<PAGE> 1
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): August 5, 1999
Walnut Financial Services, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Utah 0-26072 and 814-00157 87-0415597
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
</TABLE>
8000 Towers Crescent Drive, Suite 1070, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 448-3771
<PAGE> 2
Item 5. Other Events
On August 5, 1999, Walnut Financial Services, Inc. ("Walnut") entered
into an Agreement and Plans of Merger (the "Merger Agreement") with THCG, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Walnut ("THCG"), Tower
Hill Acquisition Corp., a New York corporation and a wholly-owned subsidiary of
THCG ("Newco"), and Tower Hill Securities, Inc., a New York corporation ("Tower
Hill"). Pursuant to the Merger Agreement, Walnut shall merge with and into THCG,
with THCG continuing as the surviving corporation, and, immediately thereafter,
Tower Hill shall merge with and into Newco, with Tower Hill continuing as the
surviving corporation and a wholly-owned subsidiary of THCG (collectively, the
"Mergers").
The Merger Agreement and the transactions contemplated thereby will be
submitted to a vote of the Walnut stockholders. In addition to the approval by
Walnut stockholders, consummation of the Mergers will be subject to the
satisfaction of numerous additional conditions, including, without limitation,
(i) the deregistration of Walnut and certain of its subsidiaries as business
development companies under the Investment Company Act of 1940, (ii) the
completion by Walnut of a private placement of at least 1,500,000 and up to
3,000,000 shares of its common stock to an accredited investor group at $2.00
per share, and (iii) the conversion of certain accrued indebtedness held by
affiliates into either cash or common stock of Walnut valued at $2.00 per share.
The Merger Agreement may be terminated by either Walnut or Tower Hill
if the Mergers have not been consummated by December 31, 1999, or in certain
other cases, as more fully described in the Merger Agreement.
The above description is qualified in its entirety by reference to the
Merger Agreement, which is attached hereto as Exhibit 2.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
2.1 Agreement and Plans of Merger by and between Walnut
Financial Services, Inc. and THCG, Inc. and by and
among THCG, Inc., Tower Hill Acquisition Corp. and
Tower Hill Securities, Inc., dated as of August 5,
1999.
99.1 Press Release dated August 5, 1999 of Walnut
Financial Services, Inc.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WALNUT FINANCIAL SERVICES, INC.
By: /s/ ROBERT F. MAUER
--------------------------------
Robert F. Mauer
Chief Financial Officer
Date: August 5, 1999
<PAGE> 4
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1 Agreement and Plans of Merger by and between Walnut Financial
Services, Inc. and THCG, Inc. and by and among THCG, Inc.,
Tower Hill Acquisition Corp. and Tower Hill Securities, Inc.
99.1 Press Release dated August 5, 1999
<PAGE> 1
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLANS OF MERGER
BY AND BETWEEN
WALNUT FINANCIAL SERVICES, INC.
AND
THCG, INC.,
AND
BY AND AMONG
THCG, INC.,
TOWER HILL ACQUISITION CORP.,
AND
TOWER HILL SECURITIES, INC.
DATED AS OF AUGUST 5, 1999
================================================================================
<PAGE> 2
AGREEMENT AND PLANS OF MERGER
AGREEMENT AND PLANS OF MERGER, dated as of August 5, 1999 (this
"AGREEMENT"), by and between Walnut Financial Services, Inc., a Utah corporation
("Walnut"), and THCG, Inc., a Delaware corporation and a wholly-owned subsidiary
of Walnut ("THCG"), and by and among THCG, Tower Hill Acquisition Corp., a New
York corporation and a wholly-owned subsidiary of THCG ("NEWCO" and together
with Walnut and THCG, the "WALNUT ENTITIES"), and Tower Hill Securities, Inc., a
New York corporation (the "Company"). Certain other capitalized terms used in
this Agreement have the meanings given them in Section 8.11.
WHEREAS, the respective boards of directors of Walnut and THCG, deeming
it advisable and for the respective benefit of Walnut and THCG and their
stockholders, have approved this Agreement pursuant to which, among other
things, Walnut will be merged with and into THCG ("MERGER 1") on the terms and
conditions contained herein and in accordance with the Revised Business
Corporation Act of the State of Utah (the "UBCA") and the General Corporation
Law of the State of Delaware (the "DGCL");
WHEREAS, the respective boards of directors of THCG, Newco and the
Company, deeming it advisable and for the respective benefit of THCG, Newco and
the Company, and their stockholders, have approved this Agreement pursuant to
which, among other things, Newco will be merged with and into the Company
("MERGER 2" and, together with Merger 1, the "MERGERS") on the terms and
conditions contained herein and in accordance with the Business Corporation Law
of the State of New York (the "NYBCL");
WHEREAS, the parties hereto intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as plans of reorganization
within the meaning of Section 368 of the United States Internal Revenue Code of
1986, as amended (the "CODE"), and the regulations promulgated thereunder, and
that the transactions contemplated by this Agreement be undertaken pursuant to
such plans;
WHEREAS, pursuant to the Mergers, each outstanding share of common
stock, par value $0.01 per share, of Walnut (the "WALNUT COMMON STOCK") and each
outstanding share of common stock, par value $0.10 per share, of the Company
(the "COMPANY COMMON STOCK") shall be automatically converted into the right to
receive the consideration specified in Article 2 upon the terms and conditions
hereinafter set forth;
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition to the willingness of each of the Walnut Entities and the
Company to enter into this Agreement, Walnut has agreed to the issuance of
Walnut Common Stock in a private placement transaction, the conversion of
certain debt into equity of Walnut, the conversion of certain accrued
compensation into equity of Walnut and certain other related transactions as
specified in Section 5.6;
<PAGE> 3
WHEREAS, the Walnut Entities and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Mergers and to prescribe various conditions to the Mergers;
NOW, THEREFORE, in consideration of the premises and
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Walnut Entities and the Company hereby
agree as follows:
ARTICLE 1
THE MERGERS
SECTION 1.1 The Mergers.
(a) Upon the terms and subject to the conditions of this Agreement,
at the First Effective Time and in accordance with the UBCA and the DGCL, Walnut
shall be merged with and into THCG. Following Merger 1, the separate corporate
existence of Walnut shall cease and THCG shall continue as the surviving
corporation ("SURVIVING CORPORATION 1") under the name "THCG, Inc."
(b) Upon the terms and subject to the conditions of this Agreement,
at the Second Effective Time and in accordance with the NYBCL, Newco shall be
merged with and into the Company. Following Merger 2, the separate corporate
existence of Newco shall cease and the Company shall continue as the surviving
corporation ("SURVIVING CORPORATION 2") under the name "Tower Hill Securities,
Inc."
SECTION 1.2 Closing. The closing of the transactions contemplated hereby shall
take place at the offices of Kramer Levin Naftalis & Frankel LLP, 919 Third
Avenue, New York, New York (the "CLOSING") as soon as practicable after all of
the conditions to the Closing set forth in Article 6 have been satisfied or
waived, unless another date, time or place is agreed to in writing by the
parties hereto. The date on which the Closing actually occurs is hereinafter
referred to as the "CLOSING DATE."
SECTION 1.3 Effective Time.
(a) Simultaneously with the Closing, the parties hereto shall cause
Merger 1 to be consummated by (i) filing a certificate of merger (the "FIRST
CERTIFICATE OF MERGER") in such form as is required by and executed in
accordance with the relevant provisions of the UBCA and the DGCL, and (ii)
making all other filings or recordings required under the UBCA and the DGCL.
Merger 1 shall become effective at such time as the First Certificate of Merger
is duly filed with the Secretary of State of the State of Utah and the Secretary
of State of the State of Delaware or at such subsequent time as the parties
shall agree and shall be specified in the First Certificate of Merger (the date
and time Merger 1 becomes effective being the "FIRST EFFECTIVE TIME").
(b) Immediately after the First Effective Time, the parties hereto
shall cause Merger 2 to be consummated by (i) filing a certificate of merger
(the "SECOND CERTIFICATE OF
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MERGER") in such form as is required by and executed in accordance with the
relevant provisions of the NYBCL, and (ii) making all other filings or
recordings required under the NYBCL. Merger 2 shall become effective at such
time as the Second Certificate of Merger is duly filed with the Secretary of
State of the State of New York or at such subsequent time as the parties shall
agree and shall be specified in the Second Certificate of Merger (the date and
time Merger 2 becomes effective being the "SECOND EFFECTIVE TIME" and, together
with the First Effective Time, the "EFFECTIVE TIME OF THE MERGERS").
SECTION 1.4 Certificate of Incorporation.
(a) At the First Effective Time, the certificate of incorporation of
THCG, as in effect immediately prior to the First Effective Time, shall be the
certificate of incorporation of Surviving Corporation 1, unless and until
thereafter changed or amended as provided therein or in accordance with
applicable Law.
(b) At the Second Effective Time, the certificate of incorporation of
the Company, as in effect immediately prior to the Second Effective Time, shall
be the certificate of incorporation of Surviving Corporation 2, unless and until
thereafter changed or amended as provided therein or in accordance with
applicable Law.
SECTION 1.5 By-laws.
(a) At the First Effective Time, the by-laws of THCG, as in effect
immediately prior to the First Effective Time, shall be the by-laws of Surviving
Corporation 1, unless and until thereafter changed or amended as provided
therein or in the certificate of incorporation of Surviving Corporation 1 or by
applicable Law.
(b) At the Second Effective Time, the by-laws of the Company, as in
effect immediately prior to the Second Effective Time, shall be the by-laws of
Surviving Corporation 2, unless and until thereafter changed or amended as
provided therein or in the certificate of incorporation of Surviving Corporation
2 or by applicable Law.
SECTION 1.6 Directors and Officers
(a) Subject to Section 5.22, at the First Effective Time, the
directors of THCG immediately preceding the First Effective Time shall become
the directors of Surviving Corporation 1 to serve until the earlier of their
death, resignation or removal or until their respective successors are duly
elected and qualified. At the First Effective Time, the officers of THCG
immediately preceding the First Effective Time shall become the officers of
Surviving Corporation 1 until the Second Effective Time or until the earlier of
their death, resignation or removal or until their respective successors are
duly elected or qualified. At the Second Effective Time, all of the current
officers of THCG shall resign and the individuals identified on Schedule 1.6(a)
shall become the officers of Surviving Corporation 1 to serve until the earlier
of their death, resignation or removal or until their respective successors are
duly elected and qualified.
(b) At the Second Effective Time, the directors of the Company
immediately preceding the Second Effective Time shall become the directors of
Surviving Corporation 2 to
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<PAGE> 5
serve until the earlier of their death, resignation or removal or until their
respective successors are duly elected and qualified. At the Second Effective
Time, the officers of the Company immediately preceding the Second Effective
Time shall become the officers of Surviving Corporation 2 until the earlier of
their death, resignation or removal or until their respective successors are
duly elected and qualified.
ARTICLE 2
CONVERSION OF CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS
SECTION 2.1 Merger 1. As of the First Effective Time by virtue of Merger 1 and
without any action on the part of the holder of any shares of Walnut Common
Stock or any shares of capital stock of THCG:
(a) Conversion of Capital Stock of Walnut. Each share of Walnut
Common Stock issued and outstanding immediately prior to the First Effective
Time shall be converted into one (1) validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of Surviving
Corporation 1 (the "THCG COMMON STOCK").
(b) Walnut Stock Options. Prior to the First Effective Time, each
Option outstanding at the First Effective Time to purchase shares of Walnut
Common Stock (a "WALNUT OPTION") under the Amended and Restated Walnut Financial
Services, Inc. 1994 Incentive Stock Option Plan and the Walnut Capital
Corporation 1987 Stock Option Plan, as amended (the "WALNUT OPTION PLANS"),
other than the Walnut Options listed on Schedule 2.1(b)(i) (the "CONVERTED
WALNUT OPTIONS"), shall be purchased for the amount set forth on Schedule
2.1(b)(ii), which amount equals the value of said Walnut Options as determined
using a Black-Scholes valuation. As of the First Effective Time, each of the
Converted Walnut Options shall be assumed by THCG and shall be converted into
and shall constitute an Option to purchase, for the same exercise price per
share and on the same terms and conditions as are contained in such Walnut
Option on the date hereof, one fully paid and non-assessable share of THCG
Common Stock. As soon as practicable following the First Effective Time, THCG
will cause to be delivered to each holder of an outstanding Converted Walnut
Option an appropriate notice setting forth such holder's rights pursuant thereto
and that such Converted Walnut Option shall continue in effect on the same terms
and conditions.
(c) Conversion of Capital Stock of THCG. Each share of THCG Common
Stock issued and outstanding immediately prior to the First Effective Time and
held by Walnut shall be cancelled and retired and cease to exist, without any
conversion thereof.
(d) Treasury Shares. Each share of Walnut Common Stock and THCG
Common Stock held in treasury by Walnut and THCG, respectively, immediately
prior to the First Effective Time shall be cancelled and retired and cease to
exist, without any conversion thereof.
SECTION 2.2 Merger 2. At the Second Effective Time, by virtue of Merger 2 and
without any action on the part of the holder of any shares of Company Common
Stock or any shares of capital stock of Newco:
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<PAGE> 6
(a) Conversion of Capital Stock of Newco. Each share of common stock
of Newco, par value $0.10 per share (the "NEWCO COMMON STOCK"), issued and
outstanding immediately prior to the Second Effective Time shall be converted
into one (1) validly issued, fully paid and non-assessable share of common
stock, par value $0.10 per share, of Surviving Corporation 2.
(b) Conversion of Company Common Stock. Subject to the provisions of
Sections 2.3(c), (h), (i), (j) and (k), each share of Company Common Stock
issued and outstanding immediately prior to the Second Effective Time shall be
converted into 37,228.145 shares of THCG Common Stock, plus an additional number
of shares of THCG Common Stock equal to one percent of the number of restricted
shares of THCG Common Stock intended to be granted to Shai Novik pursuant to
Section 2.2(c) and which do not vest and are forfeited in accordance with the
terms and conditions thereof; provided that upon such forfeiture and transfer to
the holders of Company Common Stock, such shares shall no longer be restricted.
(c) Conversion of Novik Options. As of the Second Effective Time,
each outstanding Option to purchase shares of Company Common Stock that is held
by Shai Novik (the "NOVIK OPTIONS"), which Novik Options are the only Options
outstanding to purchase shares of Company Common Stock, shall be cancelled. It
is intended that Shai Novik shall receive a grant of 372,281.45 restricted
shares of THCG Common Stock under the THCG Stock Incentive Plan pursuant to his
employment agreement with THCG attached hereto as Exhibit C-2. The restricted
shares of THCG Common Stock will be subject to the terms and conditions
contained in a restricted stock agreement, in form and content reasonably
satisfactory to Walnut, including provisions that such shares shall be
restricted as to transferability and subject to forfeiture and shall become
transferable and vested in the same proportions and at the same time as the
Novik Options were scheduled to become exercisable. At the Second Effective
Time, Shai Novik shall deliver to THCG a copy of the agreement evidencing the
Novik Options, marked "cancelled," against receipt of a certificate for such
restricted shares.
(d) Treasury Shares. Each share of Company Common Stock and Company
Preferred Stock and each share of Newco Common Stock held in treasury by the
Company and Newco, respectively, immediately prior to the Second Effective Time
shall be cancelled and retired and cease to exist, without any conversion
thereof.
SECTION 2.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time of the Mergers,
Walnut shall appoint Corporate Stock Transfer to act as exchange agent (the
"EXCHANGE AGENT") in the Mergers.
(b) THCG to Provide Common Stock. Promptly after the First Effective
Time, THCG shall deposit with the Exchange Agent, for exchange in accordance
with this Article 2, the aggregate number of shares of THCG Common Stock
issuable pursuant to Section 2.1(a) in exchange for the issued and outstanding
shares of Walnut Common Stock. Promptly after the Second Effective Time, THCG
shall deposit with the Exchange Agent, for exchange in accordance with this
Article 2, the aggregate number of shares of THCG Common Stock
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<PAGE> 7
issuable pursuant to Section 2.2(b) in exchange for the issued and outstanding
shares of the Company Common Stock and the Novik Options, respectively.
(c) Exchange Procedures. Within three business days after the
Effective Time of the Mergers, the Exchange Agent shall cause to be delivered to
each holder of record of (i) a certificate or certificates which immediately
prior to the First Effective Time represented outstanding shares of Walnut
Common Stock and (ii) a certificate or certificates which immediately prior to
the Second Effective Time represented outstanding shares of Company Common Stock
(collectively, the "OLD CERTIFICATES") whose shares were converted into the
right to receive THCG Common Stock pursuant to Sections 2.1(a) and 2.2(b),
respectively, (x) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Old Certificates shall
pass, only upon delivery of the Old Certificates to the Exchange Agent and shall
be in such form and have such other provisions as THCG may reasonably specify),
and (y) instructions to effect the surrender of the Old Certificates for
certificates evidencing shares of THCG Common Stock. Upon surrender of an Old
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required by such
instructions, the holder of such Old Certificates shall be entitled to receive
in exchange therefor a certificate evidencing the number of whole shares of THCG
Common Stock to which such holder is entitled pursuant to Sections 2.1(a) and
2.2(b), and the Old Certificate so surrendered shall forthwith be cancelled.
Until so surrendered, each outstanding Old Certificate that, prior to the
Effective Time of the Mergers, evidenced shares of Walnut Common Stock or
Company Common Stock will be deemed from and after the Effective Time of the
Mergers, for all corporate purposes, other than the payment of dividends or
other distributions, to evidence the ownership of the number of whole shares of
THCG Common Stock into which such shares of Walnut Common Stock or Company
Common Stock shall have been so converted pursuant to Sections 2.1(a) and
2.2(b).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions or payments declared or made after the Effective Time of the
Mergers with respect to shares of THCG Common Stock with a record date after the
Effective Time of the Mergers will be paid to the holder of any unsurrendered
Old Certificate with respect to the shares of THCG Common Stock evidenced
thereby until the holder of record of such Old Certificate shall surrender such
Old Certificate pursuant to this Section 2.3. Subject to applicable Law,
following surrender of any such Old Certificate, there shall be paid to the
record holder of the certificates evidencing whole shares of THCG Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions or payments with a record date
after the Effective Time of the Mergers theretofore paid with respect to such
whole shares of THCG Common Stock.
(e) Transfers of Ownership. If any certificate for shares of THCG
Common Stock is to be issued in a name other than that in which the Old
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Old Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer, accompanied by
all documents required to evidence and effect such transfer pursuant to this
Section 2.3, and that the Person requesting such transfer will have paid to THCG
or any agent designated by it any fees or transfer or other Taxes required by
reason of the issuance of a certificate for shares of THCG Common Stock in any
name other than that of the registered holder of the Old
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<PAGE> 8
Certificate surrendered, or established to the satisfaction of THCG or any agent
designated by it that such fees and Taxes have been paid or are not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, none of the Exchange Agent, Surviving Corporation 1, Surviving
Corporation 2 or any party hereto shall be liable to any holder of shares of
Walnut Common Stock or Company Common Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
(g) No Further Ownership Rights in Walnut Common Stock or Company
Common Stock. All shares of THCG Common Stock issued upon the surrender for
exchange of shares of Walnut Common Stock or Company Common Stock in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Walnut Common Stock or Company Common
Stock which were outstanding immediately prior to the Effective Time of the
Mergers. If, after the Effective Time of the Mergers, Old Certificates are
presented to Surviving Corporation 1 or Surviving Corporation 2 or the Exchange
Agent for any reason, they shall be cancelled and exchanged as provided in this
Section 2.3.
(h) Lost, Stolen or Destroyed Certificates. In the event any Old
Certificates evidencing shares of Walnut Common Stock or Company Common Stock
shall have been lost, stolen or destroyed, the Exchange Agent may require,
before issuing certificates in respect of the shares of THCG Common Stock
evidenced thereby, such affidavits and indemnities and bonds in support thereof
as it may reasonably require with respect to such loss, theft or destruction.
(i) Dissenters' Rights. Notwithstanding any provision of this
Agreement to the contrary, any shares of Walnut Common Stock or Company Common
Stock outstanding immediately prior to the Effective Time of the Mergers held by
a holder who has demanded and perfected the right, if any, for appraisal of
those shares in accordance with the provisions of Section 16-10a-1301 of the
UBCA or Section 910 of the NYBCL and as of the Effective Time of the Mergers has
not withdrawn or lost such right to appraisal ("DISSENTING SHARES") shall not be
converted into or represent a right to receive THCG Common Stock pursuant to
Sections 2.1(a) and 2.2(b), but the holder shall only be entitled to such rights
as are granted by said Sections of the UBCA or NYBCL. If a holder of shares of
Walnut Common Stock or Company Common Stock who demands appraisal of those
shares under the UBCA or NYBCL shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the
Effective Time of the Mergers or the occurrence of such event, whichever last
occurs, those shares shall be converted into and represent only the right to
receive THCG Common Stock as provided in Sections 2.1(a) and 2.2(b), without
interest, upon compliance with the provisions, and subject to the limitations,
of Section 2.3. Walnut and the Company shall give each other (i) prompt notice
of any written demands for appraisal of any shares of Walnut Common Stock or
Company Common Stock, attempted withdrawals of such demands, and any other
instruments served pursuant to the UBCA or NYBCL and received by either Walnut
or the Company relating to stockholders' rights of appraisal. Walnut and the
Company shall not, except with the prior written consent of the other,
voluntarily make any payment with respect to any demands for appraisals of
Walnut Common Stock or Company Common Stock, offer to settle or settle any such
demands or approve any
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<PAGE> 9
withdrawal of any such demands.
(j) Withholding Rights. THCG or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Walnut Common Stock or Company Common Stock such
amounts as THCG or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign Tax Law. To the extent that amounts are so deducted and
withheld by THCG or the Exchange Agent, such deducted and withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of Walnut Common Stock or Company Common Stock in respect of which such
deduction and withholding was made by THCG or the Exchange Agent.
(k) No Fractional Shares. Notwithstanding any provision of this
Agreement to the contrary, neither certificates nor scrip for fractional shares
of THCG Common Stock shall be issued in connection with the Mergers, but in lieu
thereof each holder of shares of Company Common Stock otherwise entitled to a
fraction of a share of THCG Common Stock pursuant to the provisions of 2.2(b)
and 2.2(c) shall receive one whole share of THCG Common Stock in respect of such
fraction. If more than one Old Certificate shall be surrendered for the account
of the same Company Stockholder, the number of whole shares of THCG Common Stock
for which such Old Certificates shall be exchanged pursuant to Section 2.3 shall
be computed on the basis of the aggregate number of shares of Company Common
Stock evidenced by such Old Certificates.
SECTION 2.4 Tax Consequences. It is intended by the parties hereto that the
Mergers shall each constitute a reorganization within the meaning of Section 368
of the Code and the regulations promulgated thereunder. The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations
with respect to each of Merger 1 and Merger 2.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Walnut Entities as
follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its Subsidiary has been duly organized
and is validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization, as the case may be, and has the requisite
corporate or other power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. Each of the Company
and its Subsidiary is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failure to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. For purposes of this
Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means any change, event or effect
(i) in, on or relating to the business of the Company and its Subsidiary that
is, or is reasonably likely to be, materially adverse to the business,
properties, assets, liabilities, condition (financial or otherwise) or results
of operations of the Company and its Subsidiary, taken as a whole, other than
any change or effect arising out of general economic conditions in the United
States or (ii) that may prevent or materially delay the performance of this
Agreement, the Transaction Documents or the Related Agreements by the Company or
the consummation by the Company of the transactions contemplated by this
Agreement, the Transaction Documents or the Related Agreements (including Merger
2 and the Related Transactions). Except for the formation of a wholly-owned
subsidiary in the form of a limited liability company (the "LLC"), the Company
has no Subsidiaries and is not a general partner in any partnership.
(b) The Company has delivered to Walnut correct and complete copies
of the Company's Certificate of Incorporation and By-laws (collectively, the
"COMPANY CHARTER DOCUMENTS") and will deliver to Walnut all comparable
organizational documents of its Subsidiary. The Company Charter Documents and
all comparable organizational documents of the Subsidiary of the Company are or
will be at the Closing in full force and effect. The Company is not in violation
of any of the provisions of the Company Charter Documents and its Subsidiary is
not in violation of its organizational documents.
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<PAGE> 11
SECTION 3.2 Capitalization of the Company and its Subsidiary.
(a) The authorized capital stock of the Company consists of (i) 1,000
shares of Company Common Stock, of which 100 shares are issued and outstanding,
and (ii) 1,000,000 shares of Variable Rate Cumulative Preferred Stock, par value
$1.00 per share (the "COMPANY PREFERRED STOCK"), of which 100 shares are issued
and outstanding as of the date hereof. All of the issued and outstanding shares
of Company Common Stock and Company Preferred Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights. None of the issued and outstanding shares of Company Common Stock and
Company Preferred Stock were issued in violation of the registration
requirements of any federal or state securities laws. As of the date hereof, ten
shares of Company Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding Options
issued pursuant to the Company Stock Option Plans. Schedule 3.2(a)(1) to this
Agreement sets forth, as of the date hereof, (i) the Persons to whom Options
have been granted by the Company, (ii) the exercise price for Options held by
each such Person, (iii) the number of vested and unvested Options and (iv) the
termination dates of such Options. Except as set forth on Schedule 3.2(a) to
this Agreement, no shares of the Company's capital stock have been issued other
than pursuant to the exercise of the Company Options already in existence on
such date, and no Options have been granted by the Company to any Person. Except
as set forth above, as set forth on Schedule 3.2(a)(2) to this Agreement, or as
contemplated in the Related Agreements, there are outstanding (i) no shares of
capital stock or other voting securities of the Company or its Subsidiary, (ii)
no securities of the Company or its Subsidiary convertible or exercisable into
or exchangeable for shares of capital stock or voting securities of the Company
or its Subsidiary, (iii) no Options to acquire from the Company or its
Subsidiary, and no obligations of the Company or its Subsidiary to issue, any
capital stock, voting securities or securities convertible or exercisable into
or exchangeable for capital stock or voting securities of the Company or its
Subsidiary, (iv) no equity equivalents, interests in the ownership or earnings
of the Company or its Subsidiary or other similar rights (including stock
appreciations rights) (the items listed in subclauses (i), (ii), (iii) and (iv)
of this sentence being referred to, collectively, as "COMPANY SECURITIES") and
(v) no obligations of the Company or its Subsidiary to repurchase, redeem or
otherwise acquire any Company Securities. Except as set forth on Schedule
3.2(a)(3) to this Agreement, there are no stockholder agreements, voting trusts
or other agreements or understandings to which the Company or its Subsidiary is
a party or by which it is bound relating to the voting or registration of any
shares of capital stock of the Company or its Subsidiary.
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SECTION 3.3 Authority Relative to this Agreement; Board Action.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Transaction Documents and the Related
Agreements to which it is a party, to consummate the transactions contemplated
by this Agreement and the Transaction Documents and the Related Agreements to
which it is a party (including Merger 2), and to perform its obligations under
this Agreement and the Transaction Documents and the Related Agreements to which
it is a party. The execution and delivery by the Company of this Agreement and
the Transaction Documents and the Related Agreements to which it is a party and
the consummation by the Company of the transactions contemplated by this
Agreement and the Transaction Documents and the Related Agreements to which it
is a party (including Merger 2) have been duly authorized and approved by the
board of directors of the Company (the "COMPANY BOARD") and the Company
Stockholders, and no other corporate proceedings on the part of the Company are,
or will be, necessary to authorize this Agreement and the Transaction Documents
and the Related Agreements to which it is a party or to consummate the
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements to which it is a party (including Merger 2). Each of this
Agreement and each of the Transaction Documents and the Related Agreements to
which the Company is a party have been, or will be at the Closing, assuming the
due authorization, execution and delivery of the same by each of the other
parties hereto or thereto, duly and validly executed and delivered by the
Company and constitutes, or will constitute at the Closing, a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally, and
(ii) general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
(b) The Company Board, by resolutions duly adopted at a meeting duly
called and held and not subsequently rescinded or modified in any way, has duly
(i) determined that this Agreement and Merger 2 are in the best interests of the
Company and its stockholders (the "COMPANY STOCKHOLDERS"), (ii) approved this
Agreement and Merger 2, and (iii) unanimously recommended that the Company
Stockholders approve this Agreement and Merger 2.
(c) The Company Stockholders, by resolutions duly adopted and not
subsequently rescinded or modified in any way, have unanimously approved this
Agreement and Merger 2.
SECTION 3.4 Financial Statements.
(a) For purposes of this Agreement: (i) "COMPANY FINANCIAL STATEMENTS"
shall mean (x) the audited balance sheet of the Company as of December 31, 1998
and the related income statement for the nine months then ended, and (y) the
audited balance sheet of the Company as of March 31, 1998 and the related income
statement for the year then ended, and (ii) "COMPANY INTERIM FINANCIAL
STATEMENTS" shall mean the unaudited balance sheet of the Company as of June 30,
1999 and the related income statement for the six months ended on June 30, 1999.
The Company has delivered to Walnut correct and complete copies of the Company
Financial Statements and Company Interim Financial Statements.
(b) The Company Financial Statements (i) have been prepared from the
books and
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records of the Company in accordance with GAAP, and (ii) fairly present in all
material respects the financial position of the Company as of March 31, 1998 and
December 31, 1998 and the results of its operations for the fiscal year and the
nine months then ended, respectively. The Company Interim Financial Statements
(i) have been prepared from the books and records of the Company in accordance
with GAAP on a basis consistent with the Company's historical practices, and
(ii) fairly present in all material respects the financial position of the
Company as of June 30, 1999 and the results of its operations for the six months
then ended; provided, however, the Company Interim Financial Statements (x) are
subject to normal year-end adjustments, and (y) do not include footnotes.
(c) As of June 30, 1999, the Company has the assets listed on Schedule
3.4(c)(i) and the liabilities listed on Schedule 3.4(c)(ii). Other than as
listed on Schedules 3.4(c)(i) and 3.4(c)(ii) and except for the potential tax
liabilities identified on Schedule 3.4(c)(iii), the Company has no other
material assets or liabilities, other than reasonable accounting and attorneys
fees and such other reasonable expenses related to Merger 2 and the Related
Transactions.
SECTION 3.5 Information Supplied. None of the written information supplied or to
be supplied by the Company for inclusion in (a) the Form 8-F pertaining to the
Company (the "COMPANY 8-F INFORMATION") will, at the time the Form 8-F is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Investment Company Act, contain any untrue statement
of material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (b) the
Proxy Statement (the "COMPANY PROXY INFORMATION") will, on the date first mailed
to the Walnut Stockholders and at the time of the Walnut Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information supplied by any of the Walnut
Entities which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Proxy Statement.
SECTION 3.6 Consents and Approvals; No Violations.
(a) Except as set forth on Schedule 3.6(a) to this Agreement, no
filing, registration or submission with or notice to, and no permit,
authorization, consent or approval of or with (collectively, "FILINGS AND
APPROVALS"), any Governmental Entity is, or will be, necessary for the execution
and delivery by the Company of this Agreement, the Transaction Documents or the
Related Agreements to which the Company is a party or the consummation by the
Company of the transactions contemplated by this Agreement, the Transaction
Documents or the Related Agreements to which it is a party (including Merger 2,
the formation of the LLC and the Transfer), except (i) Filings and Approvals to,
of or with the National Association of Securities Dealers and any other
regulatory, self-regulatory and trade agencies, boards, commissions,
organizations, departments and entities (the "REGULATORY AGENCIES"), (ii) the
filing of the Second Certificate of Merger with the Secretary of State of the
State of New York, and (iii) Filings and Approvals that, if not made or
obtained, could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
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(b) Except as set forth on Schedule 3.6(b) to this Agreement, no
consent or approval of any third party is, or will be, necessary for the
execution and delivery by the Company of this Agreement, the Transaction
Documents, or the Related Agreements to which the Company is a party or the
consummation by the Company of the transactions contemplated by this Agreement,
the Transaction Documents or the Related Agreements to which it is a party
(including Merger 2).
(c) Except as set forth on Schedule 3.6(c) to this Agreement, neither
the execution, delivery and performance by the Company of this Agreement, the
Transaction Documents or the Related Agreements to which the Company is a party,
nor the consummation by the Company of the transactions contemplated by this
Agreement, the Transaction Documents or the Related Agreements to which it is a
party (including Merger 2) will (i) conflict with or result in any breach of any
provision of the Company Charter Documents or any comparable organizational
documents of the Subsidiary of the Company, (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company is a party or by which its
properties or assets are bound, or (iii) assuming that all Filings and Approvals
have been made or obtained, violate any Law or any Governmental Order applicable
to the Company or its properties or assets, except in the case of clauses (ii)
or (iii) for violations, breaches or defaults which could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 3.7 No Default. Except as set forth on Schedule 3.7 to this Agreement,
neither the Company nor its Subsidiary is in default or violation (and no event
has occurred which with due notice or the lapse of time or both would constitute
a default or violation) of any term, condition or provision of (i) the Company
Charter Documents or any comparable organizational documents of the Subsidiary
of the Company, (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
its Subsidiary is a party or by which any of their respective properties or
assets are bound, or (iii) any Governmental Order applicable to the Company or
its Subsidiary or any of their respective properties or assets, except in the
case of clauses (ii) or (iii) for violations, breaches or defaults that could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.8 No Undisclosed Liabilities; Absence of Changes.
(a) Except as set forth on Schedule 3.8(a) to this Agreement, and
except as reflected in, reserved against or otherwise described in the balance
sheet included in the Company Financial Statements (including the notes
thereto), as of December 31, 1998, neither the Company nor its Subsidiary had
any liabilities or obligations of any nature, whether accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, which
would be required by GAAP to be reflected in, reserved against or otherwise
described in the balance sheet of the Company (including the notes thereto) as
of such date, except for liabilities and obligations that could not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
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(b) Except as disclosed by the Company on Schedule 3.8(b) to this
Agreement, since January 1, 1999, the business of the Company and its Subsidiary
has been carried on only in the ordinary course and in a manner consistent with
past practice, neither the Company nor its Subsidiary has incurred any
liabilities or obligations of any nature, whether accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, except in
the ordinary course of business and in a manner consistent with past practice,
none of which could reasonably be likely to have, individually or in the
aggregate, a Company Material Adverse Effect, and there has not been any event,
condition or occurrence that, individually or in the aggregate, has resulted or
which could reasonably be expected to result in, a Company Material Adverse
Effect. Except as disclosed on Schedule 3.8(b) to this Agreement, since January
1, 1999, there has not been (i) any material change by the Company in its
accounting methods, principles or practices, (ii) any declaration, setting aside
or payment of any dividend or distribution in respect of shares of the capital
stock of the Company or its Subsidiary or any redemption, purchase or other
acquisition of any of the Company Securities, or (iii) any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, restricted stock awards or similar
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable, or the Company's obligations in
respect of any program or arrangement for, officers or other key employees of
the Company or its Subsidiary.
SECTION 3.9 No Litigation. Except as disclosed on Schedule 3.9 to this
Agreement, there is no suit, claim, action, investigation, litigation,
arbitration or other proceeding ("PROCEEDING") pending or, to the Knowledge of
the Company, threatened against the Company or its Subsidiary or any of their
respective properties or assets which (a) if adversely determined, could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, or (b) questions the validity of this Agreement, any
Transaction Document or any Related Agreement to which the Company is a party or
any action to be taken by the Company in connection with the consummation of the
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements to which the Company is a party (including Merger 2) or could
otherwise prevent, delay, make illegal or otherwise interfere with the
consummation of such transactions. Except as disclosed on Schedule 3.9 to this
Agreement, neither the Company nor its Subsidiary is subject to any outstanding
Governmental Order which could reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.10 Compliance with Applicable Law.
(a) Except as disclosed on Schedule 3.10(a) to this Agreement, the
Company and its Subsidiary have made or have obtained and hold all
registrations, filings, submissions, certificates, determinations, permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities (collectively, "PERMITS") necessary for the lawful conduct of their
respective businesses, except where the failure to make, obtain or hold any such
Permit would not have, individually or in the aggregate, a Company Material
Adverse Effect. Except as disclosed on Schedule 3.10(a) to this Agreement, (i)
the Permits of the Company and its Subsidiary are valid and in full force and
effect, (ii) neither the Company nor its Subsidiary is in default under, and no
condition exists that with notice or lapse of time or both would
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constitute a default under, such Permits, and (iii) none of such Permits will be
terminated or impaired or become terminable, in whole or in part, as a result of
the transactions contemplated by this Agreement, the Transaction Documents or
the Related Agreements to which the Company is a party, except in the case of
clauses (i), (ii) and (iii) for Permits, the failure of which to be valid or in
full force and effect or of the Company or its Subsidiary to hold could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(b) Except as disclosed on Schedule 3.10(b) to this Agreement, the
businesses of the Company and its Subsidiary have not been conducted in
violation of any Law, except for violations or possible violations which could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as disclosed on Schedule 3.10(b) to this
Agreement, no material investigation or review by any Governmental Entity with
respect to the Company or its Subsidiary is pending or, to the Knowledge of the
Company, threatened, nor, to the Knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same.
