Exhibit 10.7
STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT
This Stock Restriction and Registration Rights Agreement, dated as of
October 15, 1999, is by and among Entrade Inc., a Pennsylvania corporation (the
"Company"), Xxx Xxxxx ("Xxxxx"), Xxxxx Xxxxx, as Trustee of the Capital Direct
1999 Trust [the "Haidl Trust"], Xxxxx X. Xxxxxxxxxxx ("Schlossmann") and Xxxxx
Xxxxx, as Trustee of Core Capital IV Trust [the "Schlossmann Trust" and,
together with Haidl, the Haidl Trust and Schlossmann and their respective
successors and assigns hereunder, each a "Holder" and, together, the "Holders").
Pursuant to a Stock Purchase Agreement, dated as of October 15, 1999,
among the Company, Haidl, Schlossmann, the Haidl Trust, the Schlossmann Trust,
Public Liquidation Systems, Inc. and Asset Liquidation Group, Inc., both Nevada
corporations referred to herein, together, as "Nationwide," Haidl, Schlossmann,
the Haidl Trust and the Schlossmann Trust have sold to the Company all of the
outstanding shares of the capital stock of Nationwide and, in consideration
therefor, have received 1,570,000 shares of the Common Stock of the Company (the
"Company Shares"), $6,000,000 in cash and promissory notes of the Company in the
aggregate principal amount of $18,800,000 (the "Company Notes"). The Company
Notes include notes due within forty-five days following the date hereof (the
"Short Term Notes") in the aggregate principal amount of $4,800,000, all or a
portion of which may be satisfied by the issuance to the Payees thereunder of
shares of the Common Stock of the Company (the "Short-Term Note Shares") and
other notes in the aggregate principal amount of $14,000,000 due in installments
over the two-year period following the date hereof (the "Long-Term Notes").
In order to induce the Holders to accept the Company Shares and the
Short Term Notes as partial consideration for the outstanding shares of the
capital stock of Nationwide, the Company has agreed to register the resale of
the Company Shares and the Short Term Note Shares by the Holders, subject to
restrictions on the number of Company Shares that may be resold prior to May 31,
2000. These restrictions are based upon the market price of the Company Shares.
Pursuant to the Company Notes, if the Company or any member of the
consolidated (as defined for purposes of generally accepted accounting
principles) group of companies of which the Company is a member (a "Consolidated
Affiliate"), other than Nationwide, incurs or otherwise becomes liable for any
indebtedness either for borrowed money for or as a deferred payment of all or
any portion of the purchase price paid or payable as consideration for any
acquisition of another business by merger, consolidation, purchase of stock,
purchase of assets or otherwise, whether directly or as a guarantor or
otherwise, or subjects any of its assets to any encumbrance to secure any such
indebtedness, whether or not it is otherwise liable therefor (all of the
foregoing are referred to as "Acquisition Debt") or receives funds from
Nationwide that it
utilizes, directly or indirectly as all or any portion of the purchase price
payable as consideration for any such acquisition ("Nationwide Funded
Indebtedness"), the Company must prepay a portion of the Company Notes or remove
the restrictions referenced in the preceding paragraph with respect to a portion
of the Company Shares.
In consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto do hereby agree as follows.
1. Initial Registration.
Not later than December 1, 1999, or such later date that is not more
than five calendar days following delivery to the Company of the audited
financial statements of Nationwide as of December 31, 1998, and for the calendar
year then ended compliant in form with the requirements of Regulation SX under
the Securities Act of 1933, as amended (the "Act"), and the related report and
consent of KPMG Peat Marwick LLP, the Company shall prepare and file a
registration statement (the "Initial Registration Statement") under the Act with
respect to the sale by the Holders of the Company Shares and the Short Term Note
Shares. The Company shall use its best efforts to cause the Initial Registration
Statement to become effective under the Act within sixty calendar days following
the filing thereof and to maintain the Initial Registration Statement in effect
until the second anniversary of the date hereof. The Company shall pay all of
the expenses of the preparation, filing and maintenance of the effectiveness of
the Initial Registration Statement, including, without limitation, legal and
accounting fees and disbursements, Blue Sky fees, filing fees and all other
filing and miscellaneous expenses.
2. Piggyback Registration.
If at any time or times prior to the fifth anniversary of the date
hereof when the Initial Registration Statement is not effective, the Company
files a registration statement pursuant to the Act on a form on which the sale
of the Company Shares and the Short Term Note Shares, if any, might be covered
(a "Piggyback Registration Statement"), the Company, at its own expense, will
offer to the Holders the opportunity to register the sale of the Company Shares
and the Short Term Note Shares, if any, under such Piggyback Registration
Statement. In the event of any proposed Piggyback Registration Statement, the
Company shall furnish the Holders with no less than thirty (30) days written
notice prior to the proposed filing thereof. Such notice shall continue to be
given by the Company to the Holders until the earlier of (a) such time as all of
the Company Shares and the Short Term Note Shares, if any, have been sold by the
Holders or (b) the fifth anniversary of the date hereof. The Holders shall give
written notice within twenty (20) days of receipt of the Company's notice of
intention to file the Piggyback Registration Statement of their intention to
have the Company Shares and the Short Term Note Shares, if any, included
therein. If the registration of which the Company gives notice under this
Section 2 is for a registered public offering involving an underwriting, the
Company will so advise the Holders as a part of the written notice given to
them. In such event the right of any Holder to registration
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pursuant to this Section 2 will be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Company Shares and the
Short Term Note Shares, if any, in the underwriting to the extent provided
herein. All Holders proposing to distribute their Company Shares through such
underwriting will (together with the Company and any other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form and on customary terms, subject to this Agreement, with the
underwriter or underwriters selected for such underwriting by the Company and
shall bear their proportionate share of all underwriting discounts and
commissions. Notwithstanding any other provision of this Section 2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be sold for the account of security holders, the Company will be
required to include in the relevant offering and registration made under this
Section 2 only so many, if any, of such Company Shares and Short Term Note
Shares, if any, as such underwriter believes in good faith would not materially
adversely affect the distribution of the securities to be offered and registered
(the shares so included to be apportioned pro rata among all security holders to
be included in the registration statement, but not the Company, according to
their respective holdings of shares); provided, however, that the Company shall
use its best efforts to cause the underwriter to include, as not less than 20%
of the total number of shares to be included in the relevant offering and
registration, Company Shares and Short Term Note Shares, if any, to be sold by
the Holders. In addition, if the offering price of the shares in any such
underwritten offering is greater than $10.00 per share (as equitably adjusted to
reflect stock splits, reverse stock splits, stock dividends or other
recapitalizations) and if the underwriter determines that marketing factors
require that the selling security holders refrain from selling their shares in
such offering for a period of time, the Holders shall not sell any Company
Shares or the Short Term Note Shares, if any, under such Piggyback Registration
Statement for such period, not longer than 180 calendar days, as may be agreed
by all selling securityholders under the Piggyback Registration Statement. The
Company shall use its best efforts to maintain the effectiveness of any
Piggyback Registration Statement for at least six months following the date such
Piggyback Registration Statement becomes effective under the Act.
3. Blue Sky Qualification.
In connection with any registration under Sections 1 or 2 of this
Agreement, the Company shall, at its own expense, take all such action as may be
reasonably necessary to cause the Company Shares and the Short Term Note Shares,
if any, to be registered or qualified for sale in such states as may be
reasonably be requested by the Holders; provided, however, that the Company
shall not be obligated pursuant to this Section 3, to qualify to do business as
a foreign corporation in any jurisdiction in which it would not otherwise be
required to do so by reason of its business operations or consent generally to
service of process in any such jurisdiction.
4. Rule 144.
Notwithstanding the foregoing, the Company shall not be obligated to
include any Company Shares or Short Term Note Shares, if any, in a Piggyback
Registration Statement
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pursuant to Section 2 if the Company has furnished to the Holder or Holders of
such Company Shares and Short Term Note Shares, if any, at the Company's expense
an opinion of counsel for the Company reasonably acceptable to such Holder to
the effect that all of the Company Shares and Short Term Note Shares, if any,
owned by such Holder may be sold by such Holder pursuant to Rule 144, or any
successor thereto, under the Act within the immediately subsequent three-month
period.
5. Restrictions on Sales under Registration Statements.
Until May 31, 2000, the Holders shall not sell in the aggregate more
than the number of Company Shares determined as provided hereinafter (the
"Saleable Company Shares") under the Initial Registration Statement or any
Piggyback Registration Statement. The number of Saleable Company Shares shall
initially be 400,000. If at any time following the date hereof, the reported
closing price for the Common Stock of the Company, as reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System, or, if
the Common Stock is listed or admitted to unlisted trading privileges on a
national securities exchange, the last reported sale price on such exchange for
the Common Stock of the Company, (the "Base Closing Price"), has equaled or
exceeded $20.00 per share on any ten consecutive trading days, then the number
of Saleable Company Shares shall thereafter be increased by 100,000 and shall
increase by an additional 100,000 each time that the Base Closing Price
increases by an additional $10.00 over $20.00. For the purposes hereof, the Base
Closing Price shall be equitably adjusted to take into account the effects of
stock splits, reverse stock splits, stock dividends and other recapitalizations.
If the Initial Registration Statement or any Piggyback Registration Statement
relates to a public offering by the Company of its securities yielding net
proceeds to the Company, after underwriting discounts or commissions and all
other offering expenses, of $30,000,000 or more, the number of Saleable Company
Shares shall increase by 15% of the Company Shares which are not then Saleable
Company Shares.
If at any time prior to May 31, 2000, the Company or any Consolidated
Affiliate other than Nationwide incurs any Acquisition Debt or receives
Nationwide Funded Indebtedness or net proceeds from a public offering of the
Common Stock of the Company, after underwriting discounts or commissions and all
other offering expenses, of less than $30,000,000 and, in any such case, elects
not to make a prepayment under the Company Note, the number of Saleable Company
Shares shall increase by an amount determined by dividing one-half of the
principal amount of such Acquisition Debt, one-half of such Nationwide Funded
Indebtedness or one-half of such net proceeds, as the case may be, by the Base
Closing Price on the date of the incurrence of such Acquisition Debt or the
receipt of such Nationwide Funded Indebtedness or net proceeds, as the case may
be.
Notwithstanding anything to the contrary contained above, the
provisions of this Section 5 shall not limit the number of Short Term Note
Shares that may be sold by the Holders under the Initial Registration Statement
on any Piggyback Registration Statement.
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6. Reciprocal Indemnification.
6.1 Indemnification by the Company. Whenever pursuant to
Sections 1 or 2 hereof a registration statement is filed under the Act with
respect to the Company Shares or Short Term Note Shares, if any, or such a
registration statement is amended or supplemented, the Company agrees that it
will indemnify and hold harmless each Holder of Company Shares and Short Term
Note Shares, if any, included therein (such Holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls (within the
meaning of the Act) the Distributing Holder against any losses, claims, damages
or liabilities, joint or several, to which the Distributing Holder or any
controlling person thereof may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof or
any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (iii) any other
violation by the Company of the Act or the rules and regulations promulgated
thereunder; and the Company will reimburse the Distributing Holder and each
controlling person thereof for any legal or other expenses reasonably incurred
by the Distributing Holder or any controlling person thereof in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary prospectus, final
prospectus or amendments or supplements thereto in reliance upon and in
conformity with information furnished by such Distributing Holder specifically
for use in the preparation thereof.
6.2 Indemnification by Distributing Holders. Each Distributing
Holder, severally and not jointly, agrees, as a condition of the inclusion of
his Company Shares and Short Term Note Shares, if any, in such registration
statement, that he will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed such registration statement and
such amendments and supplements thereto, and each person, if any, who controls
the Company (within the meaning of the Act) against any losses, claims, damages
or liabilities to which the Company or any such director, officer or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any untrue or
alleged untrue statement of any material fact contained in such registration
statement, notification, preliminary prospectus, final prospectus, or amendments
or supplements thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any other violation by such
Distributing Holder of the Act or the rules and regulations promulgated
thereunder, but in the case of (i) or (ii), however, to the extent, and only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the registration statement, preliminary
prospectus, final prospectus or amendments
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or supplements thereto in reliance upon and in conformity with information
furnished in writing by such Distributing Holder specifically for use in the
preparation thereof; and will reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
6.3 Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 6.
6.4 In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; and, after notice so to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party under this
Section XI for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Notices, Etc.
All notices, requests, demands and other communications hereunder shall
be in writing, and shall be deemed to have been duly given, if delivered in
person or by courier, telegraphed, telexed or by facsimile transmission or
mailed by certified or registered mail, postage prepaid:
If to any Holder to him at his address in the stock record books of the
Company:
with a copy to: Xxxxxx, Milliken, Clark, O'Hara & Xxxxxxxxx
ARCO Center, 27th Floor
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
If to the Company: Entrade, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Attn: Xxxxx X. Xxxxxx, President and Chief
Operating Officer
with a copy to: Duane, Morris & Heckscher, LLP
Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
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8. Entire Agreement; Amendment.
This Agreement sets forth the entire agreement and understanding of the
parties in respect of the transactions contemplated hereby and supersedes all
prior agreements, arrangements and understandings relating to the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by the Company and the Holders or by their successors and assigns.
9. General.
This Agreement: (i) shall be construed and enforced in accordance with
the laws of the State of Delaware, without giving effect to the choice of law
principles thereof; (ii) shall inure to the benefit of and be binding upon the
successors and assigns of the Company and the Holders, nothing in this
Agreement, expressed or implied, being intended to confer upon any other person
any rights or remedies hereunder; and (iii) may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. A facsimile of an
executed copy of this Agreement shall have the same force and effect as an
original executed copy. No party may assign his or its rights hereunder without
the prior written consent of the other parties hereto; provided, however, that,
without the consent of the Company, any Holder may assign his rights hereunder
in connection with an assignment of his Company Shares to the extent of any such
assignment. This section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
ENTRADE, INC.
By: /s/Xxxx X. Xxxxxxxxxx
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Xxxx X. Xxxxxxxxxx, President
HOLDERS:
/s/Xxx Xxxxx
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Xxx Xxxxx
/s/ Xxxxx X. Xxxxxxxxxxx
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Xxxxx X. Xxxxxxxxxxx
CAPITAL DIRECT 1999 TRUST
By: /s/Xxxxx Xxxxx
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Xxxxx Xxxxx, Trustee
CORE CAPITAL IV TRUST
By: /s/Xxxxx Xxxxx
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Xxxxx Xxxxx, Trustee
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