.13 NET FIXED ASSETS means all assets of such Person that
would, in accordance with GAAP, be classified as fixed assets of such
Person, after deducting depreciation and amortization and net of any
reductions proper in accordance with GAAP.
SECTION 1.14 NET WORTH means, for any Person at any time of
determination, the excess of total assets, including goodwill, at such time
over total liabilities at such time, in each case as determined in
accordance with GAAP.
SECTION 1.15 OBLIGATION means, with respect to any Person, any
obligation of such Person of any kind, including any obligation to make any
payment for any reason, whether or not such obligation is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, disputed,
undisputed, legal, equitable, secured or unsecured, and whether or not such
obligation is discharged, stayed or otherwise affected by any bankruptcy,
insolvency or other similar proceeding.
SECTION 1.16 PERMITTED INVESTMENTS means investments having a
maturity of not greater than twelve (12) months from the date of
acquisition thereof in (a) obligations issued or unconditionally guaranteed
by the United States or any agency thereof, (b) certificates of deposit of
any commercial bank organized under the laws of any country that is a
member of the Organization for Economic Cooperation and Development and
having combined capital and surplus of at least $1 billion, (c) commercial
paper with a rating of at least "Prime" by Moody's Investors Services, Inc.
or "Al" by Standard & Poor's Ratings Group and (d) other investments agreed
to from time to time between ALG and PLS and the Pledgee Representative.
<PAGE>
SECTION 1.17 PERMITTED LIENS means such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding has
been commenced: (a) Liens for taxes, assessments and governmental charges
or levies to the extent not required to be paid under Section 4.1(b); (b)
Liens imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's Liens and other similar Liens arising in the
ordinary course of business securing obligations that are not overdue or
that are being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar legislation
or to secure public or statutory obligations; (d) easements, rights of way
and other encumbrances on title to real property that do not render title
to the property encumbered thereby unmarketable or materially and adversely
affect the use of such property for its present purposes; (e) deposits to
secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of like nature incurred in the ordinary course
of business; and (f) attachment, judgment or other similar Liens arising in
connection with court or arbitration proceedings, provided that the same
have been discharged, or that execution or enforcement thereof has been
stayed pending appeal.
SECTION 1.18 PERSON means an individual, a partnership, a
corporation (including a business trust), a joint stock company, a
limited-liability company, a trust, an unincorporated association, a joint
venture or any other entity, including any governmental agency or
instrumentality.
SECTION 1.19 PLEDGE AGREEMENT. References to this "Pledge
Agreement" shall mean this Pledge Agreement, including all amendments,
modifications and supplements, and any exhibits or schedules to any of the
foregoing, and shall refer to the Pledge Agreement as the same may be in
effect at the time such reference becomes operative.
SECTION 1.20 PLEDGED COLLATERAL. References in this Pledge
Agreement to "Pledged Collateral" shall mean all of the issued and
outstanding capital stock of Asset Liquidation Group, Inc., a Nevada
corporation ("ALG"), and Public Liquidation Systems, Inc., a Nevada
corporation ("PLS"), (consisting of 2,500 shares and 100 shares,
respectively) which are owned by Pledgor, together with any and all
dividends and distributions on, and proceeds of, of the foregoing, together
with all certificates, rights or other distributions issued as an addition
to, in exchange for, or on account of, any such securities, in each case
whether now or hereafter owned or acquired by the Pledgor.
SECTION 1.21 REAL PROPERTY means all of the right, title and
interest of any Person in or to any land, improvement or fixture or in, to
or under any lease, license or other agreement granting a right to enter,
occupy or use any land, improvement or fixture (to the extent interests
therein arise under the real property law of the jurisdiction where
located).
SECTION 1.22 SUBSIDIARY OF ANY PERSON means any corporation,
partnership, joint venture, trust or estate of which (or in which) more
than 50% of (a) the outstanding capital stock having voting power to elect
a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation would or might have voting power upon the occurrence of any
contingency), (b)_the interest in the capital or profits of such
partnership or joint venture, or (c) the beneficial interest of such trust
or estate, is at the time directly or indirectly owned by such Person, by
such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries.
<PAGE>
SECTION 1.23 VOTING STOCK means capital stock issued by a
corporation, or equivalent interests in any other Person, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
the election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening of
such a contingency.
SECTION 1.24 ERISA means the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to
time, and any regulations promulgated thereunder.
SECTION 1.25 ERISA AFFILIATE means, with respect to ALG (as defined
herein) and PLS (as defined herein), any trade or business (whether or not
incorporated) under common control with ALG or PLS and which, together with
ALG or PLS, are treated as a single employer within the meaning of Sections
414(b), (c), (m) or (o) of the IRC.
SECTION 1.26 ERISA EVENT means, with respect to ALG and PLS or any
ERISA Affiliate, (i) a reportable event with respect to a Title IV Plan or
a Multiemployer Plan; (ii) the withdrawal of ALG or PLS or any ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer, as defined in Section
4001(a)(2) or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (iii) the complete or partial
withdrawal of ALG or PLS or any ERISA Affiliate from any Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (iv) the
filing of a notice of intent to terminate a Title IV Plan or the treatment
of a plan amendment as a termination under Section 4041 or Section 4041A of
ERISA; (v) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (vi) the failure to make required
contributions to a qualified plan; or (vii) any other event or condition
which might reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
SECTION 1.27 PBGC means the Pension Benefit Guaranty Corporation or
any successor thereto.
SECTION 1.28 LOAN DOCUMENT TERMS. Capitalized terms used herein
shall have the meanings assigned to them in the Notes, unless the context
otherwise requires or unless otherwise defined herein.
SECTION 1.29 EVENT OF DEFAULT. References in this Pledge Agreement
to an "Event of Default" shall mean not only the Pledgor's failure to be in
compliance with any provision requiring payment of monies or in compliance
with any material respects with all of the terms, provisions and agreements
set forth herein on the Pledgor's part to be observed or performed in the
Loan Documents, but also any "event of default" occurring as provided in
the Notes.
ARTICLE II: THE PLEDGE
SECTION 2.1 PLEDGE OF PLEDGED COLLATERAL. As security for the
prompt and complete satisfaction of the Liabilities, the Pledgor hereby
pledges and conveys and transfers as collateral to the Pledgee for the
benefit of the Payees the Pledged Collateral and hereby grants the Pledgee,
as agent for the benefit of the Payees, a lien on the Pledged Collateral
and a security interest therein.
<PAGE>
SECTION 2.2 REMEDY UPON EVENT OF DEFAULT. Upon delivery of written
notice to the Pledgee from the Secured Creditors' Representative (as
defined in the Note and Warrant Purchase Agreement) of the occurrence of
any Event of Default, the Pledgee, as agent for the benefit of the Payees,
may, without demand of performance or other demand, advertisement, or
notice of any kind (except the notice specified below of time and place of
public or private sale or otherwise specifically provided in any of the
Loan Documents) to or upon the Pledgor or any other person or entity,
forthwith realize upon the Pledged Collateral or any part thereof, and may
forthwith, or agree to, sell, assign or otherwise dispose of and deliver
the Pledged Collateral or any part thereof or interest therein, in one or
more public or private sale or sales, at any exchange, broker's board or at
any of the Pledgee's offices or elsewhere, at such prices and on such terms
as it may deem best in its sole discretion, for cash or on credit or for
other property, or for future delivery without assumption of any credit
risk, with the right to the Pledgee or Payees or any purchaser to purchase
upon any such sale the whole or any part of the Pledged Collateral free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby expressly waived and released to the fullest extent permitted by
applicable law. The Pledgee shall not be liable for failure to collect or
realize upon any or all of the Pledged Collateral or for any delay in so
doing nor shall the Pledgee be under any obligation to take any action
whatsoever with regard thereto. In addition, upon any Event of Default,
the Pledgee shall be permitted to take any and all such other action and
actions as the Pledgee in its sole discretion may determine as necessary,
advisable, incidental or conducive to any of the matters, rights or powers
mentioned in the foregoing provisions of this Section and which the Pledgee
may or can do lawfully and to use the name of the Pledgor for the purposes
aforesaid and in any proceedings arising therefrom. The Pledgor agrees
that, to the extent notice of sale shall be required by applicable law, at
least ten (10) calendar days= notice to the Pledgor of the time and place
of any such sale shall constitute reasonable notification. Any such public
sale shall be held at such time or times within ordinary business hours and
at such place or places as the Pledgee may fix and shall state in the
notice or publication (if any) of such sale. At any such sale, the Pledged
Collateral, or portion thereof to be sold, may be sold in one lot as an
entirety or in separate portions, as the Pledgee may (in its sole and
absolute discretion) determine. The Pledgee shall not be obligated to make
any sale of the Pledged Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Pledged Collateral may
have been given. The Pledgee may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the
same was so adjourned. In case sale of all or any part of the Pledged
Collateral is made on credit or for future delivery, the Pledged Collateral
so sold may be retained by the Pledgee until the sale price is paid by the
purchaser or purchasers thereof, but the Pledgee shall not incur any
liability in case any such purchaser or purchasers thereof, but the Pledgee
shall not incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Pledged Collateral so sold and, in
case of any such failure, such Pledged Collateral may be sold again upon
like notice. At any sale made pursuant to this Pledge Agreement, the
Pledgee or any Pledgee may bid for or purchase, free (to the extent
permitted by law) from any right of redemption, stay and/or appraisal which
the Pledgor now has or may at any time in the future have under any rule of
law or statute now existing or hereafter enacted (and any such rights are
hereby waived and released to the extent permitted by law), any part of or
all the Pledged Collateral offered for sale and may make payment on account
thereof by using any claim then due and payable to the Pledgee by the
Pledgor, as a credit against the purchase price, and the Pledgee may, upon
compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to the Pledgor therefor. For
purposes hereof, a written agreement to purchase all or any part of the
Pledged Collateral shall be treated as a sale thereof; the Pledgee shall be
<PAGE>
free to carry out such sale pursuant to such agreement and the Pledgor
shall not be entitled to the return of any Pledged Collateral subject
thereto, notwithstanding the fact that after the Pledgee shall have entered
into such an agreement all Events of Default may have been remedied or the
Liabilities may have been paid in full as herein provided. As an
alternative to exercising the power of sale herein conferred upon it, the
Pledgee may proceed by suit or suits at law or in equity to foreclose this
Pledge Agreement and sell the Pledged Collateral or any portion thereof,
pursuant to judgment or decree of a court or courts having competent
jurisdiction. The Pledgor understands that compliance with federal
securities law (including the Securities Act of 1933) may very strictly
limit the course of conduct of the Pledgee if the Pledgee were to attempt
to dispose of all or any part of the Pledge Collateral and may also limit
the extent to which or the manner in which any subsequent transferee of any
Pledged Collateral may dispose of the same. Similarly, there may be other
legal restrictions or limitations affecting the Pledgee in any attempt to
dispose of all or any part of the Pledge Collateral under the applicable
Blue Sky or other state securities laws or similar laws analogous in
purpose or effect. As a consequence, the Pledgee may be compelled to
resort to one or more private sales to a restricted group of purchasers who
will be obligated to agree, among other things, to acquire the Pledged
Collateral for their own account for investment and not with a view to
distribution or resale thereof. The Pledgor acknowledges that such sales
may be a prices and on terms less favorable than on a public sale. The
Pledgee shall not incur any liability to the Pledgor as a result of the
sale of any part of the Pledge Collateral, at any private sale conducted
pursuant hereto or in any other manner which is commercially reasonable
(within the meaning of the UCC). Without limiting the generality of the
foregoing, the provisions of this paragraph would apply if, for example,
the Pledgee were to place all or any part of the Pledged Collateral for
private placement by an investment banking firm, if the Pledgee were to
purchase all or any part of the Pledged Collateral for its own account, or
if the Pledgee placed all or any part of the Pledged Collateral privately
with a purchaser or purchasers.
SECTION 2.3 PROCEEDS OF SALE. The proceeds of any such disposition
or other action by the Pledgee shall be applied as follows: (a) First, to
the costs and expenses incurred in connection herewith or to the care or
safekeeping of any of the Pledged Collateral or in any way relating to the
rights of the Pledgee hereunder, including, without limitation, reasonable
attorneys= fees; (b) Second, to the satisfaction of the Liabilities; (c)
Third, to the payment of any other amounts required by applicable law; and
(d) Fourth, to the Pledgor to the extent of any surplus proceeds.
SECTION 2.4 POWER OF ATTORNEY. The Pledgor hereby absolutely and
irrevocably constitutes and appoints the Pledgee, for the benefit of the
Payees, as the Pledgor's true and lawful agent and attorney-in-fact, with
full power of substitution, in the name of the Pledgor upon the occurrence
and continuance of any Event of Default: (a) to execute, perform and take
all such assurances, acts and things which the Pledgor is required to do
but has failed to do expressly under the terms, covenants and provisions
contained in this Pledge Agreement; (b) to take any and all such action as
the Pledgee or any of its agents, nominees or attorneys may, in good faith,
reasonably determine as necessary or advisable for the purpose of
maintaining, preserving or protecting the security constituted by this
Pledge Agreement or any of the rights, remedies, powers or privileges of
the Pledgee under this Pledge Agreement; and (c) generally, in the name of
the Pledgor, exercise all or any of the powers, authorities, and
discretions conferred on or reserved to the Pledgee by or pursuant to this
Pledge Agreement, and (without prejudice to the generality of any of the
foregoing) to deliver or otherwise perfect any deed, assurance, agreement,
instrument or act as the Pledgee may deem proper in or for the purpose of
exercising any of such powers, authorities or discretions. The Pledgor
hereby ratifies and confirms, and hereby agrees to ratify and confirm,
whatever lawful acts the Pledgee or any of the Pledgee's agents or
attorneys shall do in the exercise of the power of attorney granted to the
Pledgee pursuant to this Section, which power of attorney, being given for
security and coupled with an interest, is irrevocable.
<PAGE>
SECTION 2.5 DIVIDENDS ON THE PLEDGED COLLATERAL. Unless and until
an Event of Default occurs and is continuing, any dividends or
distributions permitted hereunder payable on account of the Pledged
Collateral shall be paid to the Pledgor and all voting rights with respect
to the Pledged Collateral shall be retained by Pledgor. Upon the
occurrence and during the continuation of any Event of Default, the
provisions set forth below shall apply.
(i) All rights of the Pledgor to exercise the voting
and other consensual rights that it would otherwise be entitled to exercise
and to receive the dividends and other distributions that it would
otherwise be authorized to receive and retain shall cease, and all such
rights shall thereupon become vested in the Pledgee, which shall thereupon
have the sole right to exercise such voting and other consensual rights and
to receive and hold as Pledge Collateral such dividends and other
distributions; and
(ii) All dividends and other distributions that are
received by the Pledgor shall be received in trust for the benefit of the
Pledgee, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Pledgee as Pledged Collateral in the same form
as so received (with any necessary endorsement).
ARTICLE III: REPRESENTATIONS AND WARRANTIES
SECTION 3.1 INDUCEMENT. To induce the Payees to make the Loans, the
Pledgor hereby represents and warrants to the Pledgee, for the benefit of
the Payees (which representations and warranties shall survive the
execution and delivery of this Pledge Agreement) that:
SECTION 3.2 CAPACITY. Pledgor has capacity to enter into and
perform Pledgor's obligations hereunder.
SECTION 3.3 BINDING OBLIGATION. All acts, conditions and things
required to be done and performed and to have happened precedent to the
creation and issuance of this Pledge Agreement and to constitute it and the
pledge hereunder the valid and legally binding obligation of the Pledgor
enforceable in accordance with the terms hereof, including, without
limitation, if applicable, the delivery of stock powers and/or
endorsements, except as such enforceability may be limited by bankruptcy,
insolvency reorganization, moratorium and other laws affecting creditors=
rights generally and by general principles of equity (whether enforcement
is sought in equity or at law), have been done and performed.
SECTION 3.4 WARRANTIES CONCERNING PLEDGED COLLATERAL.
(a) Pledgor is the legal and beneficial owner of all of the Pledged
Collateral;
(b) All of the Pledged Collateral is owned by the Pledgor free of
any pledge, mortgage, hypothecation, lien, charge, encumbrance or security
interest in such Pledged Collateral or the proceeds thereof, except for
liens in favor of the Pledgee for the benefit of the Payees hereunder;
(c) Upon the Pledgor's execution and delivery of this Pledge
Agreement and the physical delivery of the Pledged Collateral to the
Pledgee, this Pledge Agreement shall create a valid lien upon and perfected
security interest in the Pledged Collateral and the proceeds thereof,
subject to no prior security interest, lien, charge or encumbrance, or
agreement purporting to grant to any third party a prior security interest
in the Pledged Collateral; and
<PAGE>
(d) No authorization, approval or other action by, or notice to or
filing with, any governmental authority or regulatory body is required (i)
for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Pledge
Agreement by the Pledgor or (ii) for the perfection of or exercise by the
Pledgee of the voting or other rights provided for in this Pledge Agreement
or the remedies in respect of the Pledged Collateral pursuant to this
Pledge Agreement (except as may be required in connection with any
disposition of the Pledged Collateral by laws affecting the offering and
sale of securities generally), and Pledgee acknowledges that the assets of
ALG and PLS are subject to a lien in favor of Imperial Bank, a California
banking corporation.
ARTICLE IV: COVENANTS
SECTION 4.1 AFFIRMATIVE COVENANTS. The Company will cause each of
ALG and PLS to observe the affirmative covenants set forth below, except as
may be waived in writing (with no such waiver to be deemed a continuing
waiver) by the Secured Creditors' Representative (as defined in the
Creditors' Agreement):
(a) COMPLIANCE WITH LAWS, ETC. ALG and PLS will comply with, and
maintain, use and operate all their assets and operate their business in
accordance with, in all material respects, all applicable Governmental
Rules.
(b) PAYMENT OF TAXES, ETC. ALG and PLS will pay and discharge
before the same become delinquent (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that neither such Person shall be required to
pay or discharge any such tax, assessment, charge, levy or claim that is
being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable.
(c) MAINTENANCE OF INSURANCE. ALG and PLS will maintain insurance
with responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general
areas in which such entities operates; and
(d) PRESERVATION OF CORPORATE EXISTENCE, ETC. ALG and PLS will:
(i) preserve and maintain its existence, legal structure and legal name and
(ii) preserve and maintain its rights (charter and statutory) and all
material permits, licenses, approvals, privileges, franchises, trade names,
patents and other intellectual property.
(e) VISITATION RIGHTS. At any reasonable time and from time to
time, upon reasonable prior notice, ALG and PLS will permit the Pledgee
Representatives or any agents or representatives thereof, to examine and
make copies of and abstracts from the records and books of account of, and
visit the properties of, ALG and PLS, and to discuss the affairs, finances
and accounts of ALG and PLS with any of their officers or directors and
with their independent certified public accountants.
