SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26072
THCG, INC.
(Exact Name of Registrant as Specified in Its Charter)
Utah 87-0415597
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
650 Madison Avenue, 21st Floor, New York, NY 10022
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (212) 223-0440
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Securities registered pursuant to Section 12(b) of
the Act:
NONE
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, par value $0.01 per share
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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The aggregate market value of the registrant's Common Stock, held by
non-affiliates of the registrant, based on the closing sale price of the Common
Stock on March 24, 2000 as reported on the Nasdaq National Market, was
$44,950,053. As of March 24, 2000, there were 12,579,635 shares of the
registrant's Common Stock outstanding.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement, which will be filed
within 120 days of December 31, 1999, are incorporated by reference into Part
III.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are an Internet incubator company that provides venture funding,
venture development and venture banking services to companies in which we
acquire direct or indirect equity interests, also referred to throughout this
Annual Report as our "partner companies." We are penetrating new markets by
developing our international operations and by expanding our global coverage of
the Internet industry. Our partner companies include Internet-based businesses,
established "brick and mortar" companies implementing an Internet-based strategy
and advanced technology and service companies. By providing our partner
companies with capital and a combination of enterprise-enhancing venture
development and venture banking services, we believe that we help our partner
companies focus on their core strengths, so that they may bring their products
and services to market more rapidly.
Our goal is to build dominant Internet-based businesses with a global
presence that are highly differentiated and have viable business models, and to
acquire equity interests in those businesses. To date, we have, and we continue
to acquire equity interests in our partner companies through a venture fund that
is managed by one of our wholly-owned subsidiaries and in which we own a 9.9%
interest. On certain occasions, we have also acquired direct equity interests in
our partner companies. In the future, our venture funding strategy is to acquire
direct equity interests of at least 25% in our partner companies. Although we do
not intend to engage in short-term sales of our equity interests in our partner
companies, we hope to realize gains through the selective sale of our equity
interests over a period of time.
We seek to build our partner companies and to maximize the value of our
equity interest in them by providing venture development and venture banking
services to our partner companies and by promoting innovation and collaboration
among them. Our venture development services include strategic and management
consulting services, as well as business infrastructure services. Our venture
banking services include general advisory services, as well as advising our
partner companies on capital raising transactions, mergers and acquisitions and
recapitalizations and refinancings. By providing these venture development and
venture banking services, together with our venture funding activities, we
believe we are able to provide critical services to our partner companies at
every stage of their development.
We believe that our ability to finance, build and advise our partner
companies differentiates us from our competitors, who typically provide services
designed to address more specific needs of Internet-based businesses. We also
believe that our global focus will differentiate us from our competitors who
tend to have more regional focuses.
We are a Utah corporation formerly known as Walnut Financial Services,
Inc. Our executive offices are located at 650 Madison Avenue, 21st Floor, New
York, New York 10022. Our phone number is (212) 223-0440. References in this
Annual Report to "THCG" or "us" or "our" mean THCG and its subsidiaries on a
consolidated basis, unless the context otherwise requires.
RECENT HISTORY
On November 1, 1999:
o We acquired Tower Hill Securities, Inc., a New York
corporation. Tower Hill Securities is the successor to Hambro
America Securities, Inc., the former U.S. investment banking
subsidiary of Hambros, plc, a British merchant banking firm.
In March 1998, the investment banking operations of Hambros,
plc were sold to Societe Generale, a French bank. On April 1,
1998, Joseph D. Mark and Adi Raviv, the principal executives
of Hambro America Securities, Inc., acquired the company from
Societe Generale.
o We changed our name from Walnut Financial Services, Inc. to
THCG, Inc.
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o Our executive officers resigned and were replaced with Joseph
D. Mark, Adi Raviv and Shai Novik, the three principals of
Tower Hill Securities. Messrs. Mark and Raviv became our
co-chief executive officers and Mr. Novik became our chief
operating officer.
o All of the members of our board of directors resigned, with
the exception of Gene E. Burleson, Burton W. Kanter and Joel
S. Kanter, and were replaced with a new board of directors
consisting of individuals designated by Tower Hill Securities.
o We raised approximately $7 million in several private
placements with Greenwich Street Capital Partners II, L.P. and
other investors.
o We withdrew our election to be regulated as a business
development company under the Investment Company Act of 1940,
as amended. Prior to November 1, 1999, we were a closed-end
management investment company which was regulated as a
business development company under the Investment Company Act,
and had three primary business focuses: (1) investing in
start-up and early stage development companies, (2) operating
an investment vehicle that specialized in bridge financing to
small and medium-sized companies, and (3) providing accounts
receivable-based commercial financing, or factoring, and
related services.
As part of our new business strategy, on December 29, 1999, we acquired
Mercury Coast Inc., a Delaware corporation that provides business incubation
services, including strategic planning, operations and marketing consulting
services, to Internet-based businesses. Larry W. Smith, the co-founder and
president of Mercury Coast and co-founder and former chief executive officer of
U.S. Interactive, became our president on December 29, 1999. On February 29,
2000, we entered into a letter of intent to acquire the investment banking and
equity research businesses of the Giza Group, a private financial advisory and
equity research firm in Israel that specializes in the Internet and related
technologies.
INDUSTRY OVERVIEW
The Role of The Internet
The Internet has emerged as a medium for communications, content and
commerce between businesses, consumers and government entities. Several factors
are contributing to the increase in use of the Internet, including increased
speed and capacity through greater bandwidth, improved ease of access, greater
functionality, expanded information needs and entertainment desires, and
increased and enhanced business relationships and commerce opportunities.
The increase in use of the Internet is evidenced by the dramatic growth
in the number of Internet users worldwide. International Data Corporation, an
independent research firm, estimates that the number of Internet users worldwide
will increase from 196 million in 1999 to 502 million in 2003, a compounded
annual growth rate of 27%. Similarly, International Data Corporation estimates
that the growth of Internet content, as measured by the number of web pages
worldwide, will grow from 1.7 billion web pages in 1999 to 13.4 billion web
pages in 2003, a compounded annual growth rate of 67%. In addition, Forrester
estimates that business-to-business e-commerce will increase from approximately
$109 billion in 1999 to $1.8 trillion in 2003. The increase in use of the
Internet has led to the proliferation of start-up companies and established
"brick and mortar" companies seeking to capitalize on new market opportunities
presented by the Internet.
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The Venture Capital and Start-up Market
The success of Internet-based entrepreneurial initiatives has led to an
increase in the demand for early-stage venture capital. According to
PricewaterhouseCoopers, venture capital investments reached a record high of
approximately $35.6 billion in 1999, compared to approximately $14.2 billion in
1998. The vast majority of venture capital being invested is directed towards
high technology companies. A total of 3,360 technology-based companies,
including Internet-related businesses, raised approximately $32.4 billion in
1999, comprising more than 90% of all venture capital investments made during
1999. Furthermore, formative stage companies, those in the start-up and early
stages of development, garnered the most funding in 1999, capturing
approximately $15 billion, or 42%, of the aggregate amount spent on venture
capital investments. These formative stage companies represented approximately
50% of all businesses that raised venture capital funding during the same
period.
Challenges for Start-Up Companies
We believe that both start-up Internet-based businesses and established
"brick and mortar" companies implementing an Internet-based strategy face
special challenges that may jeopardize the viability of their entrepreneurial
ventures and affect their ability to attract venture capital. These challenges
include:
o Developing a successful business model. To be successful,
start-up Internet-based businesses and "brick and mortar"
companies implementing an Internet-based strategy must develop
business models that enable them to identify opportunities
within both domestic and globally-targeted markets, develop
and effectively market solutions to satisfy specific industry
needs, build brand recognition and an online presence to
attempt to establish market leadership and secure valuable
strategic relationships.
o Building corporate infrastructure. Many start-up
Internet-based businesses and "brick and mortar" companies
implementing an Internet-based strategy require operational
and strategic guidance regarding market position, business
model implementation and market trends; technology and
operations planning; sales, marketing, product positioning and
branding; market launch programs and implementation
consulting; e-commerce consulting; and interim management.
These companies also require significant amounts of capital
and other general financial advisory services.
o Attracting experienced professionals. Start-up Internet-based
businesses and "brick and mortar" companies implementing an
Internet-based strategy also have difficulty identifying and
hiring management and senior-level technical personnel and
addressing personnel deficiencies. Similarly, many start-up
companies are uncertain about how to acquire and retain a team
of professional service providers such as attorneys,
accountants, and other key advisors, to execute their business
strategy.
Venture capital firms, the traditional source of capital for start-up
Internet-based businesses, have primarily focused on providing capital and
typically have not offered the strategic, consulting and business infrastructure
services or general financial advisory services needed by start-up Internet
companies and established "brick and mortar" companies implementing an
Internet-based strategy.
Internet Services Firms
Many companies, regardless of their stage of development, have realized
that an effective Internet strategy and solution may be paramount to the
competitiveness and sustainability of their businesses. An increasing number of
organizations, from established "brick and mortar" companies implementing an
Internet-based strategy to start-up Internet-based businesses, are engaging
Internet services firms. International Data Corporation projects that spending
on Internet-related services will rise from approximately $13 billion in 1999 to
more than $78 billion in 2003, a compounded annual growth rate of 57%.
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OUR SOLUTION
Our solution to the challenges confronting Internet-based businesses
and established "brick and mortar" companies implementing an Internet-based
strategy is to utilize our competitive strengths to implement our strategy as
set forth below.
Competitive Strengths
We believe we offer the following capabilities to Internet-based
businesses and established "brick and mortar" companies:
Integrated service offerings. We believe that the combination of
venture funding, venture development and venture banking services that we offer
distinguishes us from other Internet incubator companies because they enable us
to provide critical services to our partner companies at every stage of their
development. In contrast, many of our competitors offer individual services
designed to address a particular need of Internet-based business, such as
funding, management consulting or investment banking. For example, while
investment banks provide venture banking services and venture capital firms
provide venture funding services, neither generally provides venture development
services. Further, public companies, such as Internet Capital Group, Inc., Rare
Medium Group Inc., Softbank Corp. and CMGI, Inc., provide some combination of
venture funding and venture development services, but do not currently provide
venture banking services.
Experienced management. We believe our multi-disciplinary management
team and employee base enables us to provide our partner companies with the
combination of venture funding, venture development and venture banking services
that we offer. Our management team combines individuals who have investment
banking, merchant banking, finance and private equity management expertise with
individuals who have Internet professional services, business development,
management consulting, marketing and technology expertise. In addition, we
recruit and hire highly skilled and experienced professionals who have
industry-specific expertise and who are proficient in a broad range of
technological and business skills.
Global focus. We are an Internet incubator company that is penetrating
new markets by developing our international operations and by expanding our
global coverage of the Internet industry. To date, we have a representative in
Israel and we have entered into a letter of intent to acquire the investment
banking and equity research businesses of the Giza Group, a financial advisory
and equity research firm in Israel, which specializes in the Internet and
related technologies. We believe Israel is an important center of technology
development and innovation. Our Israeli representative has been developing
direct relationships with our Israel-based partner companies. At the same time,
these partner companies are able to benefit from the full range of venture
funding, venture development and venture banking services that we offer. We
intend to replicate this model on a global basis by developing our global
coverage of the Internet industry and developing our international operations.
We believe that developing a global focus will differentiate us from our
competitors who tend to have more regional focuses.
Strategy
Our goal is to build dominant Internet-based businesses with a global
presence that are highly differentiated and have viable business models and to
acquire equity interests in those businesses. Our strategy to achieve this goal
is to:
Expand our venture funding and venture development activities. To date,
we have conducted our venture funding activities through a venture fund in which
we indirectly own a 9.9% interest. In the future, we intend to expand our
venture funding and venture development activities by:
o acquiring direct equity interests of at least 25% in our
partner companies;
o actively participating on the board and in the management,
financing and operation of our partner companies, thereby
enabling our partner companies to focus their efforts on
product development and marketing, rather than on the many
other aspects of building a business; and
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o promoting innovation and collaboration among our partner
companies, by providing them with marketing and cross-selling
opportunities and by encouraging them to share information and
business expertise with one another.
We will need to raise substantial additional capital to implement this
aspect of our strategy.
Develop global coverage and international operations. A key element of
our strategy is to continue to develop our global coverage of the Internet
industry and develop our international operations. We recently signed a letter
of intent to acquire the investment banking and equity research businesses of
the Giza Group, a private financial advisory and equity research firm in Israel
that specializes in the Internet and related technologies. Our plan is for the
Giza Group to implement our present strategy in Israel and in the Middle East.
We are also actively seeking to commence or acquire operations in Europe, Asia
and South America in the future. We believe that establishing an early presence
in select international markets that we believe are positioned to experience an
increased demand for venture funding, venture development and venture banking
services for Internet companies could give us a competitive advantage in these
markets. Moreover, by developing and expanding our international operations, we
expect to be positioned to launch our partner companies on a global basis.
Growth through acquisitions. We plan to pursue acquisitions of, or
collaborative relationships with, businesses that complement our business
strategy. For example, our acquisition of Mercury Coast, a provider of business
incubation services to Internet-based businesses, enhanced our venture
development capabilities. In the future, we intend to evaluate potential
acquisitions of other Internet-focused businesses that enhance our ability to
provide our partner companies with venture funding, venture development and
venture banking services.
Expand infrastructure. We intend to develop the infrastructure
necessary to implement our business strategy of acquiring equity interests in
additional partner companies and penetrating new markets by developing our
international operations and by expanding our global coverage of the Internet
industry. We are committed to:
o improving our operational and financial systems;
o expanding our information technology systems;
o leasing more space, including a larger facility in New York
City, to accommodate our operations and some of our partner
companies; and
o expanding, training, retaining and managing our employee base.
Attract and retain a highly specialized workforce. We intend to
continue to recruit highly skilled and experienced professionals who have
industry-specific expertise and who are proficient in a broad range of
technological and business skills. We intend to continue to ensure that our
employees have the requisite expertise to provide our partner companies with the
combination of venture funding, venture development and venture banking services
that we offer. We plan to attract, retain and motivate our employees by paying
competitive compensation packages, granting stock options and encouraging a
corporate culture that is results-driven and rewards creativity, communication
and cooperation.
Focus on partnering with potential market leaders. We intend to
continue to focus on acquiring direct equity interests in and on partnering with
Internet-based businesses that we believe have the potential to become market
leaders. We will continue to select our partner companies through a
comprehensive screening process. In evaluating potential partner companies, we
will continue to analyze the size and growth of the target markets that their
products and services address and assess their ability to achieve commercial
success and gain significant market share.
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Establish market presence. We believe that strengthening the THCG brand
is an important aspect of attracting partner companies. We intend to increase
public awareness of our company and establish a market presence by:
o organizing and sponsoring conferences to establish our
position within the industry and with Internet companies; and
o enhancing our web site.
OUR PARTNERING PROCESS
We identify potential partner companies in a variety of ways, including
referrals from existing partner companies, members of our board of directors and
board of advisors and unsolicited proposals and business plans submitted to our
web site. We have developed criteria that we believe allow us to identify
attractive partner companies. Our evaluation procedures are designed to ensure
that we maximize the number of opportunities we review and that we complete
transactions in a rapid and efficient manner.
Partner Company Criteria
We believe that there are several key elements to evaluating the
potential success of global Internet-based businesses, established "brick and
mortar" companies implementing an Internet-based strategy and advanced
technology and service companies. We target our venture funding, venture
development and venture banking services to companies with several of the
following characteristics:
o Strong founding entrepreneurial team. We look for companies
whose founding entrepreneurs have proven operating success and
experience in previous ventures, sector knowledge,
entrepreneurship and vision, and the foundation from which to
build a potentially successful business entity.
o Innovation and technological expertise. We seek companies with
perceived innovative and compelling ideas that we believe
allow them to address market needs or establish potentially
new market opportunities. We also look for companies with a
demonstrable technological advantage that could prevent
competitors from easily entering their market. In addition, we
look for companies with accomplished technical teams that
appear to have the skills to bring their concepts to market
quickly, enabling them to capitalize on market opportunities.
o Viable business models and superior products and services. We
favor companies with viable business models that involve
products and services that could produce high gross margins.
o Large target market and favorable competitive dynamics. We
seek companies that target large and rapidly growing markets
both domestically and globally. The size of the target market
and a company's share of that market enable us to assess the
potential future value of that company. We also favor
companies with perceived strong competitive positions, as well
as industries where there are no apparent dominant
Internet-based businesses. As part of our assessment, we
evaluate current competitors and potential market entrants.
o Early stage development. We seek companies which are in their
early stages of development and in which we can be the first
professional investor. In addition, we look for companies
which can take advantage of and benefit from our venture
funding, venture development and venture banking services.
o Exit strategy. We favor companies which we believe will be
able to reach the stage of development necessary to complete
an initial public offering or to be acquired.
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Evaluation Process
Our evaluation process is designed to identify attractive partners and
assess their value. This process, which is conducted through venture teams
comprised of our venture funding, venture development and venture banking
professionals, consists of the following steps:
o Initial evaluation. In this initial stage of our evaluation
process, our venture teams assess a potential opportunity from
a conceptual level. Our venture teams review a potential
partner company's business plan and meet with its founding
entrepreneurs to gather information about the potential
partner company's business, market opportunity, state of
development, marketing plan, competitive situation, technical
team and capital and infrastructure needs. This initial
evaluation enables our venture teams to determine whether an
opportunity fits within our overall business strategy.
Suitable opportunities are then subjected to the due diligence
phase of our evaluation process.
o Due diligence. The second step of our evaluation process
involves a comprehensive due diligence investigation of a
potential partner company. Our venture teams assess the
overall business opportunity by performing an in-depth
financial review and valuation of the potential partner
company, reviewing its technical capabilities and conducting
more specialized reviews of areas critical to its success. In
addition, we engage legal counsel to conduct legal due
diligence of the potential partner company.
o Management approval. Upon completion of due diligence, our
venture teams make a recommendation to senior management.
