EXHIBIT 10.34
-------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
This Note and Warrant Purchase Agreement (the "Agreement") is made as
of the 15th day of May, 2000 by and between ENTRADE INC., a Pennsylvania
corporation with its principal place of business at 000 Xxxxxxx Xxxxxx,
Xxxxxxxxxx, Xxxxxxxx 00000 (the "Company") and the persons listed on
Exhibit A attached hereto (individually a "Purchaser" and collectively the
"Purchasers").
RECITALS
--------
A. The Company is undertaking the placement and sale of certain
Secured Promissory Notes due July 15, 2001, in an aggregate amount not to
exceed Seven Million Dollars and No/100 ($7,000,000) (the "Notes") with
Warrants (as hereinafter defined). The Notes are payable in accord with
the terms thereof, with interest at a rate of fifteen percent (15%) per
annum, which interest begins to accrue on the date of the Notes, and is
payable commencing on August 15, 2000, and continuing on the fifteenth
(15th) of November, 2000, the fifteenth (15th) day of February, 2001, the
fifteenth (15th) day of May, 2001, and including July 15, 2001. The Notes
are due and payable in full on July 15, 2001 (the "Maturity Date"). The
Notes shall be secured by a pledge by the Company of one hundred percent
(100%) of all of the issued and outstanding stock of Asset Liquidation
Group, Inc., a Nevada corporation ("ALG"), and Public Liquidation Systems,
Inc., a Nevada corporation ("PLS").
B. Purchaser will receive from the Company a Warrant (the
"Warrant") to purchase common stock of the Company equal to the face amount
of its Note or Notes purchased by the Purchaser divided by twenty five (25)
at a price of Sixteen Dollars and 21/100 ($16.21) per share (the "Warrant's
Shares").
C. The Purchaser acknowledges that it has received in conjunction
with the offer and sale of the Notes and the Warrants information supplied
by the Company to the Purchaser sufficient to allow the Purchaser to make
its own credit analysis of the Company and its own decision to enter into
this Agreement.
In consideration of the mutual promises, representations, warranties
and conditions set forth in the Agreement, the Company and the Purchaser
agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 ISSUE OF NOTES AND WARRANTS.
(a) The Company has authorized the issuance and sale of
up to $7,000,000 on Secured Promissory Notes and up to 280,000 Warrant
Shares pursuant to the provisions of this Agreement.
(b) In reliance upon the Purchaser's representations
and warranties contained in Section 4 hereof, and subject to the terms and
conditions set forth herein, the Company hereby agrees to sell to the
Purchaser the aggregate amount of Notes set forth below the Purchaser's
signature on the page bearing the Purchaser's name. With respect to Xxx
Xxxxx and Xxxxx X. Xxxxxxxxxxx, such sale of Notes shall be for cash and an
exchange of obligations owed to Xx. Xxxxx and Xx. Xxxxxxxxxxx by the
Company.
(c) In reliance upon the representations and warranties
of the Company contained herein, and subject to the terms and conditions
set forth herein, the Purchaser hereby agrees to purchase the amount of
Notes set forth on the page bearing the Purchaser's name. The Purchaser
shall be liable for only the amount of Notes that appear on the page hereof
that relates to the Purchaser.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING. The closing of the sale and purchase of the
Notes under this Agreement (the "Closing") shall be as of May 15, 2000 (the
"Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser, the Notes
subscribed for by the Purchaser, dated as of the Closing Date, and
Warrants, against payment of the purchase price therefor by wire transfer,
unless other means of payment shall have been agreed upon by the Purchaser
and the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the
date hereof as follows, and all such representations and warranties shall
be true and correct as of the Closing Date as if then made and shall
survive until such time as the Notes have been paid in full (for purposes
of this Xxxxxxx 0, XXX and PLS are each a "Subsidiary" and collectively,
the "Subsidiaries" and representations and warranties made herein as to
"each Subsidiary" or to "Subsidiary" shall mean representations and
warranties as to each such entity):
3.1 ORGANIZATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Company has all requisite power and
authority to own or lease its properties and to conduct its businesses as
now conducted. The Company holds all licenses and permits required for the
conduct of its business as now conducted, which, if not obtained, would
have a material adverse effect on the business, financial condition or
results of operations of the Company taken as a whole. The Company is
qualified as a foreign or domestic corporation and is in good standing in
all states where the conduct of its business or its ownership or leasing of
property requires such qualification, except where failure to so qualify
would not have a material adverse effect on the business, financial
condition or results of operations of the Company taken as a whole.
3.2 AUTHORITY. The Company has all requisite corporate power
and authority to enter this Agreement and to issue the Notes and Warrants,
and that certain Registration Rights Agreement of even date herewith (the
"Registration Rights Agreement") that certain Pledge Agreement of even date
herewith (the "Pledge Agreement"), and that certain Creditors Agreement of
even date herewith (the "Creditors Agreement"), and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement, the Registration Rights Agreement, the Pledge Agreement,
the Creditors Agreement and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Company, and upon their execution and
delivery by the Company, such documents will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except (i) as the indemnification provisions of the
Registration Rights Agreement may be limited by principles of public
policy, and subject as to enforceability to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditor's rights from time to time in effect and subject to
general equity principles or (ii) for obtaining shareholder approval for
the issuance of the Warrants (and common stock to be issued upon exercise
of such Warrants) to Xx. Xxxxx and Xx. Xxxxxxxxxxx, which is required by
the exchange rules of the New York Stock Exchange.
3.3 ISSUANCE OF THE NOTES. Except for obtaining shareholder
approval for the issuance of the Warrants (and common stock to be issued
upon exercise of such Warrants) to Xx. Xxxxx and Xx. Xxxxxxxxxxx, which is
required by the exchange rules of the New York Stock Exchange, the Notes
when issued against payment therefor pursuant to the terms of this
Agreement, and the issuance of the Warrants in conjunction therewith, each
will be: (i) duly and validly authorized and issued, fully paid and
nonassessable; and (ii) free of all liens and encumbrances excepting only
restrictions on transfer created by state and federal law.