(f) KEEPING OF BOOKS. ALG and PLS will maintain and preserve all
of its properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
<PAGE>
(g) PERFORMANCE OF MATERIAL CONTRACTS, ETC. ALG and PLS will
perform and observe, in all material respects, all of the terms and
provisions of each Material Contract to be performed or observed by it,
maintain each such Material Contract in full force and effect, enforce each
such Material Contract in accordance with its terms and, upon the
reasonable request of the Pledgee Representative, make to each other party
to each such Material Contract such demands and requests for information
and reports or for action as ALG or PLS is entitled to make under such
Material Contract.
(h) TRANSACTIONS WITH AFFILIATES. ALG and PLS will conduct all
transactions otherwise permitted hereunder with any of its Affiliates on
terms that are fair and reasonable and no less favorable to ALG and PLS
than it would obtain in a comparable arms'-length transaction with a Person
not an Affiliate. Except as provided in this Section 4.1(h), ALG and PLS
shall not pay, or agree to pay, any amount to the Company or any Affiliates
or their respective officers or directors (except for compensation of
officers of ALG and PLS in amounts currently budgeted for the year ending
December 31, 2000, and at the same rate for any succeeding period),
directly or indirectly, whether for services rendered, license fees,
corporate overhead (including corporate tax liability except to the extent
actually paid), or otherwise, including without limitation, to any vendors
for services delivered to any Affiliate. Notwithstanding the foregoing,
unless and until (i) an Event of Default occurs and is continuing or (ii)
an event of default which could reasonably be expected to have a materially
adverse effect upon the Pledgor occurs under any other agreement, ALG and
PLS may, on a quarterly basis, collectively pay to the Company and/or any
Affiliate an aggregate of fifty percent (50%) of the combined EBITDA of ALG
and PLS for the prior quarter, up to a maximum of $500,000 during any
quarter, based on and in consideration for supported good faith invoices
from the Company for services rendered by or through the Company to ALG
and PLS for web development, corporate overhead and intellectual property
licensing agreements, subject to the requirement that no payments shall be
made hereunder unless, after making such payment, ALG and PLS have least as
much cash remaining as the amount of such payment.
SECTION 4.2 FINANCIAL COVENANTS. The Company will cause each of ALG
and PLS to observe the financial covenants set forth below, except as may
be waived in writing (with no such waiver to be deemed a continuing waiver)
by the Secured Creditors' Representative:
(a) EBITDA. ALG and PLS will achieve cumulative combined EBITDA,
calculated from April 1, 2000, through the end of each quarter commencing
with the quarter ending June 30, 2000, of the amount set forth opposite the
quarter end on Exhibit B attached hereto and made a part hereof.
(b) MAINTENANCE OF NET WORTH. ALG and PLS will maintain combined
Net Worth, determined as of the end of each quarter commencing with the
quarter ending June 30, 2000, of the amount set forth on Exhibit B.
(c) MAINTENANCE OF RATIO. ALG and PLS will maintain a ratio, on a
combined basis, determined as of the end of each quarter commencing with
the quarter ending June 30, 2000, of (i) Current Assets, plus Net Fixed
Assets to (ii) Current Liabilities, plus long-term Debt, of not less than
the amount shown on Exhibit B.
SECTION 4.3 REPORTING REQUIREMENTS. The Company will cause each of
ALG and PLS to furnish to the Secured Creditors' Representative:
(a) as soon as possible and in any event within 2 days after
ALG or PLS becomes aware of the occurrence of any breach of any covenant
under this Article 4, a statement of the chief financial officer of said
Person setting forth the details of such breach and any action that said
Person proposes to take with respect thereto;
<PAGE>
(b) as soon as available and in any event within 30 days
after the end of each of the first three quarters of each fiscal year of
ALG and PLS , an unaudited balance sheet of such Person as of the end of
such quarter and unaudited statements of income, retained earnings and cash
flows of such Person, and a combined balance sheet and statement of income,
retained earnings and cash flows for ALG and PLS, for the period commencing
at the end of the preceding fiscal year and ending with the end of such
quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments) by the chief financial officer of such Person as having been
prepared in accordance with GAAP, together with a certificate of said
officer stating that no breach of any of the covenants set forth in this
Article 4 has occurred and is continuing or, if such a breach has occurred
and is continuing, stating the nature thereof and the action that the such
Person proposes to take with respect thereto;
(c) as soon as available and in any event within 90 days
after the end of each fiscal year of such Person (with unaudited internal
financial statements delivered within 45 days), the balance sheet of such
Person as of the end of such fiscal year and the statements of income,
retained earnings and cash flows of such Person for such fiscal year, in
each case certified without qualification or otherwise in a manner
reasonably acceptable to the Pledgee Representative by
PricewaterhouseCoopers LLP or other independent public accountants of
recognized standing acceptable to the Pledgee Representative, together a
combined balance sheet and statement of income, retained earnings and cash
flow of ALG and PLS reviewed by PricewaterhouseCoopers LLP or other
independent public accountants of recognized standing acceptable to the
Pledgee Representative, and (i) a certificate of such accounting firm
stating that in the course of the regular review of the business of ALG and
PLS, which review was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm has obtained no
knowledge that a breach of any of the covenants of this Section 4.2 has
occurred and is continuing or, if in the opinion of such accounting firm
such a breach has occurred and is continuing, a statement as to the nature
thereof, (ii) a certificate of the chief financial officer of ALG and PLS
stating that no a breach of any of the covenants of this Article 4 has
occurred and is continuing has occurred and is continuing or, if such a
breach has occurred and is continuing, stating the nature thereof and the
action that ALG or PLS proposes to take with respect thereto, (iii) a
schedule in reasonable detail of the computations used by such officer in
determining, as of the end of such fiscal year, compliance with the
covenants contained in Section 4.2 and (iv) copies of any letters of any
accounting firm received by management in connection with such accounting
firm's findings during its audit of the Company or its review of the
financial records of ALG and PLS during, or in respect of, such fiscal
year;
(d) at the time of delivery of the financial information
described in Section 4.3(c), a statement of the chief financial officer of
ALG and PLS describing each sale, lease, transfer or other disposition of
any asset(s) of the ALG and PLS during the preceding fiscal year (other
than any such sale, lease, transfer or other disposition for total
consideration of less than $75,000), in form and detail reasonably
satisfactory to the Pledgee Representative;
(e) in the event of any change in GAAP from March 31, 2000,
and upon delivery of any financial statement required to be furnished under
Section 4.3(b) or (c), a statement of reconciliation conforming any
information contained in such financial statement with GAAP as so changed.;
<PAGE>
(f) promptly and in any event within 5 days after ALG or PLS
or any ERISA Affiliate knows or has reason to know that any ERISA Event has
occurred with respect to any Plan, a statement of the chief financial
officer of ALG or PLS describing such ERISA Event and the action, if any,
that ALG or PLS or such ERISA Affiliate proposes to take with respect
thereto;
(g) promptly and in any event within 2 days after receipt
thereof by ALG or PLS or any ERISA Affiliate, copies of each notice from
the PBGC stating its intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(h) promptly upon receipt thereof by ALG or PLS or any ERISA
Affiliate , a copy of the annual actuarial valuation report for each Plan
the funded current liability percentage (as defined in Section 302(d)(8) of
ERISA) of which is less than 90% or the unfunded current liability of which
exceeds $50,000;
(i) promptly and in any event within 5 days after receipt
thereof by ALG or PLS or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by ALG or PLS or any
ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by
any Multiemployer Plan,(ii) the reorganization or termination, within the
meaning of Title IV of ERISA, of any Multiemployer Plan or (iii) the amount
of liability incurred, or that may be incurred, by ALG or PLS or any ERISA
Affiliate in connection with any event described in clause (i) or (ii)
above;
(j) promptly after the commencement thereof, notice of all
actions, suits, investigations and proceedings before any governmental
Person or arbitrator, affecting the ALG or PLS;
(k) promptly after the furnishing thereof, copies of any
statement or report furnished to any other holder of securities or Debt of
ALG or PLS pursuant to the terms of any indenture, loan or credit agreement
or similar agreement and not otherwise required to be furnished to the
Pledgees pursuant to any other provision of this Section 4.3; and
(l) promptly upon request, such other information respecting
the business, condition (financial or otherwise), operations, performance,
properties or prospects of ALG or PLS as any Pledgee, through the Pledgee
Representative, may from time to time reasonably request.
(m) for purposes of the Section 4.3, capitalized terms not
otherwise defined herein shall have the meaning set forth in ERISA.
SECTION 4.4 NEGATIVE COVENANTS. The Company will cause each of ALG
and PLS will each observe the negative covenants set forth below, except as
may be waived in writing (with no such waiver to be deemed a continuing
waiver) by the Secured Creditors' Representative:
(a) LIENS, ETC. ALG and PLS will not create, incur, assume or
suffer to exist any Lien on or with respect to any of its properties of any
character (including accounts receivable), whether now owned or hereafter
acquired, sign or file, under the Uniform Commercial Code of any
jurisdiction, a financing statement naming ALG or PLS as debtor (except in
connection with true leases), sign any security agreement authorizing any
secured party thereunder to file such a financing statement (except in
connection with true leases) or assign any accounts or other rights to
receive income, excluding, however, from the operation of the foregoing
restrictions the following:
(i) Permitted Liens; and
(ii) Liens existing on March 31, 2000.
<PAGE>
(b) DEBT. ALG and PLS will not create, incur, assume or suffer to
exist any Debt other than Debt existing on March 31, 2000, and any
extensions or renewals of such Debt or conversions of such Debt from
short-term to long term.
(c) MERGERS, ETC. Neither ALG nor PLS will merge or consolidate
with or into any Person, permit any Person to merge into it, convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person or acquire all or substantially
all of the assets of any Person; provided that, ALG and PLS may proceed
with the acquisition of James G. Murphy, Inc. currently underway, providing
that all funding for such transaction is paid by the Company.
(d) SALES, ETC. OF ASSETS. ALG and PLS will not sell, lease,
transfer or otherwise dispose of any of its assets, or grant any option or
other right to purchase, lease or otherwise acquire any of its assets,
except for the following:
(i) sales of inventory in the ordinary course of its
business; and
(ii) sales of assets with a value of less than $500 in
the ordinary course of business.
(e) INVESTMENTS IN OTHER PERSONS. ALG and PLS will not make any
loan or advance to any Person, purchase or otherwise acquire any capital
stock, warrants, rights, options, obligations or other securities of any
Person, make any capital contribution to any Person or otherwise invest in
any Person (including the delivery of cash to Affiliates); provided,
however, that nothing in this Section 4.4(e) shall prevent ALG and PLS from
doing any of the following:
(i) maintaining the loans, advances and other
investments existing on March 31, 2000;
(ii) acquiring and holding Permitted Investments;
(iii) generating and holding accounts receivable from the
sale of inventory and other assets in the ordinary course of business;
(iv) making advances to customers in the ordinary course
of business not exceeding an aggregate for the ALG and PLS of $50,000 at
any one time outstanding;
(v) making salary advances, travel advances, relocation
loans, advances for tools and education advances to employees in the
ordinary course of business;
(f) DIVIDENDS, ETC. ALG and PLS will not declare or pay any
dividends, purchase, redeem, retire, defease or otherwise acquire for value
any of its capital stock or any warrants, rights or options to acquire such
capital stock, now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets, capital stock,
warrants, rights, options, obligations or securities to its stockholders or
Affiliates, except as permitted in Section 4.1(h) above, as such or
purchase, redeem, retire, defease or otherwise acquire for value any
capital stock or Debt of any Affiliate or any warrants, rights or options
to acquire such capital stock.
(g) CAPITAL EXPENDITURES. ALG and PLS will not make any Capital
Expenditures that would cause the aggregate of all Capital Expenditures
made by ALG and PLS during the year ending December 31, 2000, to exceed
$250,000, or to exceed such amount plus 10% for any year thereafter.
<PAGE>
(h) CHANGE IN NATURE OF BUSINESS. ALG and PLS will not make any
material change in the nature of its business as carried on as of March 31,
2000.
(i) COMPLIANCE WITH ERISA. ALG and PLS will not (i) terminate, or
permit any ERISA Affiliate to terminate, any Plan so as to result in any
material (in the opinion of the Pledgee Representative) liability of ALG
and PLS to the Pension Benefit Guaranty Corporation or (ii) permit to
exist any occurrence of any Reportable Event, or any other event or
condition, that presents a material (in the opinion of the Pledgee
Representative) risk of such a termination by the PBGC of any Plan.
(j) CHARTER AMENDMENTS. ALG and PLS will not amend its charter
documents or bylaws in any material respect.
(k) ACCOUNTING CHANGES. ALG and PLS will not make or permit any
change in its fiscal year, in its accounting policies affecting the
presentation of financial statements or its reporting practices, except as
required by GAAP.
(l) AMENDMENT, ETC. OF MATERIAL CONTRACTS, ETC. ALG and PLS not
cancel or terminate any Material Contract or consent to or accept any
cancellation or termination thereof except in accordance with its terms,
amend or otherwise modify any Material Contract or give any consent, waiver
or approval thereunder, waive any default under or breach of any Material
Contract, agree in any manner to any other amendment, modification or
change of any term or condition of any Material Contract or take any other
action in connection with any Material Contract, in each of the foregoing
cases to the extent such action would impair the value of the interest or
rights of ALG and PLS thereunder in any material respect or that would
impair the interest or rights of any Pledgee or the Agent.
(m) SPECULATIVE CONTRACTS. ALG and PLS will not engage in any
transaction involving commodity options or futures contracts or any similar
speculative transactions (including take-or-pay contracts or output or
requirements contracts).
(n) LEASE OBLIGATIONS. ALG and PLS will not create, incur, assume
or suffer to exist any obligations as lessee (i) for the rental or hire of
real or personal property in connection with any sale and leaseback
transaction or (ii) for the rental or hire of other real or personal
property of any kind under leases or agreements to lease, including
Capitalized Leases, having an original term of one year or more that would
cause the direct or contingent liabilities of ALG and PLS, on a combined
basis, in respect of all such obligations to exceed the amount budgeted
therefor in its budget for the year ending December 31, 2000.
SECTION 4.5 COVENANTS DURING LOAN TERM. The Pledgor hereby
covenants that, until all of the Liabilities have been satisfied in full
and the Notes are repaid or canceled in accordance with their terms, the
Pledgor shall comply with the following covenants:
(a) DISPOSITION OF PLEDGED COLLATERAL. Pledgor shall not, sell,
convey or otherwise dispose of any of the Pledged Collateral or any
interest therein, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or any security interest whatsoever in or with
respect to any of the Pledged Collateral or the proceeds thereof, other
than in favor of the Pledgee. During the term of this Agreement, all of
the Pledged Collateral shall be maintained at, with and under the control
of the Pledgee for the benefit of the Payees.
(b) DEFENSE OF TITLE. Pledgor shall, at Pledgor's own expense,
reasonably defend the Pledgee's right, title, and security interest in and
to the Pledged Collateral against the claims of any person or entity.
<PAGE>
(c) FURTHER ASSURANCES. The Pledgor shall at any time, and from
time to time, upon the written request of the Pledgee, execute and deliver
such further documents and do such further acts and things, at the
Pledgor's cost and expense, as the Pledgee may reasonably request to effect
the purposes and more fully carry out the intent of this Pledge Agreement.
(d) TAXES. The Pledgor will pay promptly when due all taxes,
assessments and governmental charges imposed upon the Pledged Collateral or
in respect of any income or profits therefrom.
ARTICLE V: OBLIGATIONS OF PLEDGEE
SECTION 5.1 REASONABLE CARE. Beyond the exercise of reasonable care
to assure the safe custody of the Pledged Collateral while held hereunder,
the Pledgee shall have no duty or liability to preserve rights pertaining
thereto and shall be relieved of all responsibility for the Pledged
Collateral upon surrendering it or tendering surrender of it to the
Pledgor.
SECTION 5.2 TERMINATION OF PLEDGE. Upon the payment and
satisfaction in full of all Liabilities and the payment and satisfaction of
any and all additional costs and expenses of the Pledgee as provided herein
and the cancellation of the Notes, this Pledge Agreement shall terminate,
and the Pledgee shall take, at the Pledgor's expense, any appropriate
action necessary to evidence such termination.
ARTICLE VI: MISCELLANEOUS
SECTION 6.1 NO WAIVER. No course of dealing between the Pledgor and
the Pledgee, nor any failure to exercise, nor any delay in exercising, any
right, power or privilege of the Pledgee hereunder or under the Notes shall
operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
SECTION 6.2 REMEDIES CUMULATIVE. The rights and remedies provided
herein and in the Notes and in all other agreements, instruments, and
documents delivered pursuant to or in connection with the Notes, are
cumulative and are in addition to and not exclusive of any rights or
remedies provided by the Notes, the other Loan Documents, or in equity or
by law, including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code as adopted in the State of
Illinois.
SECTION 6.3 SEVERABILITY. Whenever possible, each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law. The provisions of this Pledge Agreement are
severable, and if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect only such clause or provision or part
thereof in such jurisdiction, without invalidating the remainder of such
clauses and provisions of this Pledge Agreement, and shall not in any
manner affect such clause or provision in this Pledge Agreement in any
other jurisdiction.
<PAGE>
SECTION 6.4 NOTICES. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon
another any such communication with respect to this Pledge Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing, addressed as follows:
(a) If to Pledgor, to:
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
Attention: Anthony E. Rothschild, General Counsel
Telecopy No.: (847) 441-7649
(b) If to Pledgee, to:
Doerge Capital Management, Inc.
A Division of Balis, Lewittes & Coleman
The Chicago Mercantile Exchange
30 South Wacker Drive
Suite 2112
Chicago, Illinois 60606
Attention: David J. Doerge
Telecopy No.: (312) 906
with a copy to:
Secured Creditors' Representative
P.O. Box 8475
Newport Beach, California 92658
Attention: Paul Neff
Telecopy No.:
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been duly given or served (i) on the date
on which personally delivered, in person, by hand delivery, or by
commercial courier service, with receipt acknowledged, (ii) on the date of
telecopy transmission and deposit of written confirmation thereof in the
United States mail, postage prepaid, registered or certified, return
receipt requested, or (iii) three (3) business days after the same shall
have been deposited with the United States mail, postage prepaid,
registered or certified, return receipt requested.
SECTION 6.5 PLEDGOR'S OBLIGATIONS ABSOLUTE. The obligations of the
Pledgor under this Pledge Agreement are and shall be absolute and
unconditional in accordance with the terms hereof and shall remain in full
force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever. The Pledgor shall cooperate in the execution of
additional documents, including UCC-1 Financing Statements, as necessary to
consummate the transactions contemplated by this Pledge Agreement.