Senior management then determines whether we will pursue a
relationship with a potential partner company.
Upon completion of our evaluation process, we typically acquire an
equity interest in a partner company in exchange for a substantial cash
investment. At the same time, our venture development teams, working together
with the management of our partner companies, assess the operational, strategic
and financial needs of our partner companies and determine the level of venture
development services that we can provide to satisfy those needs. We also provide
venture banking services to our partner companies as needed to implement the
proposals of our venture development teams as they relate to capital raising
transactions, mergers and acquisitions and recapitalizations and refinancings.
In exchange for our venture development and venture banking services, we receive
compensation in the form of cash, securities or a combination of both.
VENTURE FUNDING SERVICES
To date, we have and continue to acquire equity interests in our
partner companies through a venture fund that is managed by one of our
wholly-owned subsidiaries and in which we own a 9.9% interest. On certain
occasions, we have acquired direct equity interests in our partner companies. In
the future, our venture funding strategy is to acquire direct equity interests
of at least 25% in our partner companies. Our venture funding activities are
primarily focused on global Internet-based businesses, established "brick and
mortar" companies implementing an Internet-based strategy and advanced
technology and service companies.
We believe that we have an advantage over other Internet investors in
identifying and selecting partner companies with the most growth and development
potential due to:
o our understanding of Internet business models gained through
our venture development and venture banking experience; and
o our team of venture funding, venture development and venture
banking professionals who are able to help us identify
high-quality companies and perform coordinated due diligence
on these potential investments.
In addition, we believe that we are better able to increase the
likelihood of the success of our partner companies by providing them with:
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o access to our team of venture funding, venture development and
venture banking professionals;
o our venture development services, which we believe may enable
us to help build our partner companies into market leaders;
o our venture banking services, which we believe may enable us
to facilitate successful financing and mergers and
acquisitions transactions for our partner companies; and
o the opportunity to collaborate with one another.
Our Venture Fund
THCG Venture Partners I LLC, a Delaware limited liability company, is
the vehicle through which we have, until now, provided our venture funding
services. We own 9.9% of THCG Venture Partners I through THCG LLC, a Delaware
limited liability company and a wholly-owned subsidiary of Tower Hill
Securities. In addition, THCG Ventures LLC, a wholly owned subsidiary of Tower
Hill Securities, is the non-member manager of THCG Venture Partners I, with the
sole authority to manage and operate THCG Venture Partners I.
THCG Venture Partners I was formed in December 1999 and has $20
million of committed equity. THCG Venture Partners I has three members as
follows:
o Greenwich Street Capital Partners II, L.P., a Delaware limited
partnership, and certain of its affiliates directly own 75% of
THCG Venture Partners I, representing a capital commitment of
$15 million. Greenwich Street Capital Partners II and these
affiliates are major stockholders of THCG, and one of their
designees is a member of our board of directors.
o THCG Partners LLC, a Delaware limited liability company,
directly owns 15.1% of THCG Venture Partners I, representing a
capital commitment of $3.02 million. THCG Partners LLC was
formed in December 1999 and has $5.51 million of committed
equity. THCG Partners LLC has 29 members as follows:
|_| Three of our directors and executive officers, Joseph
D. Mark, Evan M. Marks and Larry W. Smith, collectively
own 10.44% of THCG Partners LLC, representing an
aggregate capital commitment of $553,425.
|_| Several persons associated with Joseph D. Mark and Adi
Raviv, directors and co-chief executive officers of
THCG, collectively own 19.96% of THCG Partners LLC,
representing an aggregate capital commitment of $1.1
million.
|_| THCG Ventures LLC, a Delaware limited liability company
and a wholly-owned subsidiary of Tower Hill Securities,
owns 0.45% of THCG Partners LLC, representing a capital
commitment of $25,000. We have a 0.45% equity interest
in THCG Partners LLC through our indirect ownership of
THCG Ventures LLC.
|_| All other members collectively own 69.15% of THCG
Partners LLC, representing an aggregate capital
contribution of $3.8 million.
o THCG LLC owns 9.9% of THCG Venture Partners I, representing a
capital commitment of $1.98 million.
Structure of Interests in Partner Companies
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To date, in exchange for cash investments, THCG Venture Partners I has
acquired equity interests in our partner companies consisting of common stock or
convertible preferred stock. Whenever possible, THCG Venture Partners I has
obtained the right to designate at least one director of our partner companies
and has obtained rights of participation in, or control over, a number of
material decisions affecting our partner companies. THCG Venture Partners I has
also negotiated for additional rights, including registration rights, rights of
first refusal, co-sale rights, anti-dilution protection and preemptive rights
relating to our partner companies' issuances of additional equity. THCG Venture
Partners I has also required our partner companies to appoint designated
directors to the executive, audit and compensation committees of their boards of
directors. On certain occasions, we have acquired an equity interest in our
partner companies at the same time THCG Venture Partners I acquired its equity
interest.
The convertible preferred stock that THCG Venture Partners I has
acquired in our partner companies generally votes as if it were converted into
common stock. Conversion is at the holder's option or is automatic upon an
initial public offering of the common stock of our partner company that meets
criteria generally relating to the total offering size and offering price per
share.
In the future, we intend to acquire direct equity interests of at least
25% in our partner companies. We plan to adopt the same acquisition strategy
that THCG Venture Partners I has applied in the past. We have changed our
strategy because we believe we can maximize the potential value of our partner
companies if we acquire greater interests in a smaller selection of partner
companies in which we have the resources to actively participate in their
development. In addition, we plan to take a more active role in managing,
operating and financing our partner companies. If we are successful in our
strategy of actively managing the operations of our partner companies, we
believe we will be able to avoid regulation under the Investment Company Act.
VENTURE DEVELOPMENT SERVICES
The nature of the venture development services that we provide to our
partner companies is dictated by their stage of development. We expect that our
partner companies will be in one of the following four stages of development,
which we classify as tiers:
o Tier Zero. Tier Zero companies are those companies that have
business ideas but no financial resources or expertise to help
develop those ideas into a meaningful business plan. At Tier
Zero, we form companies that fit into our business strategy
and add value to our partner company network. We then develop
and refine the new company's business model; lend management
resources to facilitate the initial marketing, business
development and strategic development of the company; hire
employees; provide office space; and assume all financial,
accounting and legal functions.
o Tier I. Tier I companies are in an early stage of development.
These companies have a business plan but have limited or no
infrastructure or institutional financing to implement their
business plan.
o Tier II. Tier II companies are more developed than Tier I
companies. These companies are operational, but still need
business strategy refinement, assistance with technology
issues, operations support, financing and possibly interim
management.
o Tier III. Tier III companies are seasoned companies. The
companies are more developed than Tier II companies, but
require marketing and branding, business development,
financial advisory services and substantial financing.
We provide a wide range of venture development services to our partner
companies which include:
o strategic guidance regarding market positioning, business
model development and market trends;
o technology and operations planning;
o sales, marketing, product positioning and branding;
o market launch programs and implementation consulting;
o e-commerce consulting; and
o interim management.
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Venture Development Fees
For our venture development services, we negotiate fees with our
partner companies based on the scope of venture development services that we are
engaged to provide. Our fees are generally paid in cash, securities or a
combination of both. In addition, we are typically reimbursed for the expenses
we incur in providing our venture development services.
VENTURE BANKING SERVICES
We provide our partner companies with venture banking services through
Tower Hill Securities, a registered broker-dealer and a member of the National
Association of Securities Dealers. Our venture banking services encompass four
principal areas:
o General financial advisory services. We assist our partner
companies in planning and developing their capital structures.
In addition, we provide our partner companies with valuations
and fairness opinions.
o Capital raising. We help our partner companies implement
private placements of equity and debt securities. Typically,
we seek to effect private placements of equity ranging in
amounts from approximately $5 million to $50 million. Our
capital raising activities include preparing private offering
documents, identifying potential strategic and financial
investors, assessing commitment offers, negotiating the terms
of commitments and managing all phases of documentation and
transaction execution.
o Mergers and acquisitions. We assist our partner companies in
evaluating, structuring and negotiating acquisitions,
dispositions and other transactions on terms and conditions
consistent with our partner company's overall strategic and
financial objectives. Our services include identifying and
negotiating with potential purchasers and acquisition targets,
assisting in due diligence reviews, preparing financial
analyses and valuations of a purchaser or target, determining
the appropriate capital structure for the transaction and
managing all phases of the transaction.
o Recapitalizations and refinancings. We assist our partner
companies by analyzing their capital needs and effecting
recapitalizations and refinancings to meet those needs. Our
services include evaluating a partner company's existing
capital structure and needs, assessing the potential impact of
corporate finance alternatives, preparing communications to
stockholders, debtholders, potential investors and other
interested parties, and assisting with the implementation of
the chosen alternatives.
Venture Banking Commissions
For our venture banking services, we generally receive a retainer
payment, usually ranging from $25,000 to $100,000, with the majority of our
project-related fees payable only upon the successful conclusion of an
engagement. Generally, our fees are paid in a combination of cash and
securities. Because we are engaged in a capital intensive business, we must pay
certain fixed costs before we receive payment for our services, which payment
may or may not be in cash.
The success fees we receive upon completion of an engagement depend
upon the type of engagement. Descriptions of the success fees that we generally
expect to receive are set forth below:
Capital raising. Upon the closing of an equity capital raising
transaction, we will generally receive cash success fees in an amount equal to
5% to 7.5% of the amount of capital raised. In addition, we generally receive
additional success fees in the form of warrants to purchase the securities
issued by our partner company in the transaction. Such warrants are generally in
a dollar amount equal to 10% of the amount of securities sold in the transaction
and are exercisable for five years at a price equal to the price for the
securities paid by the investors in the transaction. In instances where the
capital raising transaction includes the issuance of warrants and/or options to
purchase additional securities, we will generally receive additional cash
success fees equal to 3% of any amount of capital raised upon the exercise of
the warrants and/or options at the time that capital is actually received by our
partner company.
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Mergers and acquisitions; recapitalizations and refinancings. In
connection with an engagement in which we provide strategic and other advisory
services to a partner company involved in a sale, purchase or exchange of
assets, a merger or consolidation, a leveraged buyout, the formation of a joint
venture, a minority investment or partnership, a leveraged recapitalization,
spin-off or any similar transaction, we generally receive a prescribed success
fee at the time that the transaction is concluded. While the amount of this fee
is dependent to some extent upon the anticipated nature, complexity and duration
of the specific engagement, these fees generally range from $250,000 to
$1,500,000 and are paid in cash. In order to avert a potential divergence of
interests between ourselves and our partner companies, we generally seek to
avoid setting fees that are dependent upon the consideration paid or received in
the transaction. However, we will occasionally receive significant incentive
compensation if we are able to maximize the consideration a selling entity
receives.
OUR PARTNER COMPANIES
As of March 30, 2000, we had acquired equity interests in the following
partner companies. We also provide either venture development or venture banking
services, or both, to the following partner companies:
<TABLE>
<CAPTION>
Our
Total Position Ownership Portfolio
of THCG and Percentage Company
Company Industry Description of Business Affiliates (1) (2) Since
------- -------- ----------------------- -------------- --- -----
Advanced Technology and Services
<S> <C> <C> <C> <C> <C> <C>
Globecom Software Provides broadband-enabled 18.0% 3.2% 2000
Interactive and Services presentation of products and
Commerce, services.
Inc.
IT Utility, Application Internet-based "Total Solution 34.9% 14.4% 1999
Inc. Service Provider" that manages the
Provider entire information technology
platform and network for its
clients, including hardware and
legacy software.
Brick & Mortar, Implementing an Internet-based Strategy
Designer Designer High-end online consortium of 12.5% 12.5% 1999
Jewelry Online Jewelry manufacturers and retailers of
designer jewelry.
Gifts With Religious Christian oriented e-commerce 12.0% 12.0% 2000
Love Products gift site.
Internet-based Businesses
Al-Bawaba.com, Middle Developer of an on-line portal 17.9% 5.6% 2000
Inc. Eastern to serve the Middle East.
portal
Convergence Youth Leverages the Internet to change 21.2% 8.0% 2000
MediaGroup, Marketing the way brands are marketed to
Inc. youth.
Global Credit Business Provides commercial credit 39.1% 26.9% 2000
Services, Inc. Intelligence information and credit-risk
assessment services on retail
companies in various segments to
its corporate clientele.
Test Test Internet-based test preparation 13.4% 2.4% 1999
University, Preparation service designed to help
Inc. students prepare for
standardized examinations.
</TABLE>
(1) Includes total position held by THCG, Inc., its wholly-owned subsidiaries
and THCG Venture Partners I LLC, assuming the conversion of warrant
positions, on a fully-diluted basis.
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<PAGE>
(2) Includes total position held by THCG, Inc. and its wholly-owned
subsidiaries, assuming the conversion of warrant positions, on a
fully-diluted basis. Includes THCG, Inc.'s pro-rata ownership of the
position held by THCG Venture Partners I LLC.
CASE STUDIES OF SELECTED PARTNER COMPANIES
The following is a description of the venture funding, venture
development and venture banking services which we have provided or are providing
to some of our partner companies:
Globecom Interactive Commerce, Inc. (formerly known as Modernita Interactive
Commerce, Inc.)
Globecom Interactive Commerce, Inc. provides broadband-enabled
presentation of products and services. On February 9, 2000, THCG Venture
Partners I invested $3 million in Globecom Interactive Commerce, for which THCG
Venture Partners I received shares of Series A Convertible Redeemable Preferred
Stock. In addition, Globecom Interactive Commerce retained us to provide
business planning and human resource services, and to help it raise $10 million
in additional capital. For our venture banking services, Globecom Interactive
Commerce paid us a cash fee and issued Tower Hill Securities a warrant to
purchase shares of Globecom Interactive Commerce's Series A Convertible
Redeemable Preferred Stock.
IT Utility, Inc.
IT Utility, Inc. is an Internet-based "Total Solution Provider" that
manages the entire information technology platform and network for its clients,
including hardware and legacy software. On November 30, 1999, we invested
$215,000 in IT Utility, for which we acquired shares of IT Utility's Series A
Convertible Preferred Stock. On December 30, 1999, THCG Venture Partners I
invested $2.1 million in IT Utility, for which THCG Venture Partners I acquired
shares of IT Utility's Series B Convertible Preferred Stock. In addition, IT
Utility retained us to provide it with complete marketing services (including
framing and positioning the business, coordinating its public relations
strategy, conducting focus groups, developing sites and consulting on overall
strategy) and business assistance (including budget planning, human resource
planning and operational buildout assistance). IT Utility also retained us to
assist it in identifying its future capital needs and creating a funding
strategy to meet them. In connection with our venture development services, we
received shares of common stock of IT Utility. In connection with these venture
banking services, IT Utility paid us a cash fee and issued Tower Hill Securities
a warrant to purchase shares of IT Utility's Series B Convertible Preferred
Stock.
Designer Jewelry Online
Designer Jewelry Online is a high-end online consortium of
manufacturers and retailers of designer jewelry. On March 9, 2000, Designer
Jewelry Online retained us to provide it with venture development and venture
banking services to assist it in creating an e-commerce solution for fine
jewelry retailers and manufacturing companies online. Our services will include
creating a detailed business plan, financial models, capitalization programs,
and management recruiting and assistance. For our venture development and
venture banking services, we received an equity position in Designer Jewelry
Online.
Al-Bawaba.com, Inc.
Al-Bawaba.com, Inc. is a developer of an on-line portal to serve the
Middle East. On March 20, 2000, THCG Venture Partners I invested $3 million in
Al-Bawaba, for which THCG Venture Partners I received shares of Series A
Convertible Redeemable Preferred Stock. In addition, Al-Bawaba retained us to
assist it in raising $10 to $15 million in additional capital. For these venture
banking services, Al-Bawaba paid us a cash fee and issued Tower Hill Securities
shares of its common stock.
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<PAGE>
Convergence MediaGroup, Inc.
Convergence MediaGroup leverages the Internet to change the way brands
are marketed to youth. On March 1, 2000, THCG Venture Partners I invested $2.5
million in Convergence MediaGroup, for which THCG Venture Partners I received
shares of Convergence MediaGroup's Series A Preferred Stock. We also received
shares of Convergence MediaGroup's common stock for agreeing to provide
Convergence MediaGroup with future financing. In addition, Convergence
MediaGroup retained us to provide venture development services, for which
Convergence MediaGroup issued us shares of Series A Preferred Stock, and venture
banking services, for which Convergence MediaGroup paid us a cash fee and issued
us a warrant to purchase shares of Convergence MediaGroup's Series A Preferred
Stock.
Global Credit Services, Inc.
Global Credit Services, Inc. provides to its corporate clients
commercial credit information and credit-risk assessment services on retail
companies in various segments. On February 7, 2000, THCG Venture Partners I
invested $2 million in Global Credit Services, for which it acquired shares of
common stock. At the same time, we acquired shares of Global Credit common stock
from Global Credit's stockholders in exchange for shares of our common stock. In
addition, Global Credit Services retained us to assist it in raising $3 to $5
million in additional capital. For these venture banking services, Global Credit
Services paid us a cash fee and issued us a warrant to purchase shares of Global
Credit Services' common stock.
Test University, Inc.
