SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO.1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 1-15303
ENTRADE INC.
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 52-2153008
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Central Avenue, Northfield, IL 60093
- --------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------------------------- ----------------------------
Common stock, without par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 1, 2000: $539,028,000
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 1, 2000
- ------------------------------------- --------------------------------
Common stock, without par value 16,427,022
Documents Incorporated by Reference:
Portions of Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders to be filed with the Commission within 120 days of the end of
Registrant's last fiscal year is incorporated by reference into Part III.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedules as listed on Page F-1.
3. Exhibits as listed on Page E-1.
Compensatory plans or management contracts are
marked with an asterisk.
This Admendment No. 1 to this report is being made to, among
other things, add the consent of Ernst & Young LLP listed as
exhibit 23.3 and change the figures associated with Current
liabilities and Shareholders' deficit on page F-18.
(b) Reports on Form 8-K.
On October 6, 1999, the Registrant filed Form 8-K to report
that the merger (the "Merger") of a wholly owned subsidiary
of Entrade Inc. ("Entrade") with and into Artra Group
Incorporated ("Artra") 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.
On October 28, 1999, the Registrant filed Form 8-K to report
that it completed its acquisition of all of the outstanding
capital stock of Public Liquidation Systems, Inc. and Asset
Liquidation Group, Inc., which engage in business under the
name Nationwide Auction Systems ("Nationwide").
On December 2, 1999, the Registrant filed Form 8-K/A to amend
its Form 8-K initially filed with the Commission on October
28, 1999 that reported the acquisition of Nationwide. The
Form 8-K/A reported: (i) the historical financial statements
of the acquired Nationwide business; and (ii) the pro forma
financial information relating to the acquired Nationwide
business.
<PAGE>
SIGNATURE
Pursuant to the requiredments of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENTRADE INC.
By: /s/MARK F. SANTACROSE
-------------------------
Mark F. Santacrose
Dated: April 7, 2000 President and Chief Executive Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
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 Annual Report on Form 10-K for Entrade present the
financial condition and results of operations and cash flows for Artra for
periods presented prior to the merger.
Page
----
ENTRADE INC. AND SUBSIDIARIES
Report of Independent Accountants F- 2
Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998 F-3
Consolidated Statements of Operations
for each of the three fiscal years
in the period ended December 31, 1999 F-5
Consolidated Statements of Changes in Shareholders' Equity
for each of the three fiscal years
in the period ended December 31, 1999 F-6
Consolidated Statements of Cash Flows
for each of the three fiscal years
in the period ended December 31, 1999 F-8
Notes to Consolidated Financial Statements F-10
Schedules:
Report of Independent Accountants
on Financial Statement Schedules F-38
II. Valuation and Qualifying Accounts F-39
NATIONWIDE AUCTION SYSTEMS (Predecessor)
Report of Independent Accountants F-40
Independent Auditors' Report F-41
Combined Balance Sheet as of December 31, 1998 F-42
Combined Statements of Earnings and
Retained Earnings for the nine
month period ended September 30, 1999 and
for each of the two years in
the period ended December 31, 1998 F-43
Combined Statements of Cash Flows
for the nine month period ended
September 30, 1999 and
for each of the two years
in the period ended December 31, 1998 F-44
Notes to Combined Financial Statements F-45
ASSETRADE.COM INC.
Report of Independent Auditors F-51
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Entrade Inc.
Northfield, Illinois
In our opinion, based on our audits and the report of other auditors, 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. 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 did not audit the financial
statements of asseTrade.com Inc., an unconsolidated affiliate accounted for
using the equity method. Such investment aggregated $3,554,000 at December 31,
1999 and equity in loss of asseTrade.com Inc. was $445,000 in 1999. The
financial statements of asseTrade.com Inc. were audited by other auditors whose
report thereon has been furnished to us, and our opinion, insofar as it relates
to the amounts included for asseTrade.com Inc. is based solely on the report of
such other auditors. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States 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.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 2000
F-1
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, December 31,
1999 1998
------- -------
ASSETS
Current assets:
Cash and equivalents $ 9,667 $11,753
Restricted cash and equivalents -- 1,045
Receivables, less allowance for doubtful
accounts of $10 in 1999 and $0 in 1998 812 171
Available-for-sale securities 4,386 8,200
Other 461 99
------- -------
Total current assets 15,326 21,268
------- -------
Property and equipment:
Land 2,271 --
Buildings 1,261 --
Leasehold improvements 2,502 --
Furniture and equipment 1,492 --
Construction in progress 15 --
------- -------
7,541 --
Less accumulated depreciation and amortization 178 --
------- -------
7,363 --
------- -------
Other assets:
Intangibles, principally excess of cost
over net assets acquired, net of
accumulated amortization of $1,088 54,394 --
Investment in and advances to asseTrade.com 3,554 --
Other 121 --
------- -------
58,069 --
------- -------
$80,758 $21,268
======= =======
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 data)
December 31, December 31,
1999 1998
--------- ---------
LIABILITIES
Current liabilities:
Notes payable $ 1,229 $ --
Current maturities of long-term debt,
including amounts due to
related parties of $7,000 9,364 --
Cash overdraft 473 --
Accounts payable 1,345 --
Accrued expenses 2,850 568
Income taxes 1,081 1,854
Common stock put warrants -- 1,705
Liabilities of discontinued operations 3,875 10,328
--------- ---------
Total current liabilities 20,217 14,455
--------- ---------
Long-term debt 7,978 --
Obligations expected to be settled
by the issuance of common stock 4,743 --
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
15,082,186 shares in 1999
and 7,864,228 shares in 1998 -- --
Additional paid-in capital 119,539 47,336
Deferred stock compensation (4,929) --
Unrealized appreciation of investments 7,106 10,920
Accumulated deficit (73,896) (54,300)
--------- ---------
47,820 3,956
--------- ---------
$ 80,758 $ 21,268
========= =========
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>
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 4,542 $ -- $ --
-------- -------- --------
Costs and expenses:
Cost of revenues, exclusive of
depreciation and amortization 1,759 -- --
Selling, general and administrative,
exclusive of $5,046,000 of
compensation related to stock options 9,079 2,660 5,708
Compensation related to stock options 5,046 -- --
Depreciation and amortization 1,223 -- 7
-------- -------- --------
17,107 2,660 5,715
-------- -------- --------
Operating loss (12,565) (2,660) (5,715)
-------- -------- --------
Other income (expense):
Interest expense, exclusive of
interest expense related to stock warrants (532) (3,450) (6,178)
Interest expense related to stock warrants (6,229) -- --
Equity in loss of asseTrade.com (445) -- --
Realized gain on disposal of
available-for-sale securities 66 320 2,531
Litigation settlement, net -- -- 10,416
Other income, net, principally interest income 401 83 12
-------- -------- --------
(6,739) (3,047) 6,781
-------- -------- --------
Earnings (loss) from continuing operations before income taxes (19,304) (5,707) 1,066
Provision for income taxes -- -- --
-------- -------- --------
Earnings (loss) from continuing operations (19,304) (5,707) 1,066
Earnings (loss) from discontinued operations, net -- 38,930 (293)
-------- -------- --------
Net earnings (loss) (19,304) 33,223 773
Dividends applicable to and loss on
redemption of redeemable preferred stock (18,019) (410) (693)
Reduction of retained earnings
applicable to redeemable common stock -- -- (400)
-------- -------- --------
Earnings (loss) applicable to common shares ($37,323) $ 32,813 ($ 320)
======== ======== ========
Per share earnings (loss) applicable to common shares:
Basic and diluted:
Continuing operations ($ 3.65) ($ 0.78) $ --
Discontinued operations -- 4.94 (0.04)
-------- -------- --------
Net earnings (loss) ($ 3.65) $ 4.16 ($ 0.04)
======== ======== ========
Weighted average number of shares of common stock outstanding 10,216 7,891 7,970
======== ======== ========
</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
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
------------------------- Paid-in Stock
Shares Dollars Capital Compensation
------------- ---------- ------------ --------------
<S> <C> <C>
Balance at December 26, 1996 7,617,138 - $45,952 -
Comprehensive income (loss):
Net earnings - - - -
Net decrease in unrealized appreciation of investments - - - -
Comprehensive loss
Other changes in shareholders' equity:
Common stock issued to pay liabilities 444,717 1,939 -
Net increase in receivable from
related party, including accrued interest - - - -
Exercise of stock options and warrants 39,800 - 178 -
Redeemable common stock obligation
paid by the issuance of additional common shares 115,543 - 679 -
Purchase of redeemable preferred stock - - 89 -
Redeemable preferred stock dividends - - - -
Redeemable common stock accretion - - - -
Other changes in shareholders' equity
------------- ---------- ------------ --------------
Balance at December 31, 1997 8,217,198 - 48,837 -
Comprehensive income (loss):
Net earnings - - -
Net decrease in unrealized appreciation of investments - - - -
Comprehensive income
Other changes in shareholders' equity:
Repurchase of common stock previously issued
to pay down short-term notes (357,270) - (1,518) -
Net decrease in receivable from
related party, including accrued interest - - - -
Exercise of stock options 4,300 - 17 -
Redeemable preferred stock dividends - - - -
Other changes in shareholders' equity
------------- ---------- ------------ --------------
Balance at December 31, 1998 7,864,228 - 47,336 -
</TABLE>
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Receivable Accumulated Total
from Other Shareholders'
Related Comphrehensive Accumulated Equity
Party Income Deficit (Deficit)
------------ ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at December 26, 1996 ($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 - - - 1,939
Net increase in receivable from
related party, including accrued interest (6,153) - - (6,153)
Exercise of stock options and warrants - - - 178
Redeemable common stock obligation
paid by the issuance of additional common shares - - - 679
Purchase of redeemable preferred stock - - - 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 (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 - - - (1,518)
Net decrease in receivable from
related party, including accrued interest 12,621 - - 12,621
Exercise of stock options - - - 17
Redeemable preferred stock dividends - - (410) (410)
--------------
Other changes in shareholders' equity 10,710
--------------
------------ ---------------- ------------- --------------
Balance at December 31, 1998 - 10,920 (54,300) 3,956
</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
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
----------------------- Paid-in Stock
Shares Dollars Capital Compensation
----------- ---------- ------------ --------------
<S> <C> <C>
Balance at December 31, 1998 7,864,228 - 47,336 -
Comprehensive income (loss):
Net loss - - -
Net decrease in unrealized appreciation of investments - - - -
Comprehensive income
Other changes in shareholders' equity:
Exercise of warrants to purchase common stock 1,692,289 - 7,416 -
Exercise of options to purchase common stock 238,246 - 1,019 -
Sale of common stock, net of selling costs 201,875 - 6,412
Common stock issued as consideration for Entrade assets acquired 2,100,000 - 11,513
Common stock issued as consideration for Nationwide 1,650,000 - 21,038
Common stock issued in exchange for
Artra Series A preferred stock 608,403 - 9,924
Common stock issued in exchange for
BCA Series A and B preferred stock 727,145 14,633
Loss on redemption of Artra redeemable preferred stock (6,775)
Loss on redemption of BCA Holdings redeemable preferred stock (10,952)
Stock options issued and deferred stock-based compensation 8,200 (8,200)
Compensation expense recognized - 3,271
Compensatory stock options - - 1,841 -
Stock warrants extended 6,229
Eliminate put liability for warrants exercised - 1,705 -
Redeemable preferred stock dividends - - - -
Other changes in shareholders' equity
----------- ---------- ------------ --------------
Balance at December 31, 1999 15,082,186 - $119,539 ($4,929)
=========== ========== ============ ==============
</TABLE>
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Total
Other Shareholders'
Comphrehensive Accumulated Equity
Income Deficit (Deficit)
---------------- --------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1998 10,920 (54,300) 3,956
Comprehensive income (loss):
Net loss - (19,304) (19,304)
Net decrease in unrealized appreciation of investments (3,814) - (3,814)
--------------
Comprehensive income (23,118)
--------------
Other changes in shareholders' equity:
Exercise of warrants to purchase common stock - - 7,416
Exercise of options to purchase common stock - - 1,019
Sale of common stock, net of selling costs 6,412
Common stock issued as consideration for Entrade assets acquired 11,513
Common stock issued as consideration for Nationwide 21,038
Common stock issued in exchange for
Artra Series A preferred stock 9,924
Common stock issued in exchange for
BCA Series A and B preferred stock 14,633
Loss on redemption of Artra redeemable preferred stock (6,775)
Loss on redemption of BCA Holdings redeemable preferred stock (10,952)
Stock options issued and deferred stock-based compensation -
Compensation expense recognized 3,271
Compensatory stock options - - 1,841
Stock warrants extended 6,229
Eliminate put liability for warrants exercised - - 1,705
Redeemable preferred stock dividends - (292) (292)
--------------
Other changes in shareholders' equity 66,982
--------------
---------------- --------------- --------------
Balance at December 31, 1999 $7,106 ($73,896) $47,820
================ =============== ==============
</TABLE>
F-7
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) ($19,304) $ 33,223 $ 773
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation of property, plant and equipment 135 2,446 4,059
Amortization of intangibles,
principally excess of cost over net assets acquired 1,088 272 305
Costs related to stock options and warrants 11,275 -- --
Equity in loss of asseTrade.com 445 -- --
Decrease in receivable from related party -- 400 2,816
Gain on disposal of discontinued operations -- (35,585) --
Amortization of other assets, principally financing costs -- 1,121 4,754
Gain on sale of idle machinery and equipment -- -- (932)
Litigation settlement, net -- -- (10,416)
Gain on disposal of Comforce common stock (66) (320) (2,531)
Minority interest -- 509 1,109
Other, principally common stock issued as compensation 66 21 556
Changes in assets and liabilities,
net of effects of businesses
acquire and discontinued:
(Increase) decrease in receivables 696 (35) (1,631)
(Increase) decrease in inventories -- (2,010) 132
(Increase) decrease in other current and noncurrent assets (164) (456) 517
Increase (decrease) in payables and accrued expenses (2,902) (8,771) 321
Decrease in other current and noncurrent liabilities (771) (1,745) (119)
-------- -------- --------
Net cash flows used by operating activities (9,502) (10,930) (287)
-------- -------- --------
Cash flows from investing activities:
Proceeds from disposal of Comforce common stock 30 170 1,821
Proceeds from sale of Bagcraft assets -- 89,000 --
(Increase) decrease in restricted cash 1,045 (1,045) --
Pre-merger Entrade loss 1,305 -- --
Purchase of Entrade assets, net of cash acquired (4,099) -- --
Acquisition of Nationwide, net of cash acquired (5,323) -- --
Acquisition of printeralliance.com (550) -- --
Net proceeds from litigation settlement -- -- 9,761
Proceeds from sale of property, plant and equipment -- -- 537
Investment in asseTrade.com
Additions to property, plant and equipment (240) (2,177) (3,066)
(Increase) decrease in receivable from related party -- (8,969)
Acquistion of AB Specialty, net of deposit (1,131)
Proceeds from sale of idle machinery and equipment -- -- 932
Other (28) -- --
-------- -------- --------
Net cash flows from (used by) investing activities (7,860) 85,948 (115)
-------- -------- --------
</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>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C>
Net increase (decrease) in short-term debt -- ($ 15,451) ($ 1,508)
Increase in cash overdraft 473 -- --
Proceeds from long-term borrowings -- 124,077 146,891
Reduction of long-term debt (44) (175,019) (133,781)
Proceeds from exercise of stock options and warrants 8,435 17 178
Net proceeds from sale of common stock 6,412 -- --
Repurchase of common stock previously issued
to pay down short-term notes -- (1,518) --
Exercise of redeemable common stock put options -- -- (3,379)
Redemption of detachable put warrants -- (1,440) (1,728)
Purchase of redeemable preferred stock -- -- (426)
Other 78 (25)
--------- --------- ---------
Net cash flows from (used by) financing activities 15,276 (69,256) 6,222
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (2,086) 5,762 5,820
Cash and equivalents, beginning of year 11,753 5,991 171
--------- --------- ---------
Cash and equivalents, end of year $ 9,667 $ 11,753 $ 5,991
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 101 $ 6,087 $ 7,058
========= ========= =========
Income taxes paid (refunded), net $ 771 $ 189 $ 177
========= ========= =========
Supplemental schedule of noncash investing and financing activities:
Acquistion of Entrade assets, Nationwide and printeralliance.com
Fair value of assets acquired $ 62,520
Acquisition liabilities and costs (229)
Notes issued to sellers (18,800)
Common stock issued (32,551)
---------
Cash paid 10,940
Less: cash acquired (968)
---------
$ 9,972
=========
Exchange Entrade common stock for redeemable preferred stock $ 24,557
=========
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
=========
Issue common stock to pay redeemable common stock put obligation $ 679
=========
Comforce common stock given to lenders
as additional consideration for short-term borrowings $ 169
=========
</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
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 3, 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.
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.
Entrade is a development stage business services company specializing in the
creation of electronic commerce, or "e-commerce" marketplaces.
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Public Liquidations Systems, Inc. and Asset
Liquidation Group, Inc., d/b/a Nationwide Auction Systems ("Nationwide").
Nationwide, 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.
The Company has sustained significant losses and negative cash flows from
operations in 1999. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financing, bank financing, or other sources of capital. During December
1999 and January 2000, the Company raised approximately $13,400,000 in net
proceeds from private placements of equity. In addition, in March 2000, the
Company raised approximately $28,500,000 in net proceeds from the sale of 30,000
shares of Series A convertible redeemable preferred stock. Management believes
current working capital and other funding sources are sufficient to continue
operations and achieve its business plan through March 2001.
In 1997, the Company changed its fiscal year end to December 31. The Company had
operated on a 52/53 week fiscal year ending the last Thursday of December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Intercompany accounts and transactions are
eliminated. The Company's investment in asseTrade.com (25% of assetTrade.com
Class A common stock owned at December 31, 1999) is accounted for on the equity
method. The Company accounts for its investment in Pricecontainer.com (15% owned
at December 31, 1999) on the cost method.
B. Cash Equivalents/Restricted Cash
Short-term investments with a maturity of less than ninety days at the date of
purchase are considered cash equivalents. The fair value of cash and cash
equivalents is assumed to approximate the carrying value of these assets due to
the short duration of these assets.
F-10
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. Property, Plant and Equipment
Property, plant and equipment is stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight-line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
D. Financial Instruments
The fair value of cash and cash equivalents approximates 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.
E. Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents and accounts receivable. Cash
and cash equivalents are deposited with high credit quality financial
institutions. The Company's accounts receivable are derived from revenue earned
from customers located primarily in the U.S. and are denominated in U.S.
dollars. During each of the periods presented, no one customer accounted for
more than 10% of net accounts receivable. During 1999, the Company had one
customer that accounted for approximately 14% of total net revenues.
F. Investments in Equity Securities
The Company's investment in Comforce Corporation ("Comforce", see Note 5) common
stock is classified in current assets as available-for-sale securities and
stated at fair value in accordance with the provisions of 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 is subject to liquidity and market price
risks.
G. Intangible Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over 20 years. Technology and intellectual
property acquired for the conduct of the Company's development stage business
services e-commerce business is being amortized on a straight-line basis over 5
years.
The Company reviews the carrying value of its intangible assets, including
goodwill related to business enterprises, in accordance with 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
F-11
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. If an asset is
deemed to be impaired it is adjusted to fair value.
H. Environmental Matters
The Company expenses environmental expenditures related to past operations from
which no current benefit is discernable. The Company determines its liability on
a site by site basis and has records a liability at the time when it is probable
and can be reasonably estimated. The Company's estimated liability is reduced to
reflect the anticipated participation of other potentially responsible parties
in those instances where it is probable that such parties are legally
responsible and financially capable of paying their respective shares of the
relevant costs. The estimated liability of the Company is not discounted or
reduced for possible recoveries from insurance carriers. The Company's estimated
liability for environmental matters relates to and is included in liabilities of
discontinued operations in the Company's consolidated financial statements.
I. Revenue
Entrade is also creating and building business-to-business e-commerce markets in
select industries, in some instances 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. In such transactions revenues are expected to be generated
from licensing fees and transaction fees.
Entrade is creating businesses in fragmented industries to negotiate rebates and
volume discounts from key industry suppliers for small to mid-size companies.
The Internet is utilized to deliver enhanced web-based services to provide
electronic industry-specific malls for vendors and participants. Entrade also
receives an equity position in exchange for its contributions and collects a
percentage of the volume rebates and takes a transaction fee on transactions
conducted utilizing its e-commerce technology. Entrade also licenses its
technology both for the creation of joint ventures and for direct use by
individual companies. E-commerce related revenues were not significant during
the year ended December 31, 1999.
Nationwide's primary revenue is comprised of consignor commissions and buyer's
premiums. Consignor commissions are fees paid by the consignor to Nationwide for
selling the consignor's merchandise. Consignor fees are negotiated with each
consignor. 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 consignors allow
Nationwide to charge a buyer's premium. Auction related fees are recognized on
the date merchandise is sold.
J. 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.
K. 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.
F-12
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
L. Stock-Based Compensation
The Company has 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.
As permitted by SFAS No. 123, the Company measures employee and director
compensation cost in accordance with Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, no accounting recognition is given to stock options issued to
employees and directors that are granted at fair market value until they are
exercised. During 1999, the Company issued options to certain employees at
prices below fair market value on the date of grant. The Company is recognizing
compensation expense over the applicable vesting periods for the excess of fair
market value at the date of grant over the option price.
M. Comprehensive Income
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for the reporting
and display of comprehensive income and its components in general-purpose
financial statements.
N. Product Development Costs
Product development costs include expenses incurred by the Company to develop,
enhance, manage, monitor and operate the Company's Web sites. To date product
development costs have been expensed as incurred. The software development cost
components of product development costs are required to be capitalized beginning
when a product's technological feasibility has been established and ending when
a product is available for general release to customers. To date, completion of
a working model of the Company's products and the date of general release have
substantially coincided. Costs incurred by the Company between the completion of
the working model and the point at which the product is ready for general
release have been insignificant. Additionally, development costs associated with
providing content for the Company's Web sites are expensed as incurred.
O. Segment Information
The Company has adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 requires certain disclosures
about operating segments in a manner that is consistent with how management
evaluates the performance of the segment. At December 31, 1999, Entrade's two
reportable segments consist of development stage business services provided
principally by our e-commerce marketplaces and the transaction services business
conducted principally by the Nationwide subsidiary.
P. Earnings Per Share
The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share".
The pronouncement specifies the computation, presentati
on, and disclosure
requirements for earnings per share.
Q. Recently Issued Accounting Pronouncements
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, as amended, is effective for
fiscal years beginning after June 15, 2000. Management has not determined what
impact this standard, when adopted, will have on the Company's financial
statements.
F-13
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. CHANGE OF BUSINESS
Entrade
On February 23, 1999, Artra entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Entrade, WorldWide, and WWWX Merger Subsidiary, Inc.
("Merger Sub"), a wholly-owned subsidiary of Entrade. Terms of the acquisition
agreement required the Merger Sub to merge into Artra (the "Merger"), with Artra
being the surviving corporation for financial reporting purposes.
On September 22, 1999 Artra's shareholders approved the transaction and on
September 23, 1999, the Merger was completed. As a result of the Merger, Artra
became a wholly-owned subsidiary of Entrade, and the common shareholders of
Artra became holders of 83% of the common stock of Entrade. Under the terms of
the merger agreement, the Artra common shareholders received one share of
Entrade no par common stock in exchange for each share of Artra no par common
stock. All stock options and warrants issued by Artra and outstanding on the
closing date of the merger were converted on a one for one basis into Entrade
stock options and warrants. For financial reporting purposes, the transaction
has been treated as a recapitalization of Artra with Artra as the acquirer. All
shareholders' equity and share information has been restated to reflect this
recapitalization. Entrade's common stock became listed and commenced trading on
the New York Stock Exchange under the symbol "ETA" on September 24, 1999.
Entrade owns all of the outstanding capital stock of entrade.com and currently
owns 25% of the Class A common stock of asseTrade.com. entrade.com is an
Internet business-to-business e-commerce technology subsidiary of Entrade Inc.
seeking to provide asset disposition technology solutions for target markets.
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.
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 five years.
F-14
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
WorldWide, which holds 1,800,000 shares of Entrade common stock, is subject to a
lockup under the merger agreement for sales or transfers of its Entrade shares
until the first anniversary after the closing of the merger, subject to
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.
Nationwide
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Public Liquidations Systems, Inc. and Asset
Liquidation Group, Inc., d/b/a Nationwide Auction Systems ("Nationwide").
Nationwide, 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 consideration paid for Nationwide consisted of cash of $6,000,000; 1,570,000
shares of Entrade common stock; short-term promissory notes (the "Notes") in the
principal amount of $4,800,000; and promissory notes (the "Term Notes") in the
principal amount of $14,000,000, maturing October 1, 2001. The Notes and the
Term Notes provided for interest at an annual rate of 8%. Entrade paid the cash
portion of the purchase price out of 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.
The acquisition has been accounted for as a purchase. The operating results of
Nationwide have been included in the Company's consolidated financial statements
since the effective date of acquisition. The amount of the purchase price
allocated to intangible assets acquired, principally goodwill, of approximately
$45 million is being amortized over 20 years.
Holders of approximately 1,570,000 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.
printeralliance.com
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 out of
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 at the option of Entrade. Accordingly, the
acquisition has been accounted for as a purchase and the operating results of
printeralliance.com have been included in the Company's consolidated financial
statements since the effective date of acquisition. The amount of the purchase
price allocated to intangible assets acquired is being amortized over five
years.
Other
In October 1999, entrade.com licensed its technology to Pricecontainer.com in
return for a 15% ownership interest. Pricecontainer.com is establishing itself
as an on-line reservation system for excess oceanic container shipping
capacities. Pricecontainer.com is developing business with an established
foreign global trading company. The Company accounts for its investment in
Pricecontainer.com on the cost method.
F-15
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
utiliparts.com is being developed as an operating unit and is owned 80% by
entrade.com and 20% by asseTrade.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.
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
the acquisition of Nationwide and the merger with Entrade had been completed as
of January 1, 1998. There were no operations and no revenues related to the
assets the Company acquired in February 1999 to develop its entry into the
Internet business-to-business e-commerce business. These assets consisted of
assets acquired by the entrade.com subsidiary and an equity interest in
asseTrade.com.
asseTrade.com had no operations and no revenues when the initial 25% interest in
its Class A common stock was acquired by the Company in February 1999.
Accordingly, no pro forma results of operations are presented for the Internet
business-to-business e-commerce business for the year ended December 31, 1998,
as in the opinion of management this information would not be meaningful.
Year Ended Year Ended
December 31, December 31,
1999 1998
---------- ----------
Net sales $ 17,318 $ 19,624
========== ==========
Loss from continuing operations
$ (22,775) $ (9,028)
========== ==========
Net earnings (loss) $ (22,775) $ 29,902
========== ==========
Basic and diluted net loss per common share:
Continuing operations $ (3.15) $ (.79)
========== ==========
Net earnings (loss) $ (3.15) $ 2.47
========== ==========
These unaudited pro forma results include certain adjustments, such as
additional amortization expense primarily related to intangible assets, interest
expense on notes payable to Nationwide selling shareholders and compensation
related to stock options issued to certain employees of acquired companies. They
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisitions occurred on January 1, 1998, or of
future results of operations.
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. After the disposition of certain Bagcraft obligations noted above,
Artra received net proceeds of approximately $28,000,000 from the sale of
Bagcraft. Artra used approximately $15,200,000 of these net proceeds to retire
its debt obligations. Artra used the remainder of the proceeds for working
capital and to participate in new business opportunities.
F-16
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AB Specialty
Effective January 2, 1997, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration consisting of cash of approximately $2.3 million. The
purchased assets consisted principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement, was accounted for
by the purchase method and, accordingly, the assets and liabilities of AB were
included in the Company's financial statements at their estimated fair market
value at the date of acquisition. The business and related assets of AB were
part of the Bagcraft disposition.
The Company's consolidated financial statements have been reclassified to report
separately the results of operations of Bagcraft. The operating results (in
thousands) for fiscal years 1998 and 1997 of the discontinued Bagcraft
subsidiary and net gain on disposal consist of:
1998 1997
--------- ---------
Net sales $ 111,342 $ 125,027
========= =========
Earnings from operations before income taxes
and minority interest $ 3,534 $ 797
(Provision) credit for income taxeS (80) 19
Minority interest (509) (1,109)
--------- ---------
Earnings (loss) from operations 2,945 (293)
--------- ---------
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)
========= =========
Liabilities of discontinued operations at December 31, 1999 and 1998 of
$3,875,000 and $10,328,000, respectively, include redeemable preferred stock
issues (see Note 8), contractual obligations, environmental matters and other
future estimated costs for various discontinued operations. Additionally,
liabilities of discontinued operations at December 31, 1998 include an
adjustment to the sales price of the Bagcraft business of approximately
$900,000.
4. INVESTMENT IN asseTrade.com
On February 23, 1999, Entrade acquired 25% of the shares of Class A voting
common stock of asseTrade.com, a provider of business-to-business online
services that facilitate the remarketing of industrial machinery, equipment and
parts.
In September 1999, asseTrade.com entered into an agreement to sell to Internet
Capital Group, Inc., 12,669,520 shares of its Series A convertible 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
F-17
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
and the balance of the investment in January 2000.
On January 3, 2000, Entrade's Board of Directors approved a merger agreement
between a newly-formed merger subsidiary of Entrade with Positive Asset
Remarketing, Inc. As a result of the merger, Positive Asset Remarketing will
become a wholly owned subsidiary of Entrade, and the shareholders of Positive
Asset Remarketing will receive 900,000 shares of Entrade's common stock (subject
to an increase to 1,000,000 shares in certain circumstances) in exchange for
their shares in Positive Asset Remarketing. Entrade will acquire Positive Asset
Remarketing's only asset, an interest in the Class A common stock of
asseTrade.com, which will double our current interest in asseTrade.com. Class A
common stock. After the merger, and assuming the full dilution of Entrade's
interest (principally after conversion of preferred stock and the exercise of
stock options), Entrade will hold a 29.3% interest in the Class A common stock
of asseTrade.com. The owners of Positive Asset Remarketing include a director of
Entrade who is also an officer of both entrade.com and asseTrade.com, as well as
two other officers of entrade.com. The transaction is subject to the approval of
Entrade's shareholders.