SECTION 6.6 REVIEW OF PLEDGE AGREEMENT BY PLEDGOR. The Pledgor
acknowledges that the Pledgor has thoroughly read and reviewed the terms
and provisions of this Pledge Agreement, and that such terms and provisions
are clearly understood by the Pledgor, and have been fully and
unconditionally consented to by the Pledgor with the full benefit and
advice of counsel chosen by the Pledgor, and that the Pledgor has freely
and voluntarily executed this Pledge Agreement without duress.
SECTION 6.7 AMENDMENTS. None of the terms or provisions of this
Pledge Agreement may be waived, amended, supplemented or otherwise modified
except by a written instrument executed by the Pledgor and the Pledgee and
consented to by the Secured Creditors' Representative.
<PAGE>
SECTION 6.8 SUCCESSORS AND ASSIGNS. This Pledge Agreement shall
inure to the benefit of and shall be binding upon the successors and
assigns and heirs and legal beneficiaries, as applicable, of the parties
hereto, including any successor to the Pledgee as designated under the
Collateral Agency Agreement..
SECTION 6.9 SINGULAR AND PLURAL; GENDER. Unless the context
requires otherwise, wherever used herein the singular shall include the
plural and vice versa, and the use of one gender shall also denote the
others where appropriate.
SECTION 6.10 GOVERNING LAW; FORUM SELECTION.
(a) This Pledge Agreement shall be governed by and shall be
construed and enforced in accordance with the internal laws of the State of
Illinois, without regard to conflicts of law principles.
(b) PLEDGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED OR HAVING JURISDICTION WITHIN COOK COUNTY, CHICAGO,
ILLINOIS, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON PLEDGOR,
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL
DIRECTED TO PLEDGOR AT THE ADDRESSES PROVIDED IN SECTION 6.4 ABOVE AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) BUSINESS DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES MAILS,
POSTAGE PREPAID. PLEDGOR WAIVES ANY OBJECTION TO JURISDICTION OR VENUE OF
ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
SECTION 6.11 JURY TRIAL WAIVER. TO THE FURTHEST EXTENT PERMITTED BY
LAW, PLEDGOR AND PLEDGEE HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND
INTENTIONALLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
OR COUNTERCLAIM RELATING TO THIS PLEDGE AGREEMENT OR TO ENFORCE OR DEFEND
ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THE NOTE OR UNDER THE OTHER LOAN
DOCUMENTS OR RELATING TO EACH OF THE FOREGOING. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PAYEES TO MAKE THE LOANS EVIDENCED BY THE
NOTES.
SECTION 6.12 ATTORNEY'S FEES. If an arbitration or other legal
proceeding is brought to enforce or interpret the provisions of this Pledge
Agreement or any other agreement or instrument provided for herein or as to
the rights or obligations of any part to this Pledge Agreement or such
other agreement or instrument, the prevailing party in such action shall be
entitled to recover as an element of such party's costs of suit, and not as
damages, a reasonable attorney's fee to be fixed by the court or the
arbitrator. The prevailing party shall be the party who is entitled to
recover its costs of suit as ordered by the arbitrator, the court or by
applicable law or court rules. A party not entitled to recover its costs
shall not recover attorney's fee.
SECTION 6.13 INDEMNITY AND EXPENSES. The Pledgor agrees to
indemnify the Pledgee from and against any and all claims, losses and
liabilities growing out of or resulting from this Pledge Agreement
(including, without limitation, enforcement of this Pledge Agreement),
except claims, losses or liabilities resulting from the Pledgee's willful
misconduct. The Pledgor will upon demand pay to the Pledgee the amount any
and all reasonable expenses, including, without limitation, the reasonable
fees and expenses of its counsel and of any experts and agents that the
Pledgee may incur in connection with (i) the administration of this Pledge
Agreement, (ii) the custody, preservation, use, operation or sale of, the
collection from, or any other realization upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of the
Pledgee hereunder and (iv) the failure by the Pledgor to perform or observe
any of the provisions hereof.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement as of the date and year first above written.
PLEDGOR
ENTRADE INC.
By:________________________
Name:
Its:
ACCEPTED AND ACKNOWLEDGED:
PLEDGEE
By: ____________________________
Name:
Its:
<PAGE>
ACKNOWLEDGMENT
--------------
The undersigned hereby acknowledges that it has received a copy of
the foregoing Pledge Agreement by and between Entrade, Inc. and Doerge
Capital Management (the Pledge Agreement"), and each of the undersigned
consents thereto and agrees to abide by the provisions of Sections 4.1 -
4.4 of the Pledge Agreement and the undersigned will not do any act or
perform any obligation which is not in accordance with said provisions.
Dated: May 15, 2000
ASSET LIQUIDATION GROUP, INC.,
a Nevada corporation
By:
------------------------------
Its:
------------------------------
PUBLIC LIQUIDATION SYSTEMS, INC.,
a Nevada corporation
By:
------------------------------
Its:
------------------------------
<PAGE>
EXHIBIT A
FINANCIAL STATEMENTS OF
ASSET LIQUIDATION GROUP, INC. AND PUBLIC LIQUIDATION SYSTEMS, INC.
<PAGE>
EXHIBIT B
FINANCIAL BENCHMARKS
QUARTER ENDING NET WORTH RATIO EBITDA
06/30/00 $46.075 million 1.155-1.00 $.375 million
09/30/00 $47.16 million 1.213-1.00 $1.4625 million
12/31/00 $50.15 million 1.46-1.00 $4.45 million
03/31/01 $51.15 million 1.509-1.00 $5.45 million
06/31/01 $52.65 million 1.608-1.00 $6.95 million
EXHIBIT 10.36
- -------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered as of this 15th day of May, 2000 by and between ENTRADE INC., a
corporation organized under the laws of Pennsylvania (the "Company"), and
the persons listed on the signature page hereto ("Initial Investors")
pursuant to the Note and Purchase Agreement of even date herewith by and
between the Company and the Initial Investors ("Purchase Agreement").
The parties hereby agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Common Stock" shall mean the Company's shares of Common Stock.
"Investor" shall mean the Initial Investors and any subsequent holder
of any Common Stock, Notes, Warrants or Registrable Securities.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration
made by preparing and filing a registration statement or similar document
in compliance with the 1933 Act (as defined below, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall mean the shares of Common Stock issued
and issuable to the Investors pursuant to the Purchase Agreement and
issuable upon the exercise of the Warrants, and any securities issued with
respect to, or in exchange for, such securities.
"Registration Statement" shall mean any registration statement filed
under the 1933 Act of the Company that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement,
amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
"1993 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Warrants" mean the warrants to purchase shares of Common Stock
issued to the Investors pursuant to the Purchase Agreement.
Other capitalized terms used herein but not defined herein shall have
the meaning provided therefor in the Purchase Agreement.
<PAGE>
2. REGISTRATION.
(a) REGISTRATION STATEMENT. Promptly following the closing
of the transactions contemplated by the Purchase Agreement (the "Closing
Date") (but no later than 135 days after the Closing Date), the Company
shall prepare and file with the SEC one Registration Statement on Form S-3
(or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for
resale of the Registrable Securities, subject to the Investors' consent)
covering the resale of the Registrable Securities. Such Registration
Statement shall cover, to the extent allowable under the 1933 Act and the
Rules promulgated thereunder (including Rule 416), such indeterminate
number of additional shares of Common Stock resulting from stock splits,
stock dividends or similar transactions with respect to the Registrable
Securities. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall
be provided in accordance with Section 3(c) to (and subject to the approval
of) the Investors and their counsel prior to its filing or other
submission, which approval shall not be unreasonably withheld or delayed.
(b) EXPENSES. The Company will pay all expenses associated
with the registration, excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities
industry professionals and excluding legal fees of the Investors.
(c) EFFECTIVENESS.
(i) The Company shall use its best efforts to have the
Registration Statement declared effective as soon as practicable.
(ii) The Company may terminate or suspend effectiveness
of any registration contemplated by this Section one time for a period of
not more than twenty (20) days if the Company shall deliver to the
Investors a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors of the Company,
it would (A) be seriously detrimental to the business of the Company for
such registration to be effected or remain effective at such time, (B)
interfere with any proposed or pending material corporate transaction
involving the Company or any of its subsidiaries, or (C) result in any
premature disclosure thereof.
3. COMPANY OBLIGATIONS. The Company will use its best efforts to
effect the registration of the Registrable Securities in accordance with
the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:
(a) use its best efforts to cause such Registration Statement
to become effective and to remain continuously effective for a period that
will terminate upon the later of (i) thirty (30) months following the
effective date of the Registration Statement, and (ii) the date on which
all Registrable Securities covered by such Registration Statement, as
amended from time to time, have been sold or until such time as they become
eligible for distribution pursuant to Rule 144(k), or any successor
provision thereof, under the 1933 Act (the "Registration Period");
(b) prepare and file with the SEC such amendments and post-
effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the
period specified in Section 3(a) and to comply with the provisions of the
1933 Act and the 1934 Act with respect to the distribution of all
Registrable Securities; provided that, at a time reasonably prior to the
filing of a Registration Statement or Prospectus, or any amendments or
supplements thereto, the Company will furnish to the Investors copies of
all documents proposed to be filed, which documents will be subject to the
comments of the Investors, provided, that, the Investors provide such
comments within a reasonable period of time;
<PAGE>
(c) permit a single firm of counsel designated by the consent
of a majority in interest of the Investors to review the Registration
Statement and all amendments and supplements thereto no fewer than ten (10)
days prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects.
(d) furnish to the Investors and their legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with
the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and Prospectus and
each amendment or supplement thereto, and each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a Prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor;
(e) make reasonable effort to prevent the issuance of any
stop order or other suspension of effectiveness and, if such order is
issued, obtain the withdrawal of any such order at the earliest possible
moment;
(f) furnish to the Investors at least five copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules by courier pursuant to the notice
requirements of Section 10.4 of the Purchase Agreement;
(g) prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the Investors
and their counsel in connection with the registration or qualification of
such Registrable Securities, for offer and sale under the securities or
blue sky laws of all U.S. jurisdictions and do any and all other reasonable
acts or things necessary or advisable to enable the distribution in such
jurisdictions of the Registrable Securities covered by the Registration
Statement;
(h) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar securities
issued by the Company are then listed;
(i) immediately notify the Investors, at any time when a
Prospectus relating to the Registrable Securities is required to be
delivered under the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in
such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the
request of any such holder, promptly prepare and furnish to such holder a
reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall 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 not misleading in the light of the circumstances then existing; and
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934
Act, take such other actions as may be reasonably necessary to, facilitate
the registration of the Registrable Securities and Additional Registrable
Securities hereunder.
<PAGE>
4. OBLIGATIONS OF THE INVESTORS.
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities that each Investor shall furnish in
writing to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may
reasonably request. At least ten (10) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall
notify the Investors of the information the Company requires from each
Investor if such Investor elects to have any of the Registrable Securities
included in the Registration Statement.
(b) Each Investor, by its acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable
Securities from the Registration Statement.
(c) In the event the Investors determine to engage the
services of an underwriter, the Investors agree to enter into and perform
their obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering
and take such other actions as are reasonably required in order to expedite
or facilitate the dispositions of the Registrable Securities.
(d) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event rendering the Registration
Statement no longer effective, the Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until the Investor's receipt
of the copies of the supplemented or amended prospectus filed with the SEC
and declared effective and, if so directed by the Company, the Investor
shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in the
Investor's possession of the prospectus covering the Registrable Securities
current at the time of receipt of such notice.
(e) An Investor may not participate in any underwritten
registration hereunder unless it (i) agrees to sell the Registrable
Securities on the basis provided in any underwriting arrangements in usual
and customary form entered into by the Company, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions and any expenses in excess of
those payable by the Company pursuant to the terms of this Agreement.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law each
Investor, its officers, directors, partners, members, managers and
employees and each person who controls such Investor (within the meaning of
the 1933 Act) against all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorney's fees) and expenses
caused by (i) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or any preliminary
prospectus or any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
<PAGE>
insofar as the same are based upon any information furnished in writing to
the Company by such Investor, expressly for use therein, or (ii) any
violation by the Company of any federal, state or common law, rule or
regulation applicable to the Company in connection with any Registration
Statement, Prospectus or any preliminary prospectus, or any amendment or
supplement thereto, and shall reimburse in accordance with subparagraph (c)
below, each of the foregoing persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claims. The foregoing is subject to the condition that, insofar as the
foregoing indemnities relate to any untrue statement, alleged untrue
statement, omission or alleged omission made in any preliminary prospectus
or Prospectus that is eliminated or remedied in any Prospectus or amendment
or supplement thereto, the above indemnity obligations of the Company shall
not inure to the benefit of any indemnified party if a copy of such
corrected Prospectus or amendment or supplement thereto had been made
available to such indemnified party and was not sent or given by such
indemnified party at or prior to the time such action was required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 5(a) shall remain in
full force and effect regardless of any investigation made by or on behalf
of any indemnified party and shall survive the permitted transfer of the
Registrable Securities.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any registration pursuant to the terms of this Agreement,
each Investor severally will furnish to the Company in writing such
information as the Company reasonably requests concerning the holders of
Registrable Securities or the proposed manner of distribution for use in
connection with any Registration Statement or Prospectus and severally (and
not jointly) agrees to indemnify and hold harmless, to the fullest extent
permitted by law, the Company, its directors, officers, employees,
stockholders and each person who controls the Company (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and
expense (including reasonable attorney's fees) resulting from any untrue
statement of a material fact or any omission of a material fact required to
be stated in the Registration Statement or Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to the extent
that such untrue statement or omission is contained in any information
furnished in writing by such holder of Registrable Securities to the
Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto and that such information was
substantially relied upon by the Company in preparation of the Registration
Statement or Prospectus or any amendment or supplement thereto. In no event
shall the liability of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expense paid by
such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue statement or omission) received by
such holder upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder shal (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided that any person entitled to indemnification
hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying
party has agreed to pay such fees or expenses, or (b) the indemnifying
party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party
<PAGE>
with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such claim on behalf of
such person); and provided, further, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations hereunder, except to the extent that such failure
to give notice shall materially adversely affect the indemnifying party in
the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm
of attorneys at any time for all such indemnified parties. No indemnifying
party will, except with the consent of the indemnified party, consent to
entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as
expressly specified therein, then the indemnifying party shall contribute
to the amount paid or payable by the indemnified party as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying
party, as well as any other relevant equitable considerations. No person
guilty of fraudulent misrepresentation within the meaning of Section 11 (f)
of the 1933 Act shall be entitled to contribution from any person not
guilty of such fraudulent misrepresentation. In no event shall the
contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by
such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission) received by it upon the sale of the
Registrable Securities giving rise to such contribution obligation.
6. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. This Agreement may be amended
only by a writing signed by the parties hereto intended to be bound. The
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act,
of the Investor(s) affected by such amendment, action or omission to act.
(b) NOTICES. All notices and other communications provided
for or permitted hereunder shall be made as set forth in Section 10.4 of
the Purchase Agreement.
(c) ASSIGNMENTS AND TRANSFERS BY INVESTORS. This Agreement
and all the rights and obligations of the Investors hereunder may not be
assigned or transferred to any transferee or assignee except as set forth
herein. An Investor may make such assignment or transfer to any transferee
or assignee of any Common Stock, Note, Warrant, or Registrable Securities,
provided, that (i) such transfer is made expressly subject to this
Agreement and the transferee agrees in writing to be bound by the terms and
conditions hereof, and (ii) the Company is provided with written notice of
such assignment.
(d) ASSIGNMENTS AND TRANSFERS BY THE COMPANY. This Agreement
may not be assigned by the Company without the prior written consent of the
Investors, except that without the prior written consent of the Investors,
but after notice duly given, the Company shall assign its rights and
delegate its duties hereunder to any successor-in-interest corporation, and
such successor-in-interest shall assume such rights and duties, in the
event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company's
assets.
<PAGE>
(e) BENEFITS OF THE AGREEMENT. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
(h) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms to the fullest extent permitted by
law.
(i) FURTHER ASSURANCES. The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions
contemplated hereby and to evidence the fulfillment of the agreements
herein contained.
(j) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(k) APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois without
regard to principles of conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
COMPANY:
ENTRADE INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
INVESTORS:
THE HAUGEN FAMILY TRUST
By:
------------------------------
Richard M. Haugen, TTEE
THE OCHS FAMILY TRUST
By:
------------------------------
Peter M. Ochs, TTEE
FIRST FRUIT, INC.
By:
------------------------------
Peter M. Ochs, President
GENESEE MUTUAL INVESTMENTS, LLC
By:
------------------------------
Paul A. Neff, Manager
FOR HIS ADOPTED CHILDREN, INC.
By:
------------------------------
Paul A. Neff, President
------------------------------
Donald Haidl
------------------------------
Corey Schlossmann
------------------------------
David Doerge
EXHIBIT 10.37
- -------------
COLLATERAL AGENCY AGREEMENT
---------------------------
THIS COLLATERAL AGENCY AGREEMENT, dated as of May 15, 2000 (this
"Agreement"), is among Doerge Capital Management, Inc. a division of Balis,
Lewittes & Coleman (the "Agent") and undersigned note holders listed on the
signature page attached hereto (the "Secured Creditors").
RECITALS:
A. Entrade Inc., a Pennsylvania corporation, ("Borrower"), and the
Secured Creditors, have entered into certain Secured Promissory Notes in
the aggregate principal amount of $7,000,000 (the "Notes");
B. The Notes are secured by a pledge of certain shares of common
stock of Public Liquidation Systems, Inc., a Nevada corporation, and Asset
Liquidation Group, Inc., a Nevada corporation (collectively, the
"Collateral") pursuant to the terms of that certain Pledge Agreement (the
"Pledge Agreement") made by Borrower and the Secured Creditors;
C. The Secured Creditors and Agent desire to enter into this
Agreement and to set forth certain agreements relating to, among other
things, (a) the administration of liens created under the Pledge Agreement
and (b) the sharing of proceeds of Collateral;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, and for other good and valuable
consideration, the parties hereto hereby agree as follows:
1 DEFINITIONS
1.1 "Agent Claims" shall have the meaning ascribed thereto in
Section 2.2(a) of this Agreement.
1.2 "Credit Agreements" shall mean, collectively, this Agreement,
the Pledge Agreement, the Notes that certain Note and Warrant Purchase
Agreement made by Borrower and the Secured Creditors, the Creditors
Agreement made by all parties to the Note and Warrant Purchase Agreement
the ("Creditors Agreement"), and all agreements, documents and instruments
contemplated thereby or executed in connection therewith, as any and all of
the foregoing documents may be amended, modified or supplemented from time
to time.
1.3 "Liabilities" shall mean any and all of Borrower's obligations
to the Secured Creditors, howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter existing or
due or to become due, under the Credit Agreements.
1.4 "Business Day" shall mean any day of the year on which the
Agent is open for business in Chicago, Illinois.
1.5 "Collateral" shall have the meaning defined in the Pledge
Agreement.
1.6 "Event of Default" shall have the meaning ascribed thereto in
Section 2.6 of this Agreement.