Test University, Inc. provides Internet-based test preparation services
designed to help students prepare for standardized examinations. On December 31,
1999, THCG Venture Partners I invested $3 million in Test University, for which
THCG Venture Partners I acquired shares of Test University's Series A
Convertible Preferred Stock and common stock. In addition, we have been retained
to raise $10 to $15 million in additional capital and to provide other
investment banking services. In connection with our venture banking services, we
were paid a cash fee and we received a warrant to purchase Test University's
Series A Convertible Preferred Stock.
In addition to our partner companies, as of March 30, 2000, we had
equity interests in the companies set forth below. We do not provide venture
banking or venture development services to these companies. Unless otherwise
noted, these interests were acquired by either Tower Hill Securities or Walnut
prior to November 1, 1999 and the implementation of our new business strategy.
<TABLE>
<CAPTION>
Our
Total Position Ownership Portfolio
of THCG and Percentage Company
Company Industry Description of Business Affiliates (1) (2) Since
------- -------- ----------------------- -------------- --- -----
Advanced Technology and Services
<S> <C> <C> <C> <C> <C> <C>
Daleen Software Provides next-generation billing * * 1997
Technologies, and Services and customer care software that
Inc. can provide an enterprise
solution for integrated
communications providers.
Interleaf, Software Provides software and services * * 1999
Inc. and Services for the creation and
distribution of e-content. In
January 2000, Interleaf announced it
was being purchased by Broadvision.
LogNet Systems Software Serves the market for 6.6% 6.6% 1999
and Services Internet-to-Host connectivity,
terminal connectivity and
host/client printing solutions.
Novazen, Inc. Software An emerging technology firm * * 1999
and Services focused on providing advanced
Internet customer care and
electronic bill presentment and
payment solutions for industries
including communications, utility
and financial services.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Our
Total Position Ownership Portfolio
of THCG and Percentage Company
Company Industry Description of Business Affiliates (1) (2) Since
------- -------- ----------------------- -------------- --- -----
Advanced Technology and Services (cont'd)
<S> <C> <C> <C> <C> <C> <C>
Real Time Software Provides e-commerce and * * 1999
Image Ltd and Services collaboration tools for
commercial print companies
enabling printers to deliver
high quality products faster and
cheaper.
Softwatch Software Provides Internet customer 1.3% 1.3% 1999
and Services relationship management
solutions to pharmaceutical
companies and healthcare vendors.
WebMethods, Software Provides infrastructure software 2.5% * 1997
Inc. (4) and Services and services that allow
companies to achieve
business-to-business integration.
Brick & Mortar, Implementing an Internet-based Strategy
Etravnet.com Travel Sells travel services to 1.0% 1.0% 1999
Services consumers via its franchised
stores, through its web site and
through its web franchises.
Fashion500.com Consumer Provides two approaches to sell * * 1999
e-commerce fashion products over the
Internet. It is developing a
platform to support sales by
designers through their own web
sites, as well as through an
aggregated web site maintained by
Fashion500.
VINnet Government Provides electronic vehicle 5.5% 5.5% 1995
services registration and titling
services on behalf of
participating states'
departments of motor vehicles.
Internet-based Businesses
Bikini.com Consumer Developing a media brand * * 1999
Entertainment identity associated with beach
wear and fun.
iBeauty Prestige An Internet-based retailer of 1.3% 1.3% 1999
Beauty prestige designer fragrances.
Products
Market Player Financial Online provider of stock 2.7% 1.2% 2000
(3) Education competitions and financial tools
such as stock screening, stock
charting, and news for
individual investors.
Passport New Consumer Internet-based service that will 2.5% 0.2% 2000
Media (3) Entertainment allow children to experience the
Internet and other digital
content in a safe atmosphere
immune from any bandwidth
constraints.
TechOnLine Technical Web site that provides 3.8% 3.8% 1999
Education technology professionals with
knowledge to select and
integrate technologies into new
products.
</TABLE>
* Less than 1%.
(1) Includes total position held by THCG, Inc., its wholly-owned subsidiaries
and THCG Venture Partners I LLC, assuming the conversion of warrant
positions, on a fully-diluted basis.
(2) Includes total position held by THCG, Inc. and its wholly-owned
subsidiaries, assuming the conversion of warrant positions, on a
fully-diluted basis. Includes THCG, Inc.'s pro-rata ownership of the
position held by THCG Venture Partners I LLC.
(3) We acquired our equity interest in this company after November 1, 1999.
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<PAGE>
(4) Total position held exclusively by Walnut Growth Partners Limited
Partnership, of which a wholly-owned subsidiary of THCG is the general
partner.
As of March 30, 2000, we also had equity positions in approximately 30
additional companies that were acquired prior to November 1, 1999 by Walnut
Financial Services, Inc. We expect to liquidate our equity positions in those
companies as market opportunities permit.
ACCOUNTS RECEIVABLE FACTORING BUSINESS
We engage in the accounts receivable factoring business through our
wholly owned subsidiaries, Pacific Financial Services Corporation, a Washington
corporation based in Bellevue, Washington, and Inland Financial Corporation, a
Washington corporation based in Spokane, Washington. We are currently engaged in
a strategic review of our accounts receivable factoring business and its
compatibility with our new business strategy.
Inland Financial and Pacific Financial generally provide financing to
their clients by purchasing accounts receivable owed to the clients by the
client's customers, usually on a non-recourse basis, for a fee that is generally
equal to 0.5% to 2% of the factored sales volume. Inland Financial and Pacific
Financial also provide their clients with access to credit management,
collection and information services, including certain computerized accounting
services, as well as credit assurance.
Inland Financial and Pacific Financial guarantee the collection of each
client's pre-approved receivables or receivables from each client's customers
with pre-approved credit lines. Payment for receivables which are
credit-approved by Inland Financial or Pacific Financial is made to the client
after collection from the client's customer or, if the receivable is not paid
based solely on the customer's financial inability to pay, payment is made to
the client after an agreed upon period of time, usually 90 to 120 days after the
due date of the receivable. Frequently, Inland Financial and Pacific Financial
also advance funds to its clients prior to collection of receivables and charge
interest on such advances (in addition to any factoring fees) at an annual rate
generally equal to 1% to 4% over the prime rate in effect from time to time.
Inland Financial and Pacific Financial also provide equipment
inventory financing to some of their factoring clients and guarantee amounts due
under letters of credit issued to their clients which are collateralized by
accounts receivable and other assets.
COMPETITION
Competition for Overall Venture Funding, Venture Development and Venture Banking
Market
We compete against numerous public companies such as CMGI, Inc.,
Internet Capital Group, Inc., Rare Medium Group, Inc. and Softbank Corp., as
well as private companies such as Idealab! and Divine Interventures, Inc., that
provide some combination of the venture funding, venture development and venture
banking services that we provide. Many of these competitors have longer
operating histories, larger installed client bases, greater name recognition,
more experience and significantly greater financial, technical, marketing and
other resources than we do. We expect that competition from both private and
public companies in our markets will intensify. At any time, our current and
potential competitors could increase their resource commitments to our markets.
Among other adverse consequences, this competition may diminish our ability to
identify, attract and develop relationships with partner companies. As a result,
our business, operating results and financial condition could be materially and
adversely affected.
Competition for Individual Venture Funding, Venture Development and Venture
Banking Markets
The individual markets for venture funding, venture development and
venture banking services are intensively competitive and characterized by an
increasing number of entrants because the barriers to entry in these markets are
relatively low.
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<PAGE>
In providing venture funding services, we compete directly against
traditional venture capital and private equity firms and public and private
companies with venture funds. Many of these competitors have significantly
greater experience and financial resources than we have. In addition to these
competitors, numerous public companies such as CMGI, Inc., Internet Capital
Group, Inc., Rare Medium Group, Inc. and Softbank Corp., as well as private
companies such as Idealab! and Divine Interventures, Inc., devote significant
resources to providing capital together with other resources to Internet
companies. Additionally, corporate strategic investors, including Fortune 500
and other significant companies, are developing Internet strategies and
capabilities. Many of these competitors have significantly greater financial
resources and brand name recognition than we do, and the barriers to entry for
companies seeking to provide capital and other resources to entrepreneurs and
their emerging technology companies are minimal. We expect that competition from
both private and public companies with business models similar to our own will
intensify. Among other adverse consequences, this competition may diminish the
pool of potential investment opportunities and raise the cost of making future
investments. As a result, our financial condition, operating results and
business could be materially and adversely affected.
In providing venture development services, we compete directly against
strategy consulting firms and management consulting firms. In providing venture
banking services, we compete directly with other investment banking and merchant
banking firms which vary in size from small, privately-owned firms to very
large, publicly-held corporations. We also face increasing competition from
other sources, such as commercial banks, insurance companies and consulting
firms offering financial services. The principle competitive factors in the
investment banking and financial services industry include transaction
experience, breadth of services offered, innovation, reputation and price. Many
of our current and potential competitors in the venture development and venture
banking markets have longer operating histories, larger installed clients bases,
greater name recognition, more experience and have significantly greater
financial, technical, marketing and other resources than we do. As a result, our
competitors may be more attractive partners to Internet-based businesses. In
addition, our competitors may be able to respond more quickly to changes in
client needs, service more clients simultaneously and undertake more extensive
marketing campaigns. We cannot assure you that we will be able to compete
successfully against our current or future competitors or that competitive
pressures will not have a material adverse effect on our business, operating
results and financial condition.
Competition Facing our Partner Companies
Competition for Internet-related products and services is intense. As
the market for e-commerce grows, we expect that competition will intensify.
Barriers to entry are minimal, and competitors can offer products and services
at a relatively low cost. Further, our partner companies' competitors may
develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. Many of
our partner companies' competitors have greater brand recognition and greater
financial, marketing and other resources than our partner companies. This may
place our partner companies at a disadvantage in responding to their
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives. If our partner companies are
unable to compete successfully, they will fail and it could have a material
adverse effect on our business and financial condition.
Competition Facing Inland Financial and Pacific Financial
Inland Financial and Pacific Financial compete with a small number of
very large factoring companies operating nationally and a multitude of small
companies generally operating on a local or regional basis. In addition to the
greater traditional sources of financing available to larger factoring
companies, larger factoring companies also are able to participate in the
securitization of factored advances collaterized by factored accounts
receivable.
GOVERNMENT REGULATION
Investment Company Act of 1940
We are not currently required to be registered under the Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities. At this time, less than 40% of our
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<PAGE>
total assets are investment securities. If, in the future, our investment
securities exceed 40% of our total assets, we believe that we will not be
required to register under the Investment Company Act because we believe that we
are "primarily engaged" in a non-investment company business through our
wholly-owned subsidiaries and that we do not otherwise meet the requirements for
registering under the Investment Company Act. However, if more than 40% of our
total assets are investment securities and we are no longer "primarily engaged"
in a non-investment company business through our wholly-owned subsidiaries, we
believe that we will be "primarily engaged" in a non-investment company business
through our majority-owned subsidiaries and controlled subsidiaries and we will
then promptly file with the Securities and Exchange Commission an exemptive
application under Section 3(b)(2) of the Investment Company Act to have the
Securities and Exchange Commission so declare. If we do not receive exemptive
relief, then we may be required to register under the Investment Company Act.
Registration under the Investment Company Act would be inconsistent with our
present business strategy and would have a material and adverse effect on our
business, financial condition and operating results. Moreover, we might be
subject to civil and criminal penalties for failure to register, certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.
To avoid regulation under the Investment Company Act, we would have to
attempt to reduce our investment securities to less than 40% of our total
assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize anticipated benefits from, or may incur losses on, these
investments. Some investments may not be sold due to contractual or legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.
If we are deemed to be, and required to register as, an investment
company, we will be forced to comply with the numerous and burdensome
substantive requirements of the Investment Company Act, including:
o limitations on our ability to borrow;
o limitations on our capital structure;
o restrictions on acquisition of equity interests in partner
companies;
o prohibitions on transactions with affiliates;
o restrictions on specific investments; and
o compliance with reporting, record keeping, voting, proxy
disclosure and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change, and we would
be prevented from successfully executing our business strategy. As a result, our
business, financial condition and operating results would be materially and
adversely affected.
NASD Regulation
Our wholly-owned subsidiary, Tower Hill Securities, is a registered
broker-dealer and a member of the National Association of Securities Dealers, or
NASD. As a registered broker-dealer and NASD member, Tower Hill Securities and
its principals, registered representatives and other associated persons must
comply with applicable federal and state securities laws, rules and regulations
and with the rules of the NASD.
Broker-dealers are subject to regulations which cover all aspects of
the securities business including: sales methods and supervisions; trade
practices; capital structure; use and safekeeping of customer's funds and
securities; recordkeeping; and the conduct of directors, officers and employees.
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<PAGE>
As a registered broker-dealer and NASD member, Tower Hill Securities is
subject to the Net Capital Rule, or Rule 15(c)3-1, under the Securities Exchange
Act of 1934 which requires the maintenance of minimum regulatory net capital and
a specified ratio of aggregate indebtedness to net capital, both as defined in
that rule, which shall not exceed 15 to 1. The Net Capital Rule is designed to
measure the general financial integrity and liquidity of a broker-dealer and
requires that at least a minimal portion of its assets be kept in relatively
liquid form. Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the SEC and other regulatory bodies and may
ultimately require its liquidation.
Additional legislation, changes in rules promulgated by the SEC and
self-regulatory organizations, or changes in the interpretation or enforcement
of existing laws and rules, may directly affect the mode of operation and
profitability of broker-dealers. The SEC, self-regulatory organizations and
state securities commissions may conduct administrative proceedings which can
result in censure, fine, the issuance of cease and desist orders or the
suspension or expulsion of a broker-dealer, its officers or employees.
Other Regulations and Legal Uncertainties
Currently, there are few laws or regulations directed specifically at
e-commerce. However, because of the Internet's popularity and increasing use,
new laws and regulations may be adopted. These laws and regulations may cover
issues such as the collection and use of data from web site visitors and related
privacy issues, pricing, content, copyrights, promotions, distribution and
quality of goods and services, registration of domain names and use, and export
and distribution of encryption technology. The enactment of any additional laws
or regulations may impede the growth of the Internet and e-commerce, which could
decrease revenues of our partner companies and place additional financial
burdens on them.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. For example, Congress recently
enacted laws regarding online copyright infringement and the protection of
information collected online from children. Although these laws may not have a
direct adverse affect on our business or the businesses of our partner
companies, they add to the legal and regulatory burdens faced by Internet-based
businesses. Other areas of potential legislative activity are:
o Taxes. Congress has enacted a three-year moratorium, ending on
October 21, 2001, on the application of "discriminatory" or
"special" taxes by the states on Internet access or on
products and services delivered over the Internet. Congress
further declared that there will be no federal taxes on
e-commerce until the end of the moratorium. However, this
moratorium does not prevent states from taxing activities or
goods and services that the states would otherwise have the
power to tax. Furthermore, the moratorium does not apply to
certain state taxes that were in place before the moratorium
was enacted.
o Online privacy. Both Congress and the Federal Trade Commission
are considering regulating the extent to which companies
should be able to use and disclose information they obtain
online from consumers. If any regulations are enacted,
Internet-based businesses may find certain marketing
activities restricted. Also, the European Union has directed
its member nations to enact privacy protection laws that are
generally more stringent than those found in the United
States, and has threatened to prohibit the export of certain
personal data to United States companies if similar measures
are not adopted. Such a prohibition could limit the growth of
foreign markets for United States Internet-based businesses.
The Department of Commerce is negotiating with the Federal
Trade Commission to provide exemptions from the European Union
regulations, but the outcome of these negotiations is
uncertain.
o Regulation of communications facilities. To some extent, the
rapid growth of the Internet in the United States has been due
to the relative lack of government intervention in the
marketplace for Internet access. Lack of intervention may not
continue in the future. For example, several
telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal
Communications Commission in the same manner as other
telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission
to regulate Internet service providers in a manner similar to
long distance telephone
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carriers and to impose access fees on such providers. Some
Internet service providers are seeking to have broadband
Internet access over cable systems regulated in much the same
manner as telephone services, which could slow the deployment
of broadband Internet services. Because of these proceedings
or others, new laws or regulations could be enacted which
could burden the companies that provide the infrastructure on
which the Internet is based, thereby slowing the rapid
expansion of the medium and its availability to new users.
o Other regulations. The growth of the Internet and e-commerce
may lead to the enactment of more stringent consumer
protection laws. The Federal Trade Commission may use its
existing jurisdiction to police e-commerce activities, and it
is possible that the Federal Trade Commission will seek
authority from Congress to regulate certain online activities.
The Federal Trade Commission has already enacted a statute
governing the collection of information online from children.
EMPLOYEES
On March 20, 1999, we had 28 employees. None of the foregoing employees
is represented by a collective bargaining agreement, and we believe that our
relationship with our own employees and the relationship of our subsidiaries
with their respective employees are good.
Forward-Looking Statements
This Annual Report on Form 10-K contains a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Specifically, all statements
other than statements of historical facts included in this Annual Report on Form
10-K, or incorporated herein by reference, regarding our financial position,
business strategy and plans and objectives of management for future operations
are forward-looking statements. These forward-looking statements are based on
the beliefs of management, as well as assumptions made by and information
currently available to management. When used in this Annual Report on Form 10-K,
including the information incorporated by reference, the words anticipate,
believe, estimate, expect, may, will, continue, intend and plan and words or
phrases of similar import, as they relate to our financial position, business
strategy and plans, or objectives of management, are intended to identify
forward-looking statements. These cautionary statements reflect our current view
regarding future events and are subject to risks, uncertainties and assumptions
related to various factors which include but may not be limited to those listed
below under the heading "Factors Affecting our Future Performance" and other
cautionary statements in this Annual Report on Form 10-K and in the information
incorporated herein by reference.
Although we believe that our expectations are reasonable, we cannot
assure you that our expectations will prove to be correct. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this Annual Report on Form 10-K as
anticipated, believed, estimated, expected, intended or planned. All subsequent
written and oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these cautionary
statements.
FACTORS AFFECTING OUR FUTURE PERFORMANCE
You should carefully consider the factors described below. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us may also affect our business.
If we do not successfully address any of the risks described below,
there could be a material adverse effect on our business, financial condition
and operating results and the market price of our common stock may decline. We
cannot assure you that we will successfully address these risks.
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Our business, as currently conducted, has a limited operating history, and it is
difficult to predict whether our business will be successful.
On November 1, 1999, we withdrew our election to be regulated as a
business development company under the Investment Company Act. At the same time,
we shifted our business focus from that of investing in securities to that of an
operating company actively engaged in providing venture funding, venture
development and venture banking services to both Internet-based businesses and
partner companies while actively participating in the management, financing and
operation of those companies. As a result, our business, as currently conducted,
has a limited operating history. Our prospects must be considered in light of
the risks and uncertainties frequently encountered by companies expanding into a
new and rapidly evolving area such as the Internet. Many of the risks,
uncertainties, delays and difficulties associated with providing venture
funding, venture development and venture banking services to and operating
Internet-based businesses are beyond our control. We cannot assure our
stockholders that we will be successful in meeting the challenges and addressing
the risks that we face in this new and rapidly changing market.
Our business is capital intensive and we may not be able to secure additional
capital when we need it in the future to support our growth.
Our business is capital intensive. In the future, we expect
periodically to raise the funds to acquire equity interests in and establish new
partner companies, to support our operations and expand our venture development
and venture banking services and to support the operations and growth of our
partner companies. Our future capital requirements will depend in large part on
the number of partner companies in which we acquire equity interests and which
we establish, the amounts of capital we provide to these companies and the
timing of these payments. Our plans and the related capital requirements will be
dependent on various factors, such as developments in our markets and the
availability of acquisition and entrepreneurial opportunities. If we are
successful in selling additional equity securities, our then existing
stockholders may suffer significant dilution. However, we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are unable to obtain, additional financing in the future on acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete effectively, and our business, financial condition and operating
results may be materially and adversely affected as a result.
Our investments in our partner companies are risky.
A portion of our assets include equity interests which we have directly
and indirectly acquired in our partner companies. As of March 30, 2000, our
venture fund had acquired interests in eight companies, with its equity stakes
in these companies ranging from 1.7% to 22.7%. As of March 30, 2000, the
aggregate cost of our venture fund's investments totaled approximately $16.6
million. In the future, we expect to acquire direct equity interests of at least
25% in our partner companies. Decreases in the value of our partner companies
will have an adverse effect on our business, financial condition and operating
results. Even though we intend to be actively involved in the affairs of our
partner companies, because we own or will own less than a majority of the shares
of our partner companies, we may not be able to control the policies or
directions that these companies take.
All of our partner companies are in the early stages of development,
and we cannot assure you that these companies will be able to successfully
achieve their business goals in a timely manner or at all. Our strategy is to
realize a return on our equity interests in these companies by liquidating these
investments through sales of equity or otherwise. We cannot assure you that we
will realize any return on any of these investments. Moreover, the trading price
of our common stock may be adversely affected if we do not realize any return on
these investments, or if that return is lower than the market expects. The
failure of one or more of the companies in which we have invested, and the
timing of any dispositions of our investments in these companies, could have a
material adverse effect on our business, financial condition and operating
results and on the market price of our common stock.
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We will not be able to successfully execute our business strategy if we are
deemed to be an investment company under the Investment Company Act of 1940.
We are not currently required to be registered under the Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities. At this time, less than 40% of our total assets are investment
securities. If, in the future, our investment securities exceed 40% of our total
assets, we believe that we will not be required to register under the Investment
Company Act because we believe that we are "primarily engaged" in a
non-investment company business through our wholly-owned subsidiaries and that
we do not otherwise meet the requirements for registering under the Investment
Company Act. However, if more than 40% of our total assets are investment
securities and we are no longer "primarily engaged" in a non-investment company
business through our wholly-owned subsidiaries, we believe that we will be
"primarily engaged" in a non-investment company business through our
majority-owned subsidiaries and controlled subsidiaries and we will then
promptly file with the Securities and Exchange Commission an exemptive
application under Section 3(b)(2) of the Investment Company Act to have the
Securities and Exchange Commission so declare. If we do not receive exemptive
relief, then we may be required to register under the Investment Company Act.
Registration under the Investment Company Act would be inconsistent with our
present business strategy and would have a material and adverse effect on our
business, financial condition and operating results. Moreover, we might be
subject to civil and criminal penalties for failure to register, certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.
To avoid regulation under the Investment Company Act, we would have to
attempt to reduce our investment securities to less than 40% of our total
assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize anticipated benefits from, or may incur losses on, these
investments. Some investments may not be sold due to contractual or legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.
If we are deemed to be, and required to register as, an investment
company, we will be forced to comply with the numerous and burdensome
substantive requirements of the Investment Company Act, including:
o limitations on our ability to borrow;
o limitations on our capital structure;
o restrictions on acquisition of equity interests in partner
companies;
o prohibitions on transactions with affiliates;
o restrictions on specific investments; and
o compliance with reporting, record keeping, voting, proxy
disclosure and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change, and we would
be prevented from successfully executing our business strategy. As a result, our
business, financial condition and operating results would be materially and
adversely affected.
The price of our common stock has been volatile.
The market price of our common stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. In recent years, the
stock market has experienced significant price and volume fluctuations which
have particularly affected the market prices of equity securities of many
companies providing Internet-related products
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and services. Some of these fluctuations appear to be unrelated or
disproportionate to the operating performance of these companies. Future market
movements may materially and adversely affect the market price of our common
stock.
Fluctuations in our financial performance could adversely affect the trading
price of our common stock.
Our operating results may fluctuate as a result of a variety of
factors, many of which are beyond our control, including:
o the number of our partner companies with which we have
established relationships and the size and scope of the
venture funding, venture development and venture banking
services which we are engaged to provide;
o reductions, cancellations or completions of major engagements
to provide venture development, venture banking and/or venture
funding services;
o the loss of significant partner companies or a change of scope
in the venture funding, venture development and venture
banking services that we are providing to them;
o the efficiency with which we utilize our professionals, plan
and manage our existing and new partner companies and manage
our future growth;
o variability in market demand for venture funding, venture
development and venture banking services;
o our ability to retain and attract qualified professionals;
o our ability to provide our venture funding, venture
development and venture banking services within the budgets
established by our partner companies;
o costs related to expansion of our business;
o sales of equity interests in our partner companies;
o significant acquisitions;
o increased competition; and
o general economic conditions.
As a result of these possible fluctuations, period-to-period
comparisons of our operating results may not be reliable indicators of future
performance. A significant percentage of our expenses, including those related
to employee compensation and facilities, are fixed. If the number of our partner
companies and the scope of the venture funding, venture development and venture
banking services that we provide to them decreases in any period, then our
revenues and operating results may also decrease. In some quarters, our
operating results may fall below the expectations of securities analysts and
investors due to many factors, including those described above. As a result, the
trading price of our common stock would likely decline, and the decline could be
significant.
We are dependent on our ability to recruit, train and retain highly skilled and
experienced professionals who are in short supply.
Our ability to provide our partner companies with venture funding,
venture development and venture funding services depends in large part on our
ability to identify, hire, train and retain highly skilled and experienced
professionals who have industry specific expertise and who are proficient in a
broad range of technological and business skills. There is a shortage of these
highly skilled and experienced personnel and we must compete with other
companies for this limited pool of people. We may be unable to attract, train or
retain qualified personnel. Failure to do so could have a material adverse
effect on our business, financial condition and operating results.
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We compete against other larger companies that may be better able to provide
Internet-based businesses with the services that we offer.
We compete against numerous public companies such as CMGI, Inc.,
Internet Capital Group, Inc., Rare Medium Group, Inc. and Softbank Corp., as
well as private companies such as Idealab! and Divine Interventures, Inc., that
provide some combination of the venture funding, venture development and venture
banking services which we provide. Many of these competitors have longer
operating histories, larger installed client bases, greater name recognition,
more experience and significantly greater financial, technical, marketing and
other resources than we do. We expect that competition from both private and
public companies in our markets will intensify. At any time, our current and
potential competitors could increase their resource commitments to our markets.
Among other adverse consequences, this competition may diminish our ability to
identify, attract and develop relationships with partner companies. As a result,
our business, financial condition and operating results could be materially and
adversely affected.
Competition for venture funding services is intense.
In providing venture funding services, we compete directly against
traditional venture capital and private equity firms and public and private
companies with venture funds, and many of these competitors have significantly
greater experience and financial resources than we have. In addition to these
competitors, numerous public companies such as CMGI, Inc., Internet Capital
Group, Inc., Rare Medium Group, Inc. Softbank Corp., as well as private
companies such as Idealab! and Divine Interventures, Inc., devote significant
resources to providing capital together with other resources to Internet
companies. Additionally, corporate strategic investors, including Fortune 500
and other significant companies, are developing Internet strategies and
capabilities. Many of these competitors have significantly greater financial
resources and brand name recognition than we do, and the barriers to entry for
companies seeking to provide capital and other resources to entrepreneurs and
their emerging technology companies are minimal. We expect that competition from
both private and public companies with business models similar to our own will
intensify. Among other adverse consequences, this competition may diminish the
pool of potential investment opportunities and raise the cost of making future
investments. As a result, our business, financial condition and operating
results could be materially and adversely affected .
Competition for venture development and venture banking services is intense.
The individual markets for venture development and venture banking
services are intensively competitive and characterized by an increasing number
of entrants because the barriers to entry in these markets are relatively low.
In providing venture development services, we compete directly against strategy
consulting firms and management consulting firms.
In providing venture banking services, we compete directly with other
investment banking and merchant banking firms which vary in size from small,
privately-owned firms to very large, publicly-held corporations. We also face
increasing competition from other sources, such as commercial banks, insurance
companies and consulting firms offering financial services.
Many of our current and potential competitors in the venture
development and venture banking markets have longer operating histories, larger
installed clients bases, greater name recognition and more experience and have
significantly greater financial, technical, marketing and other resources than
we do. As a result, our competitors may be more attractive partners to
Internet-based businesses. In addition, our competitors may be able to respond
more quickly to changes in client needs, service more clients simultaneously and
undertake more extensive marketing campaigns. We cannot assure you that we will
be able to compete successfully against our current or future competitors or
that competitive pressures will not have a material adverse effect on our
business, financial condition and operating results.
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We may fail to successfully establish partner companies or properly identify
partner companies in which to acquire equity interests and effectively complete
these transactions.
Our success depends on our ability to identify opportunities to acquire
equity interests in or establish partner companies that will become successful
in the future and to successfully negotiate the terms of any acquisitions we
make. Our management has sole and absolute discretion in identifying and
selecting partner companies in which to acquire equity interests or to establish
and in structuring, negotiating, undertaking and divesting of equity interests
in our partner companies. Our stockholders will not be able to evaluate the
merits of the acquisition of an interest in, or the establishment of, any
particular partner company before we make the acquisition or establish the
company. In addition, in making decisions to acquire equity interests in or
establish partner companies, we will rely, in part, on financial projections
developed by our management and the management of potential partner companies.
These projections will be based on assumptions and subjective judgments. The
actual results of our partner companies may differ significantly from these
projections. If we have established or acquired equity interests in partner
companies that fail to meet their projections or otherwise fail to generate
income, our business, financial condition and operating results could be
materially and adversely affected.
Even if we identify a company that complements our strategy, we may be
unable to acquire an interest in that company for many reasons, including:
o our inability to agree on the terms of an acquisition or to
acquire an interest of at least 25% in the company;
o a lack of capital to acquire an interest in the company; and
o incompatibility between us and management of the company.
The failure to acquire equity interests in potential partner companies
that we have identified could adversely affect our business, financial condition
and operating results.
We have potential conflicts of interest with our venture fund.
Some of our senior executive officers and directors have been actively
involved in the venture funding decisions of THCG Venture Partners I, one of our
executive officers is the President and Chief Executive Officer of the sole
manager of THCG Venture Partners I, and several of our officers and directors
are indirect investors in THCG Venture Partners I. Many of our officers are also
actively involved in providing ongoing venture funding, venture development and
venture banking services to partner companies in which THCG Venture Partners I
has invested. These individuals may have conflicting fiduciary duties to our
stockholders and to the investors in THCG Venture Partners I, including
themselves in some cases. In addition, they may have conflicts between our
interests and their own indirect personal financial interests in THCG Venture
Partners I and our partner companies in which THCG Venture Partners I has
invested.
We have not adopted a conflicts of interest policy to govern these
situations.
Our acquisition strategy may result in increased expenses, difficulties in
integrating acquired companies and diversion of management's attention.
A key component of our growth strategy is to pursue acquisitions of
businesses that complement our business strategy. We expect the competition for
acquisition candidates to continue to increase. We cannot assure you that we
will be able to identify and compete successfully for attractive acquisition
candidates or complete acquisitions at reasonable purchase prices, in a timely
manner or at all.
Some of the other risks that we may encounter in our acquisition growth
strategy include:
o expenses and difficulties in identifying potential targets and
the costs associated with uncompleted acquisitions;
o expenses, delays and difficulties of integrating acquired
companies into our existing organization;
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o diversion of management's attention;
o expenses of amortizing acquired companies' intangible assets;
o issuance of equity securities to pay for acquisitions that
will dilute existing stockholders;
o possible adverse impact on our financial condition due to the
timing of an acquisition; and
o expense of any undisclosed or potential legal liabilities of
acquired companies.
If realized, any of these risks could have a material adverse effect on
our business, financial condition and operating results.
We may face difficulties managing our growth.
Our recent growth has required a great amount of our managerial and
operational resources. In the future, we intend to develop the infrastructure
necessary to implement our business strategy of acquiring equity interests in
additional partner companies and penetrating new markets by developing our
international operations and by expanding our global coverage of the Internet
industry. To manage this growth, our management must continue to:
o improve our operational and financial systems;
o expand our information technology systems;
o lease more space, including a larger facility in New York
City, to accommodate our operations and some of our partner
companies; and
o expand, train, retain and manage our employee base.
If our systems, procedures and controls are inadequate to support our
operations, our expansion would be impaired. Our inability to manage our growth
effectively could have a material adverse effect on our business, financial
condition and operating results.
We may have difficulty in managing our international operations and expansion,
which could adversely affect our operating results and business.
A key element of our strategy is to penetrate new markets by developing
our international operations and by expanding our global coverage of the
Internet industry. Once developed, our management may have difficulty in
managing our international operations because of distance, as well as language
and cultural differences. We also may be unable to market and operate our
services successfully in foreign markets.
Other risks related to international operations include:
o fluctuations in currency exchange rates;
o difficulties arising from staffing and managing foreign
operations;
o state-imposed restrictions on the repatriation of funds;
o legal and regulatory requirements of different countries, such
as differing tax, intellectual property or labor laws; and
o potential political and economic instability.
If any of these risks materialize, we may not be able to successfully
promote our services or perform client engagements in international markets. As
a result, our growth and ability to compete effectively may be hindered and our
business, financial condition and operating results could be materially and
adversely affected.
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Our success, and the success of our partner companies, depends on the continued
expansion of e-commerce.
Our success, and the success of our partner companies, depends on the
continued expansion of business-to-business and business-to-consumer e-commerce.
The e-commerce market is still in its early stages of development. If widespread
commercial use of the Internet by individuals and businesses does not continue
to expand, or if the Internet does not continue to develop as an effective
medium for the provision of products and services, our business, financial
condition and operating results, and those of our partner companies, will be
materially and adversely affected.
Factors that may adversely affect the expansion of the Internet and
e-commerce include:
o actual or perceived lack of security of information;
o congestion of Internet traffic or other usage delays;
o inconsistent quality of service;
o increases in Internet access costs;
o increases in government regulation of the Internet;
o uncertainty regarding intellectual property ownership;
o reluctance to adopt new business methods;
o costs associated with the obsolescence of existing
infrastructure; and
o economic viability of e-commerce models.
Governmental regulation of the Internet could adversely impact our business and
operations and the business and operations of our partner companies.
Currently, few laws or regulations are directly applicable to the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of new laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet, including
Internet laws regarding privacy, taxation, pricing, content, copyrights,
distribution and quality of products and services. The enactment of any new laws
or regulations, including international laws and regulations, could inhibit the
growth in use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium, which could in turn decrease the demand
for our services and those of our partner companies, or otherwise have a
material adverse effect on our business, financial condition and operating
results, and those of our partner companies.
The loss of executive management or other key personnel may adversely affect our
business and operations and our ability to compete effectively.
Our business and operations depend largely on the skills of our key
management and technical personnel. Many of our executive officers have recently
joined us, and many of our key personnel have worked together for a relatively
short period. If one or more members of our executive management or other key
personnel were unable or unwilling to continue in their present positions, these
persons would be very difficult to replace. In addition, if any of these persons
joined a competitor or formed a competing company, some of our clients might
choose to use the services of that competitor or new company instead of ours.
Furthermore, our clients or other companies seeking management talent may hire
some members of our executive management or other key personnel. This could
result in the loss of our client relationships or new business opportunities and
materially and adversely affect our ability to implement our business strategy.
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Our partner companies could make business decisions that are not in our best
interests or that we do not agree with, which could impair the value of our
partner company interests.
Because neither we nor the venture fund in which we own a 9.9% interest
owns a majority voting interest in any of our partner companies, we do not have
complete control over any of them. While we plan to acquire direct equity
interests of at least 25% in our partner companies in the future, we will
continue to acquire less than majority voting interests in most of our partner
companies. Further, we may not maintain our current ownership levels in our
partner companies if we sell portions of our equity interests or our partner
companies issue additional equity to other parties.