Summarized financial data for asseTrade.com at December 31, 1999 (in thousands)
is as follows:
Revenues $ --
=======
Operating loss $(1,831)
=======
Net loss $(1,778)
=======
Current assets $ 4,719
Noncurrent assets 283
-------
$ 5,002
=======
Current liabilities $ 1,030
Noncurrent liabilities --
Redeemable preferred stock 5,750
Shareholders' deficit (1,778)
-------
$ 5,002
=======
5. INVESTMENT IN COMFORCE CORPORATION
At December 31, 1999 and 1998 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 consolidated balance sheet in
current assets as "Available-for-sale securities." At December 31, 1999 and 1998
the gross unrealized gain relating to Artra's investment in Comforce, reflected
as a separate component of shareholders' equity, was $7,106,000 and $10,920,000,
respectively. The investment in Comforce common stock is subject to liquidity
and market price risks. An attempt to sell a large number of the Comforce shares
over a limited period could be expected to result in a reduction of the value of
those shares.
F-18
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO 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 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 had concluded that, for reporting purposes, it had effectively granted
options to those officers, directors andkey employees to acquire 200,000 of
Artra's Comforce common shares. Accordingly, in January 1996, these 200,000
Comforce common shares were removed from Artra's portfolio of
"available-for-sale securities" and were classified in its consolidated balance
sheet as other receivables with an aggregate value of $400,000, based upon the
value of proceeds to be received upon future exercise of the options.
The disposition of these 200,000 Comforce common shares resulted in a gain that
was deferred and will not be recognized in Artra's financial statements until
the options to purchase these 200,000 Comforce common shares are exercised.
Prior to the fourth quarter of 1997, no options to acquire any of the 200,000
Comforce common shares had been exercised. During the fourth quarter of 1997,
options to acquire 59,500 of these Comforce common shares were exercised
resulting in a realized gain of $225,000. During 1998, options to acquire 84,750
of these Comforce common shares were exercised resulting in a realized gain of
$320,000. During 1999, options to acquire 20,000 of these Comforce common shares
were exercised resulting in a realized gain of $66,000.
At 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 the Company's consolidated balance sheet as other receivables with aggregate
values of $73,000 and $103,000 based upon the value of proceeds to be received
upon future exercise of the options.
During 1997, Artra sold 219,203 shares of Comforce common stock in the market,
with the net proceeds of approximately $1,700,000 used for working capital.
During 1997, a lender received 25,000 Comforce common shares held by Artra as
additional consideration for a short-term loan. The disposition of these 244,203
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.
6. NOTES PAYABLE
Notes payable at December 31, 1999 (in thousands) consist of:
Amounts due to related parties:
Entrade 8% term notes due to
Nationwide selling shareholders, net $ 4,661
Nationwide bank line of credit,
interest at the prime rate plus 1% 1,229
-------
5,890
Less amounts reclassified to
obligations expected to be settled
by the issuance of common stock (4,661)
-------
$ 1,229
=======
In January 2000, the promissory notes, net of amounts due from a selling
shareholder of $139,000, plus accrued interest, were converted into 278,985
shares of Entrade common stock. Accordingly, at December 31, 1999, net
F-19
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
amounts due on the promissory notes plus accrued interest were reclassified in
the Company's consolidated balance sheet as obligations expected to be settled
by the issuance of common stock. The total amount reclassified, including
accrued interest, was $4,743,000.
The holder of promissory notes with a with a principal balance of approximately
$4,181,000, net of amounts due from the noteholder of $139,000, is the
beneficial owner of approximately 9% of the outstanding shares of Entrade common
stock at January 31, 2000. The holder of promissory notes with a principal
balance of $480,000 is a director of the company and is the Chief Executive
Officer of Nationwide.
Nationwide has a line of credit with a bank that provides for maximum borrowings
of $3,000,000. Borrowings of $1,229,000 were outstanding as of December 31, 1999
and require monthly interest payments at the bank's prime rate plus 1% (9.5% at
December 31, 1999). At December 31, 1999, $1,771,000 was available and unused by
Nationwide under the credit agreement. The line of credit expires on December 8,
2000 and is collateralized by the assets of Nationwide.
The line of credit agreement contains various restrictive covenants that among
other restrictions require Nationwide to maintain minimum levels of tangible net
worth, debt to net worth and profitability levels. In addition, the line of
credit agreement prohibits changes in ownership of Nationwide. At December 31,
1999, Nationwide was not in compliance with several provisions of line of credit
agreement. The bank waived the conditions of non-compliance that existed at
December 31, 1999 and has subsequently amended the loan agreement.
7. LONG-TERM DEBT
Long-term debt at December 31, 1999 (in thousands) consists of:
Entrade:
Amounts due to related parties:
Entrade 8% term notes due
to Nationwide selling shareholders $ 14,000
Nationwide:
Note payable, due January 1, 2009, interest at
8%, collateralized by real estate 2,194
Note payable, due January 1, 2004, interest at
8.25%, collateralized by real estate 435
Note payable, due July 15, 2004, interest at
8.45%, collateralized by real estate, 419
Obligations under capital leases, interest at
10.20%, collateralized by property,
plant and equipment 294
--------
17,342
Current scheduled maturities (7,201)
Long-term debt reclassified as currently payable (2,163)
--------
$ 7,978
========
F-20
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Entrade
As part of the consideration for the acquisition of Nationwide, the selling
shareholders received term notes in the principal amount of $14,000,000. The
term notes are payable in several installments with the final payment due
October 1, 2001. Interest at 8% is payable quarterly. The holder of term notes
with a principal balance of $12,600,000 is the beneficial owner of approximately
9% of the outstanding shares of Entrade common stock at January 31, 1999. The
holder of promissory notes with a principal balance of $1,400,000 is a director
of the company and is the Chief Executive Officer of Nationwide.
In March 2000 the Company entered into an agreement with the Nationwide selling
shareholders to convert the term notes with a remaining principal balance of
approximately $10,500,000 into 265,621 shares of Entrade common stock. The notes
originally provided for principal payments of $3,500,000 in October 2000 and
$7,000,000 in October 2001. Completion of this transaction is subject to
approval by the Company's shareholders.
Nationwide
In June 1999, Nationwide obtained $425,000 in notes payable in order to finance
certain real estate used as an auction facility in Atlanta, Georgia. During
1998, Nationwide issued approximately $2,735,000 in notes payable in order to
purchase the real estate currently used for its Northern California auction
facilities. All the notes are collateralized by the related real estate.
At December 31, 1999, current liabilities included $2,163,000 of Nationwide
notes reclassified from long-term debt to currently payable. This debt
obligation was incurred by Nationwide during 1998. The lender did not consent to
the change in ownership relating to our acquisition of Nationwide in October
1999. In March 2000 this debt obligation was paid with funds available on
Nationwide's line of credit agreement and funds from operations. Nationwide is
currently negotiating with a lender to refinance the former real estate note
with a long-term credit facility.
At December 31, 1999 the aggregate amount of yearly maturities of long-term debt
(in thousands) are:
Year
2000 $9,364
2001 7,187
2002 209
2003 221
2004 361
---------
$ 17,342
=========
8. 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 former 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
F-21
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 preferredstock of $6,775,000. This loss was reflected in the
Company's consolidated financial statements as a direct charge to paid-in
capital.
BCA Holdings/Bagcraft
At September 30, 1999, liabilities of discontinued operations included BCA
Series A and Series B redeemable preferred shares with aggregate carrying values
of $3,681,000.
In October 1999, the Company's board of directors approved an offer to exchange
shares of Entrade common stock for the BCA Series A preferred stock and the BCA
Series B preferred stock. 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 redeemable preferred stock. The Entrade
common stock issued, valued at $14,633,000 (based upon the closing market price
of Entrade common stock on the New York Stock Exchange on the respective dates
the exchanged shares were tendered), exceeded the carrying value of the BCA
Series A preferred stock and the BCA Series B preferred stock of $3,681,000,
resulting in a loss on redemption of redeemable preferred stock of $10,952,000.
This loss was reflected in the Company's consolidated financial statements as a
direct charge to paid-in capital.
At December 31, 1999 and December 31, 1998, liabilities of discontinued
operations included 8,650 shares of Bagcraft 13.5% cumulative, redeemable
preferred stock (liquidation preference equal to $100 per share), including
accumulated dividends of $1,315,000.
9. STOCK OPTIONS AND WARRANTS
Stock Option Plans
The Company has stock option plans that provide for the granting of either
incentive or non-qualified stock options to officers, key employees and
non-employee members of the Company's Board of Directors. A summary of stock
option plans is as follows:
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
December19, 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.
F-22
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 per share. 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 exercise prices of
$3.125 to $5.375 per share.
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 issued to four 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 and expire on
February 23, 2009. The market value of the Company's common stock on the date of
grant of the options was $5.8125 per share, resulting in deferred compensation
of $4,900,000 associated with the granting of these options. The deferred
compensation is being amortized over the vesting period of these options.
Accordingly, during the year ended December 31, 1999, the Company recognized
compensation expense of approximately $2,996,000 related to these stock options.
The 1999 Stock Option Plan For Non-Executive Employees
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 originally reserved 1,000,000 shares of the Company's common stock for
the granting of options. In January 2000, the Company's board of directors
amended the 1999 Plan to increase the number of shares of the Company's common
stock reserved for the granting of options under the plan to 2,000,000.
As of December 31, 1999, Entrade had outstanding nonqualified options to
purchase an aggregate of 675,000 shares of its common stock granted to employees
under the 1999 Stock Option Plan For Non-Executive Employees at an exercise
prices of $9.00 to $37.00 per share. The market value of the Company's common
stock on the date of grant of options to acquire 550,000 shares of the Company's
common stock at an exercise price of $9.00 per share was $15.00 per share,
resulting in deferred compensation of $3,300,000 associated with the grant of
these options. The deferred compensation is being amortized over the vesting
period of these options. During the year ended December 31, 1999, the Company
recognized compensation expense of approximately $275,000 related to certain of
these stock options.
Other Option Grants
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, during 1999, the Company
recognized compensation expense of $575,000 related to these stock options.
In October 1999, Entrade entered into an employment agreement with an individual
to serve as the chief executive officer of Nationwide. The initial term of the
employment agreement is three years. In connection with such
F-23
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. The market value of the Company's common stock on
the date of grant of the options was $15.00 per share. Accordingly, during 1999,
the Company recognized compensation expense of $1,200,000 related to these stock
options.
Effective for the fiscal year ending December 26, 1996, the Company has adopted
only the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". In 1998 all stock options were granted at exercise prices equal
to fair market value of the common stock at the date of grant and, accordingly,
no compensation expense was recognized in connection with the Company's stock
option plans. As discussed above, in 1999 certainstock options were granted at
exercise prices less than fair market value of the common stock at the date of
grant. Compensation cost was recognized in accordance with the provisions of APB
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
The Company is recognizing compensation expense over the applicable vesting
periods for the excess of fair market value of the common stock at the date of
grant over the option price. Had compensation cost for the Company's stock
option plan been determined based on the fair value of the option on the date of
grant for awards in 1999 and 1998, consistent with the provisions of SFAS No.
123, the Company's earnings applicable to common shares would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
---------------------------- -----------------------
Pro forma As Reported Pro forma As Reported
------------ ------------ ---------- ----------
(in thousands, except per share data)
Earnings (loss) applicable to common shares:
<S> <C> <C> <C> <C>
Continuing operations $ (37,282) $ (50,136) $ (6,117) $ (6,216)
Discontinued operations -- -- 38,930 38,930
---------- ---------- ---------- ----------
Net earnings (loss) $ (37,282) $ (50,136) $ 32,813 $ 32,714
========== ========== ========== ==========
Earnings (loss) per share:
Basic and Diluted
Continuing operations $ (3.65) $ (4.91) $ (.78) $ (.79)
Discontinued operations -- -- 4.94 4.94
---------- ---------- ---------- ----------
Net earnings (loss) $ (3.65) $ (4.91) $ 4.16 $ $ 4.15
========== ========== ========== ==========
</TABLE>
The fair value of stock options granted in 1999 and 1998 was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
1999 1998
------- ----
Expected life (years) 5 5
Interest rate 6.0% 5.0%
Volatility 60.0% 50.0%
Dividend yield - -
F-23
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Information regarding all stock option plans for the three years in the period
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Options outstanding at beginning of year 971,250 913,050 917,850
Options granted 4,240,750 62,500 --
Options exercised (238,246) (4,300) (4,800)
Options canceled (6,000) -- --
---------- ---------- ----------
Options outstanding at end of year 4,967,754 971,250 913,050
========== ========== ==========
Options exercisable at end of year 2,111,087 971,250 913,050
========== ========== ==========
Options available for grant at end of year 464,000 1,604,750 1,667,250
========== ========== ==========
Weighted average option prices:
Outstanding at beginning of year $ 4.52 $ 4.61 $ 4.61
Options granted $ 8.87 $ 3.125 --
Options exercised $ 4.28 $ 3.70 $ 3.70
Options canceled -- -- --
Outstanding at end of year $ 8.24 $ 4.52 $ 4.61
Exercisable at end of year $ 5.10 $ 4.52 $ 4.61
</TABLE>
Significant option groups outstanding at December 31, 1999 and related weighted
average price and remaining life information are as follows:
Options Options Exercise Remaining
Grant Date Outstanding Exercisable Price Life (Years)
---------- ------------ ------------- ------------ --------------
12-12-09 15,000 - $ 37.00 9
11-11-99 390,000 - $ 22.3125 9
11-08-99 100,000 - $ 19.1875 9
10-19-99 200,000 200,000 $ 9.00 9
10-19-99 550,000 - $ 9.00 9
10-09-99 525,000 - $ 15.8125 9
10-04-99 30,000 - $ 15.75 9
10-04-99 10,000 - $ 15.8125 9
07-01-99 70,000 - $ 12.9375 9
06-28-99 200,000 200,000 $ 10.00 9
06-28-99 100,000 - $ 12.875 9
02-23-99 1,600,000 533,333 $ 2.75 9
02-02-99 15,000 15,000 $ 5.375 9
01-06-99 390,898 390,898 $ 4.75 9
05-27-98 50,000 50,000 $ 3.125 8
10-04-96 469,453 469,453 $5.25 6
01-08-93 103,300 103,300 $3.75 3
09-19-91 39,000 39,000 $ 3.65 1
12-19-90 110,103 110,103 $ 3.65 -
F-25
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Warrants
Information regarding warrants to purchase shares of the Company's common stock
for the three years in the period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Warrants outstanding at beginning of year 2,070,000 2,592,350 1,711,032
Warrants granted -- 192,500 1,196,894
Warrants exercised (1,692,289) -- (35,000)
Warrants put back -- (500,000) (114,000)
Warrants expired -- (214,850) (166,576)
---------- ---------- ----------
Warrants outstanding at end of year 377,711 2,070,000 2,592,350
========== ========== ==========
$ 3.00 $ 3.00 $ 3.50
Exercise prices per share to to to
$ 8.00 $ 8.00 $ 8.00
</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. During 1998 warrants to purchase 500,000 shares
of the Company's 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 the Company's 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.
In November and December 1999 the expiration dates of warrants to purchase
225,000 shares of the Company's common stock a price of $3.00 per share were
extended to periods ranging from April 30, 2000 to 30 days after the underlying
shares of common stock have been registered for sale with the Securities and
Exchange Commission. As a result of this extension the Company incurred interest
expense of $6,229,000 relating to common stock warrants.
In January and February 2000, warrants were exercised to purchase 41,167 shares
of the Company's common stock at prices ranging from $3.00 per share to $8.00
per share.
In January 2000, in conjunction with certain of the private placements of shares
of its common stock entered into in December 1999 and January 2000, finders
received warrants to purchase an aggregate of 20,500 shares of the Company's
common stock at prices ranging from $32.00 per share to $55.65 per share. The
warrants expire in January 2003.
In February 2000, as part of the consideration for our entrade.com subsidiary to
acquire a 25% interest in TradeTextile.com, Entrade issued a warrant to acquire
up to 75,000 shares of our common stock at an exercise price of $36.938 per
share. The warrant expires in December 2002.
In March 2000, as part of the consideration for the agreement with Textron
Financial Corporation to organize a new entity to be known as AssetControl.com,
Entrade issued Textron Financial Corporation a warrant to acquire up to
1,000,000 shares of Entrade common stock at an exercise price of $39.65 per
share. The warrant initially vests 250,000 shares with the remaining 750,000
shares scheduled to vest based upon certain performance standards for
AssetControl.com. The market value of the Company's common stock on the date of
grant of the warrants was $49.375 per share. Accordingly, the Company will
recognize future charges to operations related to these warrants.
In March 2000, in conjunction with the private placement of the Company's Series
A convertible redeemable preferred stock, the investors received warrants to
purchase 400,000 shares of Entrade common stock at an exercise price of $41.375
per share, subject to adjustment in certain circumstances.
F-26
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its subsidiaries lease certain office and other facilities. At
December 31, 1999, future minimum lease payments under operating leases that
have an initial or remaining noncancellable term of more than one year (in
thousands) are:
Year
----
2000 $ 1,136
2001 1,102
2002 1,032
2003 905
2004 860
After 2004 385
-------
$ 5,420
=======
Rental expense from continuing operations was $468,000, $138,000 and $134,000 in
fiscal years 1999, 1998 and 1997, respectively. Effective December 1995, a trust
for the benefit of John Harvey, the Company's Chairman of the board of directors
purchased the building in which the Company leases office space for its
corporate headquarters. The lease expired in December 1998 and was extended on a
month-to-month basis. In the second half of 1999, the Company assumed additional
space in the building. Rental expense for this lease was $175,000, $126,000 and
$126,000 annually for fiscal years 1999, 1998 and 1997, respectively. In January
2000 the Company entered into a new five-year lease at this building
encompassing additional space and providing for annual rental payments of
approximately $300,000.
Nationwide leases one of its office and yard facilities from an informal
partnership in which a partner is a former stockholder of Nationwide and
currently the beneficial owner of approximately 9% of the outstanding shares of
Entrade common stock. Rental payments aggregating $63,000 were made by
Nationwide to this partnership for the three months ended December 31, 1999,
subsequent to Entrade's acquisition of Nationwide. Future lease commitments
under this agreement included in the table above are approximately $1,200,000.
Employment Contracts
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).
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 with 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
F-27
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
the closing of the Nationwide acquisition. As of the closing date of the
Nationwide acquisition, this individual was appointed as a director of Entrade.
On February 23, 1999, Artra entered into three-year employment agreements with
four individuals to manage the Company's entry into the Internet
business-to-business e-commerce and on-line auction business. In connection with
such employment, the 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.
The Company has other employment agreements with certain officers and key
members of management. As of December 31, 1999, the aggregate commitment for
future salary payments for all employment contracts is approximately $5,000,000.
Legal Proceedings
With the 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 December 31, 1999 and December 31, 1998, Artra had
accrued current liabilities of $1,400,000 and $1,500,000, respectively, for
potential business-related litigation and environmental liabilities. No
liabilities were accrued for the product liability claims because no reasonable
basis exists on which such claims could be quantified.
Product liability claims
Since 1983, Artra Group Incorporated, which has been a wholly-owned subsidiary
of Entrade since September 1999, 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. Beginning in 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 subsequent to January 31, 2000, we can provide no
assurance that Artra will be able to conclude an agreement with the excess
carriers.
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
F-28
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
than $185,000,000, Artra 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 (approximately $10,200,000 at December 31, 1999). 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, and it would have meritorious defenses against, the imposition of
Artra's liabilities for the claims and Entrade would vigorously defend itself
against any attempt to impose such liability. In the event of an unfavorable
outcome of such legal action however, there could be a material adverse effect
upon Entrade's financial condition and results of operations.
Environmental matters
EPA notices alleging environmental violations
In April 1994, the EPA notified Artra that it was a potentially responsible
party for the disposal of hazardous substances (principally waste oil) at a
disposal site in Palmer, Massachusetts, generated by a manufacturing facility
formerly operated by the Clearshield Plastics Division of Harvel Industries,
Inc., a majority owned subsidiary of Artra. In 1985, Harvel was merged into
Artra's Fill-Mor subsidiary. This site has been included on the EPA's National
Priorities List. In February 1983, Harvel sold the assets of Clearshield to
Envirodyne Industries, Inc. The alleged waste disposal occurred in 1977 and
1978, at which time Harvel was a majority-owned subsidiary of Artra. In May
1994, Envirodyne and its Clearshield National, Inc. subsidiary sued Artra for
indemnification in connection with this proceeding. The cost of clean-up at the
Palmer, Massachusetts site has been estimated to be approximately $7,000,000
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. Artra has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
Lawsuits seeking recovery of environmental clean-up costs
In a case titled Sherwin-Williams Company v. Artra Group Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
brought suit against Artra and other former owners of a paint manufacturing
facility in Baltimore, Maryland, for recovery of costs of investigation and
clean-up of hazardous substances that were stored, disposed of or otherwise
released at the manufacturing facility. This facility was owned by Baltimore
Paint and Chemical Company, formerly a subsidiary of Artra from 1969 to 1980.
Sherwin-Williams' 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.
F-29
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 (exclusive of product liability
claims) 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 operations.
11. INCOME TAXES
The provision (credit) for income taxes (in thousands) is included in the
statements of operations as follows:
1999 1998 1997
------ ------- -------
Continuing operations $- $ -- $ --
Extraordinary credit -- -- --
Discontinued operations -- 1,600 (19)
------ ------- -------
$ -- $ 1,600 $ (19)
====== ======= =======
A summary of the provision (credit) for income taxes (in thousands) is as
follows:
1999 1998 1997
Current: ------ ------- -------
Federal
State $ -- $ 700 $ --
-- 900 (19)
------ ------- -------
$ -- $ 1,600 $ (19)
====== ======= =======
F-30
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. INCOME TAXES, continued
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, except for Federal alternative minimum
tax.
In 1999, 1998 and 1997, the effective tax rates from operations, including
discontinued operations were 0%, 4.5% and (1.0)%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:
1999 1998 1997
-------- -------- --------
Provision (credit) for income taxes
using statutory rate $ (6,563) $ 12,013 $ 633
State and local taxes,
net of Federal benefit -- 900 (19)
Current year tax loss not utilized 5,592 -- (1,680)
Deferred finance fee -- -- 919
Amortization of goodwill 370 -- 104
Effect of not including
all subsidiaries in the
consolidated tax return 595 -- --
Previously unrecognized benefit
from utilizing tax loss -- (12,035) --
carryforwards
Alternative minimum tax -- 700 --
Other 6 22 24
-------- -------- --------
$ -- $ 1,600 $ (19)
======== ======== ========
F-31
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. 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, 1999 and December 31,
1998 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment in Comforce Corporation $ 32,700 $ 12,100 $ 36,000 $ 14,000
Accrued personnel costs 5,100 1,900 - -
Other 4,200 1,600 2,500 1,000
Alternative minimum tax carryforward 700 700 - -
Net operating loss 14,800 5,500 10,200 4,000
-------- --------
Total deferred tax assets 21,800 19,000
-------- --------
Accumulated depreciation (500) (200) - -
Other (800) (300) (800) (300)
-------- --------
Total deferred tax liabilities (500) (300)
Valuation allowance (21,300) (18,700)
-------- --------
Net deferred tax asset
$ - $ -
======== ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as ultimate
realization is not considered more likely than not.
At December 31, 1999, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $14,800,000 expiring principally in 2012 -
2019, available to be applied against future taxable income, if any. In recent
years, the Company has issued shares of its common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, the Company is
not currently subject to such limitations regarding the utilization of
substantially all of its Federal income tax loss carryforwards.
12. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution 401(k) plan covering substantially
all employees. Both employee and employer contributions are generally determined
as a percentage of the covered employee's annual compensation. The total expense
charged to operations relating to this plan amounted to $45,000, $38,000 and
$28,000 in 1999, 1998 and 1997, respectively.
F-32
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Nationwide 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 1999.
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.
13. EARNINGS PER SHARE
The Company computes earnings per share in accordance with the provisions of
SFAS No. 128, "Earnings per Share". Basic earnings (loss) per share is computed
by dividing the income available to common shareholders, net earnings (loss),
less redeemable preferred stock dividends, loss on redemption of redeemable
preferred stock 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, loss on redemption of redeemable preferred stock 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, 1999 was computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
-------------------- -------------------- --------------------
Basic Diluted Basic Diluted Basic Diluted
-------- -------- -------- -------- -------- --------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding 10,216 10,216 7,891 7,891 7,970 7,970
Common stock equivalents
(options/warrants) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
10,216 10,216 7,891 7,891 7,970 7,970
======== ======== ======== ======== ======== ========
EARNINGS (LOSS):
Earnings (loss)from continuing operations $(19,304) $(19,304) $ (5,707) $ (5,707) $ 1,066 $ 1,066
Loss on redemption of
redeemable preferred stock (17,727) (17,727) -- -- -- --
Dividends applicable to
redeemable preferred stock (292) (292) (410) (410) (693) (693)
Redeemable common stock accretion -- -- -- -- (400) (400)
-------- -------- -------- -------- -------- --------
Loss from continuing operations
applicable to common shareholders (37,323) (37,323) (6,117) (6,117) (27) (27)
Earnings (loss) from
discontinued operations -- -- 38,930 38,930 (293) (293)
-------- -------- -------- -------- -------- --------
Net earnings (loss) $(37,323) $(37,323) $ 32,813 $ 32,813 $ (320) $ (320)
======== ======== ======== ======== ======== ========
</TABLE>
F-33
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. EARNINGS PER SHARE, continued
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 26, 1997
--------------------- --------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
PER SHARE AMOUNTS:
Loss from continuing operations
<S> <C> <C> <C> <C> <C> <C>
applicable to common shares $ (3.65) $(3.65) $ (.78) $ (.78) $ - $ -
Earnings (loss) from
discontinued operations - - 4.94 4.94 ( .04) ( .04)
--------- -------- -------- --------- ----------- -----------
Net earnings (loss) applicable
to common shares $ (3.65) $(3.65) $ 4.16 $ 4.16 $ (.04) $ (.04)
========= ======== ======== ========= =========== ===========
</TABLE>
14. LITIGATION SETTLEMENT
In November, 1993, Artra filed suit in the Circuit Court of the Eighteenth
Judicial Circuit for the state of Illinois against Salomon Brothers, Inc.,
Salomon Brothers Holding Company, Inc., Charles K. Bobrinskoy, Michael J.
Zimmerman, D.P. Kelly & Associates, L.P., Donald P. Kelly, James F. Massey and
William Rifkind relating to the acquisition of Envirodyne Industries, Inc. in
1989 by Emerald Acquisition Corp.
Effective December 31, 1997, the above parties reached a settlement agreement
and all pending litigation was dismissed. Artra recognized a gain from the
settlement agreement of $10,416,000 ($1.31 per share), net of related legal fees
and other expenses.
The Company and its subsidiaries are the defendants in various other
business-related litigation and environmental matters (see Note 10). Management
does not believe the outcome of these matters (exclusive of product liability
claims) will have a material adverse effect on the Company's financial
statements.
15. BUSINESS SEGMENTS
Through November 20, 1998, the Company's Artra subsidiary operated in one
industry segment as a manufacturer of packaging products principally serving the
food industry. The packaging products business was conducted by Artra's
wholly-owned Bagcraft subsidiary, which business was sold on November 20, 1998.
As discussed in Note 3, on February 23, 1999, Artra entered into an agreement
with Entrade providing for the merger of a wholly-owned subsidiary of Entrade
with and into Artra. On September 22, 1999, Artra's shareholders approved the
transaction and on September 23, 1999, the merger was completed. As a result of
the merger, Artra became a wholly-owned subsidiary of Entrade. For financial
reporting purposes, the transaction has been treated as a recapitalization of
Artra with Artra as the acquirer.
Entrade is a business-to-business company specializing in the creation of
e-commerce marketplaces.
In October 1999, Entrade completed the acquisition of all of the issued and
outstanding common stock of Nationwide, which has operated for over 20 years and
is one of the nation's largest volume public auction firms in the disposition of
municipality, law enforcement, corporate and utility company surplus property.
In addition to vehicles and equipment, Nationwide conducts real property and
jewelry auctions.
The Company has adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 requires certain disclosures
about operating segments in a manner that is consistent with how management
evaluates the performance of the segments. At December 31, 1999, Entrade's two
reportable segments
F-34
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
consist of development stage business services provided principally by our
e-commerce marketplaces and the transaction services business conducted
principally by the Nationwide subsidiary.
The following table summarizes financial information for the Company's
reportable segments since their respective acquisitions in 1999:
1999
--------
Revenues:
Development stage business $ 77
Transaction services 4,465
--------
$ 4,542
========
Operating earnings (loss):
Development stage business $ (3,331)
Transaction services 100
Corporate expenses (4,288)
Compensation related to stock options (5,046)
--------
Operating loss (12,565)
Equity in loss of asseTrade.com (445)
Interest expense related to stock warrants (6,229)
Interest expense, net (131)
Other 66
--------
Loss from continuing
operations before income taxes $(19,304)
========
Total assets:
Development stage business $ 11,043
Transaction services 53,187
Corporate 12,974
Investment in asseTrade.com 3,554
--------
$ 80,758
========
Capital expenditures:
Development stage business
$ 98
Transaction services 142
--------
$ 240
========
F-35
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. BUSINESS SEGMENTS, continued
1999
------
Depreciation and amortization:
Development stage business $ 550
Transaction services 673
------
$1,223
======
Nationwide's primary revenue is comprised of consignor commissions and buyer's
premiums. Gross auction proceeds represent the successful bid price of the
merchandise sold. Nationwide's gross auction proceeds from the date of
acquisition through December 31, 1999 were $25,446,000.
During 1999, there were no significant intersegment sales. One transaction
services customer accounted for 14% of the Company's total revenues. No
significant revenues were generated by development stage business in 1999.
16. OTHER RELATED PARTY TRANSACTIONS
Artra had total advances due from its then president, Peter R. Harvey (currently
Vice Chairman of Entrade), of which $12,621,000, 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 and through January 31, 1998, 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
=============
17. SUBSEQUENT EVENTS
On January 26, 2000, Entrade entered into an agreement with three individual
shareholders to acquire 15% of the issued and outstanding shares of ATM Service,
Ltd. ("ATM Service"), for shares of Entrade common stock equal to
F-36
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 a licensee of entrade.com's
software, provides a channel for wholesale redistribution of consumer oriented
goods under the name ATMCenter.com. The transaction is subject to various
conditions, including Entrade shareholder approval. WorldWide, the majority
owner of ATM Service, is currently the beneficial owner of 10.9% of the
outstanding shares of Entrade common stock.
