As filed with the Securities and Exchange Commission on February 9, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ENTRADE INC.
--------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 7379 52-215-3008
------------------------- ------------------------ -------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
500 Central Avenue
Northfield, IL 60093
(847) 441-6650
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
Mark F. Santacrose, President and
Chief Executive Officer
Entrade Inc.
500 Central Avenue
Northfield, IL 60093
(847) 441-6650
------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
Jeffrey C. Everett, Esquire
Duane, Morris & Heckscher LLP
227 West Monroe Street, Suite 3400
Chicago, IL 60606
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
|_| _______________________.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
|_| _______________________.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| _______________________.
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. |_| _______________________.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Title of each class Amount maximum maximum Amount
of securities to be offering price aggregate of
to be registered registered per unit offering price registration fee
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<S> <C> <C> <C> <C>
Common Stock, 5,629,584 shares $38.28125 (1) $215,508,920 $56,894.35
no par value
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<FN>
(a) Pursuant to paragraph (c) of Rule 457, the proposed maximum offering price
per share and the proposed maximum aggregate offering price have been
computed on the basis of $38.28125 per share, the average of the high and
low sales prices of the common stock of the Company on the New York Stock
Exchange, Inc. on February 7, 2000.
</FN>
</TABLE>
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The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed.
The selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion
Preliminary Prospectus Dated February 9, 2000
Prospectus
5,629,584 Shares of Common Stock
ENTRADE INC.
Investing in the common stock involves certain risks. See "Risk
Factors."
This prospectus relates to the public offering of up to 5,629,584
shares of our common stock held by the selling shareholders, including shares to
be acquired upon exercise of warrants. The issuance of shares upon exercise of
the warrants is not covered by this prospectus, but rather only the resale of
the shares. We cannot assure you that any of the warrants will be exercised.
Therefore, we cannot assure you that we will receive any proceeds from the
exercise of the warrants.
Our common stock is listed on the New York Stock Exchange under the
symbol "ETA." On February 8, 2000, the closing price for our common stock was
$42.9375 per share.
We will not receive any of the proceeds from the sale of the shares.
The prices at which a selling shareholder may sell the shares will be determined
by the prevailing market price for the shares or in negotiated transactions. The
selling shareholders may pay commissions or other compensation to broker-dealers
in connection with sales.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February 9, 2000.
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................................1
RISK FACTORS..............................................................3
SUMMARY FINANCIAL DATA...................................................16
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE..........................18
MARKET FOR OUR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.....................................19
DIVIDEND POLICY..........................................................20
CAPITALIZATION...........................................................20
SELECTED HISTORICAL CONDENSED FINANCIAL
INFORMATION AND COMPARATIVE PER SHARE DATA......................21
NATIONWIDE SELECTED HISTORICAL
CONDENSED FINANCIAL INFORMATION.................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................27
BUSINESS ................................................................41
MANAGEMENT...............................................................54
EXECUTIVE COMPENSATION...................................................60
RELATED PARTY TRANSACTIONS...............................................68
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT...........................73
SELLING SHAREHOLDERS.....................................................76
PLAN OF DISTRIBUTION.....................................................82
DESCRIPTION OF ENTRADE CAPITAL STOCK.....................................83
LEGAL MATTERS............................................................90
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EXPERTS ................................................................90
WHERE YOU CAN FIND MORE INFORMATION......................................90
INDEX TO FINANCIAL STATEMENTS...........................................F-1
ORBIT System(R) is a registered trademark of entrade.com Inc. and Nationwide
Auction Systems(R) and a related design are registered service marks of Asset
Liquidation Group, Inc., each of which is a wholly owned subsidiary of Entrade.
MARS System(TM) is a trademark of entrade.com Inc.
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PROSPECTUS SUMMARY
Entrade Inc.
We own all of the outstanding shares of entrade.com, our Nationwide
Auction Systems entities and Artra Group. We also currently own an approximately
14.65% equity interest in asseTrade.com, computed on a fully diluted basis, or
17.47% of the outstanding voting common stock, a 61% equity interest in
printeralliance.com and a 15% equity interest in Pricecontainer.com.
We operate as an Internet business-to-business electronic commerce, or
"e- commerce," service provider. entrade.com combines its internal transaction
technologies with business-to-business commercial applications to provide
clients with marketing, procurement, inventory and supply-chain management
functions for use in a multiple-site or industry community on-line environment.
Clients use entrade.com's software and services for the management, purchase and
sale of the clients' products and services including inventory, equipment and
other assets.
We have also created and are managing industry-specific websites for
marketing, sales and procurement of products and services. We refer to this kind
of website as a "vertical portal," which is a website dedicated to a specific
industry for use by companies in that particular industry to buy and sell
products and services. Under this business model, entrade.com generates
commissions based upon these transactions and license fees for its software.
entrade.com is directing its initial marketing efforts to utilities through
utiliparts.com and to the heavy equipment industry through asseTrade.com.
Artra became a wholly owned subsidiary of ours pursuant to a merger in
September 1999, at which time the shareholders of Artra became the holders of
approximately 83% of our outstanding shares of common stock. In recent years
through November 20, 1998, Artra had operated as a manufacturer of packaging
products principally serving the food industry. Artra currently has no active
business operations.
In October 1999, we acquired two entities that operate as Nationwide
Auction Systems. Nationwide, which has operated for over 20 years, 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.
Nationwide conducts the auctions at its facilities or at off-site locations.
Nationwide has six auction facilities located in California, Missouri, Delaware,
New Mexico and Georgia.
The address of our headquarters is 500 Central Avenue, Northfield,
Illinois 60093, and our telephone number is (847) 441-6650.
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The Offering
Securities offered Up to 5,629,584 shares of common stock.
Price per share Prevailing market prices for the common
stock. See "Plan of Distribution" and
"Selling Shareholders."
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RISK FACTORS
You should carefully consider the following risk factors and the other
information in this Prospectus before deciding to invest. Our business and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you may lose all or part of your investment.
Risks Related to Entrade
We anticipate we will incur continued losses for the foreseeable
future.
We expect to incur significant losses for the foreseeable future. To
date, we have not been profitable. We expect to incur significant costs
associated with building the infrastructure necessary for our business,
including substantial expense to recruit and hire personnel. Our revenue may not
be sufficient to fund the expenses. We may never be profitable or, if we become
profitable, we may be unable to sustain profitability.
The anticipated losses may result from our plan to increase our
operating expenses to:
o increase our sales and marketing operations;
o broaden our customer support and software capabilities;
o pursue strategic marketing and distribution alliances; and
o attract qualified managers for the administrative and commercial
functions of new acquisitions.
Some of our expenses are or will be fixed, including non-cancelable
agreements, equipment leases and real estate leases. Other expenses will
increase as we hire more executives. If our revenues do not increase, we may not
be able to compensate by reducing expenses in a timely manner. Expenses may also
increase due to the potential impact of goodwill and other charges from any
future acquisitions.
We may have difficulty obtaining future funding sources, if needed, and
we might have to accept terms that would adversely affect shareholders.
Expenses are expected to exceed revenue in 2000, and we plan to raise
funds from additional financings. Any financings may result in dilution to our
existing shareholders.
We may have difficulty obtaining additional funding, and we may have to
accept terms that would adversely affect our shareholders. For example, the
terms of any future
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financings may impose restrictions on our right to declare dividends or on the
manner in which we conduct our business. Also, lending institutions or private
investors may impose restrictions on a future decision by us to make capital
expenditures, acquisitions or significant asset sales. We may not be able to
locate additional funding sources at all.
If we cannot raise funds on acceptable terms, if and when needed, we
may not be able to develop or enhance our services to customers, take advantage
of future opportunities for strategic alliances within a particular industry,
grow our business or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business.
Fluctuations in our quarterly results may adversely affect our stock
price.
Our quarterly operating results will likely vary significantly in the
future. Our operating results will likely fall below the expectations of
securities analysts or investors in some future quarter or quarters. Our failure
to meet these expectations would likely adversely affect the market price of our
common stock.
Our quarterly operating results may vary depending on a number of
factors, including:
o demand of buyers and sellers to use our websites to list and
purchase equipment, inventory and parts;
o actions taken by our competitors, including new product
introductions, fee schedules, pricing policies and enhancements;
o size and timing of sales of our services;
o our ability to control costs;
o budget cycles of buyers and sellers of equipment, inventory and
parts and changes in these budget cycles; and
o general economic factors.
For example, our quarterly revenues are subject to fluctuation because
the potential for the listing and selling of large expensive equipment, such as
multiple sales of steam generators, could be significantly greater in some time
periods than others. As a result, our quarterly operating results may fluctuate
significantly.
We may not be able to protect our proprietary rights, and we may
infringe on the proprietary rights of others.
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Trademarks and service marks risks.
Proprietary rights are important to our success and our competitive
position. We have applied for federal registration of "utiliparts.com" and
"entrade.com" as service marks for use in connection with our electronic
commerce services and are preparing an application for registration of
entrade.com with a new logo for use in connection with those services.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. We may not be able to protect our domain names for our on-line
industry-specific websites as trademarks because those names may be too generic
or perceived as describing a product or service or its attributes rather than
serving a trademark function.
If we are unable to protect our proprietary rights in trademarks,
service marks and other indications of origin, competitors will be able to use
names and marks that are identical to ours or sufficiently similar to ours to
cause confusion among potential customers between us and our services and our
competitors and their services. This confusion may result in the diversion of
business to our competitors or the loss of potential or existing customers.
Also, to the extent these competitors have problems with the quality of their
services, this confusion may injure our reputation for quality.
Litigation against infringers of our service marks, trademarks and
similar rights may be expensive. Because of the difficulty in proving damages in
trademark litigation, it may be very difficult to recover damages.
Except for a search for the name Entrade Inc. and a limited search as
to the availability of the new entrade.com logo, we have not conducted searches
to determine whether our service marks, trademarks and similar items may
infringe on the rights of third parties. Despite having searched a mark, there
may be a successful assertion of claims of trademark or service mark
infringement. If a third party successfully asserts claims of trademark, service
mark or other infringement, the third party or a court or other administrative
body may require us to change our service marks, trademarks, company names, the
design of our sites and materials and our Internet domain names (web addresses),
as well as to pay damages for any infringement. A change in service marks,
trademarks, company names, the design of our sites and materials and Internet
domain names may cause difficulties for our customers in locating us or not
connecting our new names and marks with our prior names and marks, resulting in
loss of business.
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Copyright and patent risks; software license risks.
While we seek to protect our software, text, designs and other works of
authorship by copyright, it is not possible to detect all possible
infringements. Also, copyright protection does not extend to functional features
of software and will not be effective to prevent third parties from duplicating
our software's capabilities through engineering research and development.
We have not conducted searches to determine if our software infringes
on any patents of third parties. If our software is found to infringe on the
copyrights or patents of a third party, the third party or a court or other
administrative body could require us to pay royalties for past use and for
continued use, or to modify or replace the software to avoid infringement. We
cannot assure you that we will be able to modify or replace the software.
Any of these claims, with or without merit, could subject us to costly
litigation and the diversion of our technical and management personnel.
Difficulty of protecting proprietary rights in other countries.
In addition, copyrights and trademarks may receive limited or no
protection in some countries, and the global nature of the Internet makes it
impossible to control the ultimate destination of our work.
Acquisitions and new strategic alliances may disrupt or otherwise have
a negative impact on our business.
We plan to make investments in complementary companies, technologies
and assets. Future acquisitions are subject to the following risks:
o acquisitions may cause a disruption in our ongoing business,
distract our relatively new management team and make it difficult
to maintain our standards, controls and procedures;
o we may acquire companies or make strategic alliances in markets in
which we have little experience;
o we may not be able to successfully integrate the services,
products and personnel of any acquisition or new alliance into our
operations;
o we may be required to incur debt or issue equity securities to pay
for acquisitions, which may be dilutive to existing shareholders;
and
o our acquisitions may not result in any return on our investment
and we may lose our entire investment.
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Our success is dependent on retaining our current key personnel and
attracting additional key personnel, particularly in the areas of
sales, technical services and customer support.
We believe that our success will depend on continued employment of our
senior management team and key technical personnel for the development of our
on-line services and our ability to attract large businesses to use our on-line
websites for the effective management, purchase and sale of equipment, inventory
and assets. Their experience in e- commerce asset management, sales and
procurement is important to the establishment of our on-line websites in various
industries.
We do not maintain key-man life insurance on our key personnel. The
loss of the services of one or more of our management personnel could seriously
harm our business.
Our success also depends on having a highly trained sales force,
telesales group and technical and customer support personnel. We will need to
continue to hire additional personnel as our business grows. We have perceived a
shortage in the number of trained sales, technical and customer support
personnel in the on-line service industry. This shortage could limit our ability
to increase sales and to sell services. Competition for personnel, particularly
for employees with technical expertise, is intense. New hires also frequently
require extensive training before they achieve desired levels of productivity.
If we cannot hire and retain suitable personnel, we may not be able to expand
and develop new business communities effectively or support those that are
developed, resulting in loss of customers and revenues.
The interests of our significant shareholders may conflict with our
interests and the interests of our other shareholders.
Directors, officers and holders of more than 5% of the outstanding
shares of Entrade common stock collectively own 40.57% of the outstanding common
stock. As a result of their stock ownership, one or more of these shareholders
may be in a position to affect significantly our corporate actions, including,
for example, mergers or takeover attempts, in a manner that could conflict with
the interests of our public shareholders.
Anti-takeover provisions and our right to issue preferred stock could
make a third party acquisition of us difficult.
Entrade is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if a change in control would be beneficial to shareholders.
For a discussion of these anti-takeover provisions, see "Description of Our
Capital Stock -- Anti-Takeover Provisions."
Our articles of incorporation provide that our board of directors may
issue preferred stock without shareholder approval. The issuance of preferred
stock could make it more
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difficult for a third party to acquire us. Our board of directors may issue
preferred stock with voting or conversion rights that may have the effect of
delaying, deferring or preventing a change of control of us and would adversely
affect the market price of the Entrade common stock and voting and other rights
of holders of Entrade common stock.
Our common stock price is likely to be highly volatile.
The market price of our common stock is likely to be highly volatile,
as the stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Our shareholders
may not be able to resell their shares of our common stock following periods of
volatility because of the market's adverse reaction to this volatility. The
trading prices of many technology and Internet-related companies' stocks have
reached historical highs within the past 24 months and have reflected relative
valuations substantially above historical levels. During the same period, these
companies' stocks have also been highly volatile and have recorded lows well
below those historical highs. We cannot assure you that our stock will trade at
the same levels of other Internet stocks or that Internet stocks in general will
sustain their current market prices.
Factors that could cause this volatility may include, among other
things:
o actual or anticipated variations in quarterly operating results;
o announcements of technological innovations;
o new sales formats or new products or services;
o changes in financial estimates by securities analysts;
o conditions or trends in the utilities and large manufacturing
industries;
o conditions or trends in the Internet industry;
o changes in the market valuations of other Internet companies;
o announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint ventures;
o changes in capital commitments;
o additions or departures of key personnel; and
o sales of our common stock.
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Many of these factors are beyond our control. These factors may
materially adversely affect the market price of our common stock, regardless of
our operating performance.
Shares eligible for future sales by our current shareholders may
adversely affect our stock price.
If our existing shareholders sell in the public market substantial
amounts of Entrade common stock, including shares issued on the exercise of
outstanding options and warrants, then the market price of our common stock
could fall. See "Selling Shareholders" for a list of certain shareholders that
may sell our common stock.
WorldWide Web NetworX Corporation, which holds 1,800,000 shares of
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 exceptions for pledges or the distribution of up to 25%
of the Entrade shares to WorldWide's shareholders. Subject to the lockup
provision applicable to WorldWide, WorldWide shareholders that receive the
distribution may utilize Rule 144 to sell shares. Holders of approximately
1,570,000 shares of common stock that were issued in the Nationwide acquisition
are prohibited from selling more than 500,000 shares until May 31, 2000, subject
to adjustment in certain circumstances.
Risk Factor Relating to Artra
Artra's potential product liability and environmental liabilities may
result in future costs to Artra that are difficult to estimate.
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 local counsel
indicate, as of December 31, 1999, pending claims asserted by approximately
45,000 plaintiffs (excluding loss of consortium claims), and it is probable that
there are a significant number of additional claims that remain unasserted.
Artra has no reasonable basis on which to quantify the potential cost to it of
the pending claims and any unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of the 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. Since September 1998, certain of
Artra's excess insurance carriers, under a reservation of the right to deny
coverage liability at a subsequent date, have, under a temporary agreement which
expired on January 31, 2000, assumed the defense of the claims and paid defense,
settlement and indemnity costs relating to the claims of approximately
$17,500,000 through December 31, 1999. Although Artra is engaged in negotiations
with its excess insurance carriers regarding their payment of these defense,
settlement and indemnity costs, we can provide no assurance that Artra will be
able to conclude an agreement with the excess carriers.
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Because of the expiration of the temporary agreement and the uncertain
conclusion of Artra's negotiations with the excess insurance carriers, Artra may
have to advance some or all of these costs, which could have a material adverse
effect on Artra's financial condition, and seek reimbursement of these costs
from the excess insurance carriers through litigation or otherwise. If Artra
were unable to conclude a permanent agreement with its excess insurance
carriers, a court could also determine that Artra is responsible for a portion
of the defense and indemnity costs associated with the product liability claims.
Such a finding would also have a material adverse effect on Artra's financial
condition.
Artra's financial condition could also be materially adversely affected
to the extent that its existing insurance coverage and any to which it might
become entitled in the future is not sufficient to respond to the product
liability claims. Although Artra believes that its remaining insurance coverage
as of December 31, 1999 relating to the claims is not less than $185,000,000, we
can provide no assurance that the coverage will be adequate to cover Artra's
responsibility for the claims. In the event Artra were unable to satisfy the
claims through a combination of insurance coverage and its own assets, it is
possible that Artra could be forced to seek protection under the federal
bankruptcy laws. In such event, Entrade could lose its entire investment in
Artra. It is also possible that the plaintiffs asserting the claims against
Artra could attempt to pursue legal action against Entrade. Entrade believes
that no valid legal basis exists for the imposition of Artra's liability for the
claims against Entrade, and Entrade would vigorously defend against any attempt
to impose such liability.
Former operations of Artra and its subsidiaries have been subject to
requirements imposed under federal, state and local environmental and health and
safety laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act and comparable state laws.
Liability under CERCLA is, in most instances, strict, joint and
several, meaning that Artra could be liable for all response costs incurred. As
a result of these environmental matters, Artra and its subsidiaries have, from
time to time, been and currently are involved in administrative and judicial
proceedings and inquires. Artra has provided accruals for these claims. Various
uncertainties, however, with respect to these and other sites and facilities
make it difficult to assess the likelihood and scope of further investigation or
remediation activities or
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to estimate the future costs of these activities if undertaken. See "Business --
Legal Proceedings."
Risks Relating to Our E-Commerce Business
One of our significant subsidiaries, entrade.com, has limited operating
history upon which you may evaluate its operations.
We formed Entrade in February 1999 at which time it acquired the
intellectual property of entrade.com and 25% of the voting common stock of
asseTrade.com. These entities had virtually no operating history prior to that
time. Accordingly, we have limited operating history upon which you may evaluate
us. Because our entrade.com management team as a unit is relatively new, it has
a limited track record upon which you can make an evaluation. In addition, our
revenue model is evolving and we have only a limited number of customers to
date. Our lack of operating history, new management unit and evolving revenue
model make it difficult to evaluate our future prospects and evaluate our
business strategy.
This means that you will have only limited information upon which to
base an investment decision. Because of our lack of operating history, we also
believe that period-to-period comparisons of our results of operations will not
be meaningful in the short term and should not be relied upon as indicators of
future performance.
We will encounter risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets. Many of these risks
are described in more detail in this "Risk Factors" section. We may not
successfully address any of these risks. If we do not successfully address these
risks, our business would be seriously harmed.
Our e-commerce businesses will rely initially on revenues from
utilities, printers, paper supply companies, shippers and large
industrial companies, and if we do not generate revenues from these
markets, or the revenues are lower than we anticipate, we might not
have the resources to form new strategic alliances.
Our e-commerce business will rely on revenues generated from technology
license fees, commission fees and maintenance and service fees. Our principal
initial targeted markets are the utility industry and large industrial
manufacturing companies. If we do not generate revenues from these two markets
or they are lower than we anticipate, we may not be able to successfully create
other industry-specific websites or other e-commerce businesses that will
generate additional license and commission fees.
Our inability to generate and increase revenues in these initial
markets may depend on factors stated in other risk factors and other issues,
including:
o buyers might not accept purchasing "new" third party equipment and
parts without associated original equipment warranties or
aftermarket services programs; and
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o export/import regulations and fees could hamper or halt the
international shipment and transfer of electric generation
equipment, particularly nuclear generation equipment.
Our e-commerce business may not develop additional revenue sources.
We plan to generate revenues through relationships with strategic
partners for the sale of assets and services to particular industries. To
generate significant revenues from Internet business-to-business e-commerce, we
will have to continue to build these business relationships through our contacts
and the expertise of our current or future personnel. We may not be able to form
new strategic alliances due to a lack of sufficient financial resources or
expertise in a newly targeted industry. If we are not able to build these
relationships with strategic partners, we will have difficulty developing
additional businesses to generate revenues.
Marketing and distribution alliances may not generate the expected
number of new customers or may be terminated.
We intend to use marketing, distribution and strategic trade-group
alliances with other Internet companies to create traffic on our on-line
business communities and, consequently, to generate revenues. These marketing
and distribution alliances will allow us to link our on-line websites to
Internet search engines and other websites. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' websites.
We may have difficulty entering into marketing and distribution
alliances. Also, these arrangements may not generate the number of new customers
we expect. We also cannot assure you that we will be able to enter into these
marketing and distribution alliances or renew any marketing and distribution
alliance agreements that we are able to establish. If we are unable to establish
these alliances or if any of these agreements is terminated, the traffic on our
on-line websites might not grow and could decrease.
We may not be able to compete effectively with other providers of
e-commerce services.
We believe that the strongest potential competition does not come from
traditional service groups but rather the evolution of the Internet and the
types of business-to-business service providers that such evolution will create.
As applications for business-to-business e- commerce begin to proliferate and
mature, entrade.com will continue to compete with other technology companies and
traditional service providers that seek to integrate on-line business
technologies with their traditional service mix.
Competition for Internet products and services and electronic business
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new websites at a
relatively low cost. We expect that additional companies will establish
competing on-line business communities on a stand-alone basis.
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E-commerce applications are in the early stages of development.
Currently, the principal focus of e-commerce business-to-business groups is to
provide information and generate revenues from advertisement. As e-commerce
evolves, however, we expect that other entrepreneurs and large, well-known
leaders in specific industries will create other niche business-to-business
services that may compete with our services.
These large industry leaders, particularly major original equipment
manufacturers of utility and industrial equipment, would have better name
recognition in the markets that we may target. We also expect competition from
large consulting firms and software solution providers, which have begun
developing e-commerce applications for their existing clients. The larger
financial resources of these competitors may enable them to market to potential
buyers and sellers of equipment, inventory, parts and other assets and launch
more widespread marketing campaigns that would make it more difficult for us to
compete.
Our success depends on our ability to use an effective Internet
marketing strategy that depends on Internet governance and regulation,
which are uncertain.
The future success of our business is dependent on our ability to use
an effective Internet marketing strategy. Because the original role of the
Internet was to link the government's computers with academic institutions'
computers, the Internet was historically administered by organizations that were
involved in sponsoring research. Private parties have assumed larger roles in
the enhancement and maintenance of the Internet infrastructure. Therefore, it is
unclear what organization, if any, will govern the administration of the
Internet in the future, including the authorization of domain names.
The lack of an appropriate organization to govern the administration of
the Internet infrastructure and the legal uncertainties that may follow pose
risks to the commercial Internet industry and our specific website business. In
addition, the effective operation of the Internet and our business is also
dependent on the continued mutual cooperation among several organizations that
have widely divergent interests, including the government, Internet service
providers and developers of system software and software language. These
organizations may find that achieving a consensus may become difficult,
impossible, time-consuming and costly.
Although we are not subject to direct regulation in the United States
other than federal and state business regulations generally, changes in the
regulatory environment could result in the Federal Communications Commission or
other United States regulatory agencies directly regulating our business.
Additionally, as Internet use becomes more widespread internationally, there is
an increased likelihood of international regulation. For example, import/export
regulations and related costs may limit the growth of our utiliparts.com
business.
We cannot predict whether or to what extent any new regulation
affecting e-commerce will occur. New regulation could increase our costs. For
example, we do not collect sales or other similar taxes with respect to the
equipment, inventory and other products sold through our on-line communities.
One or more states may seek to impose sales tax collection obligations on
13
<PAGE>
out-of-state companies like ours that engage in or facilitate e-commerce. State
and local governments have made proposals that would impose additional taxes on
the sale of goods and services over the Internet. A successful assertion by one
or more states or any foreign country that we should collect sales and other
taxes on the exchange of equipment, inventory and other goods on our system
could increase costs that we could have difficulty recovering from users of our
websites.
Governmental agencies and their designees regulate the acquisition and
maintenance of web addresses generally. For example, in the United States, the
National Science Foundation had appointed Network Solutions, Inc. as the
exclusive registrar for the ".com," ".net" and ".org" generic top-level
addresses. Although Network Solutions no longer has exclusivity, it remains the
dominant registrar. The regulation of web addresses in the United States and in
foreign countries is subject to change. As a result, we may not be able to
acquire or maintain relevant web addresses in all countries where we conduct
business that are consistent with our brand names and marketing strategy.
Furthermore, the relationship between regulations governing website addresses
and laws protecting trademarks is unclear.
We may face increased access costs from browser providers and Internet
distribution channels.
Leading website, browser providers and other Internet distribution
channels may begin to charge us to provide access to our products and services.
If any of these expenses are not accompanied by increased revenues, our losses
may increase.
Concerns regarding security of transactions and transmitting
confidential information over the Internet may negatively impact our
e-commerce business.
We believe that concern regarding the security of confidential
information transmitted over the Internet, including, for example, business and
supply requirements, credit card numbers and other forms of payment methods,
prevents many potential customers from engaging in online transactions. If we do
not add sufficient security features to future product releases, our services
may not gain market acceptance or we may face additional legal exposure.
Despite the measures we have taken in the areas of encryption and
password or other authentication software devices, our infrastructure is
potentially vulnerable to physical or electronic break-ins, computer viruses,
hackers or similar problems caused by employees, customers or other Internet
users. If a person circumvents our security measures, that person could
misappropriate proprietary information or cause interruptions in our operations.
Security breaches that result in access to confidential information could damage
our reputation and expose us to a risk of loss or liability. These risks may
require us to make significant investments and efforts to protect against or
remedy security breaches, which would increase the costs of maintaining our
websites.
14
<PAGE>
We may have interruptions in service.
Our computers and telecommunications equipment are maintained by a
third party server hosting company. Any system interruptions may cause our
on-line websites to be unavailable to web browsers and may reduce their
attractiveness to our customers and potential customers.
Also, we could experience delays in switching to a new service
provider. Any delays in response time or performance problems would cause users
of our system to perceive our service as not functioning properly and cause them
to use other methods to sell or procure equipment, excess inventory and other
assets.
We may be subject to legal liability for publishing or distributing
content over the Internet.
We may be subject to legal claims relating to the content in our
industry-specific on-line websites, or the downloading and distribution of
content. Providers of Internet products and services have been sued in the past,
sometimes successfully, based on the content of material. The representations as
to the origin and ownership of licensed content that we generally obtain may not
adequately protect us.
In addition, we draw some of the content provided in our on-line
business communities from data compiled by other parties, including governmental
and commercial sources, and we re- key the data. This data may have errors. If
our content is improperly used or if we supply incorrect information, it could
result in unexpected liability. Our insurance may not cover claims of this type,
or may not provide sufficient coverage. Costs from these claims that are not
covered by our insurance or exceed our coverage would damage our business and
limit our financial resources.
We depend on the continuous introduction of enhanced software
capabilities and expansion of our software services, which we may not
be able to project accurately.
As traffic in our on-line businesses increases, we must expand and
upgrade our technology, transaction processing systems and network hardware and
software. We may not be able to project accurately the rate of increase in our
on-line businesses. In addition, we may not be able to expand and upgrade our
systems and network hardware and software capabilities to accommodate increased
use of our on-line businesses. If we do not appropriately upgrade our systems,
network hardware and software on an ongoing basis, we may have difficulty
retaining our customers and competing effectively.
The life cycles of the software used to support our e-commerce services
are difficult to predict because the market for our e-commerce websites for
sales and procurement of equipment, inventory and assets is new and emerging and
is characterized by changing customer needs and industry standards. The
introduction of on-line products employing new technologies and industry
standards could render our existing system obsolete and unmarketable. If a new
15
<PAGE>
software language becomes the industry standard, we may need to rewrite the
software to remain competitive. We may not be able to respond in a
cost-effective way and lose business as a result.
SUMMARY FINANCIAL DATA
On September 23, 1999, pursuant to the terms of a merger agreement,
Artra became a wholly owned subsidiary of Entrade, with Artra being deemed to be
the acquiring corporation for financial reporting purposes. Accordingly, Artra's
historical financial information is presented in the table below.
This table presents a consolidated summary of historical financial data
of Entrade for the nine-month periods ended September 30, 1999 and 1998 and of
Artra for each of the last five fiscal years, and certain pro forma financial
information.
The consolidated pro forma statement of operations data for the nine
months ended September 30, 1999 and the year ended December 31, 1998 is
presented as if the acquisitions of Nationwide and entrade.com had been
completed as of January 1, 1998. Entrade had no operations and no revenues
related to the assets it acquired in February 1999 to develop its entry into the
Internet business-to-business e-commerce and on-line auction business. These
assets consisted of assets acquired by its entrade.com subsidiary and an equity
interest in asseTrade.com. asseTrade.com had no operations and no revenues when
Entrade acquired the then 25% voting interest in February 1999. Accordingly, no
pro forma results of operations are presented for the Internet
business-to-business e-commerce and on-line auction business for the year ended
December 31, 1998, as in the opinion of management this information would not be
meaningful. The pro forma consolidated balance sheet data is presented as if the
acquisition of Nationwide had been completed as of September 30, 1999. The
operations of the Bagcraft subsidiary, which was sold effective November 20,
1998, are included in discontinued operations. The information for fiscal years
1995 and 1994 presents the operations of Arcar Graphics, Inc. in discontinued
operations. The sale of Arcar Graphics, Inc., which was acquired effective April
9, 1994, was completed on October 26, 1995. The information for fiscal years
1995 and 1994 presents the operations of Artra's former jewelry business in
discontinued operations.
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31, (I)
-------------------------------- -----------------------------------------------------------
1999 1998
Pro 1999 1998 Pro 1998 1997 1996 1995 1994
Forma Historical Historical Forma Historical Historical Historical Historical Historical
-------- --------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Consolidated Statements of (Unaudited in thousands except per share data)
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues..................... $12,776 $ - $ - $19,624 $ - $ - $ - $ - $ -
Earnings (loss) from
continuing operations
(A) (B) (C)................. (9,725) (6,254) (4,240) (9,028) (5,707) 1,066 (445) (11,113) (5,833)
Earnings (loss) from discontinued
operations (D) (E) (F)........ - - 1,968 38,930 38,930 (293) 3,994 (5,820) (23,602)
Extraordinary credits (G)........ - - - - - 9,424 14,030 8,965
Net earnings (loss)................. (9,725) (6,254) (2,272) (29,902) 33,223 773 12,973 (2,903) (20,470)
Earnings (loss) per share (H)
Basic and Diluted
Continuing operations........... (1.33) (1.51) (.58) (.79) (.78) - (.19) (1.84) (1.17)
Discontinued operations......... - - .25 3.30 4.94 (.04) .53 (.86) (4.14)
Extraordinary credits - - - - - - 1.25 2.07 1.57
Net earnings (loss)............. (1.33) (1.51) (.33) 2.51 (4.16) (.04) 1.59 (.63) (3.74)
Weighted average number
of shares outstanding
Basic and Diluted............... 12,669 8,850 7,899 11,920 7,891 7,970 7,525 6,776 5,702
Total assets........................ 77,474 29,415 63,901 - 21,268 73,206 77,379 77,949 93,429
Long-term debt...................... 13,699 - 44,409 - - 50,619 34,207 34,113 19,673
Debt subsequently discharged........ - - - - - - - - 9,750
Cash dividends...................... - - - - - - - - -
<FN>
(A) Earnings from continuing operations for the years ended December 31,
1998, December 31, 1997 and December 26, 1996 include realized gains of
$320,000, $2,531,000 and $5,818,000, respectively, from dispositions of
Comforce common stock.
(B) Earnings from continuing operations for the year ended December 31,
1997 includes a gain from settlement of litigation of $10,416,000, net
of related legal fees and other expenses, and net related party
compensation/expense reimbursement costs of $2,816,000. See Notes 15
and 16 to the consolidated financial statements for the year ended
December 31, 1998.
(C) During the nine months ended September 30, 1999, we incurred a
compensation charge of $2,100,000 relating to stock options granted to
four individuals employed to manage our
17
<PAGE>
entry into the Internet business-to-business e-commerce and on-line
auction business and we also incurred $1,300,000 of operating losses.
We incurred a compensation charge of $575,000 during the nine months
ended September 30, 1999 relating to stock options granted to our
recently appointed president and chief executive officer.
(D) Earnings from discontinued operations for the year ended December 31,
1998 includes a net gain on disposition of the Bagcraft subsidiary of
$35,985,000. See Note 3 to the consolidated financial statements for
the year ended December 31, 1998.
(E) The loss from discontinued operations for the year ended December 28,
1995 includes a charge to operations of $6,430,000 to write off the
remaining goodwill of Comforce's jewelry business effective June 29,
1995 and a provision of $1,000,000 for loss on disposal of Comforce's
jewelry business. The loss from discontinued operations for the year
ended December 28, 1995 includes a gain on the sale of Bagcraft's Arcar
subsidiary of $8,483,000.
(F) The loss from discontinued operations for the year ended December 31,
1994 includes a charge to operations of $10,800,000 representing a
write-off of goodwill at Comforce's New Dimensions subsidiary.
(G) The 1996, 1995 and 1994 extraordinary credits represent gains from net
discharge of bank indebtedness.
(H) In 1997, Artra adopted the provisions of SFAS No. 128, "Earnings Per
Share" and restated prior periods accordingly.
(I) In 1997, Artra changed its fiscal year end to December 31. In prior
years, Artra had operated on a 52/53 week fiscal year ending the last
Thursday of December.
</FN>
</TABLE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Prospectus contains "forward-looking statements" within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions that cover these forward-looking statements. These statements, which
include statements regarding the anticipated business operations of Entrade
described in "Summary," "Risk Factors," "Information About Entrade Inc. and
entrade.com -- Entrade Plan of Operations," "Management of Entrade," and
elsewhere in this Prospectus relate to expectations concerning matters that are
not historical facts. We intend to identify forward-looking statements with
words such as "projects," "believes," "anticipates," "plans," "expects,"
"intends," "estimates" and similar words and expressions. We have set forth
important factors that would cause actual results to differ materially from
these expectations. See "Risk Factors." These factors include:
o Probability of continued losses for the foreseeable future;
18
<PAGE>
o Need for future funding;
o Fluctuations in quarterly results;
o Need to develop additional revenue sources;
o Difficulties in protecting proprietary rights and effective Web
addresses;
o Dependence on key personnel;
o Limited operating history for entrade.com;
o Dependence on utilities and large manufacturing industries;
o A highly competitive environment with providers of Internet
services; and
o Artra's product liability lawsuits.
All forward-looking statements attributable to Entrade are expressly
qualified in their entirety by these factors as described in this Prospectus.
Entrade does not undertake any obligation to update any forward-looking
statements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Prospectus.
MARKET FOR OUR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange under the
symbol "ETA."
As of February 7, 2000, the approximate number of holders of Entrade
common stock was 2,500.
The merger of a subsidiary of Entrade and Artra occurred in September
1999. Prior to that time, no trading history existed for the Entrade common
stock. The high and low sales prices for Artra common stock (which traded under
the symbol ATA), as reported in the New York Stock Exchange Quarterly Market
Statistics reports, in 1998 and for that portion of 1999 ending September 23,
1999, and for Entrade for the remainder of 1999 were as follows:
19
<PAGE>
1999 1998
------ ------
High Low High Low
---- --- ---- ---
First quarter 10-5/8 4-1/4 4-1/16 3-3/16
Second quarter 20-7/16 8-1/2 3-15/16 3
Third quarter 1998 4 3-1/4
Third quarter 1999 17-15/16 9-1/8
(through 9/23/99)
Third quarter 1999 18 15-1/4
(from 9/24/99)
Fourth quarter 43 14-1/8 4-1/4 2-1/8
On February 7, 2000, the high and low sales prices of Entrade common
stock as reported on the New York Stock Exchange were $36.0625 and $40.50.
DIVIDEND POLICY
We have no plan to pay dividends on Entrade common stock in 2000. There
are no legal restrictions preventing the payment of cash dividends at this time.
CAPITALIZATION
The following table sets forth the pro forma and historical
capitalization of Entrade at September 30, 1999. The following should be read in
conjunction with the Company's consolidated financial statements appearing
elsewhere in this Prospectus.
Pro Forma Historical
--------- ---------
(in thousands)
Long-term debt, less current maturities $ 13,699 $ --
Common stock, no par value; authorized
40,000,000 shares; issued 12,287,317 shares -- --
Additional paid-in capital 108,982 83,144
Deferred stock compensation (2,804) (2,804)
Unrealized appreciation of investments 6,057 6,057
Accumulated deficit (67,621) (67,621)
--------- ---------
Total shareholders' equity $ 44,614 $ 18,776
========= =========
Total capitalization $ 58,313 $ 18,776
========= =========
20
<PAGE>
SELECTED HISTORICAL CONDENSED FINANCIAL
INFORMATION AND COMPARATIVE PER SHARE DATA
This table is a consolidated summary of selected financial data of Entrade for
the nine-month periods ended September 30, 1999 and 1998 and for each of the
last five fiscal years. On September 23, 1999, pursuant to the terms of a merger
agreement, Artra became a wholly owned subsidiary of Entrade, with Artra being
deemed to be the surviving corporation for financial reporting purposes.
Accordingly, Artra historical financial information is presented in the table
below. The operations of the Bagcraft subsidiary, which was sold effective
November 20, 1998, are included in discontinued operations. The information for
fiscal years 1995 and 1994 presents the operations of Arcar Graphics, Inc. in
discontinued operations. The sale of Arcar Graphics, Inc., which was acquired
effective April 9, 1994, was completed on October 26, 1995. The information for
fiscal years 1995 and 1994 presents the operations of Artra's former jewelry
business in discontinued operations.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31, (I)
------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- -------- ------- ------- ------- ------- -------
Consolidated Statements of (Unaudited in thousands except per share data)
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues..................... $ - $ - $ - $ - $ - $ - $ -
Earnings (loss) from
continuing operations
(A) (B) (C)................. (6,254) (4,240) (5,707) 1,066 (445) (11,113) (5,833)
Earnings (loss) from discontinued
operations (D) (E) (F)........ - 1,968 38,930 (293) 3,994 (5,820) (23,602)
Extraordinary credits (G)........ - - - - 9,424 14,030 8,965
Net earnings (loss)................. (6,254) (2,272) 33,223 773 12,973 (2,903) (20,470)
Earnings (loss) per share (H)
Basic and Diluted
Continuing operations........... (1.51) (.58) (.78) - (.19) (1.84) (1.17)
Discontinued operations......... - .25 4.94 (.04) .53 (.86) (4.14)
Extraordinary credits - - - - 1.25 2.07 1.57
Net earnings (loss)............. (1.51) (.33) (4.16) (.04) 1.59 (.63) (3.74)
Weighted average number
of shares outstanding
Basic and Diluted............... 8,850 7,899 7,891 7,970 7,525 6,776 5,702
Total assets........................ 29,415 63,901 21,268 73,206 77,379 77,949 93,429
Long-term debt...................... - 44,409 - 50,619 34,207 34,113 19,673
Debt subsequently discharged........ - - - - - - 9,750
Cash dividends...................... - - - - - - -
</TABLE>
(A) Earnings from continuing operations for the years ended December 31, 1998,
December 31, 1997 and December 31, 1996 include realized gains of $320,000,
$2,531,000 and $5,818,000, respectively, from dispositions of Comforce
common stock.
21
<PAGE>
(B) Earnings from continuing operations for the year ended December 31, 1997
includes a gain from settlement of litigation of $10,416,000, net of
related legal fees and other expenses, and net related party
compensation/expense reimbursement costs of $2,816,000. See Notes 15 and 16
to the consolidated financial statements for the year ended December 31,
1998.
(C) During the nine months ended September 30, 1999, we incurred a compensation
charge of $2,100,000 relating to stock options granted to four individuals
employed to manage our entry into the Internet business-to-business
e-commerce and on-line auction business and we also incurred $1,300,000 of
operating losses. We incurred a compensation charge of $575,000 during the
nine months ended September 30, 1999 relating to stock options granted to
our recently appointed president and chief executive officer.
(D) Earnings from discontinued operations for the year ended December 31, 1998
includes a net gain on disposition of the Bagcraft subsidiary of
$35,985,000. See Note 3 to the consolidated financial statements for the
year ended December 31, 1998.
(E) The loss from discontinued operations for the year ended December 28, 1995
includes a charge to operations of $6,430,000 to write off the remaining
goodwill of Comforce's jewelry business effective June 29, 1995 and a
provision of $1,000,000 for loss on disposal of Comforce's jewelry
business. The loss from discontinued operations for the year ended December
28, 1995 includes a gain on the sale of Bagcraft's Arcar subsidiary of
$8,483,000.
(F) The loss from discontinued operations for the year ended December 31, 1994
includes a charge to operations of $10,800,000 representing a write off of
goodwill at Comforce's New Dimensions subsidiary.
(G) The 1996, 1995 and 1994 extraordinary credits represent gains from net
discharge of bank indebtedness.
(H) In 1997, Artra adopted the provisions of SFAS No. 128, "Earnings Per Share"
and restated prior periods accordingly.
(I) In 1997, Artra changed its fiscal year end to December 31. In prior years,
Artra had operated on a 52/53 week fiscal year ending the last Thursday of
December.
22
<PAGE>
NATIONWIDE SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION
This table is a consolidated summary of selected financial data of
Nationwide for the nine-month periods ended September 30, 1999 and 1998 and for
each of the last five years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
Nine Months ended
September 30 Year ended December 31
----------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(Unaudited in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ...... $12,181 $13,849 $19,624 $11,604 $10,017 $ 7,146 $ 6,736
Net earnings (loss) 1,407 1,853 2,446 1,997 808 (640) 670
Total assets ...... 8,525 5,364 6,600 2,583 4,132 2,532 2,373
Long-term debt .... 3,199 2,631 2,631 20 152 115 265
</TABLE>
23
<PAGE>
The following unaudited pro forma condensed balance sheet as of September
30, 1999 presents the financial position of Entrade as if the acquisition of
Nationwide had been completed as of September 30, 1999.
ENTRADE INC. AND SUBSIDIARIES
PRO-FORMA CONDENSED BALANCE SHEET
September 30, 1999
(Unaudited In Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical Nationwide Pro Forma Adjustments Pro Forma
------------ ------------ ----------------------------- -----------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and equivalents $11,019 $811 ($6,000)(A) $5,830
Restricted cash and equivalents 100 100
Accounts receivable 604 604
Due from former stockholder 339 339
Available-for-sale securities 3,337 3,337
Other 729 153 882
------------ ------------ ------------
Total current assets 15,185 1,907 11,092
------------ ------------ ------------
Property,plant & equipment, net 391 6,531 6,922
Intangibles, net 10,027 46,200 (A) (534)(C) 55,693
Investment in asseTrade.com 3,523 3,523
Other 289 87 (132)(A) 244
------------ ------------ ---------- ---------- ------------
$29,415 $8,525 $40,068 ($534) $77,474
============ ============ ========== ========== ============
CURRENT LIABILITIES
Notes payable $1,229 $8,300 (A) ($4,800)(B) $4,729
Current maturities of long-term debt 187 187
Accounts payable $105 2,809 2,914
Accrued liabilities 774 567 230 (A) 1,571
Income taxes payable 1,108 1,108
Common stock put warrants 340 340
Liabilities of discontinued operations 8,312 8,312
------------ ------------ ------------
10,639 4,792 19,161
------------ ------------ ------------
Long-term debt, less current maturities 3,199 10,500 (A) 13,699
Shareholders' Equity 18,776 534 21,038 (A) 4,800 (B) 44,614
(534)(C)
------------ ------------ ---------- ---------- ------------
$29,415 $8,525 $39,534 $ - $77,474
============ ============ ========== ========== ============
24
<PAGE>
Notes to the pro forma condensed combined balance sheet:
<FN>
(A) Reflect the consideration paid for all
of the common stock of Nationwide
Cash paid at closing $ 6,000
Number of Entrade common shares issued
Issued to selling shareholders 1,570
Issued to agent as payment of fees 80
-------
Entrade common shares issued 1,650
Market value at October 19, 1999 (less 15% discount) $12.750
-------
21,038
Promissory notes due to selling shareholders
Notes due 11/29/99 4,800
Notes due 10/01/01, payable in instllaments 14,000
Other acquisition related costs 362
-------
Total consideration paid $46,200
=======
(B) Issue shares of Entrade common stock in payment of promissory notes
due 11/29/99.
(C) Eliminate Nationwide equity at acquisition date.
</FN>
</TABLE>
25
<PAGE>
The following unaudited pro forma condensed statements of operations
for the nine months ended September 30, 1999 and the year ended
December 31, 1998 are presented as if acquisitions of Nationwide and
entrade.com had been completed as of January 1, 1998.
Entrade had no operations and no revenues related to the assets it
acquired in February 1999 to develop its entry into the Internet
business-to-business e-commerce and on-line auction business. These
assets consisted of assets acquired by its entrade.com subsidiary and
an equity interest in asseTrade.com. asseTrade.com had no operations
and no revenues when the 25% voting interest was acquired by Entrade
in February 1999. Accordingly, no pro forma results of operations are
presented for the Internet business-to-business e-commerce and on-line
auction business for the year ended December 31, 1998, as in the
opinion of management this information would not be meaningful.
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical entrade.com Nationwide Pro Forma Adjustments Pro Forma
----------- ------------ ------------ ----------------------- ----------
<S> <C> <C> <C> <C>
Net revenues $ - $595 $12,181 $12,776
----------- ------------ ------------ ----------
Costs and expenses:
Cost of sales - - 5,388 5,388
Selling, general and administrative 6,570 1,857 5,030 ($1,305) (A) $825 (D) 12,977
Depreciation and amortization - 43 151 3,213 (B) 3,407
----------- ------------ ------------ ----------
6,570 1,900 10,569 21,772
----------- ------------ ------------ ----------
Operating earnings (loss) (6,570) (1,305) 1,612 (8,996)
----------- ------------ ------------ ----------
Other income (expense):
Interest income (expense), net 316 - (184) (840) (C) (708)
----------- ------------ ------------ ----------
Earnings (loss) from continuing operations
before income taxes (6,254) (1,305) 1,428 (9,704)
Provision for income taxes - - (21) (21)
----------- ------------ ------------ -------- -------- ----------
Earnings (loss) from continuing operations ($6,254) ($1,305) $1,407 ($1,908) ($825) ($9,725)
=========== ============ ============ ======== ======== ==========
Per share loss from continuing operations
applicable to common shares:
Basic and Diluted ($1.51) ($1.33)
=========== ==========
Weighted average number of shares
of common stock outstanding:
Basic and Diluted 8,850 12,669
=========== ==========
Notes to the pro forma condensed combined statement of operations:
<FN>
(A) Reverse entrade.com expenses reported in the Company's consolidated
financial statements.