SECTION 3.11 Employee Benefits and ERISA.
(a) Schedule 3.11(a) to this Agreement contains a true and complete
list of each material employee benefit plan, policy, program, practice,
agreement, understanding, arrangement or commitment (whether written or
unwritten) providing compensation, benefits or perquisites of any kind to any
current or former officer, employee or consultant (or to any dependent or
beneficiary thereof) of the Company, which are now, or were within the past six
years, maintained by, contributed to, by or with respect to which an obligation
to contribute exists or existed on the part of any of the Company, its
predecessors, or any other trade or business (whether or not incorporated)
which, together with the Company, is treated as a single employer under Section
414 of the Code (such other trades or businesses, collectively, the "COMMONLY
CONTROLLED COMPANY ENTITIES") or with respect to which the Company or any
Commonly Controlled Company Entity has or may have any material liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar agreement) including, without limitation,
all material employment or consulting agreements, incentive, bonus, deferred
compensation, pension, profit sharing, vacation, holiday, cafeteria, medical,
disability, stock purchase, stock option, stock appreciation, phantom stock,
restricted stock or other stock-based compensation plans, policies, programs,
practices or arrangements and any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
from time to time ("ERISA"), whether or not subject to ERISA (each, a "COMPANY
PLAN" and together, the "COMPANY PLANS").
(b) With respect to each Company Plan, the Company has delivered or
made available to Walnut, to the extent applicable: (i) a current, correct and
complete copy of each written plan document (including without limitation, any
employment agreement, employment policies and procedures and plan instrument,
and any amendments thereto) or, to the extent no such written plan document
exists, an accurate written description thereof; (ii) any related trust
agreement or other funding instrument; (iii) the most recent determination
letter with respect to any Company Plan intended to be qualified under Section
401(a) of the Code; (iv) any summary plan description, summary of material
modifications or other material written
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communication from the Company to its employees concerning the extent of the
benefits provided under any Company Plan; and (v) for the three most recent
years (A) the Form 5500 and attached schedules, (B) audited financial statements
and (C) actuarial valuation reports.
(c) (i) Each Company Plan has been established and maintained, in
form and operation, in all material respects (A) in accordance with its terms,
and (B) in compliance with the applicable provisions of ERISA, the Code and
other applicable Laws, rules and regulations; (ii) each Company Plan that is
intended to be qualified within the meaning of Section 401(a) of the Code has
received a favorable determination letter as to its qualification, and, to the
Knowledge of the Company, nothing has occurred, whether by action or failure to
act, that would reasonably be expected to cause such determination letter to be
revoked.
(d) Except as set forth on Schedule 3.11(d), no Company Plan provides
for benefits, including, without limitation, medical or health benefits (through
insurance or otherwise), or provides for the continuation of such benefits or
coverage for any participant or any dependent or beneficiary of any participant,
after such participant's retirement or other termination of employment (except
(i) as may be required by applicable Law, (ii) retirement or death benefits
under any employee pension plan, (iii) disability benefits under any employee
welfare plan that have been fully provided for by insurance or otherwise, (iv)
deferred compensation benefits accrued as liabilities on the books of the
Company; or (v) benefits in the nature of severance pay).
(e) For each Company Plan with respect to which a Form 5500 has been
filed, no change has occurred with respect to the matters covered by the most
recent Form 5500 since the date thereof other than any such change as would not
be reasonably likely to result in a material liability to the Company.
(f) Except as disclosed on Schedule 3.11(f) to this Agreement, with
respect to each Company Plan that is subject to Title IV of ERISA:
(i) no such Company Plan has been terminated so as to result,
directly or indirectly, in any material liability, contingent or
otherwise, of the Company or any Commonly Controlled Company Entity;
(ii) no complete or partial withdrawal from such Company Plan
has been made by the Company or any Commonly Controlled Company Entity,
or by any other Person, so as to result in a material liability to the
Company or any Commonly Controlled Company Entity, whether such
liability is contingent or otherwise;
(iii) no proceeding has been initiated by any Person
(including the PBGC) to terminate any such Company Plan or to appoint a
trustee for any such Company Plan;
(iv) no condition or event currently exists or currently is
expected to occur that would reasonably be expected to result, directly
or indirectly, in any material liability of the Company or any Commonly
Controlled Company Entity under Title IV of ERISA, whether to the PBGC
or otherwise, on account of the termination of any such Company Plan;
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(v) if any such Company Plan were to be terminated as of the
Closing Date, neither the Company nor any Commonly Controlled Company
Entity would incur, directly or indirectly, any material liability
under Title IV of ERISA;
(vi) no "reportable event" (as defined in section 4043 of
ERISA) has occurred with respect to any such Company Plan; and
(vii) no such Company Plan has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412
of the Code, respectively), whether or not waived.
(g) Except as disclosed on Schedule 3.11(g) to this Agreement, with
respect to any Company Plan that is a multiemployer plan (within the meaning of
Section 3(37) of ERISA): (i) neither the Company nor any Commonly Controlled
Company Entity would be subject to any withdrawal liability if, as of the
Closing Date, the Company or any Commonly Controlled Company Entity were to
engage in a complete withdrawal (as defined in Section 4203 of ERISA) or partial
withdrawal (as defined in Section 4205 of ERISA) from any such multiemployer
plan; and (ii) no such multiemployer plan is in reorganization or insolvent (as
those terms are defined in Sections 4241 and 4245 of ERISA, respectively).
(h) Except as disclosed on Schedule 3.11(h) to this Agreement or as
would not be reasonably likely to result in a material liability to the Company,
with respect to any Company Plan that is not a multiemployer plan (within the
meaning of Section 3(37) of ERISA): (i) no actions, suits or claims (other than
routine claims for benefits in the ordinary course) are pending or, to the
Knowledge of the Company, threatened; (ii) no facts or circumstances exist that
could give rise to any such actions, suits or claims; and (iii) no written or
oral communication has been received from the PBGC in respect of any Company
Plan subject to Title IV of ERISA concerning the funded status of any such
Company Plan or any transfer of assets and liabilities from any such plan in
connection with the transactions contemplated herein.
(i) Except as disclosed on Schedule 3.11(i) to this Agreement,
neither the Company nor any Commonly Controlled Company Entity has agreed to or
communicated to employees any changes to any Company Plan that would: (i) cause
an increase in benefits or create new benefits under any Company Plan; or (ii)
change any employee coverage so as to cause an increase in the expense of
maintaining any such Company Plan.
(j) Except as disclosed on Schedule 3.11(j) to this Agreement, the
consummation of the transactions contemplated hereby will not result in: (i) any
payment (including, without limitation, any severance, unemployment
compensation, golden parachute or bonus payment) becoming due to any current or
former director, officer, employee or consultant of the Company or any of its
Affiliates; (ii) any increase in the amount of compensation or benefits payable
in respect of any current or former director, officer, employee or consultant of
the Company or any of its Affiliates; or (iii) the acceleration of vesting or
time of payment of any benefits or compensation payable in respect of any
current or former director, officer, employee or consultant of the Company or
any of its Affiliates, and the transactions contemplated by this Agreement will
not result in any payment or series of payments constituting a "parachute
payment" within the meaning of Section 280G of the Code.
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(k) Except as disclosed on Schedule 3.11(k) to this Agreement,
neither the Company nor any Commonly Controlled Company Entity has engaged in or
participated in any transaction, whether or not related to a Company Plan, that
could, directly or indirectly, result in any tax, penalty or liability imposed
by ERISA or the Code including, without limitation, any excise tax under Section
4975 of the Code or any civil penalty under Section 409 or 502 of ERISA, that,
alone or together with any other such tax or penalty, could have a Company
Material Adverse Effect.
(l) Neither the Company nor any affiliate thereof (as defined in Part
V(d) of Department of Labor Prohibited Transaction Class Exemption 84-14) (the
"QPAM EXEMPTION"), nor any owner, direct or indirect, of a 5 percent or more
interest in the Company, is a Person who has engaged in any act described in
Part I(g) of the QPAM Exemption.
(m) Except as disclosed on Schedule 3.11(m) to this Agreement, the
Company is not a party to any collective bargaining or other labor union
contract applicable to employees of the Company, and no collective bargaining
agreement or other labor union contract is being negotiated by the Company. As
of the date of this Agreement, there is no labor dispute, strike or work
stoppage against the Company pending or threatened in writing which will
materially interfere with the business activities of the Company. As of the date
of this Agreement, none among the Company, its representatives or employees has
committed within the past five years any unfair labor practices in connection
with the operation of the business of the Company, and there is no charge or
complaint against the Company by the National Labor Relations Board or any
comparable state or foreign agency pending or, to the Knowledge of the Company,
threatened in writing.
(n) Except as disclosed on Schedule 3.11(n) to this Agreement, as of
the Effective Time of the Mergers, the Company has not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act, as it
may be amended from time to time, and, to the Knowledge of the Company, within
the 90-day period immediately following the Effective Time of the Mergers will
not incur any such liability or obligation if, during such 90-day period, only
terminations of employment in the normal course of operations occur.
SECTION 3.12 Environmental Laws and Regulations.
(a) Except as disclosed on Schedule 3.12(a) to this Agreement, (i) the
Company and its Subsidiary are in compliance, in all material respects, with all
applicable Laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "ENVIRONMENTAL LAWS"),
which compliance includes, but is not limited to, the possession by the Company
and its Subsidiary of all material Permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) neither the Company nor its Subsidiary has received
written notice of, or, to the Knowledge of the Company, is the subject of, any
material action, cause of action, claim, investigation, demand or notice by any
Person or entity alleging liability under or non-compliance with any
Environmental Law (an "ENVIRONMENTAL CLAIM"); and (iii) to the Knowledge of the
Company, there are no circumstances that are reasonably likely to prevent
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or interfere with such material compliance in the future.
(b) Except as disclosed on Schedule 3.12(b) to this Agreement, to the
Knowledge of the Company, there are no material Environmental Claims that are
pending or threatened against any Person whose liability for any Environmental
Claim the Company or its Subsidiary has or may have retained or assumed either
contractually or by operation of Law.
SECTION 3.13 Tax Matters.
(a) The Company and its Subsidiary have timely and accurately filed,
or caused to be timely and accurately filed, all material Tax Returns (as
hereinafter defined) required to be filed by them, and have paid, collected or
withheld, or caused to be paid, collected or withheld, all material amounts of
Taxes (as hereinafter defined) required to be paid, collected or withheld, other
than such Taxes for which adequate reserves have been established or which are
being contested in good faith. Except as set forth on Schedule 3.13(a) to this
Agreement, there are no material claims or assessments pending against the
Company or its Subsidiary for any alleged deficiency in any Tax, there are no
pending or, to the Knowledge of the Company, threatened audits or investigations
for or relating to any liability in respect of any Taxes, and neither the
Company nor its Subsidiary has been notified in writing of any proposed Tax
claims or assessments against the Company or its Subsidiary (other than claims
or assessments for which adequate reserves have been established or which are
being contested in good faith or are immaterial in amount).
(b) For purposes of this Agreement, the term "TAX" shall mean any
United States or non-United States federal, national, state, provincial, local
or other jurisdictional income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, alternative or add-on minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge imposed by any Governmental Entity,
together with any interest or penalty imposed thereon. The term "TAX RETURN"
shall mean a report, return or other information (including any attached
schedules or any amendments to such report, return or other information)
required to be supplied to or filed with a Governmental Entity with respect to
any Tax, including an information return, claim for refund, amended return or
declaration or estimated Tax.
(c) Except as set forth on Schedule 3.13(c) to this Agreement, neither
the Company nor its Subsidiary is liable for Taxes of any other Person, or is
currently under any contractual obligation to indemnify any Person with respect
to Taxes (except for customary agreements to indemnify lenders or security
holders in respect of Taxes other than income Taxes), or is a party to any Tax
sharing agreement or any other agreement providing for payments by the Company
or its Subsidiary with respect to Taxes. Except as set forth on Schedule 3.13(c)
to this Agreement, there are no outstanding powers of attorney enabling any
party to represent the Company or its Subsidiary with respect to Tax matters.
The Company and its Subsidiary have withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third Person. All
material elections with respect to Taxes made by the Company and its Subsidiary
as of the date hereof are set forth on Schedule 3.13(c) to this Agreement. There
are no private letter rulings in respect of any Tax pending between the Company
and any Tax authority. Neither the Company nor its Subsidiary is a personal
holding company within the
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meaning of Section 542 of the Code. Neither the Company nor its Subsidiary is a
party to any joint venture, partnership or other arrangement or contract which
could be treated as a partnership for Tax purposes. Neither the Company nor its
Subsidiary has agreed to nor is required, as a result of a change in method of
accounting or otherwise, to include any adjustment under Section 481 of the Code
(or any corresponding provision of state, local or foreign Law) in taxable
income. Neither the Company nor its Subsidiary is a party to any contract,
arrangement or plan that could result (taking into account the transactions
contemplated by this Agreement and the Related Agreements), separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code. Schedule 3.13(c) to this Agreement contains a list
of all jurisdictions to which any Tax is properly payable or in which any Tax
Return is required to be filed by the Company and its Subsidiary, and no written
claim has ever been made by any Tax authority in any other jurisdiction that the
Company or its Subsidiary is subject to taxation in such jurisdiction.
SECTION 3.14 Material Contracts.
(a) Set forth on Schedule 3.14(a) to this Agreement is a correct and
complete list of each of the following contracts and agreements (and all
amendments, modifications and supplements thereto and all related letters to
which the Company or its Subsidiary is a party affecting the obligations of any
party thereunder) to which the Company or its Subsidiary is a party or by which
any of their respective properties or assets are bound, correct and complete
copies of which have been delivered to Walnut: (i) each employment, consulting,
non-competition, severance, golden parachute or indemnification contract
(including, without limitation, any contract to which the Company or its
Subsidiary is a party involving employees of the Company or its Subsidiary)
which contemplates payments equal to or in excess of $30,000 per year; (ii) each
agreement under which the Company or its Subsidiary has a continuing obligation
to provide financial advisory or other consulting services; (iii) contracts
granting a right of first refusal or first negotiation; (iv) each partnership or
joint venture agreement; (v) except as contemplated by Section 5.26, each
agreement for the acquisition, sale, lease or license of properties or assets of
the Company or its Subsidiary or by the Company or its Subsidiary (by merger,
purchase or sale of assets or stock or otherwise), including commitments to make
an investment by the Company or its Subsidiary, in which the aggregate amount to
be paid or received by the Company or its Subsidiary is equal to or in excess of
$5,000; (vi) each contract or agreement with any Governmental Entity; (vii) each
agreement relating to indebtedness of the Company or its Subsidiary or
guarantees of indebtedness by the Company or its Subsidiary in excess of $5,000;
(viii) each noncompetition, exclusivity or other agreement restricting the
ability of the Company or its Subsidiary to hire any Person or operate its
business as now, or contemplated to be, conducted, except for any such agreement
which could not reasonably be expected to have a Company Material Adverse
Effect; (ix) each agreement between the Company or its Subsidiary and any of
their respective officers, directors, holders of 5% of the outstanding Company
Common Stock or other Affiliates of the Company or its Subsidiary; (x) each
contract or agreement that contains a "change of control" provision; (xi) any
agreement which encumbers or places a Lien on any assets of the Company or its
Subsidiary; and (xii) all commitments and agreements to enter into any of the
foregoing (collectively, the "COMPANY MATERIAL CONTRACTS").
(b) Except as set forth on Schedule 3.14(b) to this Agreement:
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(i) Each Company Material Contract is in full force and
effect and there is no default under any Company Material Contract
either by the Company or its Subsidiary or, to the Knowledge of the
Company, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute
a default thereunder by the Company or its Subsidiary or, to the
Knowledge of the Company, any other party, in any such case in which
such default or event could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(ii) No party to any such Company Material Contract has given
notice to the Company or its Subsidiary of or made a claim against the
Company or its Subsidiary with respect to any breach or default
thereunder, in any such case in which such breach or default could
reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.15 Title to Properties; Encumbrances. Schedule 3.15 to this
Agreement contains a complete and accurate list of all real property, leaseholds
or other interests in real property owned or used by the Company and its
Subsidiary. The Company has delivered or made available to Walnut correct and
complete copies of the leases or other agreements to which the Company or its
Subsidiary is party and pursuant to which it uses or occupies any real property.
Except as set forth in Schedule 3.15 to this Agreement, the Company and its
Subsidiary have good title to all of the properties and assets, real and
personal, tangible and intangible, they own or purport to own, including those
reflected on their respective books and records and in the Company Financial
Statements and the Company Interim Financial Statements (except for accounts
receivable collected and materials and supplies disposed of in the ordinary
course of business consistent with past practice after the date of the Company
Financial Statements and the Company Interim Financial Statements). The Company
and its Subsidiary have a valid leasehold, license or other interest in all of
the other properties and assets, tangible or intangible, which are used in the
operation of their respective businesses. Except as set forth in Schedule 3.15
to this Agreement, all properties and assets owned, leased or used by the
Company and its Subsidiary are free and clear of all Liens, except for (a) Liens
for current Taxes not yet due, (b) workmen's, common carrier and other similar
Liens arising in the ordinary course of business, none of which materially
detracts from the value or materially impairs the use of the property or asset
subject thereto, or materially impairs the operations of the Company and its
Subsidiary, (c) Liens disclosed in the Company Financial Statements, and (d)
such imperfections of title and other Liens, if any, which do not individually
or in the aggregate materially interfere with the value or the use of such
properties or assets or otherwise could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 3.16 Condition and Sufficiency of Assets. Except as disclosed
on Schedule 3.16 to this Agreement, all of the properties and assets owned,
leased or used by the Company and its Subsidiary are in good operating condition
and repair (normal wear and tear excepted), are suitable for the purposes used
and are adequate and sufficient for all current operations of the Company and
its Subsidiary. Following the Second Effective Time, Surviving Corporation 2
will be able to conduct the business of the Company and its Subsidiary as it was
conducted prior thereto.
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SECTION 3.17 Intellectual Property. Except as disclosed on Schedule 3.17
to this Agreement, the Company and its Subsidiary own or are licensed or
otherwise have legally enforceable rights to use all patents, copyrights,
trademarks, service marks and trade names, including any registrations or
applications for registration of any of the foregoing trade secrets, know-how,
computer software programs and applications, Internet domain names, and
proprietary information and materials (collectively, "INTELLECTUAL PROPERTY")
used in or otherwise material to the operation of the businesses of the Company
and its Subsidiary as presently conducted. To the Knowledge of the Company, the
use of the Intellectual Property by the Company and its Subsidiary does not
infringe upon or otherwise violate any Intellectual Property rights of third
parties. To the Knowledge of the Company, no third party, including any
employee, former employee, independent contractor or consultant, is infringing
upon or otherwise violating the rights of the Company or its Subsidiary in the
Intellectual Property that, individually or in the aggregate, would reasonably
be expected to have a Company Material Adverse Effect. Except as disclosed on
Schedule 3.17, or as would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, no claims (i) are
currently pending or, to the Knowledge of the Company, threatened with respect
to the Intellectual Property, or (ii) are, to the Knowledge of the Company,
currently pending or threatened with respect to the Intellectual Property rights
of a third party to the extent arising out of any use, reproduction or
distribution of the Intellectual Property of such third party by the Company or
its Subsidiary.
SECTION 3.18 Year 2000. To the Knowledge of the Company, the software and
hardware of the Company and its Subsidiary, when used or operated in accordance
with their printed documentation and in conjunction with computer hardware and
software that itself correctly processes date-related data, is free of defects
in programming and operation and will continue to operate after December 31,
1999, with the same level of functionality as the software operated prior
thereto, including, without limitation, correctly storing, processing and
presenting calendar dates falling on or after December 31, 1999. To the
Knowledge of the Company, the software will be free from logic and other errors
attributable to dates falling on or after December 31, 1999 and will not be
responsible for any error associated with any date falling on or after December
31, 1999.
SECTION 3.19 Investment Securities. Schedule 3.19 to this Agreement sets
forth a complete and correct list of all securities (including warrants)
beneficially owned by the Company and its Subsidiary on the date hereof. The
Company and its Subsidiary have good and marketable title to all such securities
(except securities sold under repurchase agreements (which are indicated as such
on Schedule 3.19) or held in any fiduciary or agency capacity(which are
indicated as such on Schedule 3.19)), free and clear of any Lien, except to the
extent such securities are pledged in the ordinary course of business consistent
with prudent business practices to secure obligations of the Company or its
Subsidiary. Such securities are valued on the books of the Company in accordance
with GAAP.
SECTION 3.20 Brokers. Except as set forth on Schedule 3.20 to this
Agreement, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Mergers or the other
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements (including the Related Transactions) based upon arrangements
made by or on behalf of the Company or any of its Affiliates.
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<PAGE> 24
SECTION 3.21 Insurance. Schedule 3.21 to this Agreement sets forth a list of
all policies or binders of fire, liability, workmen's compensation or other
insurance held by or on behalf of the Company (specifying the insurer, the
policy number or covering note number with respect to binders). Correct and
complete copies of such policies or binders have been delivered or made
available to Walnut. The Company (i) is not in default with respect to any
material provision contained in any such policy or binder, and (ii) has not
received a notice of cancellation or non-renewal of any such policy or binder.
All of such insurance is in full force and effect and all premiums due and
payable thereon have been paid.
SECTION 3.22 Transactions with Affiliates. Except as set forth on Schedule
3.22 to this Agreement, since January 1, 1999, no stockholder, officer, director
or Affiliate of the Company or its Subsidiary has entered into any transaction
with or is a party to any contract with the Company or its Subsidiary. Except as
set forth in Schedule 3.22, no stockholder, officer, director or Affiliate of
the Company or its Subsidiary owns any direct or indirect interest of any kind
in, or controls or is a stockholder, director, officer, employee or partner of,
or consultant to, or lender or borrower from or has the right to participate in
the profits of, any Person which is a competitor, client, landlord, tenant,
creditor or debtor of the Company or its Subsidiary.
SECTION 3.23 Books and Records. All constituent documents, business
licenses, minute books, stock certificate books, stock transfer ledgers and
other records of the Company and its Subsidiary (collectively, the "COMPANY
RECORDS") have been maintained in accordance with reasonable business practices
and applicable legal requirements. The Company Records are complete and correct
in all material respects and contain all material matters required to be
reflected in such Company Records.
SECTION 3.24 Disclosure. The representations and warranties by the Company
contained in this Agreement and in any Schedule or certificate furnished or to
be furnished by it pursuant hereto do not contain or will not, as of the Closing
Date, contain any untrue statement of a material fact, and do not omit or will
not, as of the Closing Date, omit to state any fact required to be stated
therein or necessary in order to make the statements herein or therein, in light
of the circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 3.24 or elsewhere in
this Agreement or in any Schedule or certificate furnished or to be furnished as
aforesaid pursuant hereto shall not be affected or deemed waived by reason of
the fact that the Walnut Entities or their representatives know or should have
known that any such representation or warranty is or might be inaccurate in any
respect.
SECTION 3.25 Stockholders of the Company. The Company has two stockholders
and each stockholder is an "accredited" investor within the meaning of Rule 501
under the Securities Act.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE WALNUT ENTITIES
Each of the Walnut Entities, jointly and severally, hereby
represents and warrants to the Company as follows:
SECTION 4.1 Organization and Qualification; Subsidiaries.
(a) Each of Walnut and each Subsidiary of Walnut has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite corporate or other power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted. Each
of Walnut and each Subsidiary of Walnut is duly qualified or licensed to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that could not reasonably be
expected to have, individually or in the aggregate, a Walnut Material Adverse
Effect. For purposes of this Agreement, "WALNUT MATERIAL ADVERSE EFFECT" means
any change, event or effect (i) in, on or relating to the business of Walnut and
the Subsidiaries of Walnut that is, or is reasonably likely to be, materially
adverse to the business, properties, assets, liabilities, conditions in the
United States; or(ii) that may prevent or materially delay performance of this
Agreement, th e Transaction Documents or the Related Agreements by any of the
Walnut Entities or the consummation by any of the WAlnut Entities of the
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements(including the Mergers and the Related Transactions). Schedule
4.1(a) to this Agreement sets forth a complete and accurate list of each
Subsidiary of Walnut, the jurisdiction of incorporation or organization of each
such Subsidiary and each jurisdiction where each such Subsidiary is qualified or
licensed to do business. Neither Walnut nor any Subsidiary of Walnut is a
general partner in any partnership, except as set forth on Schedule 4.1(a).
(b) The copies of Walnut's Articles of Incorporation, as amended, and
By-laws (collectively, the "WALNUT CHARTER DOCUMENTS") that are set forth as
Exhibits to Walnut's Annual Report on Form 10-K for the year ended December 31,
1998, and the Certificate of Incorporation and By-laws or comparable
organizational documents of THCG, Newco and each other Subsidiary of Walnut in
the forms delivered to the Company, are complete and correct copies thereof. The
Walnut Charter Documents and all comparable organizational documents of each
Subsidiary of Walnut are in full force and effect. Walnut is not in violation of
any of the provisions of the Walnut Charter Documents and no Subsidiary of
Walnut is in violation of its organizational documents.
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SECTION 4.2 Capitalization of Walnut and its Subsidiaries.
(a) The authorized capital stock of Walnut consists of (i) 50,000,000
shares of Walnut Common Stock, of which 3,350,533 shares are issued and
outstanding, and (ii) 1,000,000 shares of preferred stock, no par value, of
which no shares are issued or outstanding. All of the issued and outstanding
shares of Walnut Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. None of the issued
and outstanding shares of Walnut Common Stock were issued in violation of the
registration requirements of any federal or state securities laws. As of the
date hereof, 316,830 shares of Walnut Common Stock were reserved for issuance
and issuable upon or otherwise deliverable in connection with the exercise of
outstanding Options. Schedule 4.2(a) to this Agreement sets forth, as of the
date hereof, (i) the Persons to whom Options have been granted by Walnut, (ii)
the exercise price for Options held by each such Person, (iii) the number of
vested and unvested Options and (iv) the termination dates of such Options.
Except as disclosed in the Walnut Filed SEC Reports or as set forth on Schedule
4.2(a) to this Agreement, no shares of Walnut's capital stock have been issued
other than pursuant to the exercise of stock options already in existence on
such date, and, subject to Section 5.20, no stock options have been granted by
Walnut to any Person. Except as disclosed in the Walnut Filed SEC Reports, as
set forth above or in Schedule 4.2(a) to this Agreement or as contemplated by
this Agreement, the Transaction Documents or the Related Agreements, there are
outstanding (i) no shares of capital stock or other voting securities of Walnut
or its Subsidiaries, (ii) no securities of Walnut or any Subsidiary of Walnut
convertible or exercisable into or exchangeable for shares of capital stock or
voting securities of Walnut or any Subsidiary of Walnut, (iii) no Options to
acquire from Walnut or any Subsidiary of Walnut, and no obligations of Walnut or
any Subsidiary of Walnut to issue, any capital stock, voting securities or
securities convertible or exercisable into or exchangeable for capital stock or
voting securities of Walnut or any Subsidiary of Walnut, (iv) no equity
equivalents, interests in the ownership or earnings of Walnut or any Subsidiary
of Walnut or other similar rights (including stock appreciation rights) (the
items listed in subclauses (i), (ii), (iii) and (iv) being referred to,
collectively, as "WALNUT SECURITIES") and (v) no obligations of Walnut or any
Subsidiary of Walnut to repurchase, redeem or otherwise acquire any Walnut
Securities. Except as set forth on Schedule 4.2(a) to this Agreement, there are
no stockholders agreements, voting trusts or other agreements or understandings
to which Walnut or any Subsidiary of Walnut is a party or to which any of them
is bound relating to the voting or registration of any shares of capital stock
of Walnut or any Subsidiary of Walnut.
(b) The authorized capital stock of THCG consists of (i) 50,000,000
shares of THCG Common Stock, of which 10 shares are issued and outstanding, and
(ii) 5,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued or outstanding. All of the issued and outstanding shares of
THCG Common Stock have been duly authorized and validly issued and are fully
paid, non-assessable and free of preemptive rights. All of the issued and
outstanding shares of THCG Common Stock are owned by Walnut, free and clear of
any Lien. The shares of THCG Common Stock that will be issued as a result of the
Mergers will be, when issued in accordance with the terms of this Agreement and
the Related Agreements, duly authorized, validly issued, fully paid and
non-assessable. The authorized capital stock of Newco consists of 100 shares of
Newco Common Stock, of which 10 shares are issued and outstanding. All of the
issued and outstanding shares of Newco Common Stock have been duly authorized
and validly issued and are fully paid,
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non-assessable and free of preemptive rights. All of the issued and outstanding
shares of Newco Common Stock are owned by THCG, free and clear of any Lien.
(c) The authorized and outstanding shares of each class of capital
stock of each Subsidiary of Walnut is completely and accurately set forth on
Schedule 4.2(c) to this Agreement. Each outstanding share of capital stock of
each Subsidiary of Walnut is duly authorized and validly issued and is fully
paid and nonassessable and owned by Walnut or a Subsidiary of Walnut free and
clear of any Lien or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of law).
(d) The Walnut Common Stock constitutes the only class of equity
securities of Walnut or any Walnut Subsidiary registered or required to be
registered under the Exchange Act, except that the equity securities of Walnut
Funds, Inc., a Delaware corporation and a wholly-owned subsidiary of Walnut
("WALNUT FUNDS"), Walnut Capital Corp., a Delaware corporation and a
wholly-owned subsidiary of Walnut ("WALNUT CAPITAL"), and Universal Bridge Fund,
Inc., a Delaware corporation and a wholly-owned subsidiary of Walnut ("UNIVERSAL
BRIDGE"), are also registered under the Exchange Act.
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SECTION 4.3 Authority Relative to this Agreement; Board Action.
(a) Each of the Walnut Entities has all necessary corporate or other
power and authority to execute and deliver this Agreement and the Transaction
Documents and the Related Agreements to which it is a party, to consummate the
transactions contemplated by this Agreement and the Transaction Documents and
the Related Agreements to which it is a party (including the Mergers and the
Related Transactions), and to perform its obligations under this Agreement and
the Transaction Documents and the Related Agreements to which it is a party. The
execution and delivery by each of the Walnut Entities of this Agreement and the
Transaction Documents and the Related Agreements to which it is a party and the
consummation by each of the Walnut Entities of the transactions contemplated by
this Agreement and the Transaction Documents and the Related Agreements to which
it is a party (including the Mergers and the Related Transactions) have been
duly and validly authorized by the Board of Directors of Walnut (the "WALNUT
BOARD"), the Board of Directors of each of THCG and Newco and the sole
stockholder of each of THCG and Newco, and no other corporate or other
proceedings on the part of any Walnut Entity are, or will be, necessary to
authorize this Agreement and the Transaction Documents and the Related
Agreements to which any such Walnut Entity is a party or to consummate the
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements (including the Mergers and the Related Transactions), other
than, with respect to Merger 1, the approval and adoption of this Agreement by
the stockholders of Walnut (the "WALNUT STOCKHOLDERS") and other than the
approval by the Walnut Stockholders of certain of the Related Transactions. Each
of this Agreement and each of the Transaction Documents and the Related
Agreements to which any of the Walnut Entities is a party has been, or will be
at the Closing, assuming the due authorization, execution and delivery of the
same by each of the other parties hereto or thereto, duly and validly executed
and delivered by the Walnut Entities and constitutes, or will constitute at the
Closing, a valid, legal and binding agreement of the Walnut Entities,
enforceable against such Walnut Entities in accordance with its terms, subject
to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium and other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether considered in a proceeding at law or in equity).
(b) The Walnut Board and the Boards of Directors of each of THCG and
Newco, by resolutions duly adopted at a meeting duly called and held and not
subsequently rescinded or modified in any way, have each duly (i) determined
that this Agreement, the Mergers and the Related Transactions are in the best
interests of each Walnut Entity and their respective stockholders, (ii) approved
this Agreement, the Mergers and the Related Transactions and (iii) unanimously
recommended that the Walnut Stockholders and the sole stockholder of each of
THCG and Newco approve this Agreement, the Mergers and the Related Transactions.
SECTION 4.4 SEC Filings; Financial Statements.
(a) Since January 1, 1996, Walnut has filed all forms, reports,
schedules, statements and other documents (including all exhibits thereto) (the
"WALNUT SEC FILINGS") required to be filed with the SEC, each of which has
complied with all applicable requirements of the Securities Act, the Exchange
Act and the Investment Company Act, each as in effect on the dates such forms,
reports, schedules, statements and other document were filed. Walnut
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has heretofore delivered to or made available to the Company, in the form filed
with the SEC (including any amendments and all exhibits thereto), the following
(the "WALNUT FILED SEC REPORTS"): (i) the Annual Reports on Form 10-K for each
of the three fiscal years ended December 31, 1998, (ii) all definitive proxy
statements relating to Walnut's meetings of stockholders (whether annual or
special) held since January 1, 1996 and prior to the date of this Agreement and
(iii) all other forms, reports or registration statements filed prior to the
date of this Agreement by Walnut with the SEC since January 1, 1996 (other than
quarterly reports on Form 10-Q or current reports on Form 8-K filed before
January 1, 1999). As of their respective dates, none of the Walnut SEC Filings
or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstance under which they were made, not
misleading. The consolidated financial statements of Walnut (the "WALNUT
FINANCIAL STATEMENTS") included or incorporated by reference in the Walnut SEC
Filings complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and all of such financial statements were prepared from the books and
records of Walnut and fairly present in all material respects, in conformity
with GAAP (except as may be indicated in the notes thereto and except that the
unaudited financial statements may not include all notes thereto required by
GAAP), the consolidated statement of assets and liabilities, investment in
securities of Walnut and its Subsidiaries as of the dates thereof and their
consolidated statements of operations, changes in net assets and cash flows for
the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments). Since January 1, 1999, there has
not been any change, or any application or request for any change, by Walnut or
any Subsidiary of Walnut in accounting principles, methods or policies for
financial accounting or tax purposes.
(b) Walnut has heretofore made available to the Company a complete and
correct copy of any material amendment or modification, which has not yet been
filed with the SEC, to agreements, documents or other instruments which prior to
the date of this Agreement had been filed by Walnut with the SEC pursuant to the
Securities Act, the Exchange Act or the Investment Company Act.
(c) As of June 30, 1999, the balance sheet of Walnut reflects: (i) a
minimum balance of $1.15 million in cash; (ii) a zero balance in margin payable
to brokers; (iii) a maximum balance of $0.825 million in notes payable to banks;
(iv) a maximum balance of $2.0 million in debentures payable; (v) a minimum
balance of $0.1 million in cash on the balance sheet of Universal Partners,
L.P.; and (vi) no additional liabilities and/or no higher liability balances
than are disclosed on its April 30, 1999 balance sheet, attached as Schedule
4.4(c) to this Agreement, excluding reasonable accounting and attorneys fees and
such other reasonable expenses related to the Mergers and the Related
Transactions.
(d) To the Knowledge of Walnut, the accounts receivable, loans,
advances and contracts receivable from the clients (individually, a
"RECEIVABLE," and collectively, the "RECEIVABLES") of Pacific Financial Services
Corporation, a Washington corporation and a wholly-owned subsidiary of Walnut
("PACIFIC FINANCIAL"), and Inland Financial Corporation, a Washington
corporation and a wholly-owned subsidiary of Walnut ("INLAND FINANCIAL"),
reflected on Schedule 4.4(d) to this Agreement or arising between the date
hereof and the
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Closing Date, arose or will arise in the ordinary course of business and at
least 80% of the Receivables outstanding at any given time are and will be fully
collectible according to their terms, without resort to litigation. The amount
ultimately collected from the Receivables outstanding at any given time with
respect to each of Pacific Financial and Inland Financial shall at least be
equal to 80% of the principal amount outstanding at such time of the loan made
to Pacific Financial by Northwest International Bank and the loan made to Inland
Financial by Capital Business Credit, respectively. For the purposes of this
Section 4.4(d), a Receivable shall be deemed to become an "UNCOLLECTIBLE
RECEIVABLE" if Pacific Financial or Inland Financial, as the case may be, is not
paid in full with respect to such Receivable, including payment of all accrued
fees owed to Pacific Financial or Inland Financial, as the case may be, in
connection therewith, within 90 days of Pacific Financial's or Inland
Financial's acquisition of such Receivable, as the case may be.
SECTION 4.5 Information Supplied. None of the information included or
incorporated by reference in (a) the Form 8-F will, at the time the Form 8-F is
filed with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Investment Company Act, contain any untrue statement
of material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (b) the
Proxy Statement will, on the date mailed to the Walnut Stockholders and at the
time of the Walnut Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the Investment Company Act
and the Exchange Act, respectively, and the rules and regulations of the SEC
thereunder. Notwithstanding the foregoing, Walnut makes no representation or
warranty with respect to any Company 8-F Information or Company Proxy
Information.
SECTION 4.6 Consents and Approvals; No Violations.