Our ownership of equity interests in partner companies over which we do
not exercise complete control involves additional risks that could cause our
equity interests, and therefore our business, financial condition and operating
results to be materially and adversely affected, including:
o management of a partner company having economic or business
interests or objectives that are different than ours; and
o partner companies not taking our advice with respect to the
financial or operating difficulties that they encounter.
Our inability to control our partner companies completely could prevent
us from assisting them, financially or otherwise, or could prevent us from
liquidating our equity interests in them at a time or at a price that is
favorable to us. Additionally, to the extent we do not completely control them,
our partner companies may not act in ways that are consistent with our business
strategy and may compete with us or other partner companies. These factors could
hamper our ability to maximize returns on our equity interests, and cause us to
recognize losses on our equity interests in partner companies.
Failure to develop and strengthen the THCG brand could adversely affect our
business.
We believe that maintaining and strengthening the THCG brand is an
important aspect of attracting and maintaining clients. The importance of brand
recognition will increase as competition in the market for Internet services
increases. Building a brand requires a successful marketing effort and
successful delivery of products and services to clients. A single event
involving client dissatisfaction could tarnish our perception as a whole despite
our efforts to maintain and strengthen the THCG brand name. Consequently, the
strategy adopted and expenses incurred by us may not result in a stronger brand.
Ownership of our company is concentrated.
Joseph D. Mark and Adi Raviv, our co-chief executive officers and
directors, each beneficially owned approximately 17.5% of our outstanding common
stock as of March 24, 2000. As a result, Messrs. Mark and Raviv possess
significant influence over our company on business matters, including the
election of directors, the appointment of new management and the approval of any
other action requiring the approval of our stockholders. Greenwich Street
Capital Partners II, L.P. and its affiliates owned approximately 35.7% of our
outstanding common stock as of March 24, 2000. In addition, pursuant to a voting
agreement between us and Greenwich Street Capital Partners, Greenwich Street
Capital Partners has the right to appoint one individual to our Board of
Directors so long as Greenwich Street Capital Partners is the holder of common
stock or warrants to purchase common stock which equal at least 5%, in the
aggregate, of our outstanding shares of common stock. Keith W. Abell,
Co-President of Greenwich Street Capital Partners, became a director on November
1, 1999.
The concentration of our share ownership may:
o delay or prevent a change in control of THCG;
o impede a merger, consolidation, takeover or other business
combination involving THCG; or
o discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of THCG.
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The broker-dealer activities of our wholly-owned subsidiary, Tower Hill
Securities, are subject to extensive regulation.
Our wholly-owned subsidiary, Tower Hill Securities, is a registered
broker-dealer and a member of the National Association of Security Dealers, or
NASD. As a result, Tower Hill Securities' principals, registered representatives
and other associated persons must comply with applicable state securities laws,
rules and regulations, and with the rules of the NASD. Broker-dealers are
subject to extensive regulations which cover all aspects of the securities
business, including sales methods, trade practices, capital structure, record
keeping and conduct of directors, officers and employees. In addition, Tower
Hill Securities is required to maintain a minimum regulatory net capital and a
specified ratio of aggregate indebtedness to net capital. The failure to comply
with, or adverse changes in, the laws or regulations to which Tower Hill
Securities' business is subject, or adverse changes in the interpretation
thereof, could have a material adverse effect on the business, financial
condition and operating results of Tower Hill Securities and us, as its parent.
The issuance of preferred stock or additional common stock may adversely affect
our stockholders.
Our board has the authority to issue up to 5,000,000 shares of our
preferred stock and to determine the terms, including voting rights, of those
shares without any further vote or action by our stockholders. The voting and
other rights of the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. Similarly, our board may issue additional shares of
common stock without any further vote or action by stockholders, which would
have the effect of diluting common stockholders. An issuance could occur in the
context of a public or private offering of shares of common stock or preferred
stock or in a situation in which the common stock or preferred stock is used to
acquire the assets or stock of another company. The issuance of common stock or
preferred stock could have the effect of delaying, deferring or preventing a
change in control.
Anti-takeover provisions could make a third-party acquisition of our company
difficult.
We are a Utah corporation. The Utah General Corporation Law contains
provisions that could make it more difficult for a third party to acquire
control of us. In addition, we have a classified board of directors, with each
board member serving a staggered three-year term. The existence of a classified
board could make it more difficult for a third-party to acquire control of us.
Shares eligible for future sale could cause our stock price to decline.
The market price of our common stock could decline as a result of
future sales of substantial amounts of our common stock, or the perception that
such sales could occur. Furthermore, certain of our existing stockholders have
the right to require us to register their shares, which may facilitate their
sale of shares in the public market. We have agreed to file with the Securities
and Exchange Commission by March 31, 2000 a registration statement covering the
resale by certain of our stockholders of up to approximately 900,000 shares of
our common stock.
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FACTORS AFFECTING THE FUTURE PERFORMANCE OF OUR PARTNER COMPANIES
Our partner companies' growth depends on their ability to retain their key
personnel.
Although we offer management guidance and support to our partner
companies, the growth of our partner companies will depend on their ability to
attract and retain their own senior management personnel. As they expand, our
partner companies will also need to continue to hire additional technical,
marketing, financial and other key personnel, unless they rely on us or third
parties to provide these services. A shortage in the availability of required
personnel could limit the ability of our partner companies to grow, sell their
products and services and launch new products and services.
Many of our partner companies may grow rapidly and may be unable to manage their
growth.
We expect many of our partner companies to grow rapidly. Rapid growth
often places considerable operational, managerial and financial strain on a
business. To successfully manage their rapid growth, our partner companies must:
o rapidly improve, upgrade and expand their business
infrastructures;
o deliver products and services on a timely basis;
o maintain levels of service expected by clients and customers;
o maintain adequate levels of liquidity; and
o expand and upgrade their technology, transaction processing
systems and network hardware or software or find third parties
to provide these services.
Our business, financial condition and operating results will be
materially and adversely affected if our partner companies are unable to
successfully manage their growth. In addition, many of our partner companies
have only recently begun to develop their financial reporting systems and
controls. As a result, these companies may not be able to provide us with their
financial results on a timely basis, making it difficult for us to monitor these
companies and assess our financial position.
If we are unable or unwilling to provide our partner companies with the
significant additional financing they will need, our equity interests in them
may be diluted or they may fail.
Most of our current partner companies are, and we expect that our
future partner companies will be, in the early stages of their development. Our
partner companies will require significant amounts of additional capital to
compete successfully, meet their business objectives and produce revenues and
profits. We may not be able to accurately predict these capital needs, and we
may decide not to provide the additional capital that our partner companies
require or we may not be given the opportunity to provide it. If our partner
companies receive capital from other sources, our ownership interest in them may
be diluted. If our partner companies are unable to obtain additional capital,
they may fail and their failure could have a material adverse effect on our
business, financial condition and operating results.
Our partner companies face intense competition in their product and service
markets, and if they cannot compete effectively, they will fail.
Competition for Internet-related products and services is intense. As
the market for e-commerce grows, we expect that competition will intensify.
Barriers to entry are minimal, and competitors can offer products and services
at a relatively low cost. Furthermore, our partner companies' competitors may
develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. Many of
our partner companies' competitors have greater brand recognition and greater
financial, marketing and other resources than our partner companies. This may
place our partner companies at a disadvantage in responding to their
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and
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other initiatives. If our partner companies are unable to compete successfully,
they will fail and their failure may have a material adverse effect on our
business, financial condition and operating results.
Our partner companies may fail if they do not adapt to the rapidly changing
e-commerce marketplace.
If our partner companies fail to adapt to the rapid changes in
technology and customer and supplier demands, they may not generate revenues or
become or remain profitable. The e-commerce market is characterized by:
o rapidly changing technology;
o evolving industry standards;
o frequent new product and service introductions;
o shifting distribution channels; and
o changing customer demands.
Our future success will depend on our partner companies' ability to
adapt to this rapidly evolving marketplace. They may not be able to adapt their
products and services adequately or economically, develop new products and
services or establish and maintain effective distribution channels for their
products and services. Our partner companies' businesses will also depend on the
efficient and uninterrupted operation of their computer and communications
hardware systems to enable them to continuously provide their products and
services over the Internet. If our partner companies are unable to meet these
challenges, they may be unable to sell their products and services and generate
revenues. Therefore, their businesses may become or remain unprofitable which,
in turn, will have a material adverse effect on our business, financial
condition and operating results.
Our partner companies may not be able to attract a loyal base of customers to
their web sites or develop relationships with distribution partners, which will
negatively affect their ability to generate revenues.
Our success is related to the ability of our partner companies to
deliver compelling Internet content, products or services to their targeted
customers. Internet users can freely navigate and instantly switch among a large
number of web sites. Many of these web sites offer original content, products or
services, which may make it difficult for our partner companies to distinguish
the content on their web sites sufficiently to attract a loyal base of users. If
any partner company fails to differentiate itself from other Internet industry
participants, the value of its brand name could decline, and its prospects for
future growth would diminish. In addition, our partner companies will need to
develop relationships with entities, such as Internet service providers,
Internet portals and e-commerce web sites, typically called distribution
partners, that can guide or deliver customers to visit our partner companies'
web sites. There is intense competition for these distribution partners.
Accordingly, maintaining a strong base of distribution partners may be difficult
and costly for our partner companies.
Our partner companies may be at a competitive disadvantage if they are unable to
protect their proprietary rights or if they infringe on the proprietary rights
of others, and any related litigation could be time consuming and costly.
Because all our partner companies operate or will operate their
businesses through web sites and rely on hardware and software to conduct
e-commerce, proprietary rights, particularly in the form of trade secrets,
copyrights and patents, will be critical to the success and competitive position
of most of our partner companies.
The actions that our partner companies take to protect their
proprietary rights may be inadequate. In addition, effective copyright and
trademark protection may be unenforceable or limited in certain countries and
our partner companies may be unable to control the dissemination of their
content and products and use of their services due to the global nature of the
Internet. A substantial majority of our partner companies license content and
technology which they include in their product or service offerings from third
parties, and they could become subject to infringement actions as a result. In
addition, third parties may claim that our partner companies have violated their
intellectual property rights. For example, companies have recently brought
claims regarding alleged
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infringement of patent rights relating to methods of doing business over the
Internet. To the extent that any of our partner companies violates a patent or
other intellectual property right of a third party, it may be prevented from
operating its business as planned, and it may be required to pay damages, to
obtain a license, if available, to use the patent or other right or to use a
non-infringing method, if possible, to accomplish its objectives. Any of these
claims, with or without merit, could subject our partner companies to costly
litigation and the diversion of their technical and management personnel. If our
partner companies incur costly litigation and their personnel are not
effectively deployed, the expenses and losses incurred by them will increase,
and their profits, if any, will decrease.
Concerns regarding security of transactions or the transmissions of confidential
information over the Internet or security problems experienced by our partner
companies may prevent them from expanding their businesses or subject them to
legal exposure.
If a partner company does not offer sufficient security features in its
online product and service offerings, its products and services may not gain
market acceptance, and it could be exposed to legal liability. Despite the
measures that may be taken by our partner companies, the infrastructure of each
of them will be potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If a person circumvents the security measures of
our partner companies, that person could misappropriate proprietary information
or cause interruptions in the operations of the partner company. Security
breaches that result in access to confidential information could damage the
reputation of any one of our partner companies and expose it to a risk of loss
or liability. All of our partner companies will be required to make significant
expenditures, either for internal development efforts or payments to us or other
third parties providing security-related services, to protect against or remedy
security breaches. Additionally, as e-commerce becomes more widespread, our
partner companies' customers may become more concerned about security. If our
partner companies are unable to adequately address these concerns, they may be
unable to sell their products and services.
ITEM 2. PROPERTIES
Our principal executive offices are located in approximately 4,800
square feet of space at 650 Madison Avenue, 21st Floor, New York, New York under
an occupancy agreement, dated as of January 1, 1999, with Hambro America, Inc.,
expiring on August 30, 2000. Rental payments under the occupancy agreement equal
$21,649.57 per month. Hambro America, Inc. is owned by Joseph D. Mark and Adi
Raviv, our co-chief executive officers. We also lease office space at 105
Madison Avenue, 14th Floor, New York, New York under an oral sublease. Rental
payments are approximately $9,355 per month. We are currently negotiating a
multi-year lease for a space in excess of 20,000 square feet in New York, New
York to replace these facilities. The annual rent for this space is expected to
be approximately $800,000.
ITEM 3. LEGAL PROCEEDINGS
On April 21, 1999, Yoav Bitter commenced an action against our
wholly-owned subsidiary, Tower Hill Securities, pursuant to the New York
Business Corporation Law Section 1104-a, for, inter alia, judicial dissolution
of Tower Hill Securities and appointment of a receiver. On June 17, 1999,
Justice Goodman denied the relief sought by Mr. Bitter, and granted Tower Hill
Securities' cross motion to dismiss the matter. On August 3, 1999, Mr. Bitter
filed a Notice of Appeal of the judgment of Justice Goodman with the New York
State Supreme Court Appellate Division, First Department. By an order entered
March 14, 2000, the New York State Supreme Court Appellate Division, First
Department, dismissed Mr. Bitter's appeal. Mr. Bitter has until April 21, 2000
to file a Notice of Appeal to the New York State Court of Appeals. Additional
payments may be due to Mr. Bitter for his 25% interest in Tower Hill Securities
pursuant to an agreement dated as of April 13, 1998 among Messrs. Mark, Raviv
and Bitter. These payments are to be in an amount equal to 25% of "all net
profits relative to work-in-progress as of" April 30, 1998. Tower Hill
Securities, Joseph D. Mark and Adi Raviv have entered into an indemnification
agreement pursuant to which Messrs. Mark and Raviv have agreed to indemnify
Tower Hill Securities for any amounts Tower Hill Securities is obligated to pay
to Mr. Bitter in excess of Tower Hill Securities' net profits relative to the
engagements of Tower Hill Securities that were pending, but not completed, on
April 30, 1998. Tower Hill Securities has agreed to indemnify Messrs. Mark and
Raviv with respect to any amounts either of them becomes obligated to pay to Mr.
Bitter in excess of the amount described in the two prior sentences, and Tower
Hill Securities has agreed to assume and pay for the defense of any claim
brought by Mr. Bitter.
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On June 18, 1999, Tower Hill Securities initiated an arbitration
against Yoav Bitter before the National Association of Securities Dealers, or
NASD, requesting the return of company property and the reimbursement of certain
travel expenses. On September 9, 1999, Mr. Bitter filed an answer and
counterclaims against Tower Hill Securities. Mr. Bitter denied liability for the
claims brought by Tower Hill Securities and asserted claims for tuition expenses
and additional compensation. On September 17, 1999, Tower Hill Securities filed
a response denying all liability on the counterclaims. The NASD has acknowledged
jurisdiction over the arbitration and has advised the parties that it plans to
schedule a pre-hearing conference with the parties and the arbitrators.
By First Amended Complaint dated November 22, 1999 and filed on
November 23, 1999 (the "Complaint"), we were sued in the Superior Court of
Washington for Spokane County in an action entitled Miller Capital Group,
L.L.C., et al. v. Inland Financial Corporation, et al. (No. 99206566-7). We were
named as successor to Walnut Financial Services, Inc., the corporate parent of
defendant Inland Financial Corporation. The complaint generally alleges that
Inland Financial and others fraudulently induced the plaintiffs to participate
in various transactions related to Inland Financial's factoring business and
that funds obtained by Inland Financial and/or Walnut Financial Services in
connection with those transactions were improperly diverted or converted. It is
alleged that Walnut Financial Services controlled Inland Financial in general
and with respect to the specific challenged transactions. Plaintiffs allege
causes of action for breach of promissory notes, state law securities fraud and
registration violations, common law misrepresentation and conversion. The
complaint seeks unspecified injunctive relief, unspecified damages and an
accounting. The complaint has only recently been filed and the lawsuit is in its
initial stages. We believe that the plaintiffs' claims are without merit and we
intend to defend the lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting held on November 1, 1999, we submitted the
following matters for approval at a special meeting of shareholders:
o A proposal to approve the issuance of shares of our common
stock in connection with the merger of Tower Hill Acquisition
Corp., a New York corporation and our wholly-owned subsidiary,
with and into Tower Hill Securities, pursuant to an Amended
and Restated Agreement and Plan of Merger, dated as of August
5, 1999, among us, Tower Hill Acquisition Corp. and Tower Hill
Securities (the "Share Issuance");
o A proposal to approve a change in the nature of our business
and the withdrawal by us, Walnut Capital Corp., Walnut Funds,
Inc. and Universal Bridge Fund, Inc., each a Delaware
corporation and our wholly-owned subsidiary, of their
elections to be regulated as business development companies
under the Investment Company Act of 1940 (the "BDC
Withdrawal");
o A proposal to approve our issuance of: (1) at least 1,500,000
and up to 3,432,500 shares of our common stock at $2.00 per
share and (2) warrants to purchase up to 2,000,000 shares of
our common stock in one or more private placements (the
"Capital Investment");
o A proposal to approve the conversion of certain of our debts
and accrued liabilities into common stock valued at $2.00 per
share and the conversion of certain accrued compensation into
common stock valued at $2.00 per share (the "Debt
Conversion");
o A proposal to approve the acquisition by Universal Bridge
Funds, Inc., a Delaware corporation and our wholly-owned
subsidiary, of the outstanding limited and general partnership
interests in Universal Partners, L.P., an Illinois limited
partnership and our affiliate (the "UPLP Acquisition");
o A proposal to approve and adopt the 1999 Walnut Financial
Services, Inc. Stock Incentive Plan (the "Stock Plan");
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o A proposal to approve and adopt our Articles of Amendment and
Restatement, effective as of the consummation of the merger of
Tower Hill Acquisition Corp. with and into Tower Hill
Securities (the "Charter Amendment").
The results of the voting at the special meeting were as follows:
<TABLE>
<CAPTION>
Proposal Votes For Votes Against Abstain Broker Non-Votes
- -------- --------- ------------- ------- ----------------
<S> <C> <C> <C> <C>
Share Issuance 2,492,073 20,888 8,305 0
BDC Withdrawal 2,465,351 44,029 11,886 0
Capital Investment 2,488,892 23,022 9,352 0
Debt Conversion 2,466,573 45,174 9,519 0
UPLP Acquisition 2,490,799 20,910 9,557 0
Stock Plan 2,460,771 51,168 9,327 0
Charter Amendment 2,490,195 21,669 9,402 0
</TABLE>
33
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
Since November 3, 1999, our common stock has been quoted on the Nasdaq
National Market under the symbol "THCG." From August 22, 1995 until November 2,
1999, the common stock was quoted on the Nasdaq National Market under the symbol
"WNUT." From February 27, 1995 until August 21, 1995, the common stock was
quoted in the National Quotation Bureau's interdealer system through the
over-the-counter "Bulletin Board" under the symbol "WNUT." The high and low
sales price for the Common Stock as reported by the Nasdaq National Market for
the years ended December 31, 1998 and 1999 are summarized below, adjusted to
give effect to a one-for-six reverse stock split effected January 22, 1999, as
if it had occurred prior to that date.
1998 High Low
First Quarter.............................................. $8 13/16 $6 3/4
Second Quarter............................................. 7 7/8 6
Third Quarter.............................................. 6 3/16 1 7/8
Fourth Quarter............................................. 4 11/16 1 11/16
1999 High Low
First Quarter.............................................. 4 3/4 1 7/8
Second Quarter............................................. 3 1 7/8
Third Quarter.............................................. 2 5/8 2 1/16
Fourth Quarter............................................. 34 2 1/4
On March 24, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $17.375. As of March 24, 2000, there were
approximately 549 registered holders of record of our common stock.
We currently anticipate that we will retain all future earnings for use
in our business and we do not anticipate paying any cash dividends on our common
stock in the foreseeable future.
Recent Sales of Unregistered Securities
On November 1, 1999, we acquired all of the outstanding capital stock
of Tower Hill Securities. In connection therewith, we issued an aggregate of
4,095,098 shares of our common stock to the stockholders of Tower Hill
Securities. In addition, we issued 100,000 shares of our common stock in payment
of certain finder's fees in connection with the transaction. The securities
issued in these transactions were not registered under the Securities Act of
1933, as amended, pursuant to the exemption provided under Section 4(2) thereof
for transactions not involving a public offering.
Simultaneously with our acquisition of Tower Hill Securities, we issued
2,500,000 shares of our common stock and warrants to purchase an aggregate of
2,000,000 shares of our common stock to Greenwich Street Capital Partners II,
L.P. and several of its affiliates in a private placement transaction. We also
issued 100,000 shares of our common stock in payment of finder's fees in
connection with the private placement to Greenwich Street Capital Partners. In
addition to this private placement, we completed two other private placements of
932,500 shares of our common stock, in the aggregate: one to an outside investor
group and one to an investor group consisting of employees of Tower Hill
Securities. The securities issued in these three private placements were not
registered under the Securities Act, pursuant to the exemption provided under
Section 4(2) thereof for transactions not involving a public offering.
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<PAGE>
On December 29, 1999, we acquired all of the outstanding capital stock
of Mercury Coast for which we issued an aggregate of 700,005 shares of our
common stock to the stockholders of Mercury Coast. In addition, we issued 12,000
shares of our common stock in payment of finder's fees in connection with the
transaction. The securities issued in these transactions were not registered
under the Securities Act, pursuant to the exemption provided under Section 4(2)
thereunder for transactions not involving a public offering.
On February 7, 2000, we acquired 3,600,417 shares of common stock of
Global Credit Services, Inc. from certain stockholders of Global Credit Services
for which we issued an aggregate of 218,483 shares of our common stock to the
selling stockholders of Global Credit Services. The securities issued in this
transaction were not registered under the Securities Act pursuant to an
exemption provided under Section 4(2) thereunder for transactions not involving
a public offering. Pursuant to the stock purchase agreement between us and the
selling stockholders of Global Credit Services, we have agreed to register the
resale of the shares of common stock which we issued to them by filing a
registration statement under the Securities Act with the Securities and Exchange
Commission no later than March 31, 2000. Prior to the effective date of that
registration statement, the number of shares of our common stock which we are
obligated to issue to the selling stockholders of Global Credit Services will be
recalculated, and may increase or decrease by an amount not to exceed 20%. If
the registration statement is declared effective after August 4, 2000 but before
February 7, 2001, then the number of shares which we are obligated to issue to
the selling stockholders of Global Credit Services may increase or decrease by
an amount not to exceed 40%. If the registration statement is declared effective
after February 7, 2001, then the number of shares of our common stock which we
are obligated to issue to the selling stockholders of Global Credit Services may
increase or decrease by an amount not to exceed 50%.
ITEM 6. SELECTED FINANCIAL DATA
Our selected financial data for the four-year period ended December 31,
1999 is presented below. The information for these periods is derived from our
audited financial statements as of and for the four periods then ended. The data
should be read in conjunction with the consolidated financial statements, the
related notes and the other financial information included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
Year ended Year ended 9 months ended Year ended
March 31, March 31, December 31, December 31,
1997 (2) 1998 (2) 1998 (2) 1999 (3)
------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Total revenues $197,000 $229,000 $2,126,000 $7,703,000
Income (loss) from operations (387,000) (1,325,000) 0 1,343,000
Income (loss) per share (0.10) (0.36) 0.00 (0.27)
Total assets 322,000 397,000 1,548,000 48,358,000
Total liabilities and redeemable
Preferred Stock $94,000 $52,000 $290,000 $3,593,000
</TABLE>
(1) For the year ended March 31, 1996, the broker-dealer predecessor company
was inactive.
(2) Includes the results of operations and balance sheet data of our
wholly-owned subsidiary, Tower Hill Securities, Inc. or its predecessors.
(3) On November 1, 1999, we were acquired by Walnut Financial Services, Inc.
in a transaction that was accounted for as a reverse acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The discussion in this report contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed above in "Factors
Affecting Our Future Performance" as well as those discussed in this section and
elsewhere in this report.
Overview
We are an Internet incubator company that provides venture funding,
venture development and venture banking services to companies in which we
acquire direct or indirect equity interests. We are penetrating new markets by
developing our international operations and by expanding our global coverage of
the Internet industry. Our partner companies include Internet-based businesses,
established "brick and mortar" companies implementing an Internet-based strategy
and advanced technology and service companies. By providing our partner
companies with capital and a combination of enterprise-enhancing venture
development and venture banking services, we believe that we help our partner
companies focus on their core strengths, so that they may bring their products
and services to market more rapidly.
On November 1, 1999, Walnut Financial Services, Inc. acquired Tower
Hill Securities, Inc. However, for financial statement purposes, Tower Hill
Securities acquired Walnut Financial Services and is the surviving entity.
Tower Hill Securities is the successor to Hambro America Securities,
Inc., the former U.S. investment banking subsidiary of Hambros, plc, a British
merchant banking firm. In March 1998, the investment banking operations of
Hambros, plc were sold to Societe Generale, a French bank. On April 1, 1998,
Joseph D. Mark and Adi Raviv, the principal executives of Hambro America
Securities, Inc., acquired the company from Societe Generale.
As part of our new business strategy, on December 29, 1999, we acquired
Mercury Coast Inc., a Delaware corporation engaged in the business of providing
business incubation services, including strategic planning, operations and
marketing consulting services, to Internet-based businesses.
The financial statements contained in this annual report reflect the
operations of Hambro America Securities for the year ended March 31, 1998 and
the operations of Tower Hill Securities for the nine months ended December 31,
1998.
The financial statements for the year ended December 31, 1999 reflect
the operations of Tower Hill Securities for the full year then ended, the
operations of Walnut Financial Services for the period between November 1, 1999
and December 31, 1999, and the operations of Mercury Coast Inc. for the period
between December 29, 1999 and December 31, 1999.
Twelve Months Ended December 31, 1999 as compared to the Nine Months Ended
December 31, 1998
Revenues
Revenue for the year ended December 31, 1999 increased to $7.7 million
from $2.1 million for the nine months ended December 31, 1998. The increase in
revenue was primarily
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<PAGE>
due to a significant increase in revenue derived from the sales of our venture
banking services and to the fact that the 1999 period reflects four quarters of
revenue while the 1998 period reflects three quarters of revenue.
Venture service fees for the year ended December 31, 1999 increased to
$2.9 million from $2.1 million for the nine months ended December 31, 1998. The
increase in these fees was primarily due to an increase in fees earned from
providing our venture banking services.
Appreciation in securities and interest income consists of the net
increases (decreases) in the value of the securities that we received for
services or that we acquired, as well as interest income. Appreciation in
securities was $4.6 million for the year ended December 31, 1999 compared to $20
thousand for the nine months ended December 31, 1998. The increase in 1999 was
due primarily to the $1.4 million increase in the value of our warrants to
purchase stock of Interleaf, which we had received for providing venture banking
services, and to the $1.5 million increase in the value of our wholly owned
subsidiary that is the general partner of Walnut Growth Limited Partnership.
This wholly owned subsidiary is generally entitled to 1% of the partnership's
assets plus 20% of the net value of the partnership's assets after the limited
partner's capital contribution of $6 million is returned to it. Walnut Growth
Limited Partnership owns approximately 766,500 shares of webMethods, Inc., which
completed its initial public offering in February 2000, in addition to positions
in other companies.
Factoring revenues for the year ended December 31, 1999 were $135,000.
We were not in the factoring business prior to 1999.
Expenses
Selling, general and administrative expenses for the year ended
December 31, 1999 increased to $4.8 million from $2.1 million for the nine
months ended December 31, 1998. The increase in selling, general and
administrative expenses was primarily due to the increase in compensation and
related benefits to $2.6 million for the year ended December 31, 1999 from $1.3
million for the nine months ended December 31, 1998. Compensation expenses
included bonuses to professionals related to the improved results from our
venture banking services, as well as our hiring of additional employees to
provide venture development services to our partner companies. Stock-based
compensation for the year ended December 31, 1999 was $595 thousand. There was
no stock-based compensation for the nine months ended December 31, 1998. In
addition, the 1998 period reflects only three quarters of expenses, while the
1999 period reflects a full year of expenses. Professional fees for the year
ended December 31, 1999 increased to $794 thousand from $122 thousand for the
nine months ended December 31, 1998. The increase in professional fees was
primarily related to fees paid to one party for its role in connection with the
consummation of a private placement of our common stock on November 1, 1999 and
for professional fees related to our provision of venture funding services,
which services we did not provide prior to 1999.
Occupancy and equipment rental expenses for the year ended December 31,
1999 increased to $470 thousand from $212 thousand for the nine months ended
December 31, 1998. The increase in occupancy and equipment rental expenses was
caused by an increase in our rental space. In addition, the 1998 total reflects
only three quarters of rental expense, while the 1999 total reflects a full year
of rental expense. It is anticipated that our occupancy costs will increase
significanly in the third quarter of this year as we move into new space. See
"ITEM 2. PROPERTIES."
Finders fees for the year ended December 31, 1999 decreased to $75
thousand from $172 thousand for the nine months ended December 31, 1998. The
decrease in finders fees was due to more of our business being generated through
our own relationships.
Amortization expenses for the year ended December 31, 1999 increased to
$368 thousand from zero for the nine months ended December 31, 1998. The
increase in amortization expenses is primarily related to the amortization of
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<PAGE>
goodwill from our merger with Walnut Financial Services on November 1, 1999 and
the acquisition of Mercury Coast on December 29, 1999.
Other factoring costs for the year ended December 31, 1999 were $173
thousand. We were not in the factoring business prior to 1999.
Our provision for income taxes for the year ended December 31, 1999
increased to $1.1 million from $35 thousand for the nine months ended December
31, 1998. This increase was primarily due to the increase in net income for
1999.
Nine Months Ended December 31, 1998 as compared to the Twelve Months Ended March
31, 1998
Revenues
Revenue for the nine months ended December 31, 1998 increased to $2.1
million from $228 thousand for the year ended March 31, 1998. The increase in
revenue was primarily due to an increase in revenues derived from the sales of
our venture banking services.
Expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1998 increased to $2.1 million from $1.6 million for the year ended
March 31, 1998. The increase in selling, general and administrative expenses was
primarily due to increases in compensation, primarily due to the payment of
bonuses to professionals and related benefits for the nine months ended December
31, 1998.
Occupancy and equipment rental expenses for the nine months ended
December 31, 1998 increased to $211 thousand from $111 thousand for the year
ended March 31, 1998. The increase in occupancy and equipment rental expenses
was caused by an increase in equipment rentals to support our professional staff
and the need to increase expenses as an independent company, no longer part of
Hambros or Societe Generale.
Finders fees for the nine months ended December 31, 1998 increased to
$172 thousand from zero for the year ended March 31, 1998. This was due to an
increased reliance on outside parties for business referrals.
Professional fees for the nine months ended December 31, 1998 increased
to $122 thousand from zero for the year ended March 31, 1998. The increase in
professional fees was due to our need to retain additional outside professionals
as an independent company.
Our provision for income taxes for the nine months ended December 31,
1998 increased to $35 thousand from zero for the year ended March 31, 1998. The
increase in income tax was primarily due to an increase in income generated by
our business in the last nine months of 1998.
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Liquidity and Capital Resources
Our business is capital intensive. In the future, we expect
periodically to raise funds to acquire equity interests in and establish new
partner companies, to support our operations and expand our venture development
and venture banking services and to support the operations and growth of our
partner companies. Our future capital requirements will depend in large part on
the number of partner companies in which we acquire equity interests and which
we establish, the amounts of capital we provide to these companies and the
timing of these payments. Our plans and the related capital requirements will be
dependent on various factors, such as developments in our markets and the
availability of acquisition and entrepreneurial opportunities. If we are
successful in selling additional equity securities, our then existing
stockholders may suffer significant dilution. However, we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are unable to obtain, additional financing in the future on acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete effectively, and our business, financial condition and operating
results may be materially and adversely affected as a result.
We funded operations primarily through private placements of our common
stock on November 1, 1999 in connection with our merger with Walnut Financial
Services. We raised $6.9 million from the sale of common stock in those private
placements. Our principal sources of liquidity as of December 31, 1999 consisted
of $2.7 million in marketable securities and $1.6 million in cash and cash
equivalents.
During 1999, cash used in operating activities was $1.9 million
compared to $249 thousand for the nine months ended December 31, 1998. The
increase in cash used in operations in 1999 reflects the need for working
capital required to fund expanding operations.
Net cash used in investing activities for 1999 was $480 thousand
compared to $325 thousand for the nine months ended December 31, 1998. The
change was due mainly to our purchase of the minority interest in Universal
Partners, L.P., which we acquired in the merger with Walnut Financial Services.
Cash provided by financing activities was $3.4 million for the year
ended December 31, 1999. This consisted primarily of proceeds of $6.9 million
received through the private placements of common stock on November 1, 1999 in
connection with our merger with Walnut Financial Services. We intend to continue
to raise capital to finance our strategy of building dominant partner companies.
In February 2000, we received $5.7 million in proceeds from the
exercise of the Class A Warrants issued by Walnut Financial Services in 1997.
39
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing us is the fluctuation in the market
value of the securities we acquire in our partner companies and the securities
we receive in payment of fees for the venture development and venture banking
services we provide to our partner companies. Our partner companies include
Internet-based businesses, established "brick and mortar" companies implementing
an Internet-based strategy and advanced technology and service companies. The
market prices for our partner companies have been very volatile, experiencing
wide fluctuations. Our profitability may be materially and adversely affected by
period to period declines in the market values of our partner companies. See
"Factors Affecting Our Future Performance - Our investments in our partner
companies are risky." Historically, we have not generally engaged in hedging
transactions to minimize this risk.
We are not subject to market risk associated with risk sensitive
institutions because we do not invest in institutions that are not United States
institutions and we do not enter into hedging transactions.
Historically, we have had very low exposure to changes in foreign
currency exchange rates, and as such, have not used derivative financial
instruments to manage foreign currency fluctuation risk. As we develop our
international operations and expand our global coverage of the Internet
industry, our risk of foreign currency exchange rate fluctuation may
dramatically increase. Therefore, in the future, we may consider utilizing
derivative instruments to mitigate these risks.
ITEM 8. INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of THCG and its
subsidiaries, together with the report of the independent auditors thereon, are
presented on pages F-1 through F-22 hereof as set forth below:
THCG, INC. AND SUBSIDIARIES PAGE
Report of Richard A. Eisner & Company, LLP,
Independent Public Accountants................................ F-1
Consolidated Balance Sheets - December 31, 1998 and 1999........ F-2
Consolidated Statements of Operations - for the years ended
December 31, 1997, 1998 and 1999.............................. F-3
Consolidated Statements of Stockholders' Equity - for the
years ended December 31, 1997, 1998 and 1999.................. F-4 to F-6
Consolidated Statements of Cash Flows - for the years ended
December 31, 1997, 1998 and 1999.............................. F-7
Notes to Consolidated Financial Statements ..................... F-8 to F-21
Report of Cohen & Schaeffer, P.C.
Independent Public Accountants................................ F-22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this Item 10 is incorporated herein by
reference to our definitive proxy statement for the 2000 Annual Meeting of
Stockholders (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to our Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to our Proxy Statement.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) (1) All Consolidated Financial Statements of THCG and its
subsidiaries for the year ended December 31, 1999 are filed
herewith. See Item 8 of this Report for a list of such
financial statements.
(2) All financial statement schedules have been omitted as the
required information is inapplicable or has been included in
the Consolidated Financial Statement and notes thereto.
(3) Exhibits - See response to paragraph (c) below.
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K, dated November 1, 1999, with the
SEC on November 10, 1999 to report Walnut's acquisition of Tower Hill Securities
and the resulting change in control of Walnut. We reported these events under
Item 1 ("Changes in Control of Registrant") and Item 2 ("Acquisition or
Disposition of Assets") of such Current Report on Form 8-K. We filed an
amendment to our Current Report on 8-K, dated November 1, 1999, with the SEC on
January 14, 2000 to report the historical financial statements of Tower Hill
Securities and our pro forma financial statements.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization, dated November 8,
1994, by and between NFS Services, Inc. (Utah) and Walnut
Capital Corp. (1)
2.2 Agreement and Plan of Merger, dated November 1, 1999, among
Walnut Financial Services, Inc., Tower Hill Acquisition
Corp. and Tower Hill Securities, Inc. (2)
2.3 Agreement and Plan of Merger, dated December 29, 1999,
among THCG, Inc., Coast Acquisition Corp. and Mercury Coast
Inc. (3)
2.4 Stock Purchase Agreement, dated February 7, 2000, between
THCG, Inc. and certain stockholders of Global Credit
Services, Inc.
3.1 Articles of Amendment and Restatement of Walnut Financial
Services, Inc.
3.2 Amended and Restated Bylaws of THCG, Inc.
4.1 Amended and Restated Voting Agreement, dated as of August
5, 1999, among Tower Hill Securities, Inc., the undersigned
stockholders, and Walnut Financial Services, Inc. (6)
4.2 Securities Purchase Agreement, dated as of October 29,
1999, among Greenwich Street Capital Partners II, L.P.,
GSCP Offshore Fund, L.P., Greenwich Fund, L.P., Greenwich
Street Employees Fund, L.P., TRV Executive Fund, L.P. and
Walnut Financial Services, Inc.
4.3 Registration Rights Agreement, dated November 1, 1999,
among THCG, Inc., Greenwich Street Capital Partners II,
L.P., GSCP Offshore Fund, L.P., Greenwich Fund, L.P.,
Greenwich Street Employees Fund, L.P., TRV Executive Fund,
L.P.
4.4 Registration Rights Agreement, dated November 1, 1999,
among THCG, Inc. and the parties listed as purchasers on
the signature page thereof.
4.5 Registration Rights Agreement, dated November 1, 1999,
among THCG, Inc. and the parties listed as purchasers on
the signature page thereof.
42
<PAGE>
4.6 Registration Rights Agreement, dated December 29, 1999,
among THCG, Inc., Larry W. Smith, Ed Tedeschi and Michael
Gegenheimer.
10.1 The Walnut Capital Corporation 1987 Stock Option Plan. (4)
10.2 The NFS Services, Inc. (Utah) 1994 Incentive Stock Option
Plan, as amended. (5)
10.3 Consulting Agreement, dated November 1, 1999, between
Inland Financial Corporation and Chicago Advisory Group.
10.4 Consulting Agreement, dated November 1, 1999, between
Walnut Financial Services, Inc. and Windy City, Inc.
10.5 Employment Agreement, dated November 1, 1999, between
Walnut Financial Services, Inc. and Joseph D. Mark.
10.6 Employment Agreement, dated November 1, 1999, between
Walnut Financial Services, Inc. and Adi Raviv.
10.7 Employment Agreement, dated November 1, 1999, between
Walnut Financial Services, Inc. and Shai Novik.
10.8 Amended and Restated Restricted Stock Grant Agreement,
dated November 2, 1999, between THCG, Inc. and Shai Novik.
10.9 First Amendment to Amended and Restated Stock Grant
Agreement, dated December 15, 1999, by and between THCG and
Shai Novik.
10.10 Employment Agreement, dated December 29, 1999, between
Walnut Financial Services, Inc. and Larry Smith.
10.11 Employment Agreement, dated February 1, 2000, between THCG
Ventures, LLC and Evan Marks.
10.12 Walnut Financial Services, Inc. 1999 Stock Incentive Plan.
21.1 Subsidiaries of THCG, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Cohen & Schaeffer, P.C.
27.1 Financial Data Schedule.
- ------------------
(1) Incorporated herein by reference to Exhibit 2.1 of our Registration
Statement on Form 10 filed with the SEC on May 11, 1995.
(2) Incorporated herein by reference to Exhibit A of our Definitive Proxy
Statement on Schedule 14A filed with the SEC on September 30, 1999.
(3) Incorporated herein by reference to Exhibit 2.1 of our Current Report
on Form 8-K, dated December 29, 1999 and filed with the SEC on January
6, 2000.
(4) Incorporated herein by reference to Exhibit 10.6 of our Registration
Statement on Form 10 filed with the SEC on May 11, 1995.
43
<PAGE>
(5) Incorporated herein by reference to Exhibit B of our Definitive Proxy
Statement on Schedule 14A filed with the SEC on October 30, 1997.
(6) Incorporated herein by reference to Exhibit D to Exhibit A of our
Definitive Proxy Statement on Schedule 14A filed with the SEC on
September 30, 1999.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THCG, INC.
By: /s/ Joseph D. Mark
-----------------------------
Name: Joseph D. Mark
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
Signature Title(s) Date
/s/ Joseph D. Mark Co-Chief Executive March 30, 2000
- ------------------ Officer and Director
Joseph D. Mark (Co-Principal Executive
Officer)
/s/ Adi Raviv Co-Chief Executive Officer March 30, 2000
- ------------------ and Director
Adi Raviv (Co-Principal Executive
Officer)
/s/ Shai Novik Chief Operating Officer March 30, 2000
- ------------------- (Principal Financial and
Shai Novik Accounting Officer)
/s/ Larry W. Smith Director March 30, 2000
- ------------------
Larry W. Smith
- -------------------- Director March 30, 2000
Keith Abell
- -------------------- Director March 30, 2000
Gene E. Burleson
/s/ Burton W. Kanter Director March 30, 2000
- --------------------
Burton W. Kanter
/s/ Joel S. Kanter Director March 30, 2000
- ------------------
Joel S. Kanter
/s/ Henry Klein Director March 30, 2000
- -------------------
Henry Klein
- -------------------- Director March 30, 2000
Evan M. Marks
/s/ Stanley B. Stern Director March 30, 2000
- --------------------
Stanley B. Stern
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
THCG, Inc.
New York, New York
We have audited the accompanying consolidated statement of financial condition
of THCG, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of THCG, Inc. and
subsidiaries as of December 31, 1999, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 16, 2000
F-1
<PAGE>
THCG, INC.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------------
ASSETS
<S> <C> <C>
Marketable and nonmarketable securities $ 7,863,000
Partnerships and Limited Liability Company interests 2,053,000
Cash and cash equivalents 1,602,000 $ 610,000
Fees and other receivables, net of allowance 1,294,000 525,000
Prepaid expenses and other assets 485,000 49,000
Loan receivable, related party 35,000 78,000
Loan receivable, officer 277,000 216,000
Furniture, fixtures and equipment - at cost, less accumulated depreciation 200,000 70,000
Excess of cost over fair value at net assets acquired, net of
accumulated amortization 34,549,000
----------- -----------
$48,358,000 $ 1,548,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other current liabilities $ 1,933,000 $ 256,000
Line of credit 565,000
Notes payable 600,000
Deferred income taxes payable 495,000 35,000
----------- -----------
Total liabilities 3,593,000 291,000
----------- -----------
Stockholders' equity:
Cumulative preferred stock - variable rate, $1.00 par value, 5,000,000 shares
authorized; 1,000,000 issued and outstanding in 1998 1,000,000
Common stock, $.01 par value, 50,000,000 shares authorized; 11,790,134 and
3,722,815 issued and outstanding in 1999 and 1998, respectively 118,000 37,000
Additional paid-in capital 81,601,000 11,290,000
Subscriptions receivable (67,000)
Accumulated deficit (9,660,000) (11,003,000)
Unearned compensation (27,294,000)
------------ ----------
44,765,000 1,257,000
------------ ----------
$ 48,358,000 $ 1,548,000
============ ===========
</TABLE>
See notes to financial statements
F-2
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1999 1998 1998
-------------------------------------------------
Revenues:
<S> <C> <C> <C>
Venture service fees $ 2,963,000 $2,105,000 $ 210,000
Appreciation in securities and interest income 4,605,000 20,000 18,000
Factoring income 135,000
----------- ---------- ----------
7,703,000 2,125,000 228,000
----------- ---------- ---------
Expenses:
Selling, general and administrative, including $595,000 of
equity - based compensation in 1999 4,765,000 2,090,000 1,553,000
Amortization of acquired intangibles 368,000
Other factoring costs 173,000
----------- ----------- -----------
5,306,000 2,090,000 1,553,000
---------- ----------- ----------
Income (loss) before provision for income taxes 2,397,000 35,000 (1,325,000)
Provision for income taxes 1,054,000 35,000
---------- ----------- ------------
Net income (loss) $ 1,343,000 $ 0 $(1,325,000)
=========== =========== ============
Basic income (loss) per share $.27 $.00 $(.36)
==== ==== =====
Diluted income (loss) per share $.27 $.00 $(.36)
==== ==== =====
Weighted average common shares outstanding - basic
income per share 4,916,000 3,723,000 3,723,000
Effect of potential common shares from exercise of
options and warrants 94,000
---------- ----------- -----------
Weighted average common shares outstanding -
diluted income per share 5,010,000 3,723,000 3,723,000
========== =========== ===========
</TABLE>
F-3
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Cumulative Preferred
Stock-Variable Rate Common Stock
--------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance, March 31, 1997 2,391,294 $ 2,391,000 3,722,815 $ 37,000
Merger of Hambro America Securities, Inc.
Reclass of preferred stock to additional paid-in capital (2,391,294) (2,391,000)
Conversion of debt to equity
Issuance of preferred stock 1,000,000 1,000,000
Net loss
------------- --------------- ------------- -----------
Balance, March 31, 1998 1,000,000 1,000,000 3,722,815 37,000
Capital contribution by Hambro America Securities, Inc.
Capital contributions by stockholders
------------- --------------- ------------- -----------
Balance, December 31, 1998 1,000,000 1,000,000 3,722,815 37,000
Recapitalization in connection with the Merger (1,000,000) (1,000,000)
Issuance of restricted common stock to employees 372,281 4,000
Shares of common stock and assumption of options and
warrants representing purchase price in connection
with the reverse acquisition, including finders fee
of 100,000 shares of common stock 3,450,533 35,000
Proceeds from issuance of common stock and warrants
in a private placement, including fees of 100,000
shares of common stock 2,600,000 26,000
Proceeds from issuance of common stock in private
placement 932,500 9,000
Issuance of common stock in connection with acquisition,
including finders fee of 12,000 of common stock 712,005 7,000
Cancellation of subscriptions receivable
Compensatory options issued to consultants
Compensation expense for stock options issued
to employees
Amortization of unearned compensation
Net income
------------- --------------- ------------- -----------
Balance, December 31, 1999 0 $ 0 11,790,134 $ 118,000
============= =============== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
F-4
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity (cont'd)
Additional
Paid-in Unearned Subscriptions
Capital Compensation Receivable
--------------- ------------- ----------------
<S> <C> <C> <C>
Balance, March 31, 1997 $ 867,000
Merger of Hambro America Securities, Inc. 6,707,000
Reclass of preferred stock to additional paid-in capital 2,391,000
Conversion of debt to equity 346,000
Issuance of preferred stock
Net loss
---------------
Balance, March 31, 1998 10,311,000
Capital contribution by Hambro America Securities, Inc. 905,000
Capital contributions by stockholders 74,000 $ (67,000)
--------------- ---------
Balance, December 31, 1998 11,290,000 (67,000)
Recapitalization in connection with the Merger 1,000,000
Issuance of restricted common stock to employees 1,350,000 $ (1,354,000)
Shares of common stock and assumption of options and
warrants representing purchase price in connection
with the reverse acquisition, including finders fee
of 100,000 shares of common stock 13,332,000
Proceeds from issuance of common stock and warrants
in a private placement, including fees of 100,000
shares of common stock 5,174,000
Proceeds from issuance of common stock in private
placement 1,856,000
Issuance of common stock in connection with acquisition,
including finders fee of 12,000 of common stock 21,131,000
Cancellation of subscriptions receivable (67,000) 67,000
Compensatory options issued to consultants 86,000
Compensation expense for stock options issued
to employees 26,449,000 (26,449,000)
Amortization of unearned compensation 509,000
Net income
--------------- ----------------- -------------
Balance, December 31, 1999 $ 81,601,000 $ (27,294,000) $ 0
=============== ================= ===========
</TABLE>
<TABLE>
<CAPTION>
F-5
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity (cont'd)
Accumulated
Deficit Total
---------------- ---------------
<S> <C> <C>
Balance, March 31, 1997 $ (3,068,000) $ 227,000
Merger of Hambro America Securities, Inc. (6,610,000) 97,000
Reclass of preferred stock to additional paid-in capital 0
Conversion of debt to equity 346,000
Issuance of preferred stock 1,000,000
Net loss (1,325,000) (1,325,000)
---------------- ---------------
Balance, March 31, 1998 (11,003,000) 345,000
Capital contribution by Hambro America Securities, Inc. 905,000
Capital contributions by stockholders 7,000
---------------- ---------------
Balance, December 31, 1998 (11,003,000) 1,257,000
Recapitalization in connection with the Merger 0
Issuance of restricted common stock to employees 0
Shares of common stock and assumption of options and
warrants representing purchase price in connection
with the reverse acquisition, including finders fee
of 100,000 shares of common stock 13,367,000
Proceeds from issuance of common stock and warrants
in a private placement, including fees of 100,000
shares of common stock 5,200,000
Proceeds from issuance of common stock in private
placement 1,865,000
Issuance of common stock in connection with acquisition,
including finders fee of 12,000 of common stock 21,138,000
Cancellation of subscriptions receivable 0
Compensatory options issued to consultants 86,000
Compensation expense for stock options issued
to employees 0
Amortization of unearned compensation 509,000
Net income 1,343,000 1,343,000
---------------- ---------------
Balance, December 31, 1999 $ (9,660,000) $ 44,765,000
================ ===============
</TABLE>
F-6
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1999 1998 1998
------------- ------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,343,000 $ (1,325,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 70,000 $ 15,000 13,000
Provision credit loss (9,000) 63,000
Realized loss on securities owned 10,000
Unearned compensation 509,000
Stock based compensation 86,000
Amortization of intangible 368,000
Bad debt expense 221,000
Changes in:
Due from broker 49,000
Fees and other receivables (35,000) (553,000) 10,000
Loan receivable officer (61,000)
Partnerships and limited liability company interests (2,853,000)
Marketable and nonmarketable securities (2,026,000)
Prepaid expenses (435,000) (13,000) (9,000)
Other assets 53,000
Accounts payable and accrued expenses 381,000 171,000 (203,000)
Due to related party 43,000 10,000
Deferred revenue 23,000
Deferred income taxes 460,000 35,000
----------- ---------- -------------
Net cash used in operating activities (1,938,000) (249,000) (1,402,000)
------------ ---------- -------------
Cash flows from investing activities:
Purchase of furniture and equipment (3,000) (18,000) (6,000)
Mercury Coast acquisition, net of acquired company's cash of $3,000 (278,000)
WFS acquisition, net of acquired company's cash of $799,000 334,000
Purchase of minority interest (533,000)
Increase in organizational costs (13,000)
Net increase in loan to related party (78,000)
Net increase in loan to stockholders (216,000)
----------- ---------- -------------
Net cash used in investing activities (480,000) (325,000) (6,000)
----------- ---------- -------------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock 1,000,000
Principal payments on line of credit (132,000)
Proceeds from sale of stock, net of related costs 6,865,000
Principal payments on notes payable (1,823,000)
Principal payment on SBA loan (1,500,000)
Loans from parent 469,000
Capital contribution by Hambro America, Inc. 905,000
Capital contribution by stockholders 7,000
----------- ---------- -------------
Net cash provided by financing activities 3,410,000 912,000 1,469,000
----------- ---------- -------------
Net increase in cash and cash equivalents 992,000 338,000 61,000
Cash and cash equivalents - beginning of year 610,000 272,000 211,000
----------- ---------- -------------
Cash and cash equivalents - end of year $ 1,602,000 $ 610,000 $ 272,000
=========== ========= =============
Supplemental disclosure of cash flow information:
Cash paid:
Interest $ 43,000 $ 137,000
Taxes $ 17,000
Supplemental disclosure of noncash investing and financing activities:
Issuance of stock in connection with Mercury Coast acquisition $21,138,000
Issuance of equity instruments in connection with WFS acquisition $13,367,000
Deferred compensation to consultants and employees by issuance of options $27,803,000
Cancellation of subscription receivable in connection with the Merger $ (67,000)
Retirement of preferred stock in connection with the recapitalization $ 1,000,000
Issuance of stock as a finders fee in private placement $ 200,000
Conversion of debt to parent to equity $ 346,000
</TABLE>
See notes to financial statements
F-7
<PAGE>
THCG, INC.