3.4 NO CONFLICT WITH LAW OR DOCUMENTS. The execution,
delivery and consummation of this Agreement, the Registration Rights
Agreement, the Pledge Agreement and the transactions contemplated hereby
and thereby will not: (a) conflict with any provisions of the certificate
of incorporation of the Company, as amended to date, or the bylaws of the
Company, as amended to date, or (b) result in any violation of or default
or loss of a benefit under, or permit the acceleration of any obligation
under (in each case, upon the giving of notice, the passage of time, or
both) any mortgage, indenture, lease, agreement or other instrument permit,
franchise, license, judgement order, decree, law, ordinance, rule or
regulation applicable, to the Company, or its properties, including, but
not limited to, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
3.5 CONSENTS, APPROVALS AND PRIVATE OFFERING. Except for (i)
any filings required under federal and applicable state securities laws,
all of which shall have been made as of the Closing Date to the extent
required as of such time, and (ii) for obtaining shareholder approval for
the issuance of the Warrants (and common stock to be issued upon exercise
of such Warrants) to Xx. Xxxxx and Xx. Xxxxxxxxxxx, which is required by
the exchange rules of the New York Stock Exchange, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
federal, state, local or foreign governmental authority is required to be
made or obtained by the Company in connection with the execution and
delivery of this Agreement, the Registration Rights Agreement, the Pledge
Agreement and the consummation of the transactions contemplated hereby and
thereby.
3.6 LITIGATION. Except as disclosed on Schedule 1, to the
Company's knowledge, there are no actions, suits, proceedings or
investigations pending against or affecting the Company or any subsidiary
that in the aggregate could reasonably be anticipated to result in any
material adverse effect on the Company or any subsidiary.
3.7 ORGANIZATION AND QUALIFICATION. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has the corporate power to carry on its
business as it is now being conducted or currently proposed to be
conducted. Each Subsidiary is duly qualified or licensed to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under license or lease or the nature of its
activities makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed will not have a material adverse
effect on the business, properties, assets, condition (financial or
otherwise), liabilities, operations or prospects of such Subsidiary or a
material adverse effect on such Subsidiary's ability to consummate the
transactions contemplated hereby (a "Subsidiary Material Adverse Effect").
Each Subsidiary is not subject to or obligated under (i) any charter,
by-law, indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation
applicable to it or its respective properties or assets, which would be
breached or violated, or under which there would be a default (with or a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit, by its executing and carrying out this
Agreement or any of the other agreements referenced in Section 3.2 herein,
other than, in the case of clause (ii) only, (A) any breaches, violations,
defaults, terminations cancellations, accelerations or losses which, either
singly or in the aggregate, will not prevent the consummation of the
transactions contemplated hereby and thereby and (B) the laws and
regulations referred to in the next sentence. No filing or registration
with, or authorization, consent or approval of, any public body or
authority is necessary for the consummation of this Agreement or any of
the other agreements referenced in Section 3.2 herein, other than filings,
registrations, authorizations, consents or approvals the failure of which
to make or obtain would not prevent the consummation of the transactions
contemplated hereby or thereby.
3.8 CAPITALIZATION. The Pledged Collateral (as defined in
the Pledge Agreement) includes all of the issued and outstanding shares of
each Subsidiary, all of which is owned by the Company. All issued and
outstanding shares were validly issued and outstanding, fully paid and
nonassessable have been no material changes in such numbers of shares
through the date hereof. As of the date hereof, there are no bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which a Subsidiary's shareholders may vote ("Voting
Debt") issued or outstanding. As of the close of business on the date
hereof there are no options, warrants, calls or other rights, agreements or
commitments presently outstanding obligating each Subsidiary to issue,
deliver or sell shares of its capital stock or debt securities, or
obligating each Subsidiary to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment. There are no
outstanding stock appreciation rights, restricted stock grant or contingent
stock grant, and, there are no other outstanding contractual rights to
which the Subsidiary is a party (other than Subsidiary Benefit Plans) the
value of which is derived from the financial performance of each Subsidiary
or the value of shares of the common stock of each Subsidiary. Each
Subsidiary owns no equity interest, including any partnership, limited
liability company or joint venture interest in any other entity or person.
3.9 FINANCIAL STATEMENTS. The unaudited financial statements
and unaudited interim financial statements of the Subsidiary dated December
31, 1999 and March 31, 2000, respectively, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of the Subsidiary as at the dates thereof
and the results of their operations and changes in financial position for
the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any other
adjustments described therein. Subsidiary has no liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due), including any liability for taxes or for
vacation, except for (i) liabilities set forth on the face of the balance
sheet dated as of March 31, 2000, (the "Most Recent Fiscal Quarter End"),
and (ii) liabilities which have arisen after the Most Recent Fiscal Quarter
End in the ordinary course of business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law) and
none of which are in excess, in any material respect from budgeted amounts.
All of the accounts receivable of the Subsidiary shown on the Most Recent
Fiscal Quarter End balance sheet or arising thereafter arose in the
ordinary course of its business. The values at which accounts receivable
are carried reflect the accounts receivable valuation policy of the
Subsidiary which is consistent with past practice and in accordance with
GAAP (applied on a consistent basis throughout the period involved).
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 19,
1999, since there has not been any:
(i) change in the condition (business, financial or
otherwise), assets, liabilities, earnings or business of Subsidiary,
except for changes which have occurred in the ordinary course of business
and which have not, individually or in the aggregate, been materially
adverse to Subsidiary;
(ii) (A) change in the number of shares of capital stock
of the Subsidiary issued and outstanding, (B) declaration, setting aside,
or payment of any dividend or other distribution (whether in cash,
securities, property or otherwise) in respect of the Subsidiary's capital
stock, or (C) payment to any stockholder of Subsidiary or any affiliate of
any stockholder of Subsidiary (whether in cash, securities, property or
otherwise) in respect of any service fee, management fee or similar
overhead charge;
(iii) (A) increase in the compensation payable or to
become payable by Subsidiary to any of its officers, directors, employees,
independent contractors or agents (collectively " Personnel"), other than
increases in employee compensation given in the ordinary course of
business, or increases in compensation to management that do no exceed,
annualized with respect to any one individual, $20,000, (B) any bonus,
incentive compensation, service award or other like benefit, granted, made
or accrued, contingently or otherwise, to or for the credit of any
Personnel, or (C) any employee welfare, pension, retirement, profit-sharing
or similar payment or arrangement made or agreed to by the Subsidiary
except pursuant to the plans and arrangements existing on October 19, 1999;
(iv) significant labor trouble, controversies or
unsettled grievances between Subsidiary and any Personnel or any collective
bargaining organization representing or seeking to represent any Personnel;
(v) addition to or modification of the employee benefit
plans, arrangements or practices existing on October 19, 1999, other than
(A) accruals or contributions made in accordance with the normal practices
of the Subsidiary or (B) the extension of coverage to other Personnel who
became eligible after the Most Recent Fiscal Quarter End balance sheet
date;
(vi) mortgage, pledge or subjection to any encumbrance of
any of the Subsidiary's assets except (A) the lien of current real and
personal property taxes incurred but not yet due and payable or (B) liens
or obligations arising in the ordinary course of business securing
obligations not yet due and payable;
(vii) sale, assignment or transfer of any assets of
Subsidiary material, individually or in the aggregate, to its business as
presently conducted (hereinafter, " Business"), other than sales of
inventory in the ordinary course of business;
(viii) waiver of any rights which, in the aggregate, were
of substantial value to the Business, whether or not in the ordinary course
of business;
(ix) any amendment, breach, default, cancellation or
termination, or any threat thereof, of any contract or other agreement
material to the Business by any party thereto, other than in the ordinary
course of business, it being understood and agreed that a consignment
agreement will be considered "material" for purposes of this sub-section
only if it involves annual gross auction proceeds in excess of $100,000;
(x) liability incurred by Subsidiary except immaterial
liabilities incurred in the ordinary course of business consistent in both
kind and amount with past practices of the Subsidiary;
(xi) any capital expenditure or the execution of any
capital leases with respect to any aspect of the business of Subsidiary, or
any incurring of liability therefor, involving payments in excess of
$250,000 individually or in the aggregate;
(xii) borrowing of any money by Subsidiary, except
pursuant to an existing line of credit with Imperial Bank, or guaranteeing
of any indebtedness of others;
(xiii) lending of any money or otherwise pledging the
credit of Subsidiary except in the ordinary course of business;
(xiv) failure to pay any material current obligations of
the Subsidiary when due and payable in accordance with the respective terms
of such obligations;
(xv) agreement or undertaking by Subsidiary to do any of
the foregoing; or
(xvi) other event or condition of any character which
individually or in the aggregate has materially adversely affected, or any
event or condition known to the Subsidiary which it is reasonable to expect
will, individually or in the aggregate, materially adversely affect in the
future, the condition (business, financial or otherwise), assets,
liabilities, earnings, liquidity, prospects or business of Subsidiary.
3.11 LITIGATION. Except as disclosed on Schedule 1, there is
no legal, administrative, arbitral or other proceeding, claim, action, or
governmental or regulatory investigation of any nature pending or, to the
knowledge of the Subsidiary, threatened against or affecting the Subsidiary
nor is there any reasonable basis for any such proceeding, claim, action or
investigation, which, alone or in the aggregate, could reasonably be
expected to have a Subsidiary Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, instrumentality or arbitrator outstanding against
Subsidiary. There are no controversies pending nor, to the knowledge of
the Subsidiary, any basis for any such controversies, between the
Subsidiary and any of its employees, which controversies have had or may
have a Subsidiary Material Adverse Effect.
3.12 EMPLOYEE BENEFIT PLANS AND OTHER EMPLOYMENT MATTERS.
Subsidiary: (i) does not maintain any material employee benefit or
compensation plans, agreements or arrangements, including "employee benefit
plans," as defined in Section 3(3) of ERISA, and including, but not limited
to, plans, agreements or arrangements relating to former employees,
including, but not limited to, retiree medical plans (together, the
"Subsidiary Benefit Plans") except as described or shown on the financial
statements referenced above, or (ii) is not a party to collective
bargaining agreements. An entity maintains a plan if it sponsors it,
contributes to it, adopts it, or is obligated, actually or contingently, to
contribute to it. Since December 31, 1999, there have been no disputes or
grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation involving the Subsidiary or under
such Subsidiary Benefit Plans, which have not been finally resolved,
settled or otherwise disposed of, nor is there any default, or any
condition which, with notice or lapse of time or both, would constitute
such a default, under any such Plans, by the Subsidiary or, to the best
knowledge of the Subsidiary, any other party thereto, which failure to
resolve, settle or otherwise dispose of or default, alone or in the
aggregate, would have a Subsidiary Material Adverse Effect. Since
December 31, 1999, there have been no strikes, lockouts or work stoppages
or slowdowns, or to the best knowledge of the Subsidiary , jurisdictional
disputes or organizing activity occurring or threatened with respect to the
business or operations of the Subsidiary or its subsidiaries which have had
or would have a Subsidiary Material Adverse Effect.
3.13 COMPLIANCE WITH APPLICABLE LAWS. To the knowledge of the
Subsidiary, Subsidiary holds all permits, licenses, variances, exemptions,
orders and approvals of all governmental entities (including all
authorizations under environmental laws), except for such permits,
licenses, variances, exemptions, orders and approvals the failure of which
to hold would not have a Subsidiary Material Adverse Effect (the
"Subsidiary Permits"). Except for obtaining shareholder approval for the
issuance of the Warrants (and common stock to be issued upon exercise of
such Warrants) to Xx. Xxxxx and Xx. Xxxxxxxxxxx, which is required by the
exchange rules of the New York Stock Exchange, the Subsidiary is and at all
time prior hereto has been, in compliance with all applicable laws, rules
and regulations and with the terms of the Subsidiary Permits, except for
such failures to comply, which singly or in the aggregate do not and would
not have a Subsidiary Material Adverse Effect. To the knowledge of the
Subsidiary, no investigation or review by any governmental entity with
respect to the Subsidiary is pending, or, to the knowledge of the
Subsidiary, threatened, nor has any governmental entity indicated an
intention to conduct the same, other than those the outcome of which would
not reasonably be expected to have a Subsidiary Material Adverse Effect.
3.14 TAXES. Subsidiary has filed all tax returns required to
be filed by it and has paid (or the Company has paid on its behalf), or has
set up an adequate reserve for the payment of, all taxes required to be
paid in respect of the periods covered by such returns (except where the
failure to pay would not have a Subsidiary Material Adverse Effect). The
information contained in such tax returns is true, complete and accurate in
all material respects. Subsidiary is not delinquent in the payment of any
tax, assessment or governmental charge, except where such delinquency would
not have a Subsidiary Material Adverse Effect. No deficiencies for any
taxes have been proposed, asserted or assessed against the Subsidiary that
have not been finally settled or paid in full, which would have a
Subsidiary Material Adverse Effect, and no requests for waivers of the time
to assess any such tax are pending. The federal income tax returns of the
Subsidiary have been examined by and settled with the Internal Revenue for
all years through 1993. The term "tax" shall include all federal, state,
local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise and other taxes,
duties and assessments of any nature whatsoever together with all interest,
penalties and additions imposed with respect to such amounts. The
Subsidiary has not waived any statute of limitations in respect of taxes or
agreed to any extension of time with respect to a tax assessment or
deficiency. Subsidiary has not filed a consent under Section 341(f) of the
Internal Revenue Code ("Code") concerning collapsible corporations, and
neither has made any payments, nor is obligated to make any payments, and
is not a party to any agreement that under circumstances could obligate it
to make any payments that will not be deductible under Section 280G of the
Code. Subsidiary has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii). Subsidiary has
disclosed on their respective federal income tax returns all positions
taken therein that could give rise to an understatement of federal income
tax within the meaning of Section 6662 of the Code. The Subsidiary (i) is
not a party to any tax allocation or sharing agreement, (ii) has not been a
member of an affiliated group filing a consolidated federal income Tax
Return or (iii) does not have any liability for taxes of any person (other
than itself) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foregoing law), as a transferee or successor,
by contract or otherwise.
3.15 TITLE. Except as disclosed in the Most Recent Financial
Statements, Subsidiary is the sole and exclusive legal and equitable owner
of all right, title and interest in, and has good title to, or a valid
leasehold or license interest in, all of its material assets (real,
personal and fixed, tangible and intangible), free and clear of any and all
liens, claims, charges or encumbrances other than Permitted Liens. As
used herein, "Permitted Liens" means (i) liens for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate and actual reserves have been established in accordance with
GAAP (applied on a consistent basis and consistent with prior practice) and
are reflected on the Most Recent Financial Statements, (ii) inchoate
mechanics' liens with respect to which no default (or event which, with
notice or lapse of time or both, would constitute a default) exists, and
(iii) other liens arising in the ordinary course of business, which would
not, in the aggregate, have a Subsidiary Material Adverse Effect and which
do not secure obligations for borrowed money.
3.16 INTELLECTUAL PROPERTY. "Intellectual Property" means (i)
all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions
and reexaminations thereof, (ii) all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all
translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrights,
and all applications, registrations and renewals in connection therewith,
(iv) all trade secrets and confidential business information, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals, (v) all computer software and information systems and
programs, (including data and related documentation), whether owned or
leased, (vi) all other proprietary rights and (vii) all copies and tangible
embodiments of the items described in (i) through (vi) (in whatever form or
medium). The Subsidiary is the owner of all right, title and interest free
and clear of all liens or has the right to use pursuant to license,
sublicense, agreement or permission ("License") all such Intellectual
Property necessary to conduct its business in the ordinary course. The
Subsidiary has taken all necessary action to maintain and protect each item
of Intellectual Property that it owns or uses and has never granted any
License or similar right to any third party (other than its affiliates and
employees) with respect to such Intellectual Property. Subsidiary is not in
default (and with the giving of notice or lapse of time or both, will not
be in default) in any material respect under any License to use such
Intellectual Property. Subsidiary has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any party from whom the Subsidiary has obtained the
right to use Intellectual Property pursuant to license, sublease, agreement
or permission or any other third party. Subsidiary has never received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that the
Subsidiary must license or refrain from using any Intellectual Property
rights of any third party). No third party has interfered with, infringed
upon, misappropriated or otherwise come into conflict with any Intellectual
Property rights of the Subsidiary.
3.17 ENVIRONMENTAL. Except for the requirement by the City of
Benicia, California to construct a storm drain to capture run-off, (i) all
present and former activities of the Subsidiary and all real property owned
or leased by Subsidiary (the "Subsidiary Real Property") complies in all
material respects with all applicable Environmental Laws; (ii) none of the
operations of the Subsidiary is subject to any judicial or administrative
proceeding alleging the violation of any Environmental Law; (iii) the
Subsidiary is not the subject of any federal, state or local investigation
concerning any use, release, discharge or disposal of any Hazardous
Substance, except for any such investigation conducted entirely without
notice to the Subsidiary, without entry to any facility of the Subsidiary
and of which the Subsidiary has no knowledge; (iv) to the knowledge of the
Subsidiary, no predecessor-in-title to or former operator of any Subsidiary
Real Property has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of a hazardous waste or
reporting a spill or release of a Hazardous Substance into the environment;
(v) Subsidiary has no liability under or any Environmental Law, in
connection with the transportation, release, discharge or disposal by or at
the direction of the Subsidiary of any Hazardous Substance into the
environment and no release by the Subsidiary or its affiliates which could
require investigation or remediation has occurred; (vi) none of the
Subsidiary's operations on the Subsidiary Real Property involves the
generation, transportation, treatment, storage or disposal of Hazardous
Substances other than in compliance with all applicable laws, rules and
regulations; and (vii) except in accordance with applicable laws, the
Subsidiary has not disposed of any Hazardous Substance in, on or about the
Subsidiary Real Property or any other location. To the Knowledge of the
Subsidiary, (A) no underground storage tanks have been located on the
Subsidiary Real Property, (B) no Subsidiary Real Property has been used at
any time as a gasoline service station or any other facility for storing,
pumping, dispensing or producing gasoline or any other petroleum products
or wastes and (C) no building or other structure constituting part of the
Subsidiary Real Property contains or contained asbestos. To the knowledge
of the Subsidiary, there are and were no incinerators, septic tanks or
cesspools on the Subsidiary Real Property and all waste from or on the
Subsidiary Real Property was discharged into a public sanitary sewer
system. "Environmental Laws" means federal, state, local and foreign laws,
statutes and ordinances, principles of common law, rules, regulations and
codes, as well as orders, decrees, judgments or injunction issued,
promulgated approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment, or to safety or
health, or to foods or drugs, including, but not limited to, any of the
same relating to (w) generation, treatment, storage, disposal or
transportation of wastes, emissions or discharges or protection of the
environment from the same; (x) noise; (y) exposure to Hazardous Materials;
or (z) regulation of the manufacture, processing, distribution in commerce
or use of chemical substances, food and drug products, ingredients and
additives, insecticides and pesticides, including without limitation the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act, the Federal Hazardous Materials
Transportation Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Federal Oil Pollution Act,
and the regulatory programs of the U.S. Environmental Protection Agency,
the U.S. Food and Drug Administration, the U.S. Department of
Transportation, the U.S. Department of Agriculture, and the U.S.
Occupational Safety and Health Administration, in each case as amended and
including their state and local analogs. "Hazardous Substance" means any
toxic substance or waste, pollutant, hazardous substance or waste,
contaminant, insecticide, pesticide, special waste, industrial substance or
waste, petroleum or petroleum-derived substance or waste, radioactive
substance or waste, or any constituent of any such substance or waste,
including without limitation any such substance or waste regulated under or
defined by or pursuant to any Environmental Law, including petroleum and
petroleum byproducts. "Release" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the environment or into or out of any property,
including the movement of Hazardous Substance thorough or in the air, soil,
surface water, ground water or property.
3.18 TITLE TO ASSETS; LIENS. To the knowledge of the
Subsidiary, (a) the Subsidiary has sufficiently good and valid title to, or
an adequate leasehold interest in, its material tangible personal
properties and assets in order to allow it to conduct, and continue to
conduct, its business as currently conducted or as the Subsidiary proposes
to conduct such business, (b) such material tangible personal assets and
properties are sufficiently free of liens to allow Subsidiary to conduct,
and continue to conduct, its business as currently conducted, or as the
Subsidiary proposes to conduct such business and, (c) the consummation of
the transactions contemplated by this Agreement will not alter or impair
such ability in any respect which individually or in the aggregate would be
reasonably likely to have a Subsidiary Material Adverse Effect. Subsidiary
enjoys peaceful and undisturbed possession under all material leases,
except for such breaches of the right to peaceful and undisturbed
possession that do not materially interfere with the ability of the
Subsidiary to conduct its business as currently conducted.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents, warrants and covenants with the
Company as follows:
4.1 LEGAL POWER. Purchaser has the requisite power to enter
into this Agreement and the Registration Rights Agreement, to purchase the
Warrants and Notes hereunder, and to carry out and perform its obligations
under the terms of this Agreement and the Registration Rights Agreement.
4.2 DUE EXECUTION. Each of this Agreement and the
Registration Rights Agreement will be valid and binding agreements of the
Purchaser.
4.3 INVESTMENT REPRESENTATIONS.
(a) Purchaser is acquiring the Notes for its own
account, not as nominee or agent, for investment and not with a view to or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Act"),
except pursuant to an effective registration statement under the Act.
(b) Purchaser understands that: (i) neither the Notes
nor the Warrants have been registered under the Act by reason of a specific
exemption therefrom, and may not be transferred or resold except pursuant
to an effective registration statement or exemption from registration; (ii)
each certificate representing the shares issuable pursuant to the Warrants
(unless such shares have been registered prior to the exercise of such
Warrants) will be endorsed with the following legends:
(A) THE SECURITIES REPRESENTED HEREBY HAVE NOT )BEEN
REGISTERED UNDER THE ACT, OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT AN OPINION OF COUNSEL WILL
NOT BE REQUIRED FOR SALES OR TRANSFERS MADE PURSUANT TO RULE 144 UNDER THE
ACT; and
(B) Any legend required to be placed thereon by applicable
federal or state securities laws;
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the
foregoing legends are satisfied.
(c) Purchaser has been furnished with such materials
and has been given access to such information relating to the Company as it
or its qualified representative has requested and has been afforded the
opportunity to ask questions regarding the Company and the Notes, all as
Purchaser has found necessary to make an informed investment decision.
(d) Purchaser is an "accredited investor" as such term
is defined in Rule 501 of the Act.
(e) Purchaser is not a resident of Canada or any
territory thereof.
4.4 USE OF PROCEEDS. Purchasers acknowledge that they have
been advised by the Company that the proceeds of the Notes are to be used
by the Company for working capital.
5. COVENANTS OF THE COMPANY.
5.1 INFORMATION. The Company will promptly furnish to each
holder of Notes or Warrants: (i) as soon as available, and in any event
within ninety (90) days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for
such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all prepared in accordance with
generally accepted accounting principles and reported on by independent
certified public accountants of recognized national standing; and (ii) as
soon as available, and in any event within forty five (45) days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such quarter and the related
consolidated statements of income and stockholders' equity (together with
any other quarterly financial statements being prepared by the Company at
such time), setting forth in each case in comparative form the figures for
the corresponding quarter and the corresponding portion of the Company's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
5.2 CONDUCTING THE OFFERING. The Company will conduct the offering
under Regulation D of the Act, and the Company represents as follows:
(a) SALES TO ACCREDITED INVESTORS. The Company will only
make offers and sales of the Notes to the Purchaser if the Company
reasonably believes the Purchaser is an "accredited investor" as that term
is defined in Rule 501(a) under the Act.
(b) REGULATION D COMPLIANCE. Offers and sales of Notes will
be made in compliance with Regulation D, and the Company has not and shall
not offer to sell the Notes by any form of general solicitation or general
advertising that is prohibited by Rule 502(c) promulgated under the Act.
(c) COMPLIANCE GENERALLY. The Company has and will observe
all securities laws and regulations applicable to it in any jurisdiction in
which it has or may offer, sell or deliver Notes and it will not, directly
or indirectly, offer, sell or deliver Notes or distribute or publish any
prospectus, circular, advertisement or other offering material in relation
to the Notes in or from any state in the United States or country or
jurisdiction except under circumstances that will result in compliance with
any applicable laws and regulations,
(d) BLUE SKY COMPLIANCE. The Company will comply with the
state securities or blue sky laws of each state in which Notes will be
offered.
5.3 NOTICE OF CERTAIN EVENTS. In case at any time:
(a) The Company declares any cash dividend on its common
stock at a rate in excess of the rate of the last cash dividend theretofore
paid;
(b) The Company pays any dividend payable in stock upon its
common stock or make any distribution (other than regular cash dividends)
to the holders of is common stock;
(c) The Company offers for subscription pro rata to the
holders of its common stock any additional shares of stock of any class or
other rights;
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company or consolidation or
merger of the Company with another corporation (other than a subsidiary of
the Company in which is the surviving or continuing corporation and no
change occurs in the Company's common stock), or sale of all or
substantially all of its assets to, another corporation; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give
written notice, by first class mail, postage prepaid, addressed to the
holder of each Warrant at the address of such holder as shown on the books
of the Company (i) the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or (ii) the date (or, if not then known, a reasonable approximation
thereof by) on which such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify (or, if not then known,
reasonably approximate) the date as of which the holders of common stock of
record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their common stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as
the case may be. Such written notice shall be given at least ten (10) days
prior to the action in question and not less than ten days prior to the
record date or the date on which the Company's transfer books are closed in
respect thereto. The failure to give the notice required by this Section
5.3 or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The
Purchaser's obligation to purchase the Notes at the Closing is subject to
the fulfillment, at or prior to such Closing, of all of the following
conditions.
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and
as of said date; the business, assets, financial condition and results of
operations of the Company shall not have been adversely affected in any
material way prior to the Closing Date; and the Company shall have
performed all obligations and conditions herein required to be performed by
it on or prior to the Closing Date.
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the Notes pursuant to
this Agreement shall have been duly obtained and shall be effective on and
as of the Closing Date. No stop order or other order enjoining the sale of
the Notes shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission ("SEC"), or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the
Notes shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
(d) NOTES. The Company shall have entered into and
delivered the Notes.
(e) WARRANTS. The Company shall have entered into and
delivered the Warrants.
(f) REGISTRATION RIGHTS AGREEMENT. The Company shall
have entered into and delivered the Registration Rights Agreement.
(g) PLEDGE AGREEMENT. The Company shall have entered
into the Pledge Agreement and delivered the Pledge Agreement and the shares
of ALG and PLS to the pledgee under the Pledge Agreement to be held for the
benefit of the Purchaser.
(h) CREDITORS AGREEMENT. The Company and each
Purchaser shall have entered into and delivered the Creditors Agreement.
(i) COLLATERAL AGENCY AGREEMENT. The Company shall
have entered into and delivered the Collateral Agency Agreement.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Notes at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct at the Closing Date with the same force and effect as if they had
been made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have
performed and complied with all agreements and conditions herein required
to be performed or complied with by it on or before the Closing Date, and
the Purchaser shall have delivered payment to the Company in respect of his
purchase of Notes and, each Purchaser shall have entered into (i) a
Subscription Agreement, (ii) the Registration Rights Agreement, (iii) the
Collateral Agency Agreement and (iv) the Creditors Agreement (all of which,
except the Subscription Agreement, are referred to in Section 6.1).
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection
with the lawful sale and issuance of the Notes pursuant to this Agreement
shall have been duly owned and shall be effective on and as of the Closing
Date. No stop order or other order enjoining the sale of the Notes shall
have been issued and no proceedings for such purpose shall be pending or,
to the knowledge of the Company, threatened by the SEC or any commissioner
of corporations or similar officer of any state having jurisdiction over
this transaction. At the time of the Closing, the sale and issuance of the
Notes shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the internal laws of the State of Illinois.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and
be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
7.3 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto, constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically
set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties
hereto and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
7.4 SEPARABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and
to retain as nearly as practicable the intent of the parties, and the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
7.5 AMENDMENT WAIVER. Except as otherwise provided herein,
any term of this Agreement may be amended, and the observance of any term
of this Agreement may be waived (either generally or, in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely), with the written consent of the Company
and the Purchaser. Any amendment or waiver effected in accordance with
this section shall be binding upon each future holder of any security
purchased under this Agreement (including securities into which such
securities have been converted) and the Company.
7.6 NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon personal delivery, on the first business day following mailing
by overnight courier, or on the fifth day following mailing by certified
mail, return receipt requested, postage prepaid, addressed to the Company
at 000 Xxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000, with a copy to Duane,
Morris & Heckscher LLP, 000 Xxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000,
Attention: Xxxx M, Xxxxx, Esq. and to each Purchaser at the address set
forth opposite such Purchaser's name on Exhibit A hereto.
7.7 ATTORNEY'S FEES. The Company shall pay for all
reasonable attorneys' fees incurred by the Purchasers on their behalf with
respect to the sale of the Notes.
7.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed in original, but all
of which together shall constitute one instrument.
7.10 REPRESENTATION OF XX. XXXXX AND XX. XXXXXXXXXXX. Xx.
Xxxxx and Xx. Xxxxxxxxxxx acknowledge that they have not been represented
by Xxxx & Sharp, P.C., in connection with the sale of the Notes.
IN WITNESS WHEREOF, the parties have executed this Note and Warrant
Purchase Agreement as of the date and year first above written.
ENTRADE INC.
By:
------------------------------
Its: President
THE XXXXXX FAMILY TRUST
By:
------------------------------
Xxxxxxx X. Xxxxxx, TTEE
Amount of Note: $400,000
THE XXXX FAMILY TRUST
By:
------------------------------
Xxxxx X. Xxxx, TTEE
Amount of Note: $1,000,000
FIRST FRUIT, INC.
By:
------------------------------
Xxxxx X. Xxxx, President
Amount of Note: $1,000,000
GENESEE MUTUAL INVESTMENTS, LLC
By:
------------------------------
Xxxx X. Xxxx, Manager
Amount of Note: $1,300,000
FOR HIS ADOPTED CHILDREN, INC.
By:
------------------------------
Xxxx X. Xxxx, President
Amount of Note: $1,200,000
------------------------------
Xxxxxx Xxxxx
Amount of Note: $1,800,000
------------------------------
Xxxxx Xxxxxxxxxxx
Amount of Note: $200,000
-----------------------------
Xxxxx Xxxxxx
Amount of Note: $100,000
EXHIBIT A
PURCHASERS
Name: The Xxxxxx Family Trust
Address: 0 Xxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Name: The Xxxx Family Trust
Address: 00 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Name: First Fruit, Inc.
Address: 00 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Name: Genesee Mutual Investments, LLC
Address: X.X. Xxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Name: For His Adopted Children, Inc.
Address: X.X. Xxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Name: Xxxxxx Xxxxx
Address: c/o Nationwide Auction Systems
00000 Xxxx Xxxxxx Xxxxxx
Xxxx xx Xxxxxxxx, Xxxxxxxxxx 00000
Name: Xxxxx Xxxxxxxxxxx
Address: c/o Nationwide Auction Systems
00000 Xxxx Xxxxxx Xxxxxx
Xxxx xx Xxxxxxxx, Xxxxxxxxxx 00000
Name: Xxxxx X. Xxxxxx
Address: The Chicago Mercantile Exchange
00 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
SCHEDULE 1
LITIGATION
----------
In addition to legal proceedings and claims that arise in the ordinary
course of Nationwide Auction Systems, Inc.'s ("Nationwide") business none
of which Nationwide's management considers to be material, Entrade Inc.
("Entrade") or its subsidiaries are involved in the following proceedings.
Artra Group Incorporated ("Artra") and its subsidiaries are the defendants
in various business-related litigation and environmental matters and
product liability claims. At March 31, 2000 and December 31, 1999, Artra
had accrued current liabilities of $1,400,000 for potential
business-related litigation and environmental liabilities. No liabilities
were accrued for the product liability claims because no reasonable basis
exists on which such claims could be quantified.
PRODUCT LIABILITY CLAIMS
Since 1983, Artra has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former Artra subsidiary. Reports from outside
counsel indicate, as of March 31, 2000, pending claims asserted by
approximately 47,000 plaintiffs (excluding loss of consortium claims) in 16
states. It is probable that a significant number of additional claims will
be asserted in the future. Artra has no reasonable basis on which to
quantify the potential cost to it of these pending and unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of the claims from 1983 through September 1998, when Artra's
primary insurance carriers asserted that Artra's primary insurance coverage
for the claims had been exhausted. Beginning in September 1998, certain of
Artra's excess insurance carriers, under a reservation of the right to deny
coverage at a subsequent date, assumed the defense of the claims and paid
defense, settlement and indemnity costs relating to these claims, pursuant
to an interim agreement, which costs totaled approximately $17,500,000
through December 31, 1999. The interim agreement expired as of January 31,
2000.
Until January 31, 2000, pursuant to the interim agreement, certain of
Artra's excess insurance carriers funded defense and indemnity costs as
they became due. Under the interim agreement, the claims were administered
by one of Artra's principal excess insurers, which was one of the
participants in the expired interim agreement. Since January 31, 2000,
that excess insurer has not administered the claims or advanced funds for
defense, settlement and indemnity expenses. Between January 1, 2000 and
March 31, 2000, Artra's defense, settlement and indemnity expenses are
estimated to have been approximately $5,000,000, which was either subject
to the interim agreement through January 31, 2000 and advanced by excess
insurers, or its subject to the potential reimbursement from the excess
insurers.
Negotiations are continuing with the principal excess insurer and the other
excess insurers regarding the establishment of a permanent funding, claims
administration and coverage agreement. Unless and until such a permanent
agreement is reached, as to which Artra can provide no assurance, Artra
intends, unless litigation should become necessary in light of the
positions of the excess carriers or other circumstances, to: (i) administer
the claims and (ii) fund defense, settlement and indemnity costs to the
extent necessary and then seek reimbursement from the excess insurance
carriers. It is also possible that these excess insurance carriers could
cease making payments at any time on the basis of their various
reservations of rights.
Artra and two of its excess insurers currently have a dispute as to the
existence of certain insurance coverage, in the approximate amount of
$25,000,000, for the period 1968 through 1974. These carriers contend that
the policies for this period, if they ever existed, are "lost." If Artra
or its carriers were to be unable to locate all or some of these policies,
then, absent the negotiation of an agreement with the carriers, as to which
Artra can provide no assurance, a court could find that no coverage existed
for all or some of the periods in question. In that event, a court might
find Artra responsible for funding its pro rata share of payments for
defense and indemnity costs. A similar issue exists with respect to an
unknown amount of primary and excess insurance coverage by unknown insurers
for the period 1947 through 1962, for which Artra has not been able to
locate policies, with potential effect similar to that possible with
respect to the 1968 through 1975 period.
If Artra were unable to conclude a permanent agreement with its excess
insurance carriers regarding the claims or with respect to coverage for the
potential gaps described herein, if Artra were ultimately unsuccessful in
attempting to marshal any such insurance, if a court were to determine that
gaps in coverage exist, or if a court were to determine that Artra is
responsible for a portion of the defense and indemnity costs associated
with those potential gaps in coverage, there could be a material adverse
effect on Artra's financial condition. Artra's financial condition could
also be materially adversely affected to the extent, if any, that its
existing insurance coverage and any to which it might become entitled in
the future is not sufficient to respond fully to the claims.
Artra has the following amounts of excess insurance it believes are
available to indemnify Artra against its liability on some or all of the
claims: (a) approximately $204,000,000 for which Artra has policies, less
amounts expended through December 31, 1999 (believed to be approximately
$17,500,000) and such additional amounts as have been paid or committed
since December 31, 1999; (b) an additional amount which may total as much
as $45,000,000 for which Artra thus far has been unable to locate insurance
policies but for which Artra has certain evidence of coverage, and (c) any
potentially applicable coverage in an undetermined amount for any other
policies that may exist over certain years, which Artra is investigating.
There is also potential additional coverage from two excess insurers, which
Artra believes are or may be involved in insolvency proceedings. In the
event Artra were unable to satisfy the claims through a combination of
insurance coverage and its own assets, or in the event that Artra does not
receive timely reimbursement from its excess carriers of amounts Artra may
be required to expend on defense, settlement and indemnity payments, it is
possible that Artra could be forced to seek protection under the federal
bankruptcy laws.
If Artra's insurance coverage and Artra's other assets are not sufficient
to satisfy the claims against Artra, Entrade could lose its entire
investment in Artra, approximately $10,200,000 at March 31, 2000. If the
combination of insurance coverage and Artra's assets are not sufficient to
satisfy claims against it, it is also possible that the plaintiffs
presenting the claims could attempt to pursue legal action against Entrade.
Entrade believes that no valid basis exists for, and it would have
meritorious defenses against, the imposition of Artra's liability for the
claims against Entrade, and Entrade would vigorously defend itself against
any attempt to impose such liability. In the event of an unfavorable
outcome of such legal action, however, there could be a material adverse
effect upon Entrade's financial condition and results of operations.
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 Xxxxxx
Industries, Inc., a majority owned subsidiary of Artra. In 1985, Xxxxxx was
merged into Artra's Fill-Mor subsidiary. This site has been included on
the EPA's National Priorities List. In February 1983, Xxxxxx sold the
assets of Clearshield to Envirodyne Industries, Inc. The alleged waste
disposal occurred in 1977 and 1978, at which time Xxxxxx 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 Xxxxxxx-Xxxxxxxx Company v. Artra Group Incorporated,
filed in 1991 in the United States District Court for Maryland,
Xxxxxxx-Xxxxxxxx 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. Xxxxxxx-Xxxxxxxx'x current
projection of the cost of clean-up is approximately $5,000,000 to
$6,000,000. Artra has filed counterclaims against Xxxxxxx-Xxxxxxxx and
cross claims against other former owners of the property. Artra also is
vigorously defending this action and has raised numerous defenses.
Currently, the case is still in discovery, and Artra cannot determine what,
if any, its liability may be in this matter.
Artra was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California in respect to the Operating Industries, Inc. site in Monterey
Park, California. This site is included on the EPA's National Priorities
List. Artra's involvement stemmed from the alleged disposal of hazardous
substances by The Synkoloid Company subsidiary of Baltimore Paint and
Chemical Company, which was formerly owned by Artra. Synkoloid
manufactured spackling paste, wall coatings and related products, certain
of which generated allegedly hazardous substances as a by-product of the
manufacturing process. Artra presently estimates the total liability for
clean-up costs at this site to be approximately $500,000.
OTHER CASES
Bagcraft Packaging, LLC and Packaging Dynamics, LLC filed suit against
Artra and its BCA Holdings, Inc. subsidiary in the Circuit Court of Xxxx
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 Xxxx Xxxxxxxxxx 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.
If Artra's assets are not sufficient to satisfy claims against it, it is
also possible that the plaintiffs presenting the claims could attempt to
pursue legal action against Entrade. Entrade believes that no valid basis
exists for, and it would have meritorious defenses against, the imposition
of Artra's liability for the claims against Entrade, and Entrade would
vigorously defend itself against any attempt to impose such liability. In
the event of an unfavorable outcome of such legal action, however, there
could be a material adverse effect upon Entrade's financial condition and
results of operations. These litigation and environmental matters
(exclusive of product liability claims) involve wide ranges of potential
liability have a material adverse effect on Entrade's financial condition
or results of operations. In addition, on or about March 16, 2000, Xxxxxxx
Xxxxxxx Enterprises, Inc. ("CME"), filed a complaint in the Superior Court
of California, Orange County, Case No. 00XX00000, naming as defendants Xxx
Xxxxx, Xxxxx Xxxxxxxxxxx, Nationwide Auction Systems, and Does 1 to 100,
alleging interference with contract and with prospective economic
advantage, civil conspiracy and violation of California's Unfair Business
Practices Act. CME seeks 20 percent of 157,000 Entrade shares Haidl
allegedly agreed to transfer to JDK & Associates, Inc. in connection with
Entrade's acquisition of Nationwide (or an equivalent amount as damages),
consequential losses, punitive damages and "restitution and disgorgement of
all income, consideration, or compensation, in any form, received by the
defendants in conjunction with the acquisition of NATIONWIDE by Entrade."