(a) Except as set forth on Schedule 4.6(a) to this Agreement, no
Filings and Approvals to, of or with any Governmental Entity are, or will be,
necessary for the execution and delivery by any of the Walnut Entities of this
Agreement, the Transaction Documents or the Related Agreements to which any
Walnut Entity is a party or the consummation by any of the Walnut Entities of
the transactions contemplated by this Agreement, the Transaction Documents or
the Related Agreements to which any such Walnut Entity is a party (including the
Mergers and the Related Transactions), except for those required (i) under the
UBCA, DGCL and NYBCL with respect to the filing of the First Certificate of
Merger and Second Certificate of Merger, (ii) under the Securities Act, the
Exchange Act and the Investment Company Act or by any Regulatory Agency, and
(iii) such Filings and Approvals that, if not made or obtained could not
reasonably be expected to have, individually or in the aggregate, a Walnut
Material Adverse Effect.
(b) Except as set forth on Schedule 4.6(b) to this Agreement, no
consent or approval of any third party is, or will be, necessary for the
execution and delivery by any of the Walnut Entities of this Agreement, any
Transaction Documents or any Related Agreements to which any such Walnut Entity
is a party or the consummation by any of the Walnut Entities of the transactions
contemplated by this Agreement, the Transaction Documents or the Related
Agreements to which any such Walnut Entity is a party (including the Mergers and
the Related
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Transactions).
(c) Except as set forth on Schedule 4.6(c) to this Agreement, neither
the execution, delivery and performance of this Agreement, the Transaction
Documents or the Related Agreements to which any of the Walnut Entities is a
party, or the consummation by any of the Walnut Entities of the transactions
contemplated by this Agreement, the Transaction Documents or the Related
Agreements to which any such Walnut Entity is a party (including the Mergers and
the Related Transactions) will (i) conflict with or result in any breach of any
provision of the Walnut Charter Documents or any comparable organizational
documents of THCG or Newco or any other Subsidiary of Walnut, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which any of the Walnut Entities
is a party or by which any of their respective properties or assets are bound,
or (iii) assuming that all Filings and Approvals have been made or obtained,
violate any Law or any Governmental Order applicable to any of the Walnut
Entities or any of their respective properties or assets, except in the case of
clauses (ii) or (iii) for violations, breaches or defaults which could not
reasonably be expected to have, individually or in the aggregate, a Walnut
Material Adverse Effect.
SECTION 4.7 No Default. Except as set forth on Schedule 4.7 to this
Agreement, none of the Walnut Entities or any other Subsidiary of Walnut is in
default or violation (and no event has occurred which with due notice or the
lapse of tim or both would constitute a default or violation) of any term,
condition or provision of (i) the Walnut Charter Documents or comparable
organizational documents of THCG or Newco or any other Subsidiary of Walnut,
(ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which any Walnut Entity or any other
Subsidiary of Walnut is a party or by which any of them or any of their
respective properties or assets are bound, or (iii) any Governmental Order
applicable to any Walnut Entity or any other Subsidiary of Walnut or any of
their respective properties or assets, except in the case of clauses (ii) or
(iii) for violations, breaches or defaults that could not reasonably be expected
to have, individually or in the aggregate, a Walnut Material Adverse Effect,
except for liabilities of any Subsidiary of Walnut owed to Walnut or to any
other wholly-owned Subsidiary of Walnut.
SECTION 4.8 No Undisclosed Liabilities; Absence of Changes.
(a) Except as and to the extent disclosed in the Walnut Filed SEC
Reports or on Schedule 4.8(a) to this Agreement, as of December 31, 1998,
neither Walnut nor any Subsidiary of Walnut had any liabilities or obligations
of any nature, whether accrued, contingent or otherwise, and whether due or to
become due or asserted or unasserted, which would be required by GAAP to be
reflected in, reserved against or otherwise described in the consolidated
balance sheet of Walnut (including the notes thereto) as of such date, except
for liabilities and obligations that could not reasonably be expected to have,
individually or in the aggregate, a Walnut Material Adverse Effect.
(b) Except as disclosed in the Walnut Filed SEC Reports or on Schedule
4.8(b) to this Agreement, since January 1, 1999, the business of Walnut and its
Subsidiaries has been
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carried on only in the ordinary course and in a manner consistent with past
practice, neither Walnut nor any of its Subsidiaries has incurred any
liabilities or obligations of any nature, whether accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, except in
the ordinary course of business and in a manner consistent with past practice,
none of which could reasonably be likely to have, individually or in the
aggregate, a Walnut Material Adverse Effect, and there has not been any event,
condition or occurrence that, individually or in the aggregate, has resulted or
which could reasonably be expected to result in, a Walnut Material Adverse
Effect. Except as disclosed in the Walnut Filed SEC Reports, since January 1,
1999, there has not been (i) any material change by Walnut in its accounting
methods, principles or practices, (ii) any declaration, setting aside or payment
of any dividend or distribution in respect of shares of the capital stock of
Walnut or any of its Subsidiaries or any redemption, purchase or other
acquisition of any of the Walnut Securities, or (iii) any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, restricted stock awards or similar
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable, or Walnut's obligations in
respect of any program or arrangement for, officers or other key employees of
Walnut or any Walnut Subsidiary.
SECTION 4.9 No Litigation. Except as disclosed in the Walnut Filed SEC
Reports or on Schedule 4.9 to this Agreement, there is no Proceeding pending or,
to the Knowledge of Walnut, threatened against any Walnut Entity or any other
Subsidiary of Walnut or any of their respective properties or assets which (a)
if adversely determined, could reasonably be expected to have, individually or
in the aggregate, a Walnut Material Adverse Effect, or (b) questions the
validity of this Agreement, any Transaction Document or any Related Agreement or
any action to be taken by any of the Walnut Entities in connection with the
consummation of the transactions contemplated by this Agreement, the Transaction
Documents or the Related Agreements (including the Mergers and the Related
Transactions) or could otherwise prevent, delay, make illegal or otherwise
interfere with the consummation of such transactions. Except as disclosed on
Schedule 4.9 to this Agreement, neither Walnut nor any Subsidiary of Walnut is
subject to any outstanding Governmental Order which could reasonably be expected
to have a Walnut Material Adverse Effect.
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SECTION 4.10 Compliance with Applicable Law.
(a) Except as disclosed in the Walnut Filed SEC Reports or in Schedule
4.10(a) to this Agreement, Walnut and all Subsidiaries of Walnut have made or
have obtained and hold all Permits necessary for the lawful conduct of their
respective businesses, except where the failure to obtain any such Permit would
not have, individually or in the aggregate, a Walnut Material Adverse Effect.
Except as disclosed on Schedule 4.10(a) to this Agreement, (i) the Permits of
Walnut and its Subsidiaries are valid and in full force and effect, (ii) none of
the Walnut Entities or any Subsidiary of Walnut is in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, such Permits, and (iii) none of such Permits will be terminated
or impaired or become terminable, in whole or in part, as a result of the
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements, except in the case of clauses (i), (ii) and (iii) for
Permits, the failure of which to be valid or in full force and effect or of
Walnut or its Subsidiaries to hold could not reasonably be expected to have,
individually or in the aggregate, a Walnut Material Adverse Effect.
(b) Except as disclosed in the Walnut Filed SEC Reports or on Schedule
4.10(b) of this Agreement, the businesses of Walnut and its Subsidiaries have
not been conducted in violation of the Investment Company Act, the Small
Business Investment Act of 1958, the regulations promulgated by the Small
Business Administration or any other Law, except for violations or possible
violations which could not reasonably be expected to have, individually or in
the aggregate, a Walnut Material Adverse Effect. Except as disclosed in the
Walnut Filed SEC Reports or on Schedule 4.10(b) to this Agreement, no material
investigation or review by any Governmental Entity with respect to Walnut or any
of its Subsidiaries is pending or, to the Knowledge of Walnut, threatened, nor,
to the Knowledge of Walnut, has any Governmental Entity indicated an intention
to conduct the same.
SECTION 4.11 Employee Benefits and ERISA.
(a) (i) Schedule 4.11(a) to this Agreement contains a true and complete
list of each material employee benefit plan, policy, program, practice,
agreement, understanding, arrangement or commitment (whether written or
unwritten) providing compensation, benefits or perquisites of any kind to any
current or former officer, employee or consultant (or to any dependent or
beneficiary thereof) of Walnut, which are now, or were within the past six
years, maintained by, contributed to, by or with respect to which an obligation
to contribute exists or existed on the part of any of Walnut, its predecessors,
or any other trade or business (whether or not incorporated) which, together
with Walnut, is treated as a single employer under Section 414 of the Code (such
other trades or businesses, collectively, the "COMMONLY CONTROLLED WALNUT
ENTITIES") or with respect to which Walnut or any Commonly Controlled Walnut
Entity has or may have any material liability (including, without limitation, a
liability arising out of an indemnification, guarantee, hold harmless or similar
agreement) including, without limitation, all material employment or consulting
agreements, incentive, bonus, deferred compensation, pension, profit sharing,
vacation, holiday, cafeteria, medical, disability, stock purchase, stock option,
stock appreciation, phantom stock, restricted stock or other stock-based
compensation plans, policies, programs, practices or arrangements and any
"employee benefit plan" within the meaning of Section 3(3) of ERISA, whether or
not subject to ERISA (each, a "WALNUT PLAN" and together, the "WALNUT PLANS").
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(ii) With respect to the Walnut Financial Services, Inc.
Management Incentive Plan (the "WALNUT INCENTIVE PROGRAM"), the only two
beneficiaries thereunder are Joel Kanter and Robert Mauer, in their capacities
as the Chief Executive Officer and Chief Financial Officer/Chief Operating
Officer of Walnut, respectively. Messrs. Kanter and Mauer have agreed that, in
the event Merger 2 occurs, the sole benefit to which Messrs. Kanter and Mauer
would be entitled under the Walnut Incentive Program is the payment to them, in
cash only, of a maximum of $90,000, in the aggregate, based on their
achievement, in 1999, of performance milestones set by the Compensation
Committee of the Walnut Board (the"CASH BONUS").
(b) With respect to each Walnut Plan, Walnut has delivered or made
available to the Company, to the extent applicable: (i) a current, correct and
complete copy of each written plan document (including without limitation, any
employment agreement, employment policies and procedures and plan instrument,
and any amendments thereto) or, to the extent no such written plan document
exists, an accurate written description thereof; (ii) any related trust
agreement or other funding instrument; (iii) the most recent determination
letter with respect to any Walnut Plan intended to be qualified under Section
401(a) of the Code; (iv) any summary plan description, summary of material
modifications or other material written communication from Walnut to its
employees concerning the extent of the benefits provided under any Walnut Plan;
and (v) for the three most recent years (A) the Form 5500 and attached
schedules, (B) audited financial statements and (C) actuarial valuation reports.
(c) (i) Each Walnut Plan has been established and maintained, in form
and operation, in all material respects (A) in accordance with its terms, and
(B) in compliance with the applicable provisions of ERISA, the Code and other
applicable Laws, rules and regulations; (ii) each Walnut Plan that is intended
to be qualified within the meaning of Section 401(a) of the Code has received a
favorable determination letter as to its qualification, and, to the Knowledge of
Walnut, nothing has occurred, whether by action or failure to act, that would
reasonably be expected to cause such determination letter to be revoked.
(d) Except as set forth on Schedule 4.11(d), no Walnut Plan provides
for benefits, including, without limitation, medical or health benefits (through
insurance or otherwise), or provides for the continuation of such benefits or
coverage for any participant or any dependent or beneficiary of any participant,
after such participant's retirement or other termination of employment (except
(i) as may be required by applicable law, (ii) retirement or death benefits
under any employee pension plan, (iii) disability benefits under any employee
welfare plan that have been fully provided for by insurance or otherwise, (iv)
deferred compensation benefits accrued as liabilities on the books of Walnut; or
(v) benefits in the nature of severance pay).
(e) For each Walnut Plan with respect to which a Form 5500 has been
filed, no change has occurred with respect to the matters covered by the most
recent Form 5500 since the date thereof other than any such change as would not
be reasonably likely to result in a material liability to Walnut.
(f) Except as disclosed on Schedule 4.11(f) to this Agreement, with
respect to each Walnut Plan that is subject to Title IV of ERISA:
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(i) no such Walnut Plan has been terminated so as to result,
directly or indirectly, in any material liability, contingent or
otherwise, of Walnut or any Commonly Controlled Walnut Entity;
(ii) no complete or partial withdrawal from such Walnut Plan
has been made by Walnut or any Commonly Controlled Walnut Entity, or by
any other Person, so as to result in a material liability to Walnut or
any Commonly Controlled Walnut Entity, whether such liability is
contingent or otherwise;
(iii) no proceeding has been initiated by any Person
(including the PBGC) to terminate any such Walnut Plan or to appoint a
trustee for any such Walnut Plan;
(iv) no condition or event currently exists or currently is
expected to occur that would reasonably be expected to result, directly
or indirectly, in any material liability of Walnut or any Commonly
Controlled Walnut Entity under Title IV of ERISA, whether to the PBGC
or otherwise, on account of the termination of any such Walnut Plan;
(v) if any such Walnut Plan were to be terminated as of the
Closing Date, neither Walnut nor any Commonly Controlled Walnut Entity
would incur, directly or indirectly, any material liability under Title
IV of ERISA;
(vi) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any such Walnut Plan; and
(vii) no such Walnut Plan has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412
of the Code, respectively), whether or not waived.
(g) Except as disclosed on Schedule 4.11(g) to this Agreement, with
respect to any Walnut Plan that is a multiemployer plan (within the meaning of
Section 3(37) of ERISA): (i) neither Walnut nor any Commonly Controlled Walnut
Entity would be subject to any withdrawal liability if, as of the date of the
Closing, Walnut or any Commonly Controlled Walnut Entity were to engage in a
complete withdrawal (as defined in ERISA section 4203) or partial withdrawal (as
defined in Section 4205 of ERISA) from any such multiemployer plan; and (ii) no
such multiemployer plan is in reorganization or insolvent (as those terms are
defined in Sections 4241 and 4245 of ERISA, respectively).
(h) Except as disclosed on Schedule 4.11(h) to this Agreement or as
would not be reasonably likely to result in a material liability to Walnut, with
respect to any Walnut Plan that is not a multiemployer plan (within the meaning
of Section 3(37) of ERISA): (i) no actions, suits or claims (other than routine
claims for benefits in the ordinary course) are pending or, to the Knowledge of
Walnut, threatened; (ii) no facts or circumstances exist that could give rise to
any such actions, suits or claims; and (iii) no written or oral communication
has been received from the PBGC in respect of any Walnut Plan subject to Title
IV of ERISA concerning the funded status of any such Walnut Plan or any transfer
of assets and liabilities from any such plan in connection with the transactions
contemplated herein.
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(i) Except as disclosed on Schedule 4.11(i) to this Agreement, neither
Walnut nor any Commonly Controlled Walnut Entity has agreed to or communicated
to employees any changes to any Walnut Plan that would: (i) cause an increase in
benefits or create new benefits under any Walnut Plan; or (ii) change any
employee coverage so as to cause an increase in the expense of maintaining any
such Walnut Plan.
(j) Except as disclosed on Schedule 4.11(j) to this Agreement, the
consummation of the transactions contemplated hereby will not result in: (i) any
payment (including, without limitation, any severance, unemployment
compensation, golden parachute or bonus payment) becoming due to any current or
former director, officer, employee or consultant of Walnut or any of its
Affiliates; (ii) any increase in the amount of compensation or benefits payable
in respect of any current or former director, officer, employee or consultant of
Walnut or any of its Affiliates; or (iii) the acceleration of vesting or time of
payment of any benefits or compensation payable in respect of any current or
former director, officer, employee or consultant of Walnut or any of its
Affiliates, and the transactions contemplated by this Agreement will not result
in any payment or series of payments constituting a "parachute payment" within
the meaning of Section 280G of the Code.
(k) Except as disclosed on Schedule 4.11(k) to this Agreement, neither
Walnut nor any Commonly Controlled Walnut Entity has engaged in or participated
in any transaction, whether or not related to a Walnut Plan, that could,
directly or indirectly, result in any tax, penalty or liability imposed by ERISA
or the Code including, without limitation, any excise tax under Section 4975 of
the Code or any civil penalty under Section 409 or 502 of ERISA, that, alone or
together with any other such tax or penalty, could have a Walnut Material
Adverse Effect.
(l) Neither Walnut nor any affiliate thereof (as defined in the QPAM
Exemption, nor any owner, direct or indirect, of a 5 percent or more interest in
Walnut, is a Person who has engaged in any act described in Part I(g) of the
QPAM Exemption.
(m) Except as disclosed on Schedule 4.11(m) to this Agreement, Walnut
is not a party to any collective bargaining or other labor union contract
applicable to employees of Walnut, and no collective bargaining agreement or
other labor union contract is being negotiated by Walnut. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against Walnut
pending or threatened in writing which will materially interfere with the
business activities of Walnut. As of the date of this Agreement, none among
Walnut, its representatives or employees has committed within the past five
years any unfair labor practices in connection with the operation of the
business of Walnut, and there is no charge or complaint against Walnut by the
National Labor Relations Board or any comparable state or foreign agency pending
or, to the Knowledge of Walnut, threatened in writing.
(n) Except as disclosed on Schedule 4.11(n) to this Agreement, as of
the Effective Time of the Mergers, Walnut has not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act, as it
may be amended from time to time, and, to Knowledge of Walnut, within the 90-day
period immediately following the Effective Time of the Mergers will not incur
any such liability or obligation if, during such 90-day period, only
terminations of employment in the normal course of operations occur.
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SECTION 4.12 Environmental Laws and Regulations.
(a) Except as disclosed in the Walnut Filed SEC Reports or on Schedule
4.12(a) to this Agreement, (i) each of Walnut and its Subsidiaries is in
compliance, in all material respects, with all applicable Environmental Laws,
which compliance includes, but is not limited to, the possession by Walnut and
its Subsidiaries of all material Permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) neither Walnut nor any of its Subsidiaries has received
written notice of, or, to the Knowledge of Walnut, is the subject of, any
Environmental Claim; and (iii) to the Knowledge of Walnut, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b) Except as disclosed on Schedule 4.12(b) to this Agreement, to the
Knowledge of Walnut, there are no material Environmental Claims that are pending
or threatened against any Person whose liability for any Environmental Claim
Walnut or any Subsidary of Walnut has or may have retained or assumed either
contractually or by operation of Law.
SECTION 4.13 Tax Matters
(a) Walnut and its Subsidiaries have timely and accurately filed, or
caused to be timely and accurately filed, all material Tax Returns required to
be filed by them, have paid, collected or withheld, or caused to be paid,
collected or withheld, all material amounts of Taxes required to be paid,
collected or withheld, other than such Taxes for which adequate reserves have
been established or which are being contested in good faith. Except as set
forth on Schedule 4.13(a) to this Agreement, no material claim or assessment of
any Tax authority is pending against Walnut or any of its Subsidaries for any
alleged deficiency in any Tax, there are no pending or, to the Knowledge of
Walnut, threatened audits or investigations for or relating to any liability in
respect of any Taxes, and niether Walnut nor any of its Subsidiaries have been
notified in writing of any proposed Tax claims or assessments against Walnut or
any Subsidiary of Walnut (other than in each case, claims or assessments for
which adequate reserves have been established or which are being contested in
good faith or are immaterial in amount).
(b) Except as set forth on Schedule 4.13(b) to this Agreement, neither
Walnut nor any of its Subsidiaries is liable for Taxes of any other Person, or
is currently under any contractual obligation to indemnify any Person with
respect to Taxes (except for customary agreements to indemnify lenders or
security holders in respect of Taxes other than income Taxes), or is a party to
any Tax sharing agreement or any other agreement providing for payments by
Walnut or any of its Subsidiaries with respect to Taxes. Except as set forth on
Schedule 4.13(b) to this Agreement, there are no outstanding powers of attorney
enabling any party to represent Walnut or any of its Subsidiaries with respect
to Tax matters. Walnut and its Sudsidiaries have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor,stockholder or other third
Person. All material elections with respect to Taxes made by Walnut and its
Subsidiaries as of the date hereof are set forth on Schedule 4.13(b) to this
Agreement. There are no private letter rulings in respect of any Tax pending
between Walnut and its Subsidiaries and any Tax authority. Neither Walnut nor
any of its Subsidiaries is a personal holding company within the meaning of
Section 542 of the Code. Except as set forth
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on Schedule 4.13(b) to this Agreement, neither Walnut nor any of its
Subsidiaries is a party to any joint venture, partnership or other arrangement
or contract which could be treated as a partnership for Tax purposes. Neither
Walnut nor any of its Subsidiaries has agreed to or is required, as a result of
a change in method of accounting or otherwise, to include any adjustment under
Section 481 of the Code (or any corresponding provision of state, local or
foreign Law) in taxable income. Neither Walnut nor any of its Subsidiaries is a
party to any contract, arrangement or plan that could result (taking into
account the transactions contemplated by this Agreement and the Related
Agreements), separately or in the aggregate, in the payment of an "excess
parachute payments" within the meaning of Section 280G of the Code. Schedule 4.
13(b) to this Agreement contains a list of all jurisdictions to which any Tax is
properly payable or in which any Tax Return is required to be filed by Walnut
and its Subsidiaries, and no written claim has ever been made by any Tax
authority in any other jurisdiction that Walnut or any of its Subsidiaries is
subject to taxation in such jurisdiction.
SECTION 4.14 Material Contracts.
(a) Set forth on Schedule 4.14(a) to this Agreement is a correct and
complete list of each of the following contracts and agreements (and all
amendments, modifications and supplements thereto and all related letters to
which Walnut or any of its Subsidiaries is a party affecting the obligations of
any party thereunder) to which Walnut or any of its Subsidiaries is a party or
by which any of their respective properties or assets are bound, correct and
complete copies of which have been delivered to the Company: (i) each
employment, consulting, non-competition, severance, golden parachute or
indemnification contract (including, without limitation, any contract to which
Walnut or any of its Subsidiaries is a party involving employees of Walnut or
any of its Subsidiaries) which contemplates payments equal to or in excess of
$30,000 per year; (ii) each agreement under which Walnut or any of its
Subsidiaries has a continuing obligation to provide financial advisory or other
consulting services; (iii) contracts granting a right of first refusal or first
negotiation; (iv) each partnership or joint venture agreement; (v) each
agreement for the acquisition, sale, lease or license of properties or assets of
Walnut or any of its Subsidiaries or by Walnut or any of its Subsidiaries (by
merger, purchase or sale of assets or stock or otherwise), including, without
limitation, commitments for future investments, in which the aggregate amount to
paid or received by Walnut or any Subsidiary of Walnut is equal to or in excess
of $5,000; (vi) each contract or agreement with any Governmental Entity; (vii)
each agreement relating to indebtedness of Walnut or any of its Subsidiaries or
guarantees of indebtedness by Walnut or any of its Subsidiaries in excess of
$5,000; (viii) each noncompetition, exclusivity or other agreement restricting
the ability of Walnut or any of its Subsidiaries to hire any Person or operate
its business as now, or contemplated to be, conducted, except for any such
agreement which could not reasonably be expected to have a Walnut Material
Adverse Effect; (ix) each agreement between Walnut or any of its Subsidiaries
and any of its officers, its directors, holders of 5% of the outstanding Walnut
Common Stock or other Affiliates of Walnut or any of its Subsidiaries; (x) each
contract or agreement that contains a "change of control" provision; (xi) any
agreement which encumbers or places a Lien on any assets of Walnut or its
Subsidiaries; and (xii) all commitments and agreements to enter into any of the
foregoing (collectively, together with the contracts and agreements filed as
exhibits to the Walnut Filed SEC Reports, the "WALNUT MATERIAL CONTRACTS").
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(b) Except as set forth on Schedule 4.14(b) to this Agreement:
(i) Each Walnut Material Contract is in full force and effect
and there is no default under any Walnut Material Contract either by
Walnut or any of its Subsidiaries or, to the Knowledge of Walnut, by
any other party thereto, and no event has occurred that with the lapse
of time or the giving of notice or both would constitute a default
thereunder by Walnut or any of its Subsidiaries or, to the Knowledge of
Walnut, any other party, in any such case in which such default or
event could reasonably be expected to have, individually or in the
aggregate, a Walnut Material Adverse Effect.
(ii) No party to any such Walnut Material Contract has given
notice to Walnut or any of its Subsidiaries of or made a claim against
Walnut or any of its Subsidiaries with respect to any breach or default
thereunder, in any such case in which such breach or default could
reasonably be expected to have, individually or in the aggregate, a
Walnut Material Adverse Effect.
SECTION 4.15 Title to Properties; Encumbrances. Except as set forth in
Schedule 4.15 to this Agreement, Walnut and its Subsidiaries have good title to
all of the properties and assets, real and personal, tangible and intangible, it
owns or purports to own, including those reflected on their books and records
and in the Walnut Financial Statements (except for accounts receivable collected
and materials and supplies disposed of in the ordinary course of business
consistent with past practice after the respective dates of the Walnut Financial
Statements). Walnut and its Subsidiaries have a valid leasehold, license or
other interest in all of the other properties and assets, tangible or
intangible, which are used in the operation of their respective businesses.
Except as set forth in Schedule 4.15 to this Agreement, all properties and
assets owned, leased or used by Walnut and its Subsidiaries are free and clear
of all Liens, except for (a) Liens for current Taxes not yet due, (b) workmen's,
common carrier and other similar Liens arising in the ordinary course of
business, none of which materially detracts from the value or materially impairs
the use of the asset or property subject thereto, or materially impairs the
operations of Walnut and its Subsidiaries, (c) Liens disclosed in the Walnut
Financial Statements, and (d) such imperfections of title and other Liens, if
any, which do not individually or in the aggregate materially interfere with the
value or the use of such properties or assets or otherwise could not reasonably
be expected to have, individually or in the aggregate, a Walnut Material Adverse
Effect.
SECTION 4.16 Intellectual Property. Except as disclosed on Schedule 4.16 to
this Agreement, Walnut and its Subsidiaries own or are licensed or otherwise
have legally enforceable rights to use all Intellectual Property used or
otherwise material to the operation of the business of Walnut and its
Subsidiaries as presently conducted. To the Knowledge of Walnut, the use of the
Intellectual Property by Walnut and its Subsidiaries does not infringe upon or
otherwise violate any material Intellectual Property rights of third parties.
To the Knowledge of Walnut, no third party, including any employee, former
employee, independent contractor or consultant, is infringing upon or otherwise
violating the rights of Walnut or any Subsidiary of Walnut in the Intellectual
Property that, individually or in the aggregate, would reasonably be expected to
have a Walnut Material Adverse Effect. Except as disclosed on Schedule 4.16, or
as would not reasonably be expected, individually or in the aggregate, to have a
Walnut Material Adverse Effect, no claims (i) are currently pending or, to the
Knowledge of Walnut, threatened with respect to the Intellectual Property of
Walnut or any
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Subsidiary of Walnut, or (ii) are, to the Knowledge of Walnut, currently pending
or threatened with respect to the Intellectual Property rights of a third party
to the extent arising out of any use, reproduction or distribution of the
Intellectual Property of such third party by Walnut or a Subsidiary of Walnut.
SECTION 4.17 Year 2000. To the Knowledge of Walnut, the software and
hardware of Walnut and its Subsidiaries, when used or operated in accordance
with their printed documentation and in conjunction with computer hardware and
software that itself correctly processes date-related data, is free of defects
in programming and operation and will continue to operate after December 31,
1999, with the same level of functionality as the software operated prior
thereto, including, without limitation, correctly storing, processing and
presenting calendar dates falling on or after December 31, 1999. To the
Knowledge of Walnut, the software will be free from logic and other errors
attributable to dates falling on or after December 31, 1999 and will not be
responsible for any error associated with any date falling on or after
December 31, 1999.
SECTION 4.18 Investment Securities. Schedule 4.18 to this Agreement sets
forth a complete and correct list of all securities (including warrants) owned
by Walnut and its Subsidiaries on the date specified in Schedule 4.18, which
date shall be no more than ten days prior to the date hereof. Except as
described in Schedule 4.18 to this Agreement, Walnut and its Subsidiaries have
good and marketable title to all such securities (except securities sold under
repurchase agreements (which are indicated as such on Schedule 4.18) or held in
any fiduciary or agency capacity (which are indicated as such on
Schedule 4.18)), free and clear of any Lien, except to the extent such
securities are pledged in the ordinary course of business consistent with
prudent business practices to secure obligations of Walnut or such Subsidiary.
Such securities are valued on the books of Walnut in accordance with the methods
and procedures described in the Walnut Filed SEC Reports.
SECTION 4.19 Ownership of THCG and Newco.
(a) THCG is a direct, wholly-owned subsidiary of Walnut and Newco is a
direct, wholly-owned subsidiary of THCG. Each of THCG and Newco was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement.
(b) As of the date hereof and the Effective Time of the Mergers, except
for obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and the
Transaction Documents and the Related Agreements and except for this Agreement
and the Transaction Documents and the Related Agreements, neither of THCG or
Newco has or will have incurred, directly or indirectly, through any Subsidiary
or Affiliate, any obligation or liability or engaged in any business activity of
any type or kind whatsoever or entered into any agreement or arrangement with
any Person.
SECTION 4.20 Brokers. Except as set forth on Schedule 4.20 to this
Agreement, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Mergers or the other
transactions contemplated by this Agreement, the Transaction Documents or the
Related Agreements (including the Related Transactions) based upon arrangements
made by or on behalf of Walnut or any of its
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Affiliates.
SECTION 4.21 Transactions with Affiliates. Except as disclosed in the Walnut
Filed SEC Reports or as set forth on Schedule 4.21 to this Agreement, since
January 1, 1999, no stockholder, officer, director or Affiliate of Walnut or any
Subsidiary of Walnut has entered into any transaction with or is a party to any
contract with Walnut or any of its Subsidiaries. No officer, director or
Affiliate of Walnut or any Subsidiary of Walnut owns any direct or indirect
interest of any kind in, or controls or is a director, officer, employee or
partner of, or consultant to, or lender or borrower from or has the right to
participate in the profits of, any Person which is a competitor, client,
landlord, tenant, creditor or debtor of Walnut or its Subsidiaries. All
agreements or arrangements relating to any transaction involving Walnut or any
of its Subsidiaries and any of their respective directors, officers, principal
employees or Affiliates which are required to be described in the Walnut Filed
SEC Reports are described therein, and such descriptions set forth the material
terms of all such transactions and do not omit to state any material facts with
respect to any such transaction.
SECTION 4.22 Books and Records. All constituent documents, business
licenses, minute books, stock certificate books, stock transfer ledgers and
other records of Walnut and its Subsidiaries (collectively, the "WALNUT
RECORDS") have been maintained in accordance with reasonable business practices
and applicable legal requirements. The Walnut Records are complete and correct
in all material respects and contain all material matters required to be
reflected in such Walnut Records, except that the minutes of the meetings of the
Board of Directors of Walnut held in December 1998, April 1999, June 1999 and
July 1999, and certain minutes of the compensation committee and the investment
committee, have not yet been prepared. Neither the Walnut Board nor the
compensation committee or investment committee discussed, authorized or approved
at any of those meetings, any event, transaction, agreement or other commitment
that would reasonably be likely to result in a Walnut Material Adverse Effect.
SECTION 4.23 Disclosure. The representations and warranties by the Walnut
Entities contained in this Agreement and in any Schedule or certificate
furnished or to be furnished by them pursuant hereto do not contain or will not,
as of the Closing Date, contain any untrue statement of a material fact, and do
not omit or will not, as of the Closing Date, omit to state any fact required to
be stated therein or necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 4.23 or
elsewhere in this Agreement or in any Schedule or certificate furnished or to be
furnished as aforesaid pursuant hereto shall not be affected or deemed waived by
reason of the fact that the Company or its representatives know or should have
known that any such representation or warranty is or might be inaccurate in any
respect.
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ARTICLE 5
COVENANTS
The parties, as applicable, hereby covenant and agree as follows:
SECTION 5.1 Conduct of Business of the Company.
(a) From the date hereof until the Second Effective Time, the Company
shall: (i) maintain its corporate existence in good standing; (ii) maintain the
general character of its business; (iii) maintain in effect all of its presently
existing insurance coverage (or substantially equivalent insurance coverage);
(iv) preserve its business organization intact, preserve its good will, keep
available to the Company the services of its current officers and employees and
preserve its present business relationships with its customers, clients and
other Persons with which the Company has business relations; and (v) in all
respects conduct its business only in the usual and ordinary manner consistent
with past practice and perform in all material respects all Company Material
Contracts or other obligations with banks, customers, clients, employees and
others; provided, however, that it shall not be a violation of this Section
5.1(a) for the Company to establish the LLC and to transfer to the LLC
securities owned by the Company (the "TRANSFER"), provided that all such
organizational documents regarding the LLC and all documents relating to the
Transfer shall be subject to the approval of Walnut, which approval shall not be
unreasonably withheld, and that the Transfer is accomplished in compliance in
all material respects with all applicable Law and that all material consents and
approvals with respect thereto have been obtained.
(b) Without limiting the provisions of Section 5.1(a), from the date
hereof until the Second Effective Time, the Company shall not, directly or
indirectly, do, or propose to do, or cause the LLC to, directly or indirectly,
do, or propose to do, any of the following without the prior written consent of
Walnut:
i. amend or otherwise modify any Company Charter Documents;
ii. issue, sell, dispose of or encumber or authorize the
issuance, sale, disposition or encumbrance of, or grant or issue any Option to
acquire or make any agreement of the type referred to in Section 3.2 with
respect to, any shares of its capital stock or any other of its securities or
any security convertible or exercisable into or exchangeable for any such shares
or securities, or alter any term of any of its outstanding securities or make
any change in its outstanding shares of capital stock or its capitalization,
whether by reason of a reclassification, recapitalization, stock split,
combination, exchange or readjustment of shares, stock dividend or otherwise;
iii.encumber any material assets or properties of the Company
or the LLC;
iv. declare, set aside, make or pay any dividend or other
distribution to any stockholder with respect to its capital stock;
v. redeem, purchase or otherwise acquire any Company
Securities;
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vi. increase the compensation or other remuneration or
benefits payable or to become payable to any director or executive officer of
the Company or the LLC, or increase the compensation or other remuneration or
benefits payable or to become payable to any of its or the LLC's other employees
or agents, except, with respect to such other employees or agents only, for
increases in the ordinary course of business consistent with past practice;
vii. adopt or (except as otherwise required by Law) amend or
make any unscheduled contribution to any employee benefit plan for or with
employees, or enter into any collective bargaining agreement;
viii. terminate or modify any Company Material Contract
requiring future payments to or from the Company or the LLC, individually or in
the aggregate, in excess of $100,000, except for terminations of Company
Material Contracts upon their expiration during such period in accordance with
their terms;
ix. create, incur, assume or otherwise become liable for any
indebtedness in an aggregate amount in excess of $20,000 or guarantee or endorse
any obligation or the net worth of any Person, except for endorsements of
negotiable instruments for collection in the ordinary course of business;
x. pay, discharge or satisfy any claim, obligation or
liability, absolute, accrued, contingent or otherwise, whether due or to become
due, in an aggregate amount in excess of $20,000, except for liabilities
incurred prior to the date hereof in the ordinary course of business in a manner
consistent with past practice;
xi. except as contemplated in the proviso to Section 5.1(a)
and except as set forth on Schedule 5.1(b)(xi) to this Agreement, sell,
transfer, lease or otherwise dispose of any of its assets or properties, except
in the ordinary course of business in a manner consistent with past practice and
for a cash consideration equal to the fair value thereof at the time of such
sale, transfer, lease or other disposition;
xii. except as set forth on Schedule 5.1(b)(xii) to this
Agreement, cancel, compromise, release or waive any material debt, claim or
right;
xiii. make any loan or advance to any Person other than travel
and other similar routine advances in the ordinary course of business in a
manner consistent with past practice, or, except as contemplated by Section 5.26
of this Agreement or as disclosed on Schedule 5.1(b)(xiii) to this Agreement,
acquire for cash (a "COMPANY ACQUISITION") the capital stock or other securities
or any ownership interest in, or substantially all of the assets of, any other
business enterprise, except for any Company Acquisitions that do not
individually exceed $50,000 or that do not exceed $200,000 in the aggregate;
xiv. make any material capital investment or expenditure or
capital improvement, addition or betterment;
xv. change its method of accounting or the accounting
principles or practices
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utilized in the preparation of the Company Financial Statements, other than as
required by GAAP;
xvi. institute or settle any Proceeding before any
Governmental Entity relating to it or its assets or properties;
xvii. adopt a plan of dissolution or liquidation with respect
to the Company or the LLC;
xviii. enter into any contract, except contracts made in the
ordinary course of business in a manner consistent with past practice;
xix. make any new election with respect to Taxes or any change
in current elections with respect to Taxes, or settle or compromise any federal,
state, local or foreign Tax liability or agree to an extension of a statute of
limitations; or
xx. enter into any commitment to do any of the foregoing, or
any action which would make any of the representations or warranties of the
Company contained in this Agreement untrue or incorrect in any material respect
(subject to the Knowledge and materiality limitations set forth therein) or
cause any covenant, condition or agreement of the Company in this Agreement not
to be complied with or satisfied in any material respect.
SECTION 5.2 Conduct of Business of Walnut.