<PAGE>
1.7 "Indemnified Lender Amounts" shall mean, at the time any
determination thereof is to be made, all costs, expenses, fees,
indemnities, reimbursements and other amounts then due and payable by
Borrower to the Secured Creditors under the Credit Agreements (other than,
in each case, costs, expenses, and other amounts (1) which relate to
Nonindemnifiable Litigation Expense (as hereinafter defined), (2) with
respect to any Secured Creditor, which relate to matters for which such
Secured Creditor has agreed to indemnify and hold harmless the other
Secured Creditors and the Agent pursuant to Section 2.2(c) of this
Agreement, or (3) with respect to any Secured Creditor, payments to be made
by such Secured Creditor pursuant to Section 2.2(c) of this Agreement).
For purposes of this definition and the provisions in which this term is
contained, the term "Secured Creditor" shall be deemed to include any
director, officer, attorney, accountant, consultant, agent or employee of
the Secured Creditor.
1.8 "Nonindemnifiable Agent Claims" shall have the meaning ascribed
thereto in Section 2.2(a) of this Agreement.
1.9 "Nonindemnifiable Litigation Expenses" shall mean any costs,
expenses, fees, indemnities and other amounts payable by Borrower to a
Secured Creditor or Secured Creditors which relate to claims made against a
Secured Creditor by Borrower or a third party and which relate to a claim
with respect to which it is finally determined by a court of competent
jurisdiction that the Secured Creditor to whom such amounts are owned
failed to act in good faith or in a manner which is commercially
reasonable.
1.10 "Pledge Agreement" shall mean that certain Pledge Agreement to
be made by the Borrower and the Secured Creditors.
1.11 "Secured Creditors' Representative" shall mean Genesee Mutual
Investments, LLC.
1.12 "Other Definitions" when used herein, the words "goodfaith"
and "reasonableness" shall have the meaning ascribed thereto in the Uniform
Commercial Code, as interpreted by the federal and state courts having
jurisdiction over Illinois matters.
2 AGENCY AGREEMENT
2.1 AUTHORIZATION. The Agent shall act as collateral agent, in a
fiduciary capacity, for all purposes for the mutual benefit of the Secured
Creditors with respect to the Liabilities. In no event shall any of the
Secured Creditors, in their individual capacity as Secured Creditors with
respect to the Liabilities, acting independently of Agent, exercise any
rights or remedies with respect to the Collateral. Subject to the terms
and conditions hereof, each Secured Creditor irrevocably authorizes the
Agent, on behalf of the Secured Creditors, but only at the direction of the
Secured Creditors' Representative, to exercise such rights and remedies of
the Agent provided for under this Agreement and the other Credit Agreements
in existence on the date hereof or hereafter entered into with the written
consent of the Secured Creditors' Representative and to take such other
actions as may be reasonably incidental thereto; provided, that the Agent
shall not have the authority to amend, supplement, modify or waive any
provision of or give any consent under any of the Credit Agreements without
the prior written consent of the Secured Creditors' Representative; and,
provided further, that the Agent shall consult regularly and as-needed with
the Secured Creditors' Representative and shall act in accordance with any
instructions provided to it by the Secured Creditors' Representative.
Subject to its fiduciary obligations, the Agent may perform any of its
duties hereunder by or through agents or employees, and shall be entitled
to retain counsel and to act in reliance on the advice of such counsel
concerning all matters pertinent to the agencies created hereby and its
duties hereunder, and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of counsel
selected by it, except as provided in Section 2.3 of this Agreement.
<PAGE>
2.2 INDEMNIFICATION.
(a) Each Secured Creditor hereby agrees jointly and severally
to indemnify and hold harmless the Agent from and against any and all
losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), reasonably
incurred or suffered by the Agent, in its capacity as such, as a result of
any action taken or omitted to be taken by the Agent in such capacity, or
otherwise incurred or suffered by, made upon, or assessed against the Agent
in such capacity, relating to or arising out of this Agreement, or any
other Credit Agreements (collectively, "Agent Claims"); provided, however,
that (i) no Secured Creditor shall be required to indemnify or hold
harmless the Agent from and against any Agent Claims (collectively,
"Nonindemnifiable Agent Claims") resulting from or attributable to (1) the
failure of the Agent or of its officers, employees or agents to act in its
fiduciary capacity, in good faith or in a manner which is commercially
reasonable (2) the Agent's gross negligence or willful misconduct, or (3)
any action taken by the Agent in connection with enforcing its and the
Secured Creditors' rights and remedies with respect to the Collateral not
consented to in writing, or deemed to be consented to under Section 2.2(f)
of this Agreement, but such Secured Creditor, except that such Secured
Creditor shall indemnify the Agent to the extent of any amount distributed
or distributable to such Secured Creditor as a result of such unconsented
action, and (ii) any Secured Creditor's payment of any amount to the Agent
pursuant to this Section shall not prejudice the rights of such Secured
Creditor to assert a claim, in a separate action or proceeding, against the
Agent to recover any portion of any such Agent Claims previously reimbursed
by such Secured Creditor resulting from or attributable to Nonindemnifiable
Agent Claims. In furtherance of the foregoing, each Secured Creditor
hereby agrees that the Agent may retain, from the proceeds of the
Collateral in accordance with Section 2.8 of this Agreement, any out-of-
pocket expenses (including, without limitation, reasonable attorneys' fees
and expenses) incurred by the Agent in its capacity as Agent and not
reimbursed to the Agent by Borrower or any Secured Creditor, except that
the Agent shall not be reimbursed for costs and expenses incurred by the
Agent which constitute, or which relate to the defense of, Nonindemnifiable
Agent Claims except to the extent otherwise indemnifiable as provided in
clause (i)(3) of this Section 2.2(a). Any Secured Creditor may, at its
option, reimburse the Agent any such out-of-pocket expenses at any time.
Obligations of each Secured Creditor and of the Agent under this Section
2.2 shall survive the termination of this Agreement and the discharge of
the Liabilities for the applicable statute of limitations period with
respect to claims against the Agent or a Secured Creditor.
(b) The Agent hereby agrees to indemnify and hold harmless
the Secured Creditors' Representative and each Secured Creditor from and
against any and all losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses),
incurred or suffered by such Secured Creditor as a result of any action
taken or omitted to be taken by the Agent in breach of this Agreement, or
as a result of any action taken or omitted to be taken by Agent, or
otherwise incurred or suffered by, made upon, or assessed against such
Secured Creditor, which result from or are attributable to the failure of
the Agent to act in a fiduciary capacity, in good faith or in a manner
which is commercially reasonable.
(c) Each Secured Creditor hereby agrees to indemnify and hold
harmless the other Secured Creditors and the Agent from and against any and
all actions, suits, judgments, demands, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses),
incurred or suffered by any other Secured Creditor or the Agent as a result
of any action taken or omitted to be taken by such Secured Creditor or
otherwise incurred or suffered by, made upon, or assessed against any other
Secured Creditor or the Agent which result from or are attributable to the
failure of such Secured Creditor or of its officers, employees or agents to
act in good faith or in a manner which is commercially reasonable.
<PAGE>
(d) Any Agent Claims that are not required to be reimbursed
by any Secured Creditor pursuant to the proviso in Section 2.2(a) of this
Agreement, after appropriate court determination, where required, shall not
constitute Indemnified Agent Amounts.
(e) In the event of any third party claim against the Agent
or any Secured Creditor (the "Indemnified Party") with respect to which the
Agent or the Secured Creditors (the "Indemnifying Parties") are obligated
to indemnify the Indemnified party hereunder, the party which bears the
greatest risk of loss, as determined by the Secured Creditors, with respect
to such claim under the provisions of this Agreement (taking into account,
among other things, the impact of any possible payment of the losses, costs
and expenses relating thereto pursuant to items First and of Section 2.8
hereof) shall be called the "Major Indemnifying Party". With respect to
any such third party claim, the Indemnified Party shall keep the
Indemnifying Parties advised as to the status of the claim, any proceedings
initiated with respect thereto and any settlement discussions occurring
with respect thereto, and shall consult with the major Indemnifying Party
with respect to the defense thereof. The Major Indemnifying Party shall
have the right, at its option and expense, to be represented by counsel of
its choice and to defend against, negotiate, settle or otherwise deal with
the third party claim. Each other Indemnifying Party shall have the right
to be consulted with respect to actions to be taken in connection
therewith. The Indemnified Party agrees not to settle any such third party
claim in an amount in excess of $50,000 without the prior written consent
of the Major Indemnifying Party (which consent will not be unreasonably
withheld) and agrees not to unreasonably withhold its agreement to any
settlement thereof approved by the Major Indemnifying Party; provided that,
in the event that the Major Indemnifying Party or the Indemnified Party
(the "Requesting Party") reasonably requests the consent of the other (the
"Responding Party") to settle a third party claim and the Responding Party
unreasonably fails to consent to the settlement of the claim on the terms
described by the Requesting Party, the Responding Party shall indemnify and
hold harmless the Requesting Party from and against liabilities and losses,
incurred by the Requesting Party pursuant to a final judgment rendered with
respect to the third party claim in excess of such liabilities and losses
which otherwise would have bene incurred by the Requesting Party under the
terms of the settlement offer which the Responding Party declined to
accept.
(f) For purposes of this Agreement, each Secured Creditor
shall have seven (7) Business Days following receipt of written notice of
any action proposed to be taken by the Agent in its capacity as Agent in
connection with enforcing its and the Secured Creditors' rights and
remedies with respect to the Collateral to grant its consent, or to
disapprove of such action. Failure of such Secured Creditor to respond in
writing to the Agent within seven (7) Business Days following receipt of
such notice from the Agent shall be deemed consent to the proposed action.
2.3 EXCULPATION. The Agent shall be entitled to rely upon advice
of counsel, concerning legal matters, and upon this Agreement, the Credit
Agreements, any security agreement, schedule, certificate, statement,
report, notice or other writing which it believes in good faith, after
reasonable inquiry, to be genuine or to have been presented by a proper
person. Except to the extent of its, or their, respective actual
knowledge, neither the Agent in its capacity as such nor any of its
directors, officers, employees or agents shall (i) be responsible for any
recitals, representations or warranties contained in, or for the execution,
validity, genuineness, effectiveness or enforceability of this Agreement,
the Credit Agreements or any instrument or document delivered under or in
connection with any thereof, (ii) be responsible for the validity,
genuineness, perfection, effectiveness, enforceability, existence, value or
<PAGE>
enforcement of any collateral security, (iii) subject to the limitations
set forth below, be under any duty to inquire into or pass upon any of the
foregoing matters, or to make any inquiry concerning the performance by
Borrower or any other obligor of its obligations, or (iv) in any event, be
liable as such for any action taken or omitted by it or them, except for
liability resulting from (x) its or their failure to act in a fiduciary
capacity, in good faith or in a manner which is commercially reasonable or
(y) a material breach by the Agent of this Agreement.
2.4 RESIGNATION OR REMOVAL. The Agent may resign as such at any
time upon at least thirty (30) days' prior notice to Borrower and the
Secured Creditors' Representative. The Secured Creditors' Representative
may remove the Agent upon written notice to the Agent and the Borrower. No
such resignation or removal shall become effective unless and until a
successor Agent under this Agreement is appointed and has accepted the
appointment. In the event of resignation or removal of the Agent
hereunder, the Agent shall be entitled to its fees and expenses to the date
of removal. In the event of any such resignation or removal, the Secured
Creditors' Representative shall promptly as practicable appoint a successor
Agent mutually satisfactory to them. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all of the rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under this Agreement
except the duty to execute and deliver any documents necessary to vest or
confirm the vesting of such rights, powers, privileges and duties in such
successor Agent, and to cooperate with the Secured Creditors'
Representative and any successor Agent in the prosecution or defense of
claims by or against the Secured Creditors relating to or arising out of
the Credit Agreements. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Agreement shall continue in
effect with respect to actions taken or omitted to be taken by said Agent
while it was acting in its capacity as Agent hereunder. After the retiring
Agent's resignation or removal hereunder as Agent, each reference herein to
a place for giving of notice or deliveries to the Agent shall be deemed to
refer to the principal office of the successor Agent or such other office
of the successor Agent as it may specify to the Secured Creditors'
Representative.
2.5 CUSTODY OF COLLATERAL. The Agent shall be responsible for the
custody and preservation of the Collateral consisting of securities and act
in good faith and in a commercially reasonable manner with respect to the
custody and preservation of the Collateral in its possession.
2.6 NOTICE OF DEFAULT. The Agent shall give the Secured Creditors'
Representative notice, as soon as reasonably practicable, if the Agent
obtains actual knowledge, that an "event of default" under any Credit
Agreement ("Event of Default") shall have occurred and be continuing;
provided, however, that, in the absence of such knowledge, the Agent shall
not be liable to any person or entity for its failure to give such notice,
and such failure shall not impair or otherwise affect the validity of any
action taken by the Agent pursuant to this Agreement or any of the Credit
Agreements.
2.7 ENFORCEMENT OF THE SECURITY INTERESTS. The Agent acknowledges
that it holds all liens and security interests granted and provided in the
Credit Agreements for the pro-rata benefit of the Secured Creditors with
respect to the Liabilities. Subject to the provisions of this Agreement,
the Agent may exercise from time to time such rights and remedies as are
available to it and the Secured Creditors with respect to the Liabilities
under the Credit Agreements and the applicable law with respect to the
Collateral. Subject to the foregoing, and subject to the instructions of
the Secured Creditors' Representative, as to which Agent shall abide,
following the occurrence of an Event of Default, the Agent, in its capacity
<PAGE>
as such, shall in its reasonable discretion determine the time, manner and
method in which the Agent shall exercise the rights and remedies of the
Secured Creditors under the Credit Agreements. The Agent agrees that,
following the occurrence of an Event of Default, upon the request of the
Secured Creditors' Representative, it will confer with the Secured
Creditors' Representative or a representative selected by the Secured
Creditors' Representative on a weekly basis (or such other periodic basis
as may be agreed to by the Secured Creditors' Representative and the Agent)
at a mutually acceptable time by telephone or other mutually agreeable
means, and report to the Secured Creditors' Representative or
representative concerning the status of any foreclosure proceedings and
other actions taken or proposed to be taken with respect to the realization
upon the Collateral. Except as otherwise provided in this Agreement, the
Agent shall have no liability to the Secured Creditors for any action taken
or omitted to be taken or for any error in judgment, except for its failure
to act in a fiduciary capacity, in good faith or in a manner which is
commercially reasonable as finally determined by a court of competent
jurisdiction. Anything contained in the Credit Agreements to the contrary
notwithstanding, the Secured Creditors agree among themselves and for their
own benefit alone that the liens and security interests granted and
provided for in the Credit Agreements shall not be enforced unless
permitted by the terms of the applicable law.
2.8 ALLOCATION OF COLLATERAL PROCEEDS. All proceeds of Collateral
received by the Agent from and after the occurrence of an Event of Default
shall be disbursed by the Agent for the following purposes and in the
following order of priority:
FIRST, to reimburse the Agent for unpaid Agent Claims;
SECOND, to the Secured Creditors in reimbursement for any Agent
Claims theretofore paid by such Secured Creditors proportionately to each
such Secured Creditor according to the relationship which the amount of
Agent Claims paid by such Secured Creditor bears to the aggregate amount of
all Agent Claims paid by the Secured Creditors;
THIRD, to the Secured Creditors in reimbursement for
Indemnified Lender Amounts, proportionately to each Secured Creditor
according to the relationship which Indemnified Lender Amounts paid by such
Secured Creditor bears to all Indemnified Lender Amounts;
FOURTH, to the Secured Parties in payment of accrued and unpaid
interest on principal amounts of the Notes proportionately according to the
relationship which such accrued and unpaid interest owned to each Secured
Creditor bears to the aggregate amount of such accrued and unpaid interest
owed to the Secured Creditors under the Notes;
FIFTH, to the Secured Creditors in payment of outstanding
principal amounts of the Notes proportionately according to the
relationship which such outstanding principal amounts bears to the
aggregate amount of such outstanding principal amounts owed to the Secured
Creditors under the Notes.
3 MISCELLANEOUS
3.1 NOTICES. All notices hereunder shall be addressed to the
Secured Creditors at the addresses next to their names as set forth on
Exhibit A to the Note and Warrant Purchase Agreement and to the Agent and
Borrower as follows:
(a) If to Agent:
Doerge Capital Management, Inc.
a division of Balis, Lewittes & Coleman
30 South Wacker Drive
Suite 2112
Chicago, Illinois 60606
Attn: David J. Doerge
<PAGE>
(b) If to Borrower:
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
with a copy to:
Duane, Morris & Heckscher LLP
227 W. Monroe
Suite 3400
Chicago, Illinois 60606
Attn: Eric Fogel, Esq.
or to such other address or person as any of the parties hereto may
designate in writing to the other parties. Every notice hereunder shall be
deemed to have been duly given or served on the date such notice is
personally delivered provided that the receipt of such notice is
acknowledges; or three (3) Business Days after the same shall have been
deposited in the United States mail, first class, properly addressed with
postage prepaid; or one (1) Business Day after the same shall have been
sent by overnight courier; or if telecopied, be effective upon confirmation
by telephone.
3.2 NO ADDITIONAL RIGHTS FOR BORROWER HEREUNDER. If any Secured
Creditor shall enforce its rights or remedies in violation of the terms of
this Agreement, Borrower agrees that it shall not use such violation as a
defense to the enforcement by any Secured Creditor under the Credit
Agreements nor assert such violation as a counterclaim or basis for set-off
or recoupment against any Secured Creditor.
3.3 INDEPENDENT CREDIT INVESTIGATIONS. None of the Secured
Creditors nor any of their respective directors, officers, agents or
employees shall be responsible to any other Secured Creditor or to any
other person, firm or corporation, for the Borrower's or any Subsidiary's
solvency, financial condition or ability to repay any of the Liabilities,
or for statements of the Borrower or any Subsidiary, oral or written, or
for the validity, sufficiency or enforceability of any of the Liabilities,
the Credit Agreements, or any liens or security interests granted by
Borrower or any Subsidiary to the Agent, for the ratable benefit of the
Secured Creditors with respect to the Liabilities, in connection therewith.
Each Secured Creditor hereby acknowledges that it has entered into its
respective financing agreements with Borrower based upon its own
independent investigation and credit determination, and makes no warranty
or representation to the other Secured Creditor nor does it rely upon any
representation of any other Secured Creditor with respect to matters
identified or referred to in this Section.
3.4 LIMITATION ON LIABILITY OF SECURED CREDITORS TO EACH OTHER.
Except as otherwise provided in this Agreement or the Creditors Agreement,
no Secured Creditor shall have any liability to any other Secured Creditor.