On February 10, 2000, Entrade agreed with Associates First Capital Corporation
to organize a new entity to be known as TruckCenter.com to create a
business-to-business e-commerce marketplace for the sale of trucks and related
services, including financing, certification, warranty and third party
inspection. Entrade will invest $3,000,000 and be the sole owner of
TruckCenter.com, but Associates First Capital Corporation will have an option to
purchase a 50% interest. The target date for the launch of the TruckCenter.com
website is March 23, 2000. For the six-month period following the launch,
Associates has agreed to list truck inventory on the website and not on any
other website unaffiliated with Associates, and Associates will provide the
ability to apply for financing services to purchasers.
On February 18, 2000, the Company's wholly-owned entrade.com subsidiary entered
into an agreement to acquire 1,011,667 shares of Series A Convertible Preferred
Shares, par value $.001 per share of TradeTextile.com ("Series A Preferred"), a
warrant to acquire 288,778 shares of Series A Preferred and a warrant to acquire
333,609 shares of Series A Preferred in exchange for $3,500,000, a warrant to
acquire up to 75,000 shares of Entrade common stock and the license to
TradeTextile.com of entrade.com's software technology. Pursuant to the terms of
the agreement, entrade.com will own 35% of TradeTextile.com on a fully-diluted
basis, assuming the full exercise of its warrants to purchase Series A Preferred
of TradeTextile.com. TradeTextile.com will provide business-to-business
e-commerce for the trading of yarns, fabrics, garments, raw materials,
chemicals, and textile quotas, initially targeting the Chinese textile industry.
On March 13, 2000, Entrade agreed with Textron Financial Corporation, a
subsidiary of Textron Inc. to organize a new entity to be known as
AssetControl.com to create a business-to-business e-commerce marketplace for the
sale of surplus industrial equipment, excess inventory and commercial real
estate. Entrade owns 38% of AssetControl.com with Textron Financial owning 47.5%
of the joint venture. Other partners include ATM Service, a subsidiary of
WorldWide, a 9.5% equity owner and Safeguard Scientifics Inc., a 5% equity
owner. As part of the consideration for this agreement, Entrade issued Textron
Financial Corporation a warrant to acquire up to 1,000,000 shares of Entrade
common stock at an exercise price of $39.65 per share. The warrant initially
vests 250,000 shares with the remaining 750,000 shares scheduled to vest based
upon certain performance standards for AssetControl.com. The market value of the
Company's common stock on the date of grant of the warrants was $49.375 per
share. Accordingly, the Company will recognize future charges to operations
related to these warrants.
In March 2000 Entrade acquired an additional equity interest in
printeralliance.com. for $1,000,000 in cash and now own 64% of
printeralliance.com.
In March 2000, Entrade raised approximately $28,500,000 in net proceeds from the
sale of 30,000 shares of Entrade's Series A convertible redeemable preferred
stock. The investors also received warrants to purchase 400,000 shares of
Entrade common stock at an exercise price of $41.375 per share, subject to
adjustment in certain circumstances. The non-voting Series A preferred stock,
$1,000 par value, bears a 6% dividend payable at Entrade's option in either cash
or common stock. For the first fifteen months after issuance of the Series A
preferred stock, and subject to certain registration rights and other
conditions, Entrade has the right to convert all or part of the Series A
preferred stock at the lesser of $78.73 per share or 91% of the lowest closing
sale price of Entrade's common stock during the two consecutive trading days
ending on the date of the election. In addition, Entrade has the right, during
this period to redeem the preferred stock at 115% of its par value. Entrade must
redeem or convert all of the preferred stock within two years of the date of its
issuance, and, until the preferred stock is redeemed or converted, Entrade
cannot pay dividends on its common stock without the approval of the preferred
stockholders. To the extent that the fair market value of the common stock
received upon conversion of the preferred stock is deemed to exceed the carrying
value of the Series A preferred stock, a beneficial conversion feature exists. A
deemed dividend to the Series A preferred shareholders will be reflected to the
extent of any beneficial conversion feature and would increase the net loss
available to common shareholders. The Series A convertible redeemable preferred
stock will be classified in Entrade's consolidated balance sheet in the
mezzanine section between liabilities and shareholders' equity.
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Shareholders and Board of Directors
Entrade Inc.
Northfield, Illinois
Our report on of the consolidated financial statements of Entrade Inc. and its
Subsidiaries is included on page F-2 of this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page F-1 of this
Annual Report on Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 2000
F-38
<PAGE>
ENTRADE INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for each of the three years in the period ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------- --------------- ------------------------------- --------------- ------------
Additions
------------------------------
(a) (b)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
--------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 31, 1999:
Deducted from assets to which they apply:
Allowance for doubtful accounts $ - $ 10(B) $ 10
======= ====== =======
Net deferred income tax valuation allowance $18,700 $ 2,600 $21,300
======= ======= =======
For the fiscal year ended December 31, 1998:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 277 $ 21 $ (298)(D) $ -
===== ====== ====== =======
Allowance for doubtful accounts $ 275 $ 45 $ (320)(D) $ -
===== ====== ====== =======
Net deferred income tax valuation allowance $30,100 $11,400(E) $18,700
======= ======= =======
For the fiscal year ended December 31, 1997:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 249 $ 172 $ (144)(C) $ 277
===== ======= ====== =======
Allowance for doubtful accounts $ 512 $ 63 $ (300)(A) $ 275
===== ====== ====== =======
Net deferred income tax valuation allowance $30,800 $ (700)(F) $30,100
======= ====== =======
<FN>
(A) Principally uncollectible accounts written off, net of recoveries.
(B) Allowance for doubtful accounts related to Nationwide acquisition.
(C) Principally inventory written off, net of recoveries.
(D) Principally amounts of discontinued operations.
(E) Principally reduction of deferred tax valuation due to utilization of tax
loss carryforwards against earnings of discontinued operations.
(F) Principally revision of estimated net deferred tax liability.
</FN>
</TABLE>
F-39
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entrade Inc.
In our opinion, the accompanying combined statements of earnings and
retain earnings and of cash flows present fairly, in all material respects, the
results of Nationwide Auction Systems operations and its cash flows for the nine
months in the period ended September 30, 1999, in conformity with accounting
principles generally accepted in the United States. 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 audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 2000
F-40
<PAGE>
Independent Auditors' Report
The Board of Directors
Nationwide Auction Systems:
We have audited the accompanying combined balance sheet of Nationwide Auction
Systems (the Company - see note 1(a)) as of December 31, 1998 and the related
combined statements of earnings and retained earnings and cash flows for each of
the years in the two 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 the results of its operations and its cash
flows for each of the years in the two year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/S/KPMG LLP
Los Angeles, California
March 5, 1999
F-41
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Balance Sheet
December 31
Assets 1998
----------
Current assets:
Cash and cash equivalents $ 986,000
Accounts receivable 594,000
Inventories 24,000
Prepaid expenses 17,000
----------
Total current assets 1,621,000
----------
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
Leasehold improvements 1,028,000
Transportation equipment 188,000
----------
5,224,000
Less accumulated depreciation and amortization 315,000
----------
Net property and equipment 4,909,000
----------
Deposits 70,000
----------
$6,600,000
==========
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
Accounts payable 1,197,000
Accrued expenses 439,000
Income taxes payable 10,000
----------
Total current liabilities 2,699,000
Long-term debt, excluding current installments (note 5) 2,631,000
----------
Total liabilities 5,330,000
----------
Stockholder's equity:
Common stock, no par value
Authorized 5,000 shares; issued
and outstanding 2,600 shares 150,000
Retained earnings 1,120,000
----------
Total stockholder's equity 1,270,000
Commitments, contingencies and
subsequent events (notes 6,10 and 11)
----------
$6,600,000
==========
See accompanying notes to combined financial statements.
F-42
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Earnings and Retained Earnings
<TABLE>
<CAPTION>
Nine Months
ended Year ended December 31
September 30, ----------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues (note 2) $ 12,181,000 $ 19,624,000 11,604,000
Cost of sales 5,388,000 10,671,000 4,224,000
------------ ------------ ------------
Gross profit 6,793,000 8,953,000 7,380,000
Operating expenses 5,181,000 6,507,000 5,100,000
------------ ------------ ------------
Earnings from operations 1,612,000 2,446,000 2,280,000
Interest income (84,000) (136,000) (152,000)
Interest expense 268,000 94,000 21,000
Other expenses, net (note 7) -- 3,000 384,000
------------ ------------ ------------
Earnings before income taxes 1,428,000 2,485,000 2,027,000
State income taxes, all current 21,000 39,000 30,000
------------ ------------ ------------
Net earnings 1,407,000 2,446,000 1,997,000
Retained earnings at beginning of period 1,120,000 891,000 1,135,000
Distributions to stockholder (2,143,000) (2,217,000) (2,241,000)
------------ ------------ ------------
Retained earnings at end of period $ 384,000 $ 1,120,000 891,000
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE>
NATIONWIDE AUCTION SYSTEMS
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months
ended Year ended December 31
September 30, --------------------------
1999 1998 1997
------------ ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 1,407,000 $ 2,446,000 1,997,000
----------- ----------- -----------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 151,000 79,000 64,000
Loss on disposal of equipment -- 9,000 --
Loss on sale of note receivable -- -- 399,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (10,000) (202,000) (226,000)
Stockholder advances (339,000) -- 450,000
Due from affiliates -- 2,000 140,000
Inventories -- 9,000 145,000
Prepaid expenses (113,000) 29,000 (15,000)
Deposits (17,000) (55,000) 110,000
Increase (decrease) in:
Accounts payable and accrued expenses 1,740,000 204,000 (1,762,000)
Income taxes payable (10,000) (2,000) 7,000
----------- ----------- -----------
Total adjustments 1,402,000 73,000 (688,000)
----------- ----------- -----------
Net cash provided by operating activities 2,809,000 2,519,000 1,309,000
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,773,000) (4,711,000) (115,000)
Proceeds from the sale of property and equipment -- 36,000 9,000
----------- ----------- -----------
Net cash used in investing activities (1,773,000) (4,675,000) (106,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable 763,000 2,735,000 --
Proceeds from line of credit 700,000 929,000 --
Principal payments of long-term debt (531,000) (78,000) (77,000)
Distributions to stockholder (2,143,000) (2,217,000) (1,707,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (1,211,000) 1,369,000 (1,784,000)
----------- ----------- -----------
Net decrease in cash and cash equivalents (175,000) (787,000) (581,000)
Cash and cash equivalents at beginning of period 986,000 1,773,000 2,354,000
----------- ----------- -----------
Cash and cash equivalents at end of period $ 811,000 $ 986,000 1,773,000
=========== =========== ===========
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-44
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
(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 the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997 totaled $70,832,000 $75,110,000 and
$66,564,000, , 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-45
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
(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-46
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
(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 $3,031,000, $3,445,000 and $470,000 from
which the Company earned commissions, buyers' premiums and fees
aggregating $422,000, $536,000 and $70,000 for the nine months ended
September 30, 1999 and the years ended 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 had 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
were 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 $1,229,000 and $929,000 were outstanding as of September
30, 1999 and December 31, 1998 and require monthly interest payments at
the bank's prime rate plus 1%.
F-47
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
The second credit line includes financial covenants with which the
Company is in compliance as of December 31, 1998. No amounts were
outstanding under either line at December 31, 1997. The first credit line
expired 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.
The second line of credit agreement contains various restrictive
covenants, that among other restrictions require Nationwide to maintain
minimum levels of tangible net worth, debt to net worth and profitability
levels. In addition, the second line of credit agreement prohibits
changes in ownership of Nationwide. At September 30, 1999 Nationwide was
not in compliance with the provisions of this line of credit agreement.
The bank has waived the conditions of non-compliance that existed at
September 30, 1999 and has subsequently amended the loan agreement.
(5) Long-Term Debt
Long-term debt at December 31, 1998 is summarized as follows:
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
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
----------
2,755,000
Less current installments 124,000
----------
$2,631,000
==========
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-48
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
(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 $178,000 and $257,000 and $249,000 were made by the
Company to this partnership for the nine months ended September 30, 1999
and the years ended December 31, 1998 and 1997, respectively. Future
lease commitments under this agreement and included in the table above
approximate $1,700,000.
Total rent and related expenses for the nine months ended September 30,
1999 and the years ended December 31, 1998 and 1997, including related
party rents, aggregated $688,000, $652,000 and $627,000 respectively.
(7) Sale of Note Receivable
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.
F-49
<PAGE>
Nationwide Auction Systems
Notes to Combined Financial Statements
September 30, 1999 and December 31, 1998
(8) 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
the nine months ended September 30, 1999 and the years ended December 31,
1998 and 1997.
(9) 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.
(10) 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.
(11) Subsequent Events (Unaudited)
On October 19, 1999, Entrade Inc. ("Entrade") completed the acquisition
of all of the outstanding capital stock of Nationwide for consideration
consisting of the following: (a) an aggregate of 1,650,000 shares of
Entrade common stock, including 80,000 shares of Entrade common stock
issued in payment of finders fees in connection with the transacation;
(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.
In January 2000, the Notes with a principal amount of $4,800,000, net of
amounts due from a selling shareholder of $139,000, plus accrued
interest, were converted into 278,985 shares of Entrade common stock.
In March 2000 the Entrade entered into an agreement with the Nationwide
selling shareholders to convert the term notes with a remaining principal
balance of approximately $10,500,000 into 265,621 shares of Entrade
common stock. The notes originally provided for principal payments of
$3,500,000 in October 2000 and $7,000,000 in October 2001. Completion of
this transaction is subject to approval by the Entrade's shareholders.
As discussed in Note 5, in 1998 Nationwide obtained approximately
$2,735,000 in notes payable in order to purchase real estate. As of
October 19, 1999, Nationwide was not in compliance with one of the note
agreements. The lender did not consent to the change in ownership
relating to Entrade's acquisition of Nationwide. In March 2000 this debt
obligation of approximately $2,100,000 was paid with funds available on
Nationwide's line of credit agreement and funds from operations.
F-50
<PAGE>
Report of Independent Auditors
Board of Directors
asseTrade.com, Inc.
We have audited the accompanying balance sheet of asseTrade.com, Inc. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations and cash flows for the year then ended, and the
statement of shareholders' deficit for the period December 11, 1998 (date of
inception) through December 31, 1999. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of asseTrade.com, Inc. at December
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Philadephia, Pennsylvania
February 14, 2000
F-51
<PAGE>
INDEX OF EXHIBITS
Exhibit Number
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)
3.3 Statement with Respect to Shares of Series A
Convertible Preferred Stock of Entrade Inc. as filed
with the Secretary of Commonwealth of the
Commonwealth of Pennsylvania on March 24, 2000. (8)
*4.1 Restated 1985 Stock Option Plan. (6)
*4.2 1996 Stock Option Plan; (6)
*4.3 1996 Disinterested Directors Stock Option Plan; (6)
*4.4 1999 Employment Agreement Option (6)
*4.5 1999 Stock Option Plan for Non-Executive Employees
(7)
*4.6 1999 Non-qualified Stock Option Plan of Artra and
form of Non-Qualified Stock Option Agreement. (1) 4.7
Form of Warrant to Purchase Common Stock. (3)
*4.8 Warrant to Purchase Common Stock dated as of February
7, 2000 granted to Braden Sutphin Ink Company. (4)
4.9 Warrant Agreement and Form of Warrant to Purchase
Common Stock of Entrade Inc. dated as of March 9,
2000 between Entrade Inc. and Textron Financial
Corporation. (9)
4.10 Form of Warrant to Purchase Common Stock of Entrade
Inc. dated March 24, 2000, issued to certain
investors. (8)
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)
E-1
<PAGE>
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 Finders Agreement between Artra and Jeffrey Newman.
(1)
10.15 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)
10.16 Software License Agreement dated as of December 11,
1998 between asseTrade.com, Inc. and BarterOne LLC
(d/b/a entrade.com). (1)
10.17 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)
10.18 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$4,320,000. (2)
10.19 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal
amount of $480,000. (2)
10.20 Promissory Note dated as of October 15, 1999 from
Entrade to Don Haidl, in the principal amount of
$12,600,000. (2)
10.21 Promissory Note dated as of October 15, 1999 from
Entrade to Corey P. Schlossmann, in the principal
amount of $1,400,000. (2)
*10.22 Employment Agreement dated as of October 15, 1999
between Entrade and Corey P. Schlossmann. (2)
*10.23 Stock Option Agreement dated as of October 15, 1999
between Entrade Inc. and Corey P. Schlossmann. (2)
E-2
<PAGE>
10.24 Stock Restriction and Registration Rights Agreement
dated as of October 15, 1999 between Entrade Inc. and
the Sellers. (2)
*10.25 Employment Agreement dated November 11, 1999 between
Entrade and Mark P. Miller. (4)
*10.26 Employment Agreement dated November 11, 1999 between
Entrade and Carrie L. Shea. (4)
*10.27 Employment Agreement dated October 22, 1999 between
Entrade and Anthony E. Rothschild. (4)
10.28 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)
10.29 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)
10.30 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)
10.31 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)
10.32 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)
10.33 Subscription and Investment Registration Agreement
entered into by Stewart Greenebaum on December 23,
1999 and accepted by the Company on December 23,
1999. (3)
10.34 Subscription and Investment Registration Agreement
entered into by James Filler on December 30, 1999 and
accepted by the Company on December 30, 1999. (3)
10.35 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)
10.36 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)
10.37 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)
10.38 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)
E-3
<PAGE>
10.39 Subscription and Investment Registration Agreement
entered into by A.T. Kearney on January 28, 2000 and
accepted by the Company on January 28, 2000. (4)
10.40 Stock Purchase Agreement dated January 26, 2000 among
Entrade, Inc., Warren Rothstein, Thomas Settineri and
Gary Levi. (5)
10.41 Investment Agreement dated as of February 18, 2000
among entrade.com, Inc. and TradeTextile.com. (5)
10.42 Term Sheet dated as of February 10, 2000 between
Entrade and Associates Commercial Corporation. (5)
10.43 Operating Agreement Of Assetcontrol.Com, LLC made as
of March 9, 2000. (9)
10.44 Contribution Agreement dated as of March 9, 2000
between Entrade Inc. and AssetControl.com, LLC (9)
10.45 Non-Competition Agreement dated as of March 9, 2000
among AssetControl.com, LLC, Textron Financial
Corporation, Entrade Inc. and ATM Service, Ltd. (9)
10.46 Credit Agreement dated as of December 8, 1998 between
Asset Liquidation Group, Inc. and Imperial Bank. (9)
10.47 Modification And Amendment To Standard Industrial
Lease-Special Net dated September 1, 1990, as
modified on August 20, 1993 ("Amendment") entered
into effective as of the 15th day of October, 1999
("Effective Date"), between Guy Christensen and
Jeanne Christensen, husband and wife; Rudy Macias and
Tina Macias, husband and wife; and Don G. Haidl, an
unmarried man (hereinafter collectively referred to
as "Lessor" or "Landlord") and Asset Liquidation
Group, Inc. (hereinafter referred to as "Lessee" or
"Tenant"). (9)
10.48 Promissory Note Satisfaction Agreement dated as of
March 10, 2000, between Entrade Inc. and Don Haidl.
(9)
10.49 Promissory Note Satisfaction Agreement dated as of
March 10, 2000, between Entrade Inc. and Corey
Schlossmann. (9)
10.50 Registration Rights Agreement, dated as of March 24,
2000, among Entrade Inc. and the investors named
therein. (8)
10.51 Securities Purchase Agreement, dated as of March
24,2000, among Entrade Inc. and the investors listed
on the Schedule of Buyers attached thereto. (8)
21 Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP. (9)
23.2 Consent of KPMG LLP.
23.3 Consent of Ernst & Young LLP.
27 Financial Data Schedule
(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.
E-4
<PAGE>
(2) Incorporated by reference to the Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on October 28, 1999. (File No.
1-15303).
(3) Incorporated by reference to the Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on January 25, 2000. (File No.
1-15303).
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-96523) filed with the Securities and
Exchange Commission on February 10, 2000.
(5) Incorporated by reference to the Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on March 2, 2000. (File No 1-15303).
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333- 88039) filed with the Securities and
Exchange Commission on September 29, 1999.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333- 91409) filed with the Securities and
Exchange Commission on November 22, 1999.
(8) Incorporated by reference to the Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on March 29, 2000. (File No.
1-15303).
(9) Incorporated by reference to the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
(File No. 1-15303).
* Compensatory Plan or management contract.
E-5
EXHIBIT 4.9
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement") dated as of March 9, 2000 between ENTRADE
Inc., a Pennsylvania corporation (the "Company") and TEXTRON FINANCIAL
CORPORATION, a Delaware corporation ("Warrantholder").
A. On the date hereof, the Company has agreed to issue to Warrantholder
certain warrants to purchase from the Company shares of Common Stock, no par
value ("Common Stock.
B. The Company and the Warrantholder wish to set forth their respective
rights and obligations hereunder.
C. In consideration of the foregoing premises, the mutual covenants,
agreements, representations and warranties hereinafter set forth and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Unless otherwise defined herein, the following
terms used in this Agreement shall have the meanings specified below.
"Common Stock" means the Company's Common Stock, no par value per share.
"Fully Diluted Basis" means at any time (i) as applied to any calculation
of the number of securities of the Company after giving effect to (x) all shares
of Common Stock of the Company outstanding at the time of determination, (y) all
shares of the Company Common Stock issuable upon the exercise of any option,
warrant (including the Warrant) or similar right outstanding at the time of
determination and (z) all shares of Common Stock of the Company issuable upon
the exercise of any conversion or exchange right contained in any security
(other than Common Stock) convertible into or exchangeable for shares of Common
Stock of the Company and (ii) as applied to any calculation of value, after
giving effect to the foregoing securities and the payment of any consideration
payable upon the exercise of any option, warrant or similar right referred to in
clause (y) above if such option, warrant or similar right were exercisable at
such time.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or a subdivision thereof
or a governmental agency.
"Public Sale" means any sale of Common Stock to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 (or any successor
provision then in effect) adopted under the Securities Act.
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"Securities Act" means the Securities Act of 1933 or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
thereunder, all as the same shall be in effect at the time.
"Warrant" means the Warrant issued pursuant to this Agreement.
"Warrant Shares" means (i) any shares of the Common Stock or other
securities issued or issuable upon the exercise of any Warrant and (ii) any
securities issued with respect to any of such shares or other securities
referred to in clause (i) upon the conversion thereof into other securities or
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise; provided that any of such securities shall cease to be Warrant Shares
when such securities shall have (x) been disposed of pursuant to a Public Sale
or (y) ceased to be outstanding.
ARTICLE II
AUTHORIZATION AND ISSUANCE OF WARRANT
SECTION 2.1. Authorization of Warrant. The Company has authorized the
issuance to Warrantholder of its Warrant, containing the terms and conditions
and in the form attached hereto as Exhibit A (the "Warrant").
ARTICLE III
TRANSFER OF WARRANT AND WARRANT SHARES
SECTION 3.1. Legend on Certificates. Unless otherwise expressly provided
herein, the Warrant and each certificate for Warrant Shares and each certificate
issued in exchange for or upon transfer of any thereof shall be stamped or
otherwise imprinted with legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE LAWS. SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE
REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN COMPLIED
WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
(ACCEPTABLE TO THE COMPANY) THAT SUCH REGISTRATION IS NOT
REQUIRED.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 The Company represents and warrants to the Warrantholder as
follows:
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SECTION 4.1.1 Due Incorporation. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Pennsylvania and has all requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder.
SECTION 4.1.2. Authority and Enforceability. This Agreement
and all transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of the Company and this Agreement
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its terms except that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting or relating to enforcement of creditors' rights
generally.
SECTION 4.1.3. Financial Statements. The Company has
previously delivered to the Warrantholder audited statements of income, and
related balance sheets for the Company. These financial statements have been
prepared from the books and records of the Company and fairly present the
financial position of the Company.
SECTION 4.2 The Warrantholder represents and warrants to the Company as
follows:
SECTION 4.2.1. Due Incorporation. The Warrantholder is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder.
SECTION 4.2.2. Authority and Enforceability. This Agreement
and all transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of the Warrantholder and this
Agreement constitutes a legal, valid and binding obligation of the Warrantholder
enforceable in accordance with its terms except that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting or relating to enforcement of
creditors' rights generally.
SECTION 4.2.3. Investment Representations. The Warrantholder
represents, warrants and covenants that: (a) it (i) is an "Accredited Investor"
within the meaning of Rule 501(a) of the Securities Act, (ii) has such knowledge
and experience in financial and business matters that it is fully capable of
evaluating the merits and risks of an investment in the Warrant and Warrant
Shares, and (iii) can bear the economic risk of its investment in the Warrant
and Warrant Shares; (b) it is familiar with the business of and prospects for
the Company; (c) the Warrant is issued by the Company in a transaction not
involving any public offering within the meaning of Section 4(2) of the
Securities Act; (d) it is purchasing and acquiring the Warrant and Warrant
Shares issuable upon exercise of the Warrants for investment for its own
account, not for the account of any other person, and not with a view to the
resale or distribution thereof, in whole or in part, in violation of the
Securities Act or applicable state securities law; and (f) the representations,
warranties and covenants contained in this Section 4.2.3 shall survive the
execution and delivery of this Agreement and the acquisition of the Warrant and
Warrant Shares.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1. Notices. Notices and other communications provided for herein
shall be in writing and may be given by registered mail, return receipt
requested, courier, confirmed telex or facsimile transmission and shall, unless
otherwise expressly required, be deemed given when received or, if mailed, four
business days after being deposited in the United States mail with postage
prepaid and properly addressed. In the case of any Warrantholder, such notices
and communications shall be addressed to its address as shown on the books
maintained by the Company, unless it shall notify the Company that notices and
communications should be sent to a different address (or telex or facsimile
number), in which case such notices and communications shall be sent to the
address (or telex or facsimile number) so specified.
SECTION 5.2. Binding Nature of Agreement. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto or
their successors in interest, except as expressly otherwise provided herein.
SECTION 5.3. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
SECTION 5.4. Specific Performance. Without limiting the rights of each
party hereto to pursue all other legal and equitable rights available to such
party for the failure of any party to perform its obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
If a Person who has become obligated to sell Warrant Shares hereunder shall fail
to deliver such Warrant Shares in accordance with this Agreement, the Company
may, in addition to all other remedies it may have, send to that Person by
registered mail, return receipt requested, the purchase price for such Warrant
Shares provided for hereunder. Thereupon, the Company, upon written notice to
that Person, shall cancel on its books the certificate(s) representing the
Warrant Shares to be sold, and all of that Person's rights in and to such
Warrant Shares shall terminate. The effecting of such sale in such manner shall
not relieve that Person of any of its obligations hereunder, including any
obligation to execute and deliver any documents which the Company would
otherwise have been entitled to receive.
SECTION 5.5. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF PENNSYLVANIA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW.
SECTION 5.6. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
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SECTION 5.7. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 5.8. Entire Agreement. This Agreement, together with the Exhibits
attached hereto, is intended by the parties hereto as a final and complete
expression of their agreement and understanding in respect to the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 5.9. Amendment and Waiver. Any provision of this Agreement may be
amended if, but only if, such amendment is in writing and is signed by the
Company and Persons owning, or having warrants exercisable for, at least a
majority of shares of the same class as the Warrant Shares either then
outstanding or issuable upon the exercise of all outstanding warrants. Any
provision may be waived if, but only if, such waiver is in writing and is signed
by the party or parties waiving such provision and for whose benefit such
provision is intended.
SECTION 5.10.No Third Party Beneficiaries. Nothing in this Agreement shall
convey any rights upon any person or entity which is not a party or an assignee
of a party to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Warrant Agreement
as of the day and year first above written.
ENTRADE INC.
By: _________________________________
Name:
Title:
TEXTRON FINANCIAL CORPORATION
By: _________________________________
Name:
Title:
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THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN
COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
(REASONABLY ACCEPTABLE TO THE COMPANY) TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
WARRANT
To Purchase One Million (1,000,000) Shares of Common Stock
as provided herein
ENTRADE INC.
Dated: March 9, 2000
Expiring: March 9, 2005
Warrant No. _________
THIS IS TO CERTIFY THAT, for value received, upon meeting certain
conditions set forth below, textron financial corporation, a Delaware
corporation (the "Holder") is entitled to purchase from entrade inc., a Delaware
corporation (the "Company"), at any time or from time to time after the date
hereof, one million (1,000,000) shares of the Common Stock at a price per share
equal to $39.65 (the "Exercise Price"), all subject to adjustment and upon the
terms and conditions hereinafter provided.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANT
1.1. Vesting of Warrant Shares. The Warrant Shares shall vest as follows:
(i) 250,000 of the Warrant Shares shall vest immediately upon execution of this
Warrant; and (ii) the other 750,000 of the Warrant Shares shall vest as set
forth on Schedule 1.1 hereto; provided, however, that all Warrant Shares which
have not previously vested shall immediately vest upon the occurrence of a
Change of Control Event at any time after the date hereof. All Warrant Shares
which have vested pursuant to this Section 1.1 shall be considered to be "Vested
Warrant Shares" under this Warrant.
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1.2. Method of Exercise. This Warrant may be exercised at any time on or
prior to March 9, 2005; provided, however, that this Warrant shall terminate,
and shall no longer be exercisable, ninety (90) days after the date on which the
members of AssetControl.com, LLC have ceased to be engaged in business of the
marketing its end-to-end, business-to-business e-commerce asset disposition
services. Notwithstanding anything provided in this Section 1.2 or elsewhere in
this Warrant or the Warrant Agreement, the Holder may only exercise this Warrant
for Vested Warrant Shares. To exercise this Warrant in whole or in part, the
Holder shall deliver on any Business Day to the Company at its principal
offices: (a) this Warrant, (b) a written notice substantially in the form
attached hereto as Annex A of such Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Vested Warrant Shares to be
purchased (which shall be a whole number of shares divisible by 10,000 if for
less than all the shares then issuable hereunder), the denominations of the
share certificate or certificates desired and the name or names in which such
certificates are to be registered, and (c) payment of the aggregate Exercise
Price with respect to such shares. Such payment of the aggregate Exercise Price
may be made, at the option of the Holder, either by cash, check or wire
transfer, provided that such aggregate Exercise Price may be paid by any
combination of cash, check or wire transfer in immediately available funds to
the Company in an amount equal to the product of the Exercise Price multiplied
by the number of Warrant Shares being purchased with the proceeds of such cash,
check or wire transfer.