(a) From the date hereof until the Effective Time of the Mergers,
Walnut shall and shall cause each of its Subsidiaries to: (i) maintain its
corporate existence in good standing; (ii) maintain the general character of its
business; (iii) maintain in effect all of its presently existing insurance
coverage (or substantially equivalent insurance coverage); (iv) preserve its
business organization intact, preserve its good will, keep available the
services of its current officers and employees and preserve its present business
relationships with its customers, clients and other Persons with which it has
business relations; and (v) in all respects conduct its business only in the
usual and ordinary manner consistent with past practice and perform in all
material respects all Walnut Material Contracts or other obligations with banks,
customers, clients, employees and others.
(b) Without limiting the provisions of Section 5.2(a), from the date
hereof until the Effective Time of the Mergers, neither Walnut nor any of its
Subsidiaries shall, directly or indirectly, do, or propose to do, any of the
following without the prior written consent of the Company:
i. amend or otherwise modify any Walnut Charter Documents or
any of the organizational documents or any of such Subsidiaries;
ii. except for Walnut Common Stock issued pursuant to the
Capital Investment, the Debt Conversion, the Compensation Satisfaction and the
UPLP Acquisition pursuant to Sections 5.6(A), (B) and (D), respectively, and
except for the grant of THCG Options pursuant to Sections 5.20(a), and the
purchase of certain Walnut Options by Walnut pursuant to Section 5.20(b), issue,
sell, dispose of or encumber or authorize the issuance, sale,
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disposition or encumbrance of, or grant or issue any Option, warrant or other
right to acquire or make any agreement of the type referred to in Section 3.2
with respect to, any shares of its capital stock or any other of its securities
or any security convertible or exercisable into or exchangeable for any such
shares or securities, or alter any term of any of its outstanding securities or
make any change in its outstanding shares of capital stock or its
capitalization, whether by reason of a reclassification, recapitalization,
stock split, combination, exchange or readjustment of shares, stock dividend or
otherwise;
iii. encumber any of its material assets or properties;
iv. declare, set aside, make or pay any dividend or other
distribution to any stockholder with respect to its capital stock;
v. except for the UPLP Acquisition pursuant to Section 5.6
(D) or the purchase of certain Walnut Options pursuant to Section 5.20(b),
redeem, purchase or otherwise acquire any Walnut Securities;
vi. except for the payment of the Cash Bonus to Joel Kanter
and Robert Mauer, increase the compensation or other remuneration or benefits
payable or to become payable to any director or executive officer of Walnut or
its Subsidiaries, or increase the compensation or other remuneration or benefits
payable or to become payable to any of its other employees or agents, except,
with respect to such other employees or agents only, for increases in the
ordinary course of business consistent with past practice;
vii. adopt or (except as otherwise required by Law) amend or
make any unscheduled contribution to any employee benefit plan for or with
employees, or enter into any collective bargaining agreement;
viii. terminate or modify any Walnut Material Contract
requiring future payments to or from Walnut, individually or in the aggregate,
in excess of $100,000, except for terminations of Walnut Material Contracts upon
their expiration during such period in accordance with their terms;
ix. except as set forth on Schedule 5.2(b)(ix), create,
incur, assume or otherwise become liable for any indebtedness in an aggregate
amount in excess of $20,000 or guarantee or endorse any obligation or the net
worth of any Person, except for endorsements of negotiable instruments for
collection in the ordinary course of business;
x. except as contemplated by Sections 5.6(B) and 5.6(F) to
this Agreement or as set forth on Schedule 5.2(b)(x) to this Agreement, pay,
discharge or satisfy any claim, obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, in an aggregate amount in
excess of $20,000, except for liabilities incurred prior to the date hereof in
the ordinary course of business in a manner consistent with past practice;
xi. sell, transfer, lease or otherwise dispose of any of its
assets or properties, except in the ordinary course of business in a manner
consistent with past practice and for a cash consideration equal to the fair
value thereof at the time of such sale, transfer, lease or other disposition;
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xii. cancel, compromise, release or waive any material debt,
claim or right;
xiii. make any loan or advance to any Person other than travel
and other similar routine advances in the ordinary course of business consistent
with past practice, or acquire for cash (a "WALNUT ACQUISITION") the capital
stock or other securities or any ownership interest in, or substantially all of
the assets of, any other business enterprise, except for any Walnut Acquisitions
that do not individually exceed $50,000 or that do not exceed $200,000 in the
aggregate;
xiv. make any material capital investment or expenditure or
capital improvement, addition or betterment;
xv. change its method of accounting or the accounting
principles or practices utilized in the preparation of Walnut Financial
Statements, other than as required by GAAP;
xvi. institute or settle any Proceeding before any
Governmental Entity relating to it or its assets or properties;
xvii. adopt a plan of dissolution or liquidation with respect
to itself;
xviii. enter into any contract, except contracts made in the
ordinary course of business consistent with past practice;
xix. make any new election with respect to Taxes or any change
in current elections with respect to Taxes, or settle or compromise any federal,
state, local or foreign Tax liability or agree to an extension of a statute of
limitations; or
xx. except as contemplated by Section 5.6(F), enter into any
commitment to do any of the foregoing, or any action which would make any of the
representations or warranties of the Walnut Entities contained in this Agreement
untrue or incorrect in any material respect (subject to the Knowledge and
materiality limitations set forth therein) or cause any covenant, condition or
agreement of the Walnut Entities in this Agreement not to be complied with or
satisfied in any material respect.
SECTION 5.3 Preparation and Filing of Proxy Statement; Walnut Stockholders
Meeting.
(a) As promptly as practicable following the date of this Agreement,
Walnut shall prepare and file with the SEC the proxy materials relating to the
Walnut Stockholders Meeting to be held in connection with the transactions
contemplated by this Agreement (including the approval of the Mergers), the
Transaction Documents and the Related Agreements (the "PROXY STATEMENT"). The
Proxy Statement shall comply as to form with the applicable provisions of the
Exchange Act and the Investment Company Act and the rules and regulations
thereunder. Walnut shall, as promptly as practicable after receipt thereof,
provide copies of any written comments received from the SEC with respect to the
Proxy Statement to the Company and advise the Company of any oral comments with
respect to the Proxy Statement received from the SEC. Walnut shall provide the
Company with a reasonable opportunity to review and comment on the Proxy
Statement and any amendment or supplement to the Proxy Statement
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prior to filing such with the SEC, and shall provide the Company with a copy of
all such filings made with the SEC. No amendment or supplement to the
information supplied by the Company for inclusion in the Proxy Statement shall
be made without the approval of the Company, which approval shall not be
unreasonably withheld or delayed.
(b) Walnut shall, as promptly as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "WALNUT STOCKHOLDERS MEETING") for the purpose of obtaining
the requisite approval of the Walnut Stockholders of this Agreement and the
transactions contemplated by this Agreement and the Related Agreements
(including the Mergers and the Related Transactions). Walnut shall, through the
Walnut Board, recommend to its stockholders approval of this Agreement and all
of such transactions.
SECTION 5.4 Preparation and Filing of Form 8-F. As promptly as practicable
following the date of this Agreement, the Company shall prepare and Walnut shall
file with the SEC a Form 8-F, the purpose of which will be to deregister Walnut,
Walnut Capital, Walnut Funds and Universal Bridge under the Investment Company
Act (the "BDC DEREGISTRATION"). Walnut shall fully cooperate with the Company in
the preparation of the Form 8-F and shall furnish promptly to the Company all
information concerning its business, facilities, properties, assets and
personnel, and shall make available to the Company the appropriate individuals
(including officers, employees, accountants, counsel and other professionals)
for discussion of Walnut's business, facilities, properties and personnel, as
the Company may reasonably request in connection with its preparation of the
Form 8-F. The Company will provide Walnut with a reasonable opportunity to
review, comment on, and approve the Form 8-F and any amendment or supplement
thereto prior to filing such with the SEC, provided that such approval shall not
be unreasonably withheld or delayed. The Company will provide Walnut with a copy
of all such filings made with the SEC.
SECTION 5.5 SEC and Other Governmental Filings. Each of Walnut and the Company
shall promptly provide the other (or its counsel) with copies of all filings
made by it or any of its Subsidiaries with the SEC or any other Governmental
Entity in connection with this Agreement, the Transaction Documents and the
Related Agreements and the transactions contemplated hereby and thereby
(including the Mergers and the Related Transactions).
SECTION 5.6 Related Transactions. Walnut shall use its commercially reasonable
efforts to effect the Related Transactions prior to the Closing provided that,
to the extent required, the BDC Deregistration has been effected.
For the purposes of this Agreement, "RELATED TRANSACTIONS" means:
(A) the issuance by Walnut in a private placement
transaction of at least 1,500,000, and up to 2,500,000, shares
of Walnut Common Stock to an investor group at $2.00 per share
in cash; provided, however, that such number may be increased
by one share for (i) every $2.00 of debt and accrued
liabilities of Walnut converted into cash pursuant to Section
5.6(B), (ii) every $2.00 of cash paid in satisfaction of the
Accrued Compensation pursuant to Section 5.6(C), and (iii)
every $2.00 of cash paid in connection with the UPLP
Acquisition pursuant to Section 5.6(D), up to a maximum of an
additional
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500,000 shares of Walnut Common Stock (the "CAPITAL
INVESTMENT");
(B) the conversion of the debts and accrued
liabilities of Walnut, in the aggregate principal amount of
$1,093,000 (plus any interest actually accrued thereon),
described on Schedule 5.6(B) to this Agreement, into cash or
Walnut Common Stock, as reasonably determined by the Company,
on substantially the same terms and conditions as the Capital
Investment (the "DEBT CONVERSION");
(C) (i) the satisfaction in full of the accrued
compensation of Burton W. Kanter in the amount of $387,875
through June 30, 1999 (the "PAST COMPENSATION") and $273.97
per day from July 1, 1999 until the Closing Date (the
"CONTINUING ACCRUAL" and, together with the Past Compensation,
the "ACCRUED COMPENSATION"), by (x) the forgiveness by Burton
W. Kanter of $150,000 of such Past Compensation (the "FORGIVEN
AMOUNT"), and (y) the payment or issuance to Burton W. Kanter
of cash or a number of shares of Walnut Common Stock, valued
at $2.00 per share, or a combination thereof, as reasonably
determined by the Company, equal to the total amount of such
Accrued Compensation (less the Forgiven Amount) (the
"COMPENSATION SATISFACTION"); and
(ii) the sale by Walnut to Burton W. Kanter,
and the purchase by Burton W. Kanter from Walnut, of any and
all rights Walnut or its Subsidiaries may have under the
United Airlines PassPlus Program for a purchase price of
$5,000, payable in cash at the Closing;
(D) the dissolution of Universal Partners, L.P., an
Illinois limited partnership ("UPLP"), following Universal
Bridge's acquisition of 17% of the outstanding limited
partnership interest of UPLP in exchange for an amount equal
to the net book value thereof payable in cash or Walnut Common
Stock (valued at $2.00 per share), as reasonably determined by
the Company, and 50% of the outstanding general partnership
interest of UPLP for up to $134,000, payable in cash or Walnut
Common Stock valued at $2.00 per share, as reasonably
determined by the Company (collectively, the "UPLP
ACQUISITION");
(E) the relinquishment by Walnut Capital Corp., a
Delaware corporation and a wholly-owned subsidiary of Walnut,
of its license from the Small Business Administration to
operate as a Small Business Investment Company; and
(F) the termination of the oral sublease between
Walnut and Windy City, Inc. for premises located in Vienna,
Virginia, with no cost or penalty to Walnut.
With respect to the Sections 5.6(B), 5.6(C) and 5.6(D), any
determination of the Company to make payments in cash or Walnut Common Stock
shall be consistent with Walnut's contractual obligations, if any.
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For the purposes of this Agreement, "RELATED AGREEMENTS" shall include
all agreements necessary to effect the Related Transactions, all of which
Related Agreements will be reasonably satisfactory in form and substance to the
Company. In connection with the Capital Investment, the Company shall use its
commercially reasonable efforts to secure suitable accredited investors in the
Capital Investment, which investors shall in all cases be subject to the
reasonable approval of Walnut. The Company shall not be paid any finders fee or
other remuneration in connection with such efforts (whether or not customary).
The parties agree and acknowledge that Walnut shall not be required to use any
efforts to secure suitable investors in the Capital Investment.
SECTION 5.7 Consulting Agreements.
(a) At or prior to the Closing, Walnut shall use its commercially
reasonable efforts to cause the Chicago Advisory Group to enter into a
consulting agreement (the "CAG CONSULTING AGREEMENT") with Inland Financial,
substantially in the form attached as Exhibit A to this Agreement.
(b) At or prior to the Closing, Walnut shall use its commercially
reasonable efforts to cause Windy City, Inc. to enter into a consulting
agreement (the "WCI CONSULTING AGREEMENT") with THCG, substantially in the form
attached as Exhibit B to this Agreement.
SECTION 5.8 Employment Agreements. At or prior to the Closing, the Company shall
use its commercially reasonable efforts to cause each of Joseph D. Mark, Shai
Novik and Adi Raviv to enter into an employment agreement with THCG,
substantially in the form attached as Exhibits C-1, C-2 and C-3 to this
Agreement, respectively.
SECTION 5.9 Voting Agreement. Walnut shall use its commercially reasonable
efforts to cause each of Windy City, Inc., The Holding Company and the Kanter
Family Foundation (the "WALNUT PRINCIPAL STOCKHOLDERS") to execute on the date
hereof a voting agreement (the "VOTING AGREEMENT"), in the form attached as
Exhibit D to this Agreement, pursuant to which (a) the Walnut Principal
Stockholders will agree to vote their shares of Walnut Common Stock in favor of
the Mergers and the Related Transactions, and (b) the Walnut Principal
Stockholders will agree not to sell their shares of THCG Common Stock for a
period of 12 months following the consummation of the Mergers and the Related
Transactions, subject to certain exceptions to be set forth therein.
SECTION 5.10 [Intentionally Omitted].
SECTION 5.11 Investment Letters. At the Closing, the Company shall use its
commercially reasonable efforts to cause each of the stockholders of the Company
to execute and deliver to Walnut an investment letter (the "INVESTMENT
LETTERS"), substantially in the form attached as Exhibit E to this Agreement.
SECTION 5.12 Press Releases. No party will issue or cause the publication of any
press release or other public announcement with respect to this Agreement or the
transactions contemplated by this Agreement, the Transaction Documents and the
Related Agreements, other than the Proxy Statement and the Form 8-F, without the
prior written consent of
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the other parties hereto; provided, however, that nothing herein will prohibit
any party from issuing or causing publication of any such press release or
public announcement to the extent that such party determines such action to be
required by Law, in which case the party making such determination will allow
the other parties reasonable time to comment on such release or announcement in
advance of its issuance.
SECTION 5.13 Access to Information; Confidentiality. Upon reasonable notice, the
Company and Walnut each shall afford to the officers, employees, accountants,
counsel and other representatives of the other reasonable access, during the
period prior to the Effective Time of the Mergers, to all its facilities,
properties, assets, books, contracts and records and, during such period, the
Company and Walnut each shall furnish promptly to the other all information
concerning its business, facilities, properties, assets and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including officers, employees, accountants, counsel
and other professionals) for discussion of the other's business, facilities,
properties, assets and personnel as either the Company or Walnut may reasonably
request. Each party shall keep such information confidential in accordance with
the terms of the Confidentiality Agreement.
SECTION 5.14 Non-Solicitation.
(a) The Walnut Entities, their Affiliates and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition or exchange of all or any
material portion of the assets of, or any equity interest in, Walnut or any of
its Subsidiaries or any business combination with Walnut or any of its
Subsidiaries, except that Walnut may continue any existing discussions or
negotiations with respect to the acquisition by Walnut of other factoring
businesses in exchange for assets of, or an equity interest in, Walnut. Walnut
agrees that, prior to the Effective Time of the Mergers, it shall not, and shall
not authorize or permit any of its Subsidiaries or any of its or its
Subsidiaries' directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate, encourage or facilitate, or
furnish or disclose non-public information in furtherance of, any inquiries or
the making of any proposal with respect to any merger, liquidation,
recapitalization, consolidation or other business combination involving Walnut
or its Subsidiaries or acquisition of any capital stock or any material portion
of the assets of Walnut or any of its Subsidiaries, or any combination of the
foregoing (an "ACQUISITION TRANSACTION"), or negotiate, explore or otherwise
engage in discussion with any Person (other than the Company or its directors,
officers, employees, agents and representatives) with respect to any Acquisition
Transaction, or enter into any agreement, arrangement or understanding requiring
it to abandon, terminate or fail to consummate the Mergers, the Related
Transactions or any other transactions contemplated by this Agreement; provided
that Walnut may furnish information to, and negotiate or otherwise engage in
discussions with, any party who delivers a bona fide written proposal for an
Acquisition Transaction if (i) the Walnut Board determines in good faith and on
a reasonable basis by a majority vote, after consultation with its outside
counsel and financial advisors, that (x) such Acquisition Transaction is
reasonably likely to be more favorable to Walnut and its stockholders from a
financial point of view than the transactions contemplated by this Agreement and
(y) that failure to take such action would thus constitute a breach of the
fiduciary duties of the Walnut Board, and (ii) Walnut enters into a customary
confidentiality agreement with respect thereto,
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and (iii) Walnut complies with the provisions of Section 5.14(b). The term
"Acquisition Transaction" shall not include any of the Related Transactions
provided for in Section 5.6.
(b) From and after the execution of this Agreement, Walnut shall, as
soon as practicable, advise the Company in writing of the receipt, directly or
indirectly, or the existence of any discussions, negotiations, proposals or
substantive inquiries relating to an Acquisition Transaction, identify the
offeror and furnish to the Company a copy of such proposal or substantive
inquiry, if it is in writing, or a written summary of any oral proposal or
substantive inquiry relating to an Acquisition Transaction. Walnut shall as soon
as practicable advise the Company in writing of any substantive development
relating to such proposal, including the results of any substantive discussion
or negotiations with respect thereto.
(c) Neither the Walnut Board nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to the
Company, the approval or recommendation of the Walnut Board or a committee
thereof of this Agreement or the transactions contemplated hereby or (ii)
recommend to the Walnut Stockholders, or propose to recommend to the Walnut
Stockholders, any Acquisition Transaction except at or after the termination of
this Agreement pursuant to and in accordance with Section 7.1(g).
(d) The Company, its Subsidiary and their Affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease any existing discussions or negotiations, if any, with any
parties conducted heretofore with respect to any acquisition or exchange of all
or any material portion of the assets of, or any equity interest in, the Company
or its Subsidiary or any business combination with the Company or its
Subsidiary. The Company agrees that, prior to the Effective Time of the Mergers,
it shall not, and shall not authorize or permit its Subsidiary or any of its or
its Subsidiary's directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate, encourage or facilitate, or
furnish or disclose non-public information in furtherance of, any inquiries or
the making of any proposal with respect to any merger, liquidation,
recapitalization, consolidation or other business combination involving the
Company or its Subsidiary or acquisition of any capital stock or any material
portion of the assets of the Company or its Subsidiary or any combination of the
foregoing (a "COMPANY TRANSACTION"), or negotiate, explore or otherwise engage
in discussion with any Person (other than Walnut or its directors, officers,
employees, agents and representatives) with respect to any Company Transaction,
or enter into any agreement, arrangement or understanding requiring it to
abandon, terminate or fail to consummate the Merger 2, the Related Transactions
or any other transactions contemplated by this Agreement.
SECTION 5.15 Commercially Reasonable Efforts; Further Action. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
hereto agrees to use its commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, or causing to be done, all things necessary,
proper or advisable to fulfill all conditions applicable to such party pursuant
to this Agreement, the Transaction Documents and the Related Agreements and to
consummate and make effective, in the most expeditious manner practicable, the
Mergers, the Related Transactions and the other transactions contemplated by
this Agreement, the Transaction Documents and the Related Agreements, including
(i) the obtaining of all
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necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
and the taking of all reasonable steps as may be necessary to make or obtain a
Filing and Approval to, of or with, or to avoid an action or Proceeding by, any
Governmental Entity; (ii) the obtaining of all necessary consents, approvals,
waivers or exemption from non-governmental third parties; and (iii) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes and intent of,
this Agreement and the Transaction Documents and the Related Agreements.
SECTION 5.16 Indemnification and Insurance. (a) The By-Laws and Certificate of
Incorporation of Surviving Corporation 1 shall contain the provisions with
respect to indemnification set forth in the By-Laws and Certificate of
Incorporation of THCG on the date hereof, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the First
Effective Time in any manner that would adversely affect the rights thereunder
as of the First Effective Time of individuals who at the First Effective Time
were directors, officers, employees or agents of Walnut or its Subsidiaries,
unless such modification is required after the First Effective Time by Law.
(b) Surviving Corporation 1 shall, to the fullest extent permitted
under applicable law or under the Certificate of Incorporation or By-Laws of
Surviving Corporation 1, indemnify and hold harmless each present and former
director, officer, employee or agent of Walnut or any of its Subsidiaries
(collectively, the "INDEMNIFIED PARTIES") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative (collectively, "Actions"), (x) arising out of or
pertaining to the transactions contemplated by this Agreement and the
Transaction Documents and the Related Agreements or (y) otherwise with respect
to any acts or omissions occurring at or prior to the First Effective Time, in
each case to the same extent (including any provision for the advancement of
expenses) as provided in the Walnut Charter Documents as in effect on the date
hereof, in each case for a period of six years after the First Effective Time;
provided, however, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. In the event of any such Action (whether
arising before or after the First Effective Time), the Indemnified Parties shall
promptly notify Surviving Corporation 1 in writing, but the failure to so notify
shall not relieve Surviving Corporation 1 of its obligations under this Section
5.16(b) except to the extent it is materially prejudiced by such failure, and
Surviving Corporation 1 shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Parties. The Indemnified Parties shall have the right to employ separate counsel
in any such Action and to participate in (but not control) the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Parties unless (a) Surviving Corporation 1 has agreed to pay such
fees and expenses, (b) Surviving Corporation 1 shall have failed to assume the
defense of such Action, or (c) the named parties to such Action include both
Surviving Corporation 1 and the Indemnified Parties, the Indemnified Parties
shall have been reasonably advised in writing by counsel that there may be one
or more legal defenses available to the Indemnified Parties which are in
conflict with those available to Surviving Corporation 1. In the event such
Indemnified Parties employ separate counsel at the expense of Surviving
Corporation 1
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pursuant to clauses (b) or (c) of the previous sentence, (i) any counsel
retained by the Indemnified Parties for any period after the First Effective
Time shall be reasonably satisfactory to Surviving Corporation 1; (ii)
the Indemnified Parties as a group may retain only one law firm to represent
them in each applicable jurisdiction with respect to any single Action unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties,
in which case each Indemnified Person with respect to whom such a conflict
exists (or group of such Indemnified Persons who among them have no such
conflict) may retain one separate law firm in each applicable jurisdiction;
(iii) after the First Effective Time, Surviving Corporation 1 shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received; and (iv) Surviving Corporation 1 will cooperate in the defense of
any such Action. Surviving Corporation 1 shall not be liable for any settlement
of any such Action effected without its written consent.
(c) For a period of three years after the First Effective Time,
Surviving Corporation 1 shall maintain in effect, if available, directors' and
officers' liability insurance covering those Persons who are currently covered
by Walnut's directors' and officers' liability insurance policy (a correct and
complete copy of which has been made available to the Company) on terms
comparable to those now applicable to directors and officers of Walnut;
provided, however, that in no event shall Surviving Corporation 1 be required to
expend in excess of 150% of the annual premium currently paid by Walnut for such
coverage; and provided further, that if the premium for such coverage exceeds
such amount, Surviving Corporation 1 shall purchase a policy with the greatest
coverage available for such 150% of such annual premium.
(d) The provisions of this Section 5.16 shall survive the consummation
of the Mergers, is intended to benefit Surviving Corporation 1 and the
Indemnified Parties, shall be binding on all successors and assigns of Surviving
Corporation 1 and shall be enforceable by the Indemnified Parties.
SECTION 5.17 Notification of Certain Matters. The Company shall give prompt
notice to Walnut, and Walnut shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time of the Mergers, (ii) any material failure of the Company or any
of the Walnut Entities, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, any Transaction Document or any Related Agreement, (iii) any
notice of, or other communication relating to, a default or event which, with
notice or lapse of time or both, would become a default, received by it or any
of its Subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time of the Mergers, under any contract or agreement material to the
businesses, properties, assets, liabilities, condition (financial or otherwise)
or results of operations of it and its Subsidiaries taken as a whole to which it
or any of its Subsidiaries is a party or by which any of their respective
properties or assets are bound, (iv) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement, the
Transaction Documents or the Related Agreements (including the Mergers and the
Related Transactions), or (v) any Walnut Material Adverse Effect (in the case of
Walnut)
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or Company Material Adverse Effect (in the case of the Company); provided,
however, that the delivery of any notice pursuant to this Section 5.17
shall not cure such breach, non-compliance or non-satisfaction or limit or
otherwise affect the remedies if any, available hereunder to the party receiving
such notice.
SECTION 5.18 Tax Treatment. Each of the parties hereto shall use its
commercially reasonable efforts to cause the Mergers to qualify, and will not
(either before or after consummation of the Mergers) knowingly take any actions,
or fail to take any action, that might reasonably be expected to prevent the
Mergers from qualifying as reorganizations under the provisions of Section 368
of the Code. Walnut and THCG shall, and shall use their reasonable best efforts
to cause Surviving Corporation 2 to, report, to the extent required by the Code,
the Mergers for United States federal income tax purposes as reorganizations
within the meaning of Section 368 of the Code.
SECTION 5.19 State Takeover Laws. Walnut shall, upon the request of the Company,
take all reasonable steps to assist in any challenge by the Company to the
validity or applicability of the transactions contemplated by this Agreement and
the Transaction Documents and the Related Agreements (including the Mergers and
Related Transactions), of any state takeover law.
SECTION 5.20 THCG Options and Walnut Options.
(a) Prior to the First Effective Time, Walnut shall cause THCG to (i)
adopt, and submit to the Walnut Stockholders for approval, a stock incentive
plan (the "THCG STOCK INCENTIVE PLAN"), in form and substance reasonably
satisfactory to the Company, providing for the grant of incentive awards
thereunder with respect to a number of shares of THCG Common Stock that in the
aggregate does not exceed 2,250,000 shares, and (b) grant, in accordance with
the terms of the THCG Stock Incentive Plan (including that grants made by the
Committee as defined therein) and subject to the approval of the THCG Stock
Incentive Plan by the Walnut Stockholders, the consummation of the Mergers and,
if required, the BDC Deregistration, options to purchase up to 1,250,000 shares
of THCG Common Stock (the "THCG OPTIONS") under the THCG Stock Incentive Plan to
the Persons set forth on Schedule 5.20(a) to this Agreement. As promptly as
practicable following the consummation of the Mergers, THCG shall prepare and
file with the SEC a Registration Statement on Form S-8 with respect to the THCG
Common Stock authorized for issuance under the THCG Stock Incentive Plan and
shall use its commercially reasonable efforts to cause such registration
statement to become effective.
(b) Prior to the First Effective Time, Walnut shall use its
commercially reasonable efforts to purchase all outstanding Walnut Options,
other than the Converted Walnut Options, pursuant to Section 2.1(b). Each holder
of a Walnut Option purchased pursuant to Section 2.1(b) shall deliver to Walnut
a copy of the agreement evidencing such Walnut Option, marked "cancelled,"
against receipt of payment therefor.
(c) Prior to the Second Effective Time, the Company shall use its
commercially reasonable efforts to obtain the consent of Shai Novik to the
cancellation of the Novik Options pursuant to Section 2.2(c).
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(d) Prior to the First Effective Time, Walnut shall use its
commercially reasonable efforts to obtain the consent and acknowledgment of Joel
Kanter and Robert Mauer, as the sole beneficiaries under the Walnut Incentive
Program, that the sole benefit to which they are entitled thereunder is the Cash
Bonus.
SECTION 5.21 LLC Merger.
(a) Prior to the First Effective Time, the Company shall establish the
LLC. With respect to the LLC, the Company represents and warrants to Walnut as
follows:
(i) The LLC will be a direct, newly formed, wholly-owned
subsidiary of the Company. The LLC was formed in compliance
with all applicable Law. The LLC will be formed solely for the
purpose of facilitating the transactions contemplated by this
Agreement.
(ii) As of the Effective Time of the Mergers, except for
obligations or liabilities incurred in connection with the
transactions contemplated by this Agreement, including but not
limited to the Transfer, the LLC will not have incurred,
directly or indirectly, through any subsidiary or Affiliate,
any obligation or liability or engaged in any business
activity of any type or kind whatsoever or entered into any
agreement or arrangement with any Person.
(iii) As of the Effective Time of the Mergers, except for
securities owned as a result of the Transfer, the LLC will not
have any assets.
(b) Immediately after the Effective Time of the Mergers, Walnut and the
Company shall cause (i) Surviving Corporation 2 to contribute its portfolio of
investment securities to the LLC, (ii) the merger of Walnut Capital, Walnut
Funds and Universal Bridge with and into the LLC, with the LLC as the surviving
entity, and (iii) if necessary in connection with the BDC Deregistration, the
dividend by Surviving Corporation 2 of its membership interest in the LLC to
THCG.
SECTION 5.22 THCG Board of Directors. Upon consummation of Merger 2, the Board
of Directors of THCG shall be classified into three classes. The Class I
directors shall consist of Messrs. Evan Marks and Joseph D. Mark and shall serve
until the first annual meeting of the THCG stockholders after the Mergers. The
Class II directors shall consist of Mr. Gene Burleson and a director nominated
by the Company and reasonably acceptable to Walnut, and shall serve until the
second annual meeting of the THCG stockholders after the Mergers. The Class III
directors shall consist of Messrs. Burton W. Kanter, Joel Kanter and Adi Raviv,
and shall serve until the third annual meeting of the THCG stockholders after
the Mergers.
SECTION 5.23 Company Preferred Stock. Prior to the Second Effective Time, the
Company shall cause the Company Stockholders to contribute to the capital of the
Company all outstanding shares of Company Preferred Stock, or shall take all
such other action as is necessary to ensure that no shares of Company Preferred
Stock are outstanding at the Second Effective Time.
SECTION 5.24 Change of Name. Promptly following the Closing Date, the Company
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shall cause to be taken all actions required to amend the organizational
documents of Tower Hill Capital Group LLC to change its corporate name to a name
which does not contain the words "Tower Hill."
SECTION 5.25 Walnut Securities. Upon the later to occur of the approval of
the Mergers by the Walnut Stockholders and the issuance by the SEC of a notice
of an application for deregistration under Section 8(f) of the Investment
Company Act pursuant to the Form 8-F, Walnut shall sell for cash its marketable
securities and shall revalue its portfolio of nonmarketable securities to fair
market value.
SECTION 5.26 Softwatch Securities. The Company shall use its commercially
reasonable efforts to cause Adi Raviv to obtain a waiver from each of the
shareholders of Softwatch Ltd. ("SOFTWATCH"), pursuant to Section 19 of the
Articles of Association of Softwatch, in order to permit him to transfer to the
Company 127,010 ordinary shares of Softwatch for a purchase price of
$315,131.58, which purchase price includes $132,237.18 of debt forgiveness;
provided, however, that in the event Adi Raviv is unable to obtain such waivers,
the cash component of the purchase price, $182,894.40, shall remain an asset of
the Company and the Company shall forgive Adi Raviv's indebtedness to the
Company in the amount of $132,237.18.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGERS
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Mergers. The
respective obligations of each party hereto to effect the Mergers and the other
transactions contemplated by this Agreement, the Transaction Documents and the
Related Agreements (including the Related Transactions) are subject to the
satisfaction at or prior to the Effective Time of the Mergers of the following
conditions:
(a) this Agreement, the Related Transactions and the BDC Deregistration
shall have been approved and adopted by the applicable requisite vote of the
Walnut Stockholders;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restrains, enjoins or restricts the
consummation of the transactions contemplated by this Agreement, the Transaction
Documents or the Related Agreements (including the Mergers and the Related
Transactions) or which subjects any party to substantial damages as a result of
the consummation of the transactions contemplated by this Agreement, the
Transaction Documents or the Related Agreements (including the Mergers and the
Related Transactions);
(c) all required consents, approvals, waivers and authorizations of any
Governmental Entity or Regulatory Agency which are necessary to effect the
transactions contemplated by this Agreement and the Transaction Documents and
the Related Agreements (including the Mergers and the Related Transactions)
shall have been obtained; and
(d) those Related Transactions described in Sections 5.6(A), 5.6(C) and
5.6(F)
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which are to be consummated prior to the Closing shall have been
consummated in accordance with the terms of the applicable Related Agreements.
SECTION 6.2 Conditions to the Obligations of the Company. The obligation of the
Company to effect Merger 2 is subject to the satisfaction at or prior to the
Second Effective Time of the following conditions:
(a) the representations and warranties of the Walnut Entities set forth
in this Agreement or in any Schedule or certificate delivered pursuant hereto
that are qualified as to materiality shall be true and correct, and the
representations and warranties of the Walnut Entities set forth in this
Agreement or in any Schedule or certificate delivered pursuant hereto that are
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Second Effective Time, as
though made on and as of the Second Effective Time, except to the extent the
representation or warranty is expressly limited by its terms to another date;
(b) each of the Walnut Entities shall have obtained the consent,
approval or waiver of each non-governmental Person whose consent, approval or
waiver shall be required in order for such Walnut Entity to consummate the
transactions contemplated by this Agreement, the Transaction Documents and the
Related Agreements, except those for which the failure to obtain such consent,
approval or waiver, individually or in the aggregate, is not reasonably likely
to have a Walnut Material Adverse Effect;
(c) each of the covenants and obligations of the Walnut Entities to be
performed at or before the Second Effective Time pursuant to the terms of this
Agreement and the obligations of Walnut and each other party (other than the
Company) to each of the Related Agreements to be performed at or before the
Second Effective Time pursuant to the terms of each such Related Agreement shall
have been duly performed in all material respects at or before the Effective
Time of the Mergers;
(d) the Company shall have received the opinion of Barack Ferrazzano
Kirschbaum Perlman & Nagelberg, counsel to Walnut, dated the Closing Date,
substantially in the form attached as Exhibit F to this Agreement;
(e) the Company shall have received a certificate, in form and
substance reasonably satisfactory to it, signed by the Secretary of Walnut,
certifying (i) that full and complete copies of the following are attached
thereto: (A) resolutions or similar documents evidencing the authorization and
approval by the Walnut Board, the boards of directors of the other Walnut
Entities and the Walnut Stockholders of this Agreement and the Transaction
Documents and the Related Transactions and the transactions contemplated by this
\Agreement, the Transaction Documents and the Related Agreements (including the
Mergers and the Related Transactions), (B) the Walnut Charter Documents and the
charter documents of THCG and Newco; and (ii) as to the incumbency and specimen
signature of each representative of each Walnut Entity signing this Agreement,
the Transaction Documents, the Related Agreements and any other document in
connection herewith or therewith;
(f) Merger 1 shall have become effective under the UBCA and the DGCL
and the THCG Common Stock shall be listed for trading on the NASDAQ National
Market;
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(g) since January 1, 1999, no change or event shall have occurred which
has had or could reasonably be expected to have, individually or in the
aggregate, a Walnut Material Adverse Effect;
(h) the Transaction Documents and Related Agreements to which any
Walnut Entity is a party shall have been duly executed and delivered to the
Company;
(i) Walnut shall have purchased all outstanding Walnut Options, other
than the Converted Walnut Options, pursuant to Section 2.1(b), and shall have
obtained from each holder of a Walnut Option purchased pursuant to Section
2.1(b) a copy of the agreement evidencing such Walnut Option, marked
"cancelled."
(j) Walnut shall have obtained the consent and acknowledgement of Joel
Kanter and Robert Mauer pursuant to Section 5.20(c);
(k) those Related Transactions described in Sections 5.6(B), 5.6(D) and
5.6(E) which are to be consummated prior to Closing shall have been consummated
in accordance with the terms of the applicable Related Agreements;
(l) the Company shall have received a certificate of an executive
officer of Walnut, dated the Closing Date, certifying as to the matters set
forth in (a), (c), (g), (i), (j) and (k) of this Section 6.2 as of the Closing
Date; and
(m) no tender offer for more than 25% of the outstanding shares of
Walnut Common Stock shall have been announced or completed.