(B) Amortization of intangible assets acquired over periods ranging from 5
years for technology and intellectual property acquired by entrade.com to
20 years for the excess of cost over the Nationwide assets acquired.
(C) Interest on promissory notes issued to sellers.
(D) Compensation charge for stock options issued to Nationwide employees.
(E) Pro forma weighted average shares outstanding reflect the effect of the
following transactions:
Shares issued as consideration for Entrade transaction 2,000
Finders fee for the Entrade transaction 100
Shares issued as consideration for Nationwide acqusition 1,570
Finders fee for the Nationwide transaction 80
Entrade common shares to pay Nationwide promissory notes 279
--------
4,029
========
</FN>
</TABLE>
26
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Entrade, Inc.
Historical Nationwide Pro Forma Adjustments Pro Forma
------------- ----------- --------------------- --------------
<S> <C> <C> <C>
Net revenues $ - $19,624 $19,624
------------- ------------ --------------
Costs and expenses:
Cost of sales - 10,671 10,671
Selling, general and administrative 2,660 6,428 $2,300 (C) 11,388
Depreciation and amortization - 79 2,280 (A) 2,359
------------- ----------- --------------
2,660 17,178 24,418
------------- ----------- --------------
Operating earnings (loss) (2,660) 2,446 (4,794)
------------- ----------- --------------
Other income (expense):
Interest income (expense), net (3,392) 42 (1,187)(B) (4,537)
Other income (expense), net 345 (3) 342
------------- ----------- --------------
(3,047) 39 (4,195)
------------- ----------- --------------
Earnings (loss) from continuing operations
before income taxes (5,707) 2,485 (8,989)
Provision for income taxes - (39) (39)
------------- ----------- ---------------- --------------
Earnings (loss) from continuing operations (5,707) 2,446 ($5,767) (9,028)
============= =========== ================ ==============
Per share loss from continuing operations
applicable to common shares:
Basic and Diluted ($0.78) ($0.79)
============= ==============
Weighted average number of shares of
common stock outstanding:
Basic and Diluted 7,891 11,920
============= ==============
<FN>
Notes to the pro forma condensed combined statement of operations:
(A) Amortization of intangible assets acquired over a period of 20 years for
the excess of cost over the Nationwide net assets acquired.
(B) Interest on promissory notes issued to sellers.
(C) Compensation charge for stock options issued to Nationwide employees.
(D) Pro forma weighted average shares outstanding reflect the effect of the
following transactions:
Shares issued as consideration for Entrade transaction 2,000
Finders fee for the Entrade transaction 100
Shares issued as consideration for Nationwide acqusition 1,570
Finders fee for the Nationwide transaction 80
Entrade common shares to pay Nationwide promissory notes 279
--------
4,029
========
</FN>
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion supplements the information found in Entrade's
historical financial statements and related notes.
On February 23, 1999, Artra entered into a merger agreement with
WorldWide and Entrade, at that time a 90% owned subsidiary of WorldWide. As a
result of the merger agreement, Artra became a wholly owned subsidiary of
Entrade, and the shareholders of Artra became shareholders of Entrade.
In February 1999, Entrade acquired software and other assets necessary
for the conduct of entrade.com's e-commerce business and 25% of the then
outstanding shares of voting common stock of asseTrade.com from WorldWide, in
exchange for 1,800,000 shares of Entrade common stock, $800,000 in cash and a
note for $500,000, which Entrade paid upon the closing of the merger. Entrade
issued to Energy Trading Company 200,000 shares of Entrade common stock and paid
Energy Trading Company $100,000 in cash upon closing of the merger, in exchange
for retained rights Energy Trading Company held in the assets acquired by
Entrade. Artra also agreed with both WorldWide and Energy Trading Company that
it would provide a minimum of $4,000,000 in funding for entrade.com. Therefore,
the total consideration for the assets acquired by Entrade was 2,000,000 shares
of Entrade common stock and an aggregate of $5,400,000 in cash and committed
funding.
Results of Operations
During the third quarter of 1999, we completed the merger agreement
with Artra and continued the Internet business-to-business electronic commerce
business conducted by entrade.com. As a result of the merger agreement, Artra
became a wholly owned subsidiary of Entrade. We continued to hold an equity
interest in asseTrade.com, which is developing and implementing comprehensive
asset/inventory recovery, disposal, and remarketing and management solutions for
corporate clients through advanced Internet electronic business applications,
including on-line auctions.
Artra significantly changed its business focus during the fourth
quarter of fiscal year 1998, when it exited its single industry segment, the
packaging products business, conducted by the discontinued Bagcraft subsidiary.
In October 1999, we acquired all of the outstanding capital stock of
Nationwide, 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.
Our consolidated financial statements have been reclassified to report
separately the results of operations of the Bagcraft subsidiary in discontinued
operations.
28
<PAGE>
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $6,570,000 for the nine months ended September 30, 1999 as compared to
$1,691,000 for the nine months ended September 30, 1998. We incurred a
compensation charge of approximately $2,100,000 during the nine months ended
September 30, 1999 relating to stock options granted in February 1999 to certain
individuals employed to manage our entry into the Internet business-to-business
e-commerce and on-line auction business. We also incurred a compensation charge
of $575,000 during the nine months ended September 30, 1999 relating to stock
options granted under terms of an employment agreement with our recently
appointed president and chief executive officer. Professional fees increased
approximately $500,000 during the nine months ended September 30, 1999 as
compared to the prior year period due to expanded corporate development
activities.
Selling, general and administrative expenses from continuing operations
included $1,305,000 of expenses incurred by Entrade during the nine months ended
September 30, 1999. The Entrade expenses include business development costs of
$280,000, payroll and related costs of $927,000 and net administrative costs of
$98,000.
During the nine months ended September 30, 1999, we had net interest
income of $316,000 as compared to net interest expense of $2,794,000 during the
nine months ended September 30, 1998. We used cash proceeds received from the
November 1998 sale of the assets of the discontinued Bagcraft subsidiary to pay
off approximately $15,200,000 of borrowings on various loan agreements.
We were unable to recognize an income tax benefit in connection with
the Company's 1999 and 1998 pre-tax losses due to the Company's tax loss
carryforwards and the uncertainty of future taxable income.
Discontinued Operations
During the nine months ended September 30, 1998, we had earnings of
$1,968,000 at the discontinued Bagcraft subsidiary. No income or loss relating
to discontinued operations was incurred during 1999.
Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $2,660,000 for the year ended December 31, 1998 as compared to $5,708,000
for the year ended December 31, 1997. The 1998 decrease in selling, general and
administrative expenses was attributable to the 1997 net related party
compensation/expense reimbursement costs of $2,816,000. See the discussion of
Peter R. Harvey advances below.
29
<PAGE>
Net interest expense from continuing operations for the year ended
December 31, 1998 decreased $2,786,000 as compared to the year ended December
31, 1997. The 1998 decrease is attributable to the fees and costs associated
with Artra's 1997 private placement of $12,850,000 of Artra promissory notes.
During 1998, some of the officers, directors and/or key employees of
Artra exercised options to acquire 84,750 shares of Comforce common stock from
Artra, resulting in a realized gain of $320,000. These Comforce common shares
had been removed from Artra's portfolio of "Available-for-sale securities" in
1996. None of these persons exercised options to purchase shares of Comforce
common stock from Artra during 1997. See discussion under "Investment in
Comforce Corporation" below for additional information about this transaction.
During the year ended December 31, 1997, Artra sold or otherwise
disposed of 302,203 shares of Comforce common stock resulting in a realized gain
of $2,531,000. Artra did not sell or otherwise dispose of any shares of Comforce
common stock during 1998.
Effective December 31, 1997, Artra settled litigation relating to the
acquisition of Envirodyne Industries, Inc. in 1989 by Emerald Acquisition Corp.
Artra recognized a gain from the settlement agreement of $10,416,000, net of
related legal fees and other expenses.
Discontinued Operations
Earnings from discontinued operations of $38,930,000 for the year ended
December 31, 1998 consisted of earnings from operations of $2,945,000 at the
discontinued Bagcraft subsidiary and a net gain on disposal of Bagcraft of
$35,985,000. The loss from discontinued operations of $293,000 for the year
ended December 31, 1997 consisted of an operating loss at the discontinued
Bagcraft subsidiary. Earnings from operations in 1998 are attributable to a
significant reduction in interest expense due to the February 1998 amendment and
restatement of Bagcraft's Credit Agreement and the November 1998 repayment of
Bagcraft debt from the sale of the Bagcraft assets, as well as decreased
depreciation and amortization expense.
Year Ended December 31, 1997 vs. Year Ended December 26, 1996
Continuing Operations
Selling, general and administrative expenses from continuing operations
were $5,708,000 for the year ended December 31, 1997 as compared to $2,042,000
for the year ended December 26, 1996. The 1997 increase in selling, general and
administrative expenses was attributable to net related party
compensation/expense reimbursement costs of $2,816,000. See discussion of Peter
R. Harvey advances below.
Net interest expense from continuing operations for the year ended
December 31, 1997 increased $1,977,000 as compared to the year ended December
26, 1996. The 1997 increase is attributable to fees and costs associated with
the private placements of $12,850,000 of Artra promissory notes.
30
<PAGE>
During the year ended December 31, 1997, Artra sold or otherwise
disposed of 302,203 shares of Comforce common stock resulting in a realized gain
of $2,531,000. During the year ended December 26, 1996, Artra sold or otherwise
disposed of 331,333 shares of Comforce common stock resulting in a realized gain
of $5,818,000.
Effective December 31, 1997, Artra settled litigation relating to the
acquisition of Envirodyne Industries, Inc. in 1989 by Emerald Acquisition Corp.
Artra recognized a gain from the settlement agreement of $10,416,000, net of
related legal fees and other expenses.
Discontinued Operations
The loss from discontinued operations of $293,000 for the year ended
December 31, 1997 consisted of a loss from operations at the discontinued
Bagcraft subsidiary. Earnings from discontinued operations of $3,994,000 for the
year ended December 26, 1996 consisted of earnings from operations at the
discontinued Bagcraft subsidiary. The 1997 loss from discontinued operations was
attributable to decreased operating margins at the discontinued Bagcraft
subsidiary and additional interest charges and fees attributable to the December
1996 amendment and restatement of Bagcraft's Credit Agreement.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Our cash and cash equivalents decreased $734,000 during the nine months
ended September 30, 1999. Cash flows used by operating activities of $4,824,000
and cash flows used by investing activities of $3,422,000 exceeded cash flows
from financing activities of $7,532,000. Operating activities used cash flows to
fund the Company's net loss for the nine months ended September 30, 1999 and to
pay liabilities of the discontinued Bagcraft subsidiary. Investing activities
used cash flows for our acquisition of Entrade's assets. Financing activities
provided cash flows from the exercise of stock options and warrants.
Our consolidated working capital decreased by $2,267,000 to $4,546,000
at September 30, 1999, as compared to consolidated working capital of $6,813,000
at December 31, 1998. We used working capital to fund operating expenses, pay
liabilities of the discontinued Bagcraft subsidiary and for our acquisition of
Entrade's assets. This use of working capital was partially offset by proceeds
from the exercise of stock options and warrants.
Artra's unrestricted cash and cash equivalents increased $5,762,000 to
$11,753,000 at December 31, 1998. Artra had consolidated working capital of
$6,813,000 at December 31, 1998 as compared to a consolidated working capital
deficiency of $435,000 at December 31, 1997. In November 1998, Artra received
cash proceeds of approximately $28,000,000 from the sale of the assets of the
discontinued Bagcraft subsidiary and used approximately $15,200,000 of these
proceeds to pay off borrowings due on its various loan agreements.
31
<PAGE>
Status of Debt Agreements
Artra
At December 31, 1997, Artra had outstanding short-term indebtedness of
$15,451,000. In November and December 1998, Artra repaid all of its then
existing short-term indebtedness with net proceeds from the sale of the assets
of the discontinued Bagcraft subsidiary.
Promissory Notes
1998 Private Placement
In January 1998, Artra completed a private placement of $5,975,000 of
12% promissory notes due January 14, 1999. As additional consideration, the
noteholders received warrants to purchase an aggregate of 119,500 shares of
Artra common stock at a price of $3.00 per share. The warrants expire thirty
days after the date when the Company registers for resale the shares issuable
upon exercise of the warrants. As of December 31, 1999, warrants to purchase
9,500 shares of the Company's common stock had been exercised and warrants to
purchase 110,000 shares of the Company's common stock remain outstanding. The
proceeds from the private placement were used principally to pay down other debt
obligations. These notes were repaid in November 1998 with net proceeds from the
sale of assets of the discontinued Bagcraft subsidiary.
1997 Private Placements
In December 1997, Artra completed private placements of $5,375,000 of
12% promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 shares of
common stock at a price of $3.00 per share. The warrants expire on April 30,
2000. As of December 31, 1999, warrants to purchase 20,500 shares of common
stock had been exercised and warrants to purchase 87,000 shares of common stock
remained outstanding. These notes were repaid in November 1998 with net proceeds
from the sale of assets of the discontinued Bagcraft subsidiary.
In July 1997, Artra completed private placements of $7,475,000 of 12%
promissory notes due in January 1998. As additional consideration, the
noteholders received warrants to purchase an aggregate of 199,311 shares of
common stock at a price of $3.75 per share. The warrants expired in August 1999.
Warrantholders exercised warrants to acquire 92,644 shares prior to expiration.
Warrants to acquire 106,667 shares of common stock were put back to Artra in
1998 at a price of $3.00 per share. The proceeds from the July 1997 private
placement were advanced to Peter R. Harvey. See discussion and disposition of
Mr. Harvey's advances in Note 16 to the consolidated financial statements.
The July 1997 private placement notes were repaid and/or refinanced
with proceeds of the January 1998 private placement of 12% notes and with
proceeds from the litigation settlement discussed in Note 11 to the consolidated
financial statements.
32
<PAGE>
Amounts Due to Related Parties
At December 26, 1996, Artra had outstanding borrowings of $500,000 from
Howard Conant, an outside director of Artra, evidenced by a short-term note
bearing interest at 10%. As additional compensation for the loan and a December
1996 extension, the director received five-year warrants to purchase an
aggregate of 50,000 shares of Artra common stock at prices ranging from $5.00 to
$5.875 per share. The proceeds of the loan were used for working capital.
In January 1997, Artra borrowed an additional $300,000 from Mr. Conant
evidenced by a short-term note, due December 23, 1997, bearing interest at 8%.
As additional compensation for the loan, the director received a warrant,
expiring in 2002, to purchase 25,000 shares of Artra common stock at a price of
$5.75 per share. Artra used the proceeds of this loan for working capital.
In March 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. As
additional compensation, Mr. Conant received an option to purchase 25,000 shares
of Comforce common stock, owned by Artra's Fill-Mor subsidiary, at a price of
$4.00 per share. The proceeds from this loan were used in part to pay down Artra
debt obligations.
In April 1997, Artra borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998, bearing interest at 10%. As additional compensation,
Mr. Conant received a warrant to purchase 333,333 shares of Artra common stock
at a price of $5.00 per share. Mr. Conant had the right to put this warrant back
to Artra at any time during the period April 21, 1998 to April 20, 2000, for a
total purchase price of $1,000,000, which put right was exercised in 1998 for
$1,000,000. The cost of this obligation was amortized in Artra's financial
statements as a charge to interest expense over the period April 21, 1997, the
date of the loan, through April 21, 1998, the date the warrantholder first had
the right to put the warrant back to Artra. The proceeds from this loan were
used to repay $1,800,000 of prior borrowings from Mr. Conant and pay down other
Artra debt obligations.
In June 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the director received a warrant to purchase 40,000
shares of Artra common stock at a price of $5.00 per share. The warrantholder
had the right to put this warrant back to Artra at any time during the period
December 10, 1997 to June 10, 1999, for a total purchase price of $80,000, which
put right was exercised in 1998 for $80,000. The cost of this obligation was
amortized in Artra's financial statements as a charge to interest expense over
the period June 10, 1997, the date of the loan, through December 10, 1997, the
date the warrantholder first had the right to put the warrant back to Artra. The
proceeds from this loan were used to pay down Artra debt obligations.
In July 1997, borrowings from Mr. Conant were reduced to $3,000,000
with proceeds advanced to Artra from a Bagcraft term loan. In December 1997,
borrowings from Mr. Conant were reduced to $2,000,000 with proceeds from other
short-term borrowings.
33
<PAGE>
In April 1998, the $2,000,000 in outstanding borrowings from Mr. Conant
was extended by a demand note bearing interest at 10%. As additional
compensation, Mr. Conant received a warrant to purchase 50,000 shares of Artra
common stock at a price of $3.25 per share.
In August 1998, Artra borrowed an additional $500,000 from Mr. Conant
evidenced by a note, due December 20, 1998, bearing interest at 15%. As
additional compensation, the director received a warrant to purchase 20,000
shares of Artra common stock at a price of $3.94 per share. Artra used the
proceeds from the loan for working capital.
All borrowings from Mr. Conant were repaid with proceeds from the sale
of assets of the discontinued Bagcraft subsidiary.
The borrowings from Mr. Conant were collateralized by a secondary
interest in all of the common stock of BCA Holdings, Inc., the parent of
Bagcraft and a subsidiary of Artra.
Other
At December 31, 1997, Artra also had outstanding short-term borrowings
from other unrelated parties aggregating $601,000, with interest rates varying
between 10% and 12%.
In April 1998, Artra and its Fill-Mor subsidiary entered into a margin
loan agreement with a financial institution which provided for borrowings of
$1,000,000 with interest at 8.5%, which loan was repaid in November 1998 from
the proceeds of the Bagcraft asset sale. Borrowings under the loan agreement
were collateralized by 490,000 shares of Comforce common stock owned by Artra's
Fill-Mor subsidiary. The proceeds of the loan were used for working capital.
In October 1997, a lender agreed to accept 357,270 shares of Artra
common stock in payment of the principal amount of approximately $1,500,000 due
on demand notes held by the lender. In January 1998, the lender returned the
357,270 shares of Artra common stock to Artra for cash consideration of
approximately $1,500,000.
Advances to Peter R. Harvey
As discussed in Note 16 to the consolidated financial statements, Artra
had total advances due from its then president, Peter R. Harvey, of $18,226,000
outstanding at December 31, 1997, before the offset of those advances as
discussed below. The advances provided for interest at varying rate from 10.5%
to 12%. This receivable from Peter R. Harvey had been classified as a reduction
of common shareholders' equity. Peter R. Harvey had received only nominal
compensation for his services as an officer or director of Artra or any of its
subsidiaries for the period October 1990 through December 1997. Additionally,
Mr. Harvey had agreed not to accept any compensation for his services as an
officer or director of Artra or any of its subsidiaries until his obligations to
Artra, described above, were fully satisfied.
34
<PAGE>
Commencing January 1, 1993 to January 31, 1998, interest on the
advances to Peter R. Harvey had been accrued and fully reserved. Mr. Harvey also
had provided Artra with collateral in support of his advances.
The reasons for these advances were as follows:
o Since December 31, 1986, Peter R. Harvey had guaranteed in
excess of $100,000,000 of Artra obligations to private and
institutional lenders;
o Mr. Harvey also incurred significant expenses on behalf of
Artra in defending Artra against litigation; and
o Mr. Harvey had lent significant sums to Artra to retire
outstanding obligations of Artra and for working capital
purposes.
In March 1998, Artra's board of directors ratified a proposal to settle
Mr. Harvey's advances as follows:
Effective December 31, 1997, Mr. Harvey's net advances from Artra were
reduced from $18,226,000 to $12,621,000. This reduction consisted of $2,789,000
of interest accrued and reserved for the period from 1993 to 1997 and an offset
of advances of $2,816,000. This offset of Mr. Harvey's advances represented a
combination of compensation for prior year guarantees of Artra obligations to
private and institutional lenders, compensation in excess of the nominal amounts
Mr. Harvey received for the years 1995 to 1997 and reimbursement for expenses
incurred to defend Artra against litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of shares of Artra preferred
stock and BCA Holdings, Inc. preferred stock held by Mr. Harvey, as set forth in
the following table:
<TABLE>
<CAPTION>
Face Value
Plus
Security Accrued Dividends Per Share
-------- ----------- ---------
<S> <C> <C>
Artra Series A preferred stock, 1,734.28 shares $ 2,751,000 $ 1,586.25
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000 1,252.22
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000 1,264.10
-----------
Total $12,787,000
===========
</TABLE>
35
<PAGE>
Redeemable Preferred Stock
In the merger, each outstanding share of Artra Series A preferred stock
became 329 shares of Entrade common stock. Redeemable preferred stock issues of
the BCA Holdings, Inc. and Bagcraft subsidiaries are included in liabilities of
discontinued operations at September 30, 1999.
During the fourth quarter of 1999, Entrade exchanged an aggregate of
727,145 shares of common stock for all of the outstanding shares of BCA Holdings
Series A and Series B preferred stock.
Bagcraft
At December 31, 1997, the discontinued Bagcraft subsidiary had
outstanding borrowings under its credit agreement totaling $40,388,000. This
credit agreement, amended and restated February 27, 1998, provided for a
revolving loan agreement and three term loans. Amounts due under this credit
agreement were repaid with proceeds from the sale of assets of the discontinued
Bagcraft subsidiary.
In March 1994, Bagcraft and the City of Baxter Springs, Kansas,
completed a $12,500,000 financing package associated with the construction of a
new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The financing
package, funded by a combination of federal, state and local funds, consisted of
loan agreements payable by Bagcraft directly to the City of Baxter Springs. At
December 31, 1997, the outstanding borrowings under these loans totaled
$9,968,000. Obligations due under these loans were assumed by the buyer of the
assets of the discontinued Bagcraft subsidiary.
Investment in Comforce Corporation
Artra, along with its wholly owned Fill-Mor subsidiary, owns a
significant minority interest in Comforce, consisting of 1,525,500 shares, or
approximately 9%, of the outstanding common stock of Comforce as of December 31,
1998 and December 31, 1999 with an aggregate value of $8,200,000 as of December
31, 1998 and of $4,386,000 as of December 31, 1999. 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 value of those shares.
In January 1996, Artra's board of directors approved the sale of
200,000 of Artra's Comforce common shares to some of the officers, directors and
key employees of Artra for non-interest bearing notes totaling $400,000. The
notes are collateralized by the related Comforce common shares. Additionally,
the noteholders have the right to put their Comforce shares back to Artra in
full payment of the balance of their notes.
Artra has concluded that, for reporting purposes, it has 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 Artra's condensed
consolidated balance sheet as other receivables with an aggregate value of
$400,000, based upon the value of proceeds to be received upon future exercise
of the options.
36
<PAGE>
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 gain of $66,000.
At December 31, 1999 and December 31, 1998, options to acquire 37,250
and 57,250 Comforce common shares, respectively, remained unexercised and were
classified in Artra's consolidated balance sheet as other receivables with
aggregate values of $73,000 and $103,000, respectively, based upon the value of
proceeds to be received upon future exercise of the options.
During 1997, Artra sold 219,203 shares of Comforce common stock in the
market, with the net proceeds of approximately $1,700,000 used for working
capital. During 1997, a lender received 25,000 Comforce common shares held by
Artra as additional consideration for a short-term loan. The disposition of
these 244,703 shares Comforce common stock resulted in realized gains of
$2,306,000 during the year ended December 31, 1997, with cost determined by
average cost.
During 1996, Artra sold 193,000 shares of Comforce common stock in the
market, with the net proceeds of approximately $3,700,000 used for working
capital. During 1996 several lenders received an aggregate of 105,000 shares of
Comforce common stock held by Artra as additional consideration for short-term
loans. In October 1996, a lender exercised the conversion rights of a short-term
loan and received 33,333 shares of Comforce common stock in settlement of
Artra's obligation. The disposition of these 331,333 shares of Comforce common
stock resulted in realized gains of $5,818,000 during the year ended December
26, 1996, with cost determined by average cost.
Net Operating Loss Carryforwards
At December 31, 1998, Artra and its subsidiaries had federal income tax
loss carryforwards of approximately $2,400,000 expiring principally in the years
2010 to 2012, available to be applied against future taxable income, if any. In
recent years, Artra issued shares of Artra common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code limits a corporation's utilization of its federal
income tax loss carryforwards when changes in the ownership of a corporation's
common stock described in the Code occurs. Although these limitations are
applicable to Entrade, in the opinion of management, Entrade should be able to
utilize existing federal income tax loss carryforwards.
37
<PAGE>
Plan of Operations
During 1999, Entrade entered the business-to-business e-commerce
business through its acquisition of entrade.com and other equity interests. We
also entered the land-based auction business through the October 1999
acquisition of Nationwide.
Entrade intends to expand these businesses in 2000 through internal
growth and the acquisition of related businesses. Our ability to achieve these
plans in 2000 is dependent on our ability to raise capital through equity and/or
debt financings.
During December 1999 and January 2000, the Company raised approximately
$13,400,000 and the Company is attempting to raise additional funds. If we are
not successful in raising additional funds, we may not be able to expand our
business.
Nationwide Auction Systems
Results of Operations
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
Gross auction proceeds for the nine months ended September 30, 1999
increased $16,982,000 to $70,832,000 as compared to $53,850,000 for the nine
months ended September 30, 1998. In 1999, Nationwide conducted additional
off-site auctions and opened new permanent facilities in Georgia and Delaware.
Gross auction proceeds represent the bid price of the merchandise sold at
Nationwide's auctions. Nationwide's revenues and fees earned are based upon
gross auction proceeds.
Net revenues for the nine months ended September 30, 1999 decreased
$1,668,000 to $12,181,000 as compared to $13,849,000 for the nine months ended
September 30, 1998. Nationwide's net revenues in 1998 included approximately
$3,600,000 from non-recurring sales of imported equipment. In 1999, Nationwide's
net auction revenues increased due to the addition of new facilities and
additional auctions.
Cost of goods sold for the nine months ended September 30, 1999
decreased $2,835,000 to $5,388,000 as compared to $8,223,000 for the nine months
ended September 30, 1998. As a percentage of net revenues, cost of goods sold
was 44.2% of net revenues in 1999 as compared to 59.4% of net revenues in 1998.
In 1998, Nationwide earned net revenues of approximately $3,600,000 from
non-recurring sales of imported equipment. The cost to purchase and transport
this equipment was approximately $3,500,000. In 1999, Nationwide's direct
auction costs increased due to additional auctions and the resulting increase in
gross auction proceeds.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 increased $1,275,000 to $5,030,000. Nationwide incurred
additional costs in 1999 to open new permanent facilities in Georgia and
Delaware. Nationwide also incurred professional fees in connection with the
October purchase of Nationwide by Entrade.
During the nine months ended September 30, 1999, Nationwide had net
interest expense of $184,000 as compared to net interest income of $71,000
during the nine months ended September 30, 1998. In December 1998, Nationwide
borrowed approximately $2,735,000 to purchase our Northern California auction
facility.
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Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Gross auction proceeds for the year ended December 31, 1998 increased
$8,546,000 to $75,110,000 as compared to $66,564,000 for the year ended December
31, 1997. In 1998, Nationwide conducted several additional auctions at its
Missouri facility opened in August 1997 and also conducted several additional
auctions of construction equipment at our Northern California facility.
Net revenues for the year ended December 31, 1998 increased $8,020,000
to $19,624,000 as compared to $11,604,000 for the year ended December 31, 1997.
Nationwide's net revenues in 1998 included approximately $5,700,000 from
non-recurring sales of imported equipment. In 1998, Nationwide's net auction
revenues increased due to an increase in gross auction proceeds as discussed
above.
Cost of goods sold for the year ended December 31, 1998 increased
$6,447,000 to $10,671,000 as compared to $4,224,000 for the year ended December
31, 1997. As a percentage of net revenues, cost of goods sold was 54.4% of net
revenues in 1998 as compared to 36.4% of net revenues in 1997. In 1998,
Nationwide earned net revenues of approximately $5,700,000 from non-recurring
sales of imported equipment. The cost to purchase and transport this equipment
was approximately $5,300,000. In 1998, Nationwide's direct auction costs
increased due to additional auctions and the resulting increase in gross auction
proceeds.
Operating expenses for the year ended December 31, 1998 increased
$1,407,000 to $6,507,000. Nationwide's increased auction activities in 1998
resulted in an increase in operating expenses. Additionally, Nationwide incurred
additional costs in 1998 to operate its Missouri facility opened in August 1997.
During the year ended December 31, 1998, Nationwide had net interest
income of $42,000 as compared to net interest income of $131,000 during the year
ended December 31, 1997. In 1998, Nationwide incurred interest costs to finance
a non-recurring sale of imported equipment.
During 1997, Nationwide sold its investment in a nonperforming note
receivable, resulting in a loss of $399,000 included in other expenses, net.
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Gross auction proceeds for the year ended December 31, 1997 increased
$10,136,000 to $66,564,000 as compared to $56,428,000 for the year ended
December 31, 1996. In 1997, Nationwide conducted auctions at its Missouri
facility opened in August 1997 and also conducted additional auctions at its
Northern California facility.
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Net revenues for the year ended December 31, 1997 increased $1,587,000
to $11,604,000 as compared to $10,017,000 for the year ended December 31, 1996.
In 1997 Nationwide's net auction revenues increased due to an increase in gross
auction proceeds as discussed above.
Cost of goods sold for the year ended December 31, 1997 increased
$663,000 to $4,224,000 as compared to $3,561,000 for the year ended December 31,
1996. As a percentage of net revenues, cost of goods sold was 36.4% of net
revenues in 1997 as compared to 35.5% of net revenues in 1996. Nationwide's 1997
direct auction costs increased due to additional auctions and the resulting
increase in gross auction proceeds. Nationwide's 1997 increase in cost of goods
sold as a percentage of net revenues is due to the August 1997 opening of its
Missouri facility.
Operating expenses for the year ended December 31, 1997 increased
$284,000 to $5,100,000. Nationwide's increased 1997 operating costs are due
mainly to costs of opening its Missouri facility in August 1997.
During the year ended December 31, 1997, Nationwide had net interest
income of $131,000 as compared to net interest income of $81,000 during the year
ended December 31, 1996. In 1997, Nationwide earned additional interest income
due to higher average cash balances as compared to 1996. In 1996, Nationwide
repaid a secured loan when it sold the related asset.
Other expenses, net, for the year ended December 31, 1997 decreased
$510,000 to $384,000. During 1997, Nationwide sold its investment in a
nonperforming note receivable resulting in a loss of $399,000 included in other
expenses, net. During 1996, Nationwide wrote off several nonperforming
investments resulting in losses of $920,000.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Nationwide's cash balances decreased $175,000 to $811,000 during the
nine months ended September 30, 1999. Cash flows used in financing activities of
$2,072,000 and cash flows used in investing activities of $1,473,000 exceeded
cash flows provided by operating activities of $3,370,000. Financing activities
used cash flows for distributions to Nationwide's stockholder, less additional
net borrowings on its loan agreements. Investing activities used cash flows to
purchase Nationwide's Georgia facility. Nationwide's cash flows from operating
activities were produced by its net earnings for the nine months ended September
30, 1999 and from an increase in trade payables.
Nationwide's consolidated working capital deficiency increased by
$1,807,000 to a working capital deficiency of $2,885,000 at September 30, 1999.
Nationwide used working capital in excess of operating earnings to fund
distributions to its stockholder.
Nationwide's cash balances decreased $787,000 to $986,000 during the
year ended December 31, 1998. Cash flows used in investing activities of
$4,675,000 exceeded cash flows provided by operating activities of $2,519,000
and cash flows provided by financing activities of $1,369,000. Investing
activities used cash flows to purchase Nationwide's facility in Northern
California. Nationwide's cash flows from operating activities were produced by
its net earnings for the year ended December 31, 1998. Financing activities
provided cash flows from net borrowings less distributions to Nationwide's
stockholder.
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Nationwide's consolidated working capital decreased by $1,802,000 to a
working capital deficiency of $1,078,000 at December 31 1998, as compared to
working capital of $724,000 at December 31, 1997. Nationwide used working
capital to finance the purchase of its facility in Northern California.
Nationwide has historically used earnings from operations and funds
from various lenders to fund its operations and expand its business.
In June 1999, Nationwide borrowed $425,000 in order to finance certain
real estate purchased for cash in March 1999. Nationwide uses this real estate
as an auction facility in Georgia.
Nationwide borrowed approximately $2,735,000 in order to purchase real
estate in 1998. Nationwide moved its auction facilities to the newly purchased
real estate and vacated its leased auction facilities in Northern California.
Recently Issued Accounting Pronouncements
Effective January 1, 1998, Artra adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income to present a measure of
all changes in equity that result from renegotiated transactions and other
economic events of the period other than transactions with owners in their
capacity as owners. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources and includes net income. Required changes
are reported in the consolidated statement of operations.
During 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 specifies revised guidelines for determining an entity's operating
segments and the type and level of financial information to be disclosed. This
standard requires that management identify operating segments based on the way
that management desegregates the entity for making internal operating decisions.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and other Postretirement Benefits." SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits.
As a result of the November 1998 sale of the assets of the discontinued
Bagcraft subsidiary, Artra exited its only industry segment, a manufacturer of
packaging products principally serving the food industry. Accordingly, the
guidelines of SFAS No. 131 are not applicable to Artra's financial statements as
of December 31, 1998. Entrade typically does not offer the types of benefit
programs that fall under the guidelines of Statement of Financial Accounting
Standards No. 132.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 2000. Managemet has not determined what impact this
standard, when adopted, will have on our financial statements.
BUSINESS
General
Entrade, incorporated in Pennsylvania in February 1999, serves as a
holding company for its equity interests in entrade.com, Nationwide,
utiliparts.com, printeralliance.com, asseTrade.com, and certain other ventures.
Entrade is a business-to-business company specializing in the creation of
e-commerce marketplaces.
Through its wholly owned entrade.com technology subsidiary, Entrade
provides technology to enable web-based e-commerce transactions. The technology
enables a variety of transaction methods including straight list price, open
bid, bulk, and auction, as well as e-procurement, inventory management, and
asset management and recovery. The Entrade technology can be applied and
customized across a broad spectrum of industries.
Entrade has two models for growth: the MarketMaker model and the
Alliance model. In the MarketMaker model, Entrade creates and builds
business-to-business e-commerce markets in select industries through joint
ventures with established companies within those industries. In these joint
ventures, Entrade receives an equity position in exchange for its contributions
of technology, capital, and management resources. Under this model, Entrade
generates revenue from licensing fees and transaction fees.
In the Alliance model, Entrade creates businesses in fragmented
industries to negotiate rebates and volume discounts from key industry suppliers
for small to mid-size companies. The Alliance model also utilizes the Internet
to deliver enhanced web-based services for alliance participants. The Alliance
model is designed to add content and community in the form of electronic
industry-specific malls for vendors and alliance participants. As with the
MarketMaker model, Entrade receives an equity position in exchange for its
contributions. Entrade also collects a percentage of the volume rebates and
takes a transaction fee on transactions conducted utilizing its e-commerce
technology.
Finally, Entrade also licenses its technology both for the creation of
joint ventures to roll-out its MarketMaker model internationally, and for direct
use by individual companies.
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Entrade currently has three MarketMaker companies, one in the utility
industry, utiliparts.com, one in the heavy equipment industry, asseTrade.com,
and one in the oceanic logistics industry, Pricecontainer.com. Entrade has one
Alliance company, printeralliance.com, which is in the printing industry.
Entrade also recently purchased Nationwide, a land-based auction business to
complement its on-line asset disposition services. Nationwide Auction Systems
specializes in the disposition of vehicles, construction equipment, real
property, jewelry, and other assets. Primary consignors include municipalities,
law enforcement agencies, corporations and utility companies. Entrade intends to
develop an Internet strategy for its Nationwide business.
Recent Developments
In February 1999, Entrade acquired entrade.com and a 25% interest in
asseTrade.com from WorldWide in exchange for 1,800,000 shares of Entrade,
$1,400,000 in cash, and a $4,000,000 working capital commitment.
On September 23, 1999, a wholly owned subsidiary of Entrade merged into
Artra. 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. Upon consummation of the merger, former Artra
shareholders became the holders of approximately 83% of the outstanding shares
of Entrade's common stock. At the time of the merger, Artra held cash and
approximately 9% of the outstanding common stock of Comforce Corporation, a
telecommunications and computer technical staffing and consulting services
business.
In September 1999, asseTrade.com entered into an agreement to sell to
Internet Capital Group, Inc., 12,669,520 shares of its Series A preferred stock
for $11,500,000. Upon completion of the transaction, and assuming the conversion
of the asseTrade.com Series A preferred stock into Class A common stock of
asseTrade.com and the issuance of stock options for 7,500,000 shares of Class A
common stock that asseTrade.com is authorized to issue, Internet Capital Group
would hold a 25.25% interest in the Class A common stock of asseTrade.com. In
September 1999, Internet Capital Group funded $5,750,000 of its $11,500,000
equity investment in asseTrade.com.
In October 1999, Entrade acquired a majority interest in
printeralliance.com, Inc. printeralliance.com provides small to mid_size
independent commercial printers with the ability to obtain resources at cost
efficiencies enjoyed by larger public printing companies. Through
www.printeralliance.com, member companies are directed to participating paper
mills and other vendors of materials and services who have entered into
agreements with printeralliance.com. Through this arrangement, members can
purchase products from those vendors and qualify for a rebate on those
purchases. printeralliance.com plans to expand the scope of services that it
offers members to include equipment purchases, consulting services, employee
benefits and other products.
In October 1999, entrade.com licensed its technology to
Pricecontainer.com in return for a 15% ownership interest. Pricecontainer.com is
an on-line reservation system for excess oceanic container shipping capacities.
Pricecontainer.com is developing business with an established foreign global
trading company.
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Each of these businesses runs on technology platforms that are powered
by entrade.com.
In October 1999, Entrade acquired its Nationwide subsidiaries, which
engage in the public auction business under the name Nationwide Auction Systems,
for an aggregate of 1,570,000 shares of Entrade common stock, unsecured
promissory notes in the aggregate principal amount of $18,800,000, and an
aggregate of $6,000,000 in cash. In January 2000, notes with a principal balance
of approximately $4,800,000 plus accrued interest were converted into 278,985
shares of Entrade common stock. Nationwide, which has operated for over 20
years, 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. Nationwide conducts the auctions at its
facilities or at off-site locations. Nationwide has six auction facilities
located in California, Missouri, Delaware, New Mexico and Georgia.
In December 1999, a wholly owned subsidiary of Entrade agreed to merge
into Positive Asset Remarketing, Inc., with the surviving corporation becoming a
wholly owned subsidiary of Entrade. Upon consummation of the merger, the
aggregate outstanding shares of common stock of Positive Asset Remarketing will
be converted into 900,000 shares of Entrade common stock, subject to increase
pursuant to the terms of the merger, and Entrade will acquire Positive Asset
Remarketing's 17.47% interest in the Class A common stock of asseTrade.com.
After the merger, and assuming the full dilution of Entrade's interest, Entrade
will hold a 29.3% interest in the Class A common stock of asseTrade.com. The
merger was approved by Entrade's board of directors on January 3, 2000, and is
subject to various conditions, including Entrade shareholder approval.
Between December 21, 1999 and January 28, 2000, Entrade completed the
sale of an aggregate of 422,243 shares of its common stock, no par value, 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 pursuant to an exemption from registration under the Securities Act of
1933, as amended, pursuant to Regulation D promulgated thereunder.
In January 2000, Entrade entered into an agreement to acquire 15% of
the issued and outstanding shares of ATM Service, Ltd., for shares of Entrade
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 Entrade common stock for
the five days preceding the closing date. ATM Service, which is an Entrade
licensee, 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.
Overview
Entrade believes that companies that will have the greatest success in
business in the future are those companies that can best utilize information
technology to garner access to information about their identified marketplace.
Large industrial corporations are constantly seeking cost and operating
efficiencies to remain competitive. Traditional channels of communication for
those purposes have included mail, telephone and fax and, to a lesser extent,
more complex and costly methods, including Electronic Data Interchange (EDI),
which consists of a computer network for exchanging information among a defined
group of persons or companies.
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The development of Internet and e-commerce applications provides
additional cost and operating efficiencies for a company's asset and inventory
management, operations and marketing, sales and distribution functions. By
providing easy access to a global network, Entrade expects the Internet to
assist businesses in lowering the cost of creating new marketing channels and
buying and selling products and services. Also, small and medium sized
businesses can more readily participate in all levels of e-commerce.
entrade.com's Software and Services
entrade.com intends to license its proprietary e-commerce software to
industrial clients and MarketMaker companies. entrade.com's ORBIT System
technology enables the cataloging, transfer, trading, selling, auction, purchase
or tracking of products, inventories and corporate assets in a secure, 24-hour,
Internet environment. entrade.com's MARS System is an Internet based e-commerce
application that offers two distinct forms of Internet auction processes: a
business-to-business mode and a business-to-consumer mode. The MARS System can
function independently from the ORBIT System as an auction system or can be used
in conjunction with the ORBIT System.
More recently, entrade.com has completed the development of a new
e-commerce software system that operates independent of its prior technologies
and integrates a comprehensive suite of complementary features, which support
secure, full-cycle transactions in a real time environment. The entrade.com
transaction software also provides a specific feature for managing and
negotiating bids between corporate buyers and sellers for the purchase and sale
of products and services on the Internet, including inventory, machinery and
equipment and corporate services. entrade.com's transaction software
facilitates:
o Management within an industry's supply train for vendors,
distributors and manufacturers to automate purchasing
requisitions and order fulfillment;
o Custom Intranet applications for large companies to manage, track
and distribute inventories among their multiple locations;
o Request-for-proposal management for purchasing agents to
consolidate and negotiate purchasing contracts;
o Internet auctions for clients to list and sell inventory and
assets;
o Catalog listings for individual companies to advertise and sell
current product lines via the Internet;
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o Direct marketing tools to support licensees and/or strategic
partners in advertising products and services; and
o Advertising using banners on webpages for companies to promote
products and services on entrade.com's affiliated websites.
Entrade Technical Support Services
entrade.com also provides e-commerce consulting, software design
services, and customer support. Customer support services include:
o consultations and design of client-specific business software for
e-commerce;
o systems administration;
o hardware maintenance;
o platform and product branding;
o technical support;
o software customization;
o information management and statistical reporting; and
o advertising.
Initial Websites Utilizing entrade.com's Systems and Technologies
entrade.com has commenced the marketing and use of its systems and
technologies through two models: the MarketMaker model, which includes
asseTrade.com, utiliparts.com, and Pricecontainer.com; and the Alliance model,
which consists of printeralliance.com. Currently, utiliparts.com is functioning
as an operating division of entrade.com and is utilizing entrade.com's new
transaction software. entrade.com built the asseTrade.com website and licensed
the ORBIT and MARS Systems for use on the asseTrade.com website. entrade.com has
also licensed its new transaction software to printeralliance.com and
Pricecontainer.com.
asseTrade.com
Entrade owns a 14.65% interest, on a fully diluted basis, of
asseTrade.com and has entered into an agreement to purchase an additional 14.65%
interest, on a fully diluted basis. asseTrade.com is a joint venture initially
formed with Henry Butcher International (London) and Michael Fox International
(Baltimore), two leading corporate asset management, disposition and land_based
auction companies with more than 30 worldwide locations and over 150 years of
combined business experience. asseTrade.com has the right to utilize the ORBIT
System and the MARS System.
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asseTrade.com provides business-to-business online services that
facilitate the remarketing of industrial machinery, equipment and parts. These
services enhance the current operation of asset recovery teams and procurement
groups of industrial companies. The software is customized for real time on-line
sales and internal transfers of plant, equipment and inventory.
asseTrade.com is initially focused on the client base of Butcher and
Fox as well as other Fortune 500/Global 2000 companies that have similar
specific needs, including, for example:
o valuation of corporate/investment assets;
o electronic online registration and listing of
corporate/investment assets; and
o development of corporate Intranet programs for the global
redistribution of a company's assets on an internal basis.
utiliparts.com
utiliparts.com's purpose is to develop and utilize entrade.com's
e-commerce software to provide asset recovery and internal inventory management
services for the utility industry. In addition to services provided through its
website, utiliparts.com will provide related services in asset evaluation, asset
cataloging and the off-line sale or auction of surplus equipment.
utiliparts.com is an operating unit owned 80% by entrade.com and 20% by
asseTrade.com. utiliparts.com provides an e-commerce format for the cataloging,
listing, sale and purchase of electric generation, electric transmission and
general utility parts and equipment. Participating utilities and utility
equipment brokers can negotiate and transact sales and purchases directly on
this website.
As the pace of deregulation accelerates, utilities are seeking to
create effective asset recovery and asset inventory programs early in the
deregulation cycle to assure their competitive advantage.
The majority of utiliparts.com's available listings originate from
overstocked, never-used inventories held by utilities in the United States.
utiliparts.com will also make available refurbished, serviceable, repairable
parts and parts available from foreign utilities.
Revenue generation: Transaction fees constitute utiliparts.com's
principal compensation. utiliparts.com will also seek to identify and manage
organized buyer programs for international electric utilities seeking to
capitalize on the excess inventories that exist in North America.
utiliparts.com may sublicense to its clients entrade.com's software to
provide a secure central organized database for each client's inventories in an
Intranet environment. This allows a client's internal corporate procurement,
inventory management and asset recovery teams, regardless of location or time,
to track the value of assets in the purchase, sale or transfer of items
internally among its own global corporate divisions or operating facilities.
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Clients seeking to accelerate the sale of surplus inventories can
arrange for on-line auctions through utiliparts.com. Those clients can either
participate in general utiliparts.com auctions or conduct auctions under a
private arrangement. In a general auction, bidding would occur on equipment and
products of multiple sellers, and sales would be made as the bidding process
closes for the items. In an auction under private arrangement, the bidding and
sale process would involve one or a small number of sellers whose equipment and
assets would be the only items sold at that time. Off-line asset evaluation and
disposition services are also available through utiliparts.com and other Entrade
affiliates.
Other features that support entrade.com's software licensing business:
entrade.com's software can also analyze and create reports on pricing and the
movement of inventories listed on the system. Information on product
availability, purchasing and shipping activities can be collected, analyzed and
disseminated as research reports to interested parties. Corporate clients
utilizing these features can track internal transfer and procurement activities
among global divisions and disseminate the information to their own defined
internal groups. Operating groups, inventory and procurement groups, financial
support groups and other groups can be promptly incorporated into the
information flow of any ongoing internal transactions.
entrade.com conducts the utiliparts.com operations out of its office
space in the Philadelphia and Boston areas. Since May 1999, utiliparts.com has
affiliated with a group of retired utility experts operating through their
company, Utilicon, Inc. These consultants are retired from a major electric
utility and bring practical knowledge and many years of hands on utility
experience. This group will be responsible for contacting their longtime
associates and counterparts at North American utilities to sell listed parts and
equipment, arrange listings of new parts and equipment and arrange appointments
for sales managers and other involved senior management. This group will also be
responsible for the appraisal of equipment and parts inventories that are
included in utiliparts.com's online listings and handle the cataloguing of
inventories.
printeralliance.com
Entrade acquired a majority interest in printeralliance.com, Inc. in
October 1999. printeralliance.com provides small to mid-size independent
commercial printers with the ability to obtain resources and cost efficiencies
enjoyed by larger public printing companies. Member companies are directed to
participating paper mills and other vendors of materials and services who have
entered into agreements with printeralliance.com. Through this arrangement,
members can purchase products from those vendors and qualify for a rebate on
purchases. printeralliance.com plans to expand the scope of services that it
offers members to include equipment purchases, consulting services, employee
benefits and other products.