The Company shall, as promptly as practicable and in any event within five
Business Days after receipt of such notice and payment, execute and deliver or
cause to be executed and delivered, in accordance with such notice, a
certificate or certificates representing the aggregate number of Warrant Shares
specified in said notice. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
such Holder or any other Person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of shares, as of the
date the aforementioned notice and payment is received by the Company. If this
Warrant shall have been exercised only in part, the Company shall, at the time
of delivery of such certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, upon agreement between the parties, appropriate notation
may be made on this Warrant which shall then be returned to the Holder. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, issuance and delivery of share certificates and a new
Warrant, except that, if share certificates or a new Warrant shall be registered
in a name or names other than the name of the Holder, funds sufficient to pay
all transfer taxes payable as a result of such transfer shall be paid by the
Holder at the time of delivery of the aforementioned notice of exercise or
promptly upon receipt of a written request of the Company for payment.
1.3. Shares to be Fully Paid and Nonassessable. All Warrant Shares issued
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
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1.4. No Fractional Shares Required to be Issued. The Company shall not be
required to issue fractions of Warrant Shares upon exercise of this Warrant.
1.5. Reservation. The Company has duly reserved and will keep available for
issuance upon exercise of this Warrant the total number of Warrant Shares
deliverable from time to time upon exercise of this Warrant.
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANT
2.1. Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until due presentment of this Warrant for registration of
transfer as provided in this Article II.
2.2. Transfer of Warrant. The transfer of this Warrant is restricted by the
terms of the Warrant Agreement. The Company agrees to maintain at its principal
offices books for the registration of transfers of this Warrant, and transfer of
this Warrant and all rights hereunder shall be registered, in whole or in part,
on such books, upon surrender of this Warrant to the Company, together with a
written assignment of this Warrant duly executed by the Holder or its duly
authorized agent or attorney, with (if the Holder is a natural person)
signatures guaranteed by a bank or trust company or a broker or dealer
registered with the National Association of Securities Dealers, Inc., and funds
sufficient to pay any transfer taxes payable upon such transfer. Upon surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant in the name of the assignee or assignees and in the denominations
specified in the instrument of assignment (which shall be whole numbers of
shares only) and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled.
2.3. Division or Combination of Warrant. This Warrant may be divided or
combined with other similar warrants upon presentment hereof and of any Warrant
or warrants with which this Warrant is to be combined, together with a written
notice specifying the names and denominations (which shall be whole numbers of
shares only) in which the new Warrant or warrants are to be issued, signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys. Subject to compliance with Section 2.2 as to any transfer or
assignment which may be involved in the division or combination, the Company
shall execute and deliver a new Warrant or warrants in exchange for the Warrant
or warrants to be divided or combined in accordance with such notice.
2.4. Loss, Theft, Destruction of Warrant Certificates. Upon receipt of
evidence satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company will make and deliver to the Holder, in lieu of
such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor
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and representing the right to purchase the same aggregate number of shares of
Warrant Shares.
ARTICLE III
CERTAIN RIGHTS AND OBLIGATIONS
3.1. Rights and Obligations under the Warrant Agreement. This Warrant is
entitled to the benefits and subject to the terms of that certain Warrant
Agreement dated as of March 9, 2000 between the Company and the initial holder
of this Warrant (as amended from time to time, the "Warrant Agreement"). The
Company shall keep or cause to be kept a copy of the Warrant Agreement, and any
amendments thereto, at its principal offices and shall furnish, without charge,
copies thereof to the Holder upon request.
ARTICLE IV
REGISTRATION RIGHTS
4.1. Certain Definitions.
As used in this Warrant, the following terms shall have the following
respective meanings (and other capitalized terms shall have the meanings
ascribed to such terms elsewhere in this Warrant):
(a) "Commission" means the Securities and Exchange Commission.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute thereto, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
(c) "Holders" means the Holder referred to in the first paragraph of this
Warrant and any other person holding Registrable Securities to whom these
registration rights have been assigned..
(d) "Registrable Securities" means (i) the Common Stock held by any
Holder issued or issuable pursuant to the exercise of this Warrant; (ii) any
Common Stock or other securities issued or issuable pursuant to the exercise of,
or with respect to, this Warrant held by any Holder upon any stock split, stock
dividend, recapitalization, or similar event; and (iii) securities issued in
replacement or exchange of any of the securities issued in clauses (i) or (ii)
above.
(e) "Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing, listing and National Association of Securities
Dealers, Inc. ("NASD") fees, all fees and expenses of complying with securities
or blue sky laws, all word processing, duplicating and printing expenses, all
messenger and delivery expenses, any transfer taxes, the fees and expenses of
the Company's legal counsel and independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, reasonable fees and disbursements of one
counsel for all of the Holders acceptable to the Company in its reasonable
discretion, and any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities; provided, however, that Registration Expenses
shall not include underwriting discounts and commissions.
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(f) "Securities Act" means the Securities Act of 1933, as amended, or any
successor statute thereto, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
4.2. Registration.
(a) Requested Registration. At any time on or after September 1, 2000, if
the Registrable Securities have not already been registered under the Securities
Act, upon written request by the Holders of at least 51% of the Registrable
Securities outstanding at the time of the request to the Company, that the
Company effect the registration under the Securities Act of all or part of the
Registrable Securities (a "Requested Registration"), the Company will use its
best efforts to effect the registration under the Securities Act of the
Registrable Securities which the Company has been so requested to register by
the Holders within sixty (60) days after receipt of such request; provided,
however, that the Company shall not be required to effect the registration of
less than 25% of the Vested Warrant Shares. the Company shall not be obligated
to effect more than one Requested Registration hereunder. The Company may
include in such Requested Registration other securities of the Company for sale,
for the Company's account or for the account of any other person, if and to the
extent that the managing underwriter determines that the inclusion of such
additional shares will not interfere with the orderly sale of the underwritten
securities at a price range acceptable to the requesting Holders. Upon receipt
of a written request pursuant to this subdivision (a) the Company shall promptly
give written notice of such request to all Holders, and all Holders shall be
afforded the opportunity to participate in such request. The Company will be
obligated to include in the Requested Registration such number of Registrable
Securities of any Holder joining in such request as are specified in a written
request by the Holder received by the Company within 20 days after receipt of
such written notice from the Company. Notwithstanding the foregoing, the Company
shall have no obligation to file a Requested Registration if at such time the
Holders are eligible to sell the Registrable Securities pursuant to Rule 144
under the Securities Act without volume limitation.
(b) Incidental Registration. If the Company for itself or any of its
security holders shall at any time or times after the date hereof determine to
register under the Securities Act any shares of its capital stock or other
securities (other than: (i) the registration of an offer, sale or other
disposition of securities solely to employees of, or other persons providing
services to, the Company, or any subsidiary pursuant to an employee or similar
benefit plan; or (ii) relating to a merger, acquisition or other transaction of
the type described in Rule 145 under the Securities Act or a comparable or
successor rule, registered on Form S-4 or similar or successor forms), on each
such occasion the Company will notify each Holder of such determination at least
thirty (30) days prior to the filing of such registration statement, and upon
the request of any Holder given in writing within ten (10) days after the
receipt of such notice, the Company will use its best efforts as soon as
practicable thereafter to cause any of the Registrable Securities specified by
any such Holder to be included in such registration statement to the extent such
registration is permissible under the Securities Act and subject to the
conditions of the Securities Act (an "Incidental Registration").
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(c) Registration Statement Form. The Company shall, if permitted by law,
effect any registration requested under Section 4.2 by the filing of a
registration statement on Commission Form S-3 and shall use its best efforts to
become eligible for, and thereafter to maintain its eligibility to utilize,
Commission Form S-3 to permit resales as requested by the Holders with respect
to Transactions Involving Secondary Offerings as described in General
Instruction I.B.3 of Commission Form S-3.
(d) Expenses. The Company shall pay all Registration Expenses incurred
in connection with any Incidental Registration and any Requested Registrations.
(e) Effective Registration Statement. A Requested Registration or an
Incidental Registration requested pursuant to Section 4.2(a) or Section 4.2(b),
respectively, shall not be deemed to have been effected unless it has become
effective with the Commission. Notwithstanding the foregoing, a registration
statement will not be deemed to have been effected if: (i) after it has become
effective with the Commission, such registration is interfered with by any stop
order, injunction, or other order or requirement of the Commission or other
governmental agency or any court proceeding for any reason other than a
misrepresentation or omission by any Holder; or (ii) the conditions to closing
specified in the underwriting agreement entered into in connection with such
registration are not satisfied in any material respect, other than solely by
reason of some act or omission by any Holder.
(f) Priority in Incidental Registration. If an Incidental Registration is
an underwritten registration initiated by the Company, and the managing
underwriters shall give written advice to the Company that, in their opinion,
market conditions dictate that no more than a specified maximum number of
securities (the "Underwriter's Maximum Number") could successfully be included
in such Incidental Registration, then: (i) the Company shall be entitled to
include in such registration that number of securities which the Company
proposes to offer and sell for its own account in such registration and which
does not exceed the Underwriter's Maximum Number; and (ii) the Company will be
obligated and required to include in such registration that number of shares of
Registrable Securities which shall have been requested by the Holders pro rata
with any other holder requesting to include securities in such Incidental
Registration.
If less than all of the Registrable Securities requested to be included
in any such registration by the Holders can be so included due to these priority
requirements, then each requesting Holder's request shall be granted on a pro
rata basis with the other requesting Holders.
(g) Notwithstanding anything in paragraphs (a) and (b) of this Section
4.2, the Company shall have the right to delay any registration of Registrable
Securities requested pursuant to paragraph (a) or (b) of this Section 4.2 for up
to ninety (90) days if such registration would, in the judgment of the Company's
Board of Directors, substantially interfere with any material transaction being
considered at the time of receipt of the request from the Holders.
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4.3. Registration Procedures.
(a) If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 4.2, the Company, as expeditiously as possible and
subject to the terms and conditions of Section 4.2, will:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and use its best efforts to
cause such registration to become and remain effective;
(ii) permit any Holder which, in the reasonable judgment of the
Holder, might be deemed to be an underwriter or a controlling person of the
Company, to participate in the preparation of such registration statement and to
require the insertion therein of material relating to such Holder, furnished to
the Company in writing, which in the reasonable judgment of such Holder and its
counsel should be included;
(iii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until the
earlier of such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or the expiration of 90 days
after such registration statement becomes effective;
(iv) furnish to the Holders such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as the purchaser or any Holder of Registrable
Securities to be sold under such registration statement may reasonably request;
(v) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other United States
state securities or blue sky laws of such jurisdictions as any Holder of
Registrable Securities to be sold under registration statement shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration remains in effect, and take any other action which may be
reasonably necessary or advisable to enable the Holder of Registrable Securities
to be sold under such registration statement to consummate the disposition in
such jurisdictions of the securities owned by such Holder, except that the
Company shall not for any such purpose be required to (a) qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this subdivision (v) be obligated to be so
qualified, or (b) subject itself to taxation in any such jurisdiction.
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(vi) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other United States state governmental agencies or authorities as may be
necessary to enable the Holder of Registrable Securities to be sold under such
registration statement to consummate the intended disposition of such
Registrable Securities;
(vii) in the event of the issuance of any stop order suspending
the effectiveness of the registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such registration statement for sale in
any jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(viii) use it best efforts to furnish to the Holders of
Registrable Securities to be sold under such registration statement (1) an
opinion, dated the effective date of the registration statement, of the
independent counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the Holders making
such request, in such form as may be reasonably satisfactory to the Holders and
their counsel; and (2) a letter, dated the effective date of the registration
statement, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the Holders making such request,
stating that they are independent certified public accountants within the
meaning of the Securities Act and that in the opinion of such accountants, the
financial statements and other financial data of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act.
Such opinion of counsel shall cover such legal matters with
respect to the registration in respect of which such opinion is being given as
the Holders may reasonably request. Such letter from the independent certified
public accountants shall additionally cover such other financial matters with
respect to the registration in respect of which such letter is being given as
the Holders may reasonably request.
(ix) promptly notify the Holders of Registrable Securities
included in such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and at the request of the Holders promptly prepare
and furnish to the Holders a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
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(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to the Holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
full calendar month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder, and not file any amendment or supplement
to such registration statement or prospectus to which any Holder shall have
reasonably objected in writing on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the Securities
Act or of the rules or regulations thereunder, having been furnished with a copy
thereof at least two business days prior to the filing thereof;
(xi) provide a transfer agent for all Registrable Securities
covered by such registration statement not later than the effective date of such
registration statement; and
(xii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which any
of the Registrable Securities are then listed.
(b) The Company may require each Holder of Registrable Securities to be
sold under such registration statement, at the Company's expense, to furnish the
Company with such information and undertakings as it may reasonably request
regarding such Holder and the distribution of such securities as the Company may
from time to time reasonably request in writing.
(c) Each Holder, by execution of this Agreement, agrees (A) that upon
receipt of any notice of the Company of the happening of any event of the kind
described in subdivision (a)(ix) of this Section 4.3, such Holder will forthwith
discontinue its disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until the receipt
by such Holder of the copies of the supplemented or amended prospectus
contemplated by subdivision (a)(ix) of this Section 4.3 and, if so directed by
the Company, will deliver to the Company all copies other than permanent file
copies, then in possession of the Holders of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice and (B)
that it will immediately notify the Company, at any time when a prospectus
relating to the registration of such Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which information previously furnished by such Holder to the Company for
inclusion in such prospectus contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made. In the event the Company or any such Holder shall
give any such notice, the period referred to in subdivision (a)(iii) of this
Section 4.3 shall be extended by a number of days equal to the number of days
during the period from and including the giving of notice pursuant to
subdivision (a)(ix) of this Section 4.3 to and including the date when such
Holder shall have received the copies of the supplemented or amended prospectus
contemplated by subdivision (a)(ix) of this Section 4.3.
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4.4. Underwritten Offerings.
(a) Underwritten Offering. In connection with any underwritten offering
pursuant to a registration requested under Section 4.2(a), the Company will
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be in form and substance reasonably satisfactory to the
Holders owning at least 51% of the Registrable Securities to be registered
pursuant to such registration and such Holders' underwriters in their reasonable
judgment and to contain such representations and warranties by the Company and
such other terms as are customarily contained in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 4.6. Each such Holder shall be a party to such underwriting
agreement and may, at its or their option, require that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of each such
Holder. No Holder requesting such registration shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Holder, its indemnification obligations with respect to such registration, its
intended method of distribution and any other representation required by law.
(b) Selection of Underwriters. If a Requested Registration pursuant to
Section 4.2(a) involves an underwritten offering, then the Holders of a majority
of the Registrable Securities to be included in such registration shall select
the underwriter subject to the approval of the Company (which approval shall not
be withheld or delayed unreasonably).
(c) Holdback Agreements. Each Holder agrees not to effect any public sale
or distribution of Registrable Securities or sales of such Registrable
Securities pursuant to Rule 144 or Rule 144A under the Securities Act, during
the seven (7) days prior to and the 180 days after any firm commitment
underwritten registration has become effective (except as part of such
underwritten registration) or, if the managing underwriter advises the Company
that, in its opinion, no such public sale or distribution should be effected for
a period of not more than 180 days after such underwritten registration in order
to complete the sale and distribution of securities included in such
registration and the Company gives notice to such effect to such Holders of such
advice, each Holder shall not effect any public sale or distribution of
Registrable Securities or sales of such Registrable Securities pursuant to Rule
144 or Rule 144A under the Securities Act during such period after such
underwritten registration, except as part of such underwritten registration,
whether or not such Holder participates in such registration.
4.5. Preparation, Reasonable Investigation.
In connection with the preparation and filing of each registration
statement under the Securities Act, the Company will give the Holders of
Registrable Securities to be sold under such registration statement, the
underwriters, if any, and their respective counsel and accountants, drafts and
final copies of such registration statement, each prospectus included therein or
filed with the Commission and each amendment thereof or supplement thereto, at
least 5 business days prior to the filing thereof with the Commission, and will
give each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such Holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
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4.6. Indemnification and Contribution.
(a) Indemnification by the Company. In the event of any registration
under the Securities Act pursuant to Section 4.2 of any Registrable Securities
covered by such registration, the Company will, and hereby does, indemnify and
hold harmless each Holder of Registrable Securities to be sold under such
registration statement, each such Holder's legal counsel, each other person who
participates as an underwriter in the offering or sale of such securities (if so
required by such underwriter as a condition to including the Registrable
Securities of the Holders in such registration) and each other person, if any,
who controls any such Holder or any such underwriter within the meaning of the
Securities Act (collectively, the "Holder Indemnified Parties"), against any
losses, claims, damages or liabilities, joint or several, to which the Holders
or underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein or any document
incorporated therein by reference, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arise out of any violation by the Company of any rule or regulation promulgated
under the Securities Act or state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, and the Company will reimburse the Holder Indemnified Parties
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable to any
Holder Indemnified Party in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Holder Indemnified Party.
(b) Indemnification by the Holders. The Company may require, as a
condition to including any Registrable Securities of any person or entity in any
registration statement filed pursuant to Section 4.2, that the Company shall
have received an undertaking reasonably satisfactory to it from such person or
entity to indemnify and hold harmless (in the same manner and to the same extent
as set forth in subdivision (a) of this Section 4.6) the Company, each director
of the Company, each officer of the Company and each other person, if any, who
controls the Company within the meaning of the Securities Act (the "Company
Indemnified Parties"), with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if, and only if, such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the Company directly by such
person or entity specifically for use therein; provided, however, that the
obligation of any Holder hereunder shall be limited to an amount equal to the
proceeds received by such Holder upon the sale of Registrable Securities sold in
the offering covered by such registration.
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(c) Notices of Claims, etc. Promptly after receipt by a Holder
Indemnified Party or a Company Indemnified Party (collectively, the "Indemnified
Parties") of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 4.6, such
Indemnified Party will, if a claim in respect thereof is to be made against a
party required to provide indemnification (an "Indemnifying Party"), give
written notice to the latter of the commencement of such action, provided,
however, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligation under the
preceding subdivisions of this Section 4.6, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice. In
case any such action is brought against an Indemnified Party, unless in such
Indemnified Party's reasonable judgment a conflict of interest between such
Indemnified and Indemnifying Parties may exist in respect of such claim, the
Indemnifying Party shall be entitled to participate in and to assume the defense
thereof, jointly with any other Indemnifying Party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No Indemnifying
Party shall consent to entry of any judgment or enter into any settlement
without the consent of the Indemnified Party which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 4.6 (with appropriate modifications)
shall be given by the Company and each Holder of Registrable Securities included
in any registration statement with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act.
(e) Indemnification Payment. The indemnification required by this Section
4.6 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(f) Survival of Obligations. The obligations of the Company and of the
Holders under this Section 4.6 shall survive the completion of any offering of
Registrable Securities under this Agreement.
(g) Contribution. If the indemnification provided for in this Section 4.6
is unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
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referred to in this Section 4.6 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or parties on the one hand or the
Indemnified Party on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid to an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this Section 4.6(g) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any action or claim which is the subject of this Section 4.6. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
4.7. Covenants Relating to Rule 144.
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration after such time as
a public market exists for the Common Stock of the Company, the Company agrees:
(a) to make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(b) to use its best efforts to then file with the Commission in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act, as amended (at any time after it has
become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements) a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
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4.8. Other Registration Rights.
Except for stock currently being registered pursuant to a Form S-1,
the Company represents and warrants that it has not granted any registration
rights to any Person which are more favorable than or inconsistent with any of
those contained herein. The Company shall not grant to any Person any
registration rights more favorable than or inconsistent with any of those
contained herein, so long as any of the registration rights under this Agreement
remain in effect.
ARTICLE V
ANTIDILUTION PROVISIONS
5.1. Adjustment Generally. The Exercise Price and the number of Warrant
Shares (or other securities or property) issuable upon exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events as provided in this Article V; provided that notwithstanding anything to
the contrary contained herein, the Exercise Price shall not be less than the par
value of the Warrant Shares.
5.2. Common Stock Reorganization. If after the original issuance date of
this Warrant the Company shall subdivide its outstanding shares of Common Stock
(or any class thereof) into a greater number of shares or consolidate its
outstanding shares of Common Stock (or any class thereof) into a smaller number
of shares or declare a stock dividend on its Common Shares (any such event being
called a "Common Stock Reorganization"), then (a) the Exercise Price shall be
adjusted, effective immediately after the effective date of such Common Stock
Reorganization, to a price determined by multiplying the Exercise Price in
effect immediately prior to such effective date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding (on a Fully
Diluted Basis) on such effective date before giving effect to such Common Stock
Reorganization, and the denominator of which shall be the number of shares of
Common Stock outstanding (on a Fully Diluted Basis) after giving effect to such
Common Stock Reorganization, and (b) the number of Warrant Shares subject to
purchase upon exercise of this Warrant shall be adjusted, effective at such
time, to a number determined by multiplying the number of Warrant Shares subject
to purchase immediately before such Common Stock Reorganization by a fraction
the numerator of which shall be the number of shares of Common Stock outstanding
(on a Fully Diluted Basis) after giving effect to such Common Stock
Reorganization, and the denominator of which shall be the number of shares of
Common Stock outstanding (on a Fully Diluted Basis) immediately before such
Common Stock Reorganization.
5.3. Capital Reorganizations. If there shall be any consolidation or merger
to which the Company is a party, other than a consolidation or a merger in which
the Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a Common Stock Reorganization) in,
outstanding shares of the same class as the Warrant Shares, or any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety, or any recapitalization of the Company (any such event being called a
"Capital Reorganization"), then, effective upon the effective date of such
Capital Reorganization, the Holder shall no longer have the right to purchase
the Warrant Shares, but shall have instead the right to purchase, upon exercise
of this Warrant, the kind and amount of shares of stock and other securities and
property (including cash) which the Holder would have owned or have been
entitled to receive pursuant to such Capital Reorganization if this Warrant had
been exercised immediately prior to the effective date of such Capital
Reorganization. As a condition to effecting any Capital Reorganization, the
Company or the successor or surviving corporation, as the case may be, shall
execute and deliver to each Warrantholder and to the Company an agreement as to
the Warrantholder's rights in accordance with this Section 5.3, providing, to
the extent of any right to purchase equity securities hereunder, for subsequent
adjustments as nearly equivalent as may be practicable to the adjustments
provided for in this Article V. The provisions of this Section 5.3 shall
similarly apply to successive Capital Reorganizations.
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5.4. Adjustment Rules. Any adjustments pursuant to this Article V shall be
made successively whenever an event referred to herein shall occur, except that
notwithstanding any other provision of this Article V, no adjustment shall be
made to the number of Warrant Shares to be delivered to each Holder (or to the
Exercise Price) if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to 1% or more of the number of shares to be so delivered. No
adjustment shall be made pursuant to this Article V in respect of the issuance
from time to time of Warrant Shares upon the exercise of any of this Warrant. If
the Company shall take a record of the holders of its shares of the same class
as the Warrant Shares for any purpose referred to in this Article V, then such
record date shall be deemed to be the date of the issuance, sale, distribution
or grant in question unless the Company shall legally abandon such action prior
to effecting such action, in which case no adjustment shall be made pursuant to
this Article V in respect of such action.
5.5. Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require an adjustment pursuant
to this Article V, the Company shall use its best efforts to take any action
which may be necessary, including obtaining regulatory approvals or exemptions,
in order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all Warrant Shares which the Holder is entitled to receive
upon exercise thereof.
5.6. Notice of Adjustment. Not less than 10 nor more than 30 days prior to
the record date or effective date, as the case may be, of any action which will
require an adjustment or readjustment pursuant to this Article V, the Company
shall give notice to each Warrantholder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give notice to each Warrantholder of such adjustment
and computation promptly after such adjustment becomes determinable.
ARTICLE VI
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
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"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in New York are authorized by law or other
governmental action to be closed, unless there shall have been an offering of
Common Stock registered under the Securities Act, in which case "Business Day"
means (a) if Common Stock is listed or admitted to trading on a national
securities exchange, a day on which the principal national securities exchange
on which the Common Stock is listed or admitted to trading is open for business
or (b) if Common Stock is not so listed or admitted to trading, a day on which
the New York Stock Exchange is open for business.
"Capital Reorganization" has the meaning set forth in Section 5.3.
"Change of Control Event" means the occurrence of any of the following: (i)
the acquisition of voting securities of the Company by any person or group of
persons that results in such person or group, together with its affiliates,
becoming, directly or indirectly, the beneficial owner of in excess of 50% of
the outstanding voting securities of the Company; (ii) a merger or consolidation
of the Company with any other corporation or legal entity regardless of which
entity is the survivor, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being converted into
voting securities of the surviving entity) in excess of 50% of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or (iii) the sale or disposition of all or
substantially all of the Company's assets other than in a transaction in which
holders of the voting securities of the Company immediately prior to such
transaction receive voting securities of the acquiror of such assets or its
affiliate that represent in excess of 50% of the voting securities of such
entity after consummation of such transaction.
"Common Stock" means the Company's Common Stock, no par value per share.
"Common Stock Reorganization" has the meaning set forth in Section 5.2.
"Company" has the meaning set forth in the first paragraph of this Warrant.
"Exercise Price" means the applicable exercise price set forth in the first
paragraph of this Warrant.
"Fully Diluted Basis" means at any time: (i) as applied to any calculation
of the number of securities of the Company after giving effect to (x) all shares
of Company Common Stock outstanding at the time of determination, whether or not
vested, (y) all shares of the Company Common Stock issuable upon the exercise of
any option, warrant (including the Warrant) or similar right outstanding at the
time of determination, whether or not vested, and (z) all shares of Common Stock
of the Company issuable upon the exercise of any conversion or exchange right
contained in any security (other than Common Stock) convertible into or
exchangeable for shares of Common Stock of the Company and (ii) as applied to
any calculation of value, after giving effect to the foregoing securities and
the payment of any consideration payable upon the exercise of any option,
warrant or similar right referred to in clause (y) above if such option, warrant
or similar right were exercisable at such time.
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"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Vested Warrant Shares" has the meaning set forth in Section 1.1.
"Warrant Agreement" has the meaning set forth in Section 3.1.
"Warrant" means this Warrant.
"Warrantholder" means a holder of a Warrant.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrant.
ARTICLE VII
MISCELLANEOUS
7.1. Notices. Notices and other communications provided for herein shall be
in writing and may be given by mail, courier, confirmed telex or facsimile
transmission and shall, unless otherwise expressly required, be deemed given
when received or, if mailed, four Business Days after being deposited in the
United States mail with postage prepaid and properly addressed. In the case of
the Holder, such notices and communications shall be addressed to its address as
shown on the books maintained by the Company unless the Holder shall notify the
Company that notices and communications should be sent to a different address
(or telex or facsimile number), in which case such notices and communications
shall be sent to the address (or telex or facsimile number) specified by the
Holder.
7.2. Waivers; Amendments. No failure or delay of the Holder in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No notice
or demand on the Company in any case shall entitle the Company to any other or
future notice or demand in similar or other circumstances. The rights and
remedies of the Holder are cumulative and not exclusive of any rights or
remedies which it would otherwise have. The provisions of this Warrant may be
amended, modified or waived with (and only with) the written consent of the
Company and the holder of this Warrant. The provisions of the Warrant Agreement
may be amended, modified or waived only in accordance with the respective
provisions thereof. Any such amendment, modification or waiver effected pursuant
to and in accordance with the provisions of this Section or the applicable
provisions of the Warrant Agreement shall be binding upon the holders of the
Warrant and Warrant Shares, upon each future holder thereof and upon the
Company. In the event of any such amendment, modification or waiver the Company
shall give prompt notice thereof to all holders of the Warrant and Warrant
Shares and, if appropriate, notation thereof shall be made on the Warrant
thereafter surrendered for registration of transfer or exchange.
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7.3. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF PENNSYLVANIA (WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW).
7.4. Covenants to Bind Successor and Assigns. The provisions of this
Warrant shall be binding upon and inure to the benefit of the Holder hereof and
its permitted successors and assigns. All covenants, stipulations, promises and
agreements in this Warrant contained by or on behalf of the Company or the
Holder shall bind its successors and assigns, whether so expressed or not.
24
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
its corporate name by one of its officers thereunto duly authorized as of the
day and year first above written.
ENTRADE INC.
By: _________________________________________
Title:
<PAGE>
Schedule 1.1
The Warrant Shares shall vest as follows:
250,000 Shares Upon the date of this Warrant
187,500Shares When "Gross Asset Disposition Value"
(as defined below) reaches $6.25
million; provided, however, that if the
Gross Asset Disposition Value has not
reached $6.25 million on or prior to
March 9, 2003, such shares shall not
vest and shall be forfeited by the
Holder.
187,500 Shares When Gross Asset Disposition Value
reaches $12.5 million; provided,
however, that if the Gross Asset
Disposition Value has not reached $12.5
million on or prior to March 9, 2003,
such shares shall not vest and shall be
forfeited by the Holder.
187,500 Shares When Gross Asset Disposition Value
reaches $18.75 million; provided,
however, that if the Gross Asset
Disposition Value has not reached
$18.75 million on or prior to March 9,
2003, such shares shall not vest and
shall be forfeited by the Holder.
187,500 Shares When Gross Asset Disposition Value
reaches $25 million; provided, however,
that if the Gross Asset Disposition
Value has not reached $25 million on or
prior to March 9, 2003, such shares
shall not vest and shall be forfeited
by the Holder.
For purposes of this warrant, the term "Gross Asset Disposition Value" means the
cumulative sum of the gross sales price (actual or imputed) invoiced or sourced
(including inventory or other asset sales facilitated through the application of
AssetControl.com's software) by AssetControl.com, LLC or any AssetControl.com
fulfillment partner. For convenience, Gross Asset Disposition Value shall be
measured monthly.
<PAGE>
ANNEX A FORM OF NOTICE OF
EXERCISE
To: Entrade Inc.
Date: ___________________
Reference is made to the Warrant to Purchase Shares of Common Stock of Entrade
Inc. (Warrant No.[]) dated March 9 2000, registered in the name of the
undersigned (the "Warrant"). Terms defined therein are used herein as therein
defined.
The undersigned, pursuant to the provisions set forth in the Warrant, hereby
represents that he, she or it is the registered Holder of the Warrant, and
hereby irrevocably elects and agrees to purchase ________ shares (such sum being
an integral multiple of 10,000) of Common Stock and herewith makes payment in
full for such shares at the Exercise Price of $__________ per share in the form
set forth below. The undersigned requests that a certificate for such shares be
registered in the name of the undersigned or his, her or its nominee set forth
below, and further that such certificate be delivered to the undersigned at the
address set forth below or to such other person as is set forth below.