SECTION 6.3 Conditions to the Obligations of Walnut. The obligations of each
Walnut Entity to effect the Mergers and the other transactions contemplated by
this Agreement and the Transaction Documents and the Related Agreements
(including the Related Transactions) are subject to the satisfaction at or prior
to the Effective Time of the Mergers of the following conditions:
(a) the representations and warranties of the Company set forth in this
Agreement or in any Schedule or certificate delivered pursuant hereto that are
qualified as to materiality shall be true and correct, and the representations
and warranties of the Company set forth in this Agreement or in any Schedule or
certificate delivered pursuant hereto that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of each of the First Effective Time and the Second Effective
Time, respectively, as though made on and as of each of the First Effective Time
and the Second Effective Time, respectively, except to the extent the
representation or warranty is expressly limited by its terms to another date;
(b) the Company shall have obtained the consent, approval or waiver of
each non-governmental Person whose consent, approval or waiver shall be required
in order for the Company to consummate the transactions contemplated hereby and
by the Transaction Documents and the Related Agreements to which it is a party,
except those for which the failure to obtain such consent, approval or waiver,
individually or in the aggregate, is not
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reasonably likely to have, a Company Material Adverse Effect;
(c) each of the covenants and obligations of the Company to be
performed at or before the Effective Time of the Mergers pursuant to the terms
of this Agreement and the obligations of the Company and each other party (other
than the Walnut Entities) to each of the Related Agreements to be performed at
or before the Effective Time of the Mergers pursuant to the terms of each such
Related Agreement shall have been duly performed in all material respects at or
before the Effective Time of the Mergers;
(d) Walnut shall have received the opinion of Kramer Levin Naftalis &
Frankel LLP, counsel to the Company, dated the Closing Date, substantially in
the form attached as Exhibit G to this Agreement;
(e) Walnut shall have received a certificate, in form and substance
reasonably satisfactory to it, signed by the Secretary of the Company,
certifying (i) that full and complete copies of the following are attached
thereto: (A) resolutions or similar documents evidencing the authorization and
approval by the Company Board and the Company Stockholders of this Agreement and
the Transaction Documents and the Related Agreements and the transactions
contemplated by this Agreement and the Transaction Documents and the Related
Agreements (including the Mergers and the Related Transactions), (B) the Company
Charter Documents; and (ii) as to the incumbency and specimen signature of each
representative of the Company signing this Agreement, the Transaction Documents
and the Related Agreements to which it is a party and any other document in
connection herewith or therewith.
(f) since January 1, 1999, no change or event shall have occurred which
has had or could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect;
(g) Walnut shall have received an Investment Letter duly executed by
each of the Company Stockholders;
(h) the Transaction Documents and Related Agreements to which the
Company is a party shall have been duly executed and delivered to Walnut;
(i) Walnut shall have received a certificate of an executive officer of
the Company, dated the Closing Date, certifying as to the matters set forth in
(a), (c) and (f) of this Section 6.3 as of the Closing Date;
(j) the proceeds of the Capital Investment shall have been used to: (i)
repay the $2,000,000 debentures outstanding to SBIC Funding Corp. and all
interest accrued thereon, or any other indebtedness incurred, the proceeds of
which were used to repay such debentures, and the full release of all personal
guarantees of such indebtedness made by any officer or director of Walnut shall
have been obtained, and (ii) repay Walnut's line of credit with American
National Bank and the full release of all personal guarantees of such
indebtedness made by any officer or director of Walnut shall have been obtained;
and
(m) the Company shall have obtained the consent of Shai Novik to the
cancellation of the Novik Options pursuant to Section 2.2(c).
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ARTICLE 7
TERMINATION; AMENDMENT; WAIVER; FEES AND EXPENSES
SECTION 7.1 Termination. This Agreement may be terminated and the Mergers may be
abandoned at any time, but prior to the Effective Time of the Mergers,
notwithstanding approval thereof by the Company Stockholders and the Walnut
Stockholders:
(a) by mutual written consent of Walnut and the Company;
(b) by either Walnut or the Company, if the Effective Time of the
Mergers shall not have occurred on or before December 31, 1999; provided,
however, that (i) Walnut's right to terminate this Agreement under this Section
7.1(b) shall not be available if the failure of Walnut (or any Walnut
Subsidiary) to effect the Related Transactions shall have been the cause of, or
resulted in, the failure of the Effective Time of the Mergers to occur before
December 31, 1999, other than due to events or circumstances which are beyond
the control of Walnut; and (ii) the right to terminate this Agreement under this
Section 7.1(b) shall not be available to the party whose failure to fulfill any
obligation under this Agreement shall have been the cause of, or resulted in,
the failure of the Effective Time of the Mergers to occur on or before December
31, 1999;
(c) by either Walnut or the Company, if any final order, decree or
ruling permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement or the Related
Agreements (including the Mergers or the Related Transactions) shall have been
entered by any Governmental Entity and shall have become final and
nonappealable;
(d) by either Walnut or the Company, if this Agreement or any of the
Related Transactions or any other matter submitted to the vote of the Walnut
Stockholders shall fail to receive the requisite vote for adoption at the Walnut
Stockholders Meeting, unless the Company has waived in writing such requirement;
(e) by the Company, if any Walnut Entity has materially breached any
material representation or warranty or failed to perform any material covenant
or agreement contained in this Agreement, which breach has not been cured on or
prior to 30 days following delivery of written notice of such breach by the
Company to the breaching Walnut Entity; or
(f) by Walnut, if the Company has materially breached any material
representation or warranty or failed to perform any material covenant or
agreement contained in this Agreement, which breach has not been cured on or
prior to 30 days following delivery of written notice of such breach by Walnut
to the Company.
(g) by Walnut if, prior to the date on which the Walnut Stockholders
vote on the Mergers, the Walnut Board approves an Acquisition Transaction, on
terms which a majority of the members of the Walnut Board, including a majority
of the members of the Walnut Board who are not employed or retained as a
consultant by Walnut or any Subsidiary of Walnut, have
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determined in good faith and on a reasonable basis, after consultation with its
outside counsel and financial advisors, that (i) such Acquisition Transaction is
more favorable to Walnut and its stockholders from a financial point of view
than the transactions contemplated by this Agreement, (ii) such Acquisition
Transaction is reasonably likely to be consummated without undue delay, and
(iii) failure to approve such proposal and terminate this Agreement would thus
constitute a breach of fiduciary duties of the Walnut Board under applicable
law; provided that the termination permitted by this Section 7.1(g) shall not be
effective unless and until Walnut shall have paid to the Company the Termination
Fee (as defined in Section 7.4(b)).
SECTION 7.2 Procedure for and Effect of Termination. In the event that this
Agreement is terminated and the Mergers abandoned pursuant to Section 7.1,
written notice of such termination and abandonment shall forthwith be given to
the other parties and this Agreement shall terminate and the Mergers shall be
abandoned without any further action. If this Agreement is terminated as
provided herein, no party hereto and none of their respective subsidiaries or
any of the officers or directors of any of them shall have any liability of any
nature whatsoever hereunder, or in connection with the transactions contemplated
hereby, except that Sections 5.12, 5.13, 7.2, 7.4 and Article 8 shall survive
any termination of this Agreement, and no such termination shall relieve any
party of the consequences of any breach of this Agreement.
SECTION 7.3 Amendment; Extension Waiver.
(a) This Agreement may be amended by action taken by the Company and
the Walnut Entities at any time before or after approval of the Mergers by the
Company Stockholders and the Walnut Stockholders but, after any such approval,
no amendment shall be made which requires the approval of such stockholders
under applicable Law without such approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of the parties hereto.
(b) At any time prior to the Effective Time of the Mergers, each party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
SECTION 7.4 Fees and Expenses.
(a) Except as provided in Section 7.4(b), the Company and the Walnut
Entities shall each bear its respective fees, costs and expenses incurred in
connection with this Agreement, the Transaction Documents, the Related
Agreements and the transactions contemplated hereby and thereby.
(b) In the event that this Agreement is terminated pursuant to Section
7.1(g), then Walnut shall, upon or prior to such termination, pay the Company a
termination fee of
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$500,000 and shall reimburse the Company for all reasonable out-of-pocket fees
and expenses it incurred in connection with the transactions contemplated by
this Agreement, up to $300,000 (collectively, the "TERMINATION FEE"), in
immediately available funds by wire transfer to an account designated by the
Company.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements of the Company or the
Walnut Entities contained herein shall survive the Effective Time of the
Mergers.
SECTION 8.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings (other than
the Confidentiality Agreement), both written and oral, between the parties with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise. Walnut guarantees the full and punctual performance by each
of the other Walnut Entities of all the obligations hereunder of the other
Walnut Entities.
SECTION 8.3 [Intentionally omitted.]
SECTION 8.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in Person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
if to the Walnut Entities: Walnut Financial Services, Inc.
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Attention: Joel Kanter
Chief Executive Officer
Facsimile: (703) 448-7751
with a copy to: Barack Ferrazzano Kirschbaum Perlman &
Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Gretchen Anne Trofa, Esq.
Facsimile: (312) 984-3150
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if to the Company to: Tower Hill Securities, Inc.
650 Madison Avenue
New York, New York 10022
Attention: Joseph D. Mark,
President
Facsimile: (212) 223-0161
with a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
Facsimile: (212) 715-8000
or to such other address, facsimile number or Person's attention as the Person
to whom notice is given may have previously furnished to the other in writing in
the manner set forth above.
SECTION 8.5 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, other than the
express provisions of Section 5.16, is intended to or shall confer upon any
other Person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement. The Persons covered by the provisions of Section
5.16 shall have the right to enforce such provisions against THCG.
SECTION 8.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
SECTION 8.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.8 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section, Article, Schedule or
Exhibit, such reference shall be to a Section or Article of or Schedule or
Exhibit to this Agreement unless otherwise indicated. Where the reference
"hereby" or "herein" appears in this Agreement, such reference shall be deemed
to be a reference to this Agreement as a whole. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Words denoting the singular include
the plural, and vice versa, and references to it or its or words denoting any
gender shall include all genders.
SECTION 8.9 Governing Law and Venue. THIS AGREEMENT SHALL BE DEEMED TO BE MADE
IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT
OF LAW PRINCIPLES THEREOF, EXCEPT THAT THE UBCA AND THE DGCL SHALL APPLY TO THE
EXTENT
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REQUIRED IN CONNECTION WITH THE EFFECTUATION OF MERGER 1.
SECTION 8.10 Waiver of Jury Trial. EACH OF THE WALNUT ENTITIES AND THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.11 Certain Definitions. (a) For the purposes of this Agreement, the
following terms shall have the meanings ascribed to them in this Section 8.11:
(1) "AFFILIATE" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under common control with such
Person;
(2) "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement,
dated July 1, 1999, by and between Walnut and the Company.
(3) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor law.
(4) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(5) "GOVERNMENTAL ENTITY" means any federal or national, state or
provincial, municipal or local government, governmental authority, regulatory or
administrative agency (including the NASD), governmental commission, department,
board, bureau, agency or instrumentality, political subdivision, court,
tribunal, official arbitrator or arbitral body, in each case whether domestic or
foreign.
(6) "GOVERNMENTAL ORDER" means any order, writ, rule, judgment,
injunction, decree, stipulation, determination, decision, consent, agreement or
award entered into by or with any Governmental Entity.
(7) "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended, or any successor law.
(8) "KNOWLEDGE" means (i) with respect to the Company, the actual
knowledge of any executive officer of the Company after conducting a reasonable
investigation and (ii) with respect to Walnut, the actual knowledge of any
executive officer of Walnut or any of its Subsidiaries after conducting a
reasonable investigation.
(9) "LAW" means all applicable provisions of all constitutions,
treaties, statutes, laws (including, but not limited to, common law), rules,
regulations, ordinances codes or orders of any Governmental Entity."
(10) "LIENS" means any mortgage, lien, debt, pledge, security interest,
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<PAGE> 65
encumbrance, assessment, restriction charge or other adverse claim or interest
of every nature.
(11) "OPTIONS" means any right, option, warrant or agreement to
purchase or subscribe for any securities of another Person.
(12) "PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or governmental body or Governmental Entity.
(13) "RELATED AGREEMENTS" has the meaning specified in Section 5.6.
(14) "RELATED TRANSACTIONS" has the meaning specified in Section 5.6.
(15) "SEC" means the Securities and Exchange Commission.
(16) "SECURITIES ACT" means the Securities Act of 1933, as amended, or
any successor law.
(17) "SUBSIDIARY" or "SUBSIDIARIES" of any Person means any
corporation, partnership, limited liability company or other legal entity of
which such Person, either directly or indirectly through or with any other
Subsidiary, owns more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such legal entity.
(18) "TRANSACTION DOCUMENTS" means the CAG Consulting Agreement, the
WCI Consulting Agreement, the Employment Agreements, the Voting Agreement, the
Investment Representation Letter and the other agreements, documents or
instruments executed and delivered by a party hereto as contemplated under this
Agreement (other than the Related Agreements).
(b) Other terms set forth below are defined in the Section of this
Agreement set forth opposite such term:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Accrued Compensation......................................................................................5.6(C)(i)
Acquisition Transaction.....................................................................................5.14(a)
Actions.....................................................................................................5.16(b)
Agreement..................................................................................................Recitals
BDC Deregistration..............................................................................................5.4
CAG Consulting Agreement.....................................................................................5.7(a)
Capital Investment..............................................................................................5.6
Cash Bonus..............................................................................................4.11(a)(ii)
Closing.........................................................................................................1.2
Closing Date....................................................................................................1.2
Code.......................................................................................................Recitals
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Company....................................................................................................Recitals
Company Board................................................................................................3.3(a)
Company Charter Documents....................................................................................3.1(b)
Company Common Stock.......................................................................................Recitals
Commonly Controlled Company Entities........................................................................3.11(a)
Commonly Controlled Walnut Entities.........................................................................4.11(a)
Company Acquisition ...................................................................................5.1(b)(xiii)
Company 8-F Information.........................................................................................3.5
Company Financial Statements.................................................................................3.4(a)
Company Interim Financial Statements.........................................................................3.4(a)
Company Material Adverse Effect..............................................................................3.1(a)
Company Material Contracts.....................................................................................3.14
Company Plans...............................................................................................3.11(a)
Company Preferred Stock......................................................................................3.2(a)
Company Proxy Information.......................................................................................3.5
Company Records................................................................................................3.23
Company Securities...........................................................................................3.1(a)
Company Stockholders.........................................................................................3.3(b)
Company Transaction.........................................................................................5.14(d)
Compensation Satisfaction....................................................................................5.6(C)
Continuing Accrual........................................................................................5.6(C)(i)
Converted Walnut Option .....................................................................................2.1(b)
DGCL.......................................................................................................Recitals
Debt Conversion..............................................................................................5.6(B)
Dissenting Shares............................................................................................2.3(i)
Effective Time of the Mergers................................................................................1.3(b)
Environmental Claim.........................................................................................3.12(a)
Environmental Laws..........................................................................................3.12(b)
ERISA.......................................................................................................3.11(a)
Exchange Agent...............................................................................................2.3(a)
Filings and Approvals...........................................................................................3.6
First Certificate of Merger..................................................................................1.3(a)
First Effective Time.........................................................................................1.3(a)
Forgiven Amount...........................................................................................5.6(C)(i)
Inland Financial ...........................................................................................4.4(d)
Intellectual Property..........................................................................................3.17
Investment Letters.............................................................................................5.11
LLC..........................................................................................................5.1(a)
Merger 1...................................................................................................Recitals
Merger 2...................................................................................................Recitals
Mergers....................................................................................................Recitals
Newco......................................................................................................Recitals
Newco Common Stock...........................................................................................2.2(a)
NYBCL ....................................................................................................Recitals
Old Certificates.............................................................................................2.3(c)
Pacific Financial............................................................................................4.4(d)
Past Compensation.........................................................................................5.6(C)(i)
Permits........................................................................................................3.10
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Proceeding......................................................................................................3.9
Proxy Statement..............................................................................................5.3(a)
QPAM Exemption..............................................................................................3.11(l)
Receivable...................................................................................................4.4(d)
Regulatory Agencies..........................................................................................3.6(a)
Related Agreements..............................................................................................5.6
Related Transactions............................................................................................5.6
Second Certificate of Merger.................................................................................1.3(b)
Second Effective Time........................................................................................1.3(b)
Softwatch......................................................................................................5.26
Stockholders Agreement.........................................................................................5.10
Surviving Corporation 1......................................................................................1.1(a)
Surviving Corporation 2......................................................................................1.1(b)
Tax Returns.................................................................................................3.13(b)
Taxes.......................................................................................................3.13(b)
Termination Fee..............................................................................................7.4(b)
THCG Common Stock............................................................................................2.1(a)
THCG Option.................................................................................................5.20(a)
THCG Stock Incentive Plan...................................................................................5.20(a)
Transfer.....................................................................................................5.1(a)
UBCA.......................................................................................................Recitals
Uncollected Receivable.......................................................................................4.4(d)
Universal Bridge.............................................................................................4.2(d)
UPLP............................................................................................................5.6
UPLP Acquisition.............................................................................................5.6(d)
Voting Agreement................................................................................................5.9
Walnut.....................................................................................................Recitals
Walnut Acquisition.....................................................................................5.2(b)(xiii)
Walnut Board.................................................................................................4.3(a)
Walnut Capital...............................................................................................4.2(d)
Walnut Charter Documents.....................................................................................4.1(b)
Walnut Common Stock........................................................................................Recitals
Walnut Entities............................................................................................Recitals
Walnut Filed SEC Reports.....................................................................................4.4(a)
Walnut Financial Statements .................................................................................4.4(a)
Walnut Fund..................................................................................................4.2(d)
Walnut Incentive Program................................................................................4.11(a)(ii)
Walnut Material Adverse Effect...............................................................................4.1(a)
Walnut Option................................................................................................2.1(b)
Walnut Option Plans..........................................................................................2.1(b)
Walnut Principal Stockholders...................................................................................5.9
Walnut Records.................................................................................................4.19
Walnut SEC Filings...........................................................................................4.1(a)
Walnut Securities............................................................................................4.1(a)
Walnut Stockholders..........................................................................................4.3(a)
Walnut Stockholders Meeting..................................................................................5.3(b)
WCI Consulting Agreement.....................................................................................5.7(b)
</TABLE>
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<PAGE> 68
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
WALNUT FINANCIAL SERVICES, INC.
By /s/ Joel S. Kanter
---------------------
Name: Joel S. Kanter
Title: President
THCG, INC.
By /s/ Joel S. Kanter
---------------------
Name: Joel S. Kanter
Title: President
TOWER HILL ACQUISITION CORP.
By /s/ Joel S. Kanter
---------------------
Name: Joel S. Kanter
Title: President
TOWER HILL SECURITIES, INC.
By /s/ Joseph D. Mark
---------------------
Name: Joseph D. Mark
Title: President
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AGREEMENT AND PLANS OF MERGER.....................................................................................1
ARTICLE 1.........................................................................................................2
SECTION 1.1 The Mergers...................................................................2
SECTION 1.2 Closing.......................................................................2
SECTION 1.3 Effective Time................................................................2
SECTION 1.4 Certificate of Incorporation..................................................3
SECTION 1.5 By-laws.......................................................................3
SECTION 1.6 Directors and Officers........................................................3
ARTICLE 2 ........................................................................................................4
SECTION 2.1 Merger 1......................................................................4
SECTION 2.2 Merger 2......................................................................4
SECTION 2.3 Exchange of Certificates......................................................5
SECTION 2.4 Tax Consequences..............................................................8
ARTICLE 3.........................................................................................................9
SECTION 3.1 Organization and Qualification; Subsidiaries..................................9
SECTION 3.2 Capitalization of the Company and its Subsidiary.............................10
SECTION 3.3 Authority Relative to this Agreement; Board Action...........................11
SECTION 3.4 Financial Statements.........................................................11
SECTION 3.5 Information Supplied.........................................................12
SECTION 3.6 Consents and Approvals; No Violations........................................12
SECTION 3.7 No Default...................................................................13
SECTION 3.8 No Undisclosed Liabilities; Absence of Changes...............................13
SECTION 3.9 No Litigation................................................................14
SECTION 3.10 Compliance with Applicable Law...............................................14
SECTION 3.11 Employee Benefits and ERISA..................................................15
SECTION 3.12 Environmental Laws and Regulations...........................................18
SECTION 3.13 Tax Matters..................................................................19
SECTION 3.14 Material Contracts...........................................................20
SECTION 3.15 Title to Properties; Encumbrances............................................21
SECTION 3.16 Condition and Sufficiency of Assets..........................................21
SECTION 3.17 Intellectual Property........................................................22
SECTION 3.18 Year 2000....................................................................22
SECTION 3.19 Investment Securities........................................................22
SECTION 3.20 Brokers......................................................................22
SECTION 3.21 Insurance....................................................................23
SECTION 3.22 Transactions with Affiliates.................................................23
SECTION 3.23 Books and Records............................................................23
SECTION 3.24 Disclosure...................................................................23
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.25 Stockholders of the Company..................................................23
ARTICLE 4........................................................................................................24
SECTION 4.1 Organization and Qualification; Subsidiaries.................................24
SECTION 4.2 Capitalization of Walnut and its Subsidiaries................................25
SECTION 4.3 Authority Relative to this Agreement; Board Action...........................27
SECTION 4.4 SEC Filings; Financial Statements............................................27
SECTION 4.5 Information Supplied.........................................................29
SECTION 4.6 Consents and Approvals; No Violations........................................29
SECTION 4.7 No Default...................................................................30
SECTION 4.8 No Undisclosed Liabilities; Absence of Changes...............................30
SECTION 4.9 No Litigation................................................................31
SECTION 4.10 Compliance with Applicable Law...............................................32
SECTION 4.11 Employee Benefits and ERISA..................................................32
SECTION 4.12 Environmental Laws and Regulations...........................................36
SECTION 4.13 Tax Matters..................................................................36
SECTION 4.14 Material Contracts...........................................................37
SECTION 4.15 Title to Properties; Encumbrances............................................38
SECTION 4.16 Intellectual Property........................................................38
SECTION 4.17 Year 2000....................................................................39
SECTION 4.18 Investment Securities........................................................39
SECTION 4.19 Ownership of THCG and Newco..................................................39
SECTION 4.20 Brokers......................................................................39
SECTION 4.21 Transactions with Affiliates.................................................40
SECTION 4.22 Books and Records............................................................40
SECTION 4.23 Disclosure...................................................................40
ARTICLE 5........................................................................................................41
SECTION 5.1 Conduct of Business of the Company...........................................41
SECTION 5.2 Conduct of Business of Walnut................................................43
SECTION 5.3 Preparation and Filing of Proxy Statement; Walnut Stockholders Meeting.......45
SECTION 5.4 Preparation and Filing of Form 8-F...........................................46
SECTION 5.5 SEC and Other Governmental Filings...........................................46
SECTION 5.6 Related Transactions.........................................................46
SECTION 5.7 Consulting Agreements........................................................48
SECTION 5.8 Employment Agreements........................................................48
SECTION 5.9 Voting Agreement.............................................................48
SECTION 5.10 .............................................................................48
SECTION 5.11 Investment Letters...........................................................48
SECTION 5.12 Press Releases...............................................................48
SECTION 5.13 Access to Information; Confidentiality.......................................49
SECTION 5.14 Non-Solicitation.............................................................49
SECTION 5.15 Commercially Reasonable Efforts; Further Action..............................50
SECTION 5.16 Indemnification and Insurance................................................51
SECTION 5.17 Notification of Certain Matters..............................................52
SECTION 5.18 Tax Treatment................................................................53
SECTION 5.19 State Takeover Laws..........................................................53
SECTION 5.20 THCG Options and Walnut Options..............................................53
SECTION 5.21 LLC Merger...................................................................54
SECTION 5.22 THCG Board of Directors......................................................54
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.23 Company Preferred Stock......................................................54
SECTION 5.24 Change of Name...............................................................54
SECTION 5.25 Walnut Securities............................................................55
SECTION 5.26 Softwatch Securities.........................................................55
ARTICLE 6 .......................................................................................................55
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Mergers.................55
SECTION 6.2 Conditions to the Obligations of the Company.................................56
SECTION 6.3 Conditions to the Obligations of Walnut......................................57
ARTICLE 7 .......................................................................................................59
SECTION 7.1 Termination..................................................................59
SECTION 7.2 Procedure for and Effect of Termination......................................60
SECTION 7.3 Amendment; Extension Waiver..................................................60
SECTION 7.4 Fees and Expenses............................................................60
ARTICLE 8 .......................................................................................................61
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements...................61
SECTION 8.2 Entire Agreement; Assignment.................................................61
SECTION 8.3 [Intentionally omitted.].....................................................61
SECTION 8.4 Notices......................................................................61
SECTION 8.5 Parties in Interest..........................................................62
SECTION 8.6 Severability.................................................................62
SECTION 8.7 Counterparts.................................................................62
SECTION 8.8 Interpretation...............................................................62
SECTION 8.9 Governing Law and Venue......................................................62
SECTION 8.10 Waiver of Jury Trial.........................................................63
SECTION 8.11 Certain Definitions..........................................................63
EXHIBITS
EXHIBIT A Consulting Agreement between Inland Financial Corporation and
Chicago Advisory Group
EXHIBIT B Consulting Agreement between THCG, Inc. and Windy City, Inc.
EXHIBIT C-1 Employment Agreement between THCG, Inc. and Joseph Mark
EXHIBIT C-2 Employment Agreement between THCG, Inc. and Shai Novik
EXHIBIT C-3 Employment Agreement between THCG, Inc. and Adi Ravir
EXHIBIT D Voting Agreement between Tower Hill Securities Inc., The Holding Company
and the Kanter Family Foundation
EXHIBIT E Investment Representation Letter*
EXHIBIT F Form of Opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg*
EXHIBIT G Form of Opinion of Kramer Levin Naftalis & Frankel LLP*
SCHEDULES
Disclosure Schedules of Tower Hill Securities, Inc.*
Disclosure Schedules of Walnut Financial Services, Inc.*
General Schedules
* Omitted from this Form 8-K. Copies will be furnished supplementally to the Commission upon request.
</TABLE>
<PAGE> 72
EXHIBIT A TO EXHIBIT 2.1
Inland Financial Corporation
9207 East Mission, Suite A
Spokane, Washington 99206
As of , 1999
Robert Mauer
Chicago Advisory Group
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Dear Mr. Mauer:
Inland Financial Corporation (the "Company") desires to engage
Chicago Advisory Group ("CAG") as a consultant, and CAG desires to be so engaged
by the Company, all subject to the terms and conditions set forth in this letter
agreement (this "Agreement").
Accordingly, in consideration of the mutual covenants hereinafter
set forth and intending to be legally bound, the Company and CAG hereby agree as
follows:
1. Engagement; Term. The Company hereby engages CAG, and CAG
hereby accepts such engagement and agrees to serve as a consultant to the
Company, upon the terms and conditions hereinafter set forth, for a term
commencing on , 1999 (the "Effective Date") and (unless sooner
terminated as hereinafter provided) expiring twelve months after the Effective
Date (such term being hereinafter referred to as the "Initial Term").
Thereafter, this Agreement shall automatically be extended for one or more
additional three-month periods unless CAG or the Company gives written notice,
no less than ninety (90) days prior to the end of the Initial Term, or, as
applicable, sixty (60) days prior to the end of any extension thereof, of CAG's
or the Company's election not to renew the Agreement. As used in this Agreement,
"Term" shall be defined as the Initial Term and, if applicable, any extension
thereof.
2. Duties; Conduct.
(a) During the Term, CAG shall make available to the Company
the services of Robert Mauer ("Mauer") who shall serve in the capacity of a
senior advisor to the Company; as such, CAG shall render consulting services
from time to time as hereinafter provided on such project or projects relating
to the business, affairs and management of the Company as may be reasonably
delegated to CAG by the Board of Directors, the Co-Chief
<PAGE> 73
Executive Officers, or, as applicable, Chief Executive Officer, or the Chief
Operating Officer of the Company or of THCG, Inc. ("THCG"). CAG agrees that it
shall use its best efforts to perform such services faithfully and diligently,
and to the best of its ability, and shall use its best efforts to cause Mauer to
use his best efforts to perform such services faithfully and diligently, and to
the best of his ability.
(b) To the extent practicable, the services to be provided by
CAG shall be performed at such times as are reasonably convenient to CAG. The
Company acknowledges that CAG and Mauer may have other activities, obligations
and engagements which may command its or his time and attention and the Company
will exercise its best efforts to respect such other commitments.
(c) The services to be provided hereunder may require travel.
Domestic travel shall be as reasonably required for the performance of the
duties hereunder; except as provided below, CAG shall not need prior approval
for any domestic travel required hereunder unless and until it incurs business
expenses in connection with such travel in the aggregate amount of $10,000 per
annum. Once such threshold has been exceeded, CAG shall obtain the consent of
THCG's Chief Operating Officer prior to incurring any additional domestic travel
expense. The parties agree that, subject to the prior two sentences, (i)
business class (as opposed to coach) and (ii) the costs of upgrade certificates
pursuant to frequent flier programs (not to exceed $100 per flight) shall be
deemed to be reasonable expenses. Foreign travel shall be as the Company and CAG
shall mutually agree.
3. Compensation and Expenses.
(a) Except as otherwise provided in Section 3(b), as full
compensation for all services to be provided by CAG hereunder during the Term,
the Company will pay CAG and CAG will accept consulting fees at an annual rate
of Fifty Thousand Dollars ($50,000). Such consulting fees will be paid monthly
in arrears.
(b) The Company will reimburse CAG for all reasonable travel,
business entertainment and other business expenses as may be incurred by it
during the Term in the performance of the duties and responsibilities assigned
to it under this Agreement. Such reimbursements shall be made by the Company on
a timely basis upon submission by CAG of proper accounts therefor in accordance
with the Company's standard procedures.
4. Termination.
(a) The Company may terminate the consulting engagement
hereunder and this Agreement at any time for Cause.
<PAGE> 74
For purposes of this Agreement, the term "Cause" shall mean any of the
following: (i) conviction of a felony by Mauer; (ii) perpetration of an
intentional and knowing fraud by CAG or Mauer against or adversely affecting the
Company, THCG or any of the Company's affiliates or any customer, client, agent,
or employee of any of the foregoing; (iii) any action or conduct by CAG or Mauer
in any manner which would reasonably be expected to harm the reputation or
goodwill of the Company, THCG or any of the Company's affiliates; (iv) willful
breach of a covenant set forth in Section 5 or 6 by CAG or Mauer; (v)
substantial failure of CAG to perform its duties hereunder; or (vi) subject to
Section 2(b) above and after taking into account Mauer's reasonable personal
commitments and vacation time, CAG's failure or inability to make Mauer
available to provide the services contemplated hereunder for any reason as
determined in good faith by the Board of Directors of the Company or of THCG;
provided, however, that a termination pursuant to clause (iii), (v) or (vi)
shall not become effective unless CAG fails to cure such action, conduct or
failure to perform within fifteen (15) days after written notice from the
Company, such notice to describe such action, conduct or failure to perform and
identify what reasonable actions shall be required to cure such action, conduct
or failure to perform, if such action, conduct or failure to perform is
susceptible of cure.
No act or failure to act on CAG's or Mauer's part shall be
considered "willful" under this Section 4(a) unless it is done, or omitted to be
done, by CAG or Mauer in bad faith or without reasonable belief that its or his
action or omission was in the best interests of the Company. Any act or failure
to act that is based upon authority given pursuant to a resolution duly adopted
by the Board of Directors of the Company or of THCG, or upon direction or
authority of the Co-Chief Executive Officers or, as applicable, Chief Executive
Officer of the Company or of THCG, or upon the advice of counsel for the Company
or THCG, shall be conclusively presumed to be done, or omitted to be done, by
CAG in good faith and in the best interests of the Company.
(b) The Term shall terminate forthwith upon a sale of all or
substantially all of the stock or assets of the Company or THCG.
(c) CAG may terminate the consulting engagement hereunder and
this Agreement at any time in the event of any material breach of this Agreement
by the Company; provided, however, that such termination shall not become
effective unless the Company fails to cure such breach within fifteen (15) days
after written notice from CAG, such notice to describe such breach and identify
what reasonable actions shall be required to cure such breach.
(d) In the event of a termination pursuant to any of Section
4(a), (b) or (c) above, CAG shall be entitled to, and
<PAGE> 75
the Company shall pay to CAG within thirty (30) days after any such termination,
any accrued but unpaid consulting fees to the date of termination and any
accrued but unpaid expenses required to be reimbursed pursuant to Section 3(b)
above. In the event of a termination pursuant to Section 4(c) above, CAG shall
be entitled to continued payment of the consulting fees pursuant to Section 3(a)
above until the expiration of the Term as if such termination had not occurred,
with such payments being in addition to the payments described in the previous
sentence.
5. Noncompetition and Nonsolicitation; Nondisclosure of
Proprietary Information; Surrender of Records.
5.1 Noncompetition and Nonsolicitation. In view of the unique
and valuable services it is expected CAG and Mauer will render to the Company,
CAG's and Mauer's knowledge of the customers, trade secrets, and other
proprietary information relating to the business of the Company, THCG and the
Company's affiliates and their customers and suppliers, and in consideration of
compensation to be received hereunder, CAG and Mauer each agrees that during the
consulting engagement hereunder it and he will not compete with or be engaged in
any business which, during the consulting engagement hereunder, is engaged in
the business of factoring or financing of receivables in the United States or
Canada, provided that the provisions of this Section will not be deemed breached
merely because CAG or Mauer owns less than 10% of the outstanding common stock
of a publicly-traded company or is a passive investor who owns less than 10% of
the outstanding common stock of a privately-held company.
In further consideration of the payment by the Company to CAG of
amounts that may hereafter be paid to CAG pursuant to this Agreement (including,
without limitation, pursuant to Section 3), CAG and Mauer each agrees that
during the Term and for a period of one year subsequent to any termination
hereunder, CAG and Mauer shall not (i) directly or indirectly solicit or attempt
to solicit any of the employees, agents, consultants or representatives of the
Company, THCG or the Company's affiliates to terminate his, her, or its
relationship with the Company, THCG or the Company's affiliates; or (ii)
directly or indirectly solicit or attempt to solicit any of the employees,
agents, consultants (other than Joel Kanter and/or Windy City, Inc.) or
representatives of the Company, THCG or the Company's affiliates to become
employees, agents, representatives or consultants of any other person or entity;
(iii) directly or indirectly solicit or attempt to solicit any customer of the
Company or Pacific Financial Services Corp. ("Pacific Financial") with respect
to any product or service being furnished, made, sold or leased by the Company
or Pacific Financial; or (iv) persuade or seek to persuade any customer of the
Company or Pacific Financial to cease to do business or to reduce the amount of
business which any customer has customarily done or contemplates doing with the
Company or Pacific Financial, whether or not the relationship
<PAGE> 76
between the Company or Pacific Financial and such customer was originally
established in whole or in part through CAG's or Mauer's efforts.
5.2 Proprietary Information. CAG and Mauer each acknowledges
that during the course of the consulting engagement hereunder CAG and Mauer will
necessarily have access to and make use of proprietary information and
confidential records of the Company, THCG and the Company's affiliates. CAG and
Mauer each covenants that it and he shall not during the Term or at any time
thereafter, directly or indirectly, use for its or his own purpose or for the
benefit of any person or entity other than the Company, nor otherwise disclose,
any such proprietary information to any individual or entity, unless such
disclosure has been authorized in writing by the Company or is otherwise
required by law.
For purposes of this Section 5, "proprietary information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a breach of this Agreement by CAG or Mauer;
(ii) was within CAG's or Mauer's possession or knowledge prior to its being
furnished to the Company, provided that the information was not obtained in
connection with the consulting engagement hereunder or Mauer's prior employment
by Walnut Financial Services, Inc.; (iii) is independently developed by CAG or
Mauer other than in connection with the consulting engagement hereunder; or (iv)
is obtained by CAG or Mauer in its or his capacity as an investor in THCG or
THCG's (or its subsidiaries') portfolio companies and not in connection with the
performance of the duties hereunder, provided that information obtained by CAG
or Mauer under circumstances under which it or he has any obligation to keep
such information confidential shall be "proprietary information" to the extent
of such obligation.
5.3 Confidentiality and Surrender of Records. CAG and Mauer
each agrees that it or he shall not during the Term or at any time thereafter
(irrespective of the circumstances under which the consulting engagement
terminates), except as required by law, directly or indirectly publish, make
known or in any fashion disclose any confidential records to, or permit any
inspection or copying of confidential records by, any individual or entity other
than in the course of such individual's or entity's employment or retention by
the Company, nor shall CAG or Mauer retain, and will deliver promptly to the
Company, any of the same following termination of the consulting engagement
hereunder for any reason or upon request by the Company. For purposes hereof,
"confidential records" means all correspondence, memoranda, files, manuals,
books, lists, financial, operating or marketing records, magnetic tape or
electronic or other media or equipment of any kind which may be in CAG's or
Mauer's possession or under its or his control or accessible to it or him which
contain any proprietary information of the Company, THCG or the
<PAGE> 77
Company's affiliates. All confidential records shall be and remain the sole
property of the Company, or, as applicable, THCG or the Company's affiliates
during the Term and thereafter.
5.4 Enforcement. CAG and Mauer each agrees that the remedy at
law for any breach or threatened breach of any covenant contained in this
Section 5 would be inadequate and that the Company, in addition to such other
remedies as may be available to it at law or in equity, shall be entitled to
institute proceedings in any court or courts of competent jurisdiction to obtain
damages for breach of this Section 5 and injunctive relief.
6. No Conflict. CAG covenants that neither it nor Mauer is now,
and shall not become, party to or subject to any agreement, contract,
understanding or covenant, or under any obligation, contractual or otherwise, in
any way restricting or adversely affecting its or his ability to act for the
Company in all of the respects contemplated hereby.
7. Cooperation. CAG shall cooperate fully with the Company in
the prosecution or defense, as the case may be, of any and all actions,
governmental inquiries or other legal proceedings in which CAG's or Mauer's
assistance may be requested by the Company. Such cooperation shall include,
among other things, making documents relating to the Company, THCG or the
Company's affiliates or any of their respective businesses in CAG's or Mauer's
custody or control available to the Company or its counsel, making Mauer
available for interviews by the Company or its counsel, and making Mauer
available to appear as a witness, at deposition, trial or otherwise. Any
reasonable vouchered out-of-pocket expenses incurred by CAG in fulfilling its
obligations under this Section 7 shall be promptly reimbursed by the Company.
The provisions of this Section 7 shall survive the
termination or expiration of this Agreement and the Term; provided, however,
that CAG's obligations under this Section 7 subsequent to the expiration of this
Agreement and the Term shall be on terms to be negotiated between CAG and the
Board of Directors of the Company or of THCG in good faith.
8. Notices. Any notice, consent, request or other communication
made or given in accordance with this Agreement shall be in writing either (i)
by personal delivery to the party entitled thereto, (ii) by facsimile with
confirmation of receipt, or (iii) by registered or certified mail, return
receipt requested. The notice, consent, request or other communication shall be
deemed to have been received upon personal delivery, upon confirmation of
receipt of facsimile transmission, or, if mailed, three days after mailing. Any
notice, consent, request or other communication made or given in accordance with
this Agreement shall be made to those listed below at their following
<PAGE> 78
respective addresses or at such other address as each may specify by notice to
the others:
To the Company:
Inland Financial Corporation
c/o THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: [(212) 223-0161]
With a copy to:
Peter S. Kolevzon, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Facsimile No.: (212) 715-8000
To Chicago Advisory Group:
Chicago Advisory Group
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Attention: Robert Mauer
Facsimile No.:
9. Miscellaneous.
(a) The failure of either party at any time to
require performance by the other party of any provision hereunder will in no way
affect the right of that party thereafter to enforce the same, nor will it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor will the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any prior or
subsequent breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for
the provision of unique services by Mauer, and CAG's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by CAG
or Mauer. The rights and obligations of the Company hereunder will be binding
upon and run in favor of the successors and assigns of the Company, but no
assignment by the Company shall release the Company from its obligations
hereunder, and the Company shall not assign this Agreement to any entity outside
of the Company.
(c) Each of the covenants and agreements set forth in
this Agreement are separate and independent covenants,
<PAGE> 79
each of which has been separately bargained for and the parties hereto intend
that the provisions of each such covenant shall be enforced to the fullest
extent permissible. Should the whole or any part or provision of any such
separate covenant be held or declared invalid, such invalidity shall not in any
way affect the validity of any other such covenant or of any part or provision
of the same covenant not also held or declared invalid. If any covenant shall be
found to be invalid but would be valid if some part thereof were deleted or the
period or area of application reduced, then such covenant shall apply with such
minimum modification as may be necessary to make it valid and effective.
(d) This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be wholly performed within that State, without regard to the principles
of conflicts of law.
(e) This Agreement sets forth the entire
understanding between the parties as to the subject matter of this Agreement and
merges and supersedes all prior agreements, commitments, representations,
writings and discussions between the parties with respect to that subject
matter. This Agreement may be terminated, altered, modified or changed only by a
written instrument signed by both parties hereto.
(f) The Section headings contained herein are for
purposes of convenience only and are not intended to define or list the contents
of the Sections.
(g) The provisions of this Agreement which by their
terms call for performance subsequent to termination of the Term, or of this
Agreement, shall so survive such termination.
(h) In rendering the services to be rendered by CAG
hereunder, CAG shall be an independent contractor. Neither CAG nor Mauer shall
be considered as having an employee status or being entitled to participate in
any employee plans, arrangements or distributions by the Company. Neither CAG
nor Mauer shall act as an agent of the Company and neither shall be entitled to
enter into any agreements, incur any obligations on behalf of the Company, or be
authorized to bind the Company in any manner whatsoever, and neither shall refer
to the Company as a customer in any manner or format without the prior written
consent of the Company. No form of joint venture, partnership or similar
relationship between the parties is intended or hereby created.
As an independent contractor, CAG shall be solely
responsible for determining the means and methods for performing the
professional and/or technical services described herein, and CAG shall have
complete charge and responsibility for Mauer. All of CAG's activities will be at
its own risk and CAG is hereby given notice of its responsibility for
arrangements to guard against physical, financial, and other risks, as
appropriate.
<PAGE> 80
Except as otherwise required by law, the Company
shall not withhold any sums from the payments to be made for Social Security or
other federal, state or local tax liabilities or contributions, and all
withholding, liabilities, and contributions shall be solely CAG's
responsibility.
Please confirm CAG's agreement with the foregoing by signing
and returning the enclosed copy of this letter, following which this will be a
legally binding agreement between us as of the date first written above.
Very truly yours,
Inland Financial Corporation
By:
------------------------------------
Name:
Title:
Accepted and Agreed:
Chicago Advisory Group
By:
------------------------------------
Name:
Title:
Robert Mauer hereby accepts, and agrees to abide by, the
terms of Section 5 of the Agreement.
---------------------------------------
Robert Mauer
<PAGE> 81
EXHIBIT B TO EXHIBIT 2.1
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
As of , 1999
Joel Kanter
Windy City, Inc.
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Dear Mr. Kanter:
THCG, Inc. (the "Company") desires to engage Windy City, Inc. ("Windy
City") as a consultant, and Windy City desires to be so engaged by the Company,
all subject to the terms and conditions set forth in this letter agreement (this
"Agreement").
Accordingly, in consideration of the mutual covenants hereinafter set
forth and intending to be legally bound, the Company and Windy City hereby agree
as follows:
1. Engagement; Term. The Company hereby engages Windy City, and Windy
City hereby accepts such engagement and agrees to serve as a consultant to the
Company, upon the terms and conditions hereinafter set forth, for a term
commencing on , 1999 (the "Effective Date") and (unless sooner
terminated as hereinafter provided) expiring twelve months after the Effective
Date (such term being hereinafter referred to as the "Initial Term").
Thereafter, this Agreement shall automatically be extended for one or more
additional three-month periods unless Windy City or the Company gives written
notice, no less than ninety (90) days prior to the end of the Initial Term, or,
as applicable, sixty (60) days prior to the end of any extension thereof, of
Windy City's or the Company's election not to renew the Agreement. As used in
this Agreement, "Term" shall be defined as the Initial Term and, if applicable,
any extension thereof.
2. Duties; Conduct.
(a) During the Term, Windy City shall make available to the
Company the services of Joel Kanter ("Kanter") who shall serve in the capacity
of a senior advisor to the Company; as such, Windy City shall render consulting
services from time to time as hereinafter provided on such project or projects
relating to the business, affairs and management of the Company as may be
reasonably delegated to Windy City by the Board of Directors of the Company
("Board of Directors"), the Company's
<PAGE> 82
Co-Chief Executive Officers or, as applicable, the Company's Chief Executive
Officer. Windy City agrees that it shall use its best efforts to perform such
services faithfully and diligently, and to the best of its ability, and shall
use its best efforts to cause Kanter to use his best efforts to perform such
services faithfully and diligently, and to the best of his ability.
(b) To the extent practicable, the services to be provided by
Windy City shall be performed at such times as are reasonably convenient to
Windy City. The Company acknowledges that Windy City and Kanter may have other
activities, obligations and engagements which may command its or his time and
attention and the Company will exercise its best efforts to respect such other
commitments.
(c) The services to be provided hereunder may require travel.
Domestic travel shall be as reasonably required for the performance of the
duties hereunder; except as provided below, Windy City shall not need prior
approval for any domestic travel required hereunder unless and until it incurs
business expenses in connection with such travel in the aggregate amount of
$10,000 per annum. Once such threshold has been exceeded, Windy City shall
obtain the consent of the Company's Chief Operating Officer prior to incurring
any additional domestic travel expense. The parties agree that, subject to the
prior two sentences, (i) business class (as opposed to coach) and (ii) the costs
of upgrade certificates pursuant to frequent flier programs (not to exceed $100
per flight) shall be deemed to be reasonable expenses. Foreign travel shall be
as the Company and Windy City shall mutually agree.
3. Compensation and Expenses.
(a) Except as otherwise provided in Section 3(b), as full
compensation for all services to be provided by Windy City hereunder during the
Term, the Company will pay Windy City and Windy City will accept consulting fees
at an annual rate of One Hundred Thousand Dollars ($100,000). Such consulting
fees will be paid monthly in arrears.
(b) The Company will reimburse Windy City for all reasonable
travel, business entertainment and other business expenses as may be incurred by
it during the Term in the performance of the duties and responsibilities
assigned to it under this Agreement. Such reimbursements shall be made by the
Company on a timely basis upon submission by Windy City of proper accounts
therefor in accordance with the Company's standard procedures.
4. Termination.
(a) The Company may terminate the consulting engagement
hereunder and this Agreement at any time for Cause.
<PAGE> 83
For purposes of this Agreement, the term "Cause" shall mean any of the
following: (i) conviction of a felony by Kanter; (ii) perpetration of an
intentional and knowing fraud by Windy City or Kanter against or adversely
affecting the Company or any customer, client, agent, or employee thereof; (iii)
any action or conduct by Windy City or Kanter in any manner which would
reasonably be expected to harm the reputation or goodwill of the Company; (iv)
willful breach of a covenant set forth in Section 5 or 6 by Windy City or
Kanter; (v) substantial failure of Windy City to perform its duties hereunder;
or (vi) subject to Section 2(b) above and after taking into account Kanter's
reasonable personal commitments and vacation time, Windy City's failure or
inability to make Kanter available to provide the services contemplated
hereunder for any reason as determined in good faith by the Company's Board of
Directors; provided, however, that a termination pursuant to clause (iii), (v)
or (vi) shall not become effective unless Windy City fails to cure such action,
conduct or failure to perform within fifteen (15) days after written notice from
the Company, such notice to describe such action, conduct or failure to perform
and identify what reasonable actions shall be required to cure such action,
conduct or failure to perform, if such action, conduct or failure to perform is
susceptible of cure.
No act or failure to act on Windy City's or Kanter's part shall be
considered "willful" under this Section 4(a) unless it is done, or omitted to be
done, by Windy City or Kanter in bad faith or without reasonable belief that its
or his action or omission was in the best interests of the Company. Any act or
failure to act that is based upon authority given pursuant to a resolution duly
adopted by the Board of Directors, or upon direction or authority of the
Company's Co-Chief Executive Officers or, as applicable, the Company's Chief
Executive Officer, or upon the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by Windy City in good
faith and in the best interests of the Company.
(b) The Term shall terminate forthwith upon a sale of all or
substantially all of the assets of the Company.
(c) Windy City may terminate the consulting engagement hereunder
and this Agreement at any time in the event of any material breach of this
Agreement by the Company; provided, however, that such termination shall not
become effective unless the Company fails to cure such breach within fifteen
(15) days after written notice from Windy City, such notice to describe such
breach and identify what reasonable actions shall be required to cure such
breach.
(d) In the event of a termination pursuant to any of Section 4(a),
(b) or (c) above, Windy City shall be entitled to, and the Company shall pay to
Windy City within thirty (30) days after any such termination, any accrued but
unpaid
<PAGE> 84
consulting fees to the date of termination and any accrued but unpaid expenses
required to be reimbursed pursuant to Section 3(b) above. In the event of a
termination pursuant to any of Section 4(b) or (c) above, Windy City shall be
entitled to continued payment of the consulting fees pursuant to Section 3(a)
above until the expiration of the Term as if such termination had not occurred,
with such payments being in addition to the payments described in the previous
sentence.
5. Nonsolicitation; Nondisclosure of Proprietary Information; Surrender
of Records.
5.1 Nonsolicitation. In view of the unique and valuable services
it is expected Windy City and Kanter will render to the Company, Windy City's
and Kanter's knowledge of the customers, trade secrets, and other proprietary
information relating to the business of the Company and the Company's
subsidiaries and their customers and suppliers, and in consideration of
compensation to be received hereunder, Windy City and Kanter each agrees that
during the Term and for a period of one year subsequent to any termination
hereunder, Windy City and Kanter shall not (i) directly or indirectly solicit or
attempt to solicit any of the employees, agents, consultants or representatives
of the Company or the Company's subsidiaries to terminate his, her, or its
relationship with the Company or the Company's subsidiaries; or (ii) directly or
indirectly solicit or attempt to solicit any of the employees, agents,
consultants (other than Robert Mauer and/or Chicago Advisory Group) or
representatives of the Company or the Company's subsidiaries to become
employees, agents, representatives or consultants of any other person or entity.
5.2 Proprietary Information. Windy City and Kanter each
acknowledges that during the course of the consulting engagement hereunder Windy
City and Kanter will necessarily have access to and make use of proprietary
information and confidential records of the Company and the Company's
subsidiaries. Windy City and Kanter each covenants that it and he shall not
during the Term or at any time thereafter, directly or indirectly, use for its
or his own purpose or for the benefit of any person or entity other than the
Company, nor otherwise disclose, any such proprietary information to any
individual or entity, unless such disclosure has been authorized in writing by
the Company or is otherwise required by law.
For purposes of this Section 5, "proprietary information" shall
not include information which (i) is or becomes generally available to the
public other than as a result of a breach of this Agreement by Windy City or
Kanter; (ii) was within Windy City's or Kanter's possession or knowledge prior
to its being furnished to the Company, provided that the information was not
obtained in connection with the consulting engagement hereunder or Kanter's
prior employment by Walnut Financial
<PAGE> 85
Services, Inc.; (iii) is independently developed by Windy City or Kanter other
than in connection with the consulting engagement hereunder; or (iv) is obtained
by Windy City or Kanter in its or his capacity as an investor in the Company or
the Company's (or its subsidiaries') portfolio companies and not in connection
with the performance of the duties hereunder, provided that information obtained
by Windy City or Kanter under circumstances under which it or he has any
obligation to keep such information confidential shall be "proprietary
information" to the extent of such obligation.
5.3 Confidentiality and Surrender of Records. Windy City and
Kanter each agrees that it or he shall not during the Term or at any time
thereafter (irrespective of the circumstances under which the consulting
engagement terminates), except as required by law, directly or indirectly
publish, make known or in any fashion disclose any confidential records to, or
permit any inspection or copying of confidential records by, any individual or
entity other than in the course of such individual's or entity's employment or
retention by the Company, nor shall Windy City or Kanter retain, and will
deliver promptly to the Company, any of the same following termination of the
consulting engagement hereunder for any reason or upon request by the Company.
For purposes hereof, "confidential records" means all correspondence, memoranda,
files, manuals, books, lists, financial, operating or marketing records,
magnetic tape or electronic or other media or equipment of any kind which may be
in Windy City's or Kanter's possession or under its or his control or accessible
to it or him which contain any proprietary information of the Company or the
Company's subsidiaries. All confidential records shall be and remain the sole
property of the Company, or, as applicable, the Company's subsidiaries during
the Term and thereafter.
5.4 Enforcement. Windy City and Kanter each agrees that the
remedy at law for any breach or threatened breach of any covenant contained in
this Section 5 would be inadequate and that the Company, in addition to such
other remedies as may be available to it at law or in equity, shall be entitled
to institute proceedings in any court or courts of competent jurisdiction to
obtain damages for breach of this Section 5 and injunctive relief.
6. No Conflict. Windy City covenants that neither it nor Kanter is now,
and shall not become, party to or subject to any agreement, contract,
understanding or covenant, or under any obligation, contractual or otherwise, in
any way restricting or adversely affecting its or his ability to act for the
Company in all of the respects contemplated hereby.
7. Cooperation. Windy City shall cooperate fully with the Company in
the prosecution or defense, as the case may be, of any and all actions,
governmental inquiries or other legal
<PAGE> 86
proceedings in which Windy City's or Kanter's assistance may be requested by the
Company. Such cooperation shall include, among other things, making documents
relating to the Company or its subsidiaries or any of their respective
businesses in Windy City's or Kanter's custody or control available to the
Company or its counsel, making Kanter available for interviews by the Company or
its counsel, and making Kanter available to appear as a witness, at deposition,
trial or otherwise. Any reasonable vouchered out-of-pocket expenses incurred by
Windy City in fulfilling its obligations under this Section 7 shall be promptly
reimbursed by the Company.
The provisions of this Section 7 shall survive the termination or
expiration of this Agreement and the Term; provided, however, that Windy City's
obligations under this Section 7 subsequent to the expiration of this Agreement
and the Term shall be on terms to be negotiated between Windy City and the
Company's Board of Directors in good faith.
8. Notices. Any notice, consent, request or other communication made or
given in accordance with this Agreement shall be in writing either (i) by
personal delivery to the party entitled thereto, (ii) by facsimile with
confirmation of receipt, or (iii) by registered or certified mail, return
receipt requested. The notice, consent, request or other communication shall be
deemed to have been received upon personal delivery, upon confirmation of
receipt of facsimile transmission, or, if mailed, three days after mailing. Any
notice, consent, request or other communication made or given in accordance with
this Agreement shall be made to those listed below at their following respective
addresses or at such other address as each may specify by notice to the others:
To the Company:
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: [(212) 223-0161]
With a copy to:
Peter S. Kolevzon, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Facsimile No.: (212) 715-8000
To Windy City:
Windy City, Inc.
8000 Towers Crescent Drive
<PAGE> 87
Suite 1070
Vienna, Virginia 22182
Attention: Joel Kanter
Facsimile No.: (703) 448-7751
9. Miscellaneous.
(a) The failure of either party at any time to require
performance by the other party of any provision hereunder will in no way affect
the right of that party thereafter to enforce the same, nor will it affect any
other party's right to enforce the same, or to enforce any of the other
provisions in this Agreement; nor will the waiver by either party of the breach
of any provision hereof be taken or held to be a waiver of any prior or
subsequent breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for the
provision of unique services by Kanter, and Windy City's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by
Windy City or Kanter. The rights and obligations of the Company hereunder will
be binding upon and run in favor of the successors and assigns of the Company,
but no assignment by the Company shall release the Company from its obligations
hereunder, and the Company shall not assign this Agreement to any entity outside
of the Company.
(c) Each of the covenants and agreements set forth in this
Agreement are separate and independent covenants, each of which has been
separately bargained for and the parties hereto intend that the provisions of
each such covenant shall be enforced to the fullest extent permissible. Should
the whole or any part or provision of any such separate covenant be held or
declared invalid, such invalidity shall not in any way affect the validity of
any other such covenant or of any part or provision of the same covenant not
also held or declared invalid. If any covenant shall be found to be invalid but
would be valid if some part thereof were deleted or the period or area of
application reduced, then such covenant shall apply with such minimum
modification as may be necessary to make it valid and effective.
(d) This Agreement shall be governed and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
wholly performed within that State, without regard to the principles of
conflicts of law.
(e) This Agreement sets forth the entire understanding between
the parties as to the subject matter of this Agreement and merges and supersedes
all prior agreements, commitments, representations, writings and discussions
between the parties with respect to that subject matter. This Agreement may be
terminated, altered, modified or changed only by a written instrument signed by
both parties hereto.
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(f) The Section headings contained herein are for purposes of
convenience only and are not intended to define or list the contents of the
Sections.
(g) The provisions of this Agreement which by their terms call
for performance subsequent to termination of the Term, or of this Agreement,
shall so survive such termination.
(h) In rendering the services to be rendered by Windy City
hereunder, Windy City shall be an independent contractor. Neither Windy City nor
Kanter shall be considered as having an employee status or being entitled to
participate in any employee plans, arrangements or distributions by the Company.
Neither Windy City nor Kanter shall act as an agent of the Company and neither
shall be entitled to enter into any agreements, incur any obligations on behalf
of the Company, or be authorized to bind the Company in any manner whatsoever,
and neither shall refer to the Company as a customer in any manner or format
without the prior written consent of the Company. No form of joint venture,
partnership or similar relationship between the parties is intended or hereby
created.
As an independent contractor, Windy City shall be solely
responsible for determining the means and methods for performing the
professional and/or technical services described herein, and Windy City shall
have complete charge and responsibility for Kanter. All of Windy City's
activities will be at its own risk and Windy City is hereby given notice of its
responsibility for arrangements to guard against physical, financial, and other
risks, as appropriate.
Except as otherwise required by law, the Company shall not
withhold any sums from the payments to be made for Social Security or other
federal, state or local tax liabilities or contributions, and all withholding,
liabilities, and contributions shall be solely Windy City's responsibility.
<PAGE> 89
Please confirm Windy City's agreement with the foregoing by
signing and returning the enclosed copy of this letter, following which this
will be a legally binding agreement between us as of the date first written
above.
Very truly yours,
THCG, Inc.
By:
---------------------------
Name:
Title:
Accepted and Agreed:
Windy City, Inc.
By:
-------------------------
Name:
Title:
Joel Kanter hereby accepts, and agrees to abide by, the terms of
Section 5 of the Agreement.
---------------------------------
Joel Kanter
<PAGE> 90
EXHIBIT C-1 TO EXHIBIT 2.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
, 1999 (the "Effective Date"), by and between THCG, INC., a Delaware
corporation (the "Company") and JOSEPH MARK (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment in the capacities and on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment; Term.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts employment by the Company, in accordance with and subject to the
terms and conditions set forth herein.
(b) The term of this Agreement shall commence on the Effective
Date and, unless earlier terminated in accordance with Paragraph 5 hereof, shall
terminate on the fifth anniversary of the Effective Date (the "Initial Term").
Thereafter, this Agreement shall automatically be extended for one or more
additional annual periods unless the Executive or the Company gives written
notice, no less than ninety (90) days prior to the end of the Initial Term or
any extension thereof (together, the "Term"), of his or its election not to
renew this Agreement.
2. Duties.
(a) During the Term, the Executive shall serve as the Co-Chief
Executive Officer of the Company and shall report to the Board of Directors of
the Company (the "Board of Directors").
(b) The Executive shall have such authority and responsibility as
is customary for such position or positions in businesses comparable in size and
function, and such other responsibilities as may reasonably be assigned by the
Board of Directors.
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(c) During the period the Executive is employed by the Company,
the Executive shall devote his full business time and best efforts to the
business and affairs of the Company; provided, however, the Executive may engage
in outside business activities with the consent of the Board of Directors. It
shall not be considered a violation of the foregoing for the Executive to serve
on corporate, industry, civic or charitable boards or committees, so long as
such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(d) The Executive's services shall be performed primarily at the
Company's principal place of business, located in New York, New York. The
Executive recognizes that his duties will require from time-to-time and at the
Company's expense, travel to domestic and international locations.
3. Compensation.
(a) The Company shall pay the Executive a base salary (the "Base
Salary") of not less than $200,000 per annum, or such greater sum as may from
time to time be fixed by the Compensation Committee of the Board of Directors,
provided that any such greater sum shall become the minimum rate of compensation
for so long as the Executive shall be employed by the Company. Payments of Base
Salary to the Executive shall be made in equal semi-monthly installments and
subject to all legally required and customary withholdings.
(b) The Executive shall be entitled to bonus compensation (the
"Bonus Compensation") as reasonably determined in good faith by the Compensation
Committee of the Board of Directors.
(c) The Executive shall receive an option to purchase 450,000
shares of the common stock of the Company, in accordance with and subject to the
provisions of The 1999 THCG, Inc. Stock Incentive Plan and the grant thereunder.
4. Benefits.
(a) The Company agrees to reimburse the Executive for all
reasonable travel, business entertainment and other business expenses incurred
by the Executive in connection with the performance of his duties under this
Agreement. Such reimbursements shall be made by the Company on a timely basis
upon submission by the Executive of proper accounts therefor in accordance with
the Company's standard procedures.
(b) The Executive shall be entitled to
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participate in any and all medical insurance, group health, disability
insurance, life insurance and other benefit plans and programs which are made
generally available by the Company to its most senior executives. If the
Executive elects to participate in any such benefit plan and/or program, the
Company agrees to pay the premiums for the coverage elected by the Executive.
(c) The Executive shall be entitled to participate fully in the
Company's group pension, profit-sharing and employee benefit programs now or
hereafter made available to employees of the Company generally.
(d) The Company shall pay the premiums on an ordinary life
insurance policy on the Executive's behalf in the principal amount of
$2,000,000.
(e) The Executive shall not be limited to the general vacation
policy and program of the Company as a whole, but, in view of his position and
stature with the Company, shall be entitled to such vacation time as may be
reasonably appropriate to the Company and its clients, and the proper
performance of his duties and responsibilities.
(f) The Company shall lease or purchase an automobile of make and
model as the Executive shall specify for the sole use of the Executive;
provided, however, that the Executive may, at his own option, lease an
automobile in his own name and at Company expense. The Executive shall cause the
vehicle to be properly insured and maintained. The Company shall pay or
reimburse the Executive for all purchase or lease costs, parking costs, toll
fees, costs of insurance, routine maintenance, service and repair of the
vehicle, provided that the Company's obligation pursuant to this Paragraph 4(f)
shall not exceed $1,000 per month. At the expiration of this Agreement, the
Company shall, if requested by the Executive, exercise its purchase option under
any lease agreement and grant the Executive an option to purchase the vehicle
upon the same terms and conditions offered to the Company by the leasing
company.
(g) The Company shall pay for the Executive's use of computers,
e-mail, facsimile, access to Internet and cellular phones for both the
Executive's office use and for use in his home for business purposes.
(h) The Company agrees to reimburse the Executive for personal tax
preparation and financial planning assistance in a total amount not to exceed
$5,000 per year.
(i) The Executive shall be indemnified by the Company to the
greatest extent permitted under Delaware law.
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(j) The Executive shall be entitled to use the Company's season
tickets to New York Knicks basketball games. In the event that the Executive's
employment is terminated for any reason, the Company shall use its best efforts
to have the tickets transferred into the Executive's name for his sole ownership
and use; provided, however, that any expenses paid by the Company with respect
to games not played in the current basketball season shall be reimbursed by the
Executive. In the event that the Company is unable to make such transfer, the
Executive shall be entitled to the use of these tickets; provided, however, the
Executive shall reimburse the Company for the cost of such tickets.
(k) The Executive shall be entitled to any other benefits or
perquisites on terms no less favorable than those pursuant to which such
benefits or perquisites are made available to any other executive or employee of
the Company.
5. Termination.
(a) Death. The Executive's employment hereunder shall terminate
upon the Executive's death.
(b) Total Disability. The Company may terminate the Executive's
employment hereunder at any time after the Executive becomes "Totally Disabled."
For purposes of this Agreement, "Totally Disabled" means that the Executive has
been unable, for a period of one hundred eighty (180) consecutive business days,
to perform the Executive's duties under this Agreement, as a result of physical
or mental illness or injury. A termination of the Executive's employment by the
Company for Total Disability shall be communicated to the Executive by written
notice, and shall be effective on the 30th day after receipt of such notice by
the Executive (the "Total Disability Effective Date"), unless the Executive
returns to full-time performance of the Executive's duties before the Total
Disability Effective Date.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause. For purposes of this
Agreement, the term "Cause" shall mean any of the following: (i) conviction of a
felony; (ii) perpetration of an intentional and knowing fraud against or
adversely affecting the Company or any customer, client, agent, or employee
thereof; (iii) willful breach of a covenant set forth in Paragraph 7; or (iv)
willful and substantial failure of the Executive to perform his duties hereunder
(other than as a result of total or partial incapacity due to physical or mental
illness or injury); provided, however, that a termination pursuant to clause
(iv) shall not become effective unless the Executive fails to cure such failure
to perform within thirty (30) days after
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<PAGE> 94
written notice from the Company, such notice to describe such failure to perform
and identify what reasonable actions shall be required to cure such failure to
perform.
No act or failure to act on the part of the Executive shall be
considered "willful" under this Paragraph 5(c) unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any act
or failure to act that is based upon authority given pursuant to a resolution
duly adopted by the Board of Directors or upon the advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company.
(d) Termination by the Company Without Cause. The Company may
terminate the Executive's employment hereunder at any time for any reason or no
reason by giving the Executive thirty (30) days prior written notice of the
termination.
(e) Termination by the Executive For Good Reason.
(1) The Executive may terminate his employment hereunder for
"Good Reason" for (i) a Change in Control of the Company; (ii) the assignment to
the Executive of any duties inconsistent in any respect with Paragraph 2, or any
other action by the Company that results in a diminution in the Executive's
position, authority, duties or responsibilities; (iii) any failure by the
Company to comply with Paragraph 3 or 4, other than an isolated, insubstantial
and inadvertent failure that is not taken in bad faith and is remedied by the
Company promptly after receipt of notice thereof from the Executive; (iv) a
change in the Executive's location of employment to a place of employment
outside the New York Metropolitan Area; (v) any purported termination of the
Executive's employment by the Company for a reason or in a manner not expressly
permitted by this Agreement; (vi) any failure by the Company to comply with
Paragraph 10(c) of this Agreement; or (vii) any other substantial breach of this
Agreement by the Company.
(2) "Change in Control of the Company" shall be conclusively
deemed to have occurred if any of the following shall have taken place:
i. a change in control of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934
("Exchange Act") shall have occurred, unless such change in
control results in control by the Executive, his designee(s) or
"affiliate(s)" (as
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defined in Rule 12b-2 under the Exchange Act) or any combination
thereof;
ii. any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than the Executive, his designee(s) or
"affiliate(s)" (as defined in Rule 12b-2 under the Exchange Act),
or any "person" who was a shareholder as of the Effective Date or
any combination thereof, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the
Company's then outstanding securities;
iii. during any period of two (2) consecutive years during this
Agreement, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election of each director who was not
a director at the beginning of such period has been approved in
advance by directors representing at least a majority of the
directors then in office who were directors at the beginning of
the period;
iv. the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, 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 by being converted
into voting securities of the surviving entity) more than 80% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger
or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities shall not
constitute a Change in Control of the Company; or
v. the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of, or the Company sells or disposes
of,
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all or substantially all of the Company's assets.
(3) If an event should occur that would allow the Executive to
terminate his employment hereunder for Good Reason, the Executive shall have a
period of one year from the date on which the Executive first becomes aware of
such event in which to elect to terminate his employment for Good Reason. If the
Executive elects to terminate his employment for Good Reason, he shall provide
the Company with a written notice.
(f) Termination by the Executive Without Good Reason. The
Executive may terminate his employment hereunder for any reason or no reason by
giving the Company sixty (60) days prior written notice of the termination.
6. Compensation Following Termination Prior to the End of the Term.
In the event that the Employee's employment hereunder is terminated prior to the
end of the Term, the Executive shall be entitled to the following compensation
and benefits upon such termination:
(a) Termination by Reason of Death or Total Disability. In the
event that the Executive's employment is terminated prior to the expiration of
the Term by reason of the Executive's death or Total Disability pursuant to
Paragraph 5(a) or 5(b), the Company shall pay the following amounts to the
Executive (or the Executive's estate, as the case may be):
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. A prorated amount of Bonus Compensation, to be paid at the time
the Executive's Bonus Compensation would have been paid had he
remained employed by the Company, computed by multiplying the
amount of Bonus Compensation the Executive would have earned for
the year in which the termination occurred and the fraction of the
year the Executive was employed by the Company;
iii. Any accrued but unpaid expenses required to be reimbursed pursuant
to Paragraph 4; and
iv. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled upon termination
pursuant to the plans and programs referred to in Paragraph 4 and the
plan and grant thereunder referred to in Paragraph 3(c) hereof shall be
determined and paid in accordance with the terms of
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such plans, programs and grant, except that the Company shall, with
respect to any major medical and all other health, accident, or
disability plans for which the Executive, or his spouse or legal
representative, elects continuation in accordance with COBRA, be
responsible for payment of premiums related to the maintenance of such
plans for a period of six (6) months following the date of termination.
(b) Termination by the Company for Cause; Termination by the
Executive Without Good Reason. In the event that the Executive's employment is
terminated by the Company for Cause pursuant to Paragraph 5(c) or by the
Executive without Good Reason pursuant to Paragraph 5(f), the Company shall pay
the following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. Any accrued but unpaid expenses required to be reimbursed pursuant
to Paragraph 4; and
iii. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled upon termination
pursuant to the plans and programs referred to in Paragraph 4 and the
plan and grant thereunder referred to in Paragraph 3(c) hereof shall be
determined in accordance with the terms of such plans, programs and
grant.
(c) Termination by the Company Without Cause; Termination by the
Executive For Good Reason. In the Event that the Executive's employment is
terminated by the Company without Cause pursuant to Paragraph 5(d) or by the
Executive for Good Reason pursuant to Paragraph 5(e), the Company shall pay the
following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. Such bonus as may reasonably be determined by the Company based
upon the Executive's performance through the date of termination;
iii. Any accrued but unpaid expenses required to be reimbursed pursuant
to Paragraph 4;
iv. Any vacation accrued to the date of termination;
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and
v. Continued payment of the Base Salary (as determined under
Paragraph 3) until the earlier of (a) thirty-six (36) months after
the date of termination, or (b) the expiration of the Term. Such
payments shall be made in accordance with the Company's standard
payroll practices then in effect.
The Company shall continue to provide the Executive with the benefits
set forth in Paragraph 4 as if he had remained employed by the Company
pursuant to this Agreement through the earlier of (a) thirty-six (36)
months after the date of termination, or (b) the end of the Term;
provided that to the extent any benefits described in Paragraph 4
cannot be provided pursuant to the plan or program maintained by the
Company for its employees and/or executives, the Company shall provide
such benefits outside such plan or program at no additional cost
(including without limitation tax cost) to the Executive. The benefits
referred to in Paragraph 3(c) shall be determined in accordance with
the terms of such plan and grant thereunder.
(d) No Duty to Mitigate. In the event that the Executive's
employment is terminated by reason of the Executive's Total Disability Pursuant
to Paragraph 5(b), the Executive's employment is terminated by the Company
without Cause pursuant to Paragraph 5(d), or the Executive's employment is
terminated by the Executive for Good Reason pursuant to Paragraph 5(e), the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
(e) No Other Benefits or Compensation. Except as may be provided
under this Agreement, under the terms of any incentive compensation, employee
benefit or fringe benefit plan applicable to the Executive at the time of the
termination of the Executive's employment prior to the end of the Term, the
Executive shall have no right to receive any other compensation, or to
participate in any other plan, arrangement or benefit, with respect to any
future period after such termination.
7. Noncompetition and Nonsolicitation; Nondisclosure of Proprietary
Information; Surrender of Records.
7.1 Noncompetition and Nonsolicitation. In view of the unique and
valuable services it is expected the Executive
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will render to the Company, the Executive's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Company and its customers and suppliers, and in consideration of compensation to
be received hereunder, the Executive agrees that during his employment hereunder
the Executive will not compete with or be engaged in any business which, during
his employment hereunder, is engaged in the investment banking, asset
management, or internet (including media buying, web design, technology
engineering, or other internet-related services) business in the United States
or Canada, provided that the provisions of this Paragraph will not be deemed
breached merely because the Executive owns less than 10% of the outstanding
common stock of a publicly-traded company or is a passive investor who owns less
than 10% of the outstanding common stock of a privately-held company.
In further consideration of the compensation to be received hereunder,
the Executive agrees that during the Term and for a period of one year
subsequent to any termination hereunder, the Executive shall not (i) directly or
indirectly solicit or attempt to solicit any of the employees, agents,
consultants or representatives of the Company to terminate his, her or its
relationship with the Company; (ii) directly or indirectly solicit or attempt to
solicit any of the employees, agents, consultants or representatives of the
Company to become employees, agents, representatives or consultants of any other
person or entity; (iii) directly or indirectly solicit or attempt to solicit any
customer, vendor or distributor of the Company with respect to any product or
service being furnished, made, sold or leased by the Company; or (iv) persuade
or seek to persuade any customer of the Company to cease to do business or to
reduce the amount of business which any customer has customarily done or
contemplates doing with the Company, whether or not the relationship between the
Company and such customer was originally established in whole or in part through
the Executive's efforts.
7.2 Proprietary Information. The Executive acknowledges that during
the course of his employment with the Company he will necessarily have access to
and make use of proprietary information and confidential records of the Company
and the Company's subsidiaries. The Executive covenants that he shall not during
the Term or at any time thereafter, directly or indirectly, use for his own
purpose or for the benefit of any person or entity other than the Company, nor
otherwise disclose, any such proprietary information to any individual or
entity, unless such disclosure has been authorized in writing by the Company or
is otherwise required by law.
For purposes of this Section 7, "proprietary information" shall not
include information which is or becomes
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generally available to the public other than as a result of a breach of this
Agreement by the Executive.
7.3 Confidentiality and Surrender of Records. The Executive shall not
during the Term or at any time thereafter (irrespective of the circumstances
under which the Executive's employment by the Company terminates), except as
required by law, directly or indirectly publish, make known or in any fashion
disclose any confidential records to, or permit any inspection or copying of
confidential records by, any individual or entity other than in the course of
such individual's or entity's employment or retention by the Company, nor shall
he retain, and will deliver promptly to the Company, any of the same following
termination of his employment hereunder for any reason or upon request by the
Company. For purposes hereof, "confidential records" means all correspondence,
memoranda, files, manuals, books, lists, financial, operating or marketing
records, magnetic tape or electronic or other media or equipment of any kind
which may be in the Executive's possession or under his control or accessible to
him which contain any proprietary information of the Company or the Company's
subsidiaries. All confidential records shall be and remain the sole property of
the Company, or, as applicable, the Company's subsidiaries during the Term and
thereafter.
7.4 Inventions and Patents. Any interest in patents, patent
applications, inventions, copyrights, developments and processes ("Inventions")
which the Executive develops during his employment with the Company and which
relates to the fields in which the Company or the Company's subsidiaries is then
engaged shall belong to the Company, or, as applicable, the Company's
subsidiaries. Upon request, the Executive shall execute all such assignments and
other documents and take all such other action as the Company may reasonably
request in order to vest in the Company, or, as applicable, a subsidiary of the
Company all his right, title, and interest in and to such Inventions.
7.5 Enforcement.
(a) The Executive agrees that the remedy at law for any breach or
threatened breach of any covenant contained in this Paragraph 7 would be
inadequate and that the Company, in addition to such other remedies as may be
available to it at law or in equity, shall be entitled to institute proceedings
in any court or courts of competent jurisdiction to obtain damages for breach of
this Paragraph 7 and injunctive relief.
(b) In no event shall any asserted violation of any provision of
this Paragraph 7 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
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8. Key Man Insurance. The Executive recognizes and acknowledges that
the Company or its affiliates may seek and purchase one or more policies
providing key man life insurance with respect to the Executive, the proceeds of
which would be payable to the Company or such affiliate. The Executive hereby
consents to the Company or its affiliates seeking and purchasing such insurance
and will provide such information, undergo such medical examinations (at the
Company's expense), execute such documents and otherwise take any and all
actions necessary or desirable in order for the Company or its affiliates to
seek, purchase and maintain in full force and effect such policy or policies.
9. Notices. Any notice, consent, request or other communication made
or given in accordance with this Agreement shall be in writing either (i) by
personal delivery to the party entitled thereto, (ii) by facsimile with
confirmation of receipt, or (iii) by registered or certified mail, return
receipt requested. The notice, consent request or other communication shall be
deemed to have been received upon personal delivery, upon confirmation of
receipt of facsimile transmission, or, if mailed, three days after mailing. Any
notice, consent, request or other communication made or given in accordance with
the Agreement shall be made to those listed below at their following respective
addresses or at such other address as each may specify by notice to the others:
To the Company:
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Adi Raviv
Facsimile No.: [(212) 223-0161]
To the Executive:
Joseph Mark
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Facsimile No.: [(212) 223-0161]
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10. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs and
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. Complete Understanding; Amendment; Waiver. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Executive and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by a written instrument signed by each of the parties hereto. Any waiver
of any term or provision hereof, or of the application of any such term or
provision to any circumstances, shall be in writing signed by the party charged
with giving such waiver. Waiver by either party hereto of any breach hereunder
by the other party shall not operate as a waiver of any other breach, whether
similar to or different from the breach waived. No delay on the part of the
Company or the Executive in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise by
the Company or the Executive of any such right or remedy shall preclude other or
further exercise thereof.
12. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall
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remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
13. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be wholly performed within that State, without regard to the principles
of conflicts of law.
14. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has executed this Agreement and,
pursuant to the authorization of the Board of Directors, the Company has caused
this Agreement to be executed in its name and on its behalf, all as of the date
above written.
THCG, INC.
By:
-----------------------------------
Name:
Title:
--------------------------------------
Joseph Mark
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EXHIBIT C-2 TO EXHIBIT 2.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
, 1999 (the "Effective Date"), by and between THCG, INC., a Delaware
corporation (the "Company") and SHAI NOVIK (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment in the capacities and on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment; Term.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts employment by the Company, in accordance with and subject to the
terms and conditions set forth herein.
(b) The term of this Agreement shall commence on the Effective
Date and, unless earlier terminated in accordance with Paragraph 5 hereof, shall
terminate on the fifth anniversary of the Effective Date (the "Initial Term").
Thereafter, this Agreement shall automatically be extended for one or more
additional annual periods unless the Executive or the Company gives written
notice, no less than ninety (90) days prior to the end of the Initial Term or
any extension thereof (together, the "Term"), of his or its election not to
renew this Agreement.
2. Duties.
(a) During the Term, the Executive shall serve as the Chief
Operating Officer of the Company and shall report to the Chief Executive Officer
or the Co-Chief Executive Officers as the case may be.
(b) The Executive shall have such authority and responsibility
as is customary for such position or positions in businesses comparable in size
and function, and such other responsibilities as may reasonably be assigned by
the Chief Executive Officer or the Co-Chief Executive Officers as the case
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may be.
(c) During the period the Executive is employed by the Company,
the Executive shall devote his full business time and best efforts to the
business and affairs of the Company; provided, however, the Executive may engage
in outside business activities with the consent of the Board of Directors of the
Company (the "Board of Directors"). It shall not be considered a violation of
the foregoing for the Executive to serve on corporate, industry, civic or
charitable boards or committees, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(d) The Executive's services shall be performed primarily at the
Company's principal place of business, located in New York, New York. The
Executive recognizes that his duties will require from time-to-time and at the
Company's expense, travel to domestic and international locations.
3. Compensation.
(a) The Company shall pay the Executive a base salary (the
"Base Salary") of not less than $150,000 per annum, or such greater sum as may
from time to time be fixed by the Compensation Committee of the Board of
Directors, provided that any such greater sum shall become the minimum rate of
compensation for so long as the Executive shall be employed by the Company.
Payments of Base Salary to the Executive shall be made in equal semi-monthly
installments and subject to all legally required and customary withholdings.
(b) The Executive shall be entitled to bonus compensation (the
"Bonus Compensation") as reasonably determined in good faith by the Compensation
Committee of the Board of Directors, provided that the Executive shall be
entitled to participate in any bonus compensation plans the Company makes
generally available to its senior executives or its employees, in accordance
with the terms of such plans.
(c) The Executive shall receive a grant of 372,281.45 shares of
restricted stock in accordance with and subject to the provisions of The 1999
THCG, Inc. Stock Incentive Plan and the grant thereunder, as provided for in the
Agreement and Plans of Merger By and Between Walnut Financial Services, Inc. and
THCG, Inc., and By and Among THCG, Inc., Tower Hill Acquisition Corp. and Tower
Hill Securities, Inc., dated as of August , 1999.
4. Benefits.
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(a) The Company agrees to reimburse the Executive for all
reasonable travel, business entertainment and other business expenses incurred
by the Executive in connection with the performance of his duties under this
Agreement. Such reimbursements shall be made by the Company on a timely basis
upon submission by the Executive of proper accounts therefor in accordance with
the Company's standard procedures.
(b) The Executive shall be entitled to participate in any and
all medical insurance, group health, disability insurance, life insurance and
other benefit plans and programs which are made generally available by the
Company to its most senior executives. If the Executive elects to participate in
any such benefit plan and/or program, the Company agrees to pay the premiums for
the coverage elected by the Executive.
(c) The Executive shall be entitled to participate fully in the
Company's group pension, profit-sharing and employee benefit programs now or
hereafter made available to employees of the Company generally.
(d) The Company shall pay the premiums on an ordinary life
insurance policy on the Executive's behalf in the principal amount of
$2,000,000.
(e) The Executive shall not be limited to the general vacation
policy and program of the Company as a whole, but, in view of his position and
stature with the Company, shall be entitled to such vacation time as may be
reasonably appropriate to the Company and its clients, and the proper
performance of his duties and responsibilities.
(f) The Company shall lease or purchase an automobile of make
and model as the Executive shall specify for the sole use of the Executive;
provided, however, that the Executive may, at his own option, lease an
automobile in his own name and at Company expense. The Executive shall cause the
vehicle to be properly insured and maintained. The Company shall pay or
reimburse the Executive for all purchase or lease costs, parking costs, toll
fees, costs of insurance, routine maintenance, service and repair of the
vehicle, provided that the Company's obligation pursuant to this Paragraph 4(f)
shall not exceed $1,000 per month. At the expiration of this Agreement, the
Company shall, if requested by the Executive, exercise its purchase option under
any lease agreement and grant the Executive an option to purchase the vehicle
upon the same terms and conditions offered to the Company by the leasing
company.
(g) The Company shall pay for the Executive's use of computers,
e-mail, facsimile, access to Internet and cellular phones for both the
Executive's office use and for use in his
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home for business purposes.
(h) The Company agrees to reimburse the Executive for personal
tax preparation and financial planning assistance in a total amount not to
exceed $5,000 per year.
(i) The Executive shall be indemnified by the Company to the
greatest extent permitted under Delaware law.
(j) The Executive shall be entitled to any other benefits or
perquisites on terms no less favorable than those pursuant to which such
benefits or perquisites are made available to any other executive or employee of
the Company.
5. Termination.
(a) Death. The Executive's employment hereunder shall terminate
upon the Executive's death.
(b) Total Disability. The Company may terminate the Executive's
employment hereunder at any time after the Executive becomes "Totally Disabled."
For purposes of this Agreement, "Totally Disabled" means that the Executive has
been unable, for a period of one hundred eighty (180) consecutive business days,
to perform the Executive's duties under this Agreement, as a result of physical
or mental illness or injury. A termination of the Executive's employment by the
Company for Total Disability shall be communicated to the Executive by written
notice, and shall be effective on the 30th day after receipt of such notice by
the Executive (the "Total Disability Effective Date"), unless the Executive
returns to full-time performance of the Executive's duties before the Total
Disability Effective Date.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause. For purposes of this
Agreement, the term "Cause" shall mean any of the following: (i) conviction of a
felony; (ii) perpetration of an intentional and knowing fraud against or
adversely affecting the Company or any customer, client, agent, or employee
thereof; (iii) willful breach of a covenant set forth in Paragraph 7; or (iv)
willful and substantial failure of the Executive to perform his duties hereunder
(other than as a result of total or partial incapacity due to physical or mental
illness or injury); provided, however, that a termination pursuant to clause
(iv) shall not become effective unless the Executive fails to cure such failure
to perform within thirty (30) days after written notice from the Company, such
notice to describe such failure to perform and identify what reasonable actions
shall be required to cure such failure to perform.
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No act or failure to act on the part of the Executive shall be
considered "willful" under this Paragraph 5(c) unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any act
or failure to act that is based upon authority given pursuant to a resolution
duly adopted by the Board of Directors, or upon direction or authority of the
Company's Co-Chief Executive Officers or, as applicable, the Company's Chief
Executive Officer, or upon the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(d) Termination by the Company Without Cause. The Company may
terminate the Executive's employment hereunder at any time for any reason or no
reason by giving the Executive thirty (30) days prior written notice of the
termination.
(e) Termination by the Executive For Good Reason.
(1) The Executive may terminate his employment hereunder
for "Good Reason" for (i) a Change in Control of the Company; (ii) the
assignment to the Executive of any duties inconsistent in any respect with
Paragraph 2, or any other action by the Company that results in a diminution in
the Executive's position, authority, duties or responsibilities; (iii) any
failure by the Company to comply with Paragraph 3 or 4, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from the
Executive; (iv) a change in the Executive's location of employment to a place of
employment outside the New York Metropolitan Area; (v) any purported termination
of the Executive's employment by the Company for a reason or in a manner not
expressly permitted by this Agreement; (vi) any failure by the Company to comply
with Paragraph 10(c) of this Agreement; or (vii) any other substantial breach of
this Agreement by the Company.
(2) "Change in Control of the Company" shall be
conclusively deemed to have occurred if any of the following shall have taken
place:
i. a change in control of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934
("Exchange Act") shall have occurred, unless such change in
control results in control by the Executive, his designee(s) or
"affiliate(s)" (as defined in Rule 12b-2 under the Exchange Act)
or any combination thereof;
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ii. any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than the Executive, his designee(s)
or "affiliate(s)" (as defined in Rule 12b-2 under the Exchange
Act), or any "person" who was a shareholder as of the Effective
Date or any combination thereof, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing
forty percent (40%) or more of the combined voting power of the
Company's then outstanding securities;
iii. during any period of two (2) consecutive years during this
Agreement, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least
a majority thereof, unless the election of each director who was
not a director at the beginning of such period has been approved
in advance by directors representing at least a majority of the
directors then in office who were directors at the beginning of
the period;
iv. the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, 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 by being converted
into voting securities of the surviving entity) more than 80% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined
voting power of the Company's then outstanding securities shall
not constitute a Change in Control of the Company; or
v. the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of, or the Company sells or disposes
of, all or substantially all of the Company's assets.
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(3) If an event should occur that would allow the Executive to
terminate his employment hereunder for Good Reason, the Executive shall have a
period of one year from the date on which the Executive first becomes aware of
such event in which to elect to terminate his employment for Good Reason. If the
Executive elects to terminate his employment for Good Reason, he shall provide
the Company with a written notice.
(f) Termination by the Executive Without Good Reason. The
Executive may terminate his employment hereunder for any reason or no reason by
giving the Company sixty (60) days prior written notice of the termination.
6. Compensation Following Termination Prior to the End of the
Term. In the event that the Employee's employment hereunder is terminated prior
to the end of the Term, the Executive shall be entitled to the following
compensation and benefits upon such termination:
(a) Termination by Reason of Death or Total Disability. In the
event that the Executive's employment is terminated prior to the expiration of
the Term by reason of the Executive's death or Total Disability pursuant to
Paragraph 5(a) or 5(b), the Company shall pay the following amounts to the
Executive (or the Executive's estate, as the case may be):
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. A prorated amount of Bonus Compensation, to be paid at the time
the Executive's Bonus Compensation would have been paid had he
remained employed by the Company, computed by multiplying the
amount of Bonus Compensation the Executive would have earned for
the year in which the termination occurred and the fraction of
the year the Executive was employed by the Company;
iii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4; and
iv. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled upon termination
pursuant to the plans and programs referred to in Paragraph 4 and under
the plan and grant thereunder referred to in Paragraph 3(c) hereof
shall be determined and paid in accordance with the terms of such
plans, programs and grant, except that the Company shall, with respect
to any major medical and all other
<PAGE> 111
health, accident, or disability plans for which the Executive, or his
spouse or legal representative, elects continuation in accordance with
COBRA, be responsible for payment of premiums related to the
maintenance of such plans for a period of six (6) months following the
date of termination.
(b) Termination by the Company for Cause; Termination by the
Executive Without Good Reason. In the event that the Executive's employment is
terminated by the Company for Cause pursuant to Paragraph 5(c) or by the
Executive without Good Reason pursuant to Paragraph 5(f), the Company shall pay
the following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4; and
iii. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled upon termination
pursuant to the plans and programs referred to in Paragraph 4 and under
the plan and grant thereunder referred to in Paragraph 3(c) hereof
shall be determined in accordance with the terms of such plans,
programs and grant.
(c) Termination by the Company Without Cause; Termination by
the Executive For Good Reason. In the Event that the Executive's employment is
terminated by the Company without Cause pursuant to Paragraph 5(d) or by the
Executive for Good Reason pursuant to Paragraph 5(e), the Company shall pay the
following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant to
Paragraph 3) for services rendered to the date of termination;
ii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4;
iii. Any vacation accrued to the date of termination; and
iv. Continued payment of the Base Salary (as determined under
Paragraph 3) for a period of six (6) months after the date of
termination; provided, however, that in the event the Executive
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has terminated the Agreement pursuant to Paragraph 5(e)(2), the
Company shall make continued payment of the Base Salary until the
earlier of (a) thirty-six (36) months after the date of
termination, or (b) the expiration of the Term. Such payments
shall be made in accordance with the Company's standard payroll
practices then in effect.
The Company shall continue to provide the Executive with the benefits
set forth in Paragraph 4 for a period of six (6) months after the date
of termination as if he had remained employed by the Company pursuant
to this Agreement during such period; provided, however, that in the
event the Executive has terminated the Agreement pursuant to Paragraph
5(e)(2), the Company shall continue to provide the Executive with the
benefits set forth in Paragraph 4 as if he had remained employed by the
Company pursuant to this Agreement through the earlier of (a)
thirty-six (36) months after the date of termination, or (b) the end of
the Term. To the extent any benefits described in Paragraph 4 cannot be
provided pursuant to the plan or program maintained by the Company for
its employees and/or executives, the Company shall provide such
benefits outside such plan or program at no additional cost (including
without limitation tax cost) to the Executive. The benefits referred to
in Paragraph 3(c) shall be determined in accordance with the terms of
such plan and grant thereunder.
(d) No Duty to Mitigate. In the event that the Executive's
employment is terminated by reason of the Executive's Total Disability Pursuant
to Paragraph 5(b), the Executive's employment is terminated by the Company
without Cause pursuant to Paragraph 5(d), or the Executive's employment is
terminated by the Executive for Good Reason pursuant to Paragraph 5(e), the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
(e) No Other Benefits or Compensation. Except as may be provided
under this Agreement, under the terms of any incentive compensation, employee
benefit or fringe benefit plan applicable to the Executive at the time of the
termination of the Executive's employment prior to the end of the Term, the
Executive shall have no right to receive any other compensation, or to
participate in any other plan, arrangement or benefit, with respect to any
future period after such termination.
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7. Noncompetition and Nonsolicitation; Nondisclosure of Proprietary
Information; Surrender of Records.
7.1 Noncompetition and Nonsolicitation. In view of the unique and
valuable services it is expected the Executive will render to the Company, the
Executive's knowledge of the customers, trade secrets, and other proprietary
information relating to the business of the Company and its customers and
suppliers, and in consideration of compensation to be received hereunder, the
Executive agrees that during his employment hereunder the Executive will not
compete with or be engaged in any business which, during his employment
hereunder, is engaged in the investment banking, asset management, or internet
(including media buying, web design, technology engineering, or other
internet-related services) business in the United States or Canada, provided
that the provisions of this Paragraph will not be deemed breached merely because
the Executive owns less than 10% of the outstanding common stock of a
publicly-traded company or is a passive investor who owns less than 10% of the
outstanding common stock of a privately-held company.
In further consideration of the compensation to be received hereunder,
the Executive agrees that during the Term and for a period of one year
subsequent to any termination hereunder, the Executive shall not (i) directly or
indirectly solicit or attempt to solicit any of the employees, agents,
consultants or representatives of the Company to terminate his, her or its
relationship with the Company; (ii) directly or indirectly solicit or attempt to
solicit any of the employees, agents, consultants or representatives of the
Company to become employees, agents, representatives or consultants of any other
person or entity; (iii) directly or indirectly solicit or attempt to solicit any
customer, vendor or distributor of the Company with respect to any product or
service being furnished, made, sold or leased by the Company; or (iv) persuade
or seek to persuade any customer of the Company to cease to do business or to
reduce the amount of business which any customer has customarily done or
contemplates doing with the Company, whether or not the relationship between the
Company and such customer was originally established in whole or in part through
the Executive's efforts.
7.2 Proprietary Information. The Executive acknowledges that during
the course of his employment with the Company he will necessarily have access to
and make use of proprietary information and confidential records of the Company
and the Company's subsidiaries. The Executive covenants that he shall not during
the Term or at any time thereafter, directly or indirectly, use for his own
purpose or for the benefit of any person or entity other than the Company, nor
otherwise disclose,
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any such proprietary information to any individual or entity, unless such
disclosure has been authorized in writing by the Company or is otherwise
required by law.
For purposes of this Section 7, "proprietary information" shall not
include information which is or becomes generally available to the public other
than as a result of a breach of this Agreement by the Executive.
7.3 Confidentiality and Surrender of Records. The Executive shall not
during the Term or at any time thereafter (irrespective of the circumstances
under which the Executive's employment by the Company terminates), except as
required by law, directly or indirectly publish, make known or in any fashion
disclose any confidential records to, or permit any inspection or copying of
confidential records by, any individual or entity other than in the course of
such individual's or entity's employment or retention by the Company, nor shall
he retain, and will deliver promptly to the Company, any of the same following
termination of his employment hereunder for any reason or upon request by the
Company. For purposes hereof, "confidential records" means all correspondence,
memoranda, files, manuals, books, lists, financial, operating or marketing
records, magnetic tape or electronic or other media or equipment of any kind
which may be in the Executive's possession or under his control or accessible to
him which contain any proprietary information of the Company or the Company's
subsidiaries. All confidential records shall be and remain the sole property of
the Company, or, as applicable, the Company's subsidiaries during the Term and
thereafter.
7.4 Inventions and Patents. Any interest in patents, patent
applications, inventions, copyrights, developments and processes ("Inventions")
which the Executive develops during his employment with the Company and which
relates to the fields in which the Company or the Company's subsidiaries is then
engaged shall belong to the Company, or, as applicable, the Company's
subsidiaries. Upon request, the Executive shall execute all such assignments and
other documents and take all such other action as the Company may reasonably
request in order to vest in the Company, or, as applicable, a subsidiary of the
Company all his right, title, and interest in and to such Inventions.
7.5 Enforcement.
(a) The Executive agrees that the remedy at law for any breach or
threatened breach of any covenant contained in this Paragraph 7 would be
inadequate and that the Company, in addition to such other remedies as may be
available to it at law or in equity, shall be entitled to institute proceedings
in any court or courts of competent jurisdiction to obtain damages for
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breach of this Paragraph 7 and injunctive relief.
(b) In no event shall any asserted violation of any provision of
this Paragraph 7 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
8. Key Man Insurance. The Executive recognizes and acknowledges that
the Company or its affiliates may seek and purchase one or more policies
providing key man life insurance with respect to the Executive, the proceeds of
which would be payable to the Company or such affiliate. The Executive hereby
consents to the Company or its affiliates seeking and purchasing such insurance
and will provide such information, undergo such medical examinations (at the
Company's expense), execute such documents and otherwise take any and all
actions necessary or desirable in order for the Company or its affiliates to
seek, purchase and maintain in full force and effect such policy or policies.
9. Notices. Any notice, consent, request or other communication made
or given in accordance with this Agreement shall be in writing either (i) by
personal delivery to the party entitled thereto, (ii) by facsimile with
confirmation of receipt, or (iii) by registered or certified mail, return
receipt requested. The notice, consent request or other communication shall be
deemed to have been received upon personal delivery, upon confirmation of
receipt of facsimile transmission, or, if mailed, three days after mailing. Any
notice, consent, request or other communication made or given in accordance with
the Agreement shall be made to those listed below at their following respective
addresses or at such other address as each may specify by notice to the others:
To the Company:
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: [(212) 223-0161]
To the Executive:
Shai Novik
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Facsimile No.: [(212) 223-0161]
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10. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs and
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. Complete Understanding; Amendment; Waiver. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Executive and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by a written instrument signed by each of the parties hereto. Any waiver
of any term or provision hereof, or of the application of any such term or
provision to any circumstances, shall be in writing signed by the party charged
with giving such waiver. Waiver by either party hereto of any breach hereunder
by the other party shall not operate as a waiver of any other breach, whether
similar to or different from the breach waived. No delay on the part of the
Company or the Executive in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise by
the Company or the Executive of any such right or remedy shall preclude other or
further exercise thereof.
12. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall
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remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
13. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be wholly performed within that State, without regard to the principles
of conflicts of law.
14. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has executed this Agreement and,
pursuant to the authorization of the Board of Directors, the Company has caused
this Agreement to be executed in its name and on its behalf, all as of the date
above written.
THCG, INC.
By:
---------------------------------
Name:
Title:
-------------------------------------
Shai Novik
<PAGE> 118
EXHIBIT C-3 TO EXHIBIT 2.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
___________ ___, 1999 (the "Effective Date"), by and between THCG, INC., a
Delaware corporation (the "Company") and ADI RAVIV (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept such employment in the capacities and on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1. Employment; Term.
(a) The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, in accordance with and
subject to the terms and conditions set forth herein.
(b) The term of this Agreement shall commence on the Effective
Date and, unless earlier terminated in accordance with Paragraph 5 hereof, shall
terminate on the fifth anniversary of the Effective Date (the "Initial Term").
Thereafter, this Agreement shall automatically be extended for one or more
additional annual periods unless the Executive or the Company gives written
notice, no less than ninety (90) days prior to the end of the Initial Term or
any extension thereof (together, the "Term"), of his or its election not to
renew this Agreement.
2. Duties.
(a) During the Term, the Executive shall serve as the Co-Chief
Executive Officer of the Company and shall report to the Board of Directors of
the Company (the "Board of Directors").
(b) The Executive shall have such authority and responsibility
as is customary for such position or positions in businesses comparable in size
and function, and such other responsibilities as may reasonably be assigned by
the Board of Directors.
(c) During the period the Executive is employed by the
Company, the Executive shall devote his full business time
<PAGE> 119
and best efforts to the business and affairs of the Company; provided, however,
the Executive may engage in outside business activities with the consent of the
Board of Directors. It shall not be considered a violation of the foregoing for
the Executive to serve on corporate, industry, civic or charitable boards or
committees, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
(d) The Executive's services shall be performed primarily at
the Company's principal place of business, located in New York, New York. The
Executive recognizes that his duties will require from time-to-time and at the
Company's expense, travel to domestic and international locations.
3. Compensation.
(a) The Company shall pay the Executive a base salary (the
"Base Salary") of not less than $200,000 per annum, or such greater sum as may
from time to time be fixed by the Compensation Committee of the Board of
Directors, provided that any such greater sum shall become the minimum rate of
compensation for so long as the Executive shall be employed by the Company.
Payments of Base Salary to the Executive shall be made in equal semi-monthly
installments and subject to all legally required and customary withholdings.
(b) The Executive shall be entitled to bonus compensation (the
"Bonus Compensation") as reasonably determined in good faith by the Compensation
Committee of the Board of Directors.
(c) The Executive shall receive an option to purchase 450,000
shares of the common stock of the Company, in accordance with and subject to the
provisions of The 1999 THCG, Inc. Stock Incentive Plan and the grant thereunder.
4. Benefits.
(a) The Company agrees to reimburse the Executive for all
reasonable travel, business entertainment and other business expenses incurred
by the Executive in connection with the performance of his duties under this
Agreement. Such reimbursements shall be made by the Company on a timely basis
upon submission by the Executive of proper accounts therefor in accordance with
the Company's standard procedures.
(b) The Executive shall be entitled to participate in any and
all medical insurance, group health, disability insurance, life insurance and
other benefit plans and programs which are made generally available by the
Company to its most senior executives. If the Executive elects to participate
<PAGE> 120
in any such benefit plan and/or program, the Company agrees to pay the premiums
for the coverage elected by the Executive.
(c) The Executive shall be entitled to participate fully in
the Company's group pension, profit-sharing and employee benefit programs now or
hereafter made available to employees of the Company generally.
(d) The Company shall pay the premiums on an ordinary life
insurance policy on the Executive's behalf in the principal amount of
$2,000,000.
(e) The Executive shall not be limited to the general vacation
policy and program of the Company as a whole, but, in view of his position and
stature with the Company, shall be entitled to such vacation time as may be
reasonably appropriate to the Company and its clients, and the proper
performance of his duties and responsibilities.
(f) The Company shall lease or purchase an automobile of make
and model as the Executive shall specify for the sole use of the Executive;
provided, however, that the Executive may, at his own option, lease an
automobile in his own name and at Company expense. The Executive shall cause the
vehicle to be properly insured and maintained. The Company shall pay or
reimburse the Executive for all purchase or lease costs, parking costs, toll
fees, costs of insurance, routine maintenance, service and repair of the
vehicle, provided that the Company's obligation pursuant to this Paragraph 4(f)
shall not exceed $1,000 per month. At the expiration of this Agreement, the
Company shall, if requested by the Executive, exercise its purchase option under
any lease agreement and grant the Executive an option to purchase the vehicle
upon the same terms and conditions offered to the Company by the leasing
company.
(g) The Company shall pay for the Executive's use of
computers, e-mail, facsimile, access to Internet and cellular phones for both
the Executive's office use and for use in his home for business purposes.
(h) The Company agrees to reimburse the Executive for personal
tax preparation and financial planning assistance in a total amount not to
exceed $5,000 per year.
(i) The Executive shall be indemnified by the Company to the
greatest extent permitted under Delaware law.
(j) The Executive shall be entitled to any other benefits or
perquisites on terms no less favorable than those pursuant to which such
benefits or perquisites are made available to any other executive or employee of
the Company.
<PAGE> 121
5. Termination.
(a) Death. The Executive's employment hereunder shall
terminate upon the Executive's death.
(b) Total Disability. The Company may terminate the
Executive's employment hereunder at any time after the Executive becomes
"Totally Disabled." For purposes of this Agreement, "Totally Disabled" means
that the Executive has been unable, for a period of one hundred eighty (180)
consecutive business days, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury. A termination of
the Executive's employment by the Company for Total Disability shall be
communicated to the Executive by written notice, and shall be effective on the
30th day after receipt of such notice by the Executive (the "Total Disability
Effective Date"), unless the Executive returns to full-time performance of the
Executive's duties before the Total Disability Effective Date.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause. For purposes of this
Agreement, the term "Cause" shall mean any of the following: (i) conviction of a
felony; (ii) perpetration of an intentional and knowing fraud against or
adversely affecting the Company or any customer, client, agent, or employee
thereof; (iii) willful breach of a covenant set forth in Paragraph 7; or (iv)
willful and substantial failure of the Executive to perform his duties hereunder
(other than as a result of total or partial incapacity due to physical or mental
illness or injury); provided, however, that a termination pursuant to clause
(iv) shall not become effective unless the Executive fails to cure such failure
to perform within thirty (30) days after written notice from the Company, such
notice to describe such failure to perform and identify what reasonable actions
shall be required to cure such failure to perform.
No act or failure to act on the part of the Executive shall be
considered "willful" under this Paragraph 5(c) unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any act
or failure to act that is based upon authority given pursuant to a resolution
duly adopted by the Board of Directors or upon the advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company.
(d) Termination by the Company Without Cause. The Company may
terminate the Executive's employment hereunder at any time for any reason or no
reason by giving the Executive thirty (30) days prior written notice of the
termination.
<PAGE> 122
(e) Termination by the Executive For Good Reason.
(1) The Executive may terminate his employment hereunder
for "Good Reason" for (i) a Change in Control of the Company; (ii) the
assignment to the Executive of any duties inconsistent in any respect with
Paragraph 2, or any other action by the Company that results in a diminution in
the Executive's position, authority, duties or responsibilities; (iii) any
failure by the Company to comply with Paragraph 3 or 4, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from the
Executive; (iv) a change in the Executive's location of employment to a place of
employment outside the New York Metropolitan Area; (v) any purported termination
of the Executive's employment by the Company for a reason or in a manner not
expressly permitted by this Agreement; (vi) any failure by the Company to comply
with Paragraph 10(c) of this Agreement; or (vii) any other substantial breach of
this Agreement by the Company.
(2) "Change in Control of the Company" shall be
conclusively deemed to have occurred if any of the following shall have taken
place:
i. a change in control of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934 ("Exchange Act") shall have occurred, unless such
change in control results in control by the Executive, his
designee(s) or "affiliate(s)" (as defined in Rule 12b-2
under the Exchange Act) or any combination thereof;
ii. any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Executive, his
designee(s) or "affiliate(s)" (as defined in Rule 12b-2
under the Exchange Act), or any "person" who was a
shareholder as of the Effective Date or any combination
thereof, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing forty percent
(40%) or more of the combined voting power of the Company's
then outstanding securities;
iii. during any period of two (2) consecutive years during this
Agreement, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election of each
director who was not a director at the beginning
<PAGE> 123
of such period has been approved in advance by directors
representing at least a majority of the directors then in
office who were directors at the beginning of the period;
iv. the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
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 by being converted into voting
securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation; provided, however, that
a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more
than 25% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in
Control of the Company; or
v. the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of, or the Company sells or
disposes of, all or substantially all of the Company's
assets.
(3) If an event should occur that would allow the Executive
to terminate his employment hereunder for Good Reason, the Executive shall have
a period of one year from the date on which the Executive first becomes aware of
such event in which to elect to terminate his employment for Good Reason. If the
Executive elects to terminate his employment for Good Reason, he shall provide
the Company with a written notice.
(f) Termination by the Executive Without Good Reason. The
Executive may terminate his employment hereunder for any reason or no reason by
giving the Company sixty (60) days prior written notice of the termination.
6. Compensation Following Termination Prior to the End of the
Term. In the event that the Employee's employment hereunder is terminated prior
to the end of the Term, the Executive shall be entitled to the following
compensation and benefits upon such termination:
(a) Termination by Reason of Death or Total Disability. In
the event that the Executive's employment is terminated prior to the expiration
of the Term by reason of the
<PAGE> 124
Executive's death or Total Disability pursuant to Paragraph 5(a) or 5(b), the
Company shall pay the following amounts to the Executive (or the Executive's
estate, as the case may be):
i. Any accrued but unpaid Base Salary (as determined pursuant
to Paragraph 3) for services rendered to the date of
termination;
ii. A prorated amount of Bonus Compensation, to be paid at the
time the Executive's Bonus Compensation would have been paid
had he remained employed by the Company, computed by
multiplying the amount of Bonus Compensation the Executive
would have earned for the year in which the termination
occurred and the fraction of the year the Executive was
employed by the Company;
iii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4; and
iv. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled upon
termination pursuant to the plans and programs referred to in
Paragraph 4 and the plan and grant thereunder referred to in
Paragraph 3(c) hereof shall be determined and paid in accordance
with the terms of such plans, programs and grant, except that the
Company shall, with respect to any major medical and all other
health, accident, or disability plans for which the Executive, or
his spouse or legal representative, elects continuation in
accordance with COBRA, be responsible for payment of premiums
related to the maintenance of such plans for a period of six (6)
months following the date of termination.
(b) Termination by the Company for Cause; Termination by the
Executive Without Good Reason. In the event that the Executive's employment is
terminated by the Company for Cause pursuant to Paragraph 5(c) or by the
Executive without Good Reason pursuant to Paragraph 5(f), the Company shall pay
the following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant
to Paragraph 3) for services rendered to the date of
termination;
ii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4; and
iii. Any vacation accrued to the date of termination.
The benefits to which the Executive may be entitled
<PAGE> 125
upon termination pursuant to the plans and programs referred to
in Paragraph 4 and the plan and grant thereunder referred to in
Paragraph 3(c) hereof shall be determined in accordance with the
terms of such plans, programs and grant.
(c) Termination by the Company Without Cause; Termination by
the Executive For Good Reason. In the Event that the Executive's employment is
terminated by the Company without Cause pursuant to Paragraph 5(d) or by the
Executive for Good Reason pursuant to Paragraph 5(e), the Company shall pay the
following amounts to the Executive:
i. Any accrued but unpaid Base Salary (as determined pursuant
to Paragraph 3) for services rendered to the date of
termination;
ii. Such bonus as may reasonably be determined by the Company
based upon the Executive's performance through the date of
termination;
iii. Any accrued but unpaid expenses required to be reimbursed
pursuant to Paragraph 4;
iv. Any vacation accrued to the date of termination; and
v. Continued payment of the Base Salary (as determined under
Paragraph 3) until the earlier of (a) thirty-six (36) months
after the date of termination, or (b) the expiration of the
Term. Such payments shall be made in accordance with the
Company's standard payroll practices then in effect.
The Company shall continue to provide the Executive with the
benefits set forth in Paragraph 4 as if he had remained employed
by the Company pursuant to this Agreement through the earlier of
(a) thirty-six (36) months after the date of termination, or (b)
the end of the Term; provided that to the extent any benefits
described in Paragraph 4 cannot be provided pursuant to the plan
or program maintained by the Company for its employees and/or
executives, the Company shall provide such benefits outside such
plan or program at no additional cost (including without
limitation tax cost) to the Executive. The benefits referred to
in Paragraph 3(c) shall be determined in accordance with the
terms of such plan and grant thereunder.
(d) No Duty to Mitigate. In the event that the Executive's
employment is terminated by reason of the Executive's Total Disability Pursuant
to Paragraph 5(b), the Executive's
<PAGE> 126
employment is terminated by the Company without Cause pursuant to Paragraph
5(d), or the Executive's employment is terminated by the Executive for Good
Reason pursuant to Paragraph 5(e), the Executive shall not be required to seek
other employment to mitigate damages, and any income earned by the Executive
from other employment or self-employment shall not be offset against any
obligations of the Company to the Executive under this Agreement.
(e) No Other Benefits or Compensation. Except as may be
provided under this Agreement, under the terms of any incentive compensation,
employee benefit or fringe benefit plan applicable to the Executive at the time
of the termination of the Executive's employment prior to the end of the Term,
the Executive shall have no right to receive any other compensation, or to
participate in any other plan, arrangement or benefit, with respect to any
future period after such termination.
7. Noncompetition and Nonsolicitation; Nondisclosure of
Proprietary Information; Surrender of Records.
7.1 Noncompetition and Nonsolicitation. In view of the unique and
valuable services it is expected the Executive will render to the Company, the
Executive's knowledge of the customers, trade secrets, and other proprietary
information relating to the business of the Company and its customers and
suppliers, and in consideration of compensation to be received hereunder, the
Executive agrees that during his employment hereunder the Executive will not
compete with or be engaged in any business which, during his employment
hereunder, is engaged in the investment banking, asset management, or internet
(including media buying, web design, technology engineering, or other
internet-related services) business in the United States or Canada, provided
that the provisions of this Paragraph will not be deemed breached merely because
the Executive owns less than 10% of the outstanding common stock of a
publicly-traded company or is a passive investor who owns less than 10% of the
outstanding common stock of a privately-held company.
In further consideration of the compensation to be received
hereunder, the Executive agrees that during the Term and for a period of one
year subsequent to any termination hereunder, the Executive shall not (i)
directly or indirectly solicit or attempt to solicit any of the employees,
agents, consultants or representatives of the Company to terminate his, her or
its relationship with the Company; (ii) directly or indirectly solicit or
attempt to solicit any of the employees, agents, consultants or representatives
of the Company to become employees, agents, representatives or consultants of
any other person or entity; (iii) directly or indirectly solicit or attempt to
solicit any customer, vendor or distributor of the Company with respect to any
product or service being furnished, made, sold or leased by the Company; or (iv)
persuade or seek to
<PAGE> 127
persuade any customer of the Company to cease to do business or to reduce the
amount of business which any customer has customarily done or contemplates doing
with the Company, whether or not the relationship between the Company and such
customer was originally established in whole or in part through the Executive's
efforts.
7.2 Proprietary Information. The Executive acknowledges that
during the course of his employment with the Company he will necessarily have
access to and make use of proprietary information and confidential records of
the Company and the Company's subsidiaries. The Executive covenants that he
shall not during the Term or at any time thereafter, directly or indirectly, use
for his own purpose or for the benefit of any person or entity other than the
Company, nor otherwise disclose, any such proprietary information to any
individual or entity, unless such disclosure has been authorized in writing by
the Company or is otherwise required by law.
For purposes of this Section 7, "proprietary information" shall
not include information which is or becomes generally available to the public
other than as a result of a breach of this Agreement by the Executive.
7.3 Confidentiality and Surrender of Records. The Executive shall
not during the Term or at any time thereafter (irrespective of the circumstances
under which the Executive's employment by the Company terminates), except as
required by law, directly or indirectly publish, make known or in any fashion
disclose any confidential records to, or permit any inspection or copying of
confidential records by, any individual or entity other than in the course of
such individual's or entity's employment or retention by the Company, nor shall
he retain, and will deliver promptly to the Company, any of the same following
termination of his employment hereunder for any reason or upon request by the
Company. For purposes hereof, "confidential records" means all correspondence,
memoranda, files, manuals, books, lists, financial, operating or marketing
records, magnetic tape or electronic or other media or equipment of any kind
which may be in the Executive's possession or under his control or accessible to
him which contain any proprietary information of the Company or the Company's
subsidiaries. All confidential records shall be and remain the sole property of
the Company, or, as applicable, the Company's subsidiaries during the Term and
thereafter.
7.4 Inventions and Patents. Any interest in patents, patent
applications, inventions, copyrights, developments and processes ("Inventions")
which the Executive develops during his employment with the Company and which
relates to the fields in which the Company or the Company's subsidiaries is then
engaged shall belong to the Company, or, as applicable, the Company's
subsidiaries. Upon request, the Executive shall execute all such
<PAGE> 128
assignments and other documents and take all such other action as the Company
may reasonably request in order to vest in the Company, or, as applicable, a
subsidiary of the Company all his right, title, and interest in and to such
Inventions.
7.5 Enforcement.
(a) The Executive agrees that the remedy at law for any
breach or threatened breach of any covenant contained in this Paragraph 7 would
be inadequate and that the Company, in addition to such other remedies as may be
available to it at law or in equity, shall be entitled to institute proceedings
in any court or courts of competent jurisdiction to obtain damages for breach of
this Paragraph 7 and injunctive relief.
(b) In no event shall any asserted violation of any
provision of this Paragraph 7 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
8. Key Man Insurance. The Executive recognizes and acknowledges
that the Company or its affiliates may seek and purchase one or more policies
providing key man life insurance with respect to the Executive, the proceeds of
which would be payable to the Company or such affiliate. The Executive hereby
consents to the Company or its affiliates seeking and purchasing such insurance
and will provide such information, undergo such medical examinations (at the
Company's expense), execute such documents and otherwise take any and all
actions necessary or desirable in order for the Company or its affiliates to
seek, purchase and maintain in full force and effect such policy or policies.
9. Notices. Any notice, consent, request or other communication
made or given in accordance with this Agreement shall be in writing either (i)
by personal delivery to the party entitled thereto, (ii) by facsimile with
confirmation of receipt, or (iii) by registered or certified mail, return
receipt requested. The notice, consent request or other communication shall be
deemed to have been received upon personal delivery, upon confirmation of
receipt of facsimile transmission, or, if mailed, three days after mailing. Any
notice, consent, request or other communication made or given in accordance with
the Agreement shall be made to those listed below at their following respective
addresses or at such other address as each may specify by notice to the others:
To the Company:
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
<PAGE> 129
Facsimile No.: [(212) 223-0161]
To the Executive:
Adi Raviv
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Facsimile No.: [(212) 223-0161]
10. Successors.
(a) This Agreement is personal to the Executive and, without
the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs and legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. Complete Understanding; Amendment; Waiver. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Executive and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by a written instrument signed by each of the parties hereto. Any waiver
of any term or provision hereof, or of the application of any such term or
provision to any circumstances, shall be in writing signed by the party charged
with giving such waiver. Waiver by either party hereto of any breach hereunder
by the other party shall not operate as a waiver of any other breach, whether
similar to or different from the breach waived. No delay on the part of the
Company or the Executive in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise by
the Company or the Executive of any such right or remedy shall preclude other or
further
<PAGE> 130
exercise thereof.
12. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of this Agreement shall
be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
13. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be wholly performed within that State, without regard to the
principles of conflicts of law.
14. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has executed this Agreement
and, pursuant to the authorization of the Board of Directors, the Company has
caused this Agreement to be executed in its name and on its behalf, all as of
the date above written.
THCG, INC.
By:--------------------------------
Name:
Title:
--------------------------------
Adi Raviv
<PAGE> 131
EXHIBIT D TO EXHIBIT 2.1
VOTING AGREEMENT
VOTING AGREEMENT (the "Agreement"), dated as of August , 1999, by
and between Tower Hill Securities, Inc., a New York corporation ("Tower Hill"),
and the undersigned stockholders (collectively, the "Stockholders") of Walnut
Financial Services, Inc., a Utah corporation ("Walnut").
WHEREAS, concurrently herewith, Tower Hill, Walnut, THCG, Inc., a
Delaware corporation and wholly-owned subsidiary of Walnut ("THCG"), and Tower
Hill Acquisition Corp., a New York corporation and wholly-owned subsidiary of
THCG ("Newco"), are entering into an Agreement and Plans of Merger (the "Merger
Agreement") pursuant to which (i) Walnut will be merged with and into THCG
("Merger 1") and (ii) Newco will be merged with and into Tower Hill ("Merger 2"
and, together with Merger 1, the "Mergers"). Capitalized terms used herein but
not otherwise defined herein shall have the meaning ascribed to them in the
Merger Agreement; and
WHEREAS, as of the date hereof, each of the Stockholders is the
record holder and beneficial owner (as defined in Rule 13d-3 under the
Securities Act of 1934, as amended) of such number of shares of common stock,
par value $0.01 per share, of Walnut (the "Walnut Common Stock") as is indicated
below his signature on the final page of this Agreement (the "Walnut Shares");
WHEREAS, pursuant to the Merger Agreement, each share of Walnut
Common Stock issued and outstanding immediately prior to the First Effective
Time shall be converted into one validly issued, fully paid and non-assessable
share of common stock, par value $0.01 per share, of THCG (the "THCG Common
Stock");
WHEREAS, immediately after the First Effective Time, pursuant to
the Merger Agreement, each of the Stockholders will be the record holder and
beneficial owner of such number of shares of THCG Common Stock as is equal to
the number of Walnut Shares held by such Stockholder prior to the First
Effective Time (the "THCG Shares");
WHEREAS, as a material inducement to Tower Hill to enter into the
Merger Agreement, the Stockholders are willing to enter into and be bound by
this Agreement pursuant to which the Stockholders agree (i) not to transfer or
otherwise dispose of any of the Walnut Shares prior to the Expiration Date (as
defined in Section 4 below), or any other shares of capital stock of Walnut
acquired hereafter and prior to the Expiration Date, except as otherwise
permitted hereby, (ii) to vote the Walnut Shares and such other shares of
capital stock of Walnut so as to facilitate the consummation of the Mergers, and
(iii) not to transfer or otherwise dispose of any THCG Shares, except as
permitted hereby;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration given to each party hereto, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 132
ARTICLE I
AGREEMENT TO VOTE WALNUT SHARES
Section 1.1 Agreement to Vote Walnut Shares. From and after the
date of this Agreement and ending as of the Expiration Date, the Stockholders
hereby agree that, at any meeting of the stockholders of Walnut, however called,
the Stockholders shall vote the Walnut Shares (a) in favor of the Mergers and
each other item submitted to the stockholders of Walnut for their approval and
recommended by the Board of Directors of Walnut; (b) against any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Walnut, THCG or Newco under the
Merger Agreement; and (c) against any action or agreement (other than the Merger
Agreement or the Related Transactions) that would impede, interfere with, delay,
postpone or attempt to discourage either or both of the Mergers, including, but
not limited to: (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Walnut or any of its
Subsidiaries; (ii) a sale or transfer of a material amount of assets of Walnut
or any of its Subsidiaries or a reorganization, recapitalization or liquidation
of Walnut or any of its Subsidiaries, except as provided in the Merger Agreement
or effected in connection with the Related Transactions; (iii) any change in the
management or board of directors of Walnut, except as otherwise agreed to, in
writing, by Tower Hill; (iv) any material change in the present capitalization
or dividend policy of Walnut, except as provided in the Merger Agreement or
effected in connection with the Related Transactions; or (v) any other material
change in Walnut's corporate structure or business, except as provided in the
Merger Agreement or effected in connection with the Related Transactions.
Section 1.2 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Each Stockholder hereby irrevocably grants to, and
appoints, Joseph D. Mark and Adi Raviv, or either of them, in their respective
capacities as officers or directors of Tower Hill, and any individual who shall
hereafter succeed to any such office or directorship of Tower Hill, and each of
them individually, as such Stockholder's proxy and attorney-in-fact (with full
power of substitution and resubstitution), for and in the name, place and stead
of such Stockholder, to vote the Walnut Shares and New Shares in favor of the
Mergers and the Related Transactions and against each matter contemplated by
Sections 1.1(b) and (c) hereof.
(b) Each Stockholder represents and warrants that any
proxies heretofore given in respect of the Walnut Shares are revocable, and that
any such proxies are hereby revoked.
(c) Each Stockholder understands and acknowledges that
Tower Hill is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement. Each Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 1.2 is given in
connection with the execution of the Merger Agreement, and that such irrevocable
proxy is given to secure the performance of the duties of such Stockholder under
this Agreement. Each Stockholder hereby further affirms that the ir-
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<PAGE> 133
revocable proxy is coupled with an interest and may under no circumstances be
revoked. Each Stockholder hereby ratifies and confirms all that such irrevocable
proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the
provisions of Section 16-10a-722 of the Revised Business Corporation Act of the
State of Utah.
Section 1.3 No Inconsistent Arrangements. Each Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Merger Agreement, it shall not (a) transfer (which term shall include, without
limitation, any sale, gift, pledge or other disposition), or consent to any
transfer of, any or all of the Walnut Shares or any interest therein, (b) enter
into any contract, option or other agreement or understanding with respect to
any transfer of any or all of the Walnut Shares or any interest therein, (c)
grant any proxy, power-of-attorney or other authorization in or with respect to
the Walnut Shares, (d) deposit the Walnut Shares into a voting trust or enter
into a voting agreement or arrangement with respect to the Walnut Shares or (e)
take any other action that would in any way restrict, limit or interfere with
the performance of its obligations hereunder or the transactions contemplated
hereby or by the Merger Agreement or which would make any representation or
warranty of such Stockholder hereunder untrue or incorrect.
Section 1.4 Additional Walnut Shares. Each Stockholder hereby
agrees, while this Agreement is in effect, to promptly notify Tower Hill of the
number of any new shares of equity securities of Walnut acquired by such
Stockholder, if any, after the date hereof and prior to the Expiration Date
("New Shares"), other than New Shares a Stockholder may receive in connection
with the Related Transactions. Each Stockholder agrees that such New Shares
shall be voted in the same manner and subject to the same conditions as the
Walnut Shares as provided for in this Agreement.
Section 1.5 Expiration. Article I hereof and each Stockholder's
obligations under such Article I shall terminate and shall no longer be in
effect on the earlier of the First Effective Time or the termination of the
Merger Agreement in accordance with its terms (such date, the "Expiration
Date").
ARTICLE II
RESTRICTIONS ON TRANSFER OF THCG SHARES
Section 2.1 Restriction on Transfers. Except as permitted by
Section 2.2 hereof, no Stockholder shall, directly or indirectly, Transfer any
THCG Shares or any interest therein during the twelve (12) month period
following the Second Effective Time to any other Person (including, without
limitation, by operation of law), except as expressly permitted by this
Agreement. Any attempt to Transfer any THCG Shares not in accordance with this
Agreement shall be null and void and THCG shall not give any effect to any such
attempted Transfer on its stock records. For the purposes of this Article II,
"Transfer" means any transfer, sale, assignment, exchange, mortgage, pledge,
encumbrance, hypothecation or other disposition of any THCG Shares or any
interest therein.
Section 2.2 Permitted Transfers.
-3-
<PAGE> 134
(a) If the Average Closing Bid Price of the THCG Common
Stock is greater than $4.00 per share, then the Stockholders shall be permitted
to Transfer any of their THCG Shares; provided, however, that if the closing
price of the THCG Common Stock on any trading day thereafter is $2.00 or less,
the Stockholders shall no longer be permitted to Transfer any of their THCG
Shares pursuant to this Section 2.2, unless and until the Average Closing Bid
Price thereafter is greater than $4.00 per share. For the purposes of this
Section 2.2(a), "Average Closing Bid Price" shall mean the average of the last
sale prices of the THCG Common Stock for twenty consecutive trading days, as
reported on the Nasdaq National Market, or the closing bid prices as reported in
the over-the-counter market if the THCG Common Stock is not traded on the Nasdaq
National Market (subject to appropriate adjustment for any stock split, reverse
split, stock dividend, reorganization, recapitalization or other like change
with respect to the THCG Common Stock occurring after the Closing Date).
(b) Notwithstanding anything to the contrary contained in
this Article II, any Stockholder may freely Transfer its THCG Shares, provided
that each such transferee shall first (i) execute and deliver to the
transferring Stockholder a written consent (in the form attached hereto as
Exhibit A) to be bound by all of the provisions of this Article II as though
such transferee were the transferring Stockholder, and (ii) give a duplicate
original of such consent to THCG. The provisions of this Section 2.2(b) shall
not apply if the Board of Directors of THCG so consents.
(c) Notwithstanding anything to the contrary contained in
this Article II, (i) if any of the Walnut Common Stock issued pursuant to
Section 5.6(A) of the Merger Agreement and converted into THCG Common Stock
pursuant to Section 2.1(a) of the Merger Agreement is covered by an effective
registration statement under the Securities Act, then the Walnut Stockholders
may freely Transfer, in the aggregate, a percentage of their THCG Shares equal
to the percentage of the shares of such THCG Common Stock covered by such
registration statement, or (ii) if any of the THCG Common Stock issued to the
stockholders of Tower Hill pursuant to the Merger Agreement is subsequently
covered by an effective registration statement under the Securities Act, then
the Walnut Stockholders may freely Transfer, in the aggregate, a number of their
THCG shares equal to such number of shares of THCG Common Stock covered by such
registration statement.
Section 2.3 Legend. The following statement shall be inscribed on
all certificates representing the THCG Shares held by the Stockholders so long
as this Agreement is in effect with respect to the shares represented by such
certificates:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A VOTING AGREEMENT DATED AS OF AUGUST __, 1999 AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE
THEREWITH. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY, AND THE COMPANY WILL FURNISH A
COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
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<PAGE> 135
ARTICLE III
CERTAIN ADDITIONAL COVENANTS
Section 3.1 Covenant to Effect the Related Transactions. Each of
the Stockholders hereby covenants and agrees to use its commercially reasonable
efforts to approve and to effect the Related Transactions provided for in
Section 5.6 of the Merger Agreement.
Section 3.2 Non-solicitation. Each of the Stockholders hereby
covenants and agrees to immediately cease any existing discussions or
negotiations, if any, with any parties conducted heretofore with respect to any
acquisition or exchange of all or any material portion of the assets of, or any
equity interest in, Walnut or any of its Subsidiaries or any business
combination with Walnut or any of its Subsidiaries, except that any Stockholder
may continue any existing discussions or negotiations with respect to the
acquisition by Walnut of other factoring businesses in exchange for assets of,
or an equity interest in, Walnut. Each of the Stockholders hereby covenants and
agrees that, prior to the Effective Time of the Mergers, it shall not, directly
or indirectly, solicit, initiate, encourage or facilitate, or furnish or
disclose non-public information in furtherance of, any inquiries or the making
of any proposal with respect to any merger, liquidation, recapitalization,
consolidation or other business combination involving Walnut or its Subsidiaries
or acquisition of any capital stock or any material portion of the assets of
Walnut and its Subsidiaries, or any combination of the foregoing (an
"ACQUISITION TRANSACTION"), or negotiate, explore or otherwise engage in
discussion with any Person (other than Tower Hill or its directors, officers,
employees, agents and representatives) with respect to any Acquisition
Transaction, except in accordance with Section 5.14 of the Merger Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representation and Warranties of Stockholders. Each
Stockholder hereby represents and warrants to Tower Hill as follows:
(a) Title. Such Stockholder has good and valid title
to the Walnut Shares listed next to such Stockholder's
name on the signature page hereto, free and clear of any
lien, pledge, charge, encumbrance or claim of whatever
nature.
(b) Ownership of Shares. On the date hereof, the
Walnut Shares listed next to such Stockholder's name on
the signature page hereto, are owned of record or
beneficially by such Stockholder and, on the date hereof,
such Walnut Shares constitute all of the shares or equity
securities of Walnut owned of record or beneficially by
such Stockholder. Such Stockholder has sole voting power
and sole power of disposition with respect to all of the
Walnut Shares listed next to such Stockholder's name on
the signature page hereto, with no restrictions, subject
to applicable federal securities laws, on such
Stockholder's rights
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<PAGE> 136
of disposition pertaining thereto.
(c) Power; Binding Agreement. Such Stockholder has the
legal capacity, power and authority to enter into and
perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement by
such Stockholder will not violate any other agreement to
which such Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement
or voting trust. This Agreement has been, assuming the due
authorization, execution and delivery of the same by each
of the other parties hereto, duly and validly executed and
delivered by such Stockholder and constitutes a valid,
legal and binding agreement of such Stockholder,
enforceable against such Stockholder in accordance with
its terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer,
moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights
generally, and (ii) general principles of equity
(regardless of whether considered in a proceeding at law
or in equity).
Section 4.2 Representations and Warranties of Tower Hill. Tower
Hill hereby represents and warrants to the Stockholders as follows:
(a) Organization; Qualification. Tower Hill has been duly
organized and is validly existing and in good standing under the laws of the
State of New York, and has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted. Tower Hill is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failure to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
(b) Authority Relative to this Agreement. Tower Hill has
all necessary corporate power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated by this Agreement and to
perform its obligations under this Agreement. The execution and delivery by
Tower Hill of this Agreement and the consummation by Tower Hill of the
transactions contemplated by this Agreement have been duly authorized and
approved by the board of directors of Tower Hill, and no other corporate
proceedings on the part of Tower Hill are necessary to authorize this Agreement
and the transactions contemplated by this Agreement. This Agreement has been,
assuming the due authorization, execution and delivery of the same by each of
the other parties hereto, duly and validly executed and delivered by Tower Hill
and constitutes a valid, legal and binding agreement of Tower Hill, enforceable
against Tower Hill in accordance with its terms, subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally, and (ii) general principles of equity (regardless
of whether considered in a proceeding at law or in equity).
-6-
<PAGE> 137
ARTICLE V
MISCELLANEOUS
Section 5.1 Further Assurances. From time to time, at Tower Hill's
request and without further consideration, the Stockholders shall execute and
deliver such additional documents and take all such further action as may be
reasonably necessary to consummate and make effective the transactions
contemplated by this Agreement.
Section 5.2 Entire Agreement; Assignment. This Agreement (i)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise.
Section 5.3 Parties in Interest. Except for THCG, this Agreement
shall be binding upon and inure solely to the benefit of each party hereto and
its successors and permitted assignees, and nothing in this Agreement, express
or implied, is intended to or shall confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 5.4 Amendments. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
Section 5.5 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given by hand
delivery, telegram, telex or telecopy or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to the Stockholders:
at the respective addresses and telecopier
numbers set forth opposite their names on
Schedule I to this Agreement:
With a copy to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Gretchen Anne Trofa, Esq.
Telecopier No.: (312) 984-3150
If to Tower Hill:
Tower Hill Securities, Inc.
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<PAGE> 138
650 Madison Ave.
New York, New York 10022
Attention: Joseph D. Mark, President
Telecopier No.: (212) 223-0161
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
Telecopier No.: (212) 715-8000
or to such other address, person's attention or telecopier number as the person
to whom notice is given may have previously furnished to the others, in writing,
in the manner set forth above.
Section 5.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
Section 5.7 Specific Performance. Each Stockholder recognizes and
acknowledges that a breach by him of any covenants or agreements contained in
this Agreement will cause Tower Hill to sustain damages for which it would not
have an adequate remedy at law for money damages, and therefore each Stockholder
agrees that in the event of any such breach Tower Hill shall be entitled to the
remedy of specific performance of such covenant and agreement and injunctive and
other equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity, without the posting of any bond and without
proving that damages would be inadequate.
Section 5.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same Agreement.
Section 5.9 Descriptive Headings. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 5.10 Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law but if any provision or portion
of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
-8-
<PAGE> 139
SECTION 5.11 WAIVER OF JURY TRIAL. EACH OF TOWER HILL AND EACH
STOCKHOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 140
IN WITNESS WHEREOF, Tower Hill and each Stockholder and Seller
have caused this Agreement to be duly executed as of the day and year first
above written.
TOWER HILL SECURITIES, INC.
By:
------------------------------
Name:
Title:
WINDY CITY, INC.
By:
------------------------------
Name:
Title:
Shares owned:
shares of Common Stock
------------
THE HOLDING COMPANY
By:
------------------------------
Name:
Title:
Shares owned:
shares of Common Stock
------------
THE KANTER FAMILY FOUNDATION
By:
------------------------------
Name:
Title:
Shares owned:
shares of Common Stock
------------
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<PAGE> 141
SCHEDULE I
Windy City, Inc.
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Attention: Joel Kanter
The Holding Company
c/o Neal Gerber & Eisenberg
2 N. LaSalle Street
22nd Floor
Chicago, Illinois 60602
Attention: Burton W. Kanter
copy to:
The Holding Company
c/o Linda Diane Enterprises
N8939 Waterpower Road
Deerbrook, Wisconsin 54424-9635
Attention: Linda Gallenberger
The Kanter Family Foundation
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Attention: Joel Kanter
-11-
<PAGE> 142
EXHIBIT A
Form of Transferee's Consent
CONSENT
TO: THCG, Inc.
650 Madison Avenue
21st Floor
New York, New York 10022
Attention: Joseph D. Mark
The undersigned transferee (the "Transferee") of the
Stockholder of THCG, Inc., a Delaware corporation ("THCG"), named below (the
"Transferring Stockholder") hereby agrees to be bound by all the provisions of
Article II of that certain Voting Agreement dated as of August , 1999 by and
among Tower Hill Securities, Inc., a New York corporation, and certain
stockholders of Walnut Financial Services, Inc., a Utah corporation, as though
the undersigned were an original signatory to said Voting Agreement.
------------------------------
Transferee:
Name of
Transferring
Stockholder:
------------------
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<PAGE> 143
GENERAL SCHEDULES TO EXHIBIT 2.1
SCHEDULES
TO THE
AGREEMENT AND PLANS OF MERGER
BY AND BETWEEN
WALNUT FINANCIAL SERVICES, INC.,
AND
THCG, INC.
AND
BY AND AMONG
THCG, INC.,
TOWER HILL ACQUISITION CORP.,
AND
TOWER HILL SECURITIES, INC.
DATED AS OF AUGUST 5, 1999
<PAGE> 144
SCHEDULE 1.6(a) OFFICERS OF SURVIVING CORPORATION 1
Joseph D. Mark - Co-Chief Executive Officer
Adi Raviv - Co-Chief Executive Officer
Shai Novik - Chief Operating Officer/Chief Financial Officer/Secretary
SCHEDULE 2.1(b)(i) WALNUT OPTIONS NOT CANCELLED
<TABLE>
<CAPTION>
HOLDER PLAN NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
- ------ ---- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Jeffrey Pyatt (1) 16,667 $7.8750 1/27/08
Eugene Scalercio (1) 13,334 $10.86 2/28/03
Jeremy Shamos (1) 1,000 $13.50 1/1/06
Various (3) 633,334 $9.00 10/15/02
Linda Gallenberger (2) 4,871 $10.80 9/6/04
Victoria Ross (2) 7,306 $10.80 9/6/04
Jeremy Shamos (2) 5,585 $10.80 9/6/04
James A. Weisgal (2) 1,397 $10.80 9/6/04
Lawrence J. Weisgal (2) 1,397 $10.80 9/6/04
Richard P. Weisgal (2) 1,397 $10.80 9/6/04
Lee W. Weisgal (2) 1,397 $10.80 9/6/04
</TABLE>
(1) Amended and Restated NFS Services, Inc. (Utah) 1994 Incentive Stock
Option Plan
(2) Walnut Capital Corporation 1987 Stock Option Plan, as amended
(3) Class A Warrants issued subject to the Class A Warrant Agreement
dated October 15, 1997 by and between Walnut and Corporate Stock
Transfer, Inc.
SCHEDULE 2.1(b)(ii) WALNUT OPTIONS TO BE REPURCHASED
<TABLE>
<CAPTION>
============================================================================================
HOLDER NUMBER OF OPTIONS BLACK-SCHOLES VALUE TOTAL PURCHASE PRICE
TO BE PURCHASED PER OPTION
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert F. Mauer 16,667 $0.14 $2,333.38
- --------------------------------------------------------------------------------------------
4,167 $0.30 $1,250.10
- --------------------------------------------------------------------------------------------
Burton W. Kanter 41,655 $0.09 $3,748.95
- --------------------------------------------------------------------------------------------
Joel S. Kanter 33,324 $0.09 $2,999.16
============================================================================================
</TABLE>
SCHEDULE 5.1(b)(xi) TRANSFER OF ASSETS PRE-CLOSING
Sale of 58,633 shares of Vidikron of America, Inc. by Tower Hill to
Hambro America, Inc. for a purchase price of $49,837.63.
Sale of stock receivable in the amount of 58,633 shares of Common Stock
of Vidikron by Tower Hill to Hambro America, Inc. for a purchase price of
$49,837.63.
<PAGE> 145
Sale of doubtful receivables, owed to Tower Hill, by Tower Hill to
Hambro America, Inc. for a purchase price equal to fair market value.
Transfer of $90,000 by Tower Hill to Hambro America, Inc.
SCHEDULE 5.1(b)(xii) CANCELLATION OF CERTAIN INDEBTEDNESS PRE-CLOSING
Promissory Note, dated December 26, 1998, executed by Joseph Mark in
the principal amount of $50,000. This Promissory Note will be forgiven
pre-Closing.
Promissory Note, dated December 26, 1998, executed by Adi Raviv in the
principal amount of $50,000. This Promissory Note will be either repaid or
forgiven pursuant to Section 5.26 of the Merger Agreement.
In December 1998, Tower Hill loaned an aggregate of $219,299.16 to
Joseph D. Mark, Adi Raviv and Yoav Bitter. These loans are noninterest-bearing
and have no specified maturity date. The loan to Mr. Mark, in the amount of
$82,237.185, will be forgiven pre-Closing. The loan to Mr. Raviv, in the amount
of $82,237.185, will be either repaid or forgiven pursuant to Section 5.26 of
the Merger Agreement. The loan to Mr. Bitter, in the amount of $54,824.79, will
not be forgiven pre-Closing, but is expected to be resolved in the NASD
arbitration proceeding referred to in Schedule 3.9(b).
SCHEDULE 5.1(b)(xiii) ACQUISITIONS OF SECURITIES
Stock Purchase Agreement, dated July 29, 1999, between Tower Hill and
Carnegie Partners, pursuant to which Carnegie Partners will sell 57,381 shares
of Series B Preferred Stock of RTImage Ltd. and a warrant to purchase 7,371
shares of Series B Preferred Stock of RTImage Ltd. to Tower Hill for a purchase
price of $64,751 plus interest thereon. Adi Raviv owns 50% of Carnegie Partners.
Stock Purchase Agreement, dated July 29, 1999, between Tower Hill and
HTI Ventures LLC, pursuant to which HTI Ventures LLC will sell 200 shares of
Convertible Preferred Class B Stock of Sunshine Media Corporation to Tower Hill
for a purchase price of $25,000 plus interest. Adi Raviv holds a 99% interest in
HTI Ventures LLC.
SCHEDULE 5.2(b)(ix) CERTAIN PERMITTED INDEBTEDNESS
Walnut is permitted to increase its indebtedness by $2,000,000 provided
such loan proceeds are used to repay the outstanding $2,000,000 debenture issued
by Walnut Capital Corporation to SBIC Funding Corp.
SCHEDULE 5.2(b)(x) CERTAIN PERMITTED PAYMENTS
<PAGE> 146
Payment of $2,000,000, plus accrued interest, to SBIC Funding Corp. in
accordance with the terms of the outstanding $2,000,000 debenture issued by
Walnut Capital Corporation to SBIC Funding Corp. and any debt incurred pursuant
to Schedule 5.2(b)(ix).
SCHEDULE 5.6(B) CERTAIN DEBTS/LIABILITIES OF WALNUT FINANCIAL SERVICES,
INC. AND ITS SUBSIDIARIES
<TABLE>
<CAPTION>
========================================================================
<S> <C>
The Holding Company $200,000
------------------------------------------------------------------------
William J. Von Liebig 1994 Charitable $600,000
Remainder Unitrust
------------------------------------------------------------------------
Kanter Family Foundation $250,000
------------------------------------------------------------------------
Windy City, Inc. $43,000
------------------------------------------------------------------------
TOTAL $1,093,000
========================================================================
</TABLE>
<PAGE> 147
SCHEDULE 5.20(a) THCG OPTIONS
<TABLE>
<CAPTION>
(A) (B)
<S> <C> <C>
Joseph D. Mark 250,000 200,000(1)
Adi Raviv 250,000 200,000(1)
Joel S. Kanter 90,000(1)
Burton W. Kanter 70,000(1)
Robert F. Mauer 50,000(1)
Joshua S. Kanter 25,000(1)
Solomon A. Weisgal 20,000(1)
William F. Burge III 20,000(1)
Albert Morrison 20,000(1)
Earl Chapman 20,000(1)
Gene E. Burleson 20,000(1)
Shea Cordell 15,000(1)
Total 1,250,000
</TABLE>
(1) The terms of such options shall be as follows:
(i) The options shall have an exercise price of $2.00 per share or
such other higher or lower exercise price as is equal to the
exercise price of the 500,000 options to be issued to Joseph
D. Mark and Adi Raviv as contemplated by column (A) of this
Schedule (the "Mark/Raviv Options").
(ii) The options shall have a term of five (5) years or such longer
term as is equal to the term of the Mark/Raviv Options.
(iii) The options shall be immediately exercisable.
(iv) The options shall not be subject to forfeiture.
(v) The options shall be non-transferable.
<PAGE> 1
EXHIBIT 99.1
CONTACT:
Joel S. Kanter, Chief Executive Officer
Walnut Financial Services, Inc.
703-448-3771/email: [email protected]
Joseph D. Mark, President
Tower Hill Securities, Inc.
212-223-8277/email: [email protected]
FOR IMMEDIATE RELEASE
WALNUT FINANCIAL SERVICES, INC. SIGNS DEFINITIVE AGREEMENT
FOR MERGER WITH TOWER HILL SECURITIES, INC., AN INTERNET MERCHANT BANK
VIENNA, VIRGINIA, AUGUST 5, 1999 -- Walnut Financial Services, Inc.,
(Nasdaq: WNUT), an acquisition-oriented company engaged in the provision of
various forms of financing to small and medium sized businesses, and Tower Hill
Securities, Inc., announced today that they entered into a Definitive Agreement
to merge Tower Hill with a subsidiary of Walnut Financial. Tower Hill is a New
York-based, privately held NASD-registered broker-dealer that provides a variety
of investment banking and corporate development services to Internet,
e-commerce, and new media businesses. Under the terms of the Definitive
Agreement, Walnut Financial will issue approximately 55% of its common stock to
the Tower Hill shareholders in the form of newly issued shares, and will provide
for Tower Hill to initially designate four members of the Company's seven person
Board of Directors. As a condition to the merger, Walnut will also complete a
private placement of at least 1.5 million shares and up to 3.0 million shares of
its equity at $2.00 per share to provide additional working capital. Such equity
will not be registered under the Securities Act of 1933, and may not be offered
or sold in the United States absent registration or an applicable exemption from
registration requirements. Upon completion of the merger and private placement,
the existing Walnut shareholders and the Tower Hill shareholders will each own
between 38% - 42% of the combined concern.
It is a condition to the consummation of the merger that Walnut
Financial and its subsidiaries are deregistered as business development
companies under the Investment Company Act of 1940. The merger is also subject
to the approval of the shareholders of Walnut Financial and other customary
closing conditions.
Tower Hill was formerly known as Hambro America Securities, Inc., and
operated until April 1998 as the U.S. Corporate Finance Division of Hambros plc,
a United Kingdom-based publicly traded merchant banking firm active in a variety
of financial services. In February 1998, Hambros plc sold a portion of its
operations, including Tower Hill, to the French bank Societe Generale. In April
1998, Tower Hill was acquired by its present shareholders from Societe Generale,
and was restructured as a privately capitalized merchant banking boutique.
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Since April 1998, Tower Hill has provided an array of investment
banking and corporate development services to domestic and international
emerging growth entities, focusing on Internet, e-commerce, and new media. It
has assisted these companies in capital raising, mergers and acquisitions,
recapitalizations and refinancings, and general advisory and business
development services. During this period, Tower Hill has successfully completed
11 transactions on behalf of nine separate entities, building both a strong
operating business and valuable relationships with internet and e-commerce
concerns in the process.
"While there are a number of similarities between the kind of
activities Walnut has traditionally undertaken on behalf of its portfolio
companies, and those provided by Tower Hill to its clients, we believe this
affiliation will allow the combined concern to offer Internet, e-commerce, and
new media companies a greater variety of investment banking, corporate
development services, and capital raising options than would have been possible
had Walnut continued to try to assist such companies on its own" said Joel
Kanter, Chief Executive Officer of Walnut Financial Services. Joseph D. Mark,
Co-Chief Executive Officer of Tower Hill Securities said, "We are very pleased
with the prospect of our affiliation with Walnut Financial Services and the
opportunity to combine its historical equity investment and bridge financing
capabilities with our merchant banking expertise." "The ability to offer an
array of financing and service options of this magnitude to growing companies in
the Internet, e-commerce, and new media arenas should provide significantly
enhanced profit opportunities for the combined company," said Adi Raviv,
Co-Chief Executive Officer of Tower Hill Securities.
The Definitive Agreement has been approved by the Boards of Directors
of both Walnut Financial Services, Inc. and Tower Hill Securities, Inc. It has
also been approved by the Shareholders of Tower Hill Securities, Inc. Approval
of the Shareholders of Walnut Financial Services, Inc. will be sought at a
Special Shareholders' Meeting that both parties hope will take place in
late-October. A Proxy Statement for this meeting will be filed with the
Securities and Exchange Commission and mailed to shareholders several weeks
before the meeting. Upon the approval of the Walnut Shareholders, the parties
intend to close the transaction as expeditiously as possible.
Walnut Financial Services, Inc. is a publicly-held company which has
made equity and debt investments in over 150 portfolio companies. In October
1997, the Company elected to be regulated as a business development company
under the Investment Company Act of 1940. As such, the Company's financial
statements are prepared using an equity method of accounting, and are not
necessarily comparative to those prepared prior to this election. It is
anticipated, subject to the approval of the Walnut Shareholders and the
Securities and Exchange Commission, that the proposed transaction will result in
the combined Company no longer being subject to regulation under the Investment
Company Act of 1940.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: The statements contained in this release which are not historical facts
are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. These risks and uncertainties include the
Company's entry into new commercial businesses, the risk of obtaining financing,
and other risks described in the Company's Securities and Exchange Commission
filings.
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