Pricecontainer.com
In October 1999, entrade.com licensed its technology to
Pricecontainer.com in return for a 15% ownership interest. Pricecontainer.com is
an on-line reservation system for excess oceanic container shipping capacities.
Pricecontainer.com is developing business with an established foreign global
trading company.
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Transaction Fees and License Fees
The fees charged by Entrade will vary depending upon the service that
it offers and performs. The following table provides a general description of
the fees, which Entrade constantly evaluates and which are subject to
negotiation and change:
General transaction fee: 5-15% of the gross transaction value.
Internal (Intranet) transfer fee: 5% of the value of the asset, as
negotiated between entrade.com and the
owner of assets.
Internet sales fee: 10% of the gross transaction value.
Auction fee: 15% of the gross transaction value; in
addition, entrade.com may charge a
10-15% premium to the buyer in the
auction.
License fees for software are subject to negotiation and could be as
high as several million dollars, depending on the application for which the
licensee licenses the software. Entrade has begun to implement an international
marketing program that uses Entrade's business model of licensing its technology
in exchange for an equity interest to establish joint ventures with strategic
partners in foreign countries. Entrade intends to license the technology to the
joint venture, with the foreign partners being responsible for all in_country
marketing and sales operations. Entrade expects each foreign partner to pay
millions of dollars per joint venture for the exclusive right to market the
Entrade technology in the partner's country and to share all transaction and
sublicensing fees earned.
Entrade also proposes to charge fees for other services it may provide
to a client, including consulting, web-site hosting, development services and
customization services, which may be based upon a percentage of the license and
per hourly rates.
Nationwide Auction Systems
Entrade's Nationwide subsidiaries operate six permanent full service
public auction facilities engaged in the liquidation of assets by auction on a
consignment basis, specializing in the disposition of municipality, law
enforcement agency and utility company surplus property. Nationwide estimates
that it currently represents a majority of the government agencies and utility
companies in California and is one of the largest auctioneers of law
enforcement, drug_seized and forfeited vehicles, aircraft, water vessels,
jewelry and real estate on the west coast.
Nationwide provides auction services to a large and growing number of
financial institutions, rental companies and large corporations. Nationwide acts
as agent in the sales process, receiving fees from both buyers and sellers,
while not taking title to properties sold at auction. All items sold at auction
are sold "As Is Where Is" without any warranty from Nationwide.
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Nationwide collects fees for providing a wide range of services, such
as merchandise transportation to the auction site, storage, security and
preparation of merchandise for auction. Preparation of merchandise for auction
includes vehicle preparation services such as painting, repair, removal of
logos, smog certification and cleaning.
Nationwide focuses its marketing efforts on its consigners rather than
buyers. Nationwide does, however, use certain marketing techniques to attract
not only large numbers of buyers but also wide varieties as well. This is done
with direct mail communications from Nationwide's database of past buyers and
with media advertising.
Nationwide's primary revenue is comprised of consigner commissions and
buyer's premiums. Consigner commissions are fees paid by the consigner to
Nationwide for selling the consigner's merchandise. Consigner fees are
negotiated with each consigner. Buyer's premiums are fees paid by a successful
bidder to Nationwide, are based on the sales price of the merchandise and are
added on to the purchase price. Buyer's premiums are not negotiable; however,
not all consigners allow Nationwide to charge a buyer's premium.
Proprietary Rights
entrade.com holds a federal trademark registration and common law
rights in the ORBIT System mark for use on its software. entrade.com also holds
common law rights in numerous trademarks and service marks that it uses in
connection with its e-commerce services. entrade.com is seeking federal
registration of the "utiliparts.com" and "entrade.com" marks as service marks.
entrade.com does not own any patents or patent applications, but is in the
process of identifying business methodologies for potential patent filings.
Nationwide holds a federal registration in the Nationwide Auction Systems name
and a related design. Nationwide has developed certain proprietary computer
software for maintaining sales inventory and databases of consigner and buyers.
However, technology is not central to Nationwide's business.
Competition
Entrade believes that it competes favorably with existing competitors
because of the functionality of its e-commerce software and support services and
its business model. Entrade differentiates itself from its market competitors
through the expertise of its strategic partners and internal management and
operations expertise.
Currently, there are various companies who are licensing transaction
software. Internet companies utilize the software in websites. To date, most of
these Internet companies have focused on consumers. There are many new
business-to-business Internet companies, many of which began in 1999 to create
websites. In investigating these new websites, Entrade believes that most of
these companies do not have the experience of management within the industries
their websites seek to penetrate. Many of these Internet companies base their
competitive strength on their technology. Entrade, however, believes that its
strength is based on the experience within the targeted industry of its internal
management and its strategic alliance partners.
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<PAGE>
A few groups provide asset recovery for the utility industry. Most
notably, the National Materials Logistic Group, a membership of nuclear
generation facilities, contracts to provide parts and equipment, listing
available assets for sale by and on behalf of member utilities through a listing
service called RAPID. entrade.com believes it competes favorably with that
service because, unlike that service, entrade.com's service provides transaction
functionality and the complementary service of auction capabilities.
Additionally, that group specializes in nuclear generation equipment rather than
the broad spectrum of energy generation assets.
Other companies operate similar Internet websites that currently list
utility generation parts and equipment for sale and auction. To entrade.com's
knowledge, these companies do not have the business skills, business
methodologies or industry related expertise that entrade.com provides through
its internal operations.
See "Risk Factors -- We may not be able to compete effectively with
other providers of e-commerce services."
In general, two large international auction companies, Richie Brothers
and Forke Brothers, dominate the land based or non e-commerce auction industry.
These two companies compete for the liquidation of large plants and large
volumes of machinery. The remainder of the auction industry is fragmented and
largely composed of independently owned single_facility auction houses.
Nationwide believes that it currently competes favorably with existing
competitors, primarily on the basis of quality of services.
Employees
As of December 31, 1999, we employed approximately 130 persons,
including 15 employees at corporate headquarters, 30 full_time employees of
entrade.com, and 85 employees of Nationwide.
entrade.com employs eight individuals in managerial positions, two in
sales and marketing and 20 as technical staff members. Given the size of
entrade.com and the nature of its business, however, these employees perform
multiple functions that overlap these categories. entrade.com also utilizes a
team of retired utility executives and engineers as a commissioned based
independent sales force for the utiliparts.com operations.
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<PAGE>
As of December 31, 1999, Nationwide employed approximately 85 employees
at five permanent locations. The table below categorizes Nationwide's employees
by function:
Senior Management 5
Sales 17
Accounting 5
Administrative 17
Advertising 2
Data Processing 4
Operations 35
--
Total 85
==
We consider our relationships with our employees to be good. Our
employees are not covered by collective bargaining agreements.
Properties
At December 31, 1999, the only property used by Entrade's corporate
office was its headquarters facility of approximately 7,000 sq. ft. of office
space and 1,000 sq. ft. of warehouse space in Northfield, Illinois. In December
1995 the building was purchased by a trust owned by John Harvey, Chairman of
Entrade's board of directors. The lease for this property expired in December
1998, and Entrade is currently renting its headquarters on a month_to_month
basis. The parties contemplate that Entrade will negotiate the terms of a
long_term lease agreement.
entrade.com conducts its operations through leased facilities in Mount
Laurel, New Jersey; Wayne, Pennsylvania; Plymouth, Massachusetts; and Waterloo,
Ontario, Canada.
Nationwide operates six full service public auction facilities located
in City of Industry, California; Benicia, California; Kansas City, Missouri;
Riverdale (Atlanta), Georgia; Wilmington, Delaware; and Albuquerque, New Mexico.
Nationwide believes it will have no difficulty replacing any leased facility
upon expiration of the term of the lease.
Nationwide's headquarters and Southern California operations are
located on a 7.7-acre parcel in City of Industry. This parcel is leased, and
includes a 6,000 square foot office building and a 4,000 square foot warehouse.
This lease expires on August 23, 2000, and is subject to five one-year renewals.
The auction business also leases an adjoining 3.75-acre pursuant to a lease that
expires on September 23, 2000 and is subject to two one-year renewals and has a
month-to-month license agreement for the use of an approximately one-acre
parking lot used for storage of vehicles held prior to auction.
In northern California, Nationwide owns a 15.5-acre parcel of land with
a building comprising 3,600 square feet of office space and 15,900 square feet
of storage space. This property is subject to a mortgage in favor of a local
bank. Nationwide has a subleasehold interest for the exclusive use of an
adjoining parcel consisting of 2.7 acres of land and a 16,500 square foot
building. This sublease expires on May 8, 2031.
Nationwide leases an 11-acre parking lot in Kansas City, Missouri. This
lease expires on November 30, 2002 and is renewable for one five-year period.
On March 18, 1999, Nationwide purchased an 11.5-acre parcel of land
with a 5,000 square foot office building in Riverdale, Georgia. This property is
subject to a mortgage in favor of a local bank.
Nationwide leases a 12.1-acre parcel of land in Wilmington, Delaware
under a month-to-month lease.
Nationwide leases a 10-acre parcel of land in Albuquerque, New Mexico.
This lease expires on December 10, 2000 and is renewable for four one year
periods.
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<PAGE>
printeralliance.com conducts its operations through leased facilities
in Horsham, Pennsylvania.
Entrade believes that all of the foregoing properties are in good
condition and reasonably adequate for current operations.
Legal Proceedings
With exception of legal proceedings and claims that arise in the
ordinary course of Nationwide's business, the only legal proceedings in which
Entrade is presently involved relate to Artra and its subsidiaries, which are
the defendants in various business-related litigation and environmental matters
and product liability claims. At September 30, 1999, December 31, 1998 and
December 31, 1997, Artra had accrued current liabilities of $1,500,000,
$1,500,000 and $1,800,000, respectively, for potential business-related
litigation and environmental liabilities.
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 local counsel
indicate, as of December 31, 1999, pending claims asserted by approximately
45,000 plaintiffs (excluding loss of consortium claims) in 17 states. It is
probable that a significant number of additional claims will be asserted in the
future. Artra cannot 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. Since September 1998, certain of Artra's excess
insurance carriers, under a reservation of the right to deny coverage liability
at a subsequent date, have pursuant to an interim agreement assumed the defense
of the claims and paid defense, settlement and indemnity costs relating to these
claims which 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 Granite
State Insurance Company, an affiliate of the American International Group, Inc.,
one of Artra's principal excess insurers, and one of the participants in the
expired interim agreement. Since January 31, 2000, Granite State has not
administered the claims or advanced funds for defense, settlement and indemnity
expenses. Nevertheless, through its counsel, Granite State has indicated its
intent to reimburse Artra for payments made by Artra upon submission of
insurance claims to it pursuant to its policies.
Negotiations are continuing with Granite State 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
$31,000,000, for the period 1968 - 1975. These carriers contend that the
policies for this period, if they ever existed, are "lost." If Artra or its
53
<PAGE>
carriers were to be unable to locate all or some of these policies, 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 - 1962, for which
Artra has not been able to locate policies, with potential effect similar to
that possible with respect to the 1968 - 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 those
potential gaps described herein, if Artra were ultimately unsuccessful in
attempting to marshal any such insurance and instead 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:
approximately (a) $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 some 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 is not
sufficient to satisfy the claims against Artra, Entrade could lose its entire
investment in Artra. If the combination of insurance coverage and Artra's assets
are not sufficient to satisfy the claims, it is also possible that the
plaintiffs presenting the claims could attempt to pursue legal action against
Entrade. Entrade believes that no valid legal basis exists for the imposition of
Artra's liability for the claims against Entrade, and Entrade would vigorously
defend against any attempt to impose such liability.
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.
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<PAGE>
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 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 hazardous substances as a
by-product of the manufacturing process. Artra entered into a consent decree
with the EPA in which it agreed to pay $85,000 for one phase of the clean-up
costs for this site; however, Artra defaulted on its payment obligation. Artra
is presently unable to estimate the total potential liability for clean-up costs
at this site, which clean-up is expected to continue for a number of years. The
consent decree, even if it had been honored by Artra, was not intended to
release Artra from liability for costs associated with other phases of the
clean-up at this site. Artra is presently unable to determine what, if any,
additional liability it may incur in this matter.
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.
While these litigation and environmental matters involve wide ranges of
potential liability, management does not believe the outcome of these matters
will have a material adverse effect on Entrade's financial condition or results
of operation. For further information, see Note 7 to the Notes to Condensed
Consolidated Financial Statements for the quarter ended September 30, 1999.
MANAGEMENT
Directors and Executive Officers of Entrade
Information Regarding Directors
The following table lists the name and age of each director of Entrade,
his business experience, his positions with Entrade and other directorships held
by him.
55
<PAGE>
Name Age Positions and Experience
- ---- --- ------------------------
John Harvey(1) 68 Chairman of the board of directors
and Director since September 1999;
served as Chairman of the board of
directors and Director of Artra
from 1968 to September 1999, and
Chief Executive Officer of Artra
from 1968 to June 1999; Director
from 1982 to December 1995 and the
Chief Executive Officer from 1990
to November 1995 of Comforce
Corporation (temporary
professional employment, formerly
The Lori Corporation); Director of
Plastic Specialties and
Technologies, Inc. (textiles, hose
and tubing); Director of PureTec
Corporation, the successor by
merger to Ozite, until March 1998,
when PureTec was merged into
Teckni-Plex, Inc.
Peter R. Harvey(1) 65 Vice Chairman, Chairman of the
Executive Committee and Director
since September 1999; served as
Vice Chairman and Chairman of the
Executive Committee of Artra from
June 1999 to September 1999;
Director of Artra from 1968 to
September 1999; President and
Chief Operating Officer of Artra
from 1968 to June 1999; Director
of Comforce Corporation (temporary
professional employment, formerly
The Lori Corporation) from 1985 to
December 1995 and a vice president
through January 1996; Director of
PureTec Corporation (textiles,
hose and tubing), the successor by
merger to Ozite, until March 1998,
when PureTec Corporation was
merged into Teckni-Plex, Inc.
Mark F. Santacrose(1)(3) 40 President, Chief Executive Officer
and Director since September 1999;
served as President and Chief
Executive Officer of Artra from
June 1999 to September 1999;
Director of Artra from 1998 to
September 1999; President of
Bagcraft Corporation of America
(n/k/a Golden Corp.), flexible
packaging materials for food
products, from 1994 to November
20, 1998; following the sale of
substantially all of the assets of
Bagcraft in 1998, President of
Bagcraft Packaging LLC, a
subsidiary of Packaging Dynamics
LLC from November 20, 1998 to June
18, 1999.
Gerard M. Kenny(3) 50 Director since September 1999;
served as Director of Artra from
1988 to September 1999; Executive
Vice President and Director of
Kenny Construction Company since
1982 (diversified heavy
construction); General Partner of
Clinton Industries (investments),
a limited partnership, since 1972.
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Robert D. Kohn 49 Director since February 1999;
Chairman and CEO from February
1999 to September 1999; President
of entrade.com since September
1999; Chairman, President and
Chief Executive Officer of
WorldWide, a business-to-business
Internet Company, from September
1997 to September 1999; President
and Chief Operating Officer of
entrade.com from February 1996 to
March 1, 1999; from 1987 to 1996,
served as president of Equity
Resources International, Inc., a
financial services company; from
1983 to 1987, served as president,
chief operating officer and chief
financial officer of ORFA
Corporation, a waste recycling
technology company.
Edward A. Celano(3) 61 Director since September 1999;
served as Director of Artra from
1996 to September 1999; Executive
Vice President of the Atlantic
Bank of New York since May 1,
1996; Senior Vice President of
National Westminster Bank, USA
from 1984 through April 1996;
serves as a Director of Life
Medical Services, Inc., Sterling
Vision, Inc. and Astra Funding,
Inc.
Howard R. Conant(2) 75 Director since September 1999;
served as Director of Artra from
1996 to September 1999; Retired
Chairman of the Board of
Interstate Steel Co., 1970 to
1990, and a consultant to
Interstate through 1992.
Maynard K. Louis(2) 70 Director since September 1999;
served as Director of Artra from
1993 to 1995 and from 1996 to
September 1999; Retired Chairman
of the Board of Lord Label, a
printing company now known as
Porter & Chadburn, from 1965 to
1989, and Vice President of Porter
& Chadburn from 1989 to 1993.
Robert L. Johnson(2) 64 Director since September 1999;
served as Director of Artra from
1996 to September 1999; Chairman
and Chief Executive Officer of
Johnson Bryce, Inc., flexible
packaging materials for food
products since 1991; and
previously, for many years, a vice
president of Sears Roebuck & Co.
(retailing company).
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Corey Schlossmann 44 Director since October 1999; Chief
Executive Officer of Nationwide
since October 1999 and Chief
Financial Officer of Nationwide
since January 1999; Partner of
Gordon, Fishburn & Schlossmann,
certified public accountants,
since 1995; Partner of Hankin &
Co., a consulting firm focused on
implementing strategic solutions
for owner managed businesses and
forensic consulting, from 1988
until 1995.
John K. Tull(2) 73 Director since September 1999;
served as Director of Artra from
1998 to September 1999; President
of J.K. Tull Associates Ltd., a
mergers and acquisitions firm,
since 1986.
________________
(1) Member of the executive committee. Entrade's executive committee has
the authority to take all action that can be taken by the full board of
directors, consistent with Pennsylvania law, between meetings of the
Entrade board of directors.
(2) Member of the audit committee. Entrade's audit committee reviews audit
reports and management recommendations made by Entrade's independent
accountants.
(3) Member of the compensation committee. Entrade's compensation committee
has the authority to review and recommend compensation plans and
approve compensation changes.
John Harvey and Peter R. Harvey are brothers.
Under the merger agreement pursuant to which Artra became a wholly
owned subsidiary of Entrade, for as long as WorldWide's percentage ownership of
Entrade's common stock, calculated on a fully diluted basis, is at least five
percent, Entrade must use its best efforts to cause a designee nominated by
WorldWide and acceptable to Entrade to be elected to the Entrade board of
directors. Robert D. Kohn is the initial designee of WorldWide.
Under the terms of the Stock Purchase Agreement pursuant to which
Entrade acquired Nationwide, for so long as Don Haidl owns at least five percent
of the issued and outstanding shares of Entrade's common stock, Entrade must
nominate Mr. Haidl or his designee reasonably acceptable to Entrade to serve as
a director of Entrade. Corey Schlossmann is Mr. Haidl's initial designee.
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<PAGE>
Comforce Corporation was a 64.3% owned subsidiary of Artra until
December 1995. Artra now owns approximately 9% of Comforce Corporation. PureTec
International, Inc. and Plastics Specialities and Technologies, Inc. were
affiliates of Artra. Bagcraft was a wholly owned subsidiary of BCA Holdings,
Inc., a wholly owned subsidiary of Artra. In November 1998, substantially all of
the assets of Bagcraft were sold to Packaging Dynamics LLC, the parent entity of
Bagcraft Packaging LLC.
Compensation Committee Interlocks and Insider Participation.
The Entrade board of directors reviewed and approved the compensation
of Mark F. Santacrose, the President and Chief Executive Officer of Entrade.
None of our executive officers serves as a member of the board of directors or
Compensation Committee of any entity that has one or more executive officers
serving on our board of directors. See "Related Party Transactions" for a
description of various transactions and relationships between Entrade and
certain directors.
Information Regarding Executive Officers.
Set forth below is information concerning the executive officers and
other key employees of Entrade who were in office or employed as of the date of
this Prospectus.
Name Age Position
- ---- --- --------
John Harvey 68 Chairman of the Board
Mark F. Santacrose 40 President and Chief Executive Officer
Peter R. Harvey 65 Vice Chairman and Chairman of the Executive
Committee
Robert D. Kohn 49 President of entrade.com
Mark P. Miller 39 Chief Operating Officer
Corey Schlossmann 44 Chief Executive Officer of Nationwide
John G. Hamm 61 Executive Vice President and Chief Financial
Officer
Carrie L. Shea 35 Executive Vice President of Marketing and
Strategy
Anthony E. Rothschild 42 General Counsel and Secretary
Robert S. Gruber 67 Vice President - Corporate Relations
Lawrence D. Levin 48 Controller
John Harvey is the Chairman of Entrade. See "Information Regarding
Directors" above for a description of Mr. Harvey's relevant business experience.
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<PAGE>
Mark F. Santacrose is the President and Chief Executive Officer of
Entrade. See "Information Regarding Directors" above for a description of Mr.
Santacrose's relevant business experience.
Peter R. Harvey is the Vice Chairman of Entrade and Chairman of the
Executive Committee of the board of directors of Entrade. See "Information
Regarding Directors" above for a description of Mr. Harvey's relevant business
experience.
Robert D. Kohn is the President of entrade.com. See "Information
Regarding Directors" above for a description of Mr. Kohn's relevant business
experience.
Corey Schlossmann is the Chief Executive Officer of Nationwide. See
"Information Regarding Directors" above for a description of Mr. Schlossman's
relevant business experience.
John G. Hamm has been the Executive Vice President of Entrade since
September 1999 and Chief Financial Officer and Treasurer since November 1999.
Mr. Hamm has served as the Secretary of Entrade from September 1999 to November
1999 and as the Executive Vice President of Artra from February 1988 to
September 1999, as the Vice President of Finance of Artra from 1975 to 1988 and
as the Secretary of Artra from August 1999 to September 1999. Mr. Hamm has also
served as Vice President of Finance from August 1990 to July 1995 and as a
Director from 1984 until July 1995 of Ozite Corporation. Mr. Hamm has also
served as a Director of SoftNet Systems, Inc. from 1985 to February 1999 and a
Director of Plastic Specialties and Technologies, Inc. from 1985 to January
1996.
Mark P. Miller has been Chief Operating Officer since January 2000 and
Executive Vice President of Operations and Business Development from November
1999 to January 2000. Mr. Miller served as Vice President of A.T. Kearney, Inc.,
a global management consulting firm, from December 1995 until November 1999, and
as a Principal of A.T. Kearney from August 1993 until November 1995. Mr. Miller
is a graduate of both Southern Methodist University and the Harvard Graduate
School of Business.
Carrie L. Shea has been Executive Vice President of Marketing and
Strategy since November 1999. Ms. Shea served as Vice President of A.T. Kearney,
Inc., a global management consulting firm, from August 1998 until November 1999,
and as a Principal of A.T. Kearney from January 1994 until July 1998. Ms. Shea
received both her Bachelor of Arts and Masters of Business Administration from
the University of Chicago.
Anthony E. Rothschild has been General Counsel and Secretary since
November 1999. Mr. Rothschild was a partner in the Chicago, Illinois law firm of
Butler, Rubin, Saltarelli & Boyd from January 1990 until November 1999, where he
served as principal managing partner. Mr. Rothschild is a cum laude graduate of
both Harvard College and Northwestern University Law School.
Robert S. Gruber has been the Vice President - Corporate Relations of
Entrade since September 1999. Mr. Gruber served as Vice President - Corporate
Relations of Artra from 1975 to September 1999 and as a consultant to The Lori
Corporation from 1982 to 1995. Mr. Gruber has also served as a consultant to
Comforce Corporation during 1996. Mr. Gruber is retiring effective March 31,
2000.
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<PAGE>
Lawrence D. Levin has been the Controller of Entrade since September
1999. Mr. Levin served as Controller of Artra from 1987 to September 1999,
Assistant Treasurer and Assistant Secretary from 1980 to September 1999, and
Assistant Controller from 1980 to 1987. Mr. Levin has also served as Controller
of Comforce from December 1989 to January 1996 and as the Assistant Chief
Financial Officer of Comforce from May 1993 through January 1996.
Officers are appointed by the Entrade board of directors and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey and John Harvey, who are brothers, there are no
family relationships among the executive officers and directors, nor are there
any arrangements or understandings between any officer and another person under
which an officer was appointed to office.
Section 16(a) Beneficial Reporting Compliance
Section 16(a) of the Exchange Act requires that officers and directors
of Entrade, as well as persons who own more than 10% of a class of equity
securities of Entrade, file reports of their ownership of those securities, as
well as monthly statements of changes in the person's ownership, with Entrade
and the Commission. Based upon reports filed with Entrade since September 1999,
Entrade believes that these persons filed all reports required under Section
16(a) during 1999 on a timely basis, except for Messrs. Miller and Rothschild,
Ms. Shea and WorldWide, who made late filings of initial reports on Form 3, and
John Harvey, who made a late filing of a report on Form 4.
EXECUTIVE COMPENSATION
Entrade assumed all employment agreements and stock options and plans
of Artra upon the closing of the merger in September 1999. Because Entrade
commenced operations in 1999, no compensation information regarding its
directors and officers are available for prior years.
Directors' Compensation
Directors who are not employees of Entrade are entitled to receive an
annual retainer of $10,000. Each outside director who sits on an established
committee of Entrade is entitled to receive $250 per committee meeting attended
and the chairman of a committee is entitled to receive $500 for each meeting.
Employees of Entrade who also serve as directors or committee members receive no
additional compensation for the service.
In 1999, each of Entrade's seven outside directors, as directors of
Artra, received options to purchase 2,500 shares of Artra common stock at an
exercise price of $5.375 per share. Also, Mark Santacrose and John Tull each
received an additional grant of options to purchase 10,000 shares of Artra
common stock at an exercise price of $4.75 per share. These options have a term
of ten years from the date of grant.
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<PAGE>
Executive Officer Compensation
The following table contains information with respect to all
compensation paid by us during 1999 to our chief executive officer and the only
other executive officer who received combined salary and bonus from Entrade in
excess of $100,000 for 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Long Term
Principal Position Annual Compensation Compensation
- ----------------------------- --------------------------------------------- --------------------------------
Salary Securities
------- Other Annual Underlying All Other
($)(1) Bonus ($) Compensation ($) Options (#) Compensation ($)
------ --------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Mark F. Santacrose,
President and Chief Executive
Officer 62,500 100,000 (2)(6) 1,800 (3) 833 (5)
Robert D. Kohn,
President of entrade.com 29,058 (6) (4) 508 (5)
<FN>
(1) Represents salaries paid by Entrade from and after September 23, 1999.
(2) Artra had agreed to pay Mr. Santacrose a bonus of $100,000 for 1999 to
compensate him for forfeiture of compensation to which he would have
been entitled from his previous employer. The bonus was paid in January
2000.
(3) Under th terms of an Artra employment agreement effective June 28, 1999
that Entrade has assumed, Mr. Santacrose was granted options to acquire
200,000 shares of Artra common stock at $10.00 per share, which options
vest immediately on that date, and options to acquire 100,000 shares of
Artra common stock at $12.875 per share, which options will vest on
June 28, 2000. All options granted expire June 28, 2009. The closing
price of Artra common stock on the New York Stock Exchange on June 28,
1999, the date of the grant, was $12.875.
(4) Robert D. Kohn has an employment agreement with Artra for a term that
commenced February 23, 1999 and ends February 17, 2002. Entrade has
assumed this employment agreement. The employment agreement provides
for an option to purchase 1,000,000 shares of Artra common stock at an
exercise price of $2.75 per share. The options vest in equal one-third
installments on December 1, 1999, February 18, 2000, and February 18,
2001.
(5) The amounts represent matching contributions by the Company to the
Company's 401(k) plan.
(6) Performance bonuses for 1999 for these individuals have not yet been
determined.
</FN>
</TABLE>
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<PAGE>
1999 Option Values
The following table shows information regarding the unexercised options
held as of December 31, 1999 by our chief executive officer and the only other
executive officer who received combined salary and bonus from Entrade in excess
of $100,000 for 1999. Neither officer exercised any options during 1999
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised in-the-Money
Unexercised Options as of December 31, 1999 (#) Options as of December 31, 1999 ($)(1)
----------------------------------------------- --------------------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ------------------------------------ -------------------------------------
<S> <C> <C>
Mark F. Santacrose 200,000/100,000 6,175,000/2,800,000
Robert D. Kohn 333,333/666,667 12,708,321/25,416,679
<FN>
(1) The value per option is calculated by subtracting the exercise price of
the option from the fair market value of our common stock of $40-7/8
per share on December 31, 1999.
</FN>
</TABLE>
The following discussion provides information regarding executive
officer employment agreements and compensation arrangements.
Mark F. Santacrose Employment Agreement
On June 28, 1999, the Artra board of directors entered into an
agreement with Mark F. Santacrose. Under the agreement, Mr. Santacrose agreed to
become the President and Chief Executive Officer of Artra. In September 1999,
Mr. Santacrose became the President and Chief Executive Officer of Entrade, and
Entrade assumed this agreement. The following is a summary of the terms of the
employment agreement.
Term: The initial term is for three years.
Commencing June 28, 2002 and each
anniversary after this date, the
term is automatically extended for
one additional year unless either
party gives written notice to the
other within 90 days preceding the
anniversary date that he or it does
not desire to extend the term for
the additional one-year period.
Cash Compensation: Base salary of $250,000 per year,
subject to increase at the
discretion of the Entrade board of
directors.
Stock Options: Option to purchase 200,000 shares of
Entrade common stock at $10 per
share, exercisable for ten years
commencing June 28, 1999.
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<PAGE>
Option to purchase 100,000 shares of
Entrade common stock at $12.875 per
share, exercisable commencing June
28, 2000 until June 28, 2009.
Compensation Entrade has agreed to pay Mr.
Reimbursement: Santacrose a bonus of $100,000 for
1999 to compensate him for
forfeiture of compensation to which
he would have been entitled from his
previous employer.
Termination: If Entrade terminates his employment
during the initial term other than
for cause or he terminates the
agreement during the initial term
for good reason, Mr. Santacrose is
entitled to the payment of his base
salary through the later of the end
of the initial term or 18 months
from the date of termination. If the
termination occurs during a renewal
term, Entrade will pay him a lump
sum equal to the sum of his base
salary for a period of 18 months at
the effective date of termination.
Change of Control: In the event of a change of control
of Entrade as defined in the
agreement, Mr. Santacrose is
entitled to receive a lump-sum
payment equal to his base salary at
its then current rate for a period
of 35 months.
Robert D. Kohn Employment Agreement
On February 23, 1999, Artra entered into an employment agreement with
Robert D. Kohn, providing employment for a three-year term. Entrade assumed this
agreement in September 1999. The following is a summary of the principal terms
of this agreement.
Term: The initial term is for 3 years.
Cash Compensation: Base salary of $165,000 per year,
subject to increase at the
discretion of the Entrade board of
directors. Since November 1999, Mr.
Kohn has been acting as the Chief
Executive Officer of asseTrade.com,
and his salary has been reduced by
$82,500 for as long as he continues
to so act.
Stock options: Option to purchase 1,000,000 shares
of Entrade common stock at an
exercise price of $2.75 per share,
exercisable as to 333,333 shares
commencing December 1, 1999, 333,333
additional shares commencing
February 18, 2000, and 333,334
shares commencing February 18, 2001,
all exercisable until February 23,
2009.
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<PAGE>
Termination: If Entrade terminates his employment
during the initial term other than
for cause, Mr. Kohn is entitled to a
severance payment equal to the
lesser of (a) an amount equal to his
base salary for a period of 24
months, or (b) an amount equal to
his base salary for the balance of
the term of the employment
agreement; provided that in no event
will the severance payment be less
than an amount equal to his base
salary for a period of six months.
Corey Schlossmann Employment Agreement
On October 15, 1999, Entrade and its subsidiaries comprising Nationwide
entered into an agreement with Corey Schlossman. Under the agreement, Mr.
Schlossman agreed to become an executive officer of Nationwide. Entrade agreed
to guarantee Nationwide's performance under the employment agreement. The
following is a summary of the terms of the employment agreement.
Term: The initial term is for three years
ending October 18, 2002. Commencing
October 19, 2002 and each
anniversary after this date, the
term is automatically extended for
one additional year unless either
Mr. Schlossman or Nationwide gives
written notice to the other within
90 days preceding the anniversary
date that he or it does not desire
to extend the term for the
additional one-year period.
Cash Compensation: Base salary of $162,000 per year,
subject to increase at the
discretion of the Nationwide board
of directors.
Stock Options: Option to purchase 200,000 shares of
Entrade common stock at $9 per
share, all fully vested and
exercisable for ten years commencing
October 15, 1999.
Termination: If Nationwide terminates his
employment during the initial term
other than for cause or he
terminates the agreement during the
initial term for good reason, Mr.
Schlossman is entitled to the
payment of his base salary through
the later of the end of the initial
term or 6 months from the date of
termination. If Nationwide elects
not to extend his employment for any
additional one-year period other
than for cause or the termination
occurs during a renewal term, Mr.
Schlossman is entitled to payment of
his base salary then in effect
through the later of the current
extended term or 6 months from the
effective date of the termination.
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<PAGE>
Mark P. Miller Employment Agreement
On November 11, 1999, Entrade entered into an agreement with Mark P.
Miller. Under the agreement, Mr. Miller agreed to become Executive Vice
President - Operations and Business Development of Entrade. The following is a
summary of the terms of the employment agreement.
Term: The initial term ends December 31,
2002. Commencing January 1, 2003 and
each anniversary after this date,
the term is automatically extended
for one additional year unless
either party gives 90 days' advanced
written notice that he or it does
not desire to extend the term for
the additional one-year period.
Cash Compensation: Base salary of $250,000 per year,
subject to increase at the
discretion of the Entrade board of
directors.
Stock Options: Option to purchase 200,000 shares of
Entrade common stock at $22.3125,
exercisable as to 66,666 shares
commencing November 11, 2000, 66,667
additional shares commencing
November 11, 2001, and 66,667 shares
commencing November 11, 2002, all
exercisable until November 7, 2009.
Termination: If Entrade terminates his employment
during the initial term other than
for cause or he terminates the
agreement during the initial term
for good reason, Mr. Miller is
entitled to the payment of his base
salary through the later of the end
of the initial term or six months
from the date of termination. If the
termination occurs during a renewal
term, Entrade will pay him a lump
sum equal to the sum of his base
salary for a period of six months at
the effective date of termination.
Change of Control: In the event of a change of control
of Entrade as defined in the
agreement, Mr. Miller would be
entitled to receive a lump-sum
payment equal to his base salary at
its then current rate for a period
of 24 months.
Carrie L. Shea Employment Agreement
On November 11, 1999, Entrade entered into a letter agreement with
Carrie L. Shea. Under the agreement, Ms. Shea agreed to become Executive Vice
President of Marketing and Strategy of Entrade. The following is a summary of
the terms of the employment agreement.
Cash Compensation: Base salary of $200,000 per year.
Stock Options: Option to purchase 150,000 shares of
Entrade common stock at $22.3125,
exercisable as to 50,000 shares
commencing November 11, 2000,
50,000 additional shares commencing
November 11, 2001, and 50,000
additional shares commencing
November 11, 2002, all exercisable
until November 10, 2009.
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<PAGE>
Compensation Entrade has agreed to pay Ms. Shea a
Reimbursement: bonus of $25,000 during the first
quarter of 2000 to compensate her
for forfeiture of compensation to
which she would have been entitled
from her previous employer.
Anthony E. Rothschild Employment Agreement
On October 22, 1999, Entrade entered into an agreement with Anthony E.
Rothschild. Under the agreement, Mr. Rothschild agreed to become General Counsel
of Entrade. The following is a summary of the terms of the employment agreement.
Term: The initial term ends December 31,
2002. Commencing January 1, 2003 and
each anniversary after this date,
the term is automatically extended
for one additional year unless
either party gives 90 days' advanced
written notice that he or it does
not desire to extend the term for
the additional one-year period.
Cash Compensation: Base salary of $150,000 per year,
subject to increase at the
discretion of the Entrade board of
directors. In addition, Mr.
Rothschild received a cash bonus of
$12,500 for 1999 and will receive a
cash bonus of no less than $25,000
for calendar year 2000.
Stock Options: Option to purchase 100,000 shares of
Entrade common stock at $19.1875,
exercisable as to 33,333 shares
commencing November 8, 2000, 33,333
additional shares commencing
November 8, 2001, and 33,334 shares
commencing November 8, 2002, all
exercisable until November 7, 2009.
Termination: If Entrade terminates his employment
during the initial term other than
for cause or he terminates the
agreement during the initial term
for good reason, Mr. Rothschild is
entitled to the payment of his base
salary through the later of the end
of the initial term or six months
from the date of termination. If the
termination occurs during a renewal
term, Entrade will pay him a lump
sum equal to the sum of his base
salary for a period of six months at
the effective date of termination.
Change of Control: In the event of a change of control
of Entrade as defined in the
agreement, Mr. Rothschild would be
entitled to receive a lump-sum
payment equal to his base salary at
its then current rate for a period
of 24 months.
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<PAGE>
Stock Option Plans
The 1985 and 1996 Option Plans
The Restated 1985 Stock Option Plan and 1996 Stock Option Plan provide
for the grant of options to purchase Entrade common stock that are intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code and non-qualified options to key employees and non-employee directors of
Entrade, its subsidiaries and affiliated entities.
As of December 31, 1999, Entrade had outstanding options to purchase an
aggregate of 252,403 shares of Entrade common stock granted to Entrade's
employees under the 1985 Plan at exercise prices of $3.65 and $3.75. All of the
options granted under the 1985 Plan are fully vested and expire on either
December 19, 2000, September 19, 2001 or January 8, 2003. The 1985 Plan will
remain in effect until all options granted under the 1985 Plan have been
satisfied by the issuance of shares or the expiration of the outstanding
options, but no new options may be granted under the 1985 Plan.
As of December 31, 1999, Entrade had outstanding options to purchase an
aggregate of 1,855,351 shares of Entrade common stock under the 1996 Plan at
exercise prices ranging from $4.75 to $22.3125.
An aggregate of 39,000 shares of Entrade common stock remain available
for grant under the 1996 Plan as of December 31, 1999.
The 1996 Disinterested Directors Stock Option Plan
As of December 31, 1999, Entrade had outstanding nonqualified options
to purchase an aggregate of 85,000 shares of Entrade common stock granted to
directors under the 1996 Disinterested Directors Plan at an exercise price of
$3.125.
An aggregate of 100,000 shares of Entrade common stock remain available
for grant under the 1996 Disinterested Director Plan as of December 31, 1999.
The 1999 Non-Qualified Stock Option Plan
As of December 31, 1999, Entrade had outstanding options to purchase an
aggregate of 1,600,000 shares of Entrade common stock to Robert D. Kohn, and
three other current employees of entrade.com under the 1999 Non-Qualified Plan
at an exercise price of $2.75 per share. The options become exercisable in three
equal installments on December 1, 1999, February 18, 2000 and February 18, 2001.
The options will expire on the earlier to occur of:
o February 23, 2009;
o the date of the employee's termination of employment for cause;
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<PAGE>
o the expiration of three months from the date of the employee's
termination other than for cause or from the date of the
employee's voluntary resignation unless the termination
results from the employee's retirement, death or disability;
or
o the expiration of one year from the date of the employee's
termination by reason of his retirement, death or disability.
RELATED PARTY TRANSACTIONS
Robert D. Kohn and WorldWide
Mr. Kohn served as chief executive officer, president and chairman of
WorldWide until September 1999. As of July 20, 1999, Mr. Kohn owned 4,800,000
shares, or approximately 5% of the outstanding shares of common stock of
WorldWide. Prior to the merger of a subsidiary of Entrade into Artra in
September 1999, WorldWide owned 90% of the outstanding shares of Entrade common
stock and currently owns approximately 11.44% of the outstanding shares of
Entrade common stock. The shares of WorldWide owned by Mr. Kohn include 475,000
shares issued in 1999 in connection with the assignment to Energy Trading
Company in 1998 of his 4.5% ownership interest in BarterOne LLC and other
accrued, unpaid compensation and benefits relative to his employment by PECO
Energy, the parent company of Energy Trading Company.
Under the merger agreement, for as long as WorldWide's percentage
ownership of Entrade's common stock calculated on a fully diluted basis is at
least 5%, Entrade must use its best efforts to cause WorldWide's designee
nominated by WorldWide and mutually acceptable to WorldWide and Entrade's board
of directors to be elected to the Entrade board of directors.
Concurrently with the execution of the merger agreement, Entrade
acquired intellectual property necessary for the conduct of entrade.com's
e-commerce business and 25% of the shares of the voting common stock of
asseTrade.com from WorldWide in exchange for 1,800,000 shares of Entrade common
stock, $800,000 in cash and a note for $500,000, which note was paid upon the
closing of the merger.
On February 16, 1999, Entrade issued to Energy Trading Company 200,000
shares of Entrade common stock, and paid Energy Trading Company $100,000 in cash
upon closing of the merger in September 1999, in exchange for retained rights
Energy Trading Company held in entrade.com's e-commerce business.
Artra also agreed with both WorldWide and Energy Trading Company that
it would provide a minimum of $4,000,000 in funding for entrade.com. Under
separate loan agreements, Artra agreed to loan Entrade up to $2,000,000 to fund
the $800,000 cash payment to WorldWide and provided funding for entrade.com
until the closing of the merger.
The total consideration for the purchased assets, therefore, was
2,000,000 shares of Entrade common stock and an aggregate of $5,400,000 in cash
and committed funding.
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<PAGE>
In August 1999, WorldWide agreed to loan to Entrade up to $500,000 to
fund Entrade's operations from the date of the loan to the closing date under
the merger agreement. The principal amount of approximately $405,000 was repaid
to WorldWide on the closing date of the merger.
In December 1998, entrade.com licensed its MARS and ORBIT software to
asseTrade.com. Mr. Kohn is acting as Chief Executive Officer of asseTrade.com.
Pursuant to the terms of the software license agreements, entrade.com and
asseTrade.com agreed to pay the other 20% of the gross profits derived from any
business referred by the other party. Additionally, asseTrade.com, Henry Butcher
International, and Michael Fox International agreed to use entrade.com
exclusively for all of their on-line business applications and entrade.com and
Positive Asset Remarketing agreed to use asseTrade.com, Henry Butcher
International and Michael Fox International exclusively for their disposition of
corporate assets made in connection with any auctions and private treaty sales.
In September 1999, entrade.com licensed its transaction software to ATM
Service, Ltd., (d/b/a ATMCenter.com), of which WorldWide owns approximately 52%.
In exchange for the license of entrade.com's transaction software, entrade.com
is to receive $1,500,000, payable in the form of trade credits and monthly
royalties computed upon the number of transactions generated using the licensed
software.
Pursuant to the terms of a merger agreement, a wholly owned subsidiary
of Entrade agreed to merge into Positive Asset Remarketing, with the surviving
corporation becoming a wholly owned subsidiary of Entrade. The primary asset of
Positive Asset Remarketing is its ownership interest of 14.65%, on a fully
diluted basis, of asseTrade.com. Upon consummation of the merger, the aggregate
outstanding common stock of Positive Asset Remarketing will be converted into
900,000 shares of common stock of Entrade. If the Merger is consummated, Mr.
Kohn, who is a director of Entrade and President of entrade.com and Chief
Executive Officer of asseTrade.com, will receive 450,000 shares of Entrade
common stock in exchange for his 50% ownership interest in Positive Asset
Remarketing.
John Harvey and Peter R. Harvey
The Harvey Family Trust is the owner of the real estate at 500 Central
Avenue, Northfield, Illinois, the corporate offices of Entrade. The trust
acquired the real estate in September 1996. Artra had rented approximately 7,000
square feet of office space and 1,000 square feet of warehouse space from the
trust at an annual rental of $126,000 under a lease expiring in January 1999,
which lease Entrade has continued on a month-to-month basis. The building
contains approximately 29,500 total square feet. In the opinion of Entrade's
management, the Entrade rental obligation to the trust does not exceed the fair
market value for similar rentals. John Harvey is the grantor and beneficiary of
the trust. John Harvey and Peter R. Harvey are brothers.
In March 1998, the Artra board of directors ratified a proposal to
settle Peter R. Harvey's previous advances from Artra in the amount of
$15,437,000 as follows:
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<PAGE>
(1) Effective December 31, 1997, Mr. Harvey's net advances
from Artra were reduced from $18,226,000 to $12,621,000. This reduction
consisted of $2,789,000 of interest accrued and reserved for the period
from 1993 to 1997 and an offset of $2,816,000. This offset of Peter R.
Harvey's advances represented a combination of compensation for prior
year guarantees of Artra obligations to private and institutional
lenders, compensation in excess of the nominal amounts Peter R. Harvey
received for the years from 1995 to 1997 and reimbursement for expenses
incurred to defend Artra against litigation.
(2) Effective January 31, 1998, Peter R. Harvey's remaining
advances totaling $12,787,000 were paid with consideration consisting
of the following Artra preferred stock and BCA Holdings, Inc. preferred
stock held by Peter R. Harvey:
<TABLE>
<CAPTION>
Face Value Plus
Security Accrued Dividends
-------- -----------------
<S> <C>
Artra Series A preferred stock, 1,734.28 shares $ 2,751,000
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000
-----------
$12,787,000
===========
</TABLE>
For additional related-party transactions between Artra and Peter R.
Harvey, see Note 16 to the consolidated financial statements for the year ended
December 31, 1998.
On September 27, 1989, Artra received from Sage Group, Inc., a
privately-owned corporation, a proposal to purchase Bagcraft. Effective March 3,
1990, a wholly owned subsidiary of Artra indirectly acquired from Sage Group,
Inc. 100% of the issued and outstanding common shares of BCA Holdings, Inc.,
which in turn owned 100% of the stock of Bagcraft. The total consideration
consisted of 772,000 shares of Artra common stock and 3,750 shares of Artra
preferred stock.
Upon the merger of Sage Group into Ozite on August 24, 1990, Ozite
became entitled to receive this consideration, which right Ozite assigned to its
PST subsidiary. Peter R. Harvey and John Harvey were the principal shareholders
of Sage Group and Ozite as of the times that the merger agreements were executed
and the mergers consummated. Ozite subsequently repurchased the 3,750 shares of
Artra preferred stock in February 1992, of which 1,523 shares were subsequently
assigned to Peter R. Harvey in consideration of his discharge of indebtedness of
Ozite to him in April 1992. Peter R. Harvey pledged these 1,523 shares of Artra
preferred stock to Artra.
In November 1998, substantially all of the assets of Bagcraft were sold
to Packaging Dynamics LLC, the parent entity of Bagcraft Packaging, LLC.
Peter R. Harvey and John Harvey were significant shareholders of PST's
parent, PureTec. Peter R. Harvey formerly was a Vice President and a director of
PST and a director of PureTec. John Harvey formerly was a director of PST and
PureTec.
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<PAGE>
Gerald M. Kenny
During 1986 and through August 10, 1988, Artra entered into a series of
short-term borrowing agreements with private investors. Each agreement granted
an investor a put option, principally due in one year, that required Artra to
repurchase any or all of the shares sold at a 15% to 20% premium during a
specified put period.
Kenny Construction Company entered into a put option agreement with
Artra, which was extended from time to time, most recently on November 11, 1992.
At that time, Artra and Kenny Construction agreed to extend the put option
whereby Kenny Construction received the right to sell to Artra 23,004 shares of
Artra common stock at a put price of $56.76 plus an amount equal to 15% per
annum for each day from March 1, 1991 to the date of payment by Artra, which
option was scheduled to expire on December 31, 1997. Gerard M. Kenny, a director
of Artra, is the Executive Vice President and Chief Executive Officer and a
director of Kenny Construction Company and beneficially owns 16.66% of Kenny
Construction's capital stock.
On March 21, 1989, Artra borrowed $5,000,000 from its bank lender
evidenced by a promissory note. This note was amended and extended from time to
time. The borrowings on this note were collateralized by, among other things, a
$2,500,000 guaranty by Kenny Construction. Kenny Construction received
compensation in the form of 833 shares of Artra common stock for each month that
its guaranty remained outstanding through March 31, 1994. Under this
arrangement, Kenny Construction received 49,980 shares of Artra common stock as
compensation for its guaranty.
On March 31, 1994, Artra entered into a series of agreements with its
bank lender and with Kenny Construction. Under the terms of these agreements,
Kenny Construction purchased a $2,500,000 participation in the $5,000,000 note
payable to Artra's bank lender. Kenny Construction's participation was evidenced
by a $2,500,000 Artra note bearing interest at the prime rate. As consideration
for its purchase of this participation, the bank lender released Kenny
Construction from its $2,500,000 loan guaranty. As additional consideration,
Kenny Construction received an option to put back to Artra the 49,980 shares of
Artra common stock received as compensation for its $2,500,000 Artra loan
guaranty at a price of $15.00 per share. The put option was subject to increase
at the rate of $2.25 per share per annum ($21.188 at December 26, 1996). The put
option was exercisable on the later of the date the Kenny Construction note was
repaid or the date Artra's obligations to its bank lender were fully paid.
During the first quarter of 1996, the $2,500,000 note and related accrued
interest were paid in full, principally with the proceeds from additional
short-term borrowings.
In December 1997, Kenny Construction exercised all of its put options
and Artra repurchased 72,984 shares of Artra common stock for cash of
$2,379,000.
Edward A. Celano
In May 1996, Artra borrowed $100,000 from Edward A. Celano, then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997, bearing interest at 10%. The proceeds of the
loan were used for working capital. At Artra's annual meeting of shareholders,
held August 29, 1996, Mr. Celano was elected to Artra's board of directors.
Effective January 17, 1997, Mr. Celano exercised his conversion rights and
received 18,182 shares of Artra common stock as payment of the principal balance
of his note.
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<PAGE>
Howard Conant
In August 1996, Artra borrowed $500,000 from Howard Conant, then a
private investor, evidenced by a short-term note, due December 23, 1996, bearing
interest at 10%. The loan was collateralized by 125,000 shares of Comforce
common stock owned by Artra's Fill-Mor subsidiary. As additional compensation
for the loan, Mr. Conant received a warrant, expiring in 2001, to purchase
25,000 shares of Artra common stock at a price of $5.00 per share. The proceeds
of the loan were used for working capital. At Artra's annual meeting of
shareholders, held August 29, 1996, Mr. Conant was elected to Artra's board of
directors. In December 1996, the loan was extended until April 23, 1997 and Mr.
Conant received, as additional compensation, a warrant, expiring in 2001, to
purchase 25,000 shares of Artra common stock at a price of $5.875 per share.
In January 1997, Artra borrowed an additional $300,000 from Mr. Conant
evidenced by a short-term note, due December 23, 1997, bearing interest at 8%.
The loan was collateralized by 100,000 shares of Comforce common stock owned by
Artra's Fill-Mor subsidiary. As additional compensation for the loan, Mr. Conant
received a warrant, expiring in 2002, to purchase 25,000 shares of Artra common
stock at a price of $5.75 per share.
In March 1997, Artra borrowed an additional $1,000,000 from Mr. Conant
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. The
loan was collateralized by 585,000 shares of Comforce common stock owned by
Artra's Fill-Mor subsidiary. As additional compensation, Mr. Conant received an
option to purchase 25,000 shares of Comforce common stock owned by Artra's
Fill-Mor subsidiary at a price of $4.00 per share, with the right to put the
option back to Artra on or before May 30, 1997 for a total put price of $50,000.
In May 1997, Mr. Conant exercised his rights and put the Comforce option back to
Artra for $50,000. The proceeds from this loan were used in part to repay an
Artra/Fill-Mor $2,500,000 bank term loan.
In April 1997, Artra borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998, bearing interest at 10%. As additional compensation,
Mr. Conant received a warrant to purchase 333,333 shares of Artra common stock
at a price of $5.00 per share. Mr. Conant had the right to put this warrant back
to Artra at any time during the period of April 21, 1998 to April 20, 2000, for
a total purchase price of $1,000,000. In May 1998, Mr. Conant sold the warrant
to an unrelated third party who put the warrant back to Artra for a total
purchase price of $1,000,000. The proceeds from this loan were used to repay Mr.
Conant's outstanding borrowings of $1,800,000 and to pay down other Artra debt
obligations.
In June 1997, Artra borrowed an additional $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation, Mr.
Conant received a warrant to purchase 40,000 shares of Artra common stock at a
price of $5.00 per share. Mr. Conant had the right to put this warrant back to
Artra at any time during the period of December 10, 1997 to June 10, 1998, for a
total purchase price of $80,000, and Mr. Conant put the warrant back to Artra
for $80,000 in 1998. The proceeds from this loan were used to pay down other
Artra debt obligations. In July 1997, borrowings from Mr. Conant were reduced to
$3,000,000 with proceeds advanced to Artra from a Bagcraft term loan as
discussed above. In December 1997, borrowings from Mr. Conant were reduced to
$2,000,000 with proceeds from other short-term borrowings. The borrowings from
Mr. Conant were collateralized by 490,000 shares of Comforce common stock by
Artra's Fill-Mor subsidiary.
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<PAGE>
In August 1998 Artra borrowed an additional $500,000 from Mr. Conant,
due December 20, 1998, bearing interest at 15%. As additional compensation, the
lender received a warrant to purchase 20,000 shares of Artra common stock at a
price of $3.9375 per share. The proceeds from this loan were used to pay down
other Artra debt obligations.
In November 1998, all borrowings from Mr. Conant were repaid with
proceeds from the sale of the business assets of Bagcraft.
Neither Mr. Celano nor Mr. Conant became directors by virtue of any of
the provisions of these loan transactions. Each of them were invited by the
Artra board of directors to serve as directors because of the board's desire to
add two outside directors as suggested by the New York Stock Exchange.
Don G. Haidl
In September 1990, Mr. Haidl, the beneficial owner of 9.39% of the
outstanding shares of Entrade common stock, and two unaffiliated persons agreed
to lease a portion of the premises located at 13005 East Temple Avenue, City of
Industry, California, to Asset Liquidation Group, a subsidiary of Nationwide.
Pursuant to the lease agreement, Nationwide is obligated to, among other things,
pay the mortgagee of the premises $11,715.44 per month until the end of the
original term of the lease agreement and pay Mr. Haidl and each of the other two
property owners $4,497.14 per month for the first five years of the original
term of the lease agreement, $5,500 per month for the remaining two years of the
original term of the lease agreement, and $7,000 per month for each year of any
option period.
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of January 31, 2000, the amount and
percentage of Entrade common stock owned by (a) each person who is known by
Entrade to own beneficially more than 5% of the outstanding shares of Entrade
common stock, (b) each director, (c) each executive officer named in the Summary
Compensation Table, and (d) all executive officers and directors of Entrade as a
group.
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Number of Shares Percent
Name of Beneficial Owner Beneficially Owned of Class
- ------------------------ ------------------ --------
5% Holders:
WorldWide(1) 1,800,000 11.44%
Don Haidl(2) 1,477,523 9.39%
Directors and Executive Officers:
John Harvey(3) 793,034 4.96%
Peter R. Harvey(4) 654,804 4.11%
Gerard M. Kenny(5) 107,080 *
Maynard K. Louis(6) 80,160 *
Edward A. Celano(7) 36,872 *
Howard R. Conant(8) 324,000 2.06%
Robert L. Johnson(9) 21,139 *
Robert D. Kohn(10) 666,667 4.07%
Mark F. Santacrose(11) 222,500 1.40%
Corey Schlossmann (12) 385,731 2.42%
John K. Tull(13) 40,587 *
All directors and officers as a group
(18 persons)(14) 3,915,791 22.09%
* Less than 1% of the outstanding shares.
(1) WorldWide's business address is 521 Fellowship Road, Suite 130, Mount
Laurel, New Jersey 08054.
(2) Mr. Haidl's business address is 13005 East Temple Avenue, City of
Industries, California 91746. The shares of Entrade common stock owed
by Mr. Haidl consist of 477,523 shares held directly by him and
1,000,000 shares held for the benefit of Mr. Haidl by Capital Direct
Trust.
(3) The shares of Entrade common stock beneficially owned by Mr. Harvey
consist of 518,122 shares held directly by him or in the Harvey family
trust (with respect to which he holds voting and investment power),
5,632 shares held by Mr. Harvey's wife, 7,452 shares held in his 401(k)
plan, 47,500 shares issuable under an option which expires December 19,
2000 at an exercise price of $3.65 per share, 131,000 shares issuable
under an option which expires October 4, 2006 at an exercise price of
$5.25 per share, 35,000 shares issuable under an option which expires
January 6, 2009 at an exercise price of $4.75 per share and an
aggregate of 48,378 shares issuable under warrants expiring at various
dates in 2000 and 2001 at exercise prices of $4.25 per share to $6.25
per share received in 1995 and 1996 as additional compensation for 1995
and 1996 short-term loans.
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(4) The shares of Entrade common stock beneficially owned by Mr. Harvey
consist of 461,377 shares held directly by him, 600 shares owned by his
wife and children, 634 shares held in his 401(k) plan, 7,193 shares
held in his individual retirement account, 20,000 shares issuable under
an option which expires September 19, 2001 at an exercise price of
$3.65 per share, 15,000 shares issuable under an option which expires
January 8, 2003 at an exercise price of $3.75 per share and 150,000
shares issuable under an option which expires January 6, 2009 at an
exercise price of $4.75 per share.
(5) The shares of Entrade common stock beneficially owned by Mr. Kenny
consist of 2,668 shares held by Kenny Construction Company, 89,412
shares held by Clinton Industries, 12,500 shares issuable under an
option which expires May 28, 2008 at an exercise price of $3.125 per
share and 2,500 shares issuable under an option which expires February
1, 2009 at an exercise price of $5.375 per share. Mr. Kenny is
Executive Vice President, Director and beneficial owner of 16.66% of
the issued and outstanding stock of Kenny Construction Company. He is
also the General Partner and a 14.28% beneficial owner of Clinton
Industries, a limited partnership. See "Related Party Transactions --
Gerard M. Kenny."
(6) The shares of Entrade common stock beneficially owned by Mr. Louis
consist of 43,160 shares held directly by him, 12,500 shares issuable
under an option which expires May 28, 2008 at an exercise price of
$3.125 per share, 2,500 shares issuable under an option which expires
February 1, 2009 at an exercise price of $5.375 per share and a warrant
to purchase 22,000 shares of Entrade common stock at a price of $8.00
per share which warrant expires on June 13, 2001.
(7) The shares of Entrade common stock beneficially owned by Mr. Celano
consist of 21,872 shares held directly by him, 12,500 shares issuable
under an option which expires May 28, 2008 at an exercise price of
$3.125 per share and 2,500 shares issuable under an option which
expires February 1, 2009 at an exercise price of $5.375 per share.
(8) Mr. Conant holds 295,000 shares of Entrade common stock directly and
20,000 shares in his individual retirement account. Mr. Conant's wife
holds 9,000 shares of Entrade common stock.
(9) The shares of Entrade common stock beneficially owned by Mr. Johnson
consist of 6,139 shares held directly by him, 12,500 shares issuable
under an option which expires May 28, 2008 at an exercise price of
$3.125 per share and 2,500 shares issuable under an option which
expires February 1, 2009 at an exercise price of $5.375 per share.
(10) The shares of Entrade common stock beneficially owned by Mr. Kohn
consist of 666,667 shares issuable under an option which expires
February 23, 2009 at an exercise price of $2.75 per share.
(11) The shares of Entrade common stock beneficially owned by Mr. Santacrose
consist of 10,000 shares owned by him directly, 10,000 shares issuable
under an option which expires January 6, 2009 at an exercise price of
$4.75 per share, 2,500 shares issuable under an option which expires
February 1, 2009 at an exercise price of $5.375 per share and 200,000
issuable under an option which expires June 28, 2009 at an exercise
price of $10 per share.
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(12) The shares of Entrade common stock beneficially owned by Mr. Schlossman
consist of 128,731 shares held directly by him and 57,000 shares held
for the benefit of Mr. Schlossman by Core Capital IV Trust and 200,000
shares issuable under an option which expires October 15, 2009 at an
exercise price of $9.00 per share.
(13) The shares of Entrade common stock beneficially owned by Mr. Tull
consist of 28,087 shares held directly by him, 10,000 shares issuable
under an option which expires January 6, 2009 at an exercise price of
$4.75 per share and 2,500 shares issuable under an option which expires
February 1, 2009 at an exercise price of $5.375 per share.
(14) The shares of Entrade common stock held by this group include an
aggregate of 2,019,649 shares that these persons have the right to
purchase under currently exercisable stock options and warrants.
SELLING SHAREHOLDERS
The selling shareholders listed in the table are offering shares of
common stock as described in "Plan of Distribution" below.
The following table sets forth the number of shares and the percentage
of outstanding shares beneficially owned by each selling shareholder before and
after the offering.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Shares to be Beneficially Owned
Before Offering (1)(2) Offered After Offering
------------------------------- --------------- ---------------------------------
Number Percent Number Percent
--------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
A.T. Kearney (6)................................ 48,493 * 48,493 0 *
D.L. Arends Partnership (5)..................... 2,200 * 2,200 0 *
James Belushi Trust (6)......................... 3,500 * 3,500 0 *
Reed Berkey (7)................................. 2,200 * 2,000 200 *
Braden Sutphin Ink Company (2).................. 25,000 * 25,000 0 *
Katherine Buchanan (8).......................... 4,000 * 4,000 0 *
Kenneth H. Buchanan (7)......................... 6,800 * 4,000 2,800 *
Fred W. Broling (9)............................. 214,287 1.36 214,287 0 *
Richard A. Chaifetz (6)......................... 23,625 * 13,625 10,000 *
Woodrow W. Chamberlain (8)...................... 25,000 * 10,000 15,000 *
Woodrow and Barbara
Chamberlain JT (7)........................... 28,330 * 10,000 18,330 *
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Albert Cohen (10)............................... 10,000 * 10,000 0 *
Dale and Rayanne Coy JT (7)..................... 850 * 500 350 *
Tom Devane (11)................................. 4,125 * 4,125 0 *
David J. Doerge Trust (7)....................... 88,427 * 2,000 86,427 *
Elliot Associates, L.P. (6)..................... 78,125 * 78,125 0 *
Energy Trading Company (12)..................... 200,000 1.27 200,000 0 *
Paul Farmer IRA (7)............................. 3,500 * 1,000 2,500 *
James and Carol Filler JTWRS (6) ............... 10,000 * 10,000 0 *
Mary Ann Fitzgerald (7) ........................ 2,000 * 1,500 500 *
Flagline & Company (6).......................... 46,000 * 46,000 0 *
Beata Flatley (8)............................... 6,000 * 6,000 0 *
Fleetfooted & Company (6) ...................... 40,000 * 40,000 0 *
Flybridge & Company (6)......................... 45,000 * 45,000 0 *
Jon D. Freeman (13)............................. 7,000 * 3,000 4,000 *
Leo Gans (9).................................... 72,824 * 72,824 0 *
1993 GF Partnership (8)......................... 8,100 * 2,000 6,100 *
Gilford Securities Incorporated (26) (29)....... 49,250 * 49,250 0 *
Stewart Greenebaum (6) (23)..................... 196,000 1.25 20,000 176,000 1.12
Don Haidl (14) (29)............................. 1,477,523 9.39 1,477,523 0 *
John G. Hamm (3) Living Trust (9)............... 102,767 * 18,769 83,998 *
Frank D. Harrison IRA (7)....................... 1,000 * 1,000 0 *
William R. Johnson (7).......................... 500 * 500 0 *
JDK & Associates (15)........................... 185,731 1.18 185,731 0 *
John Harvey (4) (16)............................ 793,084 4.96 199,813 593,271 3.57
Julie Harvey Valeriote (9) (17)................. 150,000 * 43,986 106,014 *
Kathleen Harvey Clapp (9) (17).................. 150,000 * 43,986 106,014 *
Kim Harvey (9) (17)............................. 150,000 * 43,986 106,014 *
Lori Harvey (9) (17)............................ 150,000 * 43,986 106,014 *
Peter Harvey (4) (9)............................ 654,804 4.11 87,152 567,652 3.71
Phyllis Harvey (9) (18)......................... 5,632 * 5,632 0 *
Claire Kovar (8)................................ 2,000 * 2,000 0 *
Kenneth Kwiatt (9) (19)......................... 28,714 * 18,769 9,945 *
Maynard Louis (4) (20).......................... 80,160 * 22,000 58,160 *
Lunn Partners Multiple 5,625
Opportunities Portfolio LP (6)............... 15,625 * 15,625 0 *
Frank Magid (7)................................. 1,000 * 1,000 0 *
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Maranello Ltd (8)............................... 2,000 * 2,000 0 *
James C. McGill (7)............................. 10,000 * 2,000 8,000 *
Johanna B. McGill (7)........................... 500 * 500 0 *
Kay McHugh (7).................................. 1,000 * 1,000 0 *
D. Michael Meyer (7) (8)........................ 19,000 * 4,000 15,000 *
Jerry Mickelson IRA (8)......................... 5,500 * 1,500 4,000 *
Millenium Capital Corp (27) (29)................ 49,125 * 49,125 0 *
Ted Mooschekian (7)............................. 1,000 * 1,000 0 *
Dr. John H. Muehlstein (8)...................... 7,000 * 2,000 5,000 *
Neff Family Trust dated 7/6/92 (6).............. 16,666 * 7,000 9,666 *
Douglas B. Nelson &
Jessica M. Swift (7) (8)..................... 36,200 * 7,000 29,200 *
Lilly L. Nelson (8)............................. 6,000 * 1,000 5,000 *
Parisa & Company (6)............................ 14,000 * 14,000 0 *
Park Avenue IOM LTD (7)......................... 10,000 * 10,000 0 *
Thomas D. Philipsborn Declaration
of Trust (6)................................. 500 * 500 0 *
Marcia Proffitt (7)............................. 10,000 * 10,000 0 *
Ravinia Investors, L.L.C. (7)................... 7,166 * 2,000 5,166 *
Charles Reeder (7).............................. 5,332 * 4,000 1,332 *
William G. Reynolds, Jr. (8).................... 2,500 * 500 2,000 *
Lenore M. Schmick Trust (6)..................... 27,832 * 5,500 22,332 *
Corey P. Schlossmann (4) (21)................... 385,731 2.42 185,731 0 *
Martha T. Seelbach (8).......................... 6,000 * 1,000 5,000 *
William Seelbach (8)............................ 1,000 * 1,000 0 *
Shipp Family Trust (8).......................... 3,000 * 1,000 2,000 *
Shoreline Pacific Equity Ltd. (11).............. 8,000 * 8,000 0 *
Mary Sievers (8)................................ 4,000 * 3,000 1,000 *
Sisyphus & Company (6).......................... 11,250 * 11,250 0 *
A. E. Staley III Trust (6)...................... 10,000 * 10,000 0 *
Henry M. Staley (6)............................. 11,000 * 2,000 9,000 *
Henry M. Staley Trust (6)....................... 2,000 * 2,000 0 *
Anita M. Stone Family Trust (7)................ 31,660 * 20,000 11,660 *
Avery J. Stone Trust (8)........................ 19,000 * 8,000 11,000 *
Shepard C. Swift Trust (7)...................... 2,000 * 2,000 0 *
Michael Targoff (22)............................ 105,600 * 100,000 5,600 *
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EB Tarrson (7) (8).............................. 33,000 * 20,000 13,000 *
EB Tarrson CRAT 11-14-91 (8) ................... 8,000 * 8,000 0 *
EB Tarrson CRAT 12-21-93 (8)................... 4,000 * 4,000 0 *
Bud Tarrson Foundation
for Dental Research (7)...................... 4,000 * 4,000 0 *
Ronald E. Tarrson (7) (8)....................... 25,000 * 20,000 5,000 *
Sari Tarrson Residuary Trust (7)................ 2,000 * 2,000 0 *
Westgate International, L.P. (6)................ 78,125 * 78,125 0 *
Elizabeth Joan White (7)........................ 1,000 * 1,000 0 *
Robert D. White (7)............................. 1,000 * 1,000 0 *
Thomas L. Whitney (7)........................... 4,000 * 4,000 0 *
Diane Wilson (8)................................ 1,750 * 500 1,250 *
WorldWide Web NetworX
Corporation (24)............................. 1,800,000 11.5 1,800,000 0 *
D. R. Zaccone (25).............................. 87,466 * 87,466 0 *
<FN>
_______________________________
* Less than one percent.
(1) The ownership percentages are calculated based on the assumption that
all shares issuable to the Selling Shareholder upon the exercise of
options or warrants by such shareholder (but only such shareholder)
have been issued.
(2) The ownership percentages are calculated based on the assumption that
all shares issuable to the Selling Shareholder upon the exercise of
options or warrants by such shareholder (but only such shareholder)
have been issued. Unless otherwise indicated in the notes to this
table, all shares shown as beneficially owned by the named individual
are owned of record by such person.
(3) Executive officer of Entrade. See "Information regarding Executive
Officers" and "Information Regarding Beneficial Ownership of Principal
Shareholders and Management."
(4) Director of Entrade. See "Information regarding Executive Officers" and
"Information Regarding Beneficial Ownership of Principal Shareholders
and Management."
(5) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of a warrant at an exercise price of $8.00
per share, which expires May 8, 2001. The warrant was issued as
additional consideration for a short-term loan.
(6) Consists of shares of common stock directly owned of record by such
person.
(7) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of a warrant at an exercise price of $3.00
per share, which expires thirty days after the effective date of this
registration statement. The warrants were issued as additional
consideration for short-term loans.
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(8) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of a warrant at an exercise price of $3.00
per share, which expires April 30, 2000. The warrants were issued as
additional consideration for short-term loans.
(9) The shares being offered for sale consist of shares of common stock
issued in exchange for shares of BCA Holdings Inc. Series A preferred
stock and Series B preferred stock, as approved by the Company's board
of directors in October 1999. BCA Holdings Inc., a wholly_owned
subsidiary of the Company's Artra Group Incorporated subsidiary, was
the parent of the former Bagcraft Corporation of America subsidiary.
(10) The shares being offered for sale consist of shares of common stock
issued to the person of record as a finders fee in conjunction with the
acquisition of the Nationwide subsidiary.
(11) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of warrants at exercise prices of $32.00 to
$55.65 per share, which expire January 5, 2003. The warrantholder acted
as a finder in conjunction with certain of the private placements of
shares of its common stock entered into in December 1999 and January
2000.
(12) The shares being offered for sale consist of shares of common stock
issued to Energy Trading Company in conjunction with the February 1999
acquisition by Entrade of software and other assets necessary for the
conduct of entrade.com's e-commerce business.
(13) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of a warrant at an exercise price of $3.00
per share, which expires October 21, 2000. The warrant was issued as
additional consideration for a short-term loan.
(14) Mr. Haidl acquired 1,413,000 shares of stock in conjunction with the
company's acquisition of Nationwide, 1,000,000 of which he designated
to be issued to Capital Direct Trust 1999, a trust for his benefit.
Pursuant to the terms of a Promissory Note issued in conjunction with
such acquisition on October 15, 1999, which was extended to January 5,
2000, Mr. Haidl converted the interest due on the note to 221,521
shares of stock of the company at a conversion rate of $17 per share.
Mr. Haidl has since transferred to JDK & Associates, which acted as an
advisor to the shareholders of Nationwide in conjunction with its
acquisition by the company, 157,000 of the shares of stock that he
originally received at the closing, and directed that 28,731 shares of
the shares otherwise issuable to him with respect to the interest
accrued on the Promissory Note be issued to JDK & Associates.
(15) JDK & Associates acted as an advisor to the shareholders of Nationwide
in conjunction with its acquisition by the company. See footnote (14)
with respect to Don Haidl, above.
(16) The shares being offered for sale by Mr. Harvey consist of 151,435**
shares held directly by him or in the Harvey family trust (with respect
to which he holds voting and investment power) and an aggregate of
48,378 shares issuable under the following warrants issued as
additional consideration for short-term loans:
Number of Exercise Price Expiration Date
Shares per Share of Warrant
---------- ---------- ----------
7,800 4.750 04-28-00
8,426 4.250 07-27-00
4,019 4.625 09-30-00
4,019 4.875 10-31-00
4,019 4.375 11-30-00
8,038 6.125 12-31-00
4,019 6.125 02-29-01
4,019 6.250 03-31-01
4,019 6.000 04-30-01
** Consists of 133,768 shares acquired in exchange
for shares of BCA Holdings Inc. Series A preferred
stock and Series B preferred stock (see footnote 9),
6,000 shares received upon exercise of a warrant at a
price of $4.75 per share and 11,667 shares received
upon exercise of a warrant at a price of $3.75 per
share. The warrants were issued as additional
consideration for short-term loans.
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<PAGE>
(17) Julie Harvey Valeriote, Kathleen Harvey Clapp, Kim Harvey and Lori
Harvey are the daughters of the Company's Chairman of the Board, John
Harvey. Mr. Harvey disclaims beneficial ownership in these shares.
(18) Phyllis Harvey is the wife of the Company's Chairman of the Board, John
Harvey. The 5,632 shares offered for sale by Mrs. Harvey are included
in the total number of shares beneficially owned by John Harvey.
(19) Mr. Kwiatt is a first cousin of John Harvey, the Company's Chairman of
the Board and Peter Harvey, the Company's Vice Chairman. Mr. Kwiatt is
a partner in the law firm of Kwiatt & Ruben, which provides legal
services to the Company from time to time.
(20) The shares being offered for sale consist of shares of common stock
issuable upon the exercise of a warrant at an exercise price of $8.00
per share, which expires June 13, 2001. The warrant was issued as
additional consideration for a short-term loan.
(21) Mr. Schlossmann is a director of the company and is the Chief Executive
Officer of Nationwide. Mr. Schlossmann is Mr. Haidl's designee as a
director of the company. Mr. Schlossmann acquired 157,000 shares of
common stock in conjunction with the company's acquisition of
Nationwide, 57,000 of which he transferred to Core Capital IV Trust, a
trust for his benefit. Pursuant to a the terms of a Promissory Note
issued in conjunction with such acquisition on October 15, 1999, which
was extended to January 5, 2000, Mr. Schlossman converted the principal
and interest due on the note to 28,731 shares of stock of the company
at a conversion rate of $17 per share.
(22) The shares being offered for sale consist of 100,000 shares of common
stock originally issued to Jeffrey Newman as a finders fee for the
Entrade transaction, subsequently transferred to Mr. Targoff.
(23) The shares being offered for sale by Mr. Greenebaum are registered in
Mr. Greenebaum's name. The other shares beneficially owned are
registered in street name for the benefit of Mr. Greenebaum and his
wife as joint tenants.
(24) The shares being offered for sale by WorldWide Web NetworX Corporation
consist of shares of Entrade Inc. owned prior to the consummation of
the merger of Artra into Entrade's merger subsidiary.
(25) The shares being offered for sale by Mr. Zaccone consists of 87,466
shares issuable to Mr. Zaccone upon the exercise of warrants at prices
of $4.00 to $7.75 per share, expiring between December 17, 2002 and
October 26, 2003. The warrants were issued as additional compensation
for short-term loans.
(26) The shares being offered for sale consist of 35,000 shares received as
a finders fee in conjunction with the acquisition of the Nationwide
subsidiary and warrants to purchase 4,250 shares at a price of $32.00
per share which expire January 5, 2003. The warrantholder acted as a
finder in conjunction with certain of the private placements of shares
of its common stock entered into in December 1999 and January 2000.
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(27) The shares being offered for sale consist of 35,000 shares received as
a finders fee in conjunction with the acquisition of the Nationwide
subsidiary and warrants to purchase 4,125 shares at a price of $32.00
per share which expire January 5, 2003. The warrantholder acted as a
finder in conjunction with certain of the private placements of shares
of its common stock entered into in December 1999 and January 2000.
(28) The shares being offered by Braden Sutphin Ink consist of 25,000 shares
issuable to Braden Sutphin upon the exercise of a warrant at a purchase
price per share of $37.75, which expires three months after the
effective date of this registration statement. The warrant was issued
in conjunction with Braden Sutphin's agreement to become a supplier to
printeralliance.com.
(29) The shares being offeed for sale by Mr. Haidl include 20,000 shares
that are subject to options that he has issued to Gilford Securities
and Millenium Capital, each of which has the option to acquire 10,000
shares. The shares being offered for sale by each of Gilford Securities
and Millenium Capital include 10,000 shares that each of them has the
right to acquire pursuant to the options.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The shares covered by this Prospectus may be offered and sold from time
to time by the selling shareholders. Entrade believes that each selling
shareholder will act independently in making decisions regarding the timing,
manner and size of each sale.
The selling shareholders or their pledgees, donees, transferees or
other successors in interest may sell all, a portion or none of the shares
registered in this registration statement. Any sales may be in one or more
transactions on the New York Stock Exchange at prices prevailing at the times of
the sales or in private sales of the securities at prices related to the
prevailing market prices or at negotiated prices. The sales may involve:
o a block transaction in which a broker or dealer will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o a purchase by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions in which the broker solicits
purchasers;
o an exchange distribution in accordance with the rules of the
National Association of Securities Dealers;
o privately negotiated transactions;
o short sales;
o broker-dealers agreeing with a selling shareholder to sell a
specified number of such shares at a stipulated price per share;
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<PAGE>
o a combination of any of these methods; and
o any other method permitted pursuant to applicable law.
Broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions.
The selling shareholders and any broker-dealers that participate in the
distribution of the shares may be deemed to be underwriters and any commissions
received by them and any profit on the resale shares purchased by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The selling shareholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The selling shareholders may pledge the shares to their brokers under the margin
provisions of customer agreements. If a selling shareholder defaults on a margin
loan, the broker may offer and sell the pledged shares.
We are paying all registration expenses in connection with the
registration of the shares other than fees and expenses of the selling
shareholders' counsel, if any, underwriting discounts and commissions, brokerage
commissions, non-accountable expense allowances attributable to the sale of the
selling shareholders' shares and the selling shareholders' other out of pocket
expenses.
We cannot assure you that the selling shareholders will sell any of the
shares. We will receive no proceeds from any sales of the shares by the selling
shareholders.
We have filed this registration statement with the Commission pursuant
to our obligations under the merger agreement with respect to the shares held by
WorldWide and Energy Trading Company, under the Nationwide purchase agreement,
under the subscription agreements with our recent investors, and under various
outstanding warrants.
The selling shareholders have advised us that they or their pledgees,
donees, transferees or other successors in interest may sell all or a portion of
the securities covered by this prospectus pursuant to Rule 144.
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DESCRIPTION OF ENTRADE CAPITAL STOCK
General
The summary of the terms of the stock of Entrade set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of Entrade and the
provisions of Pennsylvania law.
Authorized Capital Stock
The total number of shares of all classes of stock that Entrade has
authority to issue is 44,000,000 shares, of which 40,000,000 shares are shares
of common stock, without par value, and 4,000,000 shares are shares of preferred
stock, $1,000 par value per share. At February 7, 2000, 15,732,606 shares of
common stock were issued and outstanding and no shares of preferred stock were
issued and outstanding.
The additional shares of authorized stock available for issuance by
Entrade might be issued at times and under circumstances that would have a
dilutive effect on earnings per share and on the equity ownership of the holders
of Entrade common stock. The ability of the Entrade board of directors to issue
additional shares of stock could enhance the Entrade board of directors' ability
to negotiate on behalf of the shareholders in a takeover situation and also
could be used by the Entrade board of directors to make a change in control more
difficult, thereby denying shareholders the potential to sell their shares at a
premium and entrenching current management.
Common Stock
Holders of Entrade common stock are entitled to one vote per share on
all matters voted on generally by the shareholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any series of Entrade preferred stock, the holders of shares of
Entrade common stock possess all voting power. The Articles of Incorporation of
Entrade provide that the shareholders of Entrade do not have the right to
cumulate their votes for the election of directors. Thus, the holders of more
than one-half of the outstanding shares of Entrade common stock will be able to
elect all the directors of Entrade then standing for election and holders of the
remaining shares will not be able to elect any director.
Subject to any preferential rights of any series of Entrade preferred
stock, holders of shares of Entrade common stock are entitled to receive
dividends on these shares out of assets legally available for distribution when,
as and if authorized and declared by the Entrade board of directors and to share
ratably in the assets of Entrade legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding up.
Holders of Entrade common stock have no preemptive or subscription
rights and there are no conversion rights or redemption or sinking fund
provisions with respect to those shares. The rights, preferences and privileges
of holders of Entrade common stock will be subject to the rights of the holders
of any series of Entrade preferred stock that Entrade may issue in the future.
85
<PAGE>
Preferred Stock
The Entrade board of directors is authorized to issue the 4,000,000
authorized shares of Entrade preferred stock from time to time in one or more
series. The Entrade board of directors, without further approval of the holders
of Entrade common stock, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, sinking funds and any other rights, preferences, privileges and
restrictions applicable to each authorized series of Entrade preferred stock.
The Entrade board of directors could authorize the issuance of shares of Entrade
preferred stock with terms and conditions which could discourage a takeover or
other transaction that holders of some or a majority of shares of Entrade common
stock might believe to be in their best interests or in which those holders
might receive a premium for their shares of stock over the then market price of
those shares. As of the date hereof, no shares of Entrade preferred stock are
outstanding.
Transfer Agent
The transfer agent and registrar for the Entrade common stock is
ChaseMellon Shareholder Services, LLC.
Anti-Takeover Provisions
Charter Anti-Takeover Provisions
The Articles of Incorporation of Entrade provide that in the event that
the holders of the stock of Entrade outstanding and entitled to vote at a
meeting with respect to a particular matter are entitled to vote on:
o a proposal that Entrade enter into a merger or consolidation with
any person, or that Entrade sell, lease or exchange substantially
all of its assets and property to any person, and the person and
his or its affiliates, singly or in the aggregate, own or
control, directly or indirectly, five percent or more of the
voting stock of Entrade; or
o a proposal to reclassify securities, recapitalize or any other
transaction, except redemptions permitted by the terms of the
security to be redeemed or repurchased by Entrade of its
securities for cancellation or for its treasury, designed to
decrease the number of holders of the voting stock of Entrade
remaining after any person has acquired five percent of the
voting stock of Entrade,
the affirmative vote of the holders of shares of the voting stock of Entrade
representing at least 80% of the votes entitled to be cast at a meeting of the
shareholders is required for the approval of the proposal; provided, however,
that these requirements do not apply to any described merger, consolidation or
sale of assets and property:
86
<PAGE>
o that has been approved by a resolution duly adopted by a majority
of the Entrade directors in office, although less than a quorum,
and the affirmative vote of the holders of shares of voting stock
of Entrade representing at least a majority of the votes entitled
to be cast at a meeting of shareholders called for that purpose;
or
o between Entrade and another corporation, 50% or more of the
voting stock of which is owned by Entrade, if Entrade is the
survivor or purchaser.
Any amendment to this anti-takeover provision requires either:
o the affirmative vote of the holders of shares of the voting stock
of Entrade representing at least 80% of the votes entitled to be
cast at a meeting of the shareholders; or
o the affirmative vote of at least 80% of the Entrade directors in
office, although less than a quorum, and the affirmative vote of
the holders of shares of the voting stock of Entrade representing
at least a majority of the votes entitled to be cast at the
meeting of shareholders.
The Articles of Incorporation of Entrade also contain a provision that
shareholders do not have cumulative voting rights with respect to election of
directors.
Bylaw Anti-Takeover Provisions
Entrade's Bylaws require any shareholder who desires to nominate a
candidate for election as a director to provide background information in
writing concerning the proposed nominee not later than 120 days before the first
anniversary of the date of the preceding annual meeting of shareholders.
Anti-Takeover Provisions under Pennsylvania Law
Pennsylvania has also enacted laws that may be considered
"anti-takeover" in effect. One provision permits directors, in considering the
best interests of Entrade, to consider the effects of any action upon its
employees, suppliers, customers, shareholders and creditors and the communities
in which Entrade maintains facilities. The effect of this provision is to put
the considerations of these constituencies on parity with one another, with the
result that no one group, including shareholders, is required to be the dominant
or controlling concern of directors in determining what is in the best interests
of Entrade. This provision applies to all Pennsylvania corporations.
87
<PAGE>
Other provisions under Pennsylvania law that may be considered
anti-takeover in effect include the authorization for the adoption of
shareholder rights or "poison pill" plans and the prohibition against
shareholders calling a special meeting of shareholders, taking action by less
than unanimous written consent or proposing an amendment to the Articles of
Incorporation of Entrade.
Entrade is subject to additional anti-takeover provisions under
Pennsylvania law. A summary of these anti-takeover provisions is as follows:
Business Combinations. This provision prohibits any person or group
that acquires at least 20% of the voting power of a corporation from effecting a
business combination with the corporation, including a merger, an asset sale and
recapitalizations described in the statute, for a period of up to five years
from the date the person acquired that voting power. The corporation's board of
directors may opt out of this provision on a case-by-case basis by approving a
particular business combination prior to the date the person or group acquires
20% of the voting power.
Control-Share Acquisitions. This provision prevents a person or group
that crosses the stock ownership thresholds of 20%, 33-1/3% or 50% for the first
time from voting shares beneficially owned by the person unless voting power is
restored to those shares by a vote of all shareholders and a vote of
disinterested shareholders at a shareholders meeting. Also, any business
combinations occurring after the restoration of voting power will require the
acquiring person to pay severance compensation to Pennsylvania employees of the
corporation whose employment is terminated, other than for willful misconduct
connected with the work of the employee, within 90 days before or 24 months
after the restoration of voting power.
Disgorgement. This provision requires any person or group that acquires
20% or more of the voting power of a corporation to disgorge to the corporation
all profits realized from the sale of equity securities of the corporation
within 18 months after acquiring this control status if the person or group
purchased equity securities of the corporation within 24 months prior to, or 18
months after, the acquisition of control status.
The Articles of Incorporation of Entrade provide that other
anti-takeover provisions under Pennsylvania law are not applicable to Entrade.
Limitation of Liability
As permitted by the provisions for indemnification of directors and
officers under Pennsylvania law, Entrade's Bylaws provide for indemnification of
directors and officers for all expense, liability and loss, including without
limitation attorneys' fees, judgments, fines, taxes, penalties and amounts paid
in settlement, reasonably incurred or suffered by the officer or director in any
threatened, pending or completed action, suit or proceeding, including without
limitation an action, suit or proceeding by or in the right of Entrade, whether
civil, criminal, administrative, investigative or through arbitration, unless
the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
88
<PAGE>
The right to indemnification provided in Entrade's Bylaws includes the
right to have the expenses incurred by an officer or director in defending any
proceeding paid by Entrade in advance of the final disposition of the proceeding
to the fullest extent permitted by Pennsylvania law; provided that, if
Pennsylvania law continues so to require, the payment of the expenses incurred
by the officer or director in advance of the final disposition of a proceeding
may be made only upon delivery to Entrade of an undertaking, by or on behalf of
the officer or director, to repay all amounts so advanced without interest if it
is ultimately determined that the officer or director is not entitled to be
indemnified under Entrade's Bylaws or otherwise. Indemnification under these
provisions continues as to a person who has ceased to be a director or officer
of Entrade and inures to the benefit of his or her heirs, executors and
administrators.
Entrade's Bylaws also avail directors of the Pennsylvania law limiting
directors' liability for monetary damages for any action taken or any failure to
take any action except for those cases where they have breached their fiduciary
duty under Pennsylvania law and the breach constitutes self-dealing, willful
misconduct or recklessness. This limitation of liability does not apply to the
responsibilities or liabilities of a director under any criminal statute or to
the liabilities of a director for payment of taxes under local, Pennsylvania or
federal law.
Outstanding Warrants
As of December 31, 1999, Entrade had outstanding warrants to purchase
an aggregate of 377,711 shares of Entrade common stock. All of the warrants
granted are fully vested and were assumed by Entrade in September 1999.
Artra granted miscellaneous warrants to purchase an aggregate of
2,734,284 shares of Artra common stock between March 31, 1992 and October 21,
1998. Artra issued these warrants as additional compensation to lenders for
short-term loans. As of December 31, 1999, miscellaneous warrants to purchase an
aggregate of 180,711 shares of Entrade common stock were outstanding with
expiration dates ranging from January 20, 2000 to October 26, 2003 and per share
exercise prices ranging from $3.00 to $8.00.
The remaining warrants to purchase an aggregate of 197,000 shares of
Entrade common stock, granted from 1997 to 1998 in connection with the issuance
of promissory notes, have expiration dates ranging from April 30, 2000 to thirty
days after the effective date of this prospectus and exercise prices ranging
from $3.00 to $3.75 per share. The holders of these warrants have the option to
sell their unexercised purchase rights under the warrants to Entrade during
specified periods for purchase prices ranging from $1.50 to $3.00.
The holders of the warrants have registration rights as set forth in
the warrants. The warrants do not confer upon the holders thereof any voting or
other rights of a shareholder of Entrade. Upon notice to the holders of the
warrants, Entrade has the right to reduce the exercise price and extend the
expiration date of the warrants. Appropriate adjustment to the outstanding
warrants and to the number and kind of shares subject to the warrants are
provided for in the event of a stock split, reverse stock split, stock dividend,
combination or reclassification and other described corporate transactions
involving Entrade, including a merger or a sale of substantially all of the
assets of Entrade.
89
<PAGE>
LEGAL MATTERS
The validity of Entrade common stock registered under this prospectus
will be passed upon for Entrade by Anthony E. Rothschild, its General Counsel.
EXPERTS
The financial statements of Artra as of December 31, 1998 and 1997 and
for each of the three fiscal years in the period ended December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Entrade as of February 23, 1999 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The combined financial statements of Nationwide Auction Systems, as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Entrade files annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information filed by Entrade at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Entrade's filings with the Commission are also available
to the public from commercial document retrieval services and at the web site
maintained by the Commission at http://www.sec.gov.
Entrade filed a registration statement on Form S-1 to register with the
Commission the Entrade common stock to be sold by the selling shareholders. This
Prospectus is a part of the registration statement. As allowed by the
Commission's rules, this Prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement. This Prospectus summarizes some of the documents that are exhibits to
the registration statement, and you should refer to the exhibits for a more
complete description of the matters covered by those documents.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ENTRADE INC. AND SUBSIDIARIES
On September 23, 1999, per terms of a merger agreement, Artra became a wholly
owned subsidiary of Entrade, with Artra being the surviving corporation for
financial reporting purposes. Accordingly, the historical financial statements
included in this prospectus for Entrade present the financial condition and
results of operations and cashflows for Artra for periods presented prior to the
merger.
<TABLE>
<CAPTION>
Page
----
ENTRADE INC.
- ------------
<S> <C>
Report of Independent Accountants ................................................F-2
Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997..................................F-3
Consolidated Statements of Operations
for each of the three fiscal years in the period
ended December 31, 1998..................................................F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for each of the three fiscal years in the period
ended December 31, 1998..................................................F-6
Consolidated Statements of Cash Flows
for each of the three fiscal years in the period
ended December 31, 1998..................................................F-8
Notes to Consolidated Financial Statements........................................F-10
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 (Unaudited).....................F-31
Condensed Consolidated Statements of Operations
for periods ended September 30, 1999 and
September 30, 1998 (Unaudited)..........................................F-32
Condensed Consolidated Statement of Changes
in Shareholders's Equity (Deficit) for the
periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...........................................F-33
Condensed Consolidated Statements of Cash flows
for the periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...........................................F-34
Notes to Condensed Consolidated Financial Statements .............................F-35
Report of Independent Accountants.................................................F-44
Consolidated Balance Sheet as of February 23, 1999................................F-45
Notes to Consolidated Balance Sheet...............................................F-46
Consolidated Balance Sheet as of June 30, 1999 (unaudited)........................F-49
Consolidated Statement of Operations for the period
February 23, 1999 (inception) to June 30, 1999 and the
three-month period ended June 30, 1999 (unaudited).......................F-50
Consolidated Statement of Cash Flows for the period
February 23, 1999 (inception) to June 30, 1999
and the three-month period ended June 30, 1999 (unaudited)...............F-51
Notes to Consolidated Financial Statements........................................F-52
NATIONWIDE AUCTION SYSTEMS
- --------------------------
Independent Auditors Report ......................................................F-56
Combined Balance Sheets as of
December 31, 1998 and December 31, 1997..................................F-57
Combined Statements of Earnings and Retained Earnings
for each of the three years in the period
ended December 31, 1998..................................................F-58
Combined Statements of Cash Flows
for each of the three years in the period
ended December 31, 1998..................................................F-59
Notes to Combined Financial Statements............................................F-60
Condensed Combined Balance Sheet
as of September 30, 1999 (Unaudited).....................................F-66
Condensed Combined Statements of Earnings
for periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...........................................F-67
Condensed Combined Statements of Cash flows
for the periods ended September 30, 1999 and
September 30, 1998 (Unaudited)...........................................F-68
Notes to Condensed Combined Financial Statements .................................F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Entrade Inc. (formerly Artra GROUP Incorporated)
Northfield, Illinois
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Entrade Inc. and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
In our report on the 1997 financial statements, dated March 26, 1998, we
expressed an opinion that indicated substantial doubt as to the ability of the
Company to continue as a going concern. This was the result of the Company
suffering recurring losses and experiencing difficulty in obtaining adequate
financing to replace its existing credit arrangements and satisfy liquidity
requirements. As described in Note 3, as a result of the disposition of the
business assets of Bagcraft Corporation of America, the Company has been able to
retire a significant portion of its obligations. Accordingly, our present
opinion on the 1997 financial statements as presented herein is different from
that expressed in our previous report.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 1, 1999, except as to
Note 17, which is as of September 23, 1999
F-2
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and equivalents $11,753 $5,991
Restricted cash and equivalents 1,045 -
Receivables, less allowance for
doubtful accounts of $275 in 1997 171 10,004
Inventories, less valuation allowance
of $277 in 1997 - 15,749
Available-for-sale securities 8,200 12,013
Other 99 774
------------ ------------
Total current assets 21,268 44,531
------------ ------------
Property, plant and equipment
Land - 417
Buildings - 12,742
Machinery and equipment - 35,657
Construction in progress - 675
------------ ------------
- 49,491
Less accumulated depreciation and amortization - 24,397
------------ ------------
- 25,094
------------ ------------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization
of $2,388 in 1997 - 2,729
Other - 852
------------ ------------
- 3,581
------------ ------------
$21,268 $73,206
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
1998 1997
------------ ------------
LIABILITIES
Current liabilities:
Notes payable, including amounts due to
related parties of $2,000 in 1997 $ - $ 10,726
Current maturities of long-term debt - 4,462
Accounts payable - 5,841
Accrued expenses 568 8,692
Income taxes 1,854 324
Common stock put warrants 1,705 2,966
Redeemable preferred stock - 11,955
Liabilities of discontinued operations 10,328 -
------------ ------------
Total current liabilities 14,455 44,966
------------ ------------
Long-term debt - 50,619
Other noncurrent liabilities - 4,675
Commitments and contingencies
Redeemable preferred stock 2,857 9,110
SHAREHOLDERS' EQUITY (DEFICIT)
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 and outstanding 7,864,228 shares
in 1998 and 8,217,198 shares in 1997 - -
Additional paid-in capital 47,336 48,837
Unrealized appreciation of investments 10,920 14,733
Receivable from related party,
including accrued interest - (12,621)
Accumulated deficit (54,300) (87,113)
------------ ------------
3,956 (36,164)
------------ ------------
$21,268 $73,206
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $ -- $ -- $ --
-------- -------- --------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization -- -- --
Selling, general and administrative 2,660 5,708 2,042
Depreciation and amortization -- 7 19
-------- -------- --------
2,660 5,715 2,061
-------- -------- --------
Operating loss (2,660) (5,715) (2,061)
-------- -------- --------
Other income (expense):
Interest expense (3,392) (6,178) (4,201)
Realized gain on disposal of
available-for-sale securities 320 2,531 5,818
Litigation settlement, net -- 10,416 --
Other income (expense), net 25 12 (1)
-------- -------- --------
(3,047) 6,781 1,616
-------- -------- --------
Earnings (loss) from continuing operations
before income taxes (5,707) 1,066 (445)
Provision for income taxes -- -- --
-------- -------- --------
Earnings (loss) from continuing operations (5,707) 1,066 (445)
Earnings (loss) from discontinued operations 38,930 (293) 3,994
-------- -------- --------
Earnings before extraordinary credit 33,223 773 3,549
Extraordinary credit, net discharge of indebtedness -- -- 9,424
-------- -------- --------
Net earnings 33,223 773 12,973
Dividends applicable to
redeemable preferred stock (410) (693) (621)
Reduction of retained earnings
applicable to redeemable common stock -- (400) (390)
-------- -------- --------
Earnings (loss) applicable to common shares $ 32,813 $ (320) $ 11,962
======== ======== ========
Per share earnings (loss)
applicable to common shares:
Basic
Continuing operations ($ 0.78) $ -- ($ 0.19)
Discontinued operations 4.94 (0.04) 0.53
-------- -------- --------
Earnings (loss)
before extraordinary credit 4.16 (0.04) 0.34
Extraordinary credit -- -- 1.25
-------- -------- --------
Net earnings (loss) $ 4.16 ($ 0.04) $ 1.59
======== ======== ========
Weighted average number of shares
of common stock outstanding 7,891 7,970 7,525
======== ======== ========
Diluted
Continuing operations ($ 0.78) $ -- ($ 0.19)
Discontinued operations 4.94 (0.04) 0.53
-------- -------- --------
Earnings (loss) before
extraordinary credit 4.16 (0.04) 0.34
Extraordinary credit -- -- 1.25
-------- -------- --------
Net earnings (loss) $ 4.16 ($ 0.04) $ 1.59
======== ======== ========
Weighted average number of shares
of common stock and common
stock equivalents outstanding 7,891 7,970 7,525
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Receivable Other Share-
Common Stock Additional From Comphre- holders'
------------------ Paid-in Related hensive Accumulated Equity
Shares Dollars Capital Party Income (Deficit) Deficit)
---------- ------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1995 7,045,941 - $43,261 ($4,318) $21,047 ($98,755) ($38,765)
Comprehensive income (loss):
Net earnings - - - - - 12,973 12,973
Net increase in unrealized
appreciation of investments - - - - 4,672 - 4,672
---------
Comprehensive income 17,645
---------
Other changes in shareholders' equity:
Common stock issued
to pay liabilities 245,566 - 1,274 - - - 1,274
Common stock issued as
additional consideration
for short-term borrowings 150,000 - 661 - - - 661
Net increase in receivable
from related party,
including accrued interest - - - (2,150) - - (2,150)
Common stock loaned
by related party (100,000) - (587) 587 - - -
Repay common stock
loaned by related party 100,000 - 587 (587) - - -
Exercise of stock options
and warrants 77,900 - 368 - - - 368
Common stock received as
consideration for
short-term note (87,500) - (608) - - - (608)
Reclassification of
redeemable common stock 185,231 - 996 - - - 996
Redeemable preferred
stock dividends - - - - - (621) (621)
Redeemable common stock accretion - - - - - (390) (390)
---------
Other changes in shareholders' equity (470)
---------
---------- ------- -------- -------- --------- --------- ---------
Balance at December 26, 1996 7,617,138 - 45,952 (6,468) 25,719 (86,793) (21,590)
Comprehensive income (loss):
Net earnings - - - - - 773 773
Net decrease in unrealized
appreciation of investments - - - - (10,986) - (10,986)
---------
Comprehensive (loss) (10,213)
---------
Other changes in shareholders' equity:
Common stock issued
to pay liabilities 444,717 - 1,939 - - - 1,939
Net increase in receivable
from related party,
including accrued interest - - - (6,153) - - (6,153)
Exercise of stock options
and warrants 39,800 - 178 - - - 178
Redeemable common stock
obligation paid by the issuance
of additional common shares 115,543 - 679 - - - 679
Purchase of
redeemable preferred stock - - 89 - - - 89
Redeemable preferred stock dividends - - - - - (693) (693)
Redeemable common stock accretion - - - - - (400) (400)
---------
Other changes in shareholders' equity (4,361)
---------
---------- ------- -------- -------- --------- --------- ---------
Balance at December 31, 1997 8,217,198 - 48,837 (12,621) 14,733 (87,113) (36,164)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Receivable Other Share-
Common Stock Additional From Comphre- holders'
------------------ Paid-in Related hensive Accumulated Equity
Shares Dollars Capital Party Income (Deficit) Deficit)
---------- ------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,217,198 - 48,837 (12,621) 14,733 (87,113) (36,164)
Comprehensive income (loss):
Net earnings - - - - 33,223 33,223
Net decrease in unrealized
appreciation of investments - - - - (3,813) - (3,813)
----------
Comprehensive income 29,410
----------
Other changes in shareholders' equity:
Repurchase of common stock
previously issued to pay
down short-term notes (357,270) - (1,518) - - - (1,518)
Net decrease in receivable
from related party,
including accrued interest - - - 12,621 - - 12,621
Exercise of stock options 4,300 - 17 - - - 17
Redeemable preferred
stock dividends - - - - - (410) (410)
----------
Other changes in shareholders' equity 10,710
----------
---------- -------- --------- --------- ---------- ---------- ----------
Balance at December 31, 1998 7,864,228 - $47,336 $0 $10,920 ($54,300) $3,956
========== ======== ========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 33,223 $ 773 $ 12,973
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation of property, plant and equipment 2,446 4,059 3,622
Amortization of excess of cost over net assets acquired 272 305 305
Decrease in receivable from related party 400 2,816 --
Extraordinary gain from net discharge of indebtedness -- -- (9,424)
Gain on disposal of discontinued operations (35,585) -- --
Amortization of other assets, principally financing costs 1,121 4,754 548
Inventory valuation reserve 21 172 191
Gain on sale of property, plant and equipment -- (70) 78
Gain on sale of idle machinery and equipment -- (932) --
Litigation settlement, net -- (10,416) --
Gain on sale of COMFORCE common stock (320) (2,531) (5,818)
Minority interest 509 1,109 526
Other, principally common stock issued as compensation -- 454 220
Changes in assets and liabilities, net of effects of
businesses acquired and discontinued:
(Increase) decrease in receivables (35) (1,631) 2,630
(Increase) decrease in inventories (2,010) 132 1,476
(Increase) decrease in other current and noncurrent assets (456) 517 (169)
Increase (decrease) in payables and accrued expenses (8,771) 321 (5,980)
Decrease in other current and noncurrent liabilities (1,745) (119) (4,497)
-------- -------- --------
Net cash flows used by operating activities (10,930) (287) (3,319)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of COMFORCE common stock 170 1,821 3,717
Proceeds from sale of Bagcraft assets 89,000 -- --
Increase in restricted cash (1,045) -- --
Net proceeds from litigation settlement -- 9,761 --
Proceeds from sale of property, plant and equipment -- 537 132
Additions to property, plant and equipment (2,177) (3,066) (2,645)
(Increase) decrease in receivable from related party -- (8,969) (1,061)
Proceeds from collection of notes receivable -- -- 342
Decrease in restricted cash -- -- 552
Acquistion of AB Specialty, net of deposit -- (1,131) --
AB Specialty acquisition deposit -- -- (1,183)
Proceeds from sale of idle machinery and equipment -- 932 --
-------- -------- --------
Net cash flows from (used by) investing activities 85,948 (115) (146)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1998 1997 1996
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase (decrease) in short-term debt ($ 15,451) ($ 1,508) $ 286
Proceeds from long-term borrowings 124,077 146,891 141,896
Reduction of long-term debt (175,019) (133,781) (140,850)
Proceeds from exercise of stock options and warrants 17 178 369
Repurchase of common stock previously issued
to pay down short-term notes (1,518) -- --
Exercise of redeemable common stock put options -- (3,379) (510)
Redemption of detachable put warrants (1,440) (1,728) --
Purchase of redeemable preferred stock 78 (426) --
Other -- (25) 98
--------- --------- ---------
Net cash flows from (used by) financing activities (69,256) 6,222 1,289
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 5,762 5,820 (2,176)
Cash and equivalents, beginning of year 5,991 171 2,347
--------- --------- ---------
Cash and equivalents, end of year $ 11,753 $ 5,991 $ 171
========= ========= =========
Supplemental cash flow information: Cash paid during the year for:
Interest $ 6,087 $ 7,058 $ 5,320
Income taxes paid (refunded), net 189 177 157
Supplemental schedule of noncash investing and financing activities:
Artra/BCA redeemable preferred stock received as payment of
Peter Harvey advances $ 12,787 -- --
Issue common stock and redeemable common stock
to pay down current liabilities -- $ 1,939 $ 1,274
Issue common stock to pay
redeemable common stock put obligation -- 679 --
Issue common stock as additional consideration
for short-term borrowings -- -- 661
COMFORCE common stock given to lenders
as additional consideration for short-term borrowings -- 169 1,511
BCA Holdings redeemable preferred stock issued in exchange for
Bagcraft redeemable preferred stock -- -- 8,135
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Entrade Inc., (hereinafter "Entrade" or the "Company", formerly Artra Group
Incorporated, hereinafter "Artra"), is a Pennsylvania corporation incorporated
in 1933. Through November 20, 1998, Artra operated in one industry segment as a
manufacturer of packaging products principally serving the food industry. The
packaging products business was conducted by the Artra's wholly-owned
subsidiary, Bagcraft Corporation of America ("Bagcraft"), which business was
sold on November 20, 1998. Artra does not intend to be deemed an "Investment
Company" as defined by the Investment Company Act of 1940 and, accordingly, is
actively investigating new business opportunities.
In 1997, Artra changed its fiscal year end to December 31. Artra had operated on
a 52/53 week fiscal year ending the last Thursday of December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Intercompany accounts and transactions are
eliminated.
B. Cash Equivalents/Restricted Cash
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
At December 31, 1998, restricted cash represents amounts deposited in escrow
accounts to pay certain Bagcraft liabilities retained by Artra. These accounts
were established in accordance with provisions of the agreement to sell the
assets of the discontinued Bagcraft subsidiary discussed in Note 3.
C. Financial Instruments
The fair value of cash and cash equivalents is assumed to approximate the
carrying value of these assets due to the short duration of these assets. The
fair value of the Company's debt was estimated to be the carrying value of these
liabilities based upon borrowing rates currently available to the Company for
borrowings with similar terms.
D. Inventories
Inventories reflected in the Company's consolidated financial statements at
December 31, 1997 were stated at the lower of cost or market. Cost was
determined by the first-in, first-out (FIFO) method.
E. Property, Plant and Equipment
Property, plant and equipment reflected in the Company's consolidated financial
statements at December 31, 1997 were stated at cost. Expenditures for
maintenance and repairs were charged to operations as incurred and expenditures
for major renovations were capitalized. Depreciation was computed on the basis
of estimated useful lives principally by the straight-line method for financial
statement purposes and principally by accelerated methods for tax purposes.
Leasehold improvements were amortized over the shorter of the estimated useful
life of the asset or the period covered by the lease.
The costs of property retired or otherwise disposed of were applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition was recognized in earnings.
F. Investments in Equity Securities
Artra's investment in COMFORCE Corporation ("COMFORCE", see Note 5) common stock
is classified in current assets as available-for-sale securities and stated at
fair value in accordance with the provisions of
F-10
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". Unrealized holding gains and
losses are included in a separate component of shareholders' equity (deficit)
until realized. The investment in COMFORCE common stock, which represents a
significant portion of Artra's assets at December 31, 1998, is subject to
liquidity and market price risks.
G. Intangible Assets
The net assets of a purchased business were recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) was reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.
Effective for the fiscal year ending December 26, 1996 the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ". The pronouncement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment is
evaluated by comparing future cash flows (undiscounted and without interest
charges) expected to result from the use or sale of the asset and its eventual
disposition, to the carrying amount of the asset. The adoption of SFAS No. 121
did not have a material impact on the Company's financial statements.
H. Revenue Recognition
Sales to customers of Artra's discontinued Bagcraft subsidiary were recorded at
the time of shipment.
I. Income Taxes
Income taxes are accounted for as prescribed in SFAS No. 109 - Accounting for
Income Taxes. Under the asset and liability method of Statement No. 109, the
Company recognizes the amount of income taxes payable. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years those temporary differences are expected to be recovered or
settled.
J. Use of Estimates In Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
K. Stock-Based Compensation
Effective for the fiscal year ending December 26, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation". The pronouncement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on new fair value accounting rules. The Company did not adopt the new fair
value accounting, but instead chose to comply with the disclosure requirements
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material impact on the Company's financial statements.
L. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share" for the year ended
December 31, 1997. The pronouncement,
F-11
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
which specifies the computation, presentation, and disclosure requirements for
earnings per share, did not have a material impact on the Company's financial
statements.
M. Recently Issued Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income to present a measure of all changes in equity that result
from renegotiated transactions and other economic events of the period other
than transactions with owners in their capacity as owners. Comprehensive income
is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes net income. Required changes are reported in the consolidated statement
of operations.
During 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information". In
February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and other Postretirement Benefits. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. This standard requires that management
identify operating segments based on the way that management disaggregates the
entity for making internal operating decisions. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits.
As a result of the November 1998 sale of the assets of the discontinued Bagcraft
subsidiary, Artra exited its only industry segment, a manufacturer of packaging
products principally serving the food industry. Accordingly, the guidelines of
SFAS No. 131 - Disclosures About Segments of an Enterprise and Related
Information are not applicable to the Company's financial statements as of
December 31, 1998. The Company typically does not offer the types of benefit
programs that fall under the guidelines of Statement of Financial Accounting
Standards No. 132 - Employers' Disclosures about Pensions and other
Postretirement Benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. Management has not determined what impact this
standard, when adopted, will have on the Company's financial statements.
3. CHANGE OF BUSINESS
Bagcraft
Effective August 26, 1998, Artra and its wholly-owned subsidiary BCA Holdings,
Inc. ("BCA", the parent of Bagcraft), agreed to sell the business assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The transaction was completed on November 20, 1998 and Artra received gross
consideration of approximately $88,100,000 in cash. The disposition of the
Bagcraft business resulted in a net gain of $35,985,000.
A substantial portion of the cash proceeds received from the Bagcraft
disposition was used to retire or otherwise settle certain Bagcraft debt
obligations, including, but not limited to Bagcraft's credit agreement as
discussed in Note 8. After the disposition of certain Bagcraft obligations noted
above, Artra received net proceeds of approximately $28,000,000 from the sale of
Bagcraft. Approximately $15,200,000 of these net proceeds was used to retire
F-12
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Artra debt obligations. Artra plans to use the remainder of the proceeds
principally to acquire or participate in new business opportunities.
AB Specialty
Effective January 2, 1997, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration consisting of cash of approximately $2.3 million. The
purchased assets consisted principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement, was accounted for
by the purchase method and, accordingly, the assets and liabilities of AB were
included in Artra's financial statements at their estimated fair market value at
the date of acquisition. The business and related assets of AB were part of the
Bagcraft disposition.
Artra's consolidated financial statements have been reclassified to report
separately the results of operations of Bagcraft. The operating results (in
thousands) for fiscal years 1996 - 1998 of the discontinued Bagcraft subsidiary
and net gain on disposal consist of:
1998 1997 1996
--------- --------- ---------
Net sales $ 111,342 $ 125,027 $ 120,699
========= ========= =========
Earnings from operations before
minority interest and income taxes $ 3,534 $ 797 $ 4,672
(Provision) credit for income taxes (80) 19 (152)
Minority interest (509) (1,109) (526)
--------- --------- ---------
Earnings (loss) from operations 2,945 (293) 3,994
--------- --------- ---------
Gain on sale of Bagcraft subsidiary 37,505
Provision for income taxes (1,520)
---------
Gain on disposal of business 35,985
--------- --------- ---------
Earnings(loss)from discontinued operations $ 38,930 $ (293) $ 3,994
========= ========= =========
Per share earnings (loss):
Earnings (loss) from operations $ .38 $ (.04) $ .53
Gain on disposal of business 4.56 - -
--------- --------- ---------
Earnings(loss)from
discontinued operations $ 4.94 $ (.04) $ .53
========= ========= =========
Liabilities of discontinued operations at December 31, 1998 of $10,328,000
include BCA/Bagcraft redeemable preferred stock issues (see Note 9), contractual
obligations, environmental matters and other future estimated costs for various
discontinued operations. Additionally, liabilities of discontinued operations at
December 31, 1998 includes an adjustment to the sales price of the Bagcraft
business of approximately $900,000.
F-13
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. INVENTORIES
Inventories of the discontinued Bagcraft at December 31, 1997 (in thousands)
consisted of:
Raw materials and supplies $5,901
Work in process 274
Finished goods 9,574
-------
$15,749
=======
5. INVESTMENT IN COMFORCE CORPORATION
At December 31, 1998 and 1997 Artra's investment in COMFORCE Corporation
("COMFORCE"), 1,525,500 shares, currently a common stock ownership interest of
approximately 9%, was classified in Artra's consolidated balance sheet in
current assets as "Available-for-sale securities." At December 31, 1998 the
gross unrealized gain relating to Artra's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $10,920,000. The investment in
COMFORCE common stock, which represents a significant portion of Artra's assets
at December 31, 1998, is subject to liquidity and market price risks.
In January 1996, Artra's Board of Directors approved the sale of 200,000 of
Artra's COMFORCE common shares to certain officers, directors and key employees
of Artra for non-interest bearing notes totaling $400,000. The notes are
collateralized by the related COMFORCE common shares. Additionally, the
noteholders have the right to put their COMFORCE shares back to Artra in full
payment of the balance of their notes. Based upon the preceding factors, Artra
had concluded that, for reporting purposes, it had effectively sold options to
certain officers, directors and key employees to acquire 200,000 of Artra's
COMFORCE common shares. Accordingly, in January 1996 these 200,000 COMFORCE
common shares were removed from Artra's portfolio of "Available-for-sale
securities" and were classified in Artra's consolidated balance sheet as other
receivables with an aggregate value of $400,000, based upon the value of
proceeds to be received upon future exercise of the options. The disposition of
these 200,000 COMFORCE common shares resulted in a gain that was deferred and
will not be recognized in Artra's financial statements until the options to
purchase these 200,000 COMFORCE common shares are exercised. During the fourth
quarter of 1997, options to acquire 59,500 of these COMFORCE common shares were
exercised resulting in a realized gain of $225,000. During 1998, options to
acquire 84,750 of these COMFORCE common shares were exercised resulting in a
realized gain of $320,000. At December 31, 1998, options to acquire 55,750
COMFORCE common shares remained unexercised and were classified in Artra's
consolidated balance sheet as other receivables with an aggregate value of
$112,000, based upon the value of proceeds to be received upon future exercise
of the options.
During 1997 Artra sold 219,203 COMFORCE common shares in the market, with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender received 25,000 COMFORCE common shares held by Artra as additional
consideration for a short-term loan. The disposition of these 244,703 COMFORCE
common shares resulted in realized gains of $2,306,000 during the year ended
December 31, 1997, with cost determined by average cost.
During 1996 Artra sold 193,000 COMFORCE common shares in the market, with the
net proceeds of approximately $3,700,000 used for working capital. During 1996
certain lenders received 105,000 COMFORCE common shares held by Artra as
additional consideration for short-term loans. In October 1996, a lender
exercised the conversion rights of a short-term loan and received 33,333
COMFORCE common shares in settlement of Artra's obligation. The disposition of
these 331,333 COMFORCE common shares resulted in realized gains of $5,818,000
during the year ended December 26, 1996, with cost determined by average cost.
F-14
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. EXTRAORDINARY GAIN
Artra Debt Restructuring
In February 1996, a bank agreed to discharge all amounts under its Artra notes
($12,063,000 plus accrued interest and fees) and certain obligations of Artra's
president, Peter R. Harvey for consideration consisting of Artra's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned Artra a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. Artra then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. Artra recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.25 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock along with proceeds received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. As
additional compensation for its loan and for participating in the above
discharge of indebtedness the unaffiliated company received 150,000 shares of
Artra common stock (with a then fair market value of $661,000 after a discount
for restricted marketability) and 25,000 shares of COMFORCE common stock held by
Artra (with a then fair market value of $200,000).
The extraordinary gain resulting from the discharge of bank debt is calculated
(in thousands) as follows. No income tax expense is reflected in Artra's
financial statements resulting from the extraordinary credit due to the
utilization of tax loss carryforwards, except for Federal alternative minimum
tax:
Amounts due the bank:
Artra notes $ 12,063
Accrued interest 2,656
--------
14,719
Cash payment to the bank $ 5,050
Less amount applicable to
Peter R. Harvey indebtedness (1,089)
--------
(3,961)
--------
Bank debt discharged 10,758
Less fair market value of Artra
common stock issued as consideration
for a loan used in part to fund
the discharge of bank debt (661)
Less fair market value of COMFORCE
common stock issued as consideration
for a loan used in part to fund
the discharge of bank debt (200)
Other fees and expenses (273)
--------
Extraordinary gain before income taxes 9,624
Income tax provision (200)
--------
Net extraordinary gain $ 9,424
========
7. NOTES PAYABLE
Notes payable at December 31, 1997 (in thousands) consisted of:
Artra 12% promissory notes - 1997 private placements $12,850
Amounts due to related parties, interest at10% 2,000
Other, interest from 10% to 12% 601
-------
15,451
Less Artra 12% promissory notes refinanced in January 1998 (4,725)
-------
$10,726
=======
F-15
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Promissory Notes
1998 Private Placement
In January 1998, Artra completed a private placement of $5,975,000 of 12%
promissory notes due January 14, 1999. As additional consideration the
noteholders received warrants to purchase an aggregate of 119,500 Artra common
shares at a price of $3.00 per share. The warrants expire January 14, 2000. The
warrantholders have the right to put these warrants back to Artra at any time
during a six-month period commencing in January 1999 and ending in July 1999, at
a price of $1.50 per share. The cost of this obligation ($179,250 if all
warrants are put back to Artra) was accrued in Artra's financial statements as a
charge to interest expense. The proceeds from the private placement were used
principally to pay down other debt obligations. These notes were repaid in
November 1998 with net proceeds from the sale of assets of the discontinued
Bagcraft subsidiary.
1997 Private Placements
In December 1997, Artra completed private placements of $5,375,000 of 12%
promissory notes due in December 1998. As additional consideration the
noteholders received warrants to purchase an aggregate of 107,500 Artra common
shares at a price of $3.00 per share. The warrants expire in November and
December 1999. The warrantholders have the right to put these warrants back to
Artra at any time during a period commencing in December 1998 and ending in May
1999, at a price of $1.50 per share. The cost of this obligation ($161,250 if
all warrants are put back to Artra) was accrued in Artra's financial statements
as a charge to interest expense. These notes were repaid in November 1998 with
net proceeds from the sale of assets of the discontinued Bagcraft subsidiary.
In July 1997, Artra completed private placements of $7,475,000 of 12% promissory
notes due in January 1998. As additional consideration the noteholders received
warrants to purchase an aggregate of 199,311 Artra common shares at a price of
$3.75 per share. The warrants expire in August 1999. The warrantholders have the
right to put these warrants back to Artra at any time during a period commencing
in January 1998 and ending in August 1999, at a price of $3.00 per share. The
cost of this obligation ($598,000 if all warrants are put back to Artra) was
amortized in Artra's financial statements as a charge to interest expense over
the period July 1997 (the date of the private placement) through January 1998
(the scheduled maturity date of the notes). The proceeds from the July 1997
private placement were advanced to Peter R. Harvey. See discussion and
disposition of Mr. Harvey's advances in Note 16.
The July 1997 private placement notes were repaid and /or refinanced with
proceeds of the January 1998 private placement of 12% notes and with proceeds
from the litigation settlement discussed in Note 11 to the consolidated
financial statements.
Amounts Due To Related Parties
At December 26, 1996, Artra had outstanding borrowings of $500,000 from an
outside director of Artra evidenced by a short-term note bearing interest at
10%. As additional compensation for the loan and a December 1996 extension, the
director received five year warrants to purchase an aggregate of 50,000 Artra
common shares at a prices ranging from $5.00 to $5.875 per share. The proceeds
of the loan were used for working capital.
In January 1997, Artra borrowed an additional $300,000 from this director
evidenced by a short-term note, due December 23, 1997, bearing interest at 8%.
As additional compensation for the loan, the director received a warrant,
expiring in 2002, to purchase 25,000 Artra common shares at a price of $5.75 per
share.
In March 1997, Artra borrowed an additional $1,000,000 from this director
evidenced by a short-term note, due May 26, 1997, bearing interest at 12%. As
additional compensation, the lender received an option to purchase 25,000 shares
F-16
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
of COMFORCE common stock, owned by Artra's Fill-Mor subsidiary, at a price of
$4.00 per share. The proceeds from this loan were used in part to repay certain
Artra debt obligations.
In April 1997, Artra borrowed $5,000,000 from the above director evidenced by a
note, due April 20, 1998, bearing interest at 10%. The proceeds from this loan
were used to repay $1,800,000 of prior borrowings from this director and pay
down other Artra debt obligations. As additional compensation, the director
received a warrant to purchase 333,333 Artra common shares at a price of $5.00
per share. In May 1998, the director exercised the option and put the warrant
back to Artra for a total purchased price of $1,000,000. The cost of this
obligation was amortized in Artra's financial statements as a charge to interest
expense over the period April 1997 (the date of the loan) through April 1998
(the date the warrantholder first had the right to put the warrant back to
Artra).
In June 1997, Artra borrowed an additional $1,000,000 from the above director
evidenced by a note, due December 10, 1997, bearing interest at 12%. As
additional compensation, the director received a warrant to purchase 40,000
Artra common shares at a price of $5.00 per share. The warrantholder has the
right to put this warrant back to Artra at any time during the period December
10, 1997 to June 10, 1999, for a total purchase price of $80,000. The cost of
this obligation was amortized in Artra's financial statements as a charge to
interest expense over the period June 10, 1997 (the date of the loan) through
December 10, 1997 (the date the warrantholder has the right to put the warrant
back to Artra). The proceeds from this loan were used to pay down other Artra
debt obligations.
In July 1997, borrowings from this lender were reduced to $3,000,000 with
proceeds advanced to Artra from a Bagcraft term loan. In December 1997
borrowings from this lender were reduced to $2,000,000 with proceeds from other
short-term borrowings.
In April 1998, the $2,000,000 in outstanding borrowings from the above director
was extended by a demand note bearing interest at 10%. As additional
compensation, the director received a warrant to purchase 50,000 Artra common
shares at a price of $3.25 per share.
In August 1998, Artra borrowed an additional $500,000 from the above director
evidenced by a note, due December 20, 1998, bearing interest at 15%. As
additional compensation, the director received a warrant to purchase 20,000
Artra common shares at a price of $3.94 per share.
The borrowings from this director were collateralized by a secondary interest in
all of the common stock of BCA (the parent of Bagcraft).
In November 1998, the borrowings from this director were repaid with proceeds
received from the sale of the discontinued Bagcraft subsidiary.
Other
At December 31, 1997, Artra also had outstanding short-term borrowings from
other unrelated parties aggregating $601,000, with interest rates varying
between 10 % and 12%.
In April 1998 Artra and its Fill-Mor subsidiary entered into a margin loan
agreement with a financial institution which provided for borrowings of
$1,000,000, with interest at 8.5%. Borrowings under the loan agreement were
collateralized by 490,000 shares of COMFORCE common stock owned by Artra's
Fill-Mor subsidiary. The proceeds of the loan were used for working capital.
This loan was repaid in December 1998 with proceeds received from the sale of
the discontinued Bagcraft subsidiary.
F-17
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In October 1997 a lender agreed to accept 357,270 Artra common shares in payment
of the principal amount of approximately $1,500,000 due on certain demand notes.
In January 1998 the lender returned the 357,270 Artra common shares to the
Company for cash consideration of approximately $1,500,000.
The weighted average interest rate on all short-term borrowings at December 31,
1997 was 11.5%.
8. LONG-TERM DEBT
Long-term debt at December 31, 1997 (in thousands) consisted of:
Bagcraft:
Credit Agreement:
Term Loan A, interest at the lender's index rate plus .25% $ 20,000
Term Loan B, interest at the lender's index rate plus .75% 5,000
Term Loan C, interest at the lender's index rate plus 1% 7,500
Revolving credit loan, interest at the lender's indexrate 9,313
Unamortized discount (1,425)
City of Baxter Springs, Kansas loan agreements,
interest at varying rates 9,968
-------
50,356
Artra 12% promissory notes refinanced in January 1998 4,725
-------
55,081
Current scheduled maturities (4,462)
-------
$50,619
=======
Bagcraft
At December 31, 1997, the discontinued Bagcraft subsidiary had outstanding
borrowings under its credit agreement ("Credit Agreement") totaling $40,388,000.
The Credit Agreement, amended and restated February 27, 1998, provided for a
revolving loan agreement and three term loans. Amounts due under the Credit
Agreement were repaid with proceeds from the sale of assets of the discontinued
Bagcraft subsidiary.
In March 1994 Bagcraft and the City of Baxter Springs, Kansas completed a
$12,500,000 financing package associated with the construction of a new 265,000
sq. ft. production facility in Baxter Springs, Kansas. The financing package
funded by a combination of Federal, state and local funds, consisted of certain
loan agreements payable by Bagcraft directly to the City of Baxter Springs. At
December 31, 1997, the outstanding borrowings under these loans totaled
$9,968,000. Obligations due under these loans were assumed by the buyer of the
assets of the discontinued Bagcraft subsidiary.
F-18
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Artra
As discussed in Note 7, $7,475,000 of Artra 12% promissory notes due in January
1998 were repaid and /or refinanced principally with proceeds of a January 1998
private placement of 12% notes payable in January 1999. Private placement notes
in the principal amount of $4,725,000 refinanced by the January 1998 private
placement notes were classified as long-term debt at December 31, 1997.
9. REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
Currently payable:
<S> <C> <C>
BCA Holdings preferred stock, Series B,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable on demand with a liquidation preference
of $1,000 per share; authorized 8,135 shares;
issued and outstanding 1,675.79 shares in 1998
and 7,847.79 shares in 1997 $ * 9,831
Bagcraft redeemable preferred stock originally issued
to a related party, $.01 par value, 13.5% cumulative;
including accumulated dividends; redeemable on demand
with a liquidation preference equal to $100 per share;
issued 8,650 shares * $ 2,124
------- -------
$ - $11,955
======= =======
Noncurrent:
Artra redeemable preferred stock, Series A,
$1,000 par value, 6% cumulative payment-in-kind,
including accumulated dividends, net of
unamortized discount of $239 in 1998 and $859 in 1997;
redeemable March 1, 2000 at $1,000 per share
plus accrued dividends;
authorized 2,000,000 shares all series;
issued and outstanding 1,849.34 shares in
1998 and 3,583.62 shares in 1997 $ 2,857 $ 4,799
BCA Holdings preferred stock, Series A,
$1.00 par value, 6% cumulative,
including accumulated dividends;
liquidation preference of $1,000 per share;
10,000 shares authorized; issued and outstanding
1,672.15 shares in 1998 and 3,456.18 shares in 1997 * 4,311
------- -------
$ 2,857 $ 9,110
======= =======
</TABLE>
- --------------------------------
* Included in liabilities of discontinued operations at December 31, 1998, see
discussion below.
F-19
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 1990, Artra issued 3,750 shares of $1,000 par value junior
non-convertible payment-in-kind redeemable Series A Preferred Stock with an
estimated fair value of $1,012,000, net of unamortized discount of $2,738,000 as
partial consideration for the acquisition of the discontinued Bagcraft
subsidiary.
In August and September 1997 Artra repurchased 166.38 shares of Artra Series A
redeemable preferred stock with a carrying value of $209,000 for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000,
which was reflected in the Company's consolidated financial statements as a
credit to additional paid-in capital. The Series A Preferred Stock accrues
dividends at the rate of 6% per annum and is redeemable by Artra on March 1,
2000 at a price of $1,000 per share plus accrued dividends. Accumulated
dividends of $1,246,000 ($674 per share) and $2,074,000 ($579 per share) were
accrued at December 31, 1998 and December 31, 1997, respectively.
BCA Holdings/ Bagcraft
During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related party received 3,675 shares of BCA Series A preferred stock (6%
cumulative, redeemable preferred stock with a liquidation preference equal to
$1,000 per share). At December 31, 1998, liabilities of discontinued operations
included 1,672.18 BCA Series A redeemable preferred shares. Accumulated
dividends were $514,000 ($307 per share) and $854,000 ($247 per share) at
December 31, 1998 and December 31, 1997, respectively.
Effective February 15, 1996, BCA, Bagcraft and a former related party entered
into an agreement to exchange certain preferred stock between the Companies. Per
terms of the exchange agreement BCA issued 8,135 shares of BCA Series B
preferred stock (13.5% cumulative, redeemable preferred stock with a liquidation
preference equal to $1,000 per share) to the former related party in exchange
for 41,350 shares of Bagcraft redeemable preferred stock. At December 31, 1998,
liabilities of discontinued operations included 1,675.79 BCA Series B redeemable
preferred shares. Accumulated dividends were $650,000 ($388 per share) and
$1,984,000 ($253 per share) at December 31, 1998 and December 31, 1997,
respectively.
Both the BCA Series A preferred stock and the BCA Series B preferred stock are
redeemable at the option of the issuer for an amount equal to face value plus
accumulated dividends. The BCA Series B preferred stock was redeemable on June
1, 1997.
At December 31, 1998, liabilities of discontinued operations included 8,650
shares of Bagcraft 13.5% cumulative, redeemable preferred stock (liquidation
preference equal to $100 per share). Accumulated dividends of $1,315,000
Accumulated dividends were $1,315,000 ($152 per share) and ($145 per share) were
accrued at December 31, 1998 and December 31, 1997, respectively.
As discussed in Note 16, effective January 31, 1998, Peter R. Harvey exchanged
certain Artra/BCA preferred stock to retire advances from Artra totaling
$12,787,000.
10. STOCK OPTIONS AND WARRANTS
Stock Option Plans
In August, 1996, Artra's shareholders approved a stock option plan (the "1996
Plan") for certain officers, key employees and others who render services to the
Company or its subsidiaries. The 1996 Plan reserves 2,000,000 shares of the
Company's common stock for the granting of options on or before August 29, 2006.
Options granted under the Plan shall be in the form of incentive stock options
("ISOs"), as defined under the Internal Revenue Code of 1986, as amended (the
"Code") or non-statutory options which do not qualify under the Code ("NSOs"),
or both, at the discretion of the Company. The purchase price of options granted
under the 1996 Plan shall be not less than fair market value at the date of
grant for ISOs, not less than 110% of fair market value on the date of grant for
an ISO granted to a shareholder possessing 10% more of the voting stock of the
Company and the fair market value per share on the date of grant in the case of
NSOs. Effective October 4, 1996, Artra issued certain officers and key employees
of Artra options to purchase 532,750 shares of Artra common stock at $5.25 per
share, the fair market value on the date of grant. The options vested
immediately and expire ten years from the date of grant.
In August 1996, Artra's shareholders also approved a 1996 Disinterested
Directors Stock Option Plan (the "1996 Director Plan") for directors of the
Company who are not employees or officers. The 1996 Director Plan reserves
200,000 shares of
F-20
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Artra's common stock for the granting of NSOs on or before August 29, 2006 at a
price equal to fair market value per share on the date of grant. In May 1998 the
Company issued its outside directors options to purchase an aggregate of 62,500
Artra common shares at $3.75 per share, the fair market value on the date of
grant. The options vested immediately and expire ten years from the date of
grant.
In July 1985, Artra's shareholders approved a stock option plan (the "1985
Plan") for certain officers and key employees of the Company and its
subsidiaries. The 1985 Plan, as amended, reserved 1,000,000 shares of the
Company's common stock and authorized the granting of options on or before
February 1, 1995. The purchase price of such options granted under the 1985 Plan
was not less than the market value at the date of grant for ISOs and not less
than 110% of the market value on the date of grant for an ISO granted to a
shareholder possessing 10% more of the voting stock of the Company.
Effective for the fiscal year ending December 26, 1996, Artra had adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". In 1998 and 1996 all stock options were granted at an exercise
price equal to fair market value at the date of grant and, accordingly, no
compensation expense has been recognized in connection with Artra's stock option
plans. Had compensation cost for Artra's stock option plan been determined based
on the fair value on the date of grant for awards in 1998 and 1996 consistent
with the provisions of SFAS No. 123, Artra's earnings applicable to common
shares would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 26, 1996
---------------------------- ----------------------------
As Reported Pro forma As Reported Pro forma
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Earnings (loss) applicable to common shares:
Continuing operations $ (6,117) $ (6,216) $ (1,456) $ (2,906)
Discontinued operations 38,930 38,930 3,994 3,994
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 32,813 32,714 2,538 1,088
Extraordinary credit -- -- 9,424 9,424
---------- ---------- ---------- ----------
Net earnings $ 32,813 $ 32,714 $ 11,962 $ 10,512
========== ========== ========== ==========
Earnings (loss) per share:
Basic
Continuing operations $ (.78) $ (.79) $ (.19) $ (.39)
Discontinued operations 4.94 4.94 .53 .53
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 4.16 4.15 .34 .14
Extraordinary credit -- -- 1.25 1.25
---------- ---------- ---------- ----------
Net earnings $ 4.16 $ 4.15 $ 1.59 $ 1.39
========== ========== ========== ==========
Diluted
Continuing operations $ (.78) $ (.79) $ (.19) $ (.39)
Discontinued operations 4.94 4.94 .53 .53
---------- ---------- ---------- ----------
Earnings before
extraordinary credit 4.16 4.15 .34 .14
Extraordinary credit -- -- 1.25 1.25
---------- ---------- ---------- ----------
Net earnings $ 4.16 $ 4.15 $ 1.59 $ 1.39
========== ========== ========== ==========
</TABLE>
F-21
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The fair value of stock options granted in 1998 and 1996 was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
1998 1996
---- ----
Expected life (years) 5 5
Interest rate 5.0% 6.5%
Volatility 50.0% 50.0%
Dividend yield - -
Information regarding all stock option plans for the three years in the period
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of year 913,050 917,850 431,500
Options granted 62,500 -- 532,750
Options exercised (4,300) (4,800) (40,400)
Options canceled -- -- (6,000)
---------- ---------- -----------
Options outstanding at end of year 971,250 913,050 917,850
========== ========== ===========
Options exercisable at end of year 971,250 913,050 917,850
========== ========== ===========
Options available for grant at end of year 1,604,750 1,667,250 1,667,250
========== ========== ===========
Weighted average option prices:
Outstanding at beginning of year $ 4.61 $ 4.61 $ 3.89
Options granted $ 3.125 -- $ 5.25
Options exercised $ 3.70 $ 3.70 $ 5.01
Options canceled -- -- $ 10.00
Outstanding at end of year $ 4.52 $ 4.61 $ 4.61
Exercisable at end of year $ 4.52 $ 4.61 $ 4.61
</TABLE>
Significant option groups outstanding at December 31, 1998 and related weighted
average price and remaining life information are as follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
---------- ----------- ----------- ----- ------------
05-27-98 62,500 62,500 $3.125 9
10-04-96 532,750 532,750 $5.25 7
01-08-93 143,500 143,500 $3.75 4
06-22-92 6,000 6,000 $5.25 3
09-19-91 51,667 51,667 $3.65 2
12-19-90 174,833 174,833 $3.65 1
F-22
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Effective January 6, 1999, Artra issued certain officers and key employees of
Artra options to purchase 413,250 shares of Artra common stock at $4.75 per
share, the fair market value on the date of grant. The options vested
immediately and expire ten years from the date of grant. Additionally, effective
January 6, 1999, Artra issued its outside directors options to purchase an
aggregate of 20,000 Artra common shares at $4.75 per share, the fair market
value on the date of grant, to certain outside directors. The options vested
immediately and expire ten years from the date of grant. These outside directors
were not board members at the time of the May 1998 disinterested director option
grants.
Warrants
Information regarding warrants to purchase shares of Artra's common stock for
the three years in the period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Warrants outstanding at beginning of year 2,592,350 1,711,032 1,148,549
Warrants granted 192,500 1,196,894 632,583
Warrants exercised -- (35,000) (37,500)
Warrants put back (500,000) (114,000) --
Warrants expired (214,850) (166,576) (32,600)
---------- ---------- ----------
Warrants outstanding at end of year 2,070,000 2,592,350 1,711,032
========== ========== ==========
$3.00 $3.50 $3.50
Exercise prices per share to to to
$8.00 $8.00 $9.875
</TABLE>
The warrants, exercisable from the date of issue, expire at various dates
through 2003. These warrants were issued principally as additional compensation
for various short-terms loans. At December 31, 1998, warrantholders had the
right to put warrants to purchase 833,144 shares of Artra common stock back to
Artra for total consideration of $1,705,000. During 1998 warrants to purchase
500,000 shares of Artra common stock at prices ranging from $3.75 per share to
$5.00 per share were put back to Artra for total consideration of $1,440,000.
During 1997 warrants to purchase 114,000 shares of Artra common stock at prices
ranging from $5.00 per share to $6.00 per share were put back to Artra for total
consideration of $228,000.
11. COMMITMENTS AND CONTINGENCIES
Rental expense from continuing operations was $138,000, $134,000 and $134,000 in
fiscal years 1998, 1997 and 1996, respectively. Effective December 1995, John
Harvey, Artra's Chairman of the board of directors purchased the building in
which the Company leases office for its corporate headquarters. The lease
expired in December 1998 and has been extended on a month-to-month basis. Rental
expense for this lease was $126,000 annually for fiscal years 1998, 1997 and
1996.
Artra and its subsidiaries are the defendants in various business-related
litigation and environmental matters. Capital expenditures for ongoing
environmental compliance measures are recorded in the consolidated balance
sheets and related expenses are included in the normal operating expenses of
conducting business. Artra is involved with environmental compliance and
remediation activities at some of its former sites and at a number of
third-party sites. The Company accrues for certain environmental
remediation-related activities for which commitments or clean-up plans have been
developed or for which costs or minimum costs can be reasonably estimated. All
accrued amounts are recorded on an undiscounted basis. At December 31, 1998 and
December 31, 1997, Artra had accrued current liabilities of $1,500,000 and
$1,800,000, respectively, for potential business-related litigation and
environmental liabilities. While these litigation and environmental matters
involve wide ranges of potential liability, management does not believe the
outcome of these matters will have a material adverse effect on Artra's
financial statements.
F-23
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The discontinued Bagcraft subsidiary's Chicago facility has been the subject of
allegations that it violated laws and regulations associated with the Clean Air
Act. The facility has numerous sources of air emissions of volatile organic
materials ("VOMs") associated with its printing operations and is required to
maintain and comply with permits and emissions regulations with regard to each
of these emission sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. In May 1998 Bagcraft paid $170,000 to formally
extinguish this claim.
In April 1994, the EPA notified the Company that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division ("Clearshield")
of Harvel Industries, Inc. ("Harvel"), a majority owned subsidiary of Artra. In
1985, Harvel was merged into Artra's Fill-Mor subsidiary. This site has been
included on the EPA's National Priorities List. In February 1983, Harvel sold
the assets of Clearshield to Envirodyne. The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of Artra. In
May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued Artra
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. Artra has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. Artra GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against Artra and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of Artra from
1969 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. 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 in its early stages of discovery and Artra cannot
determine what, if any, its liability may be in this matter.
Artra was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. Artra's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by Artra. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process. Artra entered into a
consent decree with the EPA in which it agreed to pay $85,000 for one phase of
the clean-up costs for this site; however, Artra defaulted on its payment
obligation. Artra is presently unable to estimate the total potential liability
for clean-up costs at this site, which clean-up is expected to continue for a
number of years. The consent decree, even if it had been honored by Artra, was
not intended to release Artra from liability for costs associated with other
phases of the clean-up at this site. Artra is presently unable determine what,
if any, additional liability it may incur in this matter.
In recent years, the Company has been a party to certain product liability
claims relating to the former Synkoloid subsidiary. The Company's product
liability insurance has covered all such claims settled to date. As of December
31, 1998, Artra anticipates that its product liability insurance is adequate to
cover any additional pending claims.
Several cases have arisen from Artra's purchase of Dutch Boy Paints which owned
a facility in Chicago which it purchased from NL Industries. In a case titled
City of Chicago v. NL Industries, Inc. and Artra GROUP Incorporated, filed in
the Circuit Court of Cook County, Illinois, the City of Chicago brought a
nuisance action and alleged that Artra (and NL Industries, Inc.) had improperly
stored, discarded and disposed of hazardous substances at the Dutch Boy site,
F-24
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
and that Artra had conveyed the site to Goodwill Industries to avoid clean-up
costs. At the time the suit was filed, the City of Chicago claimed that it would
cost $1,000,000 to remediate the site.
Artra and NL Industries, Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. Artra is presently
unable to determine its liability, if any, in connection with this case. The
parties were conducting discovery but the case was stayed pending the resolution
of the EPA action described below.
In 1986, in a case titled People of the State of Illinois v. NL Industries,
Inc., Artra GROUP Incorporated, et al., the Cook County State's attorney filed
suit seeking response costs in excess of $2,000,000 and treble punitive damages
for costs expended by IEPA in remediating contamination at the Dutch Boy site,
alleging that all former owners contributed to the contamination. In 1989, the
Circuit Court dismissed the action, holding that the state had failed to exhaust
its administrative procedures. In 1992, this holding was reversed by the
Illinois Supreme Court. In 1996, the Illinois Appellate Court affirmed the
District Court's decision to dismiss the case based on lack of due diligence on
the part of the State of Illinois. The State of Illinois has filed a Petition
for Rehearing which was granted. Artra is presently unable to determine Artra's
liability, if any, in connection with this case.
On November 17, 1995, the EPA issued letters to Artra, NL Industries and others
alleging that they were potentially responsible parties with respect to releases
at the Dutch Boy facility in Chicago and demanding that they remediate the site.
NL Industries entered into a consent decree with EPA in which it agreed to
remediate the site. Artra is presently unable to determine its liability, if
any, in connection with this case.
12. INCOME TAXES
The provision (credit) for income taxes (in thousands) is included in the
statements of operations as follows:
1998 1997 1996
------- ------- -------
Continuing operations $ -- $ -- $ --
Extraordinary credit -- -- 200
Discontinued operations 1,600 (19) 152
------- ------- -------
$ 1,600 $ (19) $ 352
======= ======= =======
A summary of the provision (credit) for income taxes (in thousands) is as
follows:
1998 1997 1996
------- ------- -------
Current:
Federal $ 700 $ -- $ 200
State 900 (19) 152
------- ------- -------
$ 1,600 $ (19) $ 352
======= ======= =======
Due to the utilization of tax loss carryforwards, no Federal income tax expense
is reflected in the Company's financial statements resulting from the 1998
earnings from discontinued operations or the 1996 extraordinary credit, except
for Federal alternative minimum tax. The 1996 extraordinary credit represents a
net gain from discharge of indebtedness.
F-25
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. INCOME TAXES, continued
In 1998, 1997 and 1996, the effective tax rates from operations, including
discontinued operations were 4.5%, (1.0)% and 2.5%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:
1998 1997 1996
-------- -------- --------
Provision (credit) for income taxes
using statutory rate $ 12,013 $ 633 $ 4,709
State and local taxes,
net of Federal benefit 900 (19) 152
Current year tax loss not utilized -- (1,680) --
Deferred finance fee -- 919 127
Amortization of goodwill -- 104 104
Previously unrecognized benefit
from utilizing tax loss carryforwards (12,035) -- (4,767)
Alternative minimum tax 700 -- --
Other 22 24 27
-------- -------- --------
$ 1,600 $ (19) $ 352
======== ======== ========
F-26
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. INCOME TAXES, continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1998 and December 31,
1997 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
<S> <C> <C> <C> <C>
Investment in COMFORCE Corporation $ 36,000 $ 14,000 $ 36,000 $ 14,000
Accrued personnel costs -- -- 1,200 500
Restructuring reserve -- -- 600 200
Environmental reserve -- -- 300 100
Other 2,500 1,000 3,400 1,300
Capital loss carryforward -- -- 3,500 1,400
Net operating loss 10,200 4,000 40,000 15,600
-------- --------
Total deferred tax assets 19,000 33,100
-------- --------
Inventories -- -- (1,900) (700)
Accumulated depreciation -- -- (5,100) (2,000)
Other (800) (300) (800) (300)
-------- --------
Total deferred tax liabilities (300) 3,000
-------- --------
Valuation allowance (18,700) (30,100)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
</TABLE>
Artra has recorded a valuation allowance with respect to the future tax benefits
and the net operating loss reflected in deferred tax assets as a result of the
uncertainty of their ultimate realization.
At December 31, 1998, Artra and its subsidiaries had Federal income tax loss
carryforwards of approximately $2,400,000 expiring principally in 2010 - 2012,
available to be applied against future taxable income, if any. In recent years,
the Company has issued shares of its common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, Artra is not
currently subject to such limitations regarding the utilization of its Federal
income tax loss carryforwards. Should the Company continue to issue a
significant number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.
F-27
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. EMPLOYEE BENEFIT PLANS
Artra maintains a defined contribution 401 (k) plan covering substantially all
employees. Both employee and employer contributions are generally determined as
a percentage of the covered employee's annual compensation. The total expense
charged to operations relating to this plan amounted to $45,000, $38,000 and
$28,000 in 1998, 1997 and 1996, respectively.
Artra typically does not offer the types of benefit programs that fall under the
guidelines of Statement of Financial Accounting Standards No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits.
14. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share," for the year ended
December 31, 1998. Adoption of this pronouncement, which was applied to prior
periods presented, did not have a material impact on Artra's financial
statements.
Basic earnings (loss) per share is computed by dividing the income available to
common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income available
to common shareholders, net earnings (loss), less redeemable preferred stock
dividends and redeemable common stock accretion, by the weighted average number
of shares of common stock and common stock equivalents (redeemable common stock,
stock options and warrants), unless anti-dilutive, during each period.
Earnings (loss) per share for each of the three fiscal years in the period ended
December 31, 1998 was computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 26, 1996
--------------------- --------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding 7,891 7,891 7,970 7,970 7,525 7,525
Common stock equivalents
(options/warrants) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
7,891 7,891 7,970 7,970 7,525 7,525
======== ======== ======== ======== ======== ========
EARNINGS (LOSS):
Earnings (loss) from
continuing operations $ (5,707) $ (5,707) $ 1,066 $ 1,066 $ (445) $ (445)
Dividends applicable to
redeemable preferred stock (410) (410) (693) (693) (621) (621)
Redeemable common stock accretion -- -- (400) (400) (390) (390)
-------- -------- -------- -------- -------- --------
Loss from continuing operations
applicable to common shareholders (6,117) (6,117) (27) (27) (1,456) (1,456)
Earnings (loss) from
discontinued operations 38,930 38,930 (293) (293) 3,994 3,994
-------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary credit 32,813 32,813 (320) (320) 2,538 2,538
Extraordinary credit -- -- -- -- 9,424 9,424
-------- -------- -------- -------- -------- --------
Net earnings (loss) $ 32,813 $ 32,813 $ (320) $ (320) $ 11,962 $ 11,962
======== ======== ======== ======== ======== ========
</TABLE>
F-28
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. EARNINGS PER SHARE, continued
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 26, 1996
-------------------- ------------------ -------------------
Basic Diluted Basic Diluted Basic Diluted
PER SHARE AMOUNTS:
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations
applicable to common shares $ (.78) $ (.78) $ -- $ -- $ (.19) $ (.19)
Earnings (loss) from
discontinued operations 4.94 4.94 (.04) (.04) .53 .53
-------- -------- ------- ------- -------- --------
Earnings (loss) before
extraordinary credit 4.16 4.16 (.04) (.04) .34 .34
Extraordinary credit -- -- -- -- 1.25 1.25
-------- -------- ------- ------- -------- --------
Net earnings (loss) applicable
to common shares $ 4.16 $ 4.16 $ (.04) $ (.04) $ 1.59 $ 1.59
======== ======== ======= ======= ======== ========
</TABLE>
15. LITIGATION
In November, 1993, Artra filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois against Salomon Brothers, Inc.,
Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J.
Zimmerman (collectively, "Salomon Defendants"), D.P. Kelly & Associates, L.P.,
("DPK"), Donald P. Kelly ("Kelly Defendants" along with DPK), James F. Massey
and William Rifkind relating to the acquisition of Envirodyne Industries, Inc.
in 1989 by Emerald Acquisition Corp.
Effective December 31, 1997, the above parties reached a settlement agreement
and all pending litigation was dismissed. Artra recognized a gain from the
settlement agreement of $10,416,000 ($1.31 per share), net of related legal fees
and other expenses.
Artra and its subsidiaries are the defendants in various other business-related
litigation and environmental matters (see Note 11). Management does not believe
the outcome of these matters will have a material adverse effect on the
Company's financial statements.
16. RELATED PARTY TRANSACTIONS
At December 31, 1997, advances to Peter R. Harvey, Artra's president, classified
in the consolidated balance sheet as a reduction of common shareholders' equity,
(in thousands) consisted of:
Total advances, including accrued interest $18,226
Less interest for the period January 1,
1993 to date, accrued and fully reserved (2,789)
-------
15,437
Less compensation/expense reimbursement (2,816)
-------
Net advances $12,621
=======
F-29
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Artra had total advances due from its president, Peter R. Harvey, of which
$18,226,000, including accrued interest, remained outstanding at December 31,
1997. These advances provided for interest at varying rate from 10.5% to 12%.
This receivable from Peter R. Harvey had been classified as a reduction of
common shareholders' equity.
Commencing January 1, 1993 to date, interest on the advances to Peter R. Harvey
had been accrued and fully reserved.
In March 1998, Artra's Board of Directors ratified a proposal to settle Mr.
Harvey's advances as follows:
Effective December 31, 1997, Mr. Harvey's net advances from Artra were
offset by $2,816,000 ($5,605,000 net of interest accrued and reserved
for the period 1993 - 1997) to $12,621,000. This offset of Mr.
Harvey's advances represented a combination of compensation for prior
year guarantees of Artra obligations to private and institutional
lenders, compensation in excess of the nominal amounts Mr. Harvey
received for the years 1995 - 1997 and reimbursement for expenses
incurred to defend Artra against certain litigation.
Effective January 31, 1998, Mr. Harvey's remaining advances totaling
$12,787,000 were paid with consideration consisting of the following
Artra/BCA preferred stock held by Mr. Harvey:
Face Value
Plus
Security Accrued Dividends
------------------------------------------------------ -----------------
Artra redeemable preferred stock, 1,734.28 shares $ 2,751,000
BCA Holdings Series A preferred stock, 1,784.029 shares 2,234,000
BCA Holdings Series B preferred stock, 6,172 shares 7,802,000
-------------
$ 12,787,000
=============
For a discussion of certain other related party debt obligations see Note 7.
17. MERGER TRANSACTION
Pursuant to a plan of merger, on September 23, 1999 Artra became a wholly owned
subsidiary of Entrade, and the common shareholders of Artra became the common
shareholders 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, the transaction has been treated as a
recapitalization of Artra with Artra as the acquirer. All stockholders equity
and share information has been restated to reflect this recapitalization.
F-30
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
September 30, December 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 11,019 $ 11,753
Restricted cash and equivalents 100 1,045
Available-for-sale securities 3,337 8,200
Other 729 270
-------- --------
Total current assets 15,185 21,268
-------- --------
Property, plant and equipment 391 --
Less accumulated depreciation and amortization -- --
-------- --------
391 --
-------- --------
Other assets:
Intangibles, net 10,027 --
Investment in AsseTrade.com 3,523 --
Other 289 --
-------- --------
13,839 --
-------- --------
$ 29,415 $ 21,268
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 105 --
Accrued expenses 774 $ 568
Income taxes 1,108 1,854
Common stock put warrants 340 1,705
Liabilities of discontinued operations 8,312 10,328
-------- --------
Total current liabilities 10,639 14,455
-------- --------
Commitments and contingencies
Redeemable preferred stock -- 2,857
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 and outstanding 12,287,317 shares
in 1999 and 7,864,228 shares in 1998 -- --
Additional paid-in capital 76,369 47,336
Deferred stock compensation (2,804) --
Unrealized appreciation of investments 6,057 10,920
Accumulated deficit (60,846) (54,300)
-------- --------
18,776 3,956
-------- --------
$ 29,415 $ 21,268
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998* 1999 1998*
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ -- $ -- $ -- $ --
------- ------- ------- -------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization -- -- -- --
Selling, general and administrative 2,042 539 6,570 1,691
------- ------- ------- -------
2,042 539 6,570 1,691
------- ------- ------- -------
Operating loss (2,042) (539) (6,570) (1,691)
------- ------- ------- -------
Other income (expense):
Interest income (expense), net 109 (807) 316 (2,794)
Realized gain on disposal of
available-for-sale securities -- -- -- 320
Other income (expense), net -- (1) -- (75)
------- ------- ------- -------
109 (808) 316 (2,549)
------- ------- ------- -------
Loss from continuing operations before income taxes (1,933) (1,347) (6,254) (4,240)
Provision for income taxes -- -- -- --
------- ------- ------- -------
Loss from continuing operations (1,933) (1,347) (6,254) (4,240)
Earnings from discontinued operations -- 1,158 -- 1,968
------- ------- ------- -------
Net loss (1,933) (189) (6,254) (2,272)
Dividends applicable to and loss on
redemption of redeemable preferred stock (6,873) (95) (7,067) (314)
------- ------- ------- -------
Loss applicable to common shares ($8,806) ($ 284) ($13,321) ($2,586)
======= ======= ======= =======
Earnings (loss) per share applicable to common shares:
Basic
Continuing operations ($ 0.97) ($ 0.19) ($ 1.51) ($ 0.58)
Discontinued operations -- 0.15 -- 0.25
------- ------- ------- -------
Net loss ($ 0.97) ($ 0.04) ($ 1.51) ($ 0.33)
======= ======= ======= =======
Weighted average number of shares
of common stock outstanding 9,766 7,864 8,850 7,899
======= ======= ======= =======
Diluted
Continuing operations ($ 0.97) ($ 0.19) ($ 1.51) ($ 0.58)
Discontinued operations -- 0.15 -- 0.25
------- ------- ------- -------
Net loss ($ 0.97) ($ 0.04) ($ 1.51) ($ 0.33)
======= ======= ======= =======
Weighted average number of shares of common stock
and common stock equivalents outstanding 9,766 7,864 8,850 7,899
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- ---------------------------
* As reclassified for discontinued operations.
F-32
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Deferred Other Total
------------------- Paid-in Stock Comprehensive Accumulated Shareholders'
Shares Dollars Capital Compensation Income (Deficit) Equity
---------- -------- --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 7,864,228 - $47,336 $10,920 ($54,300) $3,956
-----------
Comprehensive income (loss):
Net loss - - - - (6,254) (6,254)
Net decrease in
unrealized appreciation
of investments - - - (4,863) - (4,863)
-----------
Comprehensive income (loss) (11,117)
-----------
Other changes in
shareholders' equity:
Exercise of warrants
to purchase common stock 1,662,289 - 7,327 - - 7,327
Exercise of options to
purchase common stock 52,397 - 205 - - 205
Common stock issued
as consideration for
Entrade assets acquired 2,100,000 - 11,513 - - 11,513
Common stock issued in
exchange for Artra
Series A preferred stock 608,403 - 9,924 - - 9,924
Loss on redemption of
redeemable preferred stock - - (6,775) - - - (6,775)
Stock options issued
and deferred
stock-based compensation - - 4,900 (4,900) - - -
Compensation
expense recognized - - - 2,096 - - 2,096
Outstanding stock options - - 575 - - - 575
Eliminate put liability
for warrants exercised - - 1,364 - - - 1,364
Redeemable preferred
stock dividends - - - - - (292) (292)
----------
Other changes in
shareholders' equity 25,937
----------
---------- -------- ----------- ----------- ------------ ----------- ----------
Balance at
September 30, 1999 12,287,317 - $76,369 ($2,804) $6,057 ($60,846) $18,776
========== ======== =========== =========== ============ =========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-33
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 30, September 30,
1999 1998
--------- ---------
<S> <C> <C>
Net cash flows from (used by) operating activities ($ 4,824) $ 1,015
--------- ---------
Cash flows from investing activities:
Purchase of Entrade assets, net of cash acquired (4,099) --
Decrease in restricted cash 945 --
Additions to property, plant and equipment -- (1,951)
Proceeds from sale of COMFORCE common stock -- 170
Other (288) --
--------- ---------
Net cash flows used by investing activities (3,442) (1,781)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 7,532 17
Net decrease in short-term debt -- (118)
Proceeds from long-term borrowings -- 105,839
Reduction of long-term debt -- (107,817)
Repurchase of common stock previously issued
to pay down short-term notes -- (1,518)
Redemption of detachable put warrants -- (1,420)
Other -- (48)
--------- ---------
Net cash flows from (used by) financing activities 7,532 (5,065)
--------- ---------
Decrease in cash and cash equivalents (734) (5,831)
Cash and equivalents, beginning of period 11,753 5,991
--------- ---------
Cash and equivalents, end of period $ 11,019 $ 160
========= =========
Supplemental schedule of noncash
investing and financing activities:
Issue Entrade common stock as
consideration for Entrade assets acquired $ 11,513 --
Exchange Entrade common stock for
Artra redeemable preferred stock 9,924 --
Artra/BCA redeemable preferred stock
received as payment of
Peter Harvey advances -- $ 12,787
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-34
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Prior to September 23, 1999, the Registrant operated as Artra Group Incorporated
("Artra"), a Pennsylvania corporation incorporated in 1933. Through November 20,
1998, Artra operated in one industry segment as a manufacturer of packaging
products principally serving the food industry. The packaging products business
was conducted by 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 Inc. ("Entrade" or the "Company"), formerly NA Acquisition Corp.,
and WorldWide Web NetworX Corporation ("WorldWide") providing for the merger of
a wholly owned subsidiary of Entrade with and into Artra. Entrade owns all of
the outstanding capital stock of entrade.com, Inc. ("entrade.com") and 25% of
the Class A Common Stock of asseTrade.com, Inc. ("asseTrade.com").
On September 22, 1999 Artra's shareholders approved the transaction and on
September 23, 1999, the merger (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.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1998 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K.
In the opinion of the Company, the accompanying condensed consolidated financial
statements reflect all normal recurring adjustments necessary to present fairly
the financial position as of September 30, 1999, and the results of operations
and changes in cash flows for the three and nine month periods ended September
30, 1999 and September 30, 1998. Reported interim results of operations are
based in part on estimates that may be subject to year-end adjustments. In
addition, these quarterly results of operations are not necessarily indicative
of those expected for the year.
2. CHANGE OF BUSINESS
Entrade Inc.
On February 23, 1999, Artra entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Entrade, WorldWide, and WWWX Merger Subsidiary, Inc.
("Merger Sub"), a wholly-owned subsidiary of Entrade. Terms of the acquisition
agreement require 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 the common shareholders 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.
Additionally, holders of Artra Series A preferred stock received 329 shares of
Entrade common stock for each share of Artra Series A preferred 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, the transaction has been treated as
a recapitalization of Artra with Artra as the acquirer. All stockholders 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.
F-35
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Entrade owns all of the outstanding capital stock of entrade.com and 25% of the
Class A Common Stock of asseTrade.com.
entrade.com is an Internet business-to-business electronic commerce
("e-commerce") company seeking to provide asset disposition solutions for the
utility and large industrial manufacturing sectors. asseTrade.com proposes to
develop and implement comprehensive asset/inventory recovery, disposal,
remarketing and management solutions for corporate clients through advanced
Internet electronic business applications, including on-line auctions.
In connection with the execution of the Merger Agreement, on February 23, 1999,
Entrade acquired certain software and intellectual property and 25% of the
shares of Class A Voting Common Stock of asseTrade.com (collectively, the
"Purchased Assets") from 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 Purchased Assets.
Entrade also agreed with both WorldWide and Energy Trading Company that it would
provide a minimum of $4,000,000 in funding for entrade.com. Under separate loan
agreements, Artra agreed to loan 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 guaranty the $4,000,000 funding for
entrade.com.
In August 1999, WorldWide agreed to loan 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
Entrade have been included in the Company's consolidated financial statements
since the effective date of acquisition. However, Entrade losses for the period
from February 23, 1999 until the effective date of the merger in September 1999
have been reflected in the Company's consolidated financial statements as the
economic risks of ownership were assumed by Artra effective February 23, 1999.
The amount of the purchase price allocated to intangible assets acquired of
approximately $10 million is being amortized over 5 years.
The following unaudited pro forma information (in thousands, except per share
amounts) presents a summary of the results of operations of the Company as if a
merger of Artra with a subsidiary of Entrade and the exchange of Artra common
stock and Artra preferred stock for Entrade common stock had been approved by
Artra's shareholders and was effective as of January 1, 1999. Entrade had no
operations and no revenues related to the assets acquired. asseTrade.com had no
operations and no revenues when the 25% voting interest was acquired by Entrade.
Accordingly, no pro forma information is presented for the nine months ended
September 30, 1998 as in the opinion of management this information would not be
meaningful.
Nine Months
Ended
September 30,
1999
--------
Net sales $ 595
========
Net loss $ (7,757)
========
Basic and diluted net loss per common share $ (1.38)
========
F-36
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
These unaudited pro forma results include certain adjustments, such as
additional amortization expense primarily related to intangible assets. They do
not purport to be indicative of the results of operations which actually would
have resulted had the acquisition occurred on January 1, 1999, or of future
results of operations.
In September 1999, asseTrade.com entered into an agreement with an investor
providing for an initial purchase of shares of asseTrade.com Series A Preferred
Stock. Upon completion of the transaction, subject to certain performance
criteria on the part of asseTrade.com, the investor may purchase additional
shares of asseTrade.com Series A Preferred Stock. Upon completion of the
transaction and assuming the conversion of the asseTrade.com Series A Preferred
Stock, the investor would hold a 31.1% interest in the Class A Common Stock of
asseTrade.com and Entrade's interest in the Class A Common Stock would be
approximately 17.5%, or 14.65% on a fully diluted basis.
Bagcraft
Effective August 26, 1998, Artra and its wholly-owned BCA Holdings, Inc. ("BCA")
subsidiary, the parent of Bagcraft, agreed to sell the business assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The disposition of the Bagcraft business resulted in a net gain of $35,985,000.
The Company's 1998 consolidated financial statements have been reclassified to
report separately the results of operations of Bagcraft. The operating results
(in thousands) for the nine months ended September 30, 1998 of Artra's
discontinued Bagcraft subsidiary consist of:
Net sales $ 94,717
==========
Earnings from operations before
income taxes and minority interest $ 2,425
Provision for income taxes (46)
Minority interest (411)
----------
Earnings from discontinued operations $ 1,968
==========
Earnings per share from discontinued operations $ .25
==========
Liabilities of discontinued operations at September 30, 1999 and December 31,
1998 of $8,312,000 and $10,328,000, respectively, include BCA/Bagcraft
redeemable preferred stock issues (see Note 4), contractual obligations,
environmental matters and other future estimated costs for various discontinued
operations.
3. INVESTMENT IN COMFORCE CORPORATION
At September 30, 1999 the Company's investment in COMFORCE Corporation
("COMFORCE"), 1,525,500 shares, currently a common stock ownership interest of
approximately 9%, was classified in the Company's condensed consolidated balance
sheet in current assets as "Available-for-sale securities." At September 30,
1999 the gross unrealized gain relating to the Company's investment in COMFORCE,
reflected as a separate component of shareholders' equity, was $6,057,000. The
investment in COMFORCE common stock, which represents a significant portion of
the Company's assets at September 30, 1999 and December 31, 1998, is subject to
liquidity and market price risks.
F-37
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In January 1996, Artra's Board of Directors approved the sale of 200,000 of
Artra's COMFORCE common shares to certain officers, directors and key employees
of Artra for non-interest bearing notes totaling $400,000. The notes are
collateralized by the related COMFORCE common shares. Additionally, the
noteholders have the right to put their COMFORCE shares back to Artra in full
payment of the balance of their notes.
Based upon the preceding factors, Artra's had concluded that, for reporting
purposes, it had effectively granted options to certain officers, directors and
key employees to acquire 200,000 of Artra's COMFORCE common shares. Accordingly,
in January 1996 these 200,000 COMFORCE common shares were removed from the
Company's portfolio of "Available-for-sale securities" and were classified in
Artra's condensed consolidated balance sheet as other receivables with an
aggregate value of $400,000, based upon the value of proceeds to be received
upon future exercise of the options. The disposition of these 200,000 COMFORCE
common shares resulted in a gain that was deferred and will not be recognized in
the Company's financial statements until the options to purchase these 200,000
COMFORCE common shares are exercised.
During the three and nine months ended September 30, 1998, options to acquire
70,750 and 84,750 of these COMFORCE common shares were exercised resulting in
realized gains of $267,000 and $320,000, respectively. At September 30, 1999,
options to acquire 55,750 COMFORCE common shares remained unexercised and were
classified in the Company's condensed consolidated balance sheet as other
current assets with an aggregate value of $112,000, based upon the value of
proceeds to be received upon future exercise of the options.
4. REDEEMABLE PREFERRED STOCK
Artra
In March 1990, Artra issued 3,750 shares of $1,000 par value junior
non-convertible payment-in-kind redeemable Series A Preferred Stock with an
estimated fair value of $1,012,000, net of unamortized discount of $2,738,000 as
partial consideration for the acquisition of the discontinued Bagcraft
subsidiary.
At December 31, 1998, 1,849.34 shares of Series A Preferred Stock were
outstanding with a carrying value of $2,857,000, including accumulated
dividends, net of unamortized discount of $239,000. The Series A Preferred Stock
accrued dividends at the rate of 6% per annum and was redeemable by Artra on
March 1, 2000 at a price of $1,000 per share plus accrued dividends. Accumulated
dividends of $1,246,000 ($674 per share) were accrued at December 31, 1998.
Under the terms of the Artra/Entrade merger, as discussed in Note 2, holders of
Artra Series A preferred stock received 329 shares of Entrade common stock (an
aggregate of 608,403 Entrade common shares) for each share of Artra Series A
preferred stock. The Entrade common stock issued, valued at $9,924,000 (based
upon the closing market price of Entrade common stock on the New York Stock
Exchange on September 23, 1999 of $16-5/16), exceeded the carrying value of the
Artra Series A preferred stock of $3,149,000, resulting in a loss on redemption
of redeemable preferred stock of $6,775,000. This loss was reflected in the
Company's condensed consolidated financial statements as a direct charge to
retained earnings.
BCA Holdings/ Bagcraft
During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related party received 3,675 shares of BCA Series A preferred stock (6%
cumulative, redeemable preferred stock with a liquidation preference equal to
$1,000 per share). At September 30, 1999 and December 31, 1998, liabilities of
discontinued operations included 1,036.39 and 1,672.18 BCA Series A redeemable
preferred shares with accumulated dividends of $318,000 ($307 per share) and
$514,000 ($307 per share), respectively.
Effective February 15, 1996, BCA, Bagcraft and a former related party entered
into an agreement to exchange certain preferred stock between the companies. Per
terms of the exchange agreement BCA issued 8,135 shares of BCA Series B
preferred stock (13.5% cumulative, redeemable preferred stock with a liquidation
preference equal to $1,000 per share) to
F-38
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
the former related party in exchange for 41,350 shares of Bagcraft redeemable
preferred stock. At September 30, 1999 and December 31, 1998, liabilities of
discontinued operations included 1,675.79 BCA Series B redeemable preferred
shares with accumulated dividends of $650,000 ($388 per share).
Both the BCA Series A preferred stock and the BCA Series B preferred stock are
redeemable at the option of the issuer for an amount equal to face value plus
accumulated dividends. The BCA Series B preferred stock was redeemable on June
1, 1997.
In October 1999, the Company's board of directors approved an offer to exchange
an aggregate of up to 727,225 shares of Entrade common stock for the BCA Series
A preferred stock and the BCA Series B preferred stock. The offer expires on
November 22, 1999.
At September 30, 1999 and December 31, 1998, liabilities of discontinued
operations included 8,650 shares of Bagcraft 13.5% cumulative, redeemable
preferred stock (liquidation preference equal to $100 per share). Accumulated
dividends of $1,315,000 were accrued at September 30, 1999 and December 31, 1998
($152 per share).
5. INCOME TAXES
No income tax benefit was recognized in connection with the Company's 1999 and
1998 pre-tax losses due to the Company's tax loss carryforwards and the
uncertainty of future taxable income.
At December 31, 1998, Artra and its subsidiaries had Federal income tax loss
carryforwards of approximately $2,400,000 expiring principally in 2010 - 2012,
available to be applied against future taxable income, if any. In recent years,
the Company has issued shares of its common stock to repay various debt
obligations, upon exercise of stock options and warrants, as consideration for
acquisitions, to fund working capital obligations and as consideration for
various other transactions. Section 382 of the Internal Revenue Code of 1986
limits a corporation's utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the opinion of management, the Company is not currently subject to such
limitations regarding the utilization of its Federal income tax loss
carryforwards. Should the Company continue to issue a significant number of
shares of its common stock, it could trigger a limitation on its ability to
utilize its Federal income tax loss carryforwards.
6. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing the income available to
common shareholders, net earnings (loss), less redeemable preferred stock
dividends and loss on redemption of redeemable preferred stock, by the weighted
average number of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the income available
to common shareholders, net earnings (loss), less redeemable preferred stock
dividends and loss on redemption of redeemable preferred stock, by the weighted
average number of shares of common stock and common stock equivalents (stock
options and warrants), unless anti-dilutive, during each period. For the three
months ended September 30, 1999 and 1998, common stock equivalents totaled
1,271,000 and 119,000 shares, respectively. For the nine months ended September
30, 1999 and 1998, common stock equivalents totaled 1,156,000 and 57,000 shares,
respectively.
F-39
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Earnings (loss) per share for the three and nine months ended September 30, 1999
and 1998 was computed as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 9,766 9,766 7,864 7,864
Common stock equivalents (options/warrants) -- -- -- --
------- ------- ------- -------
9,766 9,766 7,864 7,864
======= ======= ======= =======
EARNINGS (LOSS):
Loss from continuing operations $(1,933) $(1,933) $(1,347) $(1,347)
Dividends applicable to and
loss on redemption of
redeemable preferred stock (6,873) (6,873) (95) (95)
------- ------- ------- -------
Loss from continuing operations
applicable to common shareholders (8,806) (8,806) (1,442) (1,442)
Earnings from discontinued operations -- -- 1,158 1,158
------- ------- ------- -------
Net loss $(8,806) $(8,806) $ (284) $ (284)
======= ======= ======= =======
PER SHARE AMOUNTS:
Loss from continuing operations
applicable to common shares $ (.97) $ (.97) $ (.19) $ (.19)
Earnings from discontinued operations -- -- .15 .15
------- ------- ------- -------
Net loss applicable to common shares $ (.97) $ (.97) $ (.04) $ (.04)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 8,850 8,850 7,899 7,899
Common stock equivalents (options/warrants) -- -- -- --
------- ------- ------- -------
8,850 8,850 7,899 7,899
======= ======= ======= =======
EARNINGS (LOSS):
Loss from continuing operations $ (6,254) $(6,254) $(4,240) $(4,240)
Dividends applicable to and
loss on redemption of
redeemable preferred stock (7,067) (7,067) (314) (314)
------- ------- ------- -------
Loss from continuing operations
applicable to common shareholders (13,321) (13,321) (4,554) (4,554)
Earnings from discontinued operations -- -- 1,968 1,968
------- ------- ------- -------
Net loss $(13,321) $(13,321) $(2,586) $(2,586)
======= ======= ======= =======
PER SHARE AMOUNTS:
Loss from continuing operations
applicable to common shares $ (1.51) $ (1.51) $ (.58) $ (.58)
Earnings from discontinued operations -- -- .25 .25
------- ------- ------- -------
Net loss applicable to common shares $(1.51) $ (1.51) $ (.33) $ (.33)
======= ======= ======= =======
</TABLE>
F-40
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
7. LITIGATION
Artra and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At September 30, 1999 and December 31,
1998, the Company had accrued current liabilities of $1,500,000 for potential
business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management does not believe the outcome of these matters will have a material
adverse effect on the Company's financial statements.
Artra's discontinued Bagcraft subsidiary's Chicago facility has been the subject
of allegations that it violated laws and regulations associated with the Clean
Air Act. The facility has numerous sources of air emissions of volatile organic
materials ("VOMs") associated with its printing operations and was required to
maintain and comply with permits and emissions regulations with regard to each
of these emission sources.
In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. In May 1998 Bagcraft paid $170,000 to formally
extinguish this claim.
In April 1994, the EPA notified 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 ("Clearshield") of Harvel
Industries, Inc. ("Harvel"), a majority owned subsidiary of Artra. In 1985,
Harvel was merged into Artra's Fill-Mor subsidiary. This site has been included
on the EPA's National Priorities List. In February 1983, Harvel sold the assets
of Clearshield to Envirodyne. The alleged waste disposal occurred in 1977 and
1978, at which time Harvel was a majority-owned subsidiary of Artra. In May
1994, Envirodyne and its Clearshield National, Inc. subsidiary sued Artra for
indemnification in connection with this proceeding. The cost of clean-up at the
Palmer, Massachusetts site has been estimated to be approximately $7 million
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. Artra has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
In a case titled Sherwin-Williams Company v. Artra GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against Artra and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of Artra from
1969 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. 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 in its early stages of discovery and Artra cannot
determine what, if any, its liability may be in this matter.
Artra was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. Artra's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by Artra. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process. Artra entered into a
consent decree with the EPA in which it agreed to pay $85,000 for one phase of
the clean-up costs for this site; however, Artra defaulted on its payment
obligation. Artra is presently unable to estimate the total potential liability
for clean-up costs at this site, which clean-up is expected to continue for a
number of years. The consent decree, even if it had been honored by Artra, was
not intended to release Artra from liability for costs associated with other
phases of the clean-up at this site. Artra is presently unable determine what,
if any, additional liability it may incur in this matter.
F-41
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Since 1983, Artra has been a party to product liability asbestos claims relating
to the manufacture of products by The Synkoloid Company, a former operating
subsidiary. As of September 1998, Artra 's primary insurance carriers had paid
approximately $13 million in claims related to Synkoloid products, at which
point the primary carriers asserted that primary insurance coverage had been
exhausted. Since that date, some of Artra's excess insurance carriers have
assumed the defense and indemnity costs related to the defense and settlement of
all Synkoloid product liability claims under a temporary agreement.
From September 1998 through October 31, 1999, these carriers had paid
approximately $11.0 million to settle claims. Artra believes that the remaining
excess coverage totals approximately $200 million. Under the temporary
agreement, these carriers could either individually or collectively cease making
indemnity or defense payments at any time or refuse to renew the temporary
agreement, which was scheduled to expire on August 16, 1999. The parties are
continuing to operate under the terms of the temporary agreement.
While Artra is currently negotiating a permanent agreement with these carriers,
there is no assurance that any permanent agreement will be reached or that the
carriers will continue to make payments on the same terms as under the temporary
agreement. If the terms of the new agreement are less favorable or the temporary
agreement expires without the execution of a new agreement, Artra could become
obligated to assume a percentage of the indemnity payments and defense costs.
Artra is not able to quantify the potential costs of claims that remain
outstanding or unasserted. If claims exceed the insurance coverage, Artra's
financial position could be materially and adversely affected and Artra's
ability to fund its operations would be impaired.
Several cases have arisen from Artra's purchase of Dutch Boy Paints which owned
a facility in Chicago which it purchased from NL Industries. In a case titled
City of Chicago v. NL Industries, Inc. and Artra GROUP Incorporated, filed in
the Circuit Court of Cook County, Illinois, the City of Chicago brought a
nuisance action and alleged that Artra (and NL Industries, Inc.) had improperly
stored, discarded and disposed of hazardous substances at the Dutch Boy site,
and that Artra had conveyed the site to Goodwill Industries to avoid clean-up
costs. At the time the suit was filed, the City of Chicago claimed that it would
cost $1,000,000 to remediate the site. In August 1999 Artra paid $107,000 to
settle this claim.
8. OTHER INFORMATION
On June 28, 1999, Artra's board of directors entered into a three-year
employment agreement with Mark F. Santacrose, under which, Mr. Santacrose agreed
to become the President and Chief Executive Officer of the Company. In
connection with such employment, Mr. Santacrose received an option to purchase
200,000 shares of the Company's common stock at an exercise price of $10.00 per
share (exercisable immediately) and 100,000 shares of the Company's common stock
at an exercise price of $12.875 per share (exercisable commencing June 28,
2000). The market value of the Company's common stock on the date of grant of
the options was $12.875 per share. Accordingly, at June 30, 1999, the Company
recognized compensation expense of $575,000 related to these stock options.
On February 23, 1999, Artra entered into three-year employment agreements with
four individuals to manage the its entry into the Internet business-to-business
e-commerce and on-line auction business. In connection with such employment, the
four individuals received nonqualified stock options for the purchase of
1,600,000 shares of the Company's Common Stock at an exercise price of $2.75 per
share. The options vest in three equal installments over a period ending
February 18, 2001. During the nine months ended September 30, 1999, the Company
recognized compensation expense of approximately $2,100,000 related to these
stock options.
F-42
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. SUBSEQUENT EVENTS
On April 19, 1999, Artra entered into a letter of intent to purchase all of the
issued and outstanding common stock of Public Liquidations Systems, Inc. and
Asset Liquidation Group, Inc., d/b/a as Nationwide Auction Systems
("Nationwide"). Nationwide, which has operated for over 20 years, 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.
Nationwide conducts the auctions at its facilities or at off-site locations.
Nationwide has six facilities located in California, Missouri, Delaware and
Georgia.
On October 19, 1999, Entrade completed the acquisition of all of the outstanding
capital stock Nationwide for consideration consisting of the following: (a) an
aggregate of 1,570,000 shares of Entrade common stock; (b) promissory notes (the
"Notes") in the aggregate principal amount of $4,800,000, maturing on November
29, 1999; (c) an aggregate of $6,000,000 cash; and (d) promissory notes (the
"Term Notes") in the aggregate 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 with its existing cash
assets. 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.
Entrade is required to prepay the Notes prior to their maturity date in the
event that it receives in excess of $4,800,000 in debt or equity financing or
does not receive a commitment for such financing by November 15, 1999. In the
event Entrade is required to prepay the Notes or pay the Notes at maturity, as
the case may be, Entrade intends to pay the Notes by delivering shares of
Entrade Common Stock (the "Note Shares") at the rate of the lower of (a) $17 per
share or (b) 85% of the average closing price of Entrade Common Stock on the New
York Stock Exchange on the last five trading days ending on the applicable due
date of the Notes.
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.
Effective October 4, 1999, Entrade acquired all of the Series A Preferred Stock
of printeralliance.com for cash of $500,000. The cash payment was funded by
Entrade's existing cash assets. A privately-owned e-commerce company,
printeralliance.com. was formed in 1999 to establish a buying group of
independent commercial printers. printeralliance.com.'s buying group concept
will offer independent commercial printers cost savings, equipment and other
services as a result of the leveraged buying power of the group. The preferred
shares acquired by Entrade are convertible into a 61% common stock ownership
interest in printeralliance.com.
In October 1999, the Company's board of directors adopted the 1999 Nonqualified
Stock Option Plan For Non-Executive Officer Employees (the "1999 Plan"). The
1999 Plan reserves 1,000,000 shares of the Company's common stock for the
granting of options. The Company subsequently issued options to purchase 636,500
shares of its common stock for prices ranging from $9.00 to $15.75 per share.
F-43
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entrade Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly, in
all material respects, the financial position of Entrade Inc. (formerly NA
Acquisition Corp.) and subsidiary at February 23, 1999 (inception), in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Company's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERCOOPERS LLP
May 13, 1999, except as to
Note 6, which is as of September 23, 1999
F-44
<PAGE>
Entrade Inc. and subsidiary
Consolidated Balance Sheet
as of February 23, 1999
ASSETS
Cash $ 600,000
----------
Total current assets 600,000
----------
Investment in asseTrade 3,500,000
Intangible asset 3,156,224
----------
Total assets $7,256,224
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 100,000
Promissory note payable 500,000
Loan payable 1,400,000
----------
Total current liabilities 2,000,000
Shareholders' equity:
Preferred stock, $1,000 par value, 4,000,000 shares
authorized, no shares issued or outstanding --
Common stock, no par value, 40,000,000 shares authorized,
2,000,000 issued and outstanding 5,256,224
----------
Total liabilities and shareholders' equity $7,256,224
==========
The accompanying notes are integral part of this balance sheet.
F-45
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet
1. Formation of the Company and Acquisitions
Entrade Inc., formerly NA Acquisition Corp., ("Entrade" or "the
Company"), a Pennsylvania corporation, was incorporated in February of
1999 as a 90% owned subsidiary of WorldWide Web NetworX Corporation
("WWWX"). Entrade, through its wholly owned subsidiary, entrade.com, Inc.
("entrade.com") intends to operate as a business-to-business internet
electronic commerce ("e-commerce") service provider. Entrade is currently
a development stage company and expects to exit its development stage
during the second half of 1999.
Upon incorporation, Entrade acquired from WWWX all of the assets of
BarterOne LLC. In addition, the Company also acquired from WWWX a 25%
interest in asseTrade.com, Inc. ("asseTrade"), a company that intends to
provide business to business internet e-commerce services. WWWX had
acquired all of the membership interests in BarterOne LLC in January and
February of 1999, under separate agreements with Global Trade Group, Ltd.
and Energy Trading Company, a subsidiary of PECO Energy Corporation.
Following those acquisitions, BarterOne LLC was dissolved and WWWX took
direct title to its assets.
BarterOne LLC had been formed in December 1996 by Energy Trading Company
and Global Trade Group, Ltd., to develop software and related products
and services that would enable users, primarily in the electric and gas
utility industry, to effect barter transactions via an e-commerce system.
Energy Trading Company provided the initial capital and executive
support, while Global Trade Group, Ltd. provided software development.
In October 1998, Positive Asset Remarketing, Inc. (an affiliate of Global
Trade Group) forged an alliance with a joint venture entity, Butcher Fox
LLC, formed by Henry Butcher USA, Inc. ("Butcher") and Michael Fox
International, Inc. ("Fox"), to provide BarterOne LLC's on-line
technologies and business methodologies to the Butcher and Fox industrial
clients. In December 1998, these parties formed asseTrade. Positive Asset
Remarketing, Inc. transferred a 25% voting interest in asseTrade to WWWX
in January 1999.
Entrade purchased BarterOne LLC and the 25% interest in asseTrade
(collectively the "acquired assets") from WWWX in exchange for 2,000,000
shares of Entrade common stock, of which 200,000 were received by Energy
Trading Company pursuant to a tri-party agreement between WWWX, Energy
Trading Company and Entrade, $800,000 in cash and a note for $500,000. As
WWWX and Entrade are under common control, Entrade recorded the value of
the net assets and interest acquired in these transactions at WWWX's
carrying value. The amount of purchase price paid to WWWX by Entrade in
excess of WWWX's carrying value for the assets of entrade and interest in
asseTrade has been recorded by Entrade as a reduction in common stock.
F-46
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
1. Formation of the Company and Acquisitions, continued
Proposed Merger
Entrade, WWWX, and WWWX Merger Subsidiary, Inc. a wholly owned subsidiary
of Entrade ("Merger Sub"), have entered into an agreement to merge ("the
merger agreement") the Merger Sub into Artra Group Incorporated, a
publicly traded Pennsylvania corporation ("Artra"). The agreement is
subject to Artra shareholder approval. Entrade and WWWX have provided for
certain changes in capital structure of Entrade if the merger is not
consummated. The merger agreement provides that all shares of Artra
common stock shall be converted into shares of Entrade common stock on a
one for one basis and that Artra will guarantee funding of at least
$4,000,000 for the working capital needs of Entrade. In addition, each
share of the outstanding redeemable preferred stock of Artra shall be
exchanged for 329 shares of Entrade common stock. Concurrently with the
merger closing, Entrade is required to make a cash payment to Energy
Trading Company ("ETCO") in the amount of $100,000. If for any reason,
the merger is not consummated on or before September 30, 1999, then
Entrade is required to issue to ETCO sufficient additional shares of its
common stock so that ETCO will hold a 33 1/3% interest in all of the
issued and outstanding capital stock of Entrade. In such event, WWWX and
Entrade will amend the articles of incorporation and by-laws of Entrade
so that ETCO will have all of the same protections as a minority
shareholder of Entrade as were accorded to Global Trade Group, Ltd. under
the terms of a prior operating agreement for BarterOne LLC. Any dilution
of ownership of Entrade shall be on a pari passu basis.
Upon the completion of the proposed merger Artra will continue as the
surviving corporation. Artra will be a wholly owned subsidiary of
Entrade.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and equivalents represent cash and short-term, highly liquid
investments with original maturities three months or less.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, entrade.com Intercompany transactions
and accounts have been eliminated in consolidation.
Use of Estimates
The financial statements are prepared in conformity with generally
accepted accounting principles and, accordingly, include amounts that are
based on management's best estimates and judgments. Actual results could
differ from these estimates.
Intangible Asset
The intangible asset represents the excess of purchase price over the
fair value of net assets acquired (goodwill) which will be amortized over
a period of five years on a straight line basis. The Company reviews
intangibles for impairment by comparing future cash flows (undiscounted
and without interest) expected to result from the use of the assets and
their eventual disposition, to the carrying amount of the assets.
F-47
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
2. Summary of Significant Accounting Policies, continued
Equity interest
The Company has a 25% interest in asseTrade.com. This investment has been
recorded based upon the fair value of the consideration paid for the
investment by WWWX. The Company periodically reviews the carrying value
of this investment for impairment. Upon commencement of operations of
asseTrade, Entrade will reflect 25% of asseTrade results on an equity
basis.
Financial Instruments
The fair value of cash and cash equivalents is assumed to approximate the
carrying value of these assets due to the short duration of these assets.
3. Loan Agreement
In February 1999 the Company entered into a loan agreement with Artra
under which the Company may borrow up to a maximum of $2,000,000. The
proceeds of the loan are to be used for the following purposes: (a)
$800,000 to fund the cash purchase price for the assets acquired from
WWWX and (b) the balance to fund the working capital needs of
entrade.com. The initial loan of $1,400,000 can be increased by three
additional $200,000 increments subject to certain conditions related to
timing of closing under the merger agreement. Advances under the merger
agreement are collateralized by a perfected first priority lien and
security interest in all of the assets of the Company. The loan bears
interest at the applicable Federal rate, which accrues monthly and is
added to the principal balance. The entire outstanding principal balance
of the loan is due and payable in one lump sum on the date that is the
earlier of the closing date, as defined in the merger agreement, or the
date on which the merger agreement is otherwise terminated and the merger
abandoned. If the merger agreement terminates solely because the Artra
shareholders have not approved the merger agreement, all obligations of
the Company to repay the amounts loaned by Artra under the loan agreement
will terminate and the loans will be forgiven as a "break-up" fee equal
to the aggregate amount of the loan as defined in the loan agreement. At
February 23, 1999 the balance due on the loan was $1,400,000.
4. Promissory Note
As part of the purchase of the assets of entrade.com from WWWX, the
Company entered into a non-interest-bearing promissory note with WWWX in
the amount of $500,000. The principal amount of the note is payable on
the earlier of the closing date of the merger, as defined in the merger
agreement, or the date on which the merger agreement is otherwise
terminated and the merger abandoned.
5. Related Party Transactions
Certain shareholders of WWWX, the parent company of Entrade, and certain
officers of Entrade and entrade.com have, or have had, a direct or
beneficial ownership interest in BarterOne LLC, asseTrade, Global Trade
Group Ltd, and Positive Asset Remarketing, Inc.
Certain officers of Entrade and entrade.com have entered into employment
agreements with Artra.
6. Subsequent Event
Pursuant to a plan of merger, on September 23, 1999 Artra became a wholly
owned subsidiary of Entrade, and the common shareholders of Artra became
the common shareholders 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, the
transaction has been treated as a recapitalization of Artra with Artra as
the acquirer. All stockholders equity and share information has been
restated to reflect this recapitalization.
F-48
<PAGE>
Entrade Inc. and subsidiary
Consolidated Balance Sheet
as of June 30, 1999
(Unaudited in Thousands)
CURRENT ASSETS
Cash $ 176
Other 65
-------
Total current assets 241
-------
Property,plant and equipment, net 304
Intangibles, net 3,510
Investment in asseTrade.com 3,500
-------
TOTAL ASSETS $ 7,555
=======
CURRENT LIABILITIES
Accrued liabilities 12
Accounts payable, including amounts due related parties 383
Note payable 500
Due to Artra 2,100
-------
2,995
-------
Shareholders' Equity
Preferred stock, $1,000 par value, 4,000,000 shares
authorized, no shares issued or outstanding --
Common stock, no par value, 40,000,000 shares authorized,
2,000,000 issued and outstanding 5,256
Additional paid-in capital 604
Accumulated loss from inception (February 23, 1999) (1,300)
-------
4,560
-------
-------
TOTAL LIABILITIES AND EQUITY $ 7,555
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-49
<PAGE>
Entrade Inc. and subsidiary
Statement of Operations
For the period February 23, 1999 (inception)
to June 30, 1999
(Unaudited in Thousands)
Net sales $ 111
-------
Costs and expenses:
Selling, general and administrative
Business development costs 290
Payroll and related costs 438
Other 373
-------
1,101
Depreciation and amortization 310
-------
Total costs and expenses 1,411
-------
Loss from operations before income taxes (1,300)
Provision for income taxes -
-------
Net loss $(1,300)
=======
Per share loss:
Basic ($0.65)
=======
Weighted average number of shares
of common stock outstanding 2,000
=======
Diluted
Basic ($0.65)
=======
Weighted average number of shares
of common stock outstanding 2,000
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-50
<PAGE>
Entrade Inc. and subsidiary
Statement of Cash Flows
For the period February 23, 1999 (inception)
to June 30, 1999
(Unaudited in thousands)
Net cash flows used by operating activities ($ 760)
-------
Cash flows from investing activities:
Assets purchased from WWWX (800)
Additions to property, plant and equipment (364)
-------
Net cash flows used by investing activities (1,164)
-------
Cash flows from financing activities:
Artra loan and advances 2,100
-------
Net cash flows used by financing activities 2,100
-------
Increase in cash and cash equivalents 176
Cash and equivalents, beginning of period --
-------
Cash and equivalents, end of period $ 176
=======
The accompanying notes are an integral part of the consolidated financial
statements.
F-51
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Financial Statements
1. Formation of the Company and Acquisitions
Entrade Inc., formerly NA Acquisition Corp., ("Entrade" or "the
Company"), a Pennsylvania corporation, was incorporated in February of
1999 as a 90% owned subsidiary of WorldWide Web NetworX Corporation
("WWWX"). Entrade, through its wholly owned subsidiary, entrade.com, Inc.
("entrade.com") intends to operate as a business-to-business internet
electronic commerce ("e-commerce") service provider. Entrade is currently
a development stage company and expects to exit its development stage
during the second half of 1999.
Upon incorporation, Entrade acquired from WWWX all of the assets of
BarterOne LLC. In addition, the Company also acquired from WWWX a 25%
interest in asseTrade.com, Inc. ("asseTrade"), a company that intends to
provide business to business internet e-commerce services. WWWX had
acquired all of the membership interests in BarterOne LLC in January and
February of 1999, under separate agreements with Global Trade Group, Ltd.
and Energy Trading Company, a subsidiary of PECO Energy Corporation.
Following those acquisitions, BarterOne LLC was dissolved and WWWX took
direct title to its assets.
BarterOne LLC had been formed in December 1996 by Energy Trading Company
and Global Trade Group, Ltd., to develop software and related products
and services that would enable users, primarily in the electric and gas
utility industry, to effect barter transactions via an e-commerce system.
Energy Trading Company provided the initial capital and executive
support, while Global Trade Group, Ltd. provided software development.
In October 1998, Positive Asset Remarketing, Inc. (an affiliate of Global
Trade Group) forged an alliance with a joint venture entity, Butcher Fox
LLC, formed by Henry Butcher USA, Inc. ("Butcher") and Michael Fox
International, Inc. ("Fox"), to provide BarterOne LLC's on-line
technologies and business methodologies to the Butcher and Fox industrial
clients. In December 1998, these parties formed asseTrade. Positive Asset
Remarketing, Inc. transferred a 25% voting interest in asseTrade to WWWX
in January 1999.
Entrade purchased BarterOne LLC and the 25% interest in asseTrade
(collectively the "acquired assets") from WWWX in exchange for 2,000,000
shares of Entrade common stock, of which 200,000 were received by Energy
Trading Company pursuant to a tri-party agreement between WWWX, Energy
Trading Company and Entrade, $800,000 in cash and a note for $500,000. As
WWWX and Entrade are under common control, Entrade recorded the value of
the net assets and interest acquired in these transactions at WWWX's
carrying value. The amount of purchase price paid to WWWX by Entrade in
excess of WWWX's carrying value for the assets of entrade and interest in
asseTrade has been recorded by Entrade as a reduction in common stock.
F-52
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
1. Formation of the Company and Acquisitions, continued
Proposed Merger
Entrade, WWWX, and WWWX Merger Subsidiary, Inc. a wholly owned subsidiary
of Entrade ("Merger Sub"), have entered into an agreement to merge ("the
merger agreement") the Merger Sub into Artra Group Incorporated, a
publicly traded Pennsylvania corporation ("Artra"). The agreement is
subject to Artra shareholder approval. Entrade and WWWX have provided for
certain changes in capital structure of Entrade if the merger is not
consummated. The merger agreement provides that all shares of Artra
common stock shall be converted into shares of Entrade common stock on a
one for one basis and that Artra will guarantee funding of at least
$4,000,000 for the working capital needs of Entrade. In addition, each
share of the outstanding redeemable preferred stock of Artra shall be
exchanged for 329 shares of Entrade common stock. Concurrently with the
merger closing, Entrade is required to make a cash payment to Energy
Trading Company ("ETCO") in the amount of $100,000. If for any reason,
the merger is not consummated on or before September 30, 1999, then
Entrade is required to issue to ETCO sufficient additional shares of its
common stock so that ETCO will hold a 33 1/3% interest in all of the
issued and outstanding capital stock of Entrade. In such event, WWWX and
Entrade will amend the articles of incorporation and by-laws of Entrade
so that ETCO will have all of the same protections as a minority
shareholder of Entrade as were accorded to Global Trade Group, Ltd. under
the terms of a prior operating agreement for BarterOne LLC. Any dilution
of ownership of Entrade shall be on a pari passu basis.
Upon the completion of the proposed merger Artra will continue as the
surviving corporation. Artra will be a wholly owned subsidiary of
Entrade.
2. Loan Agreement
In February 1999 the Company entered into a loan agreement with Artra
under which the Company may borrow up to a maximum of $2,000,000. The
proceeds of the loan are to be used for the following purposes: (a)
$800,000 to fund the cash purchase price for the assets acquired from
WWWX and (b) the balance to fund the working capital needs of
entrade.com. The initial loan of $1,400,000 can be increased by three
additional $200,000 increments subject to certain conditions related to
timing of closing under the merger agreement. Artra subsequently agreed
to advance the Company an additional $250,000. Advances under the merger
agreement are collateralized by a perfected first priority lien and
security interest in all of the assets of the Company. The loan bears
interest at the applicable Federal rate, which accrues monthly and is
added to the principal balance. The entire outstanding principal balance
of the loan is due and payable in one lump sum on the date that is the
earlier of the closing date, as defined in the merger agreement, or the
date on which the merger agreement is otherwise terminated and the merger
abandoned. If the merger agreement terminates solely because the Artra
shareholders have not approved the Merger Agreement and the Merger, all
obligations of WorldWide and Entrade to repay the amounts loaned to
either or both of them by Artra under the loan agreement and an
additional $250,000 advanced to Entrade by Artra will terminate and the
loans made by Artra to WorldWide and to Entrade under the loan agreement
will be forgiven as a "break-up" fee to WorldWide and Entrade equal to
the aggregate amount of the loan as defined in the loan agreement and the
additional $250,000 advance. At June 30, 1999 the balance due on the loan
and the advance was $2,100,000.
In August 1999, WWWX agreed to loan the Company up to $500,000 to fund
its operations for the period from the date of the loan to the closing
date under the merger agreement. This amount will be repaid to Worldwide
as a condition to closing the merger.
F-53
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
3. Promissory Note
As part of the purchase of the assets of entrade.com from WWWX, the
Company entered into a non-interest-bearing promissory note with WWWX in
the amount of $500,000. The principal amount of the note is payable on
the earlier of the closing date of the merger, as defined in the merger
agreement, or the date on which the merger agreement is otherwise
terminated and the merger abandoned.
4. Related Party Transactions
Certain shareholders of WWWX, the parent company of Entrade, and certain
officers of Entrade and entrade.com have, or have had, a direct or
beneficial ownership interest in BarterOne LLC, asseTrade, Global Trade
Group Ltd, and Positive Asset Remarketing, Inc.
Certain officers of Entrade and entrade.com have entered into employment
agreements with Artra.
5. Earnings Per Share
The Company reports earnings (loss) per share under the guidelines of
SFAS No. 128, "Earnings per Share". Basic earnings (loss) per share is
computed by dividing net earnings (loss) by the weighted average number
of shares of common stock outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of shares of common stock and
common stock equivalents, unless anti-dilutive, during the period. There
were no common stock equivalents outstanding during the period.
Earnings (loss) per share for the period February 23, 1999 (inception) to
June 30, 1999 was computed as follows (in thousands, except per share
amounts):
Basic Diluted
-------- --------
AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding 2,000 2,000
Common stock equivalents -- --
-------- --------
2,000 2,000
======== ========
EARNINGS (LOSS):
Net loss $ (1,300) $ (1,300)
======== ========
PER SHARE AMOUNTS:
Net loss $ ($0.65) $ ($0.65)
======== ========
F-54
<PAGE>
Entrade Inc. and subsidiary
Notes to Consolidated Balance Sheet, Continued
6. Subsequent Event
Pursuant to a plan of merger, on September 23, 1999 Artra became a wholly
owned subsidiary of Entrade, and the common shareholders of Artra became
the common shareholders 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, the
transaction has been treated as a recapitalization of Artra with Artra as
the acquirer. All stockholders equity and share information has been
restated to reflect this recapitalization.
F-55
<PAGE>
Independent Auditors' Report
The Board of Directors
Nationwide Auction Systems:
We have audited the accompanying combined balance sheets of Nationwide Auction
Systems (the Company - see note 1(a)) as of December 31, 1998 and 1997 and the
related combined statements of earnings and retained earnings and cash flows for
each of the years in the three year period ended December 31, 1998. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Auction
Systems as of December 31, 1998 and 1997 and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1998 in conformity with generally accepted accounting principles.
/S/KPMG LLP
Los Angeles, California
March 5, 1999
F-56
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31
-----------------------
Assets 1998 1997
---------- ----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 986,000 1,773,000
Accounts receivable 594,000 392,000
Due from affiliates (note 2) -- 2,000
Inventories 24,000 33,000
Prepaid expenses 17,000 46,000
---------- ----------
Total current assets 1,621,000 2,246,000
---------- ----------
Property and equipment, at cost (notes 3, 4 and 5):
Land 2,021,000 --
Land improvements 754,000 --
Building 295,000 --
Leasehold interest 726,000 --
Office furniture and equipment 212,000 196,000
Leasehold improvements 1,028,000 171,000
Transportation equipment 188,000 209,000
---------- ----------
5,224,000 576,000
Less accumulated depreciation and amortization 315,000 254,000
---------- ----------
Net property and equipment 4,909,000 322,000
---------- ----------
Deposits 70,000 15,000
---------- ----------
$6,600,000 2,583,000
========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Bank lines of credit (note 4) $ 929,000 --
Current installments of long-term debt (note 5) 124,000 78,000
Accounts payable 1,197,000 1,301,000
Accrued expenses 439,000 131,000
Income taxes payable 10,000 12,000
---------- ----------
Total current liabilities 2,699,000 1,522,000
Long-term debt, excluding current installments (note 5) 2,631,000 20,000
---------- ----------
Total liabilities 5,330,000 1,542,000
---------- ----------
Stockholder's equity:
Common stock, no par value
Authorized 5,000 shares; issued
and outstanding 2,600 shares 150,000 150,000
Retained earnings 1,120,000 891,000
---------- ----------
Total stockholder's equity 1,270,000 1,041,000
Commitments and contingencies (notes 6 and 11)
---------- ----------
$6,600,000 2,583,000
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Earnings and Retained Earnings
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues (note 2) $ 19,624,000 11,604,000 10,017,000
Cost of sales 10,671,000 4,224,000 3,561,000
------------ ------------ ------------
Gross profit 8,953,000 7,380,000 6,456,000
Operating expenses 6,507,000 5,100,000 4,816,000
------------ ------------ ------------
Earnings from operations 2,446,000 2,280,000 1,640,000
Interest income (136,000) (152,000) (139,000)
Interest expense 94,000 21,000 58,000
Other expenses, net (note 7) 3,000 384,000 894,000
------------ ------------ ------------
Earnings before income taxes 2,485,000 2,027,000 827,000
State income taxes, all current 39,000 30,000 19,000
------------ ------------ ------------
Net earnings 2,446,000 1,997,000 808,000
Retained earnings at beginning of year 891,000 1,135,000 658,000
Distributions to stockholder (2,217,000) (2,241,000) (331,000)
------------ ------------ ------------
Retained earnings at end of year $ 1,120,000 891,000 1,135,000
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 2,446,000 1,997,000 808,000
----------- ----------- -----------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 79,000 64,000 56,000
Loss on disposal of equipment 9,000 -- --
Loss on sale of limited partnership interest -- -- 380,000
Loss on sale of note receivable -- 399,000 390,000
Loss on disposal of investment in athletic club -- -- 150,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (202,000) (226,000) (2,000)
Stockholder advances -- 450,000 (51,000)
Income tax refund -- -- 199,000
Due from affiliates 2,000 140,000 --
Inventories 9,000 145,000 (25,000)
Prepaid expenses 29,000 (15,000) (11,000)
Deposits (55,000) 110,000 21,000
Increase (decrease) in:
Accounts payable and accrued expenses 204,000 (1,762,000) 1,385,000
Due to affiliates -- -- 148,000
Income taxes payable (2,000) 7,000 2,000
----------- ----------- -----------
Total adjustments 73,000 (688,000) 2,642,000
----------- ----------- -----------
Net cash provided by operating activities 2,519,000 1,309,000 3,450,000
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (4,711,000) (115,000) (666,000)
Investment in athletic club -- -- (150,000)
Proceeds from the sale of property and equipment 36,000 9,000 24,000
----------- ----------- -----------
Net cash used in investing activities (4,675,000) (106,000) (792,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable 2,735,000 -- --
Proceeds from line of credit 929,000 -- --
Repayments of notes payable to bank -- -- (675,000)
Proceeds from issuance of long-term debt -- -- 119,000
Principal payments of long-term debt (78,000) (77,000) (20,000)
Distributions to stockholder (2,217,000) (1,707,000) (331,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,369,000 (1,784,000) (907,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (787,000) (581,000) 1,751,000
Cash and cash equivalents at beginning of year 1,773,000 2,354,000 603,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 986,000 1,773,000 2,354,000
=========== =========== ===========
Supplemental schedule of noncash distributions:
Distribution of real estate to stockholder $ -- (588,000) --
Transfer of real estate related debt to stockholder -- 54,000 --
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-59
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Principles
(a) Background
Asset Liquidation Group, Inc. and Public Liquidation Systems, Inc.
dba Nationwide Auction Systems (the Company) were incorporated in
the state of Nevada on September 21, 1988 and September 26, 1990,
respectively. The Company's principal line of business is the
public auction of vehicles, machinery, equipment, jewelry and
other personal property on a consignment basis. Auctions are
primarily held at the Company's sites, but are also held at
various locations throughout the United States.
The entities are owned and controlled by common ownership.
Certain advances to affiliates previously presented as receivables
have been accounted for as distributions to the owner in the
accompanying 1998 financial statements.
Additionally, impairment losses previously recorded in 1997 have
been restated and recorded in 1996. This has resulted in an
increase in other expenses in 1996 and a decrease in other
expenses in 1997.
(b) Revenue
Consigned goods are sold at public auctions to the highest bidder
on an "as-is, where-is" basis. Gross auction proceeds represent
the successful bid price of the merchandise sold. The successful
bidder is required to pay a minimum 25% deposit on the day of the
auction. The balance must be paid by the end of the next business
day, otherwise the deposit is forfeited and the merchandise is
reauctioned. The Company remits to the consignor the gross auction
proceeds less its consignment fee and any direct costs incurred by
the Company which are to be borne by the consignor. Gross proceeds
for 1998, 1997 and 1996 totaled $75,110,000, $66,564,000 and
$56,428,000, respectively.
The buyer is generally required to pay a buyer's premium,
typically a fixed percentage of the successful bid price and a
processing fee. The Company's consignment fee, the buyer's premium
and the processing fees are recorded as revenues upon payment by
the buyer.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with original maturities of three
months or less to be cash equivalents.
(d) Inventories
Inventories, consisting of various merchandise, are stated at the
lower of cost (specific-identification method) or estimated
realizable value. Inventories are acquired through direct
purchases of auctionable merchandise.
F-60
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(e) Asset Impairment
The Company reviews the carrying value of the Company's long-lived
assets if facts and circumstances suggest that it may be impaired.
If this review indicates that the long-lived assets will not be
recoverable, as determined by an undiscounted cash flow analysis
over the remaining amortization period, the carrying value of the
Company's long-lived assets would be reduced to its estimated fair
market value.
(f) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from these estimates.
(g) Depreciation and Amortization
Depreciation of property and equipment is computed using the
straight-line method and accelerated methods over the estimated
useful lives of the related assets ranging from four to five
years. Land improvements and the building are depreciated on a
straight-line basis over the estimated useful lives of 20 to 40
years. Leasehold improvements are amortized on a straight-line
basis over their estimated economic useful life or the life of the
lease, whichever is less.
(h) Income Taxes
The Company has elected to be treated as an S Corporation for
Federal and California state income tax purposes. Under this
election, the stockholder of the corporation is personally liable
for Federal and state income taxes and the Company is liable for a
minimum California state excise tax of 1.5% of taxable income.
Accordingly, the accompanying combined financial statements
contain only a provision for the minimum excise tax.
(i) Comprehensive Income
Effective January 1, 1998, the Company adopted Financial
Accounting Standards Board Statement No. 130 (SFAS No. 130),
Reporting Comprehensive Income. SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. Comprehensive income of the Company is the
same as net income; accordingly, the adoption of SFAS No. 130 did
not affect the Company's financial reporting.
F-61
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(j) Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair
value as of December 31, 1998 and 1997. The carrying amounts
related to cash and cash equivalents, accounts receivable, due
from affiliates and all current liabilities approximate fair value
due to the relatively short maturity of such instruments. The fair
value of long-term debt is estimated by discounting the future
cash flows of each instrument at rates currently available to the
Company for similar debt instruments of comparable maturities by
the Company's banker.
(k) Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No.131 establishes a standard for the way
public business enterprises are to report selected information
about operating segments. The determination of an entity's
operating segments is based upon a management approach, including
the way management organizes the segment within the enterprise for
making operating decisions and assessing performance. Management
currently reviews financial data at the highest level, the
conducting of public auctions. Therefore, under the management
approach of SFAS No. 131, there is only one operating segment.
Accordingly, SFAS No. 131 did not have a material impact on the
combined financial statements.
(2) Related Party Transactions
Gross auction proceeds from the sale of consigned goods on behalf of an
affiliated company aggregated $3,445,000, $470,000 and $711,000 from
which the Company earned commissions, buyers' premiums and fees
aggregating $536,000, $70,000 and $54,000 for 1998, 1997 and 1996,
respectively. The Company has net amounts due from affiliated companies
which are related to the Company by virtue of common ownership. Net
amounts due from these affiliated companies were $0 and $2,000 at
December 31, 1998 and 1997, respectively.
The Company leases one of its office and yard facilities from an informal
partnership in which a partner is also the stockholder of the Company.
See note 6.
(3) Leasehold Interest
Property and equipment includes a leasehold interest valued at $726,000,
the cash consideration paid, representing the Company's right to use
certain land, land improvements and a building through May 8, 2031.
(4) Bank Credit Lines
The Company has two lines of credit with two different banks for total
available borrowings of $3,500,000. The Company's first credit line of
$1,000,000 at December 31, 1997 was reduced to $500,000 as of December
31, 1998. Borrowings under this agreement require monthly interest
payments at the bank's prime rate. As of December 31, 1998, no amounts
are outstanding under this line of credit. The second line of credit was
entered into in 1998 and provides for maximum borrowings of $3,000,000.
Borrowings of $929,000 are outstanding as of December 31, 1998 and
require monthly interest payments at the bank's prime rate plus 1%. The
F-62
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
second credit line includes financial covenants with which the Company is
in compliance with as of December 31, 1998. No amounts were outstanding
under either line at December 31, 1997. The first credit line expires on
June 30, 1999, and the second credit line expires on December 8, 2000.
Both credit lines are secured by the assets of the Company and have been
personally guaranteed by the stockholder of the Company.
(5) Long-Term Debt
Long-term debt is summarized as follows:
1998 1997
---------- ----------
Note payable, due August 28, 1999,
with interest at 10.25% per annum,
secured by property and equipment,
principal and interest payable
monthly in equal installments of $2,563 $ 20,000 47,000
Note payable, due January 1, 2009,
with interest at 8%
secured by real estate 2,222,000 --
Note payable, due January 1, 2004,
with interest at 8.25%,
secured by real estate 513,000 --
Note payable, repaid February 7, 1998 -- 51,000
---------- ----------
2,755,000 98,000
Less current installments 124,000 78,000
---------- ----------
$2,631,000 20,000
========== ==========
The Company obtained approximately $2,735,000 in notes payable in order
to purchase real estate in 1998. The Company has moved its auction
facilities to the newly purchased real estate and has vacated its leased
auction facilities in Northern California. All long-term debt has also
been personally guaranteed by the stockholder of the Company.
Total principal repayments under all long-term debt agreements are
summarized as follows:
1999 $ 124,000
2000 124,000
2001 135,000
2002 147,000
2003 159,000
Thereafter 2,066,000
----------
$ 2,755,000
==========
F-63
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(6) Commitments
The Company leases certain equipment and facilities under noncancelable
operating leases. Future minimum rental payments required under such
operating leases are summarized as follows as of December 31, 1998:
Year ending December 31:
1999 $ 521,000
2000 469,000
2001 379,000
2002 306,000
2003 252,000
Thereafter 420,000
----------
$ 2,347,000
==========
The Company leases one of its office and yard facilities from an informal
partnership in which a partner is the stockholder of the Company. Rental
payments aggregating $257,000, $249,000 and $249,000 were made by the
Company to this partnership for 1998, 1997 and 1996, respectively. Future
lease commitments under this agreement and included in the table above
approximate $1,700,000.
Total rent and related expenses for 1998, 1997 and 1996, including
related party rents, aggregated $652,000, $627,000 and $461,000,
respectively.
(7) Investments
In December 1993, the Company purchased through an affiliate Company, by
virtue of its common ownership, a 50% interest in a limited partnership.
The partnership owns a note secured by a commercial office building and
land in downtown Los Angeles. The cost of the Company's interest was
$400,000. During the year ended December 31, 1996, the Company determined
the value of the investment to be impaired and accepted a $20,000 note
receivable as payment for a 25% interest in the limited partnership. A
loss of $380,000 is included in other expenses (income) in the combined
statement of earnings and retained earnings for 1996.
During 1996, the Company invested $150,000 with a group of individuals to
pursue a business venture to operate an athletic club. The group was
unable to accomplish its objective and the investment was determined to
be impaired. A loss of $150,000 is included in other expenses (income) in
the combined statement of earnings and retained earnings for 1996.
F-64
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
December 31, 1998 and 1997
(8) Sale of Note Receivable
In December 1994, the Company accepted a note receivable for $470,000
which was secured by a deed of trust on approximately 131 acres of vacant
land in Douglas County, Nevada. The due date of the note was originally
January 2, 1996; however, the borrower has not made any payments. Due to
the borrower's lack of performance, the Company sold the original note
for $80,000 to an unrelated third party. A loss of $390,000 is included
in other expenses (income) in the combined statement of earnings and
retained earnings for 1996.
During 1997, the Company sold certain nonperforming notes receivable from
companies which are affiliated by their common ownership by the
shareholder of the Company to an unrelated party resulting in a net loss
of $399,000 which is included in other expenses (income) in the combined
statement of earnings and retained earnings for 1997.
(9) Profit Sharing Plan
The Company has a qualified, noncontributory profit sharing plan in
effect for certain eligible employees. The plan provides for
contributions by the Company in such amounts as the Board of Directors
may annually determine. There were no contributions made to the plan for
1998, 1997 and 1996.
(10) Stockholder's Equity
During 1997, real estate with a net book value of $585,000 was
distributed to the stockholder. Also during 1997, real estate related
debt of $54,000 was transferred to the stockholder.
(11) Contingencies
The Company is subject to legal proceedings and claims, which arise, in
the ordinary course of business. In the opinion of management, any
ultimate liability with respect to these actions will not materially
affect the financial statements of the Company taken as a whole.
F-65
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED BALANCE SHEET
as of September 30, 1999
(Unaudited in thousands, except share data)
ASSETS
Current assets:
Cash and equivalents $ 811
Accounts receivable 604
Due from stockholder 339
Other 153
------
Total current assets 1,907
Proprerty, plant and equipment, net 6,531
Other 87
------
$8,525
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable $1,229
Current maturities of long-term debt 187
Accounts payable 2,809
Accrued expenses 567
------
Total current liabilities 4,792
------
Commitments and contingencies
Long-term debt, less current maturities 3,199
------
Shareholder's equity
Common stock, no par value,
authorized 5,000 shares;
issued and outstanding 2,600 shares 150
Retained earnings 384
------
534
------
------
$8,525
======
The accompanying notes are an integral part of the condensed combined financial
statements.
F-66
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED STATEMENTS OF EARNINGS
(Unaudited in thousands)
Nine Months Ended
September 30,
--------------------
1999 1998
-------- --------
Net revenues $ 12,181 $ 13,849
-------- --------
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 5,388 8,223
Selling, general and administrative 5,030 3,755
Depreciation and amortization 151 64
-------- --------
10,569 12,042
-------- --------
Operating income 1,612 1,807
-------- --------
Other income (expense):
Interest income (expense), net (184) 71
Other income, net -- 3
-------- --------
(184) 74
-------- --------
Earnings before income taxes 1,428 1,881
Provision for state income taxes, all current (21) (28)
-------- --------
Net earnings $ 1,407 $ 1,853
======== ========
The accompanying notes are an integral part of the condensed combined financial
statements.
F-67
<PAGE>
NATIONWIDE AUCTION SYSTEMS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Nine Months Ended
September 30,
------------------
1999 1998
------- -------
Net cash flows provided by (used by) operating activities $ 2,809 ($1,098)
------- -------
Cash flows used for investing activities:
Purchases of property, plant and equipment (1,773) (77)
Proceeds from sale of property, plant and equipment -- 45
------- -------
Net cash flows used for investing activities (1,773) (32)
------- -------
Cash flows from financing activities:
Proceeds from notes payable 763 1,717
Proceeds from line of credit 700 --
Prinicipal payments of long-term debt (531) (78)
Distributions to stockholder (2,143) (1,332)
------- -------
Net cash flows provided by (used by) financing activities (1,211) 307
------- -------
Decrease in cash and cash equivalents (175) (823)
Cash and equivalents, beginning of period 986 1,773
------- -------
Cash and equivalents, end of period $ 811 $ 950
======= =======
The accompanying notes are an integral part of the condensed combined financial
statements.
F-68
<PAGE>
NATIONWIDE AUCTION SYSTEMS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. Acquisition by Entrade Inc.
Asset Liquidation Group, Inc. and Public Liquidation Systems, Inc. dba
Nationwide Auction Systems ("Nationwide" or the "Company") were
incorporated in the state of Nevada on September 21, 1988 and September 26,
1990, respectively. The Company's principal line of business is the public
auction of vehicles, machinery, equipment, jewelry and other personal
property on a consignment basis. Auctions are primarily held at the
Companys sites, but are also held at various locations throughout the
United States.
The entities are owned and controlled by common ownership.
On April 19, 1999, Artra Group Incorporated ("Artra") entered into a letter
of intent to purchase all of the issued and outstanding common stock of the
Company.
As a result of a merger agreement, in September 1999 Artra became a
wholly-owned subsidiary of Entrade Inc. ("Entrade").
On October 19, 1999, Entrade completed the acquisition of all of the
outstanding capital stock Nationwide for consideration consisting of the
following: (a) an aggregate of 1,570,000 shares of Entrade common stock;
(b) promissory notes (the "Notes") in the aggregate principal amount of
$4,800,000, maturing on November 29, 1999; (c) an aggregate of $6,000,000
cash; and (d) promissory notes (the "Term Notes") in the aggregate
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 with its existing cash assets. 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. Entrade intends to
pay the $4,800,000 in promissory notes due 11/29/99 by delivering
approximately 282,000 shares of its common stock.
2. Revenue Recognition
Consigned goods are sold at public auctions to the highest bidder on an
"as-is, where-is" basis. Gross auction proceeds represent the successful
bid price of the merchandise sold. The successful bidder is required to pay
a minimum 25% deposit on the day of the auction. The balance must be paid
by the end of the next business day, otherwise the deposit is forfeited and
the merchandise is reauctioned. The Company remits to the consignor the
gross auction proceeds less its consignment fee and any direct costs
incurred by the Company which are to be borne by the consignor. Gross
proceeds for the nine months ended September 30, 1999 and 1998 totaled
$70,832,000 and $53,850,000, respectively.
The buyer is generally required to pay a buyer's premium, typically a fixed
percentage of the successful bid price and a processing fee. The Company's
consignment fee, the buyer's premium and the processing fees are recorded
as revenues upon payment by the buyer.
3. Related Party Transactions
Gross auction proceeds from the sale of consigned goods on behalf of an
affiliated company aggregated $3,031,000 and $5,094,000 from which the
Company earned commissions, buyers' premiums and fees aggregating $422,000
and $661,000 for the nine months ended September 30, 1999 and 1998,
respectively.
The Company leases one of its office and yard facilities from an informal
partnership in which a partner was the stockholder of the Company at
September 30, 1999. Rental payments aggregating $178,000 and $188,000 were
made by the Company to this partnership for the nine months ended September
30, 1999 and 1998, respectively.
F-69
<PAGE>
NATIONWIDE AUCTION SYSTEMS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
4. Bank Credit Line
At September 30, 1999 the Company has a line of credit with a bank that
provides for maximum borrowings of $3,000,000. Borrowings of $1,229,000 are
outstanding as of September 30, 1999 and require monthly interest payments
at the bank's prime rate plus 1%. The credit line includes financial
covenants, certain of which the Company was not in compliance with at of
September 30, 1999. The Company intends to negotiate with the bank to waive
the conditions of noncompliance at September 30, 1999 and to amend its
financial covenants.
The credit line is collateralized by the assets of the Company and, at
September 30, 1999 was personally guaranteed by the stockholder of the
Company.
5. Long-Term Debt
Long-term debt at September 30, 1999 is summarized as follows:
Note payable, due January 1, 2009,
with interest at 8% collateralized by real estate $2,201,000
Note payable, due January 1, 2004,
with interest at 8.25%, collateralized by real estate 450,000
Note payable, due July 15, 2004,
with interest at 8.45% collateralized by real estate,
payable in equal monthly installments of $4,189 423,000
Obligations under capital leases
with interest at 11.25%, collateralized by property
and equipment, payable in monthly in equal
installments of $7,859 312,000
----------
3,386,000
Less current installments 187,000
----------
$3,199,000
==========
The Company obtained approximately $2,735,000 in notes payable in order to
purchase real estate in 1998. The Company has moved its auction facilities
to the newly purchased real estate and has vacated its leased auction
facilities in Northern California.
In June 1999, the Company obtained $425,000 in notes payable in order to
finance certain real estate purchased for cash in March 1999. The Company
uses this real estate as an auction facility in Atlanta, Georgia.
As of September 30, 1999, all long-term debt was personally guaranteed by
the stockholder of the Company.
6. Contingencies
The Company is subject to legal proceedings and claims, which arise, in the
ordinary course of business. In the opinion of management, any ultimate
liability with respect to these actions will not materially affect the
financial statements of the Company taken as a whole.
F-70
<PAGE>
Entrade has not authorized anyone to give any information that is
different from what is contained in this Prospectus. This is not an offer to
sell or a solicitation of anyone to whom it would be unlawful to make an offer
or solicitation. You should not assume that the information contained in this
Prospectus is accurate as of any time after the date of this Prospectus.
Entrade Inc.
5,629,584 Shares
Common Stock
PROSPECTUS
February 9, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance Distribution
Set forth below is an estimate of the approximate amount of fees and
expenses payable by Entrade Inc. in connection with the issuance and
distribution of its common stock pursuant to the prospectus contained in this
Registration Statement. Entrade will pay all of these expenses.
Approximate
Amount
-----------
SEC registration fee $56,894.35
Accountants' fees and expenses 80,000.00
Legal fees and expenses 70,000.00
Printing and engraving expenses 7,000.00
Miscellaneous expenses 7,500.00
-----------
Total $221,394.35
===========
All expenses other than the SEC registration fee are estimated.
Item 14. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (i) the director has
breached or failed to perform the duties of his office and (ii) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of Entrade Inc. ("Entrade") provide for (i) indemnification
of directors, officers, employees and agents of the registrant and its
subsidiaries and (ii) the elimination of a director's liability for monetary
damages, to the fullest extent permitted by Pennsylvania law.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
Entrade pursuant to the foregoing provisions, Entrade has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities.
In February 1999, Entrade issued 1,800,000 and 200,000 shares of its
common stock, no par value, to WorldWide and Energy Trading Company,
respectively, in connection with the merger of a wholly owned subsidiary of
Entrade into Artra. In exchange for the shares and other consideration delivered
to WorldWide, Entrade received software and intellectual property and an
ownership interest in asseTrade.com. In exchange for the shares and other
consideration delivered to Energy Trading Company, Entrade received rights held
by Energy Trading Company in the assets which were acquired in the merger.
In October 1999, Entrade issued an aggregate of 1,570,00 shares of its
common stock in connection with the acquisition of its Nationwide subsidiaries.
In January 2000, unsecured promissory notes delivered as consideration for the
acquisition of the Nationwide subsidiaries were converted into 278,985 shares of
Entrade common stock.
All of the above securities were sold pursuant to an exemption from
registration under Section 4(2) the Securities Act of 1933 , as amended (the
"Act").
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
pursuant to an exemption from registration under the Act, pursuant to Regulation
D promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger dated as of February 23,
1999 among Artra, WorldWide Web NetworX Corporation
("WWWX"), NA Acquisition Corp. ("NAAC") (now known as
Entrade Inc.) and WWWX Merger Subsidiary, Inc.;
Amendment to Agreement and Plan of Merger dated as of
April 30, 1999; Second Amendment to Agreement and Plan
of Merger dated as of May 14, 1999. (1)
3.1 Articles of Incorporation of Entrade.(1)
3.2 Bylaws of Entrade. (1)
5.1 Opinion of Anthony E. Rothschild.
II-2
<PAGE>
10.1 Acquisition Agreement dated as of February 23, 1999
between WWWX and NAAC. (1)
10.2 Bill of Sale and Instrument of Assignment of WWWX dated
February 23, 1999. (1)
10.3 Promissory Note dated as of February 23, 1999 in the
principal amount of $500,000 issued by NAAC to WWWX. (1)
10.4 Agreement dated as of February 16, 1999 among Energy
Trading Company, WorldWide Web NetworX Corporation and
NAAC. (1)
10.5 Loan Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.6 Promissory Note dated as of February 23, 1999 in the
principal amount of $1,400,000 issued by NAAC to Artra.
(1)
10.7 Guaranty dated as of February 23, 1999 made by WWWX in
favor of Artra to secure the obligations of NAAC. (1)
10.8 Pledge Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.9 Security Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.10 Employment Agreement dated as of February 23, 1999
between Artra and Robert D. Kohn. (1)
10.11 Employment Agreement as of February 23, 1999 between
Artra and Benjamin Kafka. (1)
10.12 Employment Agreement dated as of February 23, 1999
between Artra and Gary Lerman. (1)
10.13 Employment Agreement dated as of February 23, 1999
between Artra and Mark L.M. Quinn. (1)
10.14 1999 Non-qualified Stock Option Plan of Artra and form
of Non-Qualified Stock Option Agreement. (1)
10.15 Finders Agreement between Artra and Jeffrey Newman. (1)
II-3
<PAGE>
10.16 Agreement dated as of December 11, 1998 among Henry
Butcher USA, Inc., Michael Fox International, Inc.
Butcher Fox, LLC, Positive Asset Remarketing, Inc. and
asseTrade.com, Inc. (1)
10.17 Software License Agreement dated as of December 11, 1998
between asseTrade.com, Inc. and BarterOne LLC (d/b/a
entrade.com). (1)
10.18 Stock Purchase Agreement dated as of October 15, 1999
among Entrade Inc., Don Haidl, Corey P. Schlossmann,
Peggy Haidl, as trustee of the Capital Direct 1999 Trust
and the Core Capital IV Trust, Public Liquidation
Systems, Inc., and Asset Liquidation Group, Inc. and the
Closing Letter dated as of October 15, 1999 among all
parties to the Stock Purchase Agreement, without
schedules and other exhibits. Entrade agrees to furnish
supplementally copies of these schedules and other
exhibits omitted to the Commission upon request. (2)
10.19 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$4,320,000. (2)
10.20 Promissory Note dated as of October 15,, 1999 from
Entrade to Corey P. Schlossmann, in the principal amount
of $480,000. (2)
10.21 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$12,600,000. (2)
10.22 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal amount
of $1,400,000. (2)
10.23 Employment Agreement dated as of October 15, 1999
between Entrade and Corey P. Schlossmann. (2)
10.24 Stock Option Agreement dated as of October 15, 1999
between Entrade Inc. and Corey P. Schlossmann. (2)
10.25 Stock Restriction and Registration Rights Agreement
dated as of October 15, 1999 between Entrade Inc. and
the Sellers. (2)
10.26 Employment Agreement dated November 11, 1999 between
Entrade and Mark P. Miller.
10.27 Employment Agreement dated November 11, 1999 between
Entrade and Carrie L. Shea.
10.28 Employment Agreement dated October 22, 1999 between
Entrade and Anthony E. Rothschild.
II-4
<PAGE>
10.29 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. (3)
10.30 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. (3)
10.31 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. (3)
10.32 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. (3)
10.33 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. (3)
10.34 Subscription and Investment Registration Agreement
entered into by Stewart Greenebaum on December 23, 1999
and accepted by the Company on December 23, 1999. (3)
10.35 Subscription and Investment Registration Agreement
entered into by James Filler on December 30, 1999 and
accepted by the Company on December 30, 1999. (3)
10.36 Subscription and Investment Registration Agreement
entered into by Elliott Associates, L.P. and Westgate
International, L.P. on December 30, 1999 and accepted by
the Company on December 30, 1999. (3)
10.37 Subscription and Investment Registration Agreement
entered into by Lunn Partners Multiple Opportunities
Portfolio L.P. on January 3, 2000 and accepted by the
Company on January 3, 2000. (3)
10.38 Subscription and Investment Registration Agreement
entered into by Dr. Richard A. Chaifetz on January 3,
2000 and accepted by the Company on January 5, 2000. (3)
10.39 Form of Warrant to Purchase Common Stock. (3)
II-5
<PAGE>
10.40 Agreement and Plan of Merger dated as of December 31,
1999 among Entrade, Inc., Positive Asset Remarketing,
Inc., a Nevada corporation, Positive Asset Remarketing,
Inc., a Massachusetts corporation, Robert D. Kohn,
Benjamin Kafka, Mark Quinn, and Entrade Merger
Subsidiary, Inc. (3)
10.41 Subscription and Investment Registration Agreement
entered into by A.T. Kearney on January 28, 2000 and
accepted by the Company on January 28, 2000.
10.42 Warrant to Purchase Common Stock dated as of February 7,
2000 granted to Braden Sutphin Ink Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Anthony E. Rothschild (contained in Exhibit
5.1).
__________________
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-79175) filed with the Securities and
Exchange Commission on May 24, 1999.
(2) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 28, 1999.
(3) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on January 25, 2000.
(b) Financial Statement Schedules.
None required.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
II-6
<PAGE>
(ii) To reflect in the prospectus any fact or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the bylaws of the registrant, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Northfield,
State of Illinois on February 9, 2000.
ENTRADE INC.
By:/s/ Mark F. Santacrose
---------------------------------------
Mark F. Santacrose
President and Chief Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Mark F. Santacrose as such person's true and
lawful attorney-in-fact and agent, with full power of substitution, for such
person, and in such person's name, place and stead, in any and all capacities to
sign any or all amendments or post-effective amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of his substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John Harvey Director February 9, 2000
- -------------------------
John Harvey
/s/ Peter R. Harvey Director February 9, 2000
- -------------------------
Peter R. Harvey
/s/ Mark F. Santacrose President, Chief Executive February 9, 2000
- ------------------------- Officer and a Director
Mark F. Santacrose
/s/ John G. Hamm Executive Vice President, February 9, 2000
- ------------------------- Treasurer and
John G. Hamm Chief Financial Officer
/s/ Lawrence D. Levin Controller and February 9, 2000
- ------------------------- Chief Accounting Officer
Lawrence D. Levin
II-8
<PAGE>
/s/ Gerard M. Kenny Director February 9, 2000
- -------------------------
Gerard M. Kenny
/s/ Edward A. Celano Director February 9, 2000
- -------------------------
Edward A. Celano
/s/ Howard R. Conant Director February 9, 2000
- -------------------------
Howard R. Conant
/s/ Robert D. Kohn Director February 9, 2000
- -------------------------
Robert D. Kohn
/s/ Maynard K. Louis Director February 9, 2000
- -------------------------
Maynard K. Louis
/s/ Corey F. Schlossmann Director February 9, 2000
- -------------------------
Corey F. Schlossmann
/s/ Robert L. Johnson Director February 9, 2000
- -------------------------
Robert L. Johnson
/s/ John K. Tull Director February 9, 2000
- -------------------------
John K. Tull
II-9
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
2.1 Agreement and Plan of Merger dated as of February 23,
1999 among Artra, WorldWide Web NetworX Corporation
("WWWX"), NA Acquisition Corp. ("NAAC") (now known as
Entrade Inc.) and WWWX Merger Subsidiary, Inc.;
Amendment to Agreement and Plan of Merger dated as of
April 30, 1999; Second Amendment to Agreement and Plan
of Merger dated as of May 14, 1999. (1)
3.1 Articles of Incorporation of Entrade.(1)
3.2 Bylaws of Entrade. (1)
5.1 Opinion of Anthony E. Rothschild.
10.1 Acquisition Agreement dated as of February 23, 1999
between WWWX and NAAC. (1)
10.2 Bill of Sale and Instrument of Assignment of WWWX dated
February 23, 1999. (1)
10.3 Promissory Note dated as of February 23, 1999 in the
principal amount of $500,000 issued by NAAC to WWWX. (1)
10.4 Agreement dated as of February 16, 1999 among Energy
Trading Company, WorldWide Web NetworX Corporation and
NAAC. (1)
10.5 Loan Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.6 Promissory Note dated as of February 23, 1999 in the
principal amount of $1,400,000 issued by NAAC to Artra.
(1)
10.7 Guaranty dated as of February 23, 1999 made by WWWX in
favor of Artra to secure the obligations of NAAC. (1)
II-10
<PAGE>
10.8 Pledge Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.9 Security Agreement dated as of February 23, 1999 between
Artra and NAAC. (1)
10.10 Employment Agreement dated as of February 23, 1999
between Artra and Robert D. Kohn. (1)
10.11 Employment Agreement as of February 23, 1999 between
Artra and Benjamin Kafka. (1)
10.12 Employment Agreement dated as of February 23, 1999
between Artra and Gary Lerman. (1)
10.13 Employment Agreement dated as of February 23, 1999
between Artra and Mark L.M. Quinn. (1)
10.14 1999 Non-qualified Stock Option Plan of Artra and form
of Non-Qualified Stock Option Agreement. (1)
10.15 Finders Agreement between Artra and Jeffrey Newman. (1)
10.16 Agreement dated as of December 11, 1998 among Henry
Butcher USA, Inc., Michael Fox International, Inc.
Butcher Fox, LLC, Positive Asset Remarketing, Inc. and
asseTrade.com, Inc. (1)
10.17 Software License Agreement dated as of December 11, 1998
between asseTrade.com, Inc. and BarterOne LLC (d/b/a
entrade.com). (1)
10.18 Stock Purchase Agreement dated as of October 15, 1999
among Entrade Inc., Don Haidl, Corey P. Schlossmann,
Peggy Haidl, as trustee of the Capital Direct 1999 Trust
and the Core Capital IV Trust, Public Liquidation
Systems, Inc., and Asset Liquidation Group, Inc. and the
Closing Letter dated as of October 15, 1999 among all
parties to the Stock Purchase Agreement, without
schedules and other exhibits. Entrade agrees to furnish
supplementally copies of these schedules and other
exhibits omitted to the Commission upon request. (2)
10.19 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$4,320,000. (2)
10.20 Promissory Note dated as of October 15,, 1999 from
Entrade to Corey P. Schlossmann, in the principal amount
of $480,000. (2)
10.21 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$12,600,000. (2)
II-11
<PAGE>
10.22 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal amount
of $1,400,000. (2)
10.23 Employment Agreement dated as of October 15, 1999
between Entrade and Corey P. Schlossmann. (2)
10.24 Stock Option Agreement dated as of October 15, 1999
between Entrade Inc. and Corey P. Schlossmann. (2)
10.25 Stock Restriction and Registration Rights Agreement
dated as of October 15, 1999 between Entrade Inc. and
the Sellers. (2)
10.26 Employment Agreement dated November 11, 1999 between
Entrade and Mark P. Miller.
10.27 Employment Agreement dated November 11, 1999 between
Entrade and Carrie L. Shea.
10.28 Employment Agreement dated October 22, 1999 between
Entrade and Anthony E. Rothschild.
10.29 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. (3)
10.30 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. (3)
10.31 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. (3)
10.32 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. (3)
10.33 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. (3)
II-12
<PAGE>
10.34 Subscription and Investment Registration Agreement
entered into by Stewart Greenebaum on December 23, 1999
and accepted by the Company on December 23, 1999. (3)
10.35 Subscription and Investment Registration Agreement
entered into by James Filler on December 30, 1999 and
accepted by the Company on December 30, 1999. (3)
10.36 Subscription and Investment Registration Agreement
entered into by Elliott Associates, L.P. and Westgate
International, L.P. on December 30, 1999 and accepted by
the Company on December 30, 1999. (3)
10.37 Subscription and Investment Registration Agreement
entered into by Lunn Partners Multiple Opportunities
Portfolio L.P. on January 3, 2000 and accepted by the
Company on January 3, 2000. (3)
10.38 Subscription and Investment Registration Agreement
entered into by Dr. Richard A. Chaifetz on January 3,
2000 and accepted by the Company on January 5, 2000. (3)
10.39 Form of Warrant to Purchase Common Stock. (3)
10.40 Agreement and Plan of Merger dated as of December 31,
1999 among Entrade, Inc., Positive Asset Remarketing,
Inc., a Nevada corporation, Positive Asset Remarketing,
Inc., a Massachusetts corporation, Robert D. Kohn,
Benjamin Kafka, Mark Quinn, and Entrade Merger
Subsidiary, Inc. (3)
10.41 Subscription and Investment Registration Agreement
entered into by A.T. Kearney on January 28, 2000 and
accepted by the Company on January 28, 2000.
10.42 Warrant to Purchase Common Stock dated as of February 7,
2000 granted to Braden Sutphin Ink Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Anthony E. Rothschild (contained in Exhibit
5.1).
__________________
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-79175) filed with the Securities and
Exchange Commission on May 24, 1999.
(2) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 28, 1999.
(3) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on January 25, 2000.
II-13
EXHIBIT 5.1
February 9, 2000
The Board of Directors of
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
Ladies and Gentlemen:
In my capacity as General Counsel of Entrade Inc. (the "Company"), I
have represented the Company in connection with the preparation and filing with
the Securities and Exchange Commission of the Company's Registration Statement
on Form S-1 dated the date hereof (as amended, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of 5,629,584 shares (the "Shares") of the Company's common stock
(the "Common Stock"), which may be disposed of from time to time by the selling
shareholders named in the Registration Statement.
I have reviewed all corporate proceedings in connection with the
preparation and filing of the Registration Statement. I have also examined the
Company's Articles of Incorporation and Bylaws, as amended to date; the
corporate minutes and other proceedings and records of the Company relating to
the authorization, sale and issuance of the Shares; a Certificate of Good
Standing of the Company issued by the Secretary of State of the State of
Pennsylvania; the forms of warrants issued to certain of the selling
shareholders; the forms of agreements pursuant to which Shares or warrants were
issued to selling shareholders; and such Company records, certificates and other
documents and such matters of law as I have deemed necessary or appropriate for
the expression of the opinions contained herein.