If said number of shares is less than all of the shares purchasable hereunder,
the undersigned hereby requests that a new Warrant certificate representing the
remaining balance of the shares be registered in the name of the undersigned or
his, her or its nominee set forth below, and further that such certificate be
delivered to the address set forth below.
The undersigned represents and warrants that the undersigned is acquiring the
shares of Common Stock by such exercise for investment only and not with any
intent to sell, distribute or dispose of the same and the undersigned agrees not
to sell, distribute, encumber or dispose of the Common Stock, except (i)
pursuant to a registration statement filed and rendered effective with respect
to the Common Stock or (ii) pursuant to an opinion of counsel acceptable to the
Company or other evidence satisfactory to the Company that such action may be
taken without compliance with federal or state registration requirements, which
opinion or other evidence shall be obtained at the cost of the Holder.
Certificate for shares of Common Stock
to be registered and delivered as follows:
Name: _______________________________
Address: ____________________________
____________________________
Social Security or Tax I.D. No. ______________
Signature
Name:____________________________
Print or Type
EXHIBIT 10.43
OPERATING AGREEMENT
OF
ASSETCONTROL.COM, LLC
THIS OPERATING AGREEMENT (this "Agreement") is made as of March 9, 2000
by the Members listed on Schedule A attached hereto, as such schedule may be
amended from time to time. The Members listed on Schedule A may be referred to
herein individually as a "Member," and collectively as the "Members."
WHEREAS, the Members have formed a limited liability company pursuant
to the laws of the State of Delaware; and
WHEREAS, the Members desire to set forth their respective rights and
obligations as Members of the Company and to provide for the management of the
Company and its affairs and for the conduct of the business of the Company.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Act" means the Delaware Limited Liability Company Act and any
successor statute, as amended from time to time.
1.2 "Affiliate" means with respect to any Person, any other Person that
directly or indirectly is controlled by, such Person and, if such Person is an
individual, any member of the immediate family (including parents, spouse,
children and siblings) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control", including, its correlative meanings, "controlled by" and
"under common control with", shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
1.3 "Agreement" means this Operating Agreement of the Company as
originally adopted and as amended from time to time in accordance with the terms
of this Agreement.
1.4 "ATM" means ATM Service, Ltd., a New York corporation.
1.5 "ATM Contribution Agreement" means the Contribution Agreement dated
as of March 9, 2000 by and between the Company and ATM.
1.6 "Buyer" shall have the meaning for such term set forth in Section
7.4(a).
1.7 "Business Day" means any day other than a Saturday, a Sunday, or a
holiday on which national banking associations are closed in the State of
Delaware.
1.8 "Capital Account" shall have the meaning given to such term in
Section 5.4.
1.9 "Capital Contribution" means the contributions to the capital of
the Company made by a Member pursuant to the Contribution Agreement between the
company and such Member.
<PAGE>
1.10 "Certificate of Formation" means the Certificate of Formation of
the Company as originally filed with the Secretary of State of the State
Delaware on March 9, 2000, and as amended from time to time.
1.11 "Code" means the Internal Revenue Code of 1986, as amended, and
the Treasury Regulations promulgated thereunder.
1.12 "Company" means AssetControl.com LLC, a Delaware limited liability
company.
1.13 "Company Assets" means all assets, whether tangible or intangible
and whether real, personal or mixed, at any time owned by the Company.
1.14 "Distributable Cash" means the amount of money and the fair market
value of any property of the Company available for distribution to the Members
as determined by the Board of Managers (taking into account any reasonable
reserves necessary to fund the Company's business).
1.15 "Drag-Along Notice" shall have the meaning for such term set forth
in Section 7.3(b).
1.16 "Entrade" means Entrade Inc., a Pennsylvania corporation.
1.17 "Entrade Contribution Agreement" means the Contribution Agreement
dated March 9, 2000 by and between the Company and Entrade.
1.18 "Fiscal Year" means the Company's fiscal year, which shall be the
calendar year.
1.19 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as adjusted by the
following:
(i) the initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
determined by the contributing Member and the Board of Managers;
(ii) the Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Board of Managers, as of the following times: (a) the acquisition of
additional Units by any new or existing Member in exchange for more than a de
minimus Capital Contribution or (b) upon liquidation of the Company, or (c) upon
the distribution by the Company of more than a de minimus amount of money or
other Company property to a retiring or continuing Member as consideration for
Units; and
(iii) if the Gross Asset Value of an asset has been determined
or adjusted pursuant to clause (i) or (ii) above, such Gross Asset Value shall
thereafter be adjusted by the depreciation, amortization or other cost recovery
deductions pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
1.20 "Manager" means any Person hereafter appointed to act as a manager
of the Company as provided in this Agreement (each in the capacity as a manager
of the Company), but does not include any Person who has ceased to be a manager
of the Company. Collectively, all Persons appointed to be Managers of the
Company may be referred to herein as the "Board" or the "Board of Managers".
1.21 "Majority in Interest" means a combination of any Members who, in
the aggregate, own 50% or more of the outstanding Units.
1.22 "Member" means any Person executing this Agreement as of the date
of this Agreement as a member of the Company or any Person hereafter admitted to
the Company as a member as provided in this Agreement (each in the capacity as a
member of the Company), but does not include any Person who has ceased to be a
member of the Company. The names of the Members shall be listed on Schedule A
attached hereto, as such schedule may be amended from time to time.
<PAGE>
1.23 "Non-Selling Members" shall have the meaning for such term set
forth in Section 7.4(a).
1.24 "Notice" shall have the meaning for such term set forth in Section
7.4(a).
1.25 "Offer" shall have the meaning for such term set forth in Section
7.4(a).
1.26 "Offered Interest" shall have the meaning for such term set forth
in Section 7.4(a).
1.27 "Person" means and includes any individual, partnership, limited
liability company, trust, estate, corporation, custodian, trustee, executor,
administrator, nominee or entity in a representative capacity.
1.28 "Profit" and "Loss" means, for each taxable year of the Company
(or other period for which Profit or Loss must be computed) the Company's
taxable income or loss determined in accordance with Code Section 703(a), with
the following adjustments:
(i) all items of income, gain, loss, deduction, or credit
required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in computing taxable income or loss;
(ii) any tax-exempt income of the Company, not otherwise taken
into account in computing Profit or Loss, shall be included in computing taxable
income or loss;
(iii) any non-deductible expenditures of the Company described
in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit
or Loss, shall be subtracted from taxable income or loss;
(iv) gain or loss resulting from any taxable disposition of
Company property shall be computed by reference to the adjusted book value of
the property disposed of, notwithstanding the fact that the adjusted book value
differs from the adjusted basis of the property for federal income tax purposes;
(v) in lieu of the depreciation, amortization, or cost
recovery deductions allowable in computing taxable income or loss, there shall
be taken into account the depreciation computed based upon the adjusted book
value of the asset;
1.29 "Right of First Refusal" shall have the meaning for such term set
forth in Section 7.4(b).
1.30 "Right of Second Refusal" shall have the meaning for such term set
forth in Section 7.4(c).
1.31 "Safeguard" means Safeguard Scientifics, Inc., a Delaware
corporation.
1.32 "Safeguard Contribution Agreement" means the Contribution
Agreement dated March 9, 2000 by and between the Company and Safeguard.
1.33 "Selling Member" shall have the meaning for such term set forth in
Section 7.4(a).
1.34 "Tag-Along Notice" shall have the meaning for such term set forth
in Section 7.3(d).
1.35 "Textron" means Textron Inc., a Delaware corporation.
1.36 "TFC" means Textron Financial Corporation, a Delaware corporation.
1.37 "TFC Contribution Agreement" means the Contribution Agreement
dated March 9, 2000 by and between the Company and TFC.
1.38 "Transfer" means any sale, assignment, transfer, exchange,
mortgage, pledge, grant of a security interest, or other disposition or
encumbrance (including, without limitation, by operation of law), or the acts
thereof.
1.39 "Unit" means a unit of interest of a Member in the Company at any
particular time, including without limitation, rights to distributions
(liquidating or otherwise), allocations, information, and to vote, consent or
approve, if any.
<PAGE>
ARTICLE II
Organization
2.1 Name and Formation. The name of the Company shall be
AssetControl.com, LLC and all Company business shall be conducted in such name
or such other names that comply with applicable law as the Board of Managers may
select from time to time. The Company was formed on March 8, 2000 pursuant to
the Act.
2.2 Principal Place of Business. The principal office of the Company
shall initially be 40 Westminster Street, Providence, Rhode Island 02903 or such
other place within or without the State of Delaware as may be determined from
time to time by the Board of Managers.
2.3 Registered Office and Registered Agent. The Company's initial
registered agent and office shall be c/o The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801. The Company may change its registered
agent or registered office to any other in the State of Delaware as may be
determined from time to time by the Board of Managers.
2.4 Term. The existence of the Company shall be perpetual, subject to
the Company's earlier dissolution in accordance with the provisions of this
Agreement or the Act.
2.5 Purposes and Powers. The purpose and character of the business of
the Company shall be to engage in any business or activity which may be legally
permitted under the Act, as determined pursuant to this Agreement. More
specifically, the Company initially is being formed to dispose of excess assets
of Textron and its worldwide subsidiaries and divisions. In addition, the
Company will market its end-to-end, business-to-business e-commerce asset
disposition services to all United States based industrial and financial
services companies. Subject to the Certificate of Formation and the terms and
conditions of this Agreement, the Company shall have the power and authority to
do all such acts and things as may be necessary, desirable, expedient,
convenient for, or incidental to the furtherance and accomplishment of the
foregoing objectives and purposes and for the protection and benefit of the
Company.
2.6 No State Law Partnership. The Members intend that the Company shall
not be a partnership or joint venture, and that no Member or Manager shall be a
partner or joint venturer of any other Member or Manager with respect to the
business of the Company, for any purposes other than federal, state and local
tax purposes, and this Agreement shall not be construed to suggest otherwise.
2.7 Authority of Members. Except as otherwise provided in this
Agreement, no Member (other than a Manager or an officer of the Company in his
capacity as such) shall have the authority or power to act for or on behalf of
the Company, to do any act that would be binding on the Company or to incur any
expenditures, debts, liabilities or obligations on behalf of the Company. The
foregoing notwithstanding, if at any time there are no Managers, the business
and affairs of the Company shall be managed and conducted by the Members. All
decisions or actions of the Members allowed, permitted or required under this
Agreement or the Act shall be made by action of the holders of a Majority in
Interest, unless pursuant to this Agreement, the Act or other applicable law a
greater number or percentage is required.
<PAGE>
2.8 No Personal Liability for Members, Managers, Etc. No Member of the
Company shall be subject in such capacity to any personal liability whatsoever
to any Person in connection with the assets, acts, obligations or affairs of the
Company. The Company shall have the power to indemnify any Person who was or is
a party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative (hereafter a "Proceeding"), or any
appeal in such a Proceeding or any inquiry or investigation that could lead to
such a Proceeding, by reason of the fact that such Person is or was a Member,
Manager, officer, employee or agent of the Company (each, an "Indemnified
Person") and such Indemnified Person shall be indemnified by the Company to the
fullest extent permitted by applicable law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide greater or broader indemnification
rights than such law permitted the Company to provide prior to such amendment)
against judgments, penalties (including, without limitation, excise and similar
taxes and punitive damages), fines, settlements, costs and reasonable expenses
(including, without limitation, attorneys' fees) actually incurred by such
Indemnified Person in connection with such Proceeding. It is expressly
acknowledged, however, that the indemnification provided in this Section 2.8
shall not apply to indemnify any Manager, officer, employee or agent of the
Company entitled to indemnification pursuant to this Section 2.8 arising from
acts or omissions of bad faith, willful misfeasance, gross negligence or
reckless disregard of such Indemnified Person's duty to the Company or its
Members. The rights accruing to an Indemnified Person under this Section 2.8
shall not exclude any other right to which such Indemnified Person may be
lawfully entitled nor shall anything herein contained restrict the right of the
Company to indemnify or reimburse an Indemnified Person in any appropriate
situation even though not specifically provided herein.
ARTICLE III
Management
3.1 Management by Managers. Except for situations in which the approval
of the Members is expressly required by this Agreement or by nonwaivable
provisions of applicable law, (i) the powers of the Company shall be exercised
by or under the authority of, and the business and affairs of the Company shall
be managed under the exclusive direction of, the Board of Managers, and (ii) the
Board of Managers may make all decisions (including the sale of all or
substantially all of the Company Assets) and take all actions for the Company
not otherwise provided in this Agreement. All decisions other than Major
Decisions must be approved by a majority of the Managers (each having one vote).
All Major Decisions must be approved by each of the four Managers designated by
TFC and one of the Managers designated by Entrade. The term "Major Decisions"
means:
(a) the approval of annual or long-term operational or capital
budgets or strategic plans;
(b) the approval of any expenditures in excess of $250,000
that is not contemplated by an approved capital budget, or any
divergence from an operational expense budget in excess of the
greater of 10 percent or $100,000;
(c) any call for additional Capital Contributions by the
Members;
(d) the sale, lease, exchange, mortgage, assignment, pledge or
other transfer of Company Assets other than in the ordinary
course of the Company's business except as provided in Section
7.3(c);
(e) the confession of any judgment or the settlement of any
litigation in excess of $50,000;
(f) a change in the scope of the Company's business;
(g) a determination that indemnification of an Indemnified
Person is proper under Section 2.8;
(h) the valuation of the Company for purposes of Section
5.1(f);
(i) the admission of new Members pursuant to Section 7.2;
(j) any amendment to this Agreement.
<PAGE>
3.2 Compensation of Managers. Managers, as such, shall not receive any
stated salary or other compensation for their services, except as otherwise may
be provided by the Members from time to time. The Company may reimburse any
Manager for reasonable expenses incurred by the Manager in connection with his,
her or its performance of services for the Company upon receipt by the Company
of proper substantiation of such expenses. The foregoing notwithstanding,
nothing contained in this Agreement shall be construed to preclude any Manager
from serving the Company in any other capacity and receiving compensation for
such service.
3.3 Designation of Board of Managers. Each Member agrees to vote all of
the Units over which such Member has voting control and to take all other
necessary actions within his or its control (whether in his or its capacity as a
Member or Manager of the Company or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents or resolutions in lieu of
meetings), and the Company shall take all necessary actions and actions
reasonably requested by any other Member within its control (including, without
limitation, calling special Manager and Member meetings) so that full and
complete effect is given to the following designation and election of Managers.
The number of Managers of the Company shall initially be set at seven, which
seven Managers shall be designated in the following manner: (i) four Managers
shall be designated by TFC, (ii) two Managers shall be designated by Entrade and
(iii) one Manager shall be designated by ATM.
3.4 Term. Each Manager shall hold office until his, her or its
successor is appointed, or, if earlier, until such Manager's death, resignation
or removal as provided in this Agreement.
3.5 Vacancy. Any vacancy occurring in the Board of Managers may be
filled by the Member who designated the Manager whose absence has created the
vacancy.
3.6 Removal. Any Manager may be removed at any time, with or without
cause, by the Members who designated such Manager.
3.7 Resignation. Any Manager may resign at any time. Such resignation
shall be made in writing and shall take effect at the time specified therein or,
if no time is specified therein, at the time of its receipt by the remaining
Managers or, if none, by the Member who designated such Manager. The acceptance
of a resignation shall not be necessary to make it effective, unless so
expressly provided in the resignation.
3.8 Meetings of Managers.
(a) The Managers may hold their meetings in such place or
places in the State of Delaware or outside the State of Delaware as they shall
determine from time to time. The Company shall pay all out-of-pocket expenses
incurred by the Managers to attend the Board meetings.
(b) Regular meetings of the Managers shall be held at least
semiannually at the offices of the Company, or at such other place as the
Managers may determine.
(c) Special meetings of the Managers shall be held whenever
called by any two (2) of the then currently serving Managers. Notice of the day,
hour and place of holding of each special meeting shall be given by telegraph,
facsimile, cable or wireless at least twenty four (24) hours before the meeting
to each Manager. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at any special meeting. At any meeting at which every
currently serving Manager shall be present, even though without any notice, any
business may be transacted.
<PAGE>
(d) Subject to Section 3.1(a), a quorum for the transaction of
business by the Board shall consist of a majority of the Managers then serving
on the Board of Managers. If at any meeting of the Board there is less than a
quorum present, a simple majority of those present may adjourn the meeting from
time to time until a quorum is present.
(e) The Managers may participate in a meeting thereof by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
(f) Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting if the members of the Board
required to take such action consent thereto in writing, and the writing is
filed with the minutes of proceedings of the Board.
3.9 Meetings of Members.
(a) The Members may hold their meetings in such place or
places in the State of Delaware or outside the State of Delaware as they shall
determine from time to time.
(b) Regular meetings of the Members shall be held at least
annually at the offices of the Company, or at such other place as the Members
may determine. Notice of the day, hour and place shall be required for any
regular meeting of the Members accompanied by an agenda, and shall be sent to
each Member by telegraph, facsimile, cable or wireless and mail at least ten
(10) days prior to the date of the meeting.
(c) Special meetings of the Members shall be held whenever
called by Members holding in the aggregate at least fifty-five percent (55%) of
the Units. Notice of the day, hour and place of holding of each special meeting
shall be given by telegraph, facsimile, cable or wireless at least seventy-two
(72) hours before the meeting to each Member. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at any special meeting.
At any meeting at which every Member shall be present, even though without any
notice, any business may be transacted.
(d) Subject to Section 3.1, a quorum for the transaction of
business by the Members shall consist of a Majority in Interest. If at any
meeting of the Members there is less than a quorum present, a simple majority of
those present may adjourn the meeting from time to time until a quorum is
present.
(e) The Members may participate in a meeting thereof by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
(f) Any action required or permitted to be taken at any
meeting of the Members may be taken without a meeting if all Members required to
take such action consent thereto in writing, and the writing is filed with the
minutes of proceedings of the Company.
ARTICLE IV
Officers
4.1 Designation; Term; Qualifications. The Managers may (but shall not
be obliged to), from time to time, designate one or more natural Persons to be
officers of the Company. Any officer so designated shall have such authority and
perform such duties as the Managers may, from time to time, delegate to them.
The Managers may assign titles to particular officers, and, unless the Managers
decide otherwise, the assignment of such title shall constitute the delegation
to such officer of the authority and duties that are normally associated with
that office. Each officer shall hold office for the term for which such officer
is designated and until his or her successor shall be duly designated and shall
qualify or until his or her death, resignation or removal as provided in this
Agreement. Any Person may hold any number of offices. No officer need be a
Manager, a Member, a resident of the State of Delaware, or a United States
citizen. Designation of a Person as an officer of the Company shall not of
itself create any contract rights.
<PAGE>
4.2 Removal and Resignation. Any officer of the Company may be removed
as such, with or without cause, by the Managers. Any officer of the Company may
resign as such at any time upon written notice to the Company. Such resignation
shall be made in writing and shall take effect at the time specified therein or,
if no time is specified therein, at the time of its receipt by a Manager or, if
none, a Member. The acceptance of a resignation shall not be necessary to make
it effective, unless expressly provided for in the resignation.
4.3 Vacancies. Any vacancy occurring in any office of the Company may
be filled by the Managers.
4.4 Compensation. The compensation, if any, of the officers of the
Company shall be fixed from time to time by the Managers.
4.5 General Manager. Notwithstanding the foregoing, TFC shall have the
right to designate a "General Manager," who shall also be one of the Managers
designated by TFC pursuant to Article III. The General Manager shall be
responsible for the day to day operations of the Company. The compensation for
the General Manager shall be determined by the Managers (excluding the General
Manager).
ARTICLE V
Contributions to Capital and Capital Accounts
5.1 Capital Contributions. On the date of this Agreement,
(a) TFC shall contribute to the Company the property set forth
in the TFC Contribution Agreement in exchange for the number of Units set forth
opposite its name on Schedule A;
(b) Entrade shall contribute to the Company the property set
forth in the Entrade License Agreement in exchange for the number of Units set
forth opposite its name on Schedule A; and
(c) ATM shall contribute to the Company the property set forth
in the ATM Contribution Agreement in exchange for the number of Units set forth
opposite its name on Schedule A.
(d) Safeguard shall contribute to the Company the property set
forth in the Safeguard Contribution Agreement in exchange for the number of
Units set forth opposite its name on Schedule A.
(e) Upon 30 days written notice from the Board of Managers,
each Member shall contribute to the Company such Member's pro rata share of the
Capital Contributions requested by the Board, which request shall not be made
unless such Capital Contributions were specifically approved by the Board in an
operating or capital budget pursuant to Section 3.1(a). Except as provided in
the previous sentence, no Member shall be obligated to make additional Capital
Contributions to the Company.
(f) If a Member (a "Defaulting Member") does not contribute by
the time required all or any portion of an additional Capital Contribution such
Defaulting Member is required to make pursuant to the first sentence of Section
5.1(e) and such failure to contribute continues for at least five (5) Business
Days after receipt by such Defaulting Member of written notice thereof from the
Company, then the Board, on behalf of the Company, may, on written notice to
such Member either (i) allow the non-Defaulting Members to make additional
Capital Contributions in lieu of the Defaulting Member (pro rata in accordance
with the number of Units owned by each or non-pro rata if any non-Defaulting
Member does not wish to contribute their share of the deficiency) and to adjust
the number of Units of the Members accordingly to reflect the dilution to the
Defaulting Member and the increased percentage interest in the Company owned by
those non-Defaulting Members making additional Capital Contributions in
accordance with this Section 5.1(f)) or (ii) waive such additional Capital
Contribution by the Defaulting Member and adjust the number of Units of the
Members accordingly to reflect the dilution to the Defaulting Member and the
increased percentage interest in the Company owned by the non-Defaulting Members
as a result of their additional Capital Contributions. Any adjustment to the
interests of the Members pursuant to this Section 5.1(f) shall be made by
valuing the Company at its then current fair market value, as determined by the
Board in its reasonable discretion.
<PAGE>
5.2 Advances by Members. If the Company does not have sufficient cash
to pay its obligations, any Member that may agree to do so with the consent of
the Board of Managers may advance all or part of the needed funds to or on
behalf of the Company. An advance described in this Section 5.2 shall constitute
a loan from such Member to the Company, and shall be made on such terms as
agreed to by the Member making such advance and the Board of Managers.
Notwithstanding the foregoing, it is understood that TFC shall provide the
Company with a line of credit in an amount sufficient to fund the Company's
operations for the Company's fiscal year 2000; provided, however, that such line
of credit shall be on terms no less favorable than current market terms, shall
accrue interest at the prime rate and shall be repaid (including all accrued and
unpaid interest) by the end of the Fiscal Year 2000; and provided, further, that
no distributions shall be made by the Company pursuant to Section 6.2 until such
time as the line of credit has been fully repaid.
5.3 Withdrawal or Reduction of Members' Contributions to Capital. A
Member shall not receive out of the Company's Assets any part of its Capital
Contributions until all liabilities of the Company have been paid or there
remain assets sufficient to pay such liabilities. No Member shall have the right
to withdraw all or any part of its Capital Contribution or to receive any return
on any portion of its Capital Contribution, except as may be otherwise
specifically provided in this Agreement. Under circumstances involving a return
of any Capital Contribution, no Member shall have the right to receive property
other than cash except as otherwise agreed to by the Board of Managers. No
Member shall be paid interest on any of its Capital Contributions or on its
Capital Account. An unrepaid Capital Contribution shall not be a liability of
the Company or of any Member. A Member shall not be required to contribute or to
lend any cash or property to the Company to enable the Company to return any
Member's Capital Contributions.
5.4 Capital Accounts. A separate capital account (a "Capital Account")
shall be established and maintained for each Member. Each Member's Capital
Account shall be increased by (i) the amount of money contributed by such Member
to the Company, (ii) the fair market value of property contributed by such
Member to the Company (net of liabilities secured by the contributed property
that the Company is considered to assume or take subject to under Section 752 of
the Code), and (iii) allocations to such Member of Company income and gain (or
items thereof), including without limitation income and gain exempt from tax and
income and gain described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
Each Member's Capital Account shall be decreased by (A) the amount of money
distributed to such Member by the Company, (B) the fair market value of property
distributed to such Member by the Company (net of liabilities secured by the
distributed property that the Member is considered to assume or take subject to
under Section 752 of the Code), (C) allocations to such Member of expenditures
of the Company described in Section 705(a)(3)(B) of the Code, and (D)
allocations of Company loss and deduction (or items thereof), including without
limitation loss and deduction described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g), but excluding items described in clause (C) above. The
Capital Accounts also shall be maintained and adjusted as permitted by the
provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f) and as required
by the other provisions of Treasury Regulation Sections 1.704-1(b)(2)(iv) and
1.704-1(b)(4), including without limitation adjustments to reflect the
allocations to the Members of depreciation, depletion, amortization, and gain or
loss as computed for book purposes rather than the allocation of the
corresponding items as computed for tax purposes, as required by Treasury
Regulation Section 1.704-1(b)(2)(iv)(g). On the Transfer of a Unit, the Capital
Account of the transferor that is attributable to the Transferred Unit shall
carry over to the transferee Member in accordance with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(iv)(1).
<PAGE>
ARTICLE VI
Allocations; Distributions; Taxes; Books;
Records; and Bank Accounts
6.1 Allocations.
(a) Allocations of Profit and Loss. Except as required by the
Code, the Treasury Regulations promulgated thereunder and this Section 6.1,
Profit and Loss of the Company for each Fiscal Year shall be allocated among the
Members, pro rata, based upon the number of Units owned by each Member.
(b) Adjusted Capital Account Deficits. Notwithstanding
anything to the contrary in Section 6.1(a), in no event shall any Losses be
allocated to a Member to the extent that such allocation would reduce the
Capital Account of such Member below zero. In such event, such Member shall be
allocated the amount of Losses which would reduce its Capital Account to zero,
and any excess Losses shall be allocated among the remaining Members in
accordance with their positive Capital Account balances. Any Member who receives
an allocation of Losses pursuant to this Section 6.1(b) shall receive a priority
allocation of Profit (in an amount to make-up the allocation of such Losses)
prior to any allocations of Profit pursuant to Section 6.1(a).
(c) Tax Allocations. Except as otherwise required by the Code,
all items of income, gain, deduction, loss and credit shall be allocated for tax
purposes among the Members in the same manner as such items are allocated for
purposes of determining Capital Accounts.
(d) Allocations Relating to Transferred Units. All items of
income, gain, loss, deduction, and credit allocable to a Unit Transferred during
the Fiscal Year shall be allocated between the transferor and the transferee
based on the portion of the Fiscal Year during which each was recognized as
owning that Unit, without regard to the results of Company operations during any
particular portion of such Fiscal Year and without regard to whether cash
distributions were made to the transferor or the transferee during such Fiscal
Year, provided, however, that such allocation shall be made in accordance with a
method permissible under Section 706 of the Code and the Treasury Regulations
promulgated thereunder.
(e) Qualified Income Offset. Any Member who unexpectedly
receives an adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) shall be allocated items
of income and gain in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations, a deficit in such Member's Capital
Account balance as quickly as possible. This Section 6.1(e) is intended to
comply with the alternate test for economic effect set forth in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in
a manner consistent therewith.
6.2 Distributions. Except as agreed to by Board of Managers, the
Company shall distribute all Distributable Cash to the Members. Except as
otherwise agreed to by all of the Members, all distributions made to the Members
shall be made pro rata in accordance with the number of Units owned by each such
Member; provided, however, that no distributions may be made to the Members
until such time as the Company has repaid all amounts advanced (including
accrued and unpaid interest) pursuant to Section 5.2. All amounts withheld
pursuant to the Code or any provision of state or local tax laws with respect to
any payment or distribution to the Members from the Company shall be treated as
amounts distributed to the relevant Member or Members pursuant to this Section
6.2. No distribution shall be declared and paid unless, after the distribution
is made, the fair market value of the Company's Assets is in excess of all of
the liabilities of the Company.
6.3 Tax Returns. On or before the 90th calendar day following the end
of each Fiscal Year, the Board of Managers shall cause to be prepared and filed
all necessary federal and state income tax returns for the Company. Each Member
shall furnish to the Company all pertinent information in his, her or its
possession relating to Company operations that is necessary to enable the
Company's income tax returns to be prepared and filed. The Company shall provide
to each Member within 60 days following the end of such Fiscal Year all
applicable tax information required by any Member to file his, her or its tax
returns for such year.
<PAGE>
6.4 Tax Matters Partner. TFC shall be the "tax matters partner" of the
Company pursuant to Section 6231(a)(7) of the Code. The tax matters partner
shall have the authority to make any tax elections which the Company is entitled
to make pursuant to the Code. The Board of Managers may, at any time, elect a
different tax matters partner.
6.5 Maintenance of Books and Fiscal Year. The Company shall keep and
maintain accurate and complete books and records of accounts and shall keep
minutes of the proceedings of the Members and the Board of Managers. The books
of account for the Company shall be maintained in accordance with generally
accepted accounting principles consistently applied, except that the Capital
Accounts shall be maintained in accordance with Section 5.4 of this Agreement.
6.6 Reports/Information Rights. Each Member shall be furnished by the
Company with (i) unaudited annual financial statements within 90 days after the
end of the Fiscal Year, which statements shall be certified by the chief
financial officer of the Company, (ii) unaudited quarterly financial statements
within 30 days after the end of each quarter and (iii) any other information
which any Member may reasonably request. Any Member may request that the Company
provide audited financial statements, the cost and expense of which shall be
borne by the Company or, if the Company has determined that such audited
financial statements are not necessary, by the Member which requested such
audited statements. In addition, within 90 days following the end of each Fiscal
Year during the term of the Company, each Member shall be furnished with a
statement of changes in Members' Capital Accounts for, or as of the end of, that
Fiscal Year. These financial statements must be prepared in accordance with
generally accepted accounting principles consistently applied (except as therein
noted). The Managers also may cause to be prepared or delivered such other
records as they may deem appropriate. The Company shall bear the costs of all
such financial statements and reports.
6.7 Bank and Investment Accounts. The Managers shall establish and
maintain one or more separate bank and investment accounts and arrangements for
Company funds in the Company name with financial institutions and firms that the
Managers determine. The Managers shall not commingle the Company's funds with
the funds of any Member.