3.5 NO WAIVER/AMENDMENTS. No delay on the part of the Agent or any
Secured Creditor in the exercise of any right or remedy shall operate as a
waiver thereof, and no single or partial exercise by the Agent or any
Secured Creditor of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; no
modification or waiver of any of the provisions of this Agreement shall be
binding except as expressly set forth in a writing duly signed and
delivered on behalf of the party to be charged.
3.6 COMPUTATIONS. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or
consolidation or other accounting computation is required to be made, for
the purpose of this Agreement, such determination or calculation shall, to
the extent applicable and except as otherwise specified in this Agreement,
be made in accordance with generally accepted accounting principles applied
on a basis consistent with those at the time in effect.
<PAGE>
3.7 COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand
all out-of-pocket costs and expense of the Agent incurred in its capacity
as Agent (including the reasonable fees and out-of-pocket expenses of
counsel for the Agent) in connection with the preparation, execution,
delivery and administration of this Agreement and of the Credit Agreements
and all other instruments or documents provided for therein or delivered or
to be delivered thereunder or in connection therewith, the filing,
recording, refiling or re-recording of any documents and/or any financing
statements and notices relating thereto and all amendments or supplements
to any thereof and any and all other documents or instruments of further
assurance required to be filed or recorded or refiled or re-recorded by the
terms of any of the Credit Agreements and all out-of-pocket costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred
by the Agent in its capacity as Agent in connection with the enforcement of
this Agreement or the Credit Agreements and any such other instruments or
documents or any Collateral. All obligations provided for in this Section
shall survive any termination of this Agreement and the discharge of the
Liabilities.
3.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of each
of the parties hereto, but does not otherwise create, and shall not be
construed as creating, any rights enforceable by any person not a party to
this Agreement other than a transferee or a participant of a Secured
Creditor or the Agent but only if such party agrees in writing to be bound
by the provisions of this Agreement.
3.9 ACKNOWLEDGMENT AND WAIVER. Each of the Secured Creditors
acknowledge that Agent has received a commission from the Borrower. Agent
represents to the Secured Creditors that except for such commission, it has
no right or contingent right to receive any payment, compensation or other
benefit from Borrower. Each of the Secured Creditors, in consideration for
and as an inducement to the Agent to serve in the capacity of Agent under
this Agreement, hereby affirmatively waive any and all right to assert that
Agent's receipt of such commission and its representation of Borrower prior
to the date hereof constitutes a conflict of interest with Agent's
obligations under this Agreement, and to the extent that there is
potential, or perceived, conflict of interest, each of the Secured
Creditors hereby waive any right to assert that such a potential, or
perceived, conflict precludes Doerge Capital Management, from acting as the
Agent under this Agreement.
3.10 GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed as to validity, interpretation, enforcement and effect by the
internal laws of the State of Illinois (without giving effect to principles
of conflicts of law). Each party hereto hereby agrees to irrevocably
submit to the nonexclusive jurisdiction of any Illinois state or Federal
court sitting in Cook County, Illinois over any suit, action or proceeding
arising out of or relating to this Agreement, and any such party hereby
agrees and consents that, in addition to any methods of service or process
provided for in any applicable law, all service of process in any such
suit, action or proceeding in any Illinois state or Federal court sitting
in Cook County, Illinois may be made by certified or registered mail,
return receipt requested, directed to the applicable party at the address
indicated in Section 3.1 hereof, or such other address as such party shall
have given to the other parties hereto in accordance with Section 3.1, and
service so made shall be complete five (5) Business Days after the same
shall have been so mailed.
3.11 INFORMATION. Upon the request of any Secured Creditor or the
Agent, each Secured Creditor and Agent agrees to use its reasonable best
efforts to provide, any other Secured Creditor and the Agent with all
information in its possession relating to the transactions contemplated by
the Credit Agreements and with any credit or other information with respect
to any of the Collateral.
<PAGE>
3.12 COUNTERPARTS. This Agreement and any amendment or supplement
hereto or any waiver granted in connection herewith may be executed in any
number of counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and
the same agreement.
3.13 SECTION TITLES. The section titles contained in this Agreement
are and shall be deemed to be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties
hereto.
3.14 ENTIRE AGREEMENT. This Agreement and the other documents and
instruments being executed, delivered or both, concurrently herewith, set
forth the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior
understandings, agreements, arrangements and communications, whether verbal
or written, of the parties regarding the same subject matter.
* * *
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date and year first above written.
AGENT:
Doerge Capital Management, Inc.,
a division of Balis, Lewittes & Coleman
By:
------------------------------
Title:
------------------------------
SECURED CREDITORS:
THE HAUGEN FAMILY TRUST
By:
------------------------------
Richard M. Haugen, TTEE
THE OCHS FAMILY TRUST
By:
------------------------------
Peter M. Ochs, TTEE
FIRST FRUIT, INC.
By:
------------------------------
Peter M. Ochs, President
GENESEE MUTUAL INVESTMENTS, LLC
By:
------------------------------
Paul A. Neff, Manager
FOR HIS ADOPTED CHILDREN, INC.
By:
------------------------------
Paul A. Neff, President
------------------------------
Donald Haidl
------------------------------
Corey Schlossmann
------------------------------
David Doerge
<PAGE>
The undersigned hereby acknowledges and agrees to the foregoing
provisions. By executing this Agreement, the undersigned agrees to be
bound by the provisions hereof as they relate to the relative rights of
Secured Creditors as between such Secured Creditors; provided, however,
that nothing in this Agreement shall amend, modify, change or supersede the
respective terms of the Credit Agreements (or any other document to which
any of the undersigned may be a party) as between the Secured Creditors and
the undersigned and, except with respect to the relative rights of the
Secured Creditors to receive payment on the Liabilities, in the event of
any conflict or inconsistency between the terms of this Agreement and the
Credit Agreements (or any such other documents, as the case may be) the
terms of the Credit Agreements (and such other documents) shall govern.
The undersigned further agrees that the terms of this agreement shall not
give the undersigned any substantive rights vis-a-vis any of the Secured
Creditors.
ENTRADE INC.
By:
------------------------------
Title:
------------------------------
EXHIBIT 10.38
- -------------
CREDITORS AGREEMENT
-------------------
THIS CREDITORS AGREEMENT (this "Agreement"), dated as of the 15th day
of May, 2000, is made by and among The Haugen Family Trust, the Ochs Family
Trust, First Fruit, Inc. a California corporation, Genesee Mutual
Investments, LLC, a California limited liability company (the "Secured
Creditors' Representative"), For His Adopted Children, Inc., a California
corporation, David Doerge, Donald Haidl and Corey Schlossman, (each,
including the Secured Creditors' Representative, a "Creditor", and,
collectively, the "Creditors") and Entrade, Inc. a Pennsylvania corporation
("Borrower").
WHEREAS, concurrently with this Agreement, the Creditors are loaning
an aggregate of $7,000,000 to Borrower (the "Loans") pursuant to a Note and
Warrant Purchase Agreement, and corresponding Secured Promissory Notes, by
and between Borrower and each of the Creditors, and a Pledge Agreement by
and between Borrower, Asset Liquidation Group, Inc., a Nevada corporation
("ALG"), Public Liquidation Group, Inc., a Nevada corporation ("PLS") and
Doerge Capital Management all of even date herewith (each a "Loan Document"
and collectively, the "Loan Documents");
WHEREAS, Pursuant to the Pledge Agreement, Borrower has pledged as
collateral for the Loans, all of the shares of ALG and PLS. The parties
desire to enter into this Agreement for the purpose of agreeing as to the
management of the Loans and the Collateral and the Creditors respective
rights and obligations if an Event of Default should occur. Capitalized
terms used but not defined herein shall have the meaning set forth in the
Pledge Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreement set forth herein, the parties hereby agree as follows:
1. PRIORITY OF LOANS. The Creditors agree among themselves that
their Loans are in equal priority and that their security interests in the
Pledged Collateral rank equal in priority according to the ratio of
indebtedness.
2. CROSS-DEFAULT. The Borrower hereby agrees to pay each Creditor
pro rata according to the ratio of such Creditor's Loan to all of the Loans
and that a default on any of the Liabilities to any of the Creditors and an
acceleration thereof or a demand for payment by any of the Creditors shall
be deemed to be a default and an acceleration and demand for payment with
respect to or by the other Creditors.
3. DEFAULT. Each Creditor agrees to notify immediately the others
upon the occurrence of an Event of Default and an acceleration as a result
thereof or demand for payment under any of the obligations of the Borrower
to it in connection with the Loans or any Loan Document. Unless such
default and acceleration thereof or demand for payment is waived by all
Creditors, each Creditor shall, to the extent possible, cause each and
every obligation of Borrower in connection with this Agreement to become
and be forthwith due and payable. Each Creditor shall inform the others of
the total obligations of the Borrower then outstanding to such Creditors
after such default and acceleration thereof or demand for payment.
Subsequent to such a default and an acceleration as a result thereof or
demand for payment, the Creditors shall share pro rata according to the
ratio which the indebtedness owed to each one bears to the aggregate
indebtedness of Borrower under all Loans (exclusive of any other extension
of credit by any Creditor to Borrower or any affiliate thereof), in all of
the payments and/or receipts, including any setoffs, received by them on
account of any of Borrower's obligations to the Creditors whether
voluntary, involuntary or received as a result of offset, counterclaim or
otherwise and shall include all amounts received from any source
whatsoever, including but not limited to the proceeds of liquidation of the
Pledged Collateral, and payments by guarantors or third parties or from the
proceeds of any property securing such guaranties, such that, at any time,
each Creditor shall have received the same proportionate share of payment
of its Loan as all other Creditors. Collateral. Such pro rata
distributions shall be made as proceeds are realized from the liquidation
of the Pledged Collateral or obtained from any guarantors, or as proceeds
are realized from the liquidation of property securing such guaranties.
Such pro rata distributions shall be made as proceeds are realized from the
liquidation of the Pledged Collateral or obtained from any guarantors or
third parties, or as proceeds are realized from the liquidation of property
securing such guaranties.
4. DELEGATION OF AUTHORITY TO SECURED CREDITORS' REPRESENTATIVE. In
order that the Creditors shall maximize the efficiency of their efforts and
receive the greatest benefit from their security interests, it is agreed
that upon the occurrence of an Event of Default under any Loan, then as
between the Creditors and the Borrower, any trustee, receiver or other
representative of Borrower under the bankruptcy, reorganization,
arrangement, insolvency or other debtors' relief laws, that the Secured
Creditors' Representative shall direct Doerge Capital Management, the
Pledgee under the Pledge Agreement, enforce its security interest and the
security interests of all Creditors and share pro rata with the other
Creditors based on their respective ratios provided hereinabove. Upon the
occurrence of an Event of Default, the Secured Creditors' Representative is
hereby irrevocably authorized by each of the other Creditors to take any
and all actions with respect to the collection of the Loans, the exercise
of any rights of the Creditors under any of the Loan Documents, including
any rights to foreclose or otherwise deal with the Pledged Collateral,
including the exercise of any rights under the Collateral Agent Agreement,
of even date herewith, by and among the Creditors and Doerge Capital
Management. The Creditors each agree that, upon the occurrence of an Event
of Default, no Creditor other than the Secured Creditors' Representative
shall take any action with respect to the enforcement of the Loan Documents
or the collection of the Loans, including without limitation, any
compromise, waiver or other action with respect to the Loans without the
prior written approval of the Secured Creditors' Representative and that
each Creditor will promptly execute any and all documents and take any
actions requested by the Secured Creditors' Representative in connection
with the enforcement of the Loans Documents or the collection of the Loans.
The Secured Creditors' Representative shall be entitled to exercise its
discretion in connection with the enforcement of the Loan Documents and the
collection of the Loans and neither the Secured Creditors' Representative
nor any of its employees, officers, members managers or agents shall have
any liability to any Creditor as a result of any and all lawful action
which the Secured Creditors' Representative or any such person takes or
omits to take (including any actions with respect to the foreclosure upon
or sale of the Pledged Collateral, release of security interest, waiver of
claims or failure to realize upon any of the Pledged Collateral or to
institute or prosecute or fail to institute or prosecute any claims in
connection with the Loans), regardless of whether such actions or omissions
may adversely affect any Creditor's rights under any Loan Document or in
connection with its Loan. The Borrower acknowledges the appointment of the
Secured Creditors' Representative hereunder and agrees to accept its
authority to act as provided herein.
5. INDEMNITY; EXCULPATION. Each of the Creditors, severally in
accordance with the ratio of its Loan to all the Loans, agrees to
indemnify, defend and hold Secured Creditors' Representative and its
employees, officers, members managers or agents, harmless from and against
any liabilities, claims, costs or expenses, including reasonable attorneys'
fees incurred or suffered by Secured Creditors' Representative or any such
person in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, the Loan Documents, or the
taking of any lawful actions or omissions arising out of or relating to the
enforcement of the Loan Documents or the collections of the Loans. The
Creditors agree to promptly (and in any event within 30 days after written
request therefor) reimburse the Secured Creditors' Representative for their
pro rata share of any reasonable out-of-pocket expenses, costs and legal
fees incurred by it in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, the Loan Documents or this
Agreement, or the taking of any lawful actions or omissions arising out of
or relating to the enforcement of the Loan Documents or the collections of
the Loans or the enforcement of this Agreement. Without limiting the
foregoing, the Secured Creditors' Representative (a) may treat the payee of
any Loan as the holder thereof until it receives written notice of the
assignment or transfer thereof signed by such payee and in form
satisfactory to it; (b) may consult with legal counsel (including counsel
for the Borrower), independent public accountants and other experts
selected by it and shall not be liable to any Creditor for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts, even if not lawful; (c) makes no
warranty or representation to any Creditor and shall not be responsible to
any Creditor for any statements, warranties or representations made in or
in connection with any Loan Document; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of any Loan Document on the part of the
Borrower or to inspect the property (including the books and records) of
the Borrower; (e) shall not be responsible to any Creditor for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant thereto; and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier or telex) believed by it
to be genuine and signed or sent by the proper party or parties.
6. AMENDMENTS, ETC. This agreement constitutes the full and
complete agreement of the parties with respect to the subject matter hereof
and supersedes any prior agreements, writings or discussions. No amendment
or waiver of any provision of this Agreement, or consent to any departure
by therefrom, shall in any event be effective unless the same is in writing
and signed by all Creditors representing at least a two-thirds interest in
the Loans (after the sharing provisions of Section 3 above are applied).
7. NOTICES, ETC. All notices, demands and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, as provided in
the Pledge Agreement.
8. BINDING EFFECT; ASSIGNMENT OR PARTICIPATION. This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Secured
Creditors' Representative and each Creditor, and their respective succes-
sors and assigns, except that the Borrower shall not have the right to
assign any of its rights or obligations hereunder or any interest herein
without the prior written consent of the Creditors. Each Creditors may
assign to one or more other entities all or any part of, and may grant
participations to one or more other entities in or to all or any part of,
the Loan made by such Creditor and to the extent of any such assignment or
participation (unless otherwise stated therein) the assignee or participant
of such assignment or participation shall have the same rights and
obligations hereunder.
9. Severability. The provisions of this Agreement are severable,
and if any clause or provision is held to be invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part
thereof, in such jurisdiction and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or
provision of this Agreement in any jurisdiction.
10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of an originally
executed counterpart of this Agreement.
11. Jurisdiction, Etc. Each of the parties hereto hereby irrevocably
and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any California state court or United States
federal court sitting in Los Angeles, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such state or,
to the extent permitted by law, federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any other jurisdiction. Each of the parties
hereto irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Loan Documents in any
state or federal court specified in Section 11. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of any such action or
proceeding in any such court.
12. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF.
13. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE CREDITORS
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, ANY OF THE
TRANSACTIONS CONTEMPLATED THEREBY OR ANY OF THE ACTIONS OF THE BORROWER,
THE SECURED CREDITORS' REPRESENTATIVE OR THE CREDITORS IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
14. RESIGNATION AND REMOVAL OF SECURED CREDITORS' REPRESENTATIVE. The
Secured Creditors' Representative may resign at any time, without liability
hereunder, upon two days prior written notice to the Creditors. The Secured
Creditors' Representative may be removed upon the written consent of
Creditors holding at least two-thirds of the total amount of the Loans
(after the sharing provisions of Section 3 above are applied). In the
event of the resignation or removal of the Secured Creditors'
Representative, the Creditor may, by written consent of Creditors holding
at least a two-third interest in the Loans (after the sharing provisions of
Section 3 above are applied), appoint another party, who may or may not be
a Creditor, as Secured Creditors' Representative. If no successor Secured
Creditors' Representative is appointed within 10 days after the resignation
or removal of the Secured Creditors' Representative, this Agreement shall
terminate and be of no further force or effect, except that the provisions
of Section 5 et. seq. shall continue in effect.
15. ATTORNEYS' FEES. If an arbitration or other legal proceeding is
brought to enforce or interpret the provisions of this Agreement or any
other agreement or instrument provided for herein or as to the rights or
obligations of any party to this Agreement or such other agreement or
instrument, the prevailing party in such action shall be entitled to
recover as an element of such party's costs of suit, and not as damages, a
reasonable attorney's fee to be fixed by the court or the arbitrator. The
prevailing party shall be the party who is entitled to recover its costs of
suit as ordered by the arbitrator, the court or by applicable law or court
rules. A party not entitled to recover its costs shall not recover
attorney's fee.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
THE HAUGEN FAMILY TRUST
By:
------------------------------
Richard M. Haugen, TTEE
THE OCHS FAMILY TRUST
By:
------------------------------
Peter M. Ochs, TTEE
FIRST FRUIT, INC.
By:
------------------------------
Peter M. Ochs, President
GENESEE MUTUAL INVESTMENTS, LLC
By:
------------------------------
Paul A. Neff, Manger
FOR HIS ADOPTED CHILDREN, INC.
By:
------------------------------
Paul A. Neff, President
------------------------------
Donald Haidl
------------------------------
Corey Schlossman
------------------------------
David Doerge
ENTRADE INC.
By
------------------------------
Its:
EXHIBIT 10.39
- -------------
SECURED PROMISSORY NOTE
$_________ May 15, 2000
The undersigned ("Maker"), ENTRADE INC., a Pennsylvania corporation
for value received, and intending to be legally bound hereby, promises to
pay to the order of ___________________________________, ("Payee"), at
_____________________, or at such other place or places as Payee may
designate in writing, the principal sum of _____________ Dollars and No/100
($___________), plus interest from the date hereof on the unpaid principal
amount from time to time outstanding hereunder, at fifteen percent (15%)
per annum, with all principal and interest owed hereunder payable in full
on July 15, 2001 (the "Maturity Date").
Interest shall be payable in arrears commencing on August 15, 2000,
and continuing on the fifteenth (15th) day of November, 2000 and the
fifteenth (15th) day of February, 2001 and including May 15, 2001, with a
final payment of all interest due on the Maturity Date. Interest shall be
calculated based upon a year consisting of 365 days and charged for the
actual number of days elapsed.
This Note may be prepaid by Maker at any time provided however that
such prepayment shall include an amount equivalent to interest through the
Maturity Date on the outstanding principal balance of the Note but not less
than one year's interest, less any amount of interest previously paid, plus
an amount equal to five percent (5%) of the initial principal balance of
the Note on the date of prepayment, provided, however, that if prepayment
is made after the last day of the twelfth month of the term of this Note,
the prepayment charge shall be the amount of accrued but unpaid interest
through the Maturity Date, plus five percent (5%) of the outstanding
principal balance of the Note. Maker acknowledges and agrees that the
aforesaid prepayment charge is a reasonable estimate of the Payee's loss in
the event of any prepayment of this Note, and that any prepayment charge is
not a penalty. In the event that Maker enters into a private placement or
a public offering of its securities which yield to Maker gross proceeds of
not less than Thirty Million Dollars and No/100 ($30,000,000), then
notwithstanding anything to the contrary contained herein, the Payee shall
have the right to demand prepayment of this Note, which amount shall be the
outstanding principal balance of the Note, plus all interest accrued but
unpaid up to the date of prepayment. If the Payee exercises this option,
the Payee shall have no right to exchange any warrant issued by Maker
pursuant to the Agreement (as defined below) for a cash payment.
This Note is one of a series of Secured Promissory Notes referred to
in that certain Note and Warrant Purchase Agreement dated even date
herewith by and between Maker and Payee and other Payees (the "Agreement")
under the terms of which each Payee shall receive a warrant which will
allow the Payee to purchase common stock of the Maker equal to the face
amount of the Note divided by twenty five (25) (the "Warrant"), and that
certain Pledge Agreement dated even date herewith by and between Maker and
Doerge Capital Management, Inc., a division of Balis, Lewittes & Coleman
("Pledgee") (the "Pledge Agreement"), under the terms of which Maker has
pledged, as pledgor, to Pledgee, as pledgee, for the benefit of each Payee
one hundred percent (100%) of the issued and outstanding stock of Asset
Liquidation Group, Inc., a Nevada corporation and Public Liquidation
Systems, Inc., a Nevada corporation each doing business as Nationwide
Auction Systems. This Note is subject to all of the terms and conditions
of the Agreement, which terms and conditions are hereby made a part of this
Note to the same extent and with the same force and effect as if they were
fully set forth herein, and this Note is secured pursuant to the terms of
the Pledge Agreement.
<PAGE>
It is expressly agreed by Maker that time is of the essence hereof,
and it shall be an Event of Default" hereunder if:
(i) Maker shall fail to pay any amount of principal or
interest due hereunder and such failure shall continue for seven (7) days
after Payee notifies Maker thereof in writing; or
(ii) Maker is or becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, debts as they become due, or
Maker applies for, consents to or acquiesces in the appointment of a
trustee, receiver or other custodian for Maker or any of its property, or
makes a general assignment for the benefit of creditors, or, in the absence
of such application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for Maker or for a substantial part of Maker's
property and is not discharged within ninety (90) days, or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law is commenced in respect of Maker, and if such
case or proceeding is not commenced in respect of Maker, it is consented
to or acquiesced in by Maker or remains for ninety (90) days undismissed,
or Maker takes any action to authorize, or in the furtherance of, any of
the foregoing; or
(iii) There shall be an Event of Default pursuant to any other
Note issued in conjunction with this Note, or any other document executed
in conjunction therewith including but not limited to the Pledge Agreement
Upon the occurrence and during the continuation of an Event of
Default hereunder, the interest rate hereunder shall be increased to twenty
percent (20%) per annum and at the option of Payee, the entire unpaid
principal balance hereunder, together with all accrued interest thereon,
shall become immediately due and payable. In addition, Payee shall be
entitled to exercise all rights of Payee hereunder and under applicable
law, including the right to collect from Maker all sums due under this
Note. In addition, upon an Event of Default, the Payee may exchange the
Warrant for an amount equal to five percent (5%) of the initial principal
amount of this Note.
In addition to the other sums payable hereunder, Maker agrees to pay
to the holder, within fifteen (15) days of demand, all reasonable
attorneys' fees and costs that may be incurred by the holder of this Note
in enforcing any of the terms hereof after an Event of Default.
Except as otherwise provided in this Note or the Agreement, Maker
hereby waives notice of non-payment, notice of dishonor, and protest of any
dishonor, and agrees that its liabilities shall be unconditional without
regard to the liability of any other party and shall not in any manner be
affected by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by the holder hereof. Further, Maker
consents to any and all extensions of time, renewals, waivers, or
modifications that may be granted by the holder hereof with respect to the
payment or other provisions of this Note, and agrees that additional
makers, endorsers, guarantors or sureties may become parties hereto without
notice to Maker and without affecting its liability hereunder.
The holder hereof shall not by any act of omission or commission be
deemed to waive any of its right or remedies hereunder unless such waiver
is in writing and signed by the holder hereof, and then only to the extent
specifically set forth therein. The waiver of any event shall not be
construed as a waiver of any other right or remedy, nor shall any single or
partial exercise of any right or remedy preclude any other or further
exercise thereof or of any other right or remedy.
<PAGE>
Whenever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if
any provision of this Note is deemed to be invalid or unenforceable under
such law, such provision shall be ineffective only to the extent of such
invalidity or unenforceability without affecting the validity or
enforceability of any other provision of this Note.
Maker (and the undersigned representative of Maker, if any)
represents that Maker has full power and authority and legal right to
execute and deliver this Note and this Note shall be binding on Maker and
its respective successors and assigns.
This Note shall be governed by and construed according to the
internal laws of the State of Illinois without regard to principals of
conflicts of law.
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed this Secured Promissory
Note as of the date first above written.
ENTRADE INC.
By:
------------------------------
, President
EXHIBIT 10.40
- -------------
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or registered or
qualified under any state securities laws. The securities may not be sold,
transferred, pledged or hypothecated unless such sale, transfer, pledge or
hypothecation is in accordance with such Act and applicable state
securities laws.
WARRANT NO. ______ NO. OF SHARES OF COMMON STOCK: ________
WARRANT
TO PURCHASE COMMON STOCK OF
ENTRADE INC.
A PENNSYLVANIA CORPORATION
THIS WARRANT IS TO CERTIFY THAT ________________ ("Purchaser"),
is entitled to purchase from Entrade Inc., a Pennsylvania corporation (the
"Company"), ___________ (_________) shares of Common Stock at an exercise
price of $16.21 per share of Common Stock, all on the terms and conditions
hereinafter provided.
SECTION 1. CERTAIN DEFINITIONS. As used in this Warrant,
unless the context otherwise requires:
"Charter" shall mean the Articles of Incorporation of the
Company, as in effect from time to time.
"Common Stock" shall mean the Company's authorized Common
Stock, no par value.
"Exercise Price" shall mean the exercise price per share of
Common Stock set forth above, as adjusted from time to time pursuant to
Section 3 hereof.
"Fair Market Value" shall be determined as follows:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the closing price of the
securities on such exchange or system on the last trading date prior to the
date the Warrant is exercised;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) on the last trading date prior to the date the Warrant is
exercised; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as determined in good faith by the Company's
Board of Directors.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Warrant" shall mean this Warrant and all additional or new
warrants issued upon division or combination of, or in substitution for,
this Warrant. All such additional or new warrants shall at all times be
identical as to terms and conditions and date, except as to the number of
shares of Common Stock for which they may be exercised.
<PAGE>
"Warrantholder" shall mean the Purchaser, as the initial holder
of this Warrant, and its nominees, successors or assigns, including any
subsequent holder of this Warrant to whom it has been legally transferred.
"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of this Warrant upon the exercise of such
Warrant.
SECTION 2. EXERCISE OF WARRANT.
(a) After May 15, 2000 but prior to May 15, 2005 ("the
Expiration Date"), the Purchaser may at any time and from time to time
exercise this Warrant, in whole or in part.
(b)(i) The Warrantholder shall exercise this Warrant by means
of delivering to the Company at its office identified in Section 13 hereof
(i) a written notice of exercise, including the number of shares of Warrant
Stock to be delivered pursuant to such exercise, (ii) this Warrant and
(iii) payment equal to the Exercise Price in accordance with Section
2(b)(ii) hereof. In the event that any exercise shall not be for all
shares of Warrant Stock purchasable hereunder, a new Warrant registered in
the name of the Warrantholder, of like tenor to this Warrant and for the
remaining shares of Warrant Stock purchasable hereunder, shall be delivered
to the Warrantholder within ten (10) calendar days of any such exercise.
Such notice of exercise shall be in the Subscription Form set out at the
end of this Warrant.
(ii) The Warrantholder may elect to pay the Exercise Price to
the Company either (1) by cash, certified check or wire transfer, (2) by
converting the Warrant into Common Stock ("Warrant Conversion") or (3) any
combination of the foregoing, and specifying such election(s) in the
Subscription Form. If the Warrantholder elects to pay the Exercise Price
through Warrant Conversion, the Company shall deliver to the Warrantholder
(without payment by the Warrantholder of any cash or other consideration)
that number of shares of Common Stock equal to the difference of (I) the
total number of shares of Warrant Stock into which this Warrant is
exercisable minus (II) that number of Shares of Warrant Stock having an
aggregate "Spread" (as defined herein) equal to the aggregate Exercise
Price. For purposes of this Section 2, "Spread" per share of Warrant Stock
shall be the difference, as of the date of exercise, between the Exercise
Price and the Fair Market Value of the Warrant Stock.
(c) Upon exercise of this Warrant and delivery of the
Subscription Form with proper payment relating thereto, the Company shall
cause to be executed and delivered to the Warrantholder a certificate or
certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
(d) The stock certificate or certificates for Warrant Stock to
be delivered in accordance with this Section 2 shall be in such
denominations as may be specified in said notice of exercise and shall be
registered in the name of the Warrantholder or such other name or names as
shall be designated in said notice. Such certificate or certificates shall
be deemed to have been issued and the Warrantholder or any other person so
designated to be named therein shall be deemed to have become the holder of
record of such shares, including to the extent permitted by law the right
to vote such shares or to consent or to receive notice as stockholders, as
of the time said notice is delivered to the Company as aforesaid.
(e) The Company shall pay all expenses payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 2, including any transfer taxes resulting from the exercise of the
Warrant and the issuance of Warrant Stock hereunder.
<PAGE>
(f) All shares of Common Stock issuable upon the exercise of
this Warrant in accordance with the terms hereof shall be validly issued,
fully paid and nonassessable, and free from all liens and other
encumbrances thereon, other than liens or other encumbrances created by the
Warrantholder.
(g) In no event shall any fractional share of Common Stock of
the Company be issued upon any exercise of this Warrant. If, upon any
exercise of this Warrant, the Warrantholder would, except as provided in
this paragraph, be entitled to receive a fractional share of Common Stock,
then the Company shall deliver in cash to such holder an amount equal to
such fractional interest.
SECTION 3. ADJUSTMENT OF EXERCISE PRICE AND WARRANT STOCK.
(a) If, at any time prior to the Expiration Date, the number
of outstanding shares of Common Stock is (i) increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, or (ii) decreased by a combination of shares of Common
Stock, then, following the record date fixed for the determination of
holders of Common Stock entitled to receive the benefits of such stock
dividend, subdivision, split-up, or combination, the Exercise Price shall
be adjusted to a new amount equal to the product of (I) the Exercise Price
in effect on such record date and (II) the quotient obtained by dividing
(x) the number of shares of Common Stock outstanding on such record date
(without giving effect to the event referred to in the foregoing clause (i)
or (ii)), by (y) the number of shares of Common Stock which would be
outstanding immediately after the event referred to in the foregoing clause
(i) or (ii), if such event had occurred immediately following such record
date.
(b) Upon each adjustment of the Exercise Price as provided in
Section 3(a), the Warrantholder shall thereafter be entitled to subscribe
for and purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Warrant Stock equal to the product of (i) the number of
shares of Warrant Stock existing prior to such adjustment and (ii) the
quotient obtained by dividing (I) the Exercise Price existing prior to such
adjustment by (II) the new Exercise Price resulting from such adjustment.
SECTION 4. DIVISION AND COMBINATION. This Warrant may be
divided or combined with other Warrants upon presentation at the aforesaid
office of the Company, together with a written notice specifying the names
and denominations in which new Warrants are to be issued, signed by the
Warrantholder or its agent or attorney. The Company shall pay all expenses
in connection with the preparation, issue and delivery of Warrants under
this Section 4, including any transfer taxes resulting from the division or
combination hereunder. The Company agrees to maintain at its aforesaid
office books for the registration of the Warrants.
SECTION 5. RECLASSIFICATION, ETC. In case of any
reclassification or change of the outstanding Common Stock of the Company
(other than as a result of a subdivision, combination or stock dividend),
or in case of any consolidation of the Company with, or merger of the
Company into, another corporation or other business organization (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of
the outstanding Common Stock of the Company) at any time prior to the
Expiration Date, then, as a condition of such reclassification,
reorganization, change, consolidation or merger, lawful provision shall be
made, and duly executed documents evidencing the same from the Company or
its successor shall be delivered to the Warrantholder, so that the
Warrantholder shall have the right prior to the Expiration Date to
purchase, at a total price not to exceed that payable upon the exercise of
this Warrant, the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, reorganization, change,
consolidation or merger by a holder of the number of shares of Common Stock
<PAGE>
of the Company which might have been purchased by the Warrantholder
immediately prior to such reclassification, reorganization, change,
consolidation or merger, in any such case appropriate provisions shall be
made with respect to the rights and interest of the Warrantholder to the
end that the provisions hereof (including provisions for the adjustment of
the Exercise Price and of the number of shares purchasable upon exercise of
this Warrant) shall thereafter be applicable in relation to any shares of
stock and other securities and property thereafter deliverable upon
exercise hereof.
SECTION 6. RESERVATION AND AUTHORIZATION OF CAPITAL STOCK.
The Company shall at all times reserve and keep available for issuance such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants.
SECTION 7. STOCK AND WARRANT BOOKS. The Company will not at
any time, except upon dissolution, liquidation or winding up, close its
stock books or Warrant books so as to result in preventing or delaying the
exercise of any Warrant.
SECTION 8. LIMITATION OF LIABILITY. No provisions hereof, in
the absence of affirmative action by the Warrantholder to purchase Warrant
Stock hereunder, shall give rise to any liability of the Warrantholder to
pay the Exercise Price or as a stockholder of the Company (whether such
liability is asserted by the Company or creditors of the Company).
SECTION 9. TRANSFER. Subject to compliance with the
Securities Act and the applicable rules and regulations promulgated
thereunder, this Warrant and all rights hereunder shall be transferable in
whole or in part. Any such transfer shall be made at the office or agency
of the Company at which this Warrant is exercisable, by the registered
holder hereof in person or by its duly authorized attorney, upon surrender
of this Warrant together with the assignment hereof properly endorsed, and
promptly thereafter a new warrant shall be issued and delivered by the
Company, registered in the name of the assignee. Until registration of
transfer hereof on the books of the Company, the Company may treat the
Purchaser as the owner hereof for all purposes.
SECTION 10. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON
TRANSFER OF WARRANT STOCK. Unless a current registration statement under
the Securities Act shall be in effect with respect to the Warrant Stock to
be issued upon exercise of this Warrant, the Warrantholder, by accepting
this Warrant, covenants and agrees that, at the time of exercise hereof,
and at the time of any proposed transfer of Warrant Stock acquired upon
exercise hereof, such Warrantholder will deliver to the Company a written
statement that the securities acquired by the Warrantholder upon exercise
hereof are for the account of the Warrantholder or are being held by the
Warrantholder as trustee, investment manager, investment advisor or as any
other fiduciary for the account of the beneficial owner or owners for
investment and are not acquired with a view to, or for sale in connection
with, any distribution thereof (or any portion thereof) and with no present
intention (at any such time) of offering and distributing such securities
(or any portion thereof).
SECTION 11. LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity and/or security
satisfactory to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a
new Warrant of like tenor and representing the right to purchase the same
aggregate number of shares of Common Stock.
SECTION 12. AMENDMENTS. The terms of this Warrant may be
amended, and the observance of any term herein may be waived, but only with
the written consent of the Company and the Warrantholder.
<PAGE>
SECTION 13. NOTICES GENERALLY. Any notice, request, consent,
other communication or delivery pursuant to the provisions hereof shall be
in writing and shall be sent by one of the following means: (i) by
registered or certified first class mail, postage prepaid, return receipt
requested; (ii) by facsimile transmission with confirmation of receipt;
(iii) by overnight courier service; or (iv) by personal delivery, and shall
be properly addressed to the Warrantholder at the last known address or
facsimile number appearing on the books of the Company, or, except as
herein otherwise expressly provided, to the Company at its principal
executive office at 500 Central Avenue, Northfield, Illinois 60093, Fax:
(847) 441-7652, or such other address or facsimile number as shall have
been furnished to the party giving or making such notice, demand or
delivery.
SECTION 14. PUT RIGHT. Upon either (i) the occurrence and
continuance of an "event of default" under the Note and/or the Pledge
Agreement, or (ii) ten (10) calendar days after the maturity of the Note in
accordance with its terms, the Purchaser, at the Purchaser's sole option,
shall have the ability to put this Warrant to the Company for an amount
equal to five percent (5%) of the initial principal amount of the Note,
payable by the Company in immediately available funds.
SECTION 15. SUCCESSORS AND ASSIGNS. This Warrant shall bind
and inure to the benefit of and be enforceable by the parties hereto and
their respective permitted successors and assigns.
SECTION 16. GOVERNING LAW. In all respects, including all
matters of construction, validity and performance, this Warrant and the
obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Illinois,
without regard to conflicts of law principles.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its duly authorized officer.
Dated: May 15, 2000
ENTRADE INC.
a Pennsylvania corporation
By:
------------------------------
Name:
Its:
<PAGE>
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
To: Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
[Choose one or both of the paragraphs, as applicable]
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __ ), hereby irrevocably elects to purchase __________ shares
of the Common Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the
price per share provided for in such Warrant.
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __ ), hereby irrevocably elects to exercise the right of
conversion represented by the attached Warrant for ____ shares of Common
Stock, and as payment therefor hereby directs Entrade Inc. to withhold ____
shares of Common Stock that the undersigned would otherwise be entitled
thereunder.
Dated: Name:
-------------------- ------------------------------
Signature
------------------------------
Address:
------------------------------
------------------------------
EXHIBIT 10.41
- -------------
SUBSCRIPTION AGREEMENT
----------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement") dated as of May 15,
2000, is by and between ENTRADE INC., a Pennsylvania corporation (the
"Company"), and the undersigned subscriber (the "Subscriber").
RECITALS
--------
WHEREAS, the Subscriber hereby subscribes for a certain secured
promissory note dated of even date herewith (the "Note") made by the
Company payable to the order of the Subscriber in the original principal
amount of __________________ Dollars and No/100 ($______) (the
"Subscription Price").
AGREEMENTS
----------
NOW THEREFORE, in consideration of the foregoing and the obligations
and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the Subscriber hereby agrees as follows:
1. The Subscriber represents and warrants to the Company, which
representations and warranties shall survive the execution and delivery of
this Agreement, that:
(a) the Subscriber acknowledges that all relevant documents
pertaining to the Company have been made available to the Subscriber,
including, without limitation, any and all instruments, agreements and
documents of the Company of public record with the Securities and Exchange
Commission, and the Subscriber has had the opportunity to verify and
clarify any information concerning the Subscriber's investment in the
Company, and ask questions to and receive answers thereto from management
of the Company.
(b) the Subscriber understands that the Note is being offered
pursuant to exemptions from State and Federal registration and cannot be
sold or assigned by the Subscriber without registration under the
Securities Act of 1933, as amended ("Act"), and all applicable state
securities laws unless, in the opinion of counsel satisfactory to the
Company, exemptions therefrom are available.
(c) the Subscriber has such knowledge and experience in
financial and business matters that the Subscriber is capable of evaluating
the merits and risks of purchasing and owning the Note.
(d) the Note is being acquired solely by, and for the account
of, the Subscriber, for investment only and not with a view to, or in
connection with, the sale, subdivision, fractionalization or distribution
thereof.
(e) the Subscriber understands that no governmental authority
has made any finding or determination relating to the fairness of the
purchase of the Note, and that no governmental authority has recommended or
endorsed, or will recommend or endorse, the Note.
(f) the Subscriber recognizes that there will be no market
for the Note and that the Subscriber cannot expect to be able readily to
liquidate the Subscriber's investment.
(g) the Subscriber is an accredited investor as that term is
defined in Rule 501 of Regulation D promulgated under the Act.
(h) the Subscriber has relied solely upon the independent
investigations made by the Subscriber or the Subscriber's advisors in
making the decision to purchase the Note. Other than with respect to the
agreements and instruments executed and delivered by the Company of even
date herewith in connection with the Note, the Subscriber acknowledges that
no other representations or agreements (whether oral or written) have been
made to the Subscriber with respect to the Subscriber's purchase of the
Note.
(i) the Subscriber understands that the offering of the Note
involves a high degree of risk and Subscriber is able to bear the risk of
losing his entire investment in the Company.
(j) concurrently with the Subscriber's signature hereto, the
Subscriber has loaned the amount of the Subscription Price to the Company
in full in immediately available funds.
(k) this Agreement is the legal and validly binding agreement
of the Subscriber, enforceable in accordance with its terms.
2. The Subscriber understands and agrees that nothing in this
Agreement shall be construed to confer any voting rights enjoyed by other
shareholders of the Company upon the Subscriber.
3. The Subscriber agrees to indemnify the Company, and each of its
directors, shareholders, employees, officers, attorneys, and agents, and
hold each of them harmless from and against any and all loss, liability,
claim, damage, cost and expense whatsoever (including, without limitation,
any and all investigation and litigation expenses, and attorneys fees)
arising out of or based upon any breach of Subscriber's representations and
warranties herein or in connection with the sale or distribution by the
Subscriber of the Note purchased pursuant hereto in violation of the Act or
any other applicable law.
4. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their heirs, executors, administrators, successors,
legal representatives and assigns.
5. Any notice, demand, or communication shall be deemed to have
been sufficiently given or served for all purposes if delivered personally
to the party or to an executive officer of the party to whom the same is
directed or, if sent by registered or certified mail, postage prepaid,
addressed to the Subscriber as set forth in this Agreement. Except as
otherwise provided herein, any such notice shall be deemed to be given two
(2) business days after the date on which the same was deposited in the
United States mail, addressed and sent as aforesaid.
6. The Subscriber hereby agrees to execute and deliver any other
documents or instruments necessary or advisable to more fully carry out the
intent of this Agreement, and to take any other acts reasonably required by
the Company in connection therewith. This Agreement may not be amended or
modified except in writing by the Company and the Subscriber.
7. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one
and the same instrument. Facsimile signatures shall be effective and
binding as if they were original signatures. Whenever the singular number
is used in this Agreement and when required by the context, the same shall
include the plural and vice versa, and the masculine gender shall include
the feminine and neuter genders and vice versa.
8. This Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Illinois, without
regard to conflicts of law principles.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned subscriber has executed this
Subscription Agreement as of the date first above written.
Subscriber:
By:
------------------------------
----------------------------------------
Social Security Number or F.E.I.N.
Address of Subscriber:
----------------------------------------
----------------------------------------
Amount of Subscription: $_________
The Company hereby accepts the foregoing Subscription Agreement
subject to the terms and conditions thereof. Accepted this 15th day of
May, 2000.
ENTRADE INC.
By:
------------------------------
Name:
Its:
EXHIBIT 10.42
- -------------
PROMISSORY NOTE
$___________ May 16, 2000
The undersigned ("Maker"), ENTRADE INC., a Pennsylvania corporation
for value received, and intending to be legally bound hereby, promises to
pay to the order of __________ ("Payee"), at __________________________,
________, _______ _______, or at such other place or places as Payee may
designate in writing, the principal sum of _________________ Dollars
($________), plus interest from the date hereof on the unpaid principal
amount from time to time outstanding hereunder, at fifteen percent (15%)
per annum, with all principal and interest owed hereunder payable in full
on July 16, 2001 (the "Maturity Date").
Interest shall be payable in arrears commencing on August 16, 2000,
and continuing on the sixteenth (16th) day of November and the sixteenth
(16th) day of February, to and including May 16, 2001, with a final payment
of all interest due on the Maturity Date. Interest shall be calculated
based upon a year consisting of 365 days and charged for the actual number
of days elapsed.
This Note may be prepaid by Maker at any time provided however that
such prepayment shall include interest through the date of prepayment on
the outstanding principal balance of the Note, less any amount of interest
previously paid. In the event that Maker enters into a private placement
or a public offering of its securities which yield to Maker gross proceeds
of not less than Thirty Million Dollars and No/100 ($30,000,000), then
notwithstanding anything to the contrary contained herein, the Payee shall
have the right to demand prepayment of this Note, which amount shall be the
outstanding principal balance of the Note, plus all interest accrued but
unpaid up to the date of prepayment.
Maker covenants and agrees with Payee that (a) in the event that
Maker sells any shares of AssetTRADE.com, Inc., that it now owns or
hereafter acquires, it will apply the proceeds of such sale to the
prepayment of this Note on a pari passu basis with other notes issued by
the Maker containing a similar covenant (the "Similar Notes") (which
Similar Notes in the aggregate principal amount will not exceed
$4,500,000), and (b) it shall not pledge or otherwise grant a security
interest in any shares of AssetTRADE.com, Inc., that it now owns or
hereafter acquires to any other party.
This Note is subject to all of the terms and conditions of the
Agreement, which terms and conditions are hereby made a part of this Note
to the same extent and with the same force and effect as if they were fully
set forth herein.
It is expressly agreed by Maker that time is of the essence hereof,
and it shall be an Event of Default" hereunder if:
(i) Maker shall fail to pay any amount of principal or
interest due hereunder and such failure shall continue for fifteen (15)
days after Payee notifies Maker thereof in writing; or
<PAGE>
(ii) Maker is or becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, debts as they become due, or
Maker applies for, consents to or acquiesces in the appointment of a
trustee, receiver or other custodian for Maker or any of its property, or
makes a general assignment for the benefit of creditors, or, in the absence
of such application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for Maker or for a substantial part of Maker's
property and is not discharged within ninety (90) days, or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law is commenced in respect of Maker, and if such
case or proceeding is not commenced in respect of Maker, it is consented to
or acquiesced in by Maker or remains for ninety (90) days undismissed, or
Maker takes any action to authorize, or in the furtherance of, any of the
foregoing; or
(iii) There shall be an Event of Default pursuant to any other
Note issued in conjunction with this Note.
Upon the occurrence and during the continuation of an Event of
Default hereunder, at the option of Payee, the entire unpaid principal
balance hereunder, together with all accrued interest thereon, shall become
immediately due and payable. In addition, Payee shall be entitled to
exercise all rights of Payee hereunder and under applicable law, including
the right to collect from Maker all sums due under this Note.
In addition to the other sums payable hereunder, Maker agrees to pay
to the holder, within fifteen (15) days of demand, all reasonable
attorneys' fees and costs that may be incurred by the holder of this Note
in enforcing any of the terms hereof after an Event of Default.
Except as otherwise provided in this Note or the Agreement, Maker
hereby waives notice of non-payment, notice of dishonor, and protest of any
dishonor, and agrees that its liabilities shall be unconditional without
regard to the liability of any other party and shall not in any manner be
affected by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by the holder hereof. Further, Maker
consents to any and all extensions of time, renewals, waivers, or
modifications that may be granted by the holder hereof with respect to the
payment or other provisions of this Note, and agrees that additional
makers, endorsers, guarantors or sureties may become parties hereto without
notice to Maker and without affecting its liability hereunder.
The holder hereof shall not by any act of omission or commission be
deemed to waive any of its right or remedies hereunder unless such waiver
is in writing and signed by the holder hereof, and then only to the extent
specifically set forth therein. The waiver of any event shall not be
construed as a waiver of any other right or remedy, nor shall any single or
partial exercise of any right or remedy preclude any other or further
exercise thereof or of any other right or remedy.
Whenever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if
any provision of this Note is deemed to be invalid or unenforceable under
such law, such provision shall be ineffective only to the extent of such
invalidity or unenforceability without affecting the validity or
enforceability of any other provision of this Note.
Maker (and the undersigned representative of Maker, if any)
represents that Maker has full power and authority and legal right to
execute and deliver this Note and this Note shall be binding on Maker and
its respective successors and assigns.
This Note shall be governed by and construed according to the
internal laws of the State of Illinois without regard to principals of
conflicts of law.
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed this Secured Promissory
Note as of the date first above written.
ENTRADE INC.
By:
------------------------------
President
EXHIBIT 10.43
- -------------
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or registered or
qualified under any state securities laws. The securities may not be sold,
transferred, pledged or hypothecated unless such sale, transfer, pledge or
hypothecation is in accordance with such Act and applicable state
securities laws.
Warrant No.
No. of Shares of Common Stock:
WARRANT
TO PURCHASE COMMON STOCK OF
ENTRADE INC.
A PENNSYLVANIA CORPORATION
THIS WARRANT IS TO CERTIFY THAT ____________ ("Purchaser"), is
entitled to purchase from Entrade Inc., a Pennsylvania corporation (the
"Company"), _____ shares of Common Stock at an exercise price of $16.21 per
share of Common Stock, all on the terms and conditions hereinafter
provided.
SECTION 1. CERTAIN DEFINITIONS. As used in this Warrant,
unless the context otherwise requires:
"Charter" shall mean the Articles of Incorporation of the
Company, as in effect from time to time.
"Common Stock" shall mean the Company's authorized Common
Stock, no par value.
"Exercise Price" shall mean the exercise price per share of
Common Stock set forth above, as adjusted from time to time pursuant to
Section 3 hereof.
"Fair Market Value" shall be determined as follows:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the closing price of the
securities on such exchange or system on the last trading date prior to the
date the Warrant is exercised;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) on the last trading date prior to the date the Warrant is
exercised; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as determined in good faith by the Company's
Board of Directors.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Warrant" shall mean this Warrant and all additional or new
warrants issued upon division or combination of, or in substitution for,
this Warrant. All such additional or new warrants shall at all times be
identical as to terms and conditions and date, except as to the number of
shares of Common Stock for which they may be exercised.
<PAGE>
"Warrantholder" shall mean the Purchaser, as the initial holder
of this Warrant, and its nominees, successors or assigns, including any
subsequent holder of this Warrant to whom it has been legally transferred.
"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of this Warrant upon the exercise of such
Warrant.
SECTION 2. EXERCISE OF WARRANT.
(a) After May 15, 2000 but prior to May 15, 2005 ("the
Expiration Date"), the Purchaser may at any time and from time to time
exercise this Warrant, in whole or in part.
(b)(i) The Warrantholder shall exercise this Warrant by means
of delivering to the Company at its office identified in Section 12 hereof
(i) a written notice of exercise, including the number of shares of Warrant
Stock to be delivered pursuant to such exercise, (ii) this Warrant and
(iii) payment equal to the Exercise Price in accordance with Section
2(b)(ii) hereof. In the event that any exercise shall not be for all
shares of Warrant Stock purchasable hereunder, a new Warrant registered in
the name of the Warrantholder, of like tenor to this Warrant and for the
remaining shares of Warrant Stock purchasable hereunder, shall be delivered
to the Warrantholder within ten (10) calendar days of any such exercise.
Such notice of exercise shall be in the Subscription Form set out at the
end of this Warrant.
(ii) The Warrantholder may elect to pay the Exercise Price to
the Company either (1) by cash, certified check or wire transfer, (2) by
converting the Warrant into Common Stock ("Warrant Conversion") or (3) any
combination of the foregoing, and specifying such election(s) in the
Subscription Form. If the Warrantholder elects to pay the Exercise Price
through Warrant Conversion, the Company shall deliver to the Warrantholder
(without payment by the Warrantholder of any cash or other consideration)
that number of shares of Common Stock equal to the difference of (I) the
total number of shares of Warrant Stock into which this Warrant is
exercisable minus (II) that number of Shares of Warrant Stock having an
aggregate "Spread" (as defined herein) equal to the aggregate Exercise
Price. For purposes of this Section 2, "Spread" per share of Warrant Stock
shall be the difference, as of the date of exercise, between the Exercise
Price and the Fair Market Value of the Warrant Stock.
(c) Upon exercise of this Warrant and delivery of the
Subscription Form with proper payment relating thereto, the Company shall
cause to be executed and delivered to the Warrantholder a certificate or
certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
(d) The stock certificate or certificates for Warrant Stock to
be delivered in accordance with this Section 2 shall be in such
denominations as may be specified in said notice of exercise and shall be
registered in the name of the Warrantholder or such other name or names as
shall be designated in said notice. Such certificate or certificates shall
be deemed to have been issued and the Warrantholder or any other person so
designated to be named therein shall be deemed to have become the holder of
record of such shares, including to the extent permitted by law the right
to vote such shares or to consent or to receive notice as stockholders, as
of the time said notice is delivered to the Company as aforesaid.
(e) The Company shall pay all expenses payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 2, including any transfer taxes resulting from the exercise of the
Warrant and the issuance of Warrant Stock hereunder.
<PAGE>
(f) All shares of Common Stock issuable upon the exercise of
this Warrant in accordance with the terms hereof shall be validly issued,
fully paid and nonassessable, and free from all liens and other
encumbrances thereon, other than liens or other encumbrances created by the
Warrantholder.
(g) In no event shall any fractional share of Common Stock of
the Company be issued upon any exercise of this Warrant. If, upon any
exercise of this Warrant, the Warrantholder would, except as provided in
this paragraph, be entitled to receive a fractional share of Common Stock,
then the Company shall deliver in cash to such holder an amount equal to
such fractional interest.
SECTION 3. ADJUSTMENT OF EXERCISE PRICE AND WARRANT STOCK.
(a) If, at any time prior to the Expiration Date, the number
of outstanding shares of Common Stock is (i) increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, or (ii) decreased by a combination of shares of Common
Stock, then, following the record date fixed for the determination of
holders of Common Stock entitled to receive the benefits of such stock
dividend, subdivision, split-up, or combination, the Exercise Price shall
be adjusted to a new amount equal to the product of (I) the Exercise Price
in effect on such record date and (II) the quotient obtained by dividing
(x) the number of shares of Common Stock outstanding on such record date
(without giving effect to the event referred to in the foregoing clause (i)
or (ii)), by (y) the number of shares of Common Stock which would be
outstanding immediately after the event referred to in the foregoing clause
(i) or (ii), if such event had occurred immediately following such record
date.
(b) Upon each adjustment of the Exercise Price as provided in
Section 3(a), the Warrantholder shall thereafter be entitled to subscribe
for and purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Warrant Stock equal to the product of (i) the number of
shares of Warrant Stock existing prior to such adjustment and (ii) the
quotient obtained by dividing (I) the Exercise Price existing prior to such
adjustment by (II) the new Exercise Price resulting from such adjustment.
SECTION 4. RECLASSIFICATION, ETC. In case of any
reclassification or change of the outstanding Common Stock of the Company
(other than as a result of a subdivision, combination or stock dividend),
or in case of any consolidation of the Company with, or merger of the
Company into, another corporation or other business organization (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of
the outstanding Common Stock of the Company) at any time prior to the
Expiration Date, then, as a condition of such reclassification,
reorganization, change, consolidation or merger, lawful provision shall be
made, and duly executed documents evidencing the same from the Company or
its successor shall be delivered to the Warrantholder, so that the
Warrantholder shall have the right prior to the Expiration Date to
purchase, at a total price not to exceed that payable upon the exercise of
this Warrant, the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, reorganization, change,
consolidation or merger by a holder of the number of shares of Common Stock
of the Company which might have been purchased by the Warrantholder
immediately prior to such reclassification, reorganization, change,
consolidation or merger, in any such case appropriate provisions shall be
made with respect to the rights and interest of the Warrantholder to the
end that the provisions hereof (including provisions for the adjustment of
the Exercise Price and of the number of shares purchasable upon exercise of
this Warrant) shall thereafter be applicable in relation to any shares of
stock and other securities and property thereafter deliverable upon
exercise hereof.
<PAGE>
SECTION 5. RESERVATION AND AUTHORIZATION OF CAPITAL STOCK.
The Company shall at all times reserve and keep available for issuance such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants.
SECTION 6. STOCK AND WARRANT BOOKS. The Company will not at
any time, except upon dissolution, liquidation or winding up, close its
stock books or Warrant books so as to result in preventing or delaying the
exercise of any Warrant.
SECTION 7. LIMITATION OF LIABILITY. No provisions hereof, in
the absence of affirmative action by the Warrantholder to purchase Warrant
Stock hereunder, shall give rise to any liability of the Warrantholder to
pay the Exercise Price or as a stockholder of the Company (whether such
liability is asserted by the Company or creditors of the Company).
SECTION 8. TRANSFER. Subject to compliance with the
Securities Act and the applicable rules and regulations promulgated
thereunder, this Warrant and all rights hereunder shall be transferable in
whole or in part. Any such transfer shall be made at the office or agency
of the Company at which this Warrant is exercisable, by the registered
holder hereof in person or by its duly authorized attorney, upon surrender
of this Warrant together with the assignment hereof properly endorsed, and
promptly thereafter a new warrant shall be issued and delivered by the
Company, registered in the name of the assignee. Until registration of
transfer hereof on the books of the Company, the Company may treat the
Purchaser as the owner hereof for all purposes.
SECTION 9. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON
TRANSFER OF WARRANT STOCK. Unless a current registration statement under
the Securities Act shall be in effect with respect to the Warrant Stock to
be issued upon exercise of this Warrant, the Warrantholder, by accepting
this Warrant, covenants and agrees that, at the time of exercise hereof,
and at the time of any proposed transfer of Warrant Stock acquired upon
exercise hereof, such Warrantholder will deliver to the Company a written
statement that the securities acquired by the Warrantholder upon exercise
hereof are for the account of the Warrantholder or are being held by the
Warrantholder as trustee, investment manager, investment advisor or as any
other fiduciary for the account of the beneficial owner or owners for
investment and are not acquired with a view to, or for sale in connection
with, any distribution thereof (or any portion thereof) and with no present
intention (at any such time) of offering and distributing such securities
(or any portion thereof).
SECTION 10. LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity and/or security
satisfactory to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a
new Warrant of like tenor and representing the right to purchase the same
aggregate number of shares of Common Stock.
SECTION 11. AMENDMENTS. The terms of this Warrant may be
amended, and the observance of any term herein may be waived, but only with
the written consent of the Company and the Warrantholder.
<PAGE>
SECTION 12. NOTICES GENERALLY. Any notice, request, consent,
other communication or delivery pursuant to the provisions hereof shall be
in writing and shall be sent by one of the following means: (i) by
registered or certified first class mail, postage prepaid, return receipt
requested; (ii) by facsimile transmission with confirmation of receipt;
(iii) by overnight courier service; or (iv) by personal delivery, and shall
be properly addressed to the Warrantholder at the last known address or
facsimile number appearing on the books of the Company, or, except as
herein otherwise expressly provided, to the Company at its principal
executive office at 500 Central Avenue, Northfield, Illinois 60093, Fax:
(847) 441-7652, or such other address or facsimile number as shall have
been furnished to the party giving or making such notice, demand or
delivery.
SECTION 13. SUCCESSORS AND ASSIGNS. This Warrant shall bind
and inure to the benefit of and be enforceable by the parties hereto and
their respective permitted successors and assigns.
SECTION 14. GOVERNING LAW. In all respects, including all
matters of construction, validity and performance, this Warrant and the
obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Illinois,
without regard to conflicts of law principles.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its duly authorized officer.
Dated: May __, 2000 ENTRADE INC.
a Pennsylvania corporation
By:
------------------------------
Name:
Its:
<PAGE>
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
To: Entrade Inc.
[Address]
[Choose one or both of the paragraphs, as applicable]
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __ ), hereby irrevocably elects to purchase __________ shares
of the Common Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the
price per share provided for in such Warrant.
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.__), hereby irrevocably elects to exercise the right of
conversion represented by the attached Warrant for __shares of Common
Stock, and as payment therefor hereby directs Entrade Inc to
withhold __shares of Common Stock that the undersigned would otherwise be
entitled to thereunder"
Dated: Name:
-------------------- ------------------------------
Signature
-------------------- ------------------------------
Address:
-------------------- ------------------------------
-------------------- ------------------------------
EXHIBIT 10.44
- -------------
SUBSCRIPTION AGREEMENT
----------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement") dated as of May 16,
2000, is by and between ENTRADE INC., a Pennsylvania corporation (the
"Company"), and the undersigned subscriber (the "Subscriber").
RECITALS
--------
WHEREAS, the Subscriber hereby subscribes for a certain promissory
note dated of even date herewith (the "Note") made by the Company payable
to the order of the Subscriber in the original principal amount of
___________________________ ($________) (the "Subscription Price").
AGREEMENTS
----------
NOW THEREFORE, in consideration of the foregoing and the obligations
and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the Subscriber hereby agrees as follows:
1. The Subscriber represents and warrants to the Company, which
representations and warranties shall survive the execution and delivery of
this Agreement, that:
(a) the Subscriber acknowledges that all relevant documents
pertaining to the Company have been made available to the Subscriber,
including, without limitation, any and all instruments, agreements and
documents of the Company of public record with the Securities and Exchange
Commission, and the Subscriber has had the opportunity to verify and
clarify any information concerning the Subscriber's investment in the
Company, and ask questions to and receive answers thereto from management
of the Company.
(b) the Subscriber understands that the Note is being offered
pursuant to exemptions from State and Federal registration and cannot be
sold or assigned by the Subscriber without registration under the
Securities Act of 1933, as amended ("Act"), and all applicable state
securities laws unless, in the opinion of counsel satisfactory to the
Company, exemptions therefrom are available.
(c) the Subscriber has such knowledge and experience in
financial and business matters that the Subscriber is capable of evaluating
the merits and risks of purchasing and owning the Note.
(d) the Note is being acquired solely by, and for the account
of, the Subscriber, for investment only and not with a view to, or in
connection with, the sale, subdivision, fractionalization or distribution
thereof.
(e) the Subscriber understands that no governmental authority
has made any finding or determination relating to the fairness of the
purchase of the Note, and that no governmental authority has recommended or
endorsed, or will recommend or endorse, the Note.
(f) the Subscriber recognizes that there will be no market
for the Note and that the Subscriber cannot expect to be able readily to
liquidate the Subscriber's investment.
<PAGE>
(g) the Subscriber is an accredited investor as that term is
defined in Rule 501 of Regulation D promulgated under the Act.
(h) the Subscriber has relied solely upon the independent
investigations made by the Subscriber or the Subscriber's advisors in
making the decision to purchase the Note. Other than with respect to the
agreements and instruments executed and delivered by the Company of even
date herewith in connection with the Note, the Subscriber acknowledges that
no other representations or agreements (whether oral or written) have been
made to the Subscriber with respect to the Subscriber's purchase of the
Note.
(i) the Subscriber understands that the offering of the Note
involves a high degree of risk and Subscriber is able to bear the risk of
losing his entire investment in the Company.
(j) concurrently with the Subscriber's signature hereto, the
Subscriber has loaned the amount of the Subscription Price to the Company
in full in immediately available funds.
(k) this Agreement is the legal and validly binding agreement
of the Subscriber, enforceable in accordance with its terms.
2. The Subscriber understands and agrees that nothing in this
Agreement shall be construed to confer any voting rights enjoyed by other
shareholders of the Company upon the Subscriber.
3. The Subscriber agrees to indemnify the Company, and each of its
directors, shareholders, employees, officers, attorneys, and agents, and
hold each of them harmless from and against any and all loss, liability,
claim, damage, cost and expense whatsoever (including, without limitation,
any and all investigation and litigation expenses, and attorneys fees)
arising out of or based upon any breach of Subscriber's representations and
warranties herein or in connection with the sale or distribution by the
Subscriber of the Note purchased pursuant hereto in violation of the Act or
any other applicable law.
4. This Agreement shall be binding upon, and inure to the benefit
of, the parties and their heirs, executors, administrators, successors,
legal representatives and assigns.
5. Any notice, demand, or communication shall be deemed to have
been sufficiently given or served for all purposes if delivered personally
to the party or to an executive officer of the party to whom the same is
directed or, if sent by registered or certified mail, postage prepaid,
addressed to the Subscriber as set forth in this Agreement. Except as
otherwise provided herein, any such notice shall be deemed to be given two
(2) business days after the date on which the same was deposited in the
United States mail, addressed and sent as aforesaid.
6. The Subscriber hereby agrees to execute and deliver any other
documents or instruments necessary or advisable to more fully carry out the
intent of this Agreement, and to take any other acts reasonably required by
the Company in connection therewith. This Agreement may not be amended or
modified except in writing by the Company and the Subscriber.
7. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one
and the same instrument. Facsimile signatures shall be effective and
binding as if they were original signatures. Whenever the singular number
is used in this Agreement and when required by the context, the same shall
include the plural and vice versa, and the masculine gender shall include
the feminine and neuter genders and vice versa.
8. This Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Illinois, without
regard to conflicts of law principles.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned subscriber has executed this
Subscription Agreement as of the date first above written.
Subscriber:
_________________________________
_________________________________
Social Security Number:
_________________________________
_________________________________
_________________________________
Amount of Subscription: $
The Company hereby accepts the foregoing Subscription Agreement
subject to the terms and conditions thereof. Accepted this ____ day of
May, 2000.
ENTRADE INC.
By:
------------------------------
Name:
Its:
EXHIBIT 10.45
- -------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered as of this ___ day of May, 2000 by and between ENTRADE INC., a
corporation organized under the laws of Pennsylvania (the "Company"), and
the person listed on the signature page hereto ("Initial Investor")
pursuant to the Subscription Agreement of even date herewith by and between
the Company and the Initial Investor ("Subsription Agreement").
The parties hereby agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Common Stock" shall mean the Company's shares of Common Stock..
"Investor" shall mean the Initial Investor and any subsequent holder
of any Common Stock, Notes, Warrants or Registrable Securities.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration
made by preparing and filing a registration statement or similar document
in compliance with the 1933 Act (as defined below, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall mean the shares of Common Stock issued
and issuable upon the exercise of the Warrants, and any securities issued
with respect to, or in exchange for, such securities.
"Registration Statement" shall mean any registration statement filed
under the 1933 Act of the Company that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement,
amendments and supplements to such Registration Statement, including post-
effective amendments, all exhibits and all material incorporated by
reference in such Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
"1993 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Warrants" mean the warrants to purchase shares of Common Stock
issued to the Investors in conjunction with the Note described in the
Subscription Agreement.
Other capitalized terms used herein but not defined herein shall have
the meaning provided therefor in the Subscription Agreement.
<PAGE>
2. REGISTRATION.
(a) REGISTRATION STATEMENT. Promptly following the closing
of the transactions contemplated by the Subscription Agreement (the
"Closing Date"), the Company shall use its best efforts to prepare and file
with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not
then available to the Company, on such form of registration statement as is
then available to effect a registration for resale of the Registrable
Securities, subject to the Investors' consent) covering the resale of the
Registrable Securities. Such Registration Statement shall cover, to the
extent allowable under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of
Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.
(b) EXPENSES. The Company will pay all expenses associated
with the registration, excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities
industry professionals and excluding legal fees of the Investors.
(c) EFFECTIVENESS.
(i) The Company shall use its best efforts to have the
Registration Statement declared effective as soon as practicable.
(ii) The Company may terminate or suspend effectiveness
of any registration contemplated by this Section one time for a period of
not more than twenty (20) days if the Company shall deliver to the
Investors a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors of the Company,
it would (A) be seriously detrimental to the business of the Company for
such registration to be effected or remain effective at such time, (B)
interfere with any proposed or pending material corporate transaction
involving the Company or any of its subsidiaries, or (C) result in any
premature disclosure thereof.
3. COMPANY OBLIGATIONS. The Company will use its best efforts to
effect the registration of the Registrable Securities in accordance with
the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:
(a) use its best efforts to cause such Registration Statement
to become effective and to remain continuously effective for a period that
will terminate upon the earlier of (i) June 12, 2005, and (ii) the date on
which all Registrable Securities covered by such Registration Statement, as
amended from time to time, have been sold or until such time as they become
eligible for distribution pursuant to Rule 144(k), or any successor
provision thereof, under the 1933 Act (the "Registration Period");
(b) prepare and file with the SEC such amendments and post-
effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the
period specified in Section 3(a) and to comply with the provisions of the
1933 Act and the 1934 Act with respect to the distribution of all
Registrable Securities;
(c) furnish to the Investors and their legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with
the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and Prospectus and
each amendment or supplement thereto, and each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such Registration Statement (other than any portion of any thereof which
<PAGE>
contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a Prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor;
(d) make reasonable effort to prevent the issuance of any
stop order or other suspension of effectiveness and, if such order is
issued, obtain the withdrawal of any such order at the earliest possible
moment;
(e) furnish to the Investors at least five copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules;
(f) prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the Investors
and their counsel in connection with the registration or qualification of
such Registrable Securities, for offer and sale under the securities or
blue sky laws of all U.S. jurisdictions and do any and all other reasonable
acts or things necessary or advisable to enable the distribution in such
jurisdictions of the Registrable Securities covered by the Registration
Statement;
(g) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar securities
issued by the Company are then listed;
(h) immediately notify the Investors, at any time when a
Prospectus relating to the Registrable Securities is required to be
delivered under the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in
such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the
request of any such holder, promptly prepare and furnish to such holder a
reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall 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 not misleading in the light of the circumstances then existing; and
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934
Act, take such other actions as may be reasonably necessary to, facilitate
the registration of the Registrable Securities and Additional Registrable
Securities hereunder.
4. OBLIGATIONS OF THE INVESTORS.
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities that each Investor shall furnish in
writing to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may
reasonably request. At least ten (10) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall
notify the Investors of the information the Company requires from each
Investor if such Investor elects to have any of the Registrable Securities
included in the Registration Statement.
<PAGE>
(b) Each Investor, by its acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable
Securities from the Registration Statement.
(c) In the event the Investors determine to engage the
services of an underwriter, the Investors agree to enter into and perform
their obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering
and take such other actions as are reasonably required in order to expedite
or facilitate the dispositions of the Registrable Securities.
(d) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event rendering the Registration
Statement no longer effective, the Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until the Investor's receipt
of the copies of the supplemented or amended prospectus filed with the SEC
and declared effective and, if so directed by the Company, the Investor
shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in the
Investor's possession of the prospectus covering the Registrable Securities
current at the time of receipt of such notice.
(e) An Investor may not participate in any underwritten
registration hereunder unless it (i) agrees to sell the Registrable
Securities on the basis provided in any underwriting arrangements in usual
and customary form entered into by the Company, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions and any expenses in excess of
those payable by the Company pursuant to the terms of this Agreement.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law each
Investor, its officers, directors, partners, members, managers and
employees and each person who controls such Investor (within the meaning of
the 1933 Act) against all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorney's fees) and expenses
caused by (i) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or any preliminary
prospectus or any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are based upon any information furnished in writing to
the Company by such Investor, expressly for use therein, or (ii) any
violation by the Company of any federal, state or common law, rule or
regulation applicable to the Company in connection with any Registration
Statement, Prospectus or any preliminary prospectus, or any amendment or
supplement thereto, and shall reimburse in accordance with subparagraph (c)
below, each of the foregoing persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claims. The foregoing is subject to the condition that, insofar as the
foregoing indemnities relate to any untrue statement, alleged untrue
statement, omission or alleged omission made in any preliminary prospectus
or Prospectus that is eliminated or remedied in any Prospectus or amendment
or supplement thereto, the above indemnity obligations of the Company shall
<PAGE>
not inure to the benefit of any indemnified party if a copy of such
corrected Prospectus or amendment or supplement thereto had been made
available to such indemnified party and was not sent or given by such
indemnified party at or prior to the time such action was required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 5(a) shall remain in
full force and effect regardless of any investigation made by or on behalf
of any indemnified party and shall survive the permitted transfer of the
Registrable Securities.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any registration pursuant to the terms of this Agreement,
each Investor severally will furnish to the Company in writing such
information as the Company reasonably requests concerning the holders of
Registrable Securities or the proposed manner of distribution for use in
connection with any Registration Statement or Prospectus and severally (and
not jointly) agrees to indemnify and hold harmless, to the fullest extent
permitted by law, the Company, its directors, officers, employees,
stockholders and each person who controls the Company (within the meaning
of the 1933 Act) against any losses, claims, damages, liabilities and
expense (including reasonable attorney's fees) resulting from any untrue
statement of a material fact or any omission of a material fact required to
be stated in the Registration Statement or Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to the extent
that such untrue statement or omission is contained in any information
furnished in writing by such holder of Registrable Securities to the
Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto and that such information was
substantially relied upon by the Company in preparation of the Registration
Statement or Prospectus or any amendment or supplement thereto. In no event
shall the liability of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expense paid by
such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue statement or omission) received by
such holder upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided that any person entitled to indemnification
hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying
party has agreed to pay such fees or expenses, or (b) the indemnifying
party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party
with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such claim on behalf of
such person); and provided, further, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations hereunder, except to the extent that such failure
to give notice shall materially adversely affect the indemnifying party in
the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm
<PAGE>
of attorneys at any time for all such indemnified parties. No indemnifying
party will, except with the consent of the indemnified party, consent to
entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as
expressly specified therein, then the indemnifying party shall contribute
to the amount paid or payable by the indemnified party as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying
party, as well as any other relevant equitable considerations. No person
guilty of fraudulent misrepresentation within the meaning of Section 11 (f)
of the 1933 Act shall be entitled to contribution from any person not
guilty of such fraudulent misrepresentation. In no event shall the
contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by
such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission) received by it upon the sale of the
Registrable Securities giving rise to such contribution obligation.
6. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. This Agreement may be amended
only by a writing signed by the parties hereto intended to be bound. The
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act,
of the Investor(s) affected by such amendment, action or omission to act.
(b) NOTICES. All notices and other communications provided
for or permitted hereunder shall be made as set forth in Section 5 of the
Subscription Agreement.
(c) ASSIGNMENTS AND TRANSFERS BY INVESTORS. This Agreement
and all the rights and obligations of the Investors hereunder may not be
assigned or transferred to any transferee or assignee except as set forth
herein. An Investor may make such assignment or transfer to any transferee
or assignee of any Common Stock, Note, Warrant, or Registrable Securities,
provided, that (i) such transfer is made expressly subject to this
Agreement and the transferee agrees in writing to be bound by the terms and
conditions hereof, and (ii) the Company is provided with written notice of
such assignment.
(d) ASSIGNMENTS AND TRANSFERS BY THE COMPANY. This Agreement
may not be assigned by the Company without the prior written consent of the
Investors, except that without the prior written consent of the Investors,
but after notice duly given, the Company shall assign its rights and
delegate its duties hereunder to any successor-in-interest corporation, and
such successor-in-interest shall assume such rights and duties, in the
event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company's
assets.
(e) BENEFITS OF THE AGREEMENT. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
(h) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms to the fullest extent permitted by
law.
(i) FURTHER ASSURANCES. The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions
contemplated hereby and to evidence the fulfillment of the agreements
herein contained.
(j) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(k) APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois without
regard to principles of conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
The Company: ENTRADE INC.
By:
------------------------------
Name:
Title:
The Initial Investor: _________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
All Amount Shown In 1,000's Currency - dollars.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 37,995
<SECURITIES> 3,242
<RECEIVABLES> 2,117
<ALLOWANCES> (10)
<INVENTORY> 51
<CURRENT-ASSETS> 43,998
<PP&E> 8,459
<DEPRECIATION> (300)
<TOTAL-ASSETS> 120,541
<CURRENT-LIABILITIES> 20,112
<BONDS> 0
<COMMON> 0
20,047
0
<OTHER-SE> (1,078)
<TOTAL-LIABILITY-AND-EQUITY> 120,541
<SALES> 3,830
<TOTAL-REVENUES> 3,830
<CGS> 1,556
<TOTAL-COSTS> 11,249
<OTHER-EXPENSES> 917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 8,336
<INCOME-TAX> 1
<INCOME-CONTINUING> 8,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,337
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