In rendering the opinions set forth below, I have assumed, without
investigation, the genuineness of all signatures and the authenticity of all
documents submitted to me as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of all
such documents.
Based solely upon and subject to the foregoing, I am of the opinion
that the Shares have been duly authorized, and when the Registration Statement
becomes effective under the Act, upon the due execution, counter signature and
delivery of certificates representing the shares of Common Stock, and upon
exercise of the applicable warrants, the Shares will be legally and validly
issued, fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement, and I further consent to the reference to me in the
Registration Statement under the caption "Legal Matters."
Sincerely,
/s/ Anthony E. Rothschild
EXHIBIT 10.26
November 11, 1999
Mr. Mark Miller
47 Overlook Drive
Golf, IL 60029
Dear Tony:
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-Operations and Business Development, effective as of November 11,
1999. Please be advised that this agreement is subject to the approval of the
Board of Directors of Entrade, Inc.
Parties: Entrade, Inc. ("Entrade" or the "Company") and
Mark Miller (identified herein as "you").
Position: Your position will be Executive Vice
President-Operations and Business Development,
reporting to Entrade's President and its Board of
Directors.
Compensation: Your base salary ("base salary") for the remainder of
1999 will be at a rate not less than $250,000 per
year, payable in accordance with Entrade's usual
payroll policies, and in no event will your base
salary be less than $250,000 per year during the term
of this agreement. You will be entitled to receive
such increases in your base salary as you and the
Entrade Board of Directors may agree.
Stock Options: You will be granted an option to acquire
200,000 shares of the Common Stock of Entrade (the
"Option"), at the closing price for such Common Stock
on November 10, 1999, or such other date as your
employment hereunder commences. The terms and
conditions of the Option shall be set forth in a
Stock Option Agreement to be executed by the parties
pursuant to Entrade's 1996 Stock Option Plan;
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 66,666 shares of Common
Stock on November 11, 2000, 66,667 shares of Common
Stock on November 11, 2001, and 66,667 shares of
Common Stock on November 11, 2002, and will
thereafter be fully exercisable as to all 100,000
shares of Common Stock.
<PAGE>
Reimbursement of The Company will reimburse you for all business-
Business Expenses: 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, pension, long-term disability, short-term
disability, 40l(k), and life insurance. If you elect
to retain group health coverage with your prior
employer under the provisions of COBRA, Entrade
agrees to pay any required COBRA payments on your
behalf. If such payments are treated as compensation
to you, you agree that you shall be responsible for
any taxes on such payments.
Bonuses: Unless your employment pursuant to this agreement is
earlier terminated by the Company for Cause or
terminated by you without Good Reason, 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; provided,
however, that your bonus for calendar year 2000 shall
in no event be less than $25,000.
Additional Options While you are in the employ of the Company, you will
and Bonuses: 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 November 11, 1999, and ending 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 ("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.
<PAGE>
Termination: If at any time during the Initial Term, Entrade
should terminate your employment for reasons other
than Cause (hereinafter defined) or if you terminate
your employment for Good Reason (hereinafter
defined), you or your estate will be entitled
post-termination to a continuation of your base
salary, as its then current rate, through and until
the later of (i) the end of the Initial Term, or (ii)
a period of six (6) 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 of 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 six (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"
(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
<PAGE>
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 eighty
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-Operations and Business
Development, you shall perform such duties that are
consistent with your position as general counsel 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 Initial Term or any extension, engage
in any other business activity, whether or not such
other business activity is for your own behalf or for
any other person, firm, corporation or other entity
(together, a "Person") and whether or not such other
Person is in competition with 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 written 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.
<PAGE>
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 General Counsel;
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-Operations
and Business Developmentof Entrade, unless the same
is promptly remedied to your reasonable satisfaction;
iv. Change in Control of Entrade;
v. Sale or 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 entities 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).
<PAGE>
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 Effect: This Agreement supersedes all prior negotiations and
represents the entire Agreement of the parties, and
our signatures hereon will bind us hereto. This
Agreement inures to the benefit of 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.
If the foregoing is acceptable to you, please sign and return a copy to
me.
Very truly yours,
Mark Santacrose
President
Accepted:
/s/Mark Miller
- ---------------------------
Mark Miller
Dated: November 8, 1999
EXHIBIT 10.27
ENTRADE INC.
500 CENTRAL AVENUE
NORTHFIELD, ILLINOIS 60093
November 11, 1999
Carrie L. Shea
577 East Spruce Avenue
Lake Forest, Illinois 60045
Dear Carrie:
We are thrilled that you have accepted our offer to join the Entrade
team effective as of November 11, 1999. This letter is intended to set forth the
terms and conditions of your employment. Your title will be Executive Vice
President - Marketing and Strategy. Your base salary will be at a rate of
$200,000 per year, payable in accordance with Entrade's usual payroll practices.
Entrade will issue you an option to acquire 150,000 shares of its common stock
at an exercise price equal to the closing price for Entrade's common stock on
November 10, 1999, which was $22.3125 per share. The options will vest as to
50,000 shares on each of November 11, 2000, November 11, 2001, and November 11,
2002.
Entrade agrees to pay you during the first quarter of 2000 a bonus of
$25,000, subject to all customary deductions and withholdings. Thereafter,
unless your employment is earlier terminated, Entrade will pay to you a bonus
prior to the end of each calendar year during your employment in an amount
determined in accordance with the performance and other criteria set forth in a
bonus plan to be adopted by Entrade's Board of Directors. You may be granted
such additional bonuses and stock option awards as determined from time to time
by the Company's Board of Directors.
You will be eligible to participate in all Entrade employee benefit
plans including group health, dental, pension, long-term disability, 401(k), and
life insurance. Notwithstanding any other provision on this letter, your
employment will be at will; provided that, if Entrade terminates your employment
without cause, Entrade will pay to you a lump sum equal to six months of your
base salary at the time of termination.
Please sign a copy of this letter and return it to me to signify your
agreement with the terms set forth in this letter.
Welcome aboard!
Very truly yours,
ENTRADE INC.
Mark F. Santacrose
President
Acknowledged and agreed:
/S/Carrie L. Shea
- ----------------------
Carrie L. Shea
November __, 1999
EXHIBIT 10.28
October 22, 1999
Mr. Anthony E. Rothschild
2407 Harrison Street
Evanston, Illinois 60201
Dear Tony:
This letter is intended to set forth the terms and conditions under
which Entrade, Inc., is offering to employ you as its General Counsel, effective
as of November 8, 1999. Please be advised that the undersigned has full
authority to execute this agreement on behalf of and to bind Entrade, Inc.,
without any further action of the Board of Directors of Entrade, Inc.
Parties: Entrade, Inc. ("Entrade" or the "Company") and
Anthony E. Rothschild (identified herein as
"you").
Position: Your position will be General Counsel, reporting to
Entrade's President and its Board of Directors.
Compensation: Your base salary ("base salary") for the remainder of
1999 will be at a rate not less than $150,000 per
year, payable in accordance with Entrade's usual
payroll policies, and in no event will your base
salary be less than $150,000 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 100,000
shares of the Common Stock of Entrade (the "Option"),
at the closing price for such Common Stock on
November 8, 1999, or such other date as your
employment hereunder commences. The terms and
conditions of the Option shall be set forth in a
Stock Option Agreement to be executed by the parties
pursuant to Entrade's 1996 Stock Option Plan;
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 33,333 shares of Common
Stock on November 7, 2000, 33,333 shares of Common
Stock on November 7, 2001, and 33,334 shares of
Common Stock on November 7, 2002, and will thereafter
be fully exercisable as to all 100,000 shares of
Common Stock.
<PAGE>
Lost Compensation Entrade acknowledges that, in accepting Entrade
Reimbursement: employment at this time, you will be forfeiting
substantial compensation to which you would otherwise
be entitled. To recompense you for such compensation,
Entrade shall pay you a bonus of $12,500 before the
end of 1999. The obligations of the Company under
this Paragraph are absolute and unconditional, will
survive your death or disability, and will survive
the termination of your employment with the Company
for any reason (whether such termination is during or
after the term of your employment).
Reimbursement of The Company will reimburse you for all business-
Business Expenses: 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, pension, long-term disability, short-term
disability, 40l(k), and life insurance. If you elect
to retain group health coverage with your prior
employer under the provisions of COBRA, Entrade
agrees to pay any required COBRA payments on your
behalf. If such payments are treated as compensation
to you, you agree that you shall be responsible for
any taxes on such payments.
<PAGE>
Bonuses: Unless your employment pursuant to this agreement is
earlier terminated by the Company for Cause or
terminated by you without Good Reason, 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; provided,
however, that your bonus for calendar year 2000 shall
in no event be less than $25,000.
Additional Options While you are in the employ of the Company, you will
and Bonuses: 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 November 8, 1999, and ending 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 ("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.
<PAGE>
Termination: If at any time during the Initial Term, Entrade
should terminate your employment for reasons other
than Cause (hereinafter defined) or if you terminate
your employment for Good Reason (hereinafter
defined), you or your estate will be entitled
post-termination to a continuation of your base
salary, as its then current rate, through and until
the later of (i) the end of the Initial Term, or (ii)
a period of six (6) 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 of 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 six (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"
(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
<PAGE>
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 eighty
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 General Counsel, you shall perform such duties
that are consistent with your position as general
counsel 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 Initial Term or any extension, engage
in any other business activity, whether or not such
other business activity is for your own behalf or for
any other person, firm, corporation or other entity
(together, a "Person") and whether or not such other
Person is in competition with 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 written 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.
<PAGE>
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 General Counsel;
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 General Counsel of Entrade, unless
the same is promptly remedied to your reasonable
satisfaction;
iv. Change in Control of Entrade;
v. Sale or 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 entities 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).
<PAGE>
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 Effect: This Agreement supersedes all prior negotiations and
represents the entire Agreement of the parties, and
our signatures hereon will bind us hereto. This
Agreement inures to the benefit of 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.
If the foregoing is acceptable to you, please sign and return a copy to
me.
Very truly yours,
Mark Santacrose
President
Accepted:
/s/Anthony E. Rothschild
- ---------------------------
Anthony E. Rothschild
Dated: October __, 1999
EXHIBIT 10.41
ENTRADE INC.
SUBSCRIPTION AND
INVESTMENT REPRESENTATION AGREEMENT
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
ARTICLE 1
SUBSCRIPTION/JOINDER AND PURCHASE
1.1 Subscription. The undersigned "Subscriber" hereby irrevocably
subscribes for and agrees to purchase 48,493 Shares of the no par value common
stock of Entrade Inc., a Pennsylvania corporation ("Company"). The "Subscription
Price" set forth below the Subscriber's signature on the signature page to this
Subscription and Investment Representation Agreement (this "Agreement") will
establish the number of shares the investor may purchase. Subscriber's
subscription is subject to acceptance by the Company, which acceptance shall
only be evidenced by the Company's execution of the Acceptance of Subscription
attached to and forming a part of this Agreement, and to the extent provided
therein. The decision whether to accept or reject Subscriber's subscription is
within the sole discretion of the Company.
1.2 Acceptance. Subscriber's Subscription shall only be accepted if the
Company, in its sole discretion, executes the Acceptance of Subscription
attached to this Agreement.
1.3 Payment of Subscription Price. The Subscriber herewith tenders to
the Company the sum of $2,000,000.00.
ARTICLE 2
SUBSCRIBER REPRESENTATIONS AND
WARRANTIES AND INVESTOR AWARENESS
2.1 Subscriber Representations and Warranties. The Subscriber makes the
following representations and warranties with the intent that the same may be
relied upon in determining its suitability to purchase the Shares of the Company
and with the understanding that the availability of exemptions from registration
of the offering may depend upon the accuracy of such representations and
warranties.
<PAGE>
December 2, 1999 (the "SEC Documents"). The Subscriber acknowledges
that the Subscriber has been offered the opportunity to obtain
additional information, to verify the accuracy of the information
contained in the SEC Documents, to evaluate the merits and risks of
this investment with independent advisers and to ask questions of the
Company and Anthony E. Rothschild, General Counsel, covering the terms
and conditions of the agreements and transactions contemplated by the
Company, and all such questions were satisfactorily answered. The
Subscriber acknowledges that it has not been furnished any other
offering literature or prospectus.
2.1.2 Not a Registered Offering. The Subscriber understands
that the Shares have not been and are not being registered either with
the U.S. Securities and Exchange Commission ("SEC") or with the
secretary of state of the state of incorporation or place of business
of the Subscriber, and are being offered and sold pursuant to the
exemption from registration provided in Regulation D ("Regulation D")
promulgated under the Securities Act of 1933 by the SEC (the "1933
Act"), and limited offering exemptions provided in the "Blue Sky" laws
of the states of incorporation or place of business of the Subscriber,
and that no governmental agency has recommended or endorsed the Shares
or made any finding or determination relating to the adequacy or
accuracy of the Memorandum or the fairness of an investment in the
Company. Any representation to the contrary is a criminal offense.
2.1.3 Risk Factors. The Subscriber understands and has
evaluated the risks involved in an investment in the Company. The
Subscriber recognizes that an investment in the Company involves a
substantial risk of loss by the Subscriber of its entire investment and
represents and warrants that the Subscriber is able to bear the risk of
this investment, including the loss of the Subscriber's entire
investment, and has sufficient knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks
of this investment.
2.1.4 Legal Ability; Purchase for Investment. Subscriber has
the legal ability to enter into this Subscription Agreement. The
Subscriber is subscribing for the Shares solely for its own account,
for investment purposes, and not with a view to, or with any intention
of, a distribution, sale, or subdivision of any Shares or for the
account of any other individual, corporation, firm, entity or person.
Subscriber represents and warrants to the Company that: (a) such
Subscriber is a corporation, duly organized, validly existing, and in
good standing under the law of the state of its incorporation and duly
qualified and in good standing as a foreign corporation in the
jurisdiction of its principal place of business (if not incorporated
therein); (b) the Subscriber has full corporate power and authority to
execute and agree to this Agreement and to perform its obligations
hereunder and all necessary actions by its board of directors,
shareholders, or other persons necessary for the due authorization,
2
<PAGE>
execution, delivery, and performance of this Agreement by that
Subscriber have been duly taken; (c) the Subscriber has duly executed
and delivered this Agreement; and (d) the Subscriber's authorization,
execution, delivery, and performance of this Agreement does not
conflict with (i) any law, rule or court order applicable to that
Subscriber, (ii) such Subscriber's articles of incorporation or bylaws,
or (iii) any other agreement or arrangement to which such Subscriber is
a party or by which it is bound.
2.1.5 Independent Investigation. In making its decision to
purchase the Shares that are herein subscribed for, the Subscriber has
relied solely upon independent investigations made by it. The
Subscriber is not relying on the Company or any of its respective
shareholders, members, managers, directors, officers, employees,
affiliates, legal counsel, agents or representatives with respect to
any risk of making an investment in the Company, or any tax or other
economic considerations involved in this investment. Except as set
forth herein, no representations or warranties or other statements have
been made to the Subscriber by the Company or any of its respective
shareholders, members, managers, directors, officers, employees,
affiliates, legal counsel, agents or representatives. In making the
decision whether to invest in the Shares described herein, the
Subscriber has relied solely on the information contained in this
Agreement.
2.1.6 Restrictions of Transfer. The Subscriber understands
that the Securities are characterized as "restricted securities" under
the 1933 Act and Rule 144 promulgated thereunder inasmuch as they are
being acquired from the Company in a transaction not involving a public
offering, and that under the 1933 Act and applicable regulations
thereunder such securities may be resold without registration under the
1933 Act only in certain limited circumstances. In this connection,
such Subscriber represents that such Subscriber is familiar with Rule
144 of the 1933 Act, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act. Such Subscriber
understands that the Company is under no obligation to register any of
the securities sold hereunder except as may be described in this
Agreement under Section 2.2.6.1 or 2.2.6.2.
2.1.7 Accredited Investor. The Subscriber expressly represents
and warrants that it is an "accredited investor" as defined in Rule
501(a) of Regulation D under the 1933 Act.
2.1.8 Investment Representations. The Subscriber expressly
represents and warrants that:
2.1.8.1 the Subscriber has such knowledge and
experience in financial and business matters, in general, and
in investments similar to an investment in the Company, in
particular, that the Subscriber is capable of evaluating the
merits and risks of an investment in the Shares described
herein; and the Subscriber has obtained, in the Subscriber's
discretion, sufficient information from the Company to
evaluate the merits and risks of such investment;
2.1.8.2 the Subscriber is able to bear the economic
risk of the Subscriber's investment in the Company for an
indefinite period of time, including the risk of losing all of
the Subscriber's investment; and
3
<PAGE>
2.1.8.3 by reason of the Subscriber's knowledge and
experience in business and financial matters, the Subscriber
has acquired the capacity to protect its own interest in
investments of this nature and is capable of evaluating the
risks, merits and other facets of this investment.
2.1.9 State of Residence. (Intentionally Deleted)
2.1.10 No Misrepresentations. Any information, representations
or warranties which the Subscriber has heretofore furnished or herein
furnishes to the Company with respect to its financial position and
business experience are correct and complete as of the date of this
Agreement, and if there should be any material change in such
information, representations or warranties, it will immediately inform
the Company.
2.1.11 Acceptance on Discretion of Company. The Subscriber
understands and acknowledges that the Company may, in its sole
discretion, accept or reject the Subscriber's offer contained herein to
purchase the Shares, and that the Company, in its sole discretion, may
accept or reject Subscriber's offer, in whole or in part, and that the
exercise of the Company's discretion in those matters is within the
sole discretion of its management and its Board of Directors.
2.2 Company Representations and Warranties. Effective upon the
Company's execution of the acceptance to this Agreement, the Company makes the
following representations and warranties to the Subscriber:
2.2.1 Organization and Good Standing. The Company is duly
organized and existing under, and by virtue of, the laws of the State
of Pennsylvania and is in good standing under such laws. The Company
has the requisite power as a corporation to own and operate its
properties and assets, and to carry on its business as presently
conducted.
2.2.2 Legal Power. The Company has all requisite power and
authority of a corporation to enter into this Agreement, and to carry
out and perform its obligations under this Agreement.
2.2.3 Authorization. All action on the part of the Company
necessary for the issuance and sale of the Shares pursuant hereto and
for the execution, performance and delivery by the Company of this
Agreement has been taken. The execution, delivery and performance by
the Company of this Agreement and the issuance of the Shares will not
(i) violate (1) any provision of law applicable to the Company, except
that no representation or warranty is made with respect to any
so-called "blue sky laws" of any state, (2) its articles of
incorporation or other organizational documents, (3) any applicable
order of any court, agency or governmental authority specifically
naming the Company or (4) any material indenture, agreement or other
4
<PAGE>
instrument to which it is a party or by which it or any of its material
assets or property is bound, (ii) be in conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a
default under any indenture, agreement or other instrument or (iii)
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of its property or assets. This
Agreement is a valid and binding obligation of the Company enforceable
against it in accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and rules or laws concerning equitable remedies.
2.2.4 Changes. Since the date of the last filing with the SEC,
to the best knowledge of the Company, after reasonable inquiry, there
has not been any (i) material adverse change in the business of the
Company, and (ii) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the business,
taken as a whole.
2.2.5 Valid Issuance. The Shares, when delivered pursuant to
this Agreement against receipt of the Subscription Price by the
Company, as provided herein, shall be validly issued and fully paid
Shares of the Company, and will be free of any liens and encumbrances
other than as a result of any actions by the Subscriber. The issuance
of the Shares is not subject to preemptive or other similar rights
which have not been waived.
2.2.6 "Piggyback" Registration.
2.2.6.1 Basic Right. At any time during the period
commencing on the issuance date of the Shares under this
Agreement ("Issue Date") and ending two years after the Issue
Date, the Company proposes to register any of its equity
securities under the Securities Act, other than in an offering
on Form S-8 or Form S-4 or any successor form, it shall at
least 10 days prior to the filing of such registration
statement with the Securities and Exchange Commission (the
"Commission") give notice of its intention to do so to
Subscriber. If Subscriber notifies the Company within 5 days
of the date of the Company notice of filing a registration
statement of Subscriber's desire to include any Shares in such
proposed registration statement, the Company shall, subject to
the provisions of 2.2.6.2 below, include the Shares designated
by Subscriber in such registration statement. Anything in this
subparagraph 2.2.6.1 to the contrary notwithstanding, the
"piggyback" registration rights described herein shall be
available for exercise by Subscriber on one occasion only and,
after the exercise thereof in accordance with the provisions
set forth herein, the Company shall be under no further
obligation to give Subscriber the notice described in this
subparagraph 2.2.6.1 to include any of the Shares in any
subsequent registration statement. The Company hereby informs
Subscriber that it has a present intention to file an S-1
Registration within 45 days after acceptance hereof and shall
use its best efforts to cause such registration statement to
become effective as soon as possible.
5
<PAGE>
(a) In connection with the registration
described in this Section, the Company agrees to take
all action necessary to facilitate the sale by the
Subscriber of the Shares, including furnishing to the
Subscriber such number of prospectuses reasonably
required by the Subscriber to dispose of its Shares,
using its best efforts to register or qualify the
Shares under the 1933 Act and applicable blue sky
laws and delivering underwriting agreements and other
documents customarily delivered by issuers in
connection with public offerings.
(b) With respect to the inclusion of Shares
in a registration statement pursuant to this Section,
all fees, costs and expenses of and incidental to
such inclusion shall be borne by the Company;
provided, however, that the Subscriber shall bear any
fees and disbursements of counsel retained by the
Subscriber (other than counsel also retained by the
Company).
(c) The Subscriber shall be entitled to
customary indemnification and rights of contribution
relating to the registration of the Shares.
2.2.6.2 Withdrawal of Registration Statement.
Notwithstanding the provisions of subparagraph 2.2.6.1 above,
the Company shall at all times have the absolute right to
elect not to file any proposed registration statement, or to
withdraw the same after the filing but prior to the effective
date thereof. In addition, notwithstanding the provisions of
subparagraph 2.2.6.1 above, the Company may exclude from such
registration statement all or a portion of the Shares for
which registration was requested by Subscriber if, in the
written opinion of the Company's managing underwriter for any
securities being sold by the Company and registered on the
same registration statement as the Shares, if any, the
inclusion of all or a portion of such Shares, when added to
the securities being registered for sale by the Company, will
exceed the maximum amount of the Company's securities which
can be marketed (i) at a price reasonably related to their
then current market value, or (ii) without otherwise
materially and adversely affecting the entire offering. If
less than all of the Shares requested for inclusion in said
registration statement are to be excluded pursuant to the
foregoing provision, the Shares which are included shall be
allocated among the selling stockholders thereunder on a pro
rata basis.
ARTICLE 3
MISCELLANEOUS PROVISIONS
3.1 Survival of Representations and Warranties. The representations and
warranties contained herein are intended to and shall survive delivery of this
6
<PAGE>
Agreement and the completion of the transactions contemplated hereby, provided,
however, that the representations and warranties set forth in paragraph 2.2.4
shall survive only until the expiration of the period of limitations and period
of repose imposed by statute and/or case law for interpreting the securities
laws, as in effect from time-to-time ("Limitations and Repose Period"), and no
cause of action for breach of any representation or warranty contained in
paragraph 2.2.4 may be brought after the expiration of the Limitations and
Repose Period.
3.2 Indemnification.
3.2.1 By Subscriber. The Subscriber agrees to indemnify and
hold harmless the Company, its officers and directors and each other
person, if any, who controls or is controlled by any of them, within
the meaning of Section 15 of the 1933 Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not
limited to, the reasonable expenses of counsel) arising out of or based
upon (i) any false representation or warranty or breach or failure by
the Subscriber to comply with any covenant or agreement made by the
Subscriber herein or in any other document furnished by the Subscriber
to any of the foregoing in connection with this transaction; (ii) any
action for securities law violations instituted by the Subscriber which
is resolved by judgment against the Subscriber; or (iii) the
disposition of any Shares which the Subscriber will receive, contrary
to the Subscriber's declaration, representations and warranties in this
Agreement.
3.2.2 By Company. The Company agrees to indemnify and hold
harmless the Subscriber against any and all, loss, liability, claim,
damage and expense whatsoever (including, but not limited to, the
reasonable expenses of counsel) arising out of or based upon any false
representation or warranty or breach or failure by the Company or its
agents to comply with any covenant or agreement made by the Company
herein or in any other document furnished by the Company to the
Subscriber in connection with this transaction, provided that in no
event shall the Company's indemnification obligations hereunder exceed
the Subscription Price plus interest at a rate equal to ten percent
(10%) per annum.
3.3 Notices and Addresses. All notices required to be given under this
Agreement shall be in writing and shall be mailed by certified or registered
mail, hand delivered or delivered by next business day courier. Any notice to be
sent to the Company shall be mailed to the principal place of business of the
Company or to such other address as the Company may specify in a notice sent to
the Subscriber. All notices to the Subscriber shall be mailed or delivered to
the address of the Subscriber set forth below or to such other address as the
Subscriber may hereafter specify in a notice to the Company. Notices shall be
effective on the date three (3) days after the date of mailing or, if hand
delivered or delivered by next day business courier, on the date of delivery.
7
<PAGE>
3.4 Governing Law. This Agreement is governed by and is to be construed
in accordance with the laws of the state of Illinois without regard to conflicts
of laws principles.
3.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the parties hereto, and each of their respective legal representatives
and successors. This Agreement is not transferable or assignable by the
Subscriber or the Company.
3.6 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one instrument.
3.7 Modifications To Be In Writing. This Agreement constitutes the
entire understanding of the parties hereto and no amendment, restatement,
modification or alteration will be binding unless the same is in writing signed
by the party against whom any such amendment, restatement, modification or
alteration is sought to be enforced.
3.8 Interpretation. All pronouns contained herein shall be deemed to
include the feminine, masculine and neuter, singular or plural, as the identity
of the parties hereto may require. The captions of the various paragraphs of
this Agreement are inserted for convenience of reference only and shall not
affect the construction of any paragraph of this Agreement. All capitalized
words or expressions not defined in this Agreement shall have the respective
meanings ascribed to them in the Memorandum, unless the context otherwise
requires.
3.9 Validity and Severability. If any provision of this Agreement is
held invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law, and all other provisions shall remain.
3.10 Statutory References. Each reference in this Agreement to a
particular statute or regulation, or a provision thereof, shall be deemed to
refer to such statute or regulation, or provision thereof, or to any similar or
superseding statute or regulation, or provision thereof, as is from time to time
in effect.
3.11 Additional Documents. The Subscriber shall promptly execute all
such additional documents as may be required by the Company relating to the sale
of the Shares hereunder.
3.12 Jurisdiction. The Subscriber irrevocably submits to the exclusive
personal jurisdiction of the courts of the state of Illinois for the County of
Cook and the United States District Court for the Northern District of Illinois
in any suit, action or proceeding brought to enforce this Agreement. The
Subscriber hereby irrevocably waives, to the fullest extent permitted by law,
any objection which the Subscriber may now have or hereafter may have to the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in such court has been
brought in an inconvenient forum or any other forum. Subscriber further agrees
that a final judgment in any such suit, action or proceeding brought in such
court shall be conclusive and binding upon the Subscriber. Nothing in this
8
<PAGE>
paragraph shall limit the right of the Company to bring proceedings against the
Subscriber in the courts of any appropriate jurisdiction.
3.13 Legal Proceedings. There is no material legal or governmental
proceeding pending or, to the knowledge of the Company, threatened or
contemplated to which the Company is or may be a party or of which the business
or property of the Company is or may be subject, which has not been disclosed to
the investor or in the SEC Documents.
3.14 Separate Series. The Style Select Series Mid-Cap Growth Portfolio
(the "Portfolio") is a separate series of Style Select Series, Inc. (the
"Corporation"), and all debts, liabilities, obligations and expenses of the
Portfolio shall be enforceable only against the assets of that Portfolio and not
against the assets of any other Portfolio or of the Corporation as a whole.
IN WITNESS WHEREOF, the Subscriber has executed this Agreement on
January 28, 1999.
SUBSCRIBER:
A.T. KEARNEY, INC.
Subscriber's Signature: By: /s/John E. Yoshimura
------------------------------
John E. Yoshimura
Name: A.T. KEARNEY, INC.
Address: 222 W. Adams Street
-----------------------------------------------
Chicago, IL 60606
-----------------------------------------------
Title: Vice President
-----------------------------------------------
Business Telephone No.: (312) 223-6064
----------------------------------
Federal ID#: 752 608 565
--------------------------------------------
Number of Shares at $41.24 each: 48,493
Total Subscription Price: $2,000,000.00
9
<PAGE>
(FOR COMPLETION ONLY BY THE COMPANY)
ENTRADE INC.
ACCEPTANCE OF SUBSCRIPTION
The undersigned Company hereby accepts the foregoing Subscription and
Investment Representation Agreement on behalf of Entrade Inc., subject to the
terms and conditions thereof for the "Accepted Amount" set forth below.
Subscriber Name: A.T. KEARNEY, INC.
Subscription Price (Tendered): $2,000,000.00
Accepted Amount: $2,000,000.00
Portion of Subscription Price Returned: $-0-
Number of Shares to be issued: 48,493
ENTRADE INC.,
a Pennsylvania corporation
By: /s/Mark F. Santacrose
----------------------------
Title: President
----------------------------
Date of Acceptance: January 28, 2000
-----------------
10
EXHIBIT 10.42
WARRANT NO. 2000-P1
ENTRADE INC.
WARRANT TO PURCHASE COMMON STOCK
(No Par Value)
February 7, 2000
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO ENTRADE INC., AN EXEMPTION
THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, Braden Sutphin Ink Company (the "Holder") is entitled to
purchase, subject to the provisions of this Warrant, from ENTRADE INC., a
Pennsylvania corporation ("ENTRADE" or the "Company"), at a price of $37.75 per
share (the "Exercise Price") of no par common stock of the Company ("Common
Stock"), at any time from February 8, 2000 to the time of expiration of this
Warrant at 5:00 p.m., Chicago, Illinois time, on the later of July 31, 2001, or
the date three months after the effectiveness of a registration statement that
registers the Common Stock deliverable upon exercise of this Warrant (the
"Expiration Date"), up to 25,000 shares of Common Stock, and the Holder shall be
governed and bound by all of the covenants, terms and conditions contained
herein. The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for a share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise and as adjusted from time to time are hereinafter
sometimes referred to as "Warrant Shares", and the exercise price of a share of
Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price".
1. Vesting and Exercise of Warrant.
(a) Notwithstanding anything in this Warrant to the contrary,
Holder's right to exercise all or any portion of this Warrant shall be
conditioned upon the number of members Holder engages to be members of
printeralliance.com, a majority of which is owned by the Company. For each fifty
(50) new members who agree to become members of printeralliance.com based on
Holder's referrals, the right to exercise 5,000 shares under this Warrant shall
vest, up to a maximum of 25,000 shares.
(b) This Warrant, as to vested shares, may be exercised in
whole or in part at any time after the First Exercise Date and on or before the
Expiration Date of this Warrant, or if such day is a day on which banking
institutions are authorized by law to close in Chicago, Illinois, then on the
next succeeding business day, by presentation and surrender hereof to the
<PAGE>
Company at its office at 500 Central Avenue, Northfield, Illinois, with the
purchase form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares of Common Stock specified in such form.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder to purchase the balance of the Warrant
Shares purchasable hereunder. Upon receipt by the Company at its office of this
Warrant in proper form for exercise and the Exercise Price, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder.
(c) Notwithstanding the foregoing provision regarding payment
of the Exercise Price, the Holder may elect to receive a reduced number of
shares in lieu of tendering the Exercise price in cash ("Cashless Exercise"). In
such case, the number of shares to be issued to the Holder shall be computed
using the following formula:
X = Y(A-B)
------
A
where: X = the number of shares to be issued to the Holder; Y= the number of
shares to be exercised under this Warrant; A= the Market Value (defined below)
of one share of Common Stock on the trading day immediately prior to the date
that the purchase form annexed hereto is duly surrendered to the Company for
full or partial exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the five-day
average closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg Financial Markets or a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to the Holder if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security that are reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Market Value cannot be
calculated for such security on such date on any of the foregoing bases, the
Market Value of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder with the costs of such appraisal to be borne
by the Company.
The Company represents to the Holder that the Shares, when delivered pursuant to
this Warrant against receipt of the Exercise Price by the Company, as provided
herein, shall be validly issued and fully paid Shares of the Company, and will
be free of any liens and encumbrances other than as a result of any actions by
the Subscriber.
2
<PAGE>
Upon valid exercise of this Warrant and delivery of payment therefor in
accordance with the terms hereof, the Company shall, within three (3) days of
exercise, cause to be issued to Holder certificates evidencing the Shares
issuable upon such exercise.
2. Reservation of Shares, Fractional Shares.
(a) ENTRADE hereby agrees that at all times it shall reserve
for issue and delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issue and delivery upon exercise of
this Warrant.
(b) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon exercise hereof, ENTRADE shall pay to the
Holder an amount in cash equal to such fraction multiplied by the then current
Market Value calculated as set forth in Paragraph 1(b).
3. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the ENTRADE for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Any such exchange shall
be made by surrender of this Warrant to ENTRADE or at the office of its agent,
if any, with the assignment form annexed duly executed. Subject to compliance
with the provisions of applicable law, ENTRADE, without charge to the Holder,
shall execute and deliver a new Warrant in the name of any assignee named in
such instrument or assignment, and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation hereof at the office of ENTRADE or at the office of its
agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by ENTRADE of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, ENTRADE will execute and deliver a new Warrant of like
tenor and date.
4. Rights of the Holder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of ENTRADE. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of ENTRADE, whether such liability is
asserted by ENTRADE or by creditors of ENTRADE. The rights of the Holder are
limited to those expressed in this Warrant and are not enforceable against
ENTRADE except to the extent set forth herein.
5. Stock Dividends; Reclassification, Reorganization, Anti-Dilution
Provisions. This Warrant is subject to the following further provisions:
3
<PAGE>
(a) In case, prior to the expiration of this Warrant by
exercise or by its terms, ENTRADE shall issue any shares of Common Stock as a
stock dividend to holders of Common Stock or subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then in either of such
cases, the Exercise Price per share of the Warrant Shares purchasable pursuant
to this Warrant in effect at the time of such action shall be proportionately
reduced, and the number of Warrant Shares at that time purchasable pursuant to
this Warrant shall be proportionately increased; and conversely, in the event
ENTRADE shall contract the number of outstanding shares of Common Stock by
combining such shares into a smaller number of shares, then, in such case, the
Exercise Price per share of the Warrant Shares purchasable pursuant to this
Warrant in effect at the time of such action shall be correspondingly increased,
and the number of Warrant Shares at the time purchasable pursuant to this
Warrant shall be correspondingly decreased. Any dividend paid or distributed
upon the Common Stock in stock of any other class or securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable upon the conversion thereof.
(b) In case, prior to the expiration of this Warrant by
exercise or by its terms, ENTRADE shall be recapitalized by reclassifying its
Common Stock into stock with par value, or the Company or a successor
corporation shall consolidate or merge with or convey all or substantially all
of its or of any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within the
meaning of the term "successor corporation" in the event of any consolidation or
merger of any such corporation with, or the sale of all or substantially all of
the property of any such corporation to another corporation or corporations), in
exchange for stock or securities of a successor corporation, the Holder of this
Warrant shall thereafter have the right to purchase, upon the terms and
conditions and during the time specified in this Warrant, in lieu of the Warrant
Shares theretofore purchasable upon the exercise of this Warrant, the kind and
number of shares of stock and other securities receivable upon such
recapitalization or consolidation, merger or conveyance by a holder of the
number of shares of Common Stock which the Holder of this Warrant might have
purchased immediately prior to such recapitalization or consolidation, merger or
conveyance.
(c) Upon the occurrence of each event requiring an adjustment
of the Exercise Price and of the number of Warrant Shares purchasable pursuant
to this Warrant in accordance with and as required by, the terms of subdivision
(a) of this Section 5, ENTRADE shall compute the adjusted Exercise Price and the
adjusted number of Warrant Shares purchasable at such adjusted Exercise Price by
reason of such event in accordance with the provisions of subdivision (a) and
shall prepare an officer's certificate setting forth such adjusted Exercise
Price and the adjusted number of Warrant Shares and showing in detail the facts
upon which such conclusions are based. ENTRADE shall forthwith mail a copy of
such certificate to each Holder of this Warrant at the Holder's address shown in
the Company's Warrant Registry, and thereafter such certificate shall be
conclusive and binding upon such Holder unless contested by such Holder by
written notice to ENTRADE ten (10) days after receipt of the certificate.
4
<PAGE>
(d) In case:
(i) ENTRADE shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or any
other distribution in respect of the Common Stock (including cash) pursuant to,
without limitation, any spin-off, split-off or distribution of ENTRADE's assets;
or
(ii) ENTRADE shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(iii) of a classification, reclassification or other
reorganization of the capital stock of ENTRADE, consolidation or merger of
ENTRADE with or into another corporation or conveyance of all or substantially
all of the assets of ENTRADE; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of ENTRADE,
then, and in any such case, ENTRADE shall mail to the Holder of this Warrant at
the Holder's address shown in ENTRADE's Warrant Registry a notice stating the
date or expected date (the "Record Date") on which a record is to be taken for
the purpose of such dividend, distribution or rights, on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, as the case
may be. Such notice shall then specify the date or expected date, if any is to
be fixed, as of which holders of Common Stock of record shall be entitled to
participate in said dividend, distribution or rights, or shall be entitled to
exchange shares of Common Stock for securities or other property deliverable
upon such liquidation or winding up, as the case may be. Such notice shall be
provided at least fifteen (15) days prior to the Record Date.
(e) In case ENTRADE at any time while this Warrant shall
remain unexpired and unexercised shall dissolve, liquidate or wind up its
affairs, the Holder of this Warrant may receive, upon exercise hereof prior to
the Record Date, in lieu of each share of Common Stock of ENTRADE which it would
have been entitled to receive, the same number of any securities or assets as
may be issuable, distributable or payable upon any such dissolution, liquidation
or winding up with respect to each share of Common Stock of ENTRADE.
6. Restriction on Transferability. (a) This Warrant and the shares of
ENTRADE issuable upon the exercise of this Warrant have not been registered
under the Securities Act of 1933, as amended (the "Act"). By acceptance hereof,
the Holder covenants, agrees and represents that:
(i) This Warrant has been acquired for, and such
shares, if acquired upon the exercise of this Warrant, shall be acquired for,
investment and may not be sold, offered for sale, pledged, hypothecated or
otherwise transferred, in the absence of an effective registration statement for
such securities under the Act or an opinion of counsel reasonably satisfactory
to ENTRADE to the effect that registration is not required under the Act, and
the Holder has the capacity to protect his interests in connection with the
purchase of this Warrant.
5
<PAGE>
(ii) The Holder has had the opportunity to ask
questions and receive answers from ENTRADE about ENTRADE's business and the
purchase by him of these securities, and he has been given the opportunity to
make any inquiries that he may desire of any personnel of ENTRADE concerning the
proposed operation of ENTRADE and has been furnished with all of the information
he has requested. No advertisement has been used in connection with the offer or
sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer,
mortgage, assign or otherwise dispose of this Warrant or the shares of Common
Stock issuable upon the exercise of this Warrant except pursuant to a
registration statement under the Act and qualification under applicable state
securities laws or pursuant to an opinion of counsel reasonably satisfactory to
ENTRADE that such registration and qualification are not required, and that the
transaction (if it involves a sale in the over-the-counter market or on a
securities exchange) does not violate any provision of the Act. The Holder
understands that a stop-transfer order will be placed on the books of ENTRADE
respecting this Warrant and any certificates representing the shares of Common
Stock issuable upon the exercise of this Warrant and that this Warrant and any
such certificates shall bear a restrictive legend and a stop transfer order
shall be placed with the transfer agent prohibiting any such transfer until such
time as the securities represented by such certificates shall have been
registered under the Act or shall have been transferred in accordance with an
opinion of counsel reasonably satisfactory to ENTRADE that such registration is
not required; and
(iv) The Holder understands that he must hold the
shares issuable upon the exercise of this Warrant indefinitely unless they are
registered under the Act or an exemption from registration becomes available.
Although ENTRADE files reports pursuant to the Securities Act of 1934 and
accordingly makes available to the public the information required by Rule 144,
nothing contained in this Warrant shall require ENTRADE to continue to make
available to the public such information.
(b) Each certificate for the shares issued upon the exercise
of the Warrant shall bear a legend in substantially the following form:
"The shares represented by this Certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act") and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred except pursuant to a
registration statement under the Act or an exemption from
registration under the Act or the rules and regulations
thereunder."
7. "Piggyback" Registration
(a) Basic Right. As long as the Company is a registrant under
the Securities Act or the Exchange Act then, at any time during the period
commencing the date hereof ("Issue Date") and ending two years after the Issue
Date, if the Company proposes to register any of its equity securities under the
Securities Act, other than in an offering on Form S-8 or Form S-4 or any
6
<PAGE>
successor form, it shall at least 10 days prior to the filing of such
registration statement with the Securities and Exchange Commission (the
"Commission") give notice of its intention to do so to Holder. If Holder
notifies the Company within 5 days of the date of the Company notice of filing a
registration statement of Holder's desire to include any Warrant Shares in such
proposed registration statement, the Company shall, subject to the provisions of
7(b) below, include the Shares designated by Stockholder in such registration
statement. Anything in this subparagraph 7(a) to the contrary notwithstanding,
the "piggyback" registration rights described herein shall be available for
exercise by Holder on one occasion only and, after the exercise thereof in
accordance with the provisions set forth herein, the Company shall be under no
further obligation to give Holder the notice described in this subparagraph 7(a)
to include any of the Warrant Shares in any subsequent registration statement.
(b) Withdrawal of Registration Statement . Notwithstanding the
provisions of subparagraph 7(a) above, the Company shall at all times have the
absolute right to elect not to file any proposed registration statement, or to
withdraw the same after the filing but prior to the effective date thereof; in
such event, the Holders rights under subparagraph 7(a) shall be reinstated. In
addition, notwithstanding the provisions of subparagraph 7(a) above, the Company
may exclude from such registration statement all or a portion of the Warrant
Shares for which registration was requested by Holder if, in the written opinion
of the Company's managing underwriter for any securities being sold by the
Company and registered on the same registration statement as the Warrant Shares,
if any, the inclusion of all or a portion of such Warrant Shares, when added to
the securities being registered for sale by the Company, will exceed the maximum
amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
materially and adversely affecting the entire offering. If less than all of the
Warrant Shares requested for inclusion in said registration statement are to be
excluded pursuant to the foregoing provision, (x) the Warrant Shares which are
included shall be allocated among the selling stockholders thereunder on a pro
rata basis, and (y) the Holders rights under subparagraph 7(a) shall be
reinstated with respect to the Warrant Shares excluded from such registration
statement.
8. Registration on the Books of ENTRADE. ENTRADE shall keep, or cause
to be kept, at its office at 500 Central Avenue, Northfield, Illinois, a
register in which ENTRADE shall register this Warrant. No transfer of this
Warrant shall be valid unless made at such office and noted on the warrant
register upon satisfaction of all conditions for transfer. When presented for
transfer or payment, this Warrant shall be accompanied by a written instrument
or instruments of transfer or surrender, in form satisfactory to ENTRADE, duly
executed by the registered Holder or by his duly authorized attorney. ENTRADE
may deem and treat the registered Holder hereof as the absolute owner of this
Warrant for all purposes, and ENTRADE shall not be affected by any notice to the
contrary.
9. Risk Factors Relating to the Shares. The Company has described
several risk factors, as of the date hereof, relating to any investment in this
Warrant or the Warrant Shares. A description of those risk factors is attached
as Exhibit A hereto and by this reference is made incorporated herein.
<PAGE>
10. Accredited Investor Status. The Holder represents and warrants to
the Company that the Holder is an "accredited investor" as defined in Rule 501
(a) of Regulation D Promulgated under the Securities Act of 1933, as amended,
which definition is as follows:
(a) Certain banks, savings and loan institutions,
broker-dealers, investment companies and other entities including an employee
benefit plan within the meaning of Title I of the Employee Retirement Income
Security Act of 1974 with total assets in excess of $5,000,000;
(b) Certain banks, savings and loan institutions,
broker-dealers, investment companies and other entities including an employee
benefit plan within the meaning of Title I of the Employee Retirement Income
Security Act of 1974 with total assets in excess of $5,000,000;
(c) Any private business development company as defined
in Section 202 (a) (22) of the Investment Advisers Act of 1940;
(d) Any organization described in Section 501 (c) (3) of the
Internal Revenue Code, not formed for the specific purpose of acquiring the
Units, with total assets in excess of $5,000,000;
(e) Any director, executive officer or general partner of the
issuer of the securities being offered or sold, or any director, executive
officer or general partner of a general partner of that issuer;
(f) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
(g) Any natural person who had an individual income in excess
of $200,000 or, with that person's spouse a joint income in excess of $300,000
in each of the two most recent years and who reasonably expects an income in
excess of $200,000, or $300,000 with that person's spouse, in the current year;
(h) Any trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Section 230.506
(b) (2) (ii) of Regulation D; or
(i) Any entity in which all of the equity owners are
accredited investors under any of the paragraphs above.
11. Governing Law. This Warrant has been executed and delivered in the
State of Illinois and shall be construed in accordance with the internal laws of
the State of Illinois, and not its conflict of laws provisions.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, ENTRADE has caused this Warrant to be executed by
its duly authorized officer.
ENTRADE INC.
/s/Mark F. Santacrose
---------------------------
By: Mark F. Santacrose
Title: President
Agreed to and accepted:
HOLDER:
Braden Sutphin Ink Company
______________________________
By: _____________________
Title: _____________________
Date: _______________________
9
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED ______________________________________ hereby sells,
assigns and transfers unto
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________ the right to
purchase Common Stock, represented by this Warrant, to the extent of
______________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________________ attorney, to
transfer the same on the books of ENTRADE with full power of substitution in the
premises.
Signature__________________________
Date: __________________ , ____
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO ENTRADE INC., AN EXEMPTION
THEREFROM IS AVAILABLE.
10
<PAGE>
PURCHASE FORM
Dated _________________ , ____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment of $__________ in payment of the exercise price thereof.
-----------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Social Security or other Taxpayer Identification Number__________
Signature___________________________
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO ENTRADE INC., AN EXEMPTION
THEREFROM IS AVAILABLE.
11
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
Entrade Inc., formerly Artra Group Incorporated, (of our report dated February
1, 1999, except for Note 17, which is as of September 23, 1999, relating to the
financial statements and financial statement schedules of Entrade Inc., which
appears in such Registration Statement. In addition, we hereby consent to the
use in such Registration Statement of our report dated May 13, 1999,except for
Note 6, which is as of September 23, 1999, relating to the consolidated balance
sheet of Entrade Inc. (formerly NA Acquisition Corp.). We also consent to the
references to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 9, 2000
Exhibit 23.2
We consent to the inclusion of our report dated March 5, 1999, with respect to
the combined balance sheets of Nationwide Auction Systems as of December 31,
1998 and 1997, and the related combined statements of earnings and retained
earnings, and cash flows for each of the years in the three year period ended
December 31, 1998, which the report appears on the Registration Statement on
Form S-1 of Entrade Inc. dated February 9, 2000 and to the reference to our firm
under the headings "Experts" in the prospectus.
/s/ KPMG LLP
Los Angeles, California
February 9, 2000