ARTICLE VII
Transferability
7.1 Restrictions on Disposition of Interests.
(a) Except as specifically provided in this Article VII,
no Member may Transfer any Units:
(i) prior to March 9, 2005, without the consent of
all of the other Members; and
(ii) on and after March 9, 2005, without complying
with the requirements of Sections 7.3 and 7.4.
Notwithstanding the foregoing, any Member may
Transfer Units without complying with this Article
VII if the Transfer is made to an Affiliate of such
Member.
(b) The Company shall not recognize for any purpose any
purported Transfer unless and until the other applicable provisions of this
Article VII have been satisfied and the Board of Managers has received, on
behalf of the Company, a document (i) executed by both the Member effecting the
Transfer (or, if the Transfer is on account of the death, incapacity, or
liquidation of the transferor, its representative) and the Person to which the
Units are Transferred, (ii) including the notice address of any Person to be
admitted to the Company as a Member and its agreement to be bound by this
Agreement, (iii) setting forth the number of Units Transferred and the number of
Units being retained (which together shall total the number of Units of the
Member effecting the Transfer before the Transfer), and (iv) containing a
representation and warranty that the Transfer was made in accordance with all
applicable laws and regulations. The Member effecting a Transfer shall pay, or
reimburse the Company for, all costs and expenses incurred by the Company in
connection with the Transfer (including, without limitation, any costs or
expenses for legal fees incurred by the Company in connection with the Transfer)
on or before the tenth day after the receipt by that Person of the Company's
invoice for the amount due.
<PAGE>
7.2 Additional Members. Additional Persons may be admitted to the
Company as Members and additional Units may be created and issued to such
Persons and to existing Members only with the consent of the Board of Managers.
Any additional Units offered pursuant to this Section 7.2 shall be offered on
such terms and conditions as the Board of Managers may determine at the time of
admission and/or issuance. The terms of admission or issuance shall specify the
number of Units issued and may provide for the creation of different classes or
groups of Members having different rights, power, and duties. Any admission
pursuant to this Article VII shall be effective only after the new Member has
executed and delivered to the Managers a document including the new Member's
notice address and its agreement to be bound by the terms of this Agreement.
7.3 Drag-Along Rights.
(a) At any time on or after March 9, 2005, in the event that
TFC wishes to accept a bona fide third party offer for the acquisition of Units
(whether by purchase, merger, consolidation or otherwise), TFC shall give
written notice thereof to each other Member, which notice shall describe the
material terms and conditions of such offer.
(b) TFC may by written notice (a "Drag-Along Notice") to each
Member require each other Member to sell the same proportionate percentage of
the Units which such Member owns, as TFC proposes to sell, for the same
consideration per Unit and otherwise on the same terms and conditions obtained
by TFC. Members participating in such a sale shall bear their pro rata share of
transaction costs incurred in connection with such sale to the extent such costs
would otherwise be borne by TFC. In such case, each Member shall take all
actions necessary in order to cause such sale of Units, including, without
limitation, the execution and delivery of documents and instruments requested by
TFC, and the Company shall bear all costs and expenses relating thereto.
(c) In addition to the foregoing, in the event that at any
time after March 9, 2005 TFC wishes to require the Company to sell, transfer,
assign or otherwise dispose of all or substantially all of the Company's Assets
in a transaction or in a series of transactions, TFC and the Company may require
the holders of all other Units to participate in such sale, transfer, assignment
or other disposition. In such case, each Member shall take all actions necessary
in order to cause such sale, transfer, assignment or other disposition of the
Company's Assets, including, without limitation, the execution and delivery of
documents and instruments requested by TFC, and the Company shall bear all costs
and expenses relating thereto.
(d) If TFC shall not have delivered a Drag-Along Notice with
respect to such proposed Transfer of Units, any other Member, at his option, may
by written notice (a "Tag-Along Notice") to TFC given within fifteen (15) days
of receipt of notice of such bona fide third party offer, require TFC to cause
such third party to acquire the same proportionate percentage of the Units which
such Member owns, as TFC proposes to sell, for the same consideration per Unit
and otherwise on the same terms and conditions obtained by TFC.
7.4 Right of First Refusal.
(a) At any time on or after March 9, 2005, if at any time a
Member (a "Selling Member") receives a bona fide offer (an "Offer") from a third
party (the "Buyer") to purchase some or all of its Units (the "Offered
Interest") that the Selling Member desires to accept, the Selling Member shall
deliver to the Company and the other Members (the "Non-Selling Members") a
written notice (the "First Refusal Notice") informing the Company and the
Non-Selling Members of such Offer and including (i) the name of the Buyer, (ii)
the size of the Offered Interest, (iii) the price, terms and all other material
conditions of such Offer and (iv) any other information relevant to the Company
and the Non-Selling Members necessary to evaluate the terms and the genuineness
of such Offer.
(b) The Company shall have fifteen (15) days from the date on
which it receives the First Refusal Notice to inform the Selling Member that it
wishes to purchase all, but not less than all, of the Offered Interest from the
Selling Member for the price stated in the First Refusal Notice (a "Right of
First Refusal"). The Company, in exercising its Right of First Refusal, shall
have the option of purchasing such Offered Interest for cash or for the same
consideration offered by the Buyer in the Offer; provided, however, that if the
Buyer offers a Selling Member the Buyer's own equity securities, the Company
will be required to exercise its right of first Refusal by purchasing the
Offered Interest for cash.
<PAGE>
(c) If the Company elects not to exercise its Right of First
Refusal, the Company shall notify the Selling Member and the Non-Selling Members
within the same 15 day period that it will not exercise such right and each
Non-Selling Member shall have an additional fifteen (15) days to notify the
Selling Member that they wish to purchase all, but not less than all, of their
Offered Interests Percentage (as defined below) from the Selling Member for the
same price and on the same terms and conditions as stated in the Offer (the
"Right of Second Refusal"). Non-Selling Members wishing to exercise their Right
of Second Refusal shall have the right to purchase the portion of the Offered
Interest equal to the fraction obtained by dividing their percentage interest in
the Company by the total percentage interests of all the Members wishing to
exercise such right (each Non-Selling Member's "Offered Interests Percentage").
In the event that any Non-Selling Member elects not to exercise its Right of
Second Refusal, under this Section 7.4(c), for all of such Non-Selling Member's
Offered Interests Percentage, each Non-Selling Member which so exercised its
right shall have the right to purchase, on a pro rata basis, the remainder of
the Offered Interest. Each Non-Selling Member who or which exercises his or its
Right of Second Refusal shall have ninety (90) days to purchase the portion of
the Offered Interests with respect to which he or it has exercised such Right of
Second Refusal.
(d) To the extent that neither the Right of First Refusal or
the Right of Second Refusal are exercised in the required time period, the
Selling Member shall have ninety (90) days to sell the Offered Interest to the
Buyer on the terms and conditions set forth in the Offer. If the Offered
Interest is not sold within such 90 day period, such Selling Member must deliver
a new Notice to the Company and the Non-Selling Members and the Right of First
Refusal and the Right of Second Refusal are again exercisable.
ARTICLE VIII
Dissolution, Liquidation and Termination
8.1 Dissolution. The Company shall be dissolved and its affairs shall
be wound up upon the earlier of (i) the election to dissolve the Company by an
affirmative vote the Board of Managers or (ii) the entry of a decree of judicial
dissolution of the Company under the Act. Dissolution of the Company shall be
effective as of the day on which the event occurs giving rise to the
dissolution, but the Company shall not terminate until there has been a winding
up of the Company's business and affairs, and the Company Assets have been
distributed as provided in Section 8.2 of this Agreement and in the Act.
8.2 Liquidation and Termination. Upon dissolution of the Company, the
Managers shall act as liquidators or may appoint one or more Managers or Members
(with its or their consent) as liquidators. The liquidators shall proceed
diligently to wind up the affairs of the Company and make final distributions as
provided in this Section 8.2 and in the Act. The costs and expenses of
liquidation shall be borne as a Company expense. Until final distribution, the
liquidators shall continue to manage the Company's Assets and the Company's
affairs with all the power and authority of the Managers. After payment,
satisfaction or discharge of the Company's debts, liabilities and obligations
(or adequate provision therefor) has been made, all remaining Company Assets
shall be distributed to the Members, pro rata, in accordance with their positive
Capital Account balances. The distribution of the Company Assets to the Members
in accordance with the provisions of this Section 8.2 shall constitute a
complete return to the Members of their Capital Contributions and a complete
distribution to the Members of their Membership Interests and of all of the
Company Assets. To the extent that a Member returns funds to the Company, such
Member shall have no claim against any other Member for such funds.
<PAGE>
8.3 Deficit Capital Accounts. Notwithstanding anything to the contrary
contained in this Agreement and notwithstanding any custom or rule of law to the
contrary, to the extent that the deficit, if any, in the Capital Account of any
Member results from or is attributable to deductions and losses of the Company
(including, without limitation, non-cash items such as depreciation), or
distributions of money or other assets pursuant to this Agreement to all Members
in proportion to their respective Units, upon dissolution of the Company such
deficit shall not be a Company Asset and such Member shall not be obligated to
contribute such amount to the Company to bring the balance of such Member's
Capital Account to zero.
8.4 Certificate of Dissolution. When all liabilities and obligations of
the Company have been paid or discharged, or adequate provision has been made
therefor, and all of the remaining Company Assets have been distributed to the
Members according to their respective rights and interests as provided in
Section 8.2 of this Agreement, the Company is terminated and the Managers (or
such other Person or Persons as the Act may require or permit) shall take such
actions, and shall execute, acknowledge and file any and all instruments, as may
be necessary or appropriate to reflect the dissolution and termination of the
Company.
8.5 Rights Following Dissolution.
(a) For five (5) years following the dissolution of the
Company, Textron shall retain a license to use (for use by Textron and its
Affiliates in the conduct of their respective businesses), at no cost, the
software and other communications and technology of the Company and Entrade. For
such five year period, Textron, TFC and their subsidiaries shall be entitled to
all generally available upgrades made to such technology, as well as routine
technical support.
(b) Following the Company's dissolution, TFC shall have the
right to continue the Company's pre-existing relationship with any of the
Company's "Fulfillment Partners," including service pricing equal to the lesser
of (i) the favored pricing offered by the Company prior to its dissolution and
(ii) the pricing offered to the Fulfillment Partners' best or largest customers.
The terms of this Section 8.5(b) shall continue for two (2) years from the date
of the Company's dissolution; provided, however, that if the Company is
dissolved by mutual agreement of the parties, this Section 8.5(b) shall continue
for a period of five (5) years from the date of the Company's dissolution.
ARTICLE IX
Conversion into Corporate Form
9.1 General. The parties to this Agreement have considered various
financial and other strategic initiatives relating to the Company and have
determined that the Company may ultimately wish to raise capital through the
public markets. Accordingly, the parties hereby agree to give the Board the
power and authority to convert the Company into corporate form at any time.
9.2 Conversion Mechanism.
(a) The Board shall have the power and authority to effect (i)
the conversion of the Company's business form from a limited liability company
to a Delaware corporation, (ii) the merger of the Company with or into a new or
previously-established but dormant Delaware corporation having no assets or
liabilities, debts or other obligations of any kind whatsoever other than those
associated with its formation and initial capitalization or (iii) the
liquidation of the Company and the distribution to the Members of the equity
securities of a corporate subsidiary which owns all of the assets and
liabilities of the Company (such a conversion, merger or liquidation is referred
to as a "Conversion" and such Delaware corporation is referred to as the "Public
Vehicle").
(b) Upon the consummation of a Conversion, the Units held by
each holder thereof shall thereupon be converted into a number of shares of the
Public Vehicle's common stock which would, as nearly as practicable, provide
each holder with the same economic benefit that such holder would receive if,
immediately prior to the Conversion, (i) the Company distributed all of its
assets to its Members in accordance with Section 8.2 or (ii) all of the
Company's assets were sold for their fair market value (which value shall be
determined in good faith by the Board) and the Company were liquidated and all
of its assets were distributed in accordance with Section 8.2. The Board's
determination of the number of shares of the Public Vehicle's common stock that
each Member receives upon a Conversion shall be final and binding on the holders
of Units absent manifest arithmetic error.
9.3 Member Action. In connection with a Conversion of Units into the
Public Vehicle's common stock effected by the Board pursuant to this Article IX,
each Member hereby covenants and agrees to take any and all such action and
execute and deliver any and all such instruments and other documents as the
Board may reasonably request in order to effect or evidence such conversion of
Units. Without limiting the generality of the foregoing, no Member shall have or
be entitled to exercise any dissenter's rights, appraisal rights or other
similar rights in connection with such Conversion.
<PAGE>
9.4 Friends and Family Securities. In connection with the initial
public offering of the common stock of the Public Vehicle, the parties will use
commercially reasonable efforts to provide a mechanism for the shareholders of
each of the Members to participate in such offering at the initial offering
price so long as such participation does not violate federal or state securities
laws or regulations.
ARTICLE X
Miscellaneous Provisions
10.1 Financial Services. TFC shall have the exclusive right of first
refusal to provide financial services to the Company and its customers;
provided, however, that with respect to any financial services provided to the
Company, TFC shall not charge the Company an amount in excess of the amount
which TFC would charge its best or largest customers for the same services.
10.2 Offset. Whenever the Company is to pay any sum to any Member, any
amounts such Member owes the Company may be deducted from such sum before
payment.
10.3 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests, or consents provided for or permitted to be
given under this Agreement shall be in writing and shall be given either by
depositing such writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering such writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement shall
be effective on receipt by the Person to whom sent. All notices, requests, and
consents to be sent to a Member shall be sent to or made at the address given
for such Member on Schedule A hereto or such other address as such Member may
specify by notice to the Company, the Managers or and the other Members. Any
notice, request, or consent to the Company or the Managers must be given to the
Managers at the address provided in Section 2.2 of this Agreement. Whenever any
notice is required to be given by law, the Certificate of Formation or this
Agreement, a written waiver thereof, signed by the Person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
10.4 Entire Agreement. This Agreement constitutes the entire agreement
of the Members relating to the Company and supersedes all prior contracts or
agreements with respect to the Company, whether oral or written.
10.5 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by such
Person of its obligations with respect to the Company shall not be a consent or
waiver to or of any other breach or default in the performance by such Person of
the same or any other obligations of such Person with respect to the Company.
Failure on the part of a Person to complain of any act or omission of any Person
or to declare any Person in default with respect to the Company, irrespective of
how long that failure continues, shall not constitute a waiver by such Person of
its rights with respect to that default until the applicable statute of
limitations period has run.
<PAGE>
10.6 Governing Law Severability. This Agreement shall be governed by
and shall be construed in accordance with the laws of the State of Delaware,
excluding any conflict of laws rule or principle that might refer the governance
or the construction of this Agreement to the laws of another jurisdiction. In
the event of a direct conflict between the provisions of this Agreement and (i)
any provision of the Certificate of Formation, or (ii) any mandatory provision
of the Act, then the applicable provision of the Certificate of Formation or the
Act shall control. If any provision of this Agreement or the application thereof
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of that provision to other
Persons or circumstances shall not be affected thereby and such provision shall
be enforced to the fullest extent permitted by law.
10.7 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
10.8 Headings and Sections. The headings in this Agreement are inserted
for convenience only and are in no way intended to describe, interpret, define
or limit the scope, extent or intent of this Agreement or any provision hereof.
Unless the context requires otherwise, all references in this Agreement to
Sections or Articles shall be deemed to mean and refer to Sections or Articles
of this Agreement.
10.9 Numbers and Gender. Where the context so indicates, the masculine
shall include feminine and neuter, and the neuter shall include the masculine
and feminine, and the singular shall include the plural.
10.10 Binding Effect. Except as otherwise provided in this Agreement to
the contrary, this Agreement shall be binding upon and inure to the benefit of
the Members, their distributees, heirs, legal representatives, executors,
administrators, successors and assigns.
10.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and shall be
binding upon the Member who executed the same, but all of such counterparts
shall constitute the same Agreement.
10.12 Conflicts of Interest. Subject to the other express provisions of
this Agreement or except as otherwise expressly agreed in writing, each Manager,
Member and officer of the Company at any time and from time to time may engage
in and possess interests in other business ventures of any and every type and
description, independently or with others, including ones in competition with
the Company, with no obligation to offer to the Company or any other Member,
Manager or officer the right to participate therein.
10.13 Amendment or Modification of Agreement. The amendment or
modification of this Agreement is a Major Decision and, accordingly, this
Agreement may be amended or modified only by a written instrument executed and
agreed to by the Managers in accordance with Section 3.1; provided, however,
that any changes to Schedule A made by the Managers to reflect the admission of
a new Member or a change in the interest of a Member shall not be deemed to be
an amendment or modification requiring the consent of the Managers.
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed and delivered as of the
date first written above by the undersigned and the undersigned, being all of
the Members, do hereby agree to be bound by the terms and provisions set forth
in this Agreement.
TEXTRON FINANCIAL CORPORATION
By:____________________________
ENTRADE INC.
By:____________________________
ATM SERVICE, LTD.
By:____________________________
SAFEGUARD SCIENTIFICS, INC.
By:____________________________
<PAGE>
AssetControl.com, LLC
SCHEDULE A
Name and Address
and
Units of the Members
----------------------------------------- ---------------------------
Name and Addresses of Members Number of Units
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
Textron Financial Corporation 475
40 Westminster Street
Providence, RI 02903
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
Entrade Inc. 380
500 Central Avenue
Northfield, Illinois 60093
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
ATM Service, Ltd. 95
220 White Plains Road
Tarrytown, New York 10591
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
Safeguard Scientifics, Inc. 50
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
TOTAL 1,000
----------------------------------------- ---------------------------
EXHIBIT 10.44
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT ("Agreement") made as of the 9th day of March,
2000, between Entrade, Inc., a Pennsylvania corporation having its principal
place of business at 500 Central Avenue, Northfield, IL 60093 ("Seller"), and
AssetControl.com, LLC, a Delaware limited liability company having its principal
place of business at 40 Westminster Street, Providence, Rhode Island 02903
("Purchaser").
W I T N E S S E T H:
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WHEREAS, Seller is and has been engaged in the business of, among other
things, developing and licensing computer software for use in providing
electronic asset disposition services; and
WHEREAS, Purchaser desires to acquire, and Seller desires to contribute
a non-exclusive license to such software and services in exchange for certain
membership interests in Purchaser; and
WHEREAS, Purchaser is unwilling to consummate this Agreement unless
Seller makes certain representations and warranties and agrees to indemnify
Purchaser, all as herein provided.
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
ARTICLE I - PURCHASE AND SALE
Subject to the terms and conditions set forth in this Agreement, Seller
hereby contributes, assigns, transfers, conveys and delivers to Purchaser, and
Purchaser hereby acquires and accepts from Seller, the assets and rights of
Seller listed on Schedule I attached hereto as the same shall exist on the close
of business on the date hereof (the "Closing Date") (the "Contributed Assets").
ARTICLE II - MEMBERSHIP INTEREST AND ASSUMPTION OF LIABILITIES
Section 2.1. Membership Interest.
In consideration of the contribution of Contributed Assets to
Purchaser, Seller has obtained from Purchaser 380 membership units in Purchaser
as described in the Operating Agreement of Purchaser of even date herewith among
Seller, Purchaser and certain other parties signatory thereto (the "Operating
Agreement").
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Section 2.2. Assumption by Purchaser.
The Purchaser shall not assume or become liable for any of the Seller's
liabilities, obligations, debts, contracts or other commitments of any kind
whatsoever, known or unknown, fixed or contingent.
ARTICLE III - INDEMNIFICATION
Section 3.1. Indemnification by Seller.
(a) Seller shall indemnify Purchaser, its officers, managers and
members, and their respective heirs, successors and assigns (the "Purchaser
Eligible Parties") from and against and in respect of any and all losses,
expenses, damages, deficiencies, costs, obligations, and liabilities, interest,
additional taxes, fines, penalties, attorney's, accountant's, and other
professional fees and costs and expenses incident to any suit, action or
proceeding incurred or sustained, directly or indirectly, by any of the
above-named parties, which arise out of, or result from: (i) Seller's failure to
pay, discharge or perform any of its liabilities or obligations and (ii)
breaches of or inaccuracies in the representations, warranties and covenants and
agreements made by the Seller in this Agreement.
(b) The foregoing obligations of Seller to indemnify any Purchaser
Eligible Party set forth in subsection (a) shall be subject to and limited by
the qualification that each of the representations, warranties, covenants and
agreements made by Seller in this Agreement shall survive to the extent of the
applicable statute of limitations for breach of such representation, warranty,
covenant or agreement.
Section 3.2. Indemnification by Purchaser.
(a) Purchaser shall indemnify Seller, its officers, directors and
shareholders, and their respective heirs, successors and assigns (the "Seller
Eligible Parties"), from and against, and in respect of any and all losses,
expenses, damages, deficiencies, costs, obligations, and liabilities, interest,
additional taxes, fines, penalties, attorney's, accountant's, and other
professional fees and costs and expenses incident to any suit, action or
proceeding incurred or sustained, directly or indirectly, by any of the
above-named parties which arise out of, or result from: (i) breaches of or
inaccuracies in the representations, warranties and covenants made by Purchaser
in this Agreement; and (ii) any liabilities and obligations arising out of or in
connection with the operation of the business of Purchaser.
(b) The foregoing obligations of Purchaser to indemnify any Seller
Eligible Party set forth in subsection (a) shall be subject to and limited by
the qualification that each of the representations, warranties, covenants and
agreements made by Purchaser in this Agreement shall survive to the extent of
the applicable statute of limitations for breach of such representation,
warranty, covenant or agreement.
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Section 3.3 Notice and Right to Participate in Defense of Third Party
Claims.
Promptly upon receipt of notice of any claim, demand or assessment or
the commencement of any suit, action or proceedings in respect of which
indemnity may be sought on account of an indemnity agreement contained in this
Article III, the party seeking indemnification (the "Indemnitee") will notify,
within sufficient time to respond to such claim or answer or otherwise plead in
such action, the party from whom indemnification is sought (the "Indemnitor"),
in writing, thereof. Except to the extent that the Indemnitor is prejudiced
thereby, the omission of such Indemnitee so to notify promptly the Indemnitor of
any such claim or action shall not relieve such Indemnitor from any liability
which it may have to such Indemnitee in connection therewith, on account of the
indemnity agreements contained in this Article III. In case any claim, demand or
assessment shall be asserted or suit, action or proceeding commenced against an
Indemnitee, and it shall notify the Indemnitor of the commencement thereof, the
Indemnitor shall be fully and unconditionally entitled, if it so elects, to take
control of the defense and investigation of such lawsuit or action and to employ
and engage attorneys of its own choice to handle and defend the same, at the
Indemnitor's cost, risk and expense; provided, further, that the Indemnitee may,
at its own cost, participate therein, and in the settlement thereof, with
counsel satisfactory to the Indemnitor, which approval shall not be unreasonably
withheld. Each party will cooperate with the other parties in connection with
any such claim, make personnel, books and records relevant to the claim
available to the other parties, and grant such authorizations or limited powers
of attorney to the agents, representatives and counsel of such other parties as
such parties may reasonably consider desirable in connection with the defense of
any such claim.
ARTICLE IV - OTHER ACTIONS
Section 4.1. Purchaser to Act as Agent for Seller.
This Agreement shall not constitute an agreement to assign any claim,
contract, permit or right if any attempted assignment of the same without the
consent of the other party thereto would constitute a breach thereof or in any
way affect the rights of Seller thereunder. If such consent is not obtained, or
if any attempted assignment would be ineffective or would affect Seller's rights
thereunder so that the Purchaser would not in fact receive all such rights, then
Purchaser may act as agent for Seller in order to obtain for Purchaser the
benefits thereunder.
Section 4.2. Execution of Further Documents.
From and after the Closing, upon the reasonable request of Purchaser,
Seller shall execute, acknowledge and deliver all such further acts, bills of
sale, assignments, transfers, conveyances, powers of attorney and assurances as
may be required to convey and transfer to and vest in the Purchaser and protect
its right, title and interest in all of the Contributed Assets, and as may be
appropriate otherwise to carry out the transactions contemplated by this
Agreement.
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ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
Section 5.1. Organization.
Seller is a corporation duly organized, validly existing and in good
corporate and tax standing under the laws of Pennsylvania with all requisite
corporate power and authority to own and operate its properties and to carry out
its business as now being conducted, to execute and deliver this Agreement and
to consummate the transactions herein contemplated.
Section 5.2. Due Authorization.
The execution, delivery and performance of this Agreement by Seller and
the consummation of the transactions herein contemplated have been duly
authorized by all necessary action of Seller's Board of Directors and
stockholders. This Agreement constitutes the legal, valid and binding
obligations of Seller, enforceable against Seller in accordance with its terms
except to the extent that (a) such enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium, or other laws relating to or affecting
generally the enforcement of creditors' rights, (b) the availability of the
remedy of specific performance or other equitable relief is subject to the
discretion of the court before which any proceeding therefor may be brought, and
(c) the enforceability of the indemnity provisions contained herein may be
rendered ineffective or limited by applicable laws or judicial decisions
governing such provisions.
Section 5.3. No Violation.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein are not contrary to any provisions
contained in Seller's Articles of Incorporation or By-Laws and do not
constitute, or with the passage of time will not constitute, a default under any
agreement to which the Seller is a party or by which it is bound or to which any
of the Contributed Assets are subject.
Section 5.4. Liens.
All of the Contributed Assets are free and clear of all security
interests, mortgages, pledges, liens, conditional sales agreements, leases,
encumbrances, charges or claims of third parties of any nature whatsoever.
Section 5.5. Litigation.
There are: (i) no pending or threatened suits or proceedings, at law or
in equity, or before or by any governmental agency or arbitrator, and (ii) no
unsatisfied or outstanding judgments, orders, decrees, or stipulations affecting
Seller or the Contributed Assets or to which Seller is or may become a party
which would constitute or result in a breach of any representation, warranty or
agreement set forth in this Agreement or interfere with Seller's ability to
perform under this Agreement or Purchaser's enjoyment of the Contributed Assets.
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Section 5.6. Taxes.
Seller has paid all federal, state and local taxes required to be paid
by Seller to the extent due, and all deficiencies, interest, penalties, or other
additions to such taxes. Seller has filed all returns and reports concerning
taxes that it has been required to file, which returns and reports accurately
reflected the amounts of Seller's liability thereunder.
Section 5.7. Investment Representations.
As of the date of this Agreement,
(a) Seller is acquiring the membership interest for Seller's own
account and not on behalf of any other person.
(b) Seller is not acquiring the membership interest for purposes of
distribution or with the present intent to resell or otherwise distribute such
membership interest.
(c) Seller has sufficient knowledge and experience in financial and
business matters such that Seller is capable of evaluating the merits and risks
of an investment in the Company and has a substantial net worth and annual
income such that Seller is able to bear the economic risk of an investment in
the Company, including the ultimate risk of a total loss of such investment.
(d) Seller is aware of the financial condition of the Company, and has
had the opportunity to investigate and ask questions of and receive answers and
to obtain additional information from the Company or its representatives
concerning the Company and its proposed plans, and does not have any unanswered
questions regarding the same.
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
Section 6.1. Organization.
Purchaser is a limited liability company duly organized, validly
existing and in good standing under the business and tax laws of Delaware with
all requisite power and authority to own and operate its properties and to carry
out its business as now being conducted, to execute and deliver this Agreement
and to consummate the transactions herein contemplated.
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Section 6.2. Due Authorization.
The execution, delivery and performance of this Agreement by Purchaser
and the consummation of the transactions herein contemplated have been duly
authorized by all necessary action of Purchaser's Board of Managers and members,
and Purchaser has delivered to Seller certified copies of actions authorizing
the same. This Agreement constitutes the legal, valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with its terms except to
the extent that (a) such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium, or other laws relating to or affecting generally the
enforcement of creditors' rights, (b) the availability of the remedy of specific
performance or other equitable relief is subject to the discretion of the court
before which any proceeding therefor may be brought, and (c) the enforceability
of the indemnity provisions contained herein may be rendered ineffective or
limited by applicable laws or judicial decisions governing such provisions.
Section 6.3. No Violation.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein are not contrary to any provisions
contained in Purchaser's Certificate of Formation or Operating Agreement and do
not constitute, or with the passage of time will not constitute, a default under
any agreement to which the Purchaser is a party or by which it is bound.
ARTICLE VII - GENERAL PROVISIONS
Section 7.1 No Waiver. Waiver of any provision of this Agreement, in
whole or in part, in any one instance shall not constitute a waiver of any other
provision in the same instance, nor any waiver of the same provision in another
instance, but each provision shall continue in full force and effect with
respect to any other then-existing or subsequent breach.
Section 7.2 Notice. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed to have been duly given
if (i) sent by postage prepaid, United States first class, registered or
certified mail, return receipt requested, or (ii) sent by a recognized overnight
delivery service to the parties at their respective addresses specified above,
or at such other address for a party as that party may specify by notice. Notice
shall be effective upon receipt.
Section 7.3 Miscellaneous. This Agreement: (i) may be executed in any
number of counterparts, each of which, when executed by both parties to this
agreement shall be deemed to be an original, and all of which counterparts
together shall constitute one and the same instrument; (ii) shall be governed by
and construed under the laws of the State of New York applicable to contracts
made, accepted, and performed wholly within such state, without application of
principles of conflicts of laws; (iii) together with the Certificate of
Formation and Operating Agreement of the Company, constitutes the entire
agreement of the parties with respect to its subject matter, superseding all
prior oral and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties in such respect; (iv) may be amended, modified, or terminated, and
any right under this Agreement may be waived in whole or in part, only by a
writing signed by both parties of this Agreement; (v) contains headings only for
convenience, which headings do not form part, and shall not be used in
construction, of this Agreement; and (vi) shall bind and inure to the benefit of
the parties and their respective legal representatives, successors and assigns,
except that no party may delegate any of its obligations under this agreement or
assign this agreement, without the prior written consent of the other party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
ENTRADE, INC.
By:_______________________________
Title:____________________________
ASSETCONTROL.COM, LLC
By:_______________________________
Title:____________________________
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SCHEDULE I
Contributed Assets
Nonexclusive license for certain computer software known as the Entrade
Transaction Software, pursuant to an Entrade Standard Form Software License
Agreement between Entrade and the Company substantially in the form attached,
with such changes as may be mutually agreed to by the parties.
Services.
EXHIBIT 10.45
NONCOMPETITION AGREEMENT
This Noncompetition Agreement ("Agreement") is entered into as of this
9th day of March, 2000, by and among AssetControl.com, LLC, a Delaware limited
liability company ("Company"), Textron Financial Corporation, a Delaware
corporation ("TFC"), Entrade Inc., a Pennsylvania corporation ("Entrade"), and
ATM Service, Ltd., a New York corporation ("ATM" and together with TFC and
Entrade are sometimes referred to as the "Members" and individually as a
"Member") who agree as follows:
1. Introduction. Contemporaneously with the execution and delivery of
this Agreement, each Member has entered into a Contribution Agreement between
Company and such Member (the "Contribution Agreement") pursuant to which such
Member has contributed certain assets of Member to Company for a membership
interest in Company on the terms and conditions set forth therein. Member is a
member of Company, whose agreement not to compete with Company and its
subsidiaries (the "Protected Group") is essential to the Protected Group's
ability to succeed. As a condition to Company's agreement to perform its
obligations under the Contribution Agreement, the Company has required that
Member enter into this Agreement for the benefit of the Protected Group.
2. Agreements. For $100 in hand paid to each Member and as inducement
for Company to enter into and perform its obligations under the Contribution
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Member agrees that so long as
such Member is a Member of the Company and for a period of two years thereafter
(except in the event that the Company is dissolved sooner), no Member nor any of
such Member's Affiliates (as defined below) shall, directly or indirectly, for
its own account or for the account of others, as a shareholder, member, owner,
partner, promoter, consultant, manager, advisor or otherwise:
(a) individually engage in, or participate (i) in the case of ATM
or Entrade, with any North American bank, national financial
institution or Fortune 500 industrial company, or (ii) in the
case of TFC, with any company providing asset disposition
services, in the promotion, formation, advancement, financing,
ownership, management, or provision of services for, any
business or other related enterprise, which, as its primary
business, provides asset disposition services in North America
for surplus machinery and equipment and excess inventories in
a manner and form that competes directly with the Protected
Group (as defined below); provided, however, that any Member
is expressly permitted to hold up to a twenty-six percent
(26%) passive ownership interest in any such business; and,
provided further, that (i) nothing in this Section 2(a) shall
limit the right of any party to engage or participate in other
Internet-based enterprises, including, without limitation,
Internet-based asset disposition businesses, that do not
compete directly with the Protected Group, and (ii) the
pursuit of such engagement or participation shall in no event
be deemed to be wrongful or improper or a breach of the
pursuing Member's fiduciary obligation to present
opportunities to the Company.
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(b) knowingly solicit for employment any person employed by the
Protected Group at the date hereof, or any time in the future,
unless: (i) such Member solicits such person for employment at
least six months after such person was last employed by any
member of the Protected Group or (ii) such Member was not
aware of and should not have been aware of the employment of
such person by any member of the Protected Group; provided,
however, that such Member and any of its Affiliates may employ
any such person who applies for employment in response to a
general solicitation or advertisement, or who such Member can
demonstrate first approaches such Member or such Affiliate
concerning possible employment; or
(c) request, advise or attempt to influence any person or entity
which is a source of materials, supplies, personnel, services,
funds or information for the Protected Group to withdraw,
cancel or curtail the sale or furnishing of such items to such
member of the Protected Group.
(d) For purposes of this Agreement, the phrase "competes directly
with the Protected Group" shall mean providing asset
disposition services for all classes of surplus machinery,
equipment, excess inventories and commercial real estate in a
horizontal application across all industry segments in the
United States.
Notwithstanding the foregoing provisions of this Section 2, the parties agree
that: (i) Entrade has created and intends to continue to create numerous
vertical applications for asset disposition services within specific industry
segments, which currently include Nationwide Auction Systems, utiliparts.com,
asseTrade.com, printeralliance.com, TruckCenter.com and TradeTextile.com. None
of such businesses, nor any similar industry-specific vertical businesses, shall
be deemed to compete directly with the Protected Group; and (ii) with respect to
ATM, the disposition of non-industrial excess finished goods inventories shall
not be deemed to compete directly with the Protected Group.
3. Prospective Customers. In the event a prospective customer of the
Protected Group elects not to transact business with the Company and either
Entrade or ATM or both enters into a relationship with such prospective customer
in violation of Section 2(a) pursuant to which such prospective customer,
Entrade or ATM, as the case may be, competes directly with the Protected Group
(as defined in Section 2(d)), then Entrade or ATM will pay to TFC twenty-five
percent (25%) of the commission revenues or, in the case of an asset acquisition
and sale, net proceeds received by Entrade or ATM from such business.
4. Compliance with Law. Each Member acknowledges that it has consulted
with counsel of its choosing with respect to this Agreement and understands
fully the legal and practical significance of its execution and delivery of this
Agreement. Each Member acknowledges and agrees that this Agreement is ancillary
to the Contribution Agreement, that the Contribution Agreement is enforceable
and that the limitations contained herein with respect to time, geographical
area and scope of activity to be restrained are reasonable and do not impose a
greater restraint than is necessary to protect the goodwill or other business
interests of the Protected Group.
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5. Breach of Restrictive Covenants. Each Member acknowledges that any
violation of any of the restrictive covenants contained in this Agreement will
cause irreparable harm to the Protected Group for which monetary damages would
not be adequate compensation. Each Member, therefore, agrees that, if it
violates or threatens to violate any of these restrictive Agreements, the
Protected Group shall be entitled, in addition to any other legal or equitable
remedies available to it, to entry of an injunction, temporary and permanent,
enjoining such breach and securing specific performance of this Agreement.
6. Amendments. This Agreement may be amended only by a written
agreement entered into by and among Company and the Members.
7. Severability of Terms. If any of the agreements or restrictions in
this Agreement are held invalid by a court of competent jurisdiction, such
holding will not invalidate any of the other agreements and/or restrictions
herein, as it is intended that the agreements and/or restrictions herein shall
be severable and that the invalidity of one shall not invalidate any others.
8. Reformation. If this Agreement is found to contain limitations as to
time, geographical area, or scope of activity to be restrained that are not
reasonable and impose a greater restraint that is necessary to protect the
goodwill or other business interest of the Protected Group, the court shall
reform this Agreement to the extent necessary to cause the limitations contained
in the Agreement as to time, geographical area, and scope of activity to be
restrained to be reasonable and to impose a restraint that is not greater than
necessary to protect the goodwill or other business interest of the Protected
Group and enforce the Agreement as reformed.
9. Waiver. No omission or delay on the part of any party of due and
punctual fulfillment of any obligation shall be deemed to constitute a waiver by
any other party of any of its rights to require such due and punctual
fulfillment of any other obligation hereunder, whether similar or otherwise, or
a waiver of any remedy it may have. A waiver by a member of the Protected Group
of similar rights to any other member shall not constitute a waiver of the
Protected Group's rights with respect to any Member.
10. Governing Law. In the event of any dispute arising under this
Agreement, it is agreed by the parties that the law of the State of New York
will govern the interpretation, validity, and effect of this Agreement without
regard to the place or performance thereof.
11. References. All headings, captions or arrangements used in this
Agreement are intended solely for the convenience of the parties and shall not
be deemed to limit, amplify or modify the terms of this Agreement nor affect the
meaning thereof. Whenever in this Agreement the word "including" is used, it
shall be deemed to be for purposes of identifying only one or more of the
possible alternatives, and the entire provision in which such word appears shall
be read as if the phrase "including without limitation" were actually used in
the text. The term "Affiliate" means, when used with reference to a specified
person, any person who directly or indirectly, is controlled by the specified
person.
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12. Notices. Any notice required or permitted under this Agreement shall
be given in writing and shall be deemed to have been duly given if (i) sent by
postage prepaid, United States first class, registered or certified mail, return
receipt requested, or (ii) sent by a recognized overnight delivery service to
the parties at their respective addresses specified below, or at such other
address for a party as that party may specify by notice. Notice shall be
effective upon receipt.
(a) If to Company: AssetControl.com, LLC
40 Westminster Street
Providence, RI 02903
Attn: General Manager
(b) If to TFC: Textron Financial Corporation
40 Westminster Street
Providence, RI 02903
Attn: General Counsel
(c) If to Entrade: Entrade Inc.
500 Central Avenue
Northfield, IL 60093
Attn: General Counsel
(d) If to ATM: ATM Service, Ltd.
220 White Plains Road
Tarrytown, New York 10591
Attn: General Counsel
13. Assignment. This Agreement shall inure to the benefit of and by
binding upon the Protected Group and their respective successors and assigns and
each Member and its successors and assigns. No Member shall be entitled to
assign any obligations or rights hereunder without the prior written consent of
Company.
14. Entire Agreement. Except for the Contribution Agreement and the
Operating Agreement of the Company, this Agreement represents the full agreement
among the Members and the Company with respect to the subject matter hereof and
supersedes any other agreements, oral or written, among the parties. In signing
this Agreement, neither any Member nor Company relied upon any promise,
representation, or any other inducement that is not expressed in this Agreement.
15. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
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EXECUTED as of the date first written above.
TEXTRON FINANCIAL CORPORATION
By:________________________________
Its:_______________________________
ASSETCONTROL.COM, LLC
By:________________________________
Its:_______________________________
ENTRADE INC.
By:________________________________
Its:_______________________________
ATM SERVICE, LTD.
By:________________________________
Its:_______________________________
EXHIBIT 10.46
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made and entered into on
December 8 , 1998, by and between Asset Liquidation Group, Inc., a corporation,
("Borrower") and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security
agreement(s) executed by Borrower in favor of Bank, any note(s) executed by
Borrower in favor of Bank, or any other agreements executed in conjunction
therewith (collectively, the "Loan Documents"), Bank shall make the loans and or
advances (individually a "Loan" and collectively "Loans") referred to below to
Borrower.
In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 Revolving Credit Commitment.
(a). Revolving Line of Credit. Subject to the terms and conditions of
this Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon Borrower's request make advances ("Revolving
Loans") to Borrower, for working capital purposes, in an amount not to exceed
$3,000,000 (the "Revolving Line of Credit") until December 8, 2000 (the
"Revolving Line of Credit Maturity Date"). Revolving Loans may be repaid and
reborrowed, provided that all outstanding principal and accrued interest on the
Revolving Loans shall be payable in full on the Revolving Credit Maturity Date.
(b) Revolving Note. The interest rate, principal and interest payments,
maturity date and certain other terms of the Revolving Loan will be contained in
a promissory note dated the date of this agreement, as such may be amended or
replaced from time to time.
1.02 Loan Fee. In addition to any other amounts due, or to become due,
concurrent with the execution hereof, in connection with the Revolving Line of
Credit, Borrower shall pay to Bank a loan fee of Thirty Thousand Dollars
($30,000), Borrower has paid, and Bank hereby acknowledges receipt of in respect
of the Revolving Line of Credit, a loan fee in the amount of Thirty Thousand
Dollars ($30,000).
1.03. Documentation Fee, Costs and Expenses. In addition to any other amounts
due, or to become due, concurrently with the execution hereof, Borrower agrees
to pay to Bank a documentation fee in the amount of $250, and all other costs
and expenses incurred by the Bank in the preparation of this Agreement, the
other Loan Documents and the perfection of any security interest granted to Bank
by Borrower.
1.04 Collateral. Borrower shall grant or cause to be granted to Bank a first
priority lien on any and all personal property assets of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest or pursuant to the terms of any
security agreement, an intellectual property security agreement or otherwise as
security for all of Borrower's obligations to Bank.
1.05 Collection of Payments. Borrower authorizes Bank to collect all interest,
fees, costs, and/or expenses due under this Agreement by charging Borrower's
demand deposit account number 88010051 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
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2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 Existence and Rights. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of California, without
limit as to the duration of its existence each Borrower is authorized and in
good standing to do business in the state of its incorporation; each Borrower
has the appropriate powers and adequate authority, rights and franchises to own
its property and to carry on its business as now conducted, and is duly
qualified and in good standing in each state in which the character of the
properties owned by it therein or the conduct of its business makes such
qualification necessary; and Borrower has the power and adequate authority to
make and carry out this Agreement.
2.02 Agreement Authorized. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's charter/articles of incorporation, by-laws, operating
agreement, or similar document as the case may be, and this Agreement is the
valid, binding and legally enforceable obligation of Borrower in accordance with
its terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.
2.03 No Conflict. The execution, delivery and performance of this Agreement and
the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 Litigation. Except as disclosed in writing to bank by Borrower, there is no
litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 Financial Condition. The consolidated balance sheet of Borrower as of
August 31, 1998, and the related profit and loss statement for the eight months
(8) ended as of that date, a copy of which has heretofore been delivered to Bank
by Borrower, and all other statements and data submitted in writing by Borrower
to Bank in connection with this request for credit are true and correct, and
said balance sheet truly presents the financial condition of Borrower as of the
date thereof, and has been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no material adverse changes in the financial condition or business of
Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise,
at such date not reflected in said balance sheet, and Borrower has not entered
into any special commitments or substantial contracts which are not reflected in
said balance sheet, other than in the ordinary and normal course of its
business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
2.06 Title to Assets. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
5.03 hereof.
2.07 Tax Status. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
2.08 Trademarks, Patents. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
<PAGE>
2.09 Regulation U. None of the proceeds of any Loan shall be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the minimum funding standards of Section 302 of ERISA,
and no Reportable Event or Prohibited Transaction as defined in ERISA has
occurred with respect to any such plan.
2.11 Year 2000 Compliance. Borrower and its subsidiaries, as applicable, have
reviewed the areas within their operations and business which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and have made related appropriate inquiry of
material suppliers and vendors, and based on such review and program, the Year
2000 Problem will not have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates one or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN.
Prior to Bank being obligated to make any Loan pursuant to
this Agreement, Bank must receive all of the following, each of which must be in
form and substance satisfactory to Bank:
3.01 Promissory Note(s). Original, executed promissory note(s).
3.02 Security Agreement. Original, executed security agreements covering the
personal property collateral securing the Loans and the collateral securing the
Continuing Guarantee of Public Liquidation systems, Inc..
3.03 Financing Statement. Financing statements executed by Borrower and any
grantor of security.
3.04 Guarantee(s). Continuing Guarantee(s) in favor of Bank executed by Donald
Haidl in the amount of $3,000,000 and Public Liquidation Systems, Inc., in the
amount of $3,000,000, "Guarantor" individually a Guarantor and jointly the "
Guarantors".
3.05 Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to Section 4.03 in form, substance, amounts, covering
risks and issued by companies satisfactory to Bank, and where required by Bank,
with loss payable endorsements in favor of Bank.
3.06 Organizational Documents. Copies of the charter/articles of incorporation
or similar document as the case may be, of the Borrower and Guarantor.
3.07 Authorizations. Certified copies of all action taken by the Borrower to
authorize the execution, delivery and performance of the Loan Documents.
3.08 Good Standing . Good standing certificates from the appropriate secretary
of state of the state in which the Borrower and Guarantor is required to be
qualified to do business.
3.09 Additional Documents. Such other documents as Bank may reasonable deem
necessary.
<PAGE>
4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, or so long as Bank has any obligation to
extend credit to Borrower it will, unless Bank shall otherwise consent in
writing:
4.01 Rights and Facilities. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 Use of Proceeds. Use the proceeds of the Loans only for purposes specified
in Section 1 of this Agreement.
4.03 Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment. Bank to be shown as Lenders Loss Payee on such policies.
4.04 Taxes and Other Liabilities. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated
to the extent required by generally accepted accounting practice)
deemed by it to be adequate with respect thereto.
4.05 Records and Reports. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times and upon reasonable notice
during normal business hours; and furnish Bank:
(a) Quarterly Financial Statement. As soon as available, and
in any event within forty five (45) days after the close of each
quarter, a consolidated balance sheet, profit and loss statement and
reconciliation of Borrower's capital balance accounts as of the close
of such period and covering operations for the portion of Borrower's
fiscal year ending on the last day of such period, all in reasonable
detail and reasonably acceptable to Bank, in accordance with generally
accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower.
(b) Annual Financial Statement. As soon as available, and in
any event within one hundred twenty (120) days after and as of the
close of each fiscal year of Borrower, a consolidated report of audit
of Company, all in reasonable detail, prepared on a audited basis by an
independent certified public accountant selected by Borrower and
reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
<PAGE>
(c) Audit Reports. Promptly after the receipt thereof by
Borrower, copies of any detailed audit reports submitted to Borrower by
independent accountants in connection with each annual or interim work
on the accounts of Borrower made by such accountants;
(d) Guarantors' Financial Statements. Cause each Guarantor to
submit to Bank such Guarantor's financial statement, confirmed as to
its correctness by Guarantor's signature, either on Bank's form or
prepared by an independent certified public accountant, together with a
copy of such Guarantor's federal income tax return for the previous
calendar year, no later than ten (10) after filing of same with the
Internal Revenue Service.
(e) Other Information. Such other information relating to the
affairs of Borrower as the Bank reasonably may request from time to
time.
4.06 Liquidity Ratio. Maintain on a quarterly basis a consolidated minimum ratio
of cash plus accounts receivable divided by trade accounts payable to consignors
of 1.10:1.00 beginning on March 31, 1999 and every quarter thereafter.
4.07 Tangible Net Worth. Maintain on a quarterly basis a consolidated Tangible
Net Worth (defined as stockholder's equity less any value for goodwill,
trademarks, patents, copyrights, leaseholds, organization expense and other
similar intangible items, and any amounts due from stockholders, officers and
affiliates) plus Subordinated Debt of not less than Five Hundred Thousand
Dollars ($500,000) beginning March 31, 1999 increased to One Million Dollars
($1,000,000) at December 31, 1999 and every quarter thereafter.
4.08 Debt to Net Worth. Maintain on a quarterly basis a consolidated ratio of
total liabilities to Tangible Net Worth of not greater than 6.00:1.0 beginning
March 31, 1999 reduced to 4.00:1.0 at December 31, 1999 and every quarter
thereafter..
4.09 Profitability. Maintain and retain on a consolidated basis, profitable
operations (meaning a net profit after taxes) of at least Five Hundred Thousand
Dollars ($500,000) on a annual basis at fiscal year end.
4.10 Guarantor Liquidity. Cause the persoanl guarantor, Donald Haidl, to
maintain on a daily basis a minimum of $1,000,000 in liquid assets (defined as
cash, cash equivalents and marketable securities).
4.11 ERISA. Cause all defined benefit pension plans, as defined in ERISA, of
Borrower to, at all times, meet the minimum funding standards of Section 302 of
ERISA, and ensure that no Reportable Event or Prohibited Transaction, as defined
in ERISA, will occur with respect to any such plan.
4.12 Laws. At all times comply with, or cause to be complied with, all laws,
statues, rules, regulations, orders and directions of any governmental authority
having jurisdiction over Borrower or Borrower's business.
4.13 Use of Proceeds. Use the proceeds of the Loans only for the purposes
specified in Section 1
herein.
4.14 GAAP. Compliance with all financial covenants shall be calculated based on
generally accepted accounting principles applied on a consistent basis as
maintained by Borrower.
4.15 Year 2000 Compliant. Borrower shall perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive review
and assessment of all Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall, immediately upon request, provide to Agent
such certifications or other evidence of Borrower's compliance with the terms of
this paragraph as Bank may from time to time require.
<PAGE>
4.16 Operating Accounts. Maintain all primary accounts and banking relationship
with the Bank. Maintain, or cause to be maintained, on deposit with Bank,
non-interest bearing demand deposit balances sufficient to compensate Bank for
all services provided by Bank. Balances shall be calculated after reduction for
the reserve requirement of the Federal Reserve Board and uncollected funds. Any
deficiencies shall be charged directly to the Borrower on a monthly basis.
4.17 Notices. Promptly notify Bank in writing of (i) the occurrence of any Event
of Default hereunder or any event which upon notice and lapse of time would be
an Event of Default; (ii) all litigation affecting Borrower where the amount is
$10,000 or more; any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; any change in
Borrower's name or principal place of business; or any other matter which has
resulted or might result in a material adverse change in Borrower's financial
condition or operations.
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 Type of Business; Management; Change in Control. Make any substantial
change in the character of its business; make any change in its executive
management or permit the current shareholders to decrease their ownership in
Borrower.
5.02 Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than Loans from the Bank except
obligations now existing as shown in the financial statement dated August 31,
1998, excluding those obligations being refinanced by Bank and other than
indebtedness incurred to purchase that property located at 1 Oak Road Benicia,
CA 94510 and the unsecured term loan financing the improvements for said
property, or sell or transfer, either with or without recourse, any accounts or
notes receivable or any moneys due or to become due.
5.03 Liens and Encumbrances. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind upon any asset now owned or hereafter
acquired by it, other than liens for taxes not delinquent and liens in Bank's
favor and other than lies agreed to in writing by Bank.
5.04 Loans, Investments, Secondary Liabilities. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business as now conducted or make any investment in the securities of any person
or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
5.05 Sale of Business; Merger or Consolidation. Liquidate, dissolve, merge or
consolidate, or commence any proceedings therefor; or sell any assets except in
the ordinary and normal course of its business as now conducted; or sell, lease,
assign, or transfer any substantial part of its business or fixed assets, or any
property or other assets necessary for the continuance of its business as now
conducted, including without limitation the selling of any property or other
asset accompanied by the leasing back of the same.
5.06 Capital Expenditures. Make or incur obligations for fixed or capital
assets, which includes purchase money indebtedness or capital lease obligations,
but excluding real estate property in excess of $500,000 from the date hereof
until December 31, 1999 or $500,000 in any twelve (12) month period thereafter.
5.07 Operating Lease Expenditures. Make or incur obligations for operating
leases for real or personal property in excess of $1,000,000 from the date
hereof until December 31, 1999 or $1,000,000 in any twelve (12) month period
thereafter.
<PAGE>
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
6.01 Failure to Pay. Failure to pay any installment of principal or of interest
on any indebtedness of Borrower to Bank within, five (5) days of its due date.
6.02 Breach of Covenant. Failure of Borrower to perform any other term or
condition of this Agreement or any Loan Document binding upon Borrower.
6.03 Breach of Warranty. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any respect.
6.04 Insolvency; Receiver or Trustee. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
6.05 Judgments, Attachments. Any money judgment in excess of $10,000, writ or
warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of ten (10) days or in any event later than five (5) days prior to
the date of any proposed sale thereunder.
6.06 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 Revocation of Guarantee Subordination Agreement. Any Guarantee or
subordination agreement required hereunder is breached or becomes ineffective;
or any Guarantor or subordination creditor disavows or attempts to revoke or
terminate such guarantee or subordination agreement.
6.08 Cessation of Business. Borrower shall voluntarily suspend its business.
6.09 Adverse Change. Any change which, in the opinion of Bank, is materially
adverse to the financial condition of Borrower or any Guarantor; or should Bank,
for any reason, believe that the prospect of Borrower's payment or performance
hereunder or under any other agreement or instrument with Bank be impaired.
6.10 Other Defaults. Borrower, or any Guarantor of Borrower's obligations to
Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
6.11 Advances. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 Failure or Indulgence Not Waiver. No failure or delay on the part of Bank
or any holder of notes issued hereunder, in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note (s) issued in connection with
a Loan that Bank may make hereunder, are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
7.02 Counterparts; Entire Agreement. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede any prior agreements, written or oral, with respect thereto.
<PAGE>
7.03 Attorney's Fees. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default, whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
7.04 Additional Remedies. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 Inurement. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower.
7.06 Applicable Law. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the state of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
7.07 Offset. In addition to and not in limitation of all rights of offset that
Bank or other holder of the Loan may have under applicable law, Bank or other
holder of any note issued hereunder shall, upon the occurrence of any Event of
Default or any event which with the passage of time or notice would constitute
such an Event of Default, have the right to appropriate and apply to the payment
of the Loan any and all balances, credits, deposits, accounts or monies of
Borrower then or thereafter with Bank or other holder, within ten (10) days
after the Event of Default, and notice of the occurrence of any Event of Default
by Bank to Borrower.
7.08 Severability. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 Time of the Essence. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
7.10 Accounting. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 Reference Provision.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Credit Agreement, any security agreement executed by Borrower
in favor of Bank or any note executed by Borrower in favor of Bank or any other
agreement or instrument issued in favor of Bank by Borrower (collectively in
this Section, the "Agreement") which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
the date on which a party subject to this Agreement gives written notice to all
other parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
<PAGE>
located or San Diego County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP ss.170.6. The
referee shall (a) be requested to set the matter for hearing within sixty (60)
days after the date of selection of the referee and (b) try any and all issues
of law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will be
final, binding and conclusive and judgment shall be entered pursuant to CCP
ss.644 in any court in the state of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the state of California. The
rules of evidence applicable to proceedings at law in the state of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, ss.1280 through ss.1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
<PAGE>
7.12 Suretyship Waivers and Consents. Each Borrower agrees that it is jointly
and severally, directly, and primarily liable to Bank for payment in full of all
obligations under the Loan Documents ("Obligations") and that such liability is
independent of the duties, obligations and liabilities of the other Borrower.
The Loan Documents are a primary and original obligation of each Borrower, are
not the creation of a surety relationship, and are an absolute, unconditional,
and continuing promise of payment and performance which shall remain in full
force and effect without respect to future changes in conditions, including any
change of law or any invalidity or irregularity with respect to the Loan
Documents. Each Borrower acknowledges that the obligations of such Borrower
undertaken herein might be construed to consist, at least in part, of the
guaranty of obligations of persons or entities other than such Borrower
(including any other Borrower party hereto) and, in full recognition of that
fact, each Borrower consents and agrees that the Bank may, at any time and from
time to time, without notice or demand, whether before or after any actual or
purported termination, repudiation, or revocation of this Agreement by any one
or more Borrowers, and without affecting the enforceability or continuing
effectiveness hereof as to each Borrower: (a) supplement, restate, modify,
amend, increase, decrease, extend, renew, accelerate, or otherwise change the
time for payment or the terms of the Obligations or any part thereof, including
any increase or decrease of the rate(s) of interest thereon; (b) supplement
restate, modify, amend, increase, decrease or waive, or enter into or give any
agreement, approval, or consent with respect to, the Obligations or any part
thereof, or any of the Loan Documents or any additional security or guaranties,
or any condition covenant, default, remedy, right, representation or term
thereof or thereunder; (c) accept new or additional instruments, documents or
agreements in exchange for or relative to any of the Loan Documents or the
Obligations or any part thereof; (d) accept partial payments on the Obligations;
(e) receive and hold additional security or guaranties for the Obligations or
any part thereof; (f) release, reconvey, terminate, waive, abandon, fail to
perfect, subordinate, exchange, substitute, transfer, or enforce any security or
guaranties, and apply any security and direct the order or manner of sale
thereof as the Bank in its sole and absolute discretion may determine; (g)
release any Person from any personal liability with respect to the Obligations
or any part thereof; (h) settle, release on terms satisfactory to the Bank or by
operation of applicable laws, or otherwise liquidate or enforce any Obligations
and any security therefor or guaranty thereof in any manner, consent to the
transfer of any security and bid and purchase at any sale; or (i) consent to the
merger, change, or any other restructuring or termination of the corporate or
partnership existence of any Borrower or any other Person, and correspondingly
restructure the Obligations, and any such merger, change, restructuring, or
termination shall not affect the liability of any Borrower or the continuing
effectiveness hereof, or the enforceability hereof with respect to all or any
part of the Obligations.
Upon the occurrence and during the continuance of any Event of
Default, the Bank may enforce this Agreement independently as to each Borrower
and independently of any other remedy or security the Bank at any time may have
or hold in connection with the Obligations, and it shall not be necessary for
the Bank to marshal assets in favor of any Borrower or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce this Agreement. Each Borrower expressly waives any right to require the
Bank to marshal assets in favor of any Borrower or any other Person or to
proceed against any other Borrower or any Collateral provided by any Person, and
agrees that the Bank may proceed against Borrowers or any Collateral in such
order as it shall determine in its sole and absolute discretion.
The Bank may file a separate action or actions against any Borrower,
whether action is brought or prosecuted with respect to any security or against
any other person, or whether any other person is joined in any such action or
actions. Each Borrower agrees that the Bank and any Borrower and any affiliate
of any Borrower may deal with each other in connection with the Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of this Agreement.
<PAGE>
The Bank's hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be required
to be restored or returned by the Bank, all as though such amount had not been
paid. The rights of the Bank created or granted herein and the enforceability of
this Agreement at all times shall remain effective to cover the full amount of
all the Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against any Borrower and whether or not any other
Borrower shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law and to the extent
that a Borrower is deemed a guarantor, each Borrower expressly waives any and
all defenses now or hereafter arising or asserted by reason of (a) any
disability or other defense of any other Borrower with respect to the
Obligations, (b) the unenforceability or invalidity of any security or guaranty
for the Obligations or lack of perfection or continuing perfection or failure of
priority of any security for the Obligations, (c) the cessation for any cause
whatsoever of the liability of any other Borrower (other than by reason of the
full payment and performance of all Obligations), (d) any failure of the to
marshal assets in favor Bank of any Borrower or any other person, (e) any
failure of the Bank to give notice of sale or other disposition of collateral to
any Borrower or any other Person or any defect in any notice that may be given
in connection with any sale or disposition of collateral, (f) any failure of the
Bank to comply with applicable law in connection with the sale or other
disposition of any collateral or other security for any Obligation, including
any failure of the Bank to conduct a commercially reasonable sale or other
disposition of any collateral or other security for any Obligation, (g) any act
or omission of the Bank or others that directly or indirectly results in or aids
the discharge or release of any Borrower or the Obligations or any security or
guaranty therefor by operation of law or otherwise, (h) any law which provides
that the obligation of a surety or guarantor must neither be larger in amount
nor in other respects more burdensome than that of the principal or which
reduces a surety's or guarantor's obligation in proportion to the principal
obligation, (i) any failure of the Bank to file or enforce a claim in any
bankruptcy or other proceeding with respect to any Person, (j) the election by
the Bank of the application or non-application of Section 1111(b)(2) of the
United States Bankruptcy code, (k) any extension of credit or the grant of any
lien under Section 364 of the United States Bankruptcy code, (1) any use of cash
collateral under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate protection in
any bankruptcy proceeding of any Person, (n) the avoidance of any lien in favor
of the Bank for any reason, or (o) any action taken by the Bank that is
authorized by this section or any other provision of any Loan Document. Until
such time as all of the Obligations have been fully, finally, and indefeasibly
paid in full in cash: (i) each Borrower hereby waives and postpones any right of
subrogation it has or may have as against any other Borrower respect to the
Obligations; and (ii) in addition, each borrower also hereby waives and
postpones any right to proceed or to seek recourse against or with respect to
any property or asset of any other Borrower. Each borrower expressly waives all
setoffs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and all other notices or demands of any kind or
nature whatsoever with respect to the Obligations, and all notices of acceptance
of this Agreement or of the existence, creation or incurring of new or
additional Obligations.
In the event that all or any part of the Obligations at any
time are secured by any one or more deeds of trust or mortgages or other
instruments creating or granting liens on any interests in real property, each
Borrower authorizes the Bank, upon the occurrence of and during the continuance
of any Event of Default, at its sole option, without notice or demand and
without affecting the obligations of any Borrower, the enforceability of this
Agreement, or the validity or enforceability of any Liens of th Bank , to
foreclose any or all of such deeds of trust or mortgages or other instruments by
judicial or nonjudicial sale.
<PAGE>
To the fullest extent permitted by applicable law, to the extent that a
Borrower is deemed a guarantor, each Borrower expressly waives any defenses to
the enforcement of this Agreement or any rights of the Bank created or granted
hereby or to the recovery by the Bank against any Borrower or any other Person
liable therefor of any deficiency after a judicial or nonjudicial foreclosure or
sale, even though such a foreclosure or sale may impair the subrogation rights
of Borrowers and may preclude Borrowers from obtaining reimbursement or
contribution from other Borrowers. To the fullest extent permitted by applicable
law, each Borrower expressly waives any suretyship defenses or benefits that it
otherwise might or would have under applicable law. WITHOUT LIMITING THE
GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE BANK, EVEN THOUGH
THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR THE OBLIGATIONS, HAS DESTROYED SUCH BORROWER'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE OTHER BORROWERS BY THE OPERATION LAW,
INCLUDING BUT NOT LIMITED TO SECTION 580d OF THE CODE OF CIVIL PROCEDURE, OR
OTHERWISE.
Borrower and each of them warrant and agree that each of the waivers
and consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Borrower otherwise
may have against any other Borrower, the Bank or others, or against Collateral.
If any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
7.13 This Agreement may be modified only by a writing signed by all parties
hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK Asset Liquidation Group, Inc.
("Bank") ("Borrower")
By:________________________ By:__________________________
Its:_________________________ Its:
<PAGE>
First Amendment to the Credit Agreement.
This First Amendment ("First Amendment") amends that certain Credit Agreement
("Agreement") dated December 8, 1998 by and between Imperial Bank ("Bank") and
Asset Liquidation Group, Inc. ("Borrower") as follows:
1. Section 4.06 of the Agreement is hereby amended in full to read as
"Intentionally Left Blank".
2. Section 4.07 of the Agreement is hereby amended in full to read as
follows:
"4.07 Tangible Net Worth. Maintain on a quarterly basis a consolidated
Tangible Net Worth (defined as stockholder's equity less any value for
goodwill, trademarks, patents, copyrights, leaseholds, organization expense
and other similar intangible items, and any amounts due from stockholders,
officers and affiliates) plus Subordinated Debt of not less than:
o $1,250,000 at 3/31/2000;
o $1,500,000 at 6/30/2000;
o $2,000,000 at 9/30/2000;
o $3,000,000 at 12/31/2000 and every quarter thereafter."
3. Section 4.08 of the Agreement is hereby amended in full to read as
follows:
"4.08 Debt to Net Worth. Maintain on a quarterly basis a consolidated
ratio of total liabilities to
Tangible Net Worth of not greater than:
o 5.20 : 1.00 at 3/31/2000;
o 4.50 : 1.00 at 6/30/2000;
o 3.50 : 1.00 at 9/30/2000;
o 3.00 : 1.00 at 12/31/2000 and every quarter thereafter."
4. Section 4.09 of the Agreement is hereby amended in full to read as follows:
"4.09 EBITDA. Report on a consolidated basis, EBITDA (meaning earnings
before interest, taxes, depreciation and amortization of at least:
o $400,000 at 3/31/2000 measured for the 3 months ended;
o $1,800,000 at 6/30/2000 measured for the 6 months ended;
o $3,000,000 at 9/30/2000 measured for the 9 months ended;
o $4,500,000 at 12/31/2000 measured for the 12 months ended."
5. Except as provided above, the Agreement remains unchanged.
<PAGE>
6. This First Amendment is effective as of February 3, 2000 and the parties
hereby confirm that the Agreement as amended is in full force and effect.
Asset Liquidation Group, Inc.
By:_________________________________
Name: _____________________________
Title: _______________________________
IMPERIAL BANK
- ---------------------------------
Yong Choe
Commercial Loan Officer
EXHIBIT 10.47
FURTHER LEASE MODIFICATION AND AMENDMENT
AGREEMENT TO STANDARD INDUSTRIAL LEASE-SPECIAL NET DATED
SEPTEMBER 1, 1990
THIS MODIFICATION AND AMENDMENT TO STANDARD INDUSTRIAL LEASE-SPECIAL
NET DATED SEPTEMBER 1, 1990, as modified on August 20, 1993 ("Amendment") is
entered into effective as of the 15th day of October, 1999 ("Effective Date"),
between GUY CHRISTENSEN and JEANNE CHRISTENSEN, husband and wife; RUDY MACIAS
and TINA MACIAS, husband and wife; and DON G. HAIDL, an unmarried man
(hereinafter collectively referred to as "Lessor" or "Landlord") and Asset
Liquidation Group, Inc. (hereinafter referred to as "Lessee" or "Tenant").
RECITALS:
WHEREAS, the parties hereto are parties to that certain Standard
Industrial Lease-Special Net, dated as of September 1, 1990, as modified on
August 20, 1993 (the "Agreement" or "Lease"); and
WHEREAS, the parties hereto desire to further modify and amend certain
provisions of the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Lessor hereby grants Lessee the following right under the Lease:
Lessor hereby grants to Lessee the right of first refusal to purchase
the demised premises on the following terms and conditions:
<PAGE>
If Landlord, at any time during the term of this
Lease, elects to sell the property referred to herein as the demised
premises or a portion thereof, Tenant shall have the right of first
refusal to meet any bona fide offer to purchase from a third party on
the same terms and conditions of that offer, including but not limited
to the price and date for close of escrow. On receipt of a bona fide
third party offer for purchase of the demised premises that Landlord
desires to accept, Landlord shall notify Tenant in writing of the offer
and its terms and conditions. Tenant, within ten (10) days after
receipt by Tenant of Landlord's notice to Tenant specifying the terms
and conditions of sale, shall notify Landlord in writing whether or not
Tenant agrees to purchase the demised premises or portion thereof on
the same terms and conditions as contained in the third party offer. A
failure by Tenant to give Landlord written notification within the
prescribed time period shall be deemed notice to Landlord that Tenant
elects not to purchase the demised premises. If Tenant elects not to
purchase the demised premises, Landlord shall be free to sell the
demised premises or portion thereof to such third party in accordance
with the terms and conditions of the third party offer. If for any
reason the demised premises or portion thereof are not sold to the
party making the offer, Landlord shall give Tenant the same right to
purchase the demised premises or portion thereof upon receiving any
subsequent offer from any third party that is acceptable to Landlord.
The transfer of Landlord's title to the demised premises by will or
intestacy or to a trust for the benefit of Landlord or Landlord's
immediate family shall not be deemed to be a sale under the provisions
of this section.
2. Lessor hereby grants Lessee the following right under the Lease:
Lessor hereby grants to Lessee the right of first refusal to enter into
a new lease of the demised premises on the following terms and
conditions:
If Landlord, at any time during the term of this
Lease, elects to enter into a new lease of the property referred to
herein as the demised premises or a portion thereof, effective at the
expiration of the Term of this Lease, Tenant shall have the right of
first refusal to meet any bona fide offer to lease from a third party
that Landlord desires to accept on the same terms and conditions of
that offer, including but not limited to the rent amount and term
length of that bona fide offer. On receipt of a bona fide third party
offer for lease of the demised premises, Landlord shall notify Tenant
in writing of the offer and its terms and conditions. Tenant within ten
(10) days after receipt by Tenant of Landlord's notice to Tenant
specifying the terms and conditions of lease, shall notify Landlord in
writing whether or not Tenant agrees to enter into a lease of the
demised premises or portion thereof, at the expiration of the Term of
the Lease, on the same terms and conditions as contained in the third
party offer. A failure by Tenant to give Landlord written notification
within the prescribed time period shall be deemed notice to Landlord
that Tenant elects not to enter into a lease of the demised premises
pursuant to the offer. If Tenant elects not to enter into a lease of
the demised premises, Landlord shall be free to enter into a lease of
the demised premises or portion thereof to such third party in
accordance with the terms and conditions of the third party offer. If
for any reason the demised premises or portion thereof are not leased
to the party making the offer, Landlord shall give Tenant the same
right to lease the demised premises or portion thereof upon receiving
any subsequent offer from any third party that is acceptable to
Landlord.
3. Limitation of Amendment. This Amendment shall be limited solely to
the matters expressly set forth herein and shall not, except to the extent
expressly set forth herein, constitute an amendment of any other term or
condition of the Agreement or otherwise modify the Agreement.
4. Effectiveness. This Amendment shall become effective upon the
Effective Date. This Amendment may be executed in two or more counterparts, each
of which shall be an original, but all of which shall constitute one agreement.
A facsimile of an executed copy of this Amendment shall have the same force and
effect as an original executed copy.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
LESSORS: GUY CHRISTENSEN
JEANNE CHRISTENSEN
RUDY MACIAS
TINA MACIAS
DON G. HAIDL
LESSEE: ASSET LIQUIDATION GROUP, INC.
By:______________________________
Print Name and Title
By:______________________________
Print Name and Title
EXHIBIT 10.48
PROMISSORY NOTE SATISFACTION AGREEMENT
This Agreement (this "Agreement"), dated March __, 2000, is entered
into by and between Entrade Inc., a Pennsylvania corporation ("Payor") and Don
Haidl ("Payee").
WITNESSETH
WHEREAS, pursuant to a certain Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated October 15, 1999, by and among Payor, Payee and
certain other parties thereto, Payor, among other things, acquired all of the
Shares of the Acquired Corporations then owned by Payee in consideration of
413,000 shares of Payor's Stock issued to Payee, the Short Term Note issued to
Payee, and the Payee Note (as defined below) issued to Payee. Capitalized terms
used herein and not otherwise defined herein shall have the meaning set forth in
the Stock Purchase Agreement.
WHEREAS, pursuant to a certain Term Note (the "Payee Note"), dated
October 15, 1999, Payor promised to pay to the order of Payee Twelve Million Six
Hundred Thousand dollars ($12,600,000) in installments as follows: $3,150,000 on
the April 1, 2000 (the "Initial Installment"), $3,150,000 on October 1, 2000 and
$6,300,000 on October 1, 2001 (together with interest as provided in the Payee
Note, the "Note Obligations").
WHEREAS, Payor desires to satisfy all Note Obligations and Payee
desires to accept such satisfaction pursuant to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, the covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
I. The Payment and Satisfaction.
I.1. Terms of the Payment and Satisfaction. Payor agrees to accelerate
to March 20, 2000 (the "Cash Payment Date"), the payment of the Initial
Installment, plus interest earned through such date, by wire transfer of
immediately available funds to Payee (the "Cash Amount"); at Payee's request,
Payor will pay $315,000 of the Initial Installment, plus an allocable portion of
the interest earned thereon through such date, to JDK & Associates ("JDK"); the
remaining $2,835,000 of the Initial Installment, plus an allocable portion of
the interest earned thereon through such date, shall be paid to Payee.
Thereafter, on the Closing Date (as defined below), as payment in full for all
remaining Note Obligations, Payor will issue to Payee an aggregate of Two
Hundred Twelve Thousand Four Hundred Ninety Seven (212,497) and will issue to
JDK, at Payee's request, Twenty-Six Thousand Five Hundred Sixty-Two (26,562)
fully paid and non-assessable shares of Entrade's common stock (collectively,
the "Entrade Stock"). The Entrade Stock issued hereunder is hereby expressly
excluded from the Stock Restriction and Registration Rights Agreement dated as
of October 15, 1999, by and between Payor, Payee, and certain other parties
thereto (the "Stock Restriction Agreement").
I.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date hereof (the "Closing
Date") at the offices of the Payor three business days after the shareholders of
Payor approve of the transaction contemplated to take place at the Closing. If
the shareholders of the Payor do not approve such transaction, then Payor shall
remain obligated to satisfy all remaining Note Obligations in accordance with
the terms of the Payee Note.
I.3. Release from Stock Restriction Agreement. Payor hereby agrees that
239,059 of the Company Shares that are, as of the date hereof, subject to the
restrictions contained in Section 5 of the Stock Restriction Agreement shall be
deemed to be Saleable Company Shares from and after the date hereof.
II. Representations and Warranties of Payee.
Payee represents and warrants to Payor as follows:
II.1. Authorization. Payee has full power and authority to execute,
deliver and perform this Agreement and the transactions contemplated herein and
all other agreements, documents and instruments that may be executed by Payee in
connection with this Agreement. This Agreement has been duly executed and
delivered by Payee and constitutes the legal, valid and binding obligation of
Payee, enforceable against Payee in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting or relating to the enforcement of creditors rights generally and the
availability of equitable remedies, including specific performance.
II.2. No Violation, Etc. Neither Payee's execution and delivery of this
Agreement, nor the consummation of the transactions contemplated herein, nor
compliance by Payee with any of the provisions hereof will: (i) result in the
creation of any Encumbrance under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, agreement, or any
other instrument or obligation to which Payee is a party, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to Payee
or require consent or approval from any governmental, administrative or
self-regulatory authority.
II.3. Investment Representations. Payee is an accredited investor and
Payee is acquiring the Entrade Stock set forth herein for Payee's own account
(and not for the account of others), for investment and not with a view to the
sale, transfer, disposition or distribution thereof. Payee understands that the
Entrade Stock has not been registered under the securities laws of the United
States of America or any state or other political subdivision thereof, and that
such shares must be held indefinitely unless a subsequent disposition thereof is
registered under the United States and other applicable securities laws or is
exempt from registration. Payee will not sell or otherwise dispose of Entrade
Stock (whether pursuant to a liquidating distribution or otherwise) without
registration under the Securities Act of 1933 (the "Securities Act") or an
exemption therefrom, and the certificate or certificates representing the
Entrade Stock may contain a legend to the foregoing effect. Notwithstanding the
foregoing, Payee acknowledges that Payor intends to file, within twenty days of
the date of this agreement, a Registration Statement with the Securities and
Exchange Commission on Form S-4, which Registration Statement is intended to
include the Entrade Shares. Payor agrees to use its best efforts to file such
Registration Statements, to ensure that such Registration Statement includes the
Entrade Shares, and to take all reasonable actions to ensure that such
Registration Statement becomes effective.
<PAGE>
II.4. Ownership. Payee has all right, title and interest in and to the
Payee Note that Payee acquired on October 15, 1999, and has not assigned,
transferred, encumbered, hypothecated or otherwise transferred any right, title
or interest in or to the Payee Note to any third party.
II.5. Litigation. There is no litigation, proceeding or arbitral action
pending or, so far as is known to Payee, threatened against Payee that would
adversely affect Payee's ability to consummate the transactions contemplated
hereby.
III. Representations and Warranties of Payor.
Payor represents and warrants to Payee as follows:
III.1. Organization and Qualification. Payor is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania, with all requisite power and authority to own,
lease, license, and use its properties and assets and to carry on the business
in which it is now engaged and the business in which it contemplates engaging.
III.2. Authorization. This Agreement and all other agreements,
documents and instruments that may be executed by Payor in connection with this
Agreement and the transactions contemplated herein have been duly approved by
all necessary corporate action on the part of Payor. This Agreement has been
duly executed and delivered by Payor and constitutes the legal, valid and
binding obligation of Payor, enforceable against Payor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting or relating to the enforcement of creditors rights
generally and the availability of equitable remedies, including specific
performance.
III.3. No Violation, Etc. Neither Payor's execution and delivery of
this Agreement, nor the consummation of the transactions contemplated herein,
nor compliance by Payor with any of the provisions hereof will: (i) violate or
conflict with the articles of incorporation, by-laws or other organizational
documents of Payor, (ii) result in the creation of any Encumbrance under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, agreement, or any other instrument or obligation to which
Payor is a party, or (ii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Payor or require consent or approval from any
governmental, administrative or self-regulatory authority.
<PAGE>
III.4. Valid Issuance, Etc. At the Closing, the Entrade Stock will be
validly authorized, validly issued, fully paid, and nonassessable and will not
have been issued in violation of any preemptive right of stockholders, and Payee
will receive good title to the Entrade Stock, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts or other rights of any third party.
IIII.5. Litigation. There is no litigation, proceeding or arbitral
action pending or, so far as is known to Payor, threatened against Payor that
would adversely affect Payor's ability to consummate the transactions
contemplated hereby.
IV. Conditions to Closing.
The obligations of the parties hereto to consummate the transactions
contemplated hereby shall be subject to the fulfillment, or waiver, of the
following conditions:
IV.1. Payment. Payor shall have delivered the Cash Amount to Payee on
or about the Cash Payment Date, and Payor shall deliver the Entrade Stock to
Payee on the Closing Date.
IV.2. Cancellation of Payee Note. At the Closing, Payee shall deliver
to Payor the original Payee Note marked "CANCELLED."
V. Indemnification.
V.1. General. Each party (the "indemnifying party") shall indemnify and
hold harmless the other party and the other party's affiliates, officers,
directors, trustees, stockholders, employees, agents, and representatives from
and against any and all liabilities, claims, demands, actions, suits, losses,
damages, costs, and expenses (including, without limitation, reasonable
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), based upon or arising out of a breach of any covenant, agreement,
representation, or warranty made by the indemnifying party in this Agreement.
V.2. Survival. All representations, warranties, covenants, and
agreements contained in this Agreement shall survive the execution and delivery
of this Agreement and the Closing hereunder.
VI. Miscellaneous.
VI.1. Further Actions. At any time and from time to time, each party
agrees, at its expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
<PAGE>
VI.2. Modification. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements among them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
VI.3. Waiver. Any waiver by either party of a breach of any term of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
VI.4. Binding Effect. No party may sell, assign, transfer, or otherwise
convey any of its rights or delegate any of its duties under this Agreement
without first receiving the prior written consent of the other party, such
consent shall not be unreasonably withheld.
VI.5. Expenses. Each party shall be responsible for its own expenses in
connection with this Agreement.
VI.6. No Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement (except as provided in Section 6.4).
VI.7. Separability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
VI.8. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
VI.9. Counterparts; Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of Illinois,
without giving effect to conflict of laws.
*** Remainder of Page Intentionally Left Blank ***
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
------------------------------------
Don Haidl
ENTRADE INC.
------------------------------------
By: Mark F. Santacrose
Its:President
EXHIBIT 10.49
PROMISSORY NOTE SATISFACTION AGREEMENT
This Agreement (this "Agreement"), dated March __, 2000, is entered
into by and between Entrade Inc., a Pennsylvania corporation ("Payor") and Corey
P. Schlossmann ("Payee").
WITNESSETH
WHEREAS, pursuant to a certain Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated October 15, 1999, by and among Payor, Payee and
certain other parties thereto, Payor, among other things, acquired all of the
Shares of the Acquired Corporations then owned by Payee in consideration of
100,000 shares of Payor's Stock issued to Payee, the Short Term Note issued to
Payee, and the Payee Note (as defined below) issued to Payee. Capitalized terms
used herein and not otherwise defined herein shall have the meaning set forth in
the Stock Purchase Agreement.
WHEREAS, pursuant to a certain Term Note (the "Payee Note"), dated
October 15, 1999, Payor promised to pay to the order of Payee One Million Four
Hundred Thousand dollars ($1,400,000) in installments as follows: $350,000 on
the April 1, 2000 (the "Initial Installment"), $350,000 on October 1, 2000 and
$700,000 on October 1, 2001 (together with interest as provided in the Payee
Note, the "Note Obligations").
WHEREAS, Payor desires to satisfy all Note Obligations and Payee
desires to accept such satisfaction pursuant to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, the covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
I. The Payment and Satisfaction.
I.1. Terms of the Payment and Satisfaction. Payor agrees to accelerate
to March 20, 2000 (the "Cash Payment Date"), the payment of the Initial
Installment, plus interest earned through such date, by wire transfer of
immediately available funds to Payee (the "Cash Amount"). Thereafter, on the
Closing Date (as defined below), as payment in full for all remaining Note
Obligations, Payor will issue to Payee an aggregate of Twenty-Six Thousand Five
Hundred Sixty-Two (26,562) fully paid and non-assessable shares of Entrade's
common stock (collectively, the "Entrade Stock"). The Entrade Stock issued
hereunder is hereby expressly excluded from the Stock Restriction and
Registration Rights Agreement dated as of October 15, 1999, by and between
Payor, Payee, and certain other parties thereto (the "Stock Restriction
Agreement").
<PAGE>
I.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date hereof (the "Closing
Date") at the offices of the Payor three business days after the shareholders of
Payor approve of the transaction contemplated to take place at the Closing. If
the shareholders of the Payor do not approve such transaction, then Payor shall
remain obligated to satisfy all remaining Note Obligations in accordance with
the terms of the Payee Note.
I.3. Release from Stock Restriction Agreement. Payor hereby agrees that
26,562 of the Company Shares that are, as of the date hereof, subject to the
restrictions contained in Section 5 of the Stock Restriction Agreement shall be
deemed to be Saleable Company Shares from and after the date hereof.
II. Representations and Warranties of Payee.
Payee represents and warrants to Payor as follows:
II.1. Authorization. Payee has full power and authority to execute,
deliver and perform this Agreement and the transactions contemplated herein and
all other agreements, documents and instruments that may be executed by Payee in
connection with this Agreement. This Agreement has been duly executed and
delivered by Payee and constitutes the legal, valid and binding obligation of
Payee, enforceable against Payee in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting or relating to the enforcement of creditors rights generally and the
availability of equitable remedies, including specific performance.
II.2. No Violation, Etc. Neither Payee's execution and delivery of this
Agreement, nor the consummation of the transactions contemplated herein, nor
compliance by Payee with any of the provisions hereof will: (i) result in the
creation of any Encumbrance under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, agreement, or any
other instrument or obligation to which Payee is a party, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to Payee
or require consent or approval from any governmental, administrative or
self-regulatory authority.
II.3. Investment Representations. Payee is an accredited investor and
Payee is acquiring the Entrade Stock set forth herein for Payee's own account
(and not for the account of others), for investment and not with a view to the
sale, transfer, disposition or distribution thereof. Payee understands that the
Entrade Stock has not been registered under the securities laws of the United
States of America or any state or other political subdivision thereof, and that
such shares must be held indefinitely unless a subsequent disposition thereof is
registered under the United States and other applicable securities laws or is
exempt from registration. Payee will not sell or otherwise dispose of Entrade
Stock (whether pursuant to a liquidating distribution or otherwise) without
registration under the Securities Act of 1933 (the "Securities Act") or an
exemption therefrom, and the certificate or certificates representing the
Entrade Stock may contain a legend to the foregoing effect. Notwithstanding the
foregoing, Payee acknowledges that Payor intends to file, within twenty days of
the date of this agreement, a Registration Statement with the Securities and
Exchange Commission on Form S-4, which Registration Statement is intended to
include the Entrade Shares. Payor agrees to use its best efforts to file such
Registration Statements, to ensure that such Registration Statement includes the
Entrade Shares, and to take all reasonable actions to ensure that such
Registration Statement becomes effective.
<PAGE>
II.4. Ownership. Payee has all right, title and interest in and to the
Payee Note that Payee acquired on October 15, 1999, and has not assigned,
transferred, encumbered, hypothecated or otherwise transferred any right, title
or interest in or to the Payee Note to any third party.
II.5. Litigation. There is no litigation, proceeding or arbitral action
pending or, so far as is known to Payee, threatened against Payee that would
adversely affect Payee's ability to consummate the transactions contemplated
hereby.
III. Representations and Warranties of Payor.
Payor represents and warrants to Payee as follows:
III.1. Organization and Qualification. Payor is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania, with all requisite power and authority to own,
lease, license, and use its properties and assets and to carry on the business
in which it is now engaged and the business in which it contemplates engaging.
III.2. Authorization. This Agreement and all other agreements,
documents and instruments that may be executed by Payor in connection with this
Agreement and the transactions contemplated herein have been duly approved by
all necessary corporate action on the part of Payor. This Agreement has been
duly executed and delivered by Payor and constitutes the legal, valid and
binding obligation of Payor, enforceable against Payor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting or relating to the enforcement of creditors rights
generally and the availability of equitable remedies, including specific
performance.
III.3. No Violation, Etc. Neither Payor's execution and delivery of
this Agreement, nor the consummation of the transactions contemplated herein,
nor compliance by Payor with any of the provisions hereof will: (i) violate or
conflict with the articles of incorporation, by-laws or other organizational
documents of Payor, (ii) result in the creation of any Encumbrance under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, agreement, or any other instrument or obligation to which
Payor is a party, or (ii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Payor or require consent or approval from any
governmental, administrative or self-regulatory authority.
III.4. Valid Issuance, Etc. At the Closing, the Entrade Stock will be
validly authorized, validly issued, fully paid, and nonassessable and will not
have been issued in violation of any preemptive right of stockholders, and Payee
will receive good title to the Entrade Stock, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts or other rights of any third party.
<PAGE>
IIII.5. Litigation. There is no litigation, proceeding or arbitral
action pending or, so far as is known to Payor, threatened against Payor that
would adversely affect Payor's ability to consummate the transactions
contemplated hereby.
IV. Conditions to Closing.
The obligations of the parties hereto to consummate the transactions
contemplated hereby shall be subject to the fulfillment, or waiver, of the
following conditions:
IV.1. Payment. Payor shall have delivered the Cash Amount to Payee on
or about the Cash Payment Date, and Payor shall deliver the Entrade Stock to
Payee on the Closing Date.
IV.2. Cancellation of Payee Note. At the Closing, Payee shall deliver
to Payor the original Payee Note marked "CANCELLED."
V. Indemnification.
V.1. General. Each party (the "indemnifying party") shall indemnify and
hold harmless the other party and the other party's affiliates, officers,
directors, trustees, stockholders, employees, agents, and representatives from
and against any and all liabilities, claims, demands, actions, suits, losses,
damages, costs, and expenses (including, without limitation, reasonable
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), based upon or arising out of a breach of any covenant, agreement,
representation, or warranty made by the indemnifying party in this Agreement.
V.2. Survival. All representations, warranties, covenants, and
agreements contained in this Agreement shall survive the execution and delivery
of this Agreement and the Closing hereunder.
VI. Miscellaneous.
VI.1. Further Actions. At any time and from time to time, each party
agrees, at its expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
VI.2. Modification. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements among them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
<PAGE>
VI.3. Waiver. Any waiver by either party of a breach of any term of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
VI.4. Binding Effect. No party may sell, assign, transfer, or otherwise
convey any of its rights or delegate any of its duties under this Agreement
without first receiving the prior written consent of the other party, such
consent shall not be unreasonably withheld.
VI.5. Expenses. Each party shall be responsible for its own expenses in
connection with this Agreement.
VI.6. No Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement (except as provided in Section 6.4).
VI.7. Separability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
VI.8. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
VI.9. Counterparts; Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of Illinois,
without giving effect to conflict of laws.
*** Remainder of Page Intentionally Left Blank ***
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
------------------------------------
Corey P. Schlossmann
ENTRADE INC.
------------------------------------
By: Mark F. Santacrose
Its:President
Exhibit 21
ENTRADE INC. (1)
SUBSIDIARIES
As of March 29, 2000
State of
Owned Incorporation Parent
------ ------------- ------
Subsidiaries:
Asset Liquidiation Group Inc. 100% Nevada Entrade Inc.
and
Public Liquidation Systems, Inc., 100%
dba Nationwide Auction Systems Nevada Entrade Inc.
entrade.com 100% Delaware Entrade Inc.
utiliparts.com, Inc. 80% Delaware entrade.com
TruckCenter.com 100% Delaware Entrade Inc.
printeralliance.com 64% Delaware Entrade Inc.
Artra Group Incorporated 100% Pennsylvania Entrade Inc.
A.G. Holding Corp. 100% Delaware Entrade Inc.
Fill-Mor Holdings, Inc. 100% Delaware Artra Group
Incorporated
BCA Holdings, Inc. 100% Delaware Artra Group
Incorporated
Golden Corp. 100% Delaware BCA Holdings, Inc.
Rescuers, Inc. 100% Delaware Golden Corp.
Equity Investments:
AssetControl.com, LLC. 38% Delaware Entrade Inc.
asseTrade.com, Inc. 25% Delaware Entrade Inc.
Pricecontainer.com, Inc. 15% Delaware Entrade Inc.
TradeTextile.com, Inc. 25% Delaware entrade.com
(1) Pennsylvania corporation
E-6
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Entrade Inc. on Form S-8 (File No. 333-88039 and File No. 333-91409) of our
report dated March 29, 2000 on our audits of the consolidated financial
statements and financial statement schedule of Entrade. Inc. as of December 31,
1999 and December 31, 1998, and for each of the three fiscal years in the period
ended December 31, 1999 and our report dated March 29, 2000 on our audit of the
combined statements of operations and changes in shareholders' equity of
Nationwide Auction Systems for the nine months ended September 30, 1999, which
reports are included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 2000
E-7
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board 0f Directors
Nationwide Auction Systems:
We consent to the inclusion of our report dated March 5, 1999, with respect to
the combined balance sheet of Nationwide Auction Systems as of December 31, 1998
and the related combined statements of earnings and retained earnings, and cash
flows for each of the years in the two year period ended December 31, 1998,
which report is included in this Annual Report on Form 10-K/A of Entrade Inc.
dated April 7, 2000.
/s/ KPMG LLP
Los Angeles, California
April 7, 2000
E-8
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-88039 and No. 333-91409) of Entrade Inc. of our report dated
February 14, 2000, with respect to the financial statements of asseTrade.com,
Inc. as of December 31, 1999 included in this Form 10-K/A, as amended.
/s/ ENRST & YOUNG LLP
Philadelphia, Pennsylvania
April 7, 2000
E-9
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000897265
<NAME> ENTRADE INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<CASH> 9,667
<SECURITIES> 4,386
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 80,758
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<INCOME-PRETAX> (19,304)
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