Notes to Financial Statements
December 31, 1999
NOTE A - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company is an Internet incubator company that provides venture funding,
venture development and venture banking services. We are penatrating new markets
by developing our international operations and by expanding our global coverage
of the Internet industry. The Company provides services to Internet-based
businesses, established "brick" and mortar" companies implementing an
Internet-based strategy and advanced technology and service companies. By
providing companies with capital and a combination of enterprise-enhancing
venture development and venture banking services, the Company believes that it
helps companies focus on their core strengths, so that they may bring their
products and services to market more rapidly. The Company also operates a
factoring business.
On November 1, 1999, the Company consummated the transactions contemplated by
the Amended and Restated Agreement and Plan of Merger (the "Agreement"), dated
August 5, 1999, by and among the Company, Tower Hill Acquisition Corp.
("Newco"), a wholly owned subsidiary of the Company, and Tower Hill Securities,
Inc. ("Tower Hill"). Pursuant to the Agreement, Newco merged with and into Tower
Hill, with Tower Hill surviving as a wholly owned subsidiary of the Company (the
"Merger"). As a result of the Merger, the Company changed its name from Walnut
Financial Services, Inc. ("WFS") to THCG, Inc. Tower Hill, formerly known as
Hambro America Securities, Inc., is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Tower Hill is engaged in the private placement of
corporate debt and equity securities with accredited investors as defined by SEC
Rule 501 of Regulation D. Tower Hill does not hold customer funds or safekeep
customers securities pursuant to SEC Rule 15c3-3(k)(2)(1).
In May 1997, Hambro America Securities, Inc. was merged into Hambro Resource
Development, Inc. ("HRDI") and simultaneously HRDI changed its name to Hambro
America Securities, Inc.
In April 1998, a group of investors purchased 99% of all of the issued and
outstanding equity securities of Hambro America Securities, Inc. for $74,250. In
May 1998, the same group purchased the remaining 1% for $750. In connection with
this acquisition, the former parent contributed capital of $904,775 in April
1998.
In connection with the Merger, the Company (i) issued 3,722,815 shares of common
stock for all of the outstanding common stock of Tower Hill; (ii) entered into
employment agreements with the two former shareholders of Tower Hill, who became
the Co-CEO's of the Company, and a former officer of Tower Hill, who became the
Chief Operating Officer of the Company and who received 372,281 shares of
restricted common stock (see Note L1 with respect to employment agreements);
(iii) issued 2,500,000 shares of common stock and warrants to purchase an
aggregate of 2,000,000 shares of common stock for aggregate proceeds of
$5,000,000 to Greenwich Street Capital Partners II, L.P. ("GSCP") and certain of
its affiliates in a private placement transaction and (iv) issued 932,500 shares
of common stock in two additional private placements, one to an outside investor
group and one to an investor group consisting of former Tower Hill employees. In
connection with the Merger, the outstanding preferred stock of Tower Hill was
cancelled.
For financial accounting purposes, the acquisition was accounted for as a
reverse acquisition of the Company by Tower Hill as, after the transaction, the
former shareholders of Tower Hill owned approximately 53% of the combined
Company (prior to the issuance of the shares in the private placements described
above), the management of Tower Hill became the management of the Company and a
majority of the new Board of Directors of the combined company was nominated by
Tower Hill. The purchase price for the Company consisted of 3,350,533 shares of
common stock, representing the outstanding shares of common stock of WFS as of
the date of acquisition and the assumption of all of the outstanding options and
warrants of WFS. The Company issued 100,000 shares of common stock as a finders
fee in connection with the Merger. The aggregate purchase price was $13,367,000,
based on the closing price of $3.625 per share on the acquisition date and the
fair value of the assumed warrants and options. In addition, the Company
incurred closing costs of approximately $785,000. The Company recorded excess of
cost over fair value of net assets acquired of $13,975,000 in connection with
the Merger. The historical financial statements presented herein are the
historical financial statements of Tower Hill adjusted for the capitalization of
WFS. Tower Hill's accumulated deficit is carried over in the accompanying
financial statements.
F-8
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of consolidation:
The financial statements of the Company include the accounts of its
wholly owned subsidiaries, Mercury Coast Inc., Pacific Financial
Services, Inc. ("Pacific Financial"), Inland Financial Corporation
("Inland Financial") and Tower Hill Securities and its wholly owned
subsidiaries, THCG LLC and THCG Ventures LLC. THCG Ventures LLC is a
management company for two related venture capital companies, THCG
Venture Partners I LLC and THCG Partners LLC. THCG Ventures LLC has a
0.45% member's interest in THCG Partners LLC. THCG Partners LLC and THCG
LLC have a 15.1% and a 9.9% membership interest in THCG Venture Partners
I LLC respectively. All significant intercompany accounts and
transactions are eliminated in consolidation.
(2) Cash and cash equivalents:
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
(3) Marketable and nonmarketable securities:
Marketable securities are stated at their fair market value on December
31, 1999. Marketable restricted securities are valued at fifty percent of
the published last trade, in accordance with the Company's valuation
policy. Such discount reflects the Company's estimate of fair value. Not
readily marketable securities are valued based on the last round of
financing or lower depending on circumstances. Warrants are valued based
on the intrinsic value (the value of the underlying security less the
exercise price).
The fair value of the Company's cash and cash equivalents and securities
approximates the carrying amounts presented in the statement of financial
condition.
(4) Furniture, fixtures and equipment:
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation or amortization. Depreciation is computed using the
straight-line method of accounting over the estimated useful lives of
three to seven years.
(5) Intangibles:
The excess of purchase price over fair value of net assets acquired is
amortized on a straight-line basis over the estimated future period of
the benefit of five years. The Company periodically assesses the
recoverability of the cost of its goodwill based upon estimated future
profitability of the related entities.
Long-lived assets and certain identifiable intangibles, including excess
of purchase price over fair value of net assets acquired, are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability is
measured by the amount by which the carrying value of the assets exceeds
the fair value of the assets.
F-9
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(6) Revenue recognition:
The Company recognizes venture service fees when earned. The Company
recognizes factoring fees when earned. Interest income from loans is
recognized using the interest method. Accrual of interest on loans is
suspended when a loan is contractually delinquent more than 90 days.
Accrual is resumed when the loan becomes contractually current and past
due interest income is recognized at that time. In addition, a detailed
review of loans will cause earlier suspension if collection is doubtful.
(7) Credit losses:
Provision for credit losses are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover the
losses on existing portfolios of factored accounts and loans. The
Company's charge off policy is based on an account by account review for
all factored receivables and loans.
(8) Investments in affiliates:
The Company accounts for its investments in affiliates in which it has
virtually no influence over the operating and financing policies of the
investee, under the cost method of accounting. The Company accounts for
those investments where the Company owns greater than 20% of the voting
interests and possesses significant influence under the equity method.
The Company, through its wholly owned subsidiary THCG LLC owns a 9.9%
membership interest in THCG Venture Partners I LLC ("Venture Partners
I"), a venture capital fund which is managed by THCG Ventures LLC, a
wholly owned subsidiary of the Company. A shareholder of the Company and
certain of its affiliates, own 75% of the membership interest in Venture
Partners I. The remaining 15.1% membership interest in Venture Partners I
is owned by THCG Partners LLC, whose managing member, THCG Ventures LLC,
owns a .45% membership interest in THCG Partners LLC. The Company
accounts for its membership interest in Venture Partners I and THCG
Partners LLC using the equity method of accounting. Venture Partners I
reports its investments at fair value. Accordingly, THCG LLC and THCG
Ventures LLC record their proportional share of the underlying
investments in Venture Partners I on the equity method.
(9) Income taxes:
The Company files a consolidated federal income tax return, together with
its wholly-owned subsidiaries. Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and for operating loss and tax
loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be settled or
recovered. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(10) Stock options:
The Company accounts for its stock options in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123 which allows entities
to continue to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25 and provide pro forma earnings per share
disclosures for employee stock option grants as if the fair value based
method, as defined in SFAS No. 123, had been applied. The Company has
elected to apply the provisions of APB No. 25 and provide the pro forma
disclosure required by SFAS No. 123 (see Note I).
F-10
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(11) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue and expenses
and the disclosure of contingent assets and liabilities to prepare the
financial statements in conformity with generally accepted accounting
principles. In particular, factors used in valuing nonmarketable
securities are subject to the inherent complexities of pricing such
investments. Actual results could differ from these estimates.
(12) Fair value of financial instruments:
The fair value of cash and cash equivalents, marketable securities,
factored accounts receivable, notes receivable, notes and accounts
payable approximate book value.
(13) Concentration of credit risk:
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and
factored accounts and notes receivable. Cash and cash equivalents consist
of deposits placed with various high credit quality financial
institutions.
Concentration of credit risk with respect to receivables is limited due
to required collateral and participations. The Company routinely assesses
the financial strength of its customers and requires collateral or other
security to support customers' factored accounts receivables and notes
receivable. Credit losses are provided for in the consolidated financial
statements in the form of an allowance for bad debts.
(14) Net income (loss) per share:
Basic earnings per share ("EPS") is computed by dividing income or loss
by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise of
options and warrants to purchase common stock. EPS for the nine months
ended December 31, 1998 and the year ended March 31, 1998 do not give
effect to the outstanding shares of preferred stock as the preferred
stock was canceled pursuant to the Merger and no dividends were accrued
or paid.
(15) Impairment of long-lived assets:
Impairment losses are recognized for long-lived assets, including certain
intangibles, used in operations when indicators of impairment are
present. Management estimates that the undiscounted future cash flows
generated by those assets are sufficient to recover the assets' carrying
amount. An impairment loss would be measured by comparing the fair value
of the assets to its carrying amount.
(16) Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes accounting standards for derivative instruments,
including derivative instruments embedded in other contracts and hedging
activities. In June 1999, SFAS No. 137 was issued delaying the effective
date of SFAS No. 133 to January 1, 2001. The Company's management has not
yet determined the impact of adopting SFAS No. 133 as amended.
F-11
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(17) Reclassification:
Certain amounts have been reclassified to conform to 1999 financial
statement presentation.
NOTE C - ACQUISITIONS
As described in Note A, the Company acquired WFS on November 1, 1999 in a
transaction accounted for as a reverse acquisition under the purchase method of
accounting. The aggregate purchase price, including acquisition costs, exceeded
the fair value of WFS' assets by $13,975,000. This amount has been allocated to
excess of cost over fair value of net assets acquired and is being amortized
using the straight-line method over five years. The results of operations of WFS
have been included in the accompanying statements of operations from the date of
acquisition.
In addition to the acquisition of WFS, on December 29, 1999, the Company
acquired 100% of the outstanding stock of Mercury Coast Inc. ("Mercury Coast")
for 700,005 shares of its common stock and issued 12,000 shares of common stock
as a finders fee. In connection with this transaction, the Company entered into
employment agreements with the three principal owners of Mercury Coast (see Note
L1 with respect to employment agreements). The aggregate purchase price,
including acquisition costs, exceeded the fair value of the net assets acquired
by $20,854,000. This amount has been allocated to excess of cost over fair value
of net assets acquired and is being amortized using the straight-line method
over five years. The acquisition was accounted for as a purchase and
accordingly, the results of operations have been included in the accompanying
statements of operations from the date of acquisition.
Assets acquired and liabilities assumed and the consideration paid is summarized
as follows:
Mercury
Coast WFS
----- ---
Cash $ 3,000 $ 799,000
Nonmarketable securities 340,000 4,697,000
Receivables - net 120,000 1,551,000
Other assets 66,000 276,000
Excess of cost over fair value 20,854,000 13,975,000
------------- -------------
21,383,000 21,298,000
Assumption of liabilities 245,000 7,146,000
------------- -------------
Net assets acquired $ 21,138,000 $ 14,152,000
============= =============
Closing costs $ 356,000 $ 785,000
Fair value of common stock, and
warrants and options assumed 20,782,000 13,367,000
------------- -------------
$ 21,138,000 $ 14,152,000
============= =============
F-12
<PAGE>
NOTE C - ACQUISITIONS (CONTINUED)
Pro forma financial information (unaudited):
The following unaudited pro forma financial information is presented as if the
Company had completed the Merger as of January 1, 1998 and the acquisition of
Mercury Coast as of January 1, 1999. The date of incorporation for Mercury Coast
was March 11, 1999. The pro forma information for WFS is as adjusted to present
WFS as an operating company instead of as an investment company. The pro forma
information is not necessarily indicative of what the results of operations
would have been had the acquisitions taken place at those dates, or of the
future results of operations.
1999 1998
---------------------------------
(Unaudited)
Revenues $ 6,341,000 $ 5,046,000
Net loss $ (7,489,000) $ (1,867,000)
EPS:
Basic and diluted $(.16) $(.26)
===== =====
NOTE D - SEGMENT INFORMATION
In 1999, as a result of the Company's acquisition of WFS, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements. The Company operates in two segments, the Internet
services business and the factoring business. The Internet services business
consists of three business development and business creation services-Venture
Development, Venture Banking and Venture Funding, all of which together provide
Internet companies with a comprehensive array of enterprise enhancing services.
The factoring business provides financing to its clients primarily by purchasing
customers accounts receivable, generally on a recourse basis. Presented below is
summarized financial information of the Company's operations for each segment.
1999
-------------
Revenues:
Internet services $ 7,568,000
Factoring 135,000
Income (loss) from operations:
Internet services 1,333,000
Factoring (43,000)
Total assets:
Internet services 46,472,000
Factoring 1,886,000
F-13
<PAGE>
NOTE E - MARKETABLE AND NONMARKETABLE SECURITIES
As of December 31, 1999 marketable and nonmarketable securities consisted of the
following:
Publicly traded securities $ 2,686,000
Publicly traded securities - restricted 126,000
Privately held securities 5,051,000
---------------
$ 7,863,000
===============
NOTE F - PARTNERSHIP AND LIMITED LIABILITY COMPANY INTERESTS
In connection with the Merger, the Company acquired a 1% general partner
interest in an investment partnership. The general partner is also entitled to a
20% carried interest in the profits of the partnership. The general partner
interest is valued at $1,533,000 as of December 31, 1999 based on its equity in
the underlying fair value of the partnership's investments. The Company's
investments in Venture Partners I and THCG Partners, LLC aggregated $520,000 at
December 31, 1999.
NOTE G - NOTES PAYABLE
In connection with the Merger, the Company assumed all of the liabilities of
WFS, including notes payable to the former shareholders of Pacific Financial.
The notes aggregate $600,000, bear interest at 8% per annum and are due in
accordance with the terms set forth in the Pacific Financial acquisition
agreement. The Company has initiated an action against the former shareholders
of Pacific to recoup a portion of the purchase price paid for Pacific Financial
and correspondingly reduce the amount of the notes payable. The action is in the
preliminary stages and the Company is unable to determine at this time if it
will be successful in reducing the amount of the notes payable. Therefore, the
notes payable are carried at their full amount in the accompanying financial
statements.
NOTE H - STOCKHOLDERS' EQUITY
Common stock and warrant transactions:
In connection with the Merger, the Company issued 3,722,815 shares of common
stock for all of the outstanding shares of WFS. The Company also issued 387,684
options and 633,373 warrants to former option and warrant holders of WFS and
issued 100,000 shares of common stock as a finders fee in connection with the
Merger. The total consideration paid, including closing costs, aggregated
$14,152,000.
In connection with the Merger in November 1999, the Company issued 2,500,000
shares of common stock and warrants to purchase an aggregate of 2,000,000 shares
of common stock to Greenwhich Street Capital Partners II, LP ("GSCP") and
several of its affiliates for gross proceeds of $5,000,000. 1,000,000 warrants
are exercisable at $5.44 per share and 1,000,000 warrants are exercisable at
$7.25 per share, and all of the warrants expire in November of 2002. The Company
issued 100,000 shares of common stock as a finders fee in connection with the
private placement of shares to GSCP. The shares were valued at $200,000 based on
the $2.00 price per share in the private placement.
F-14
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
Common stock and warrant transactions: (continued)
In connection with the Merger in November 1999, the Company also issued 932,500
shares of common stock in the aggregate in two private placements; one to an
outside investor group and one to an investor group consisting of employees of
Tower Hill for aggregate proceeds of $1,865,000.
In connection with the acquisition of Mercury Coast on December 29, 1999, the
Company issued 700,005 shares of common stock in exchange for all of the
outstanding stock of Mercury Coast. The Company issued 12,000 shares of common
stock as a finders fee in connection with this transaction. The shares were
valued at $29.69 based on an average price over the 4 days commencing two days
prior to the closing of the transaction.
NOTE I - STOCK OPTIONS
(1) In connection with the Merger, the Company assumed the NFS Services, Inc.
(Utah) 1994 Incentive Stock Option Plan, which was amended and restated and
approved by the Company's stockholders in December 1997 (as amended, the
"1994 Plan"). The 1994 Plan is administered by a stock incentive plan
administrative committee appointed by the Company's Board of Directors (the
"1994 Plan Committee"). The 1994 Plan Committee has the authority to select
the persons to whom awards may be granted, to determine the terms of each
award, to interpret the provisions of the 1994 Plan and to make all other
determinations that it may deem necessary or advisable for the
administration of the 1994 Plan. The 1994 Plan provides for the grant of
incentive stock options, nonqualified options, and restricted stock and
stock appreciation rights ("SARs"), as determined in each individual case
by the 1994 Plan Committee. The Company's Board of Directors has reserved
1,000,000 shares of common stock for issuance under the 1994 Plan. At
December 31, 1999, the Company has options outstanding under the 1994 Plan
as follows:
Weighted Average
Shares Exercise Price
------ --------------
Options granted as of November 1, 1999 14,334 $11.04
=======
Options exercisable at end of year 14,334 $11.04
=======
The weighted average life of options outstanding is 3.6 years.
(2) In connection with the Merger, the Company assumed the Walnut Capital
Corporation 1987 Stock Option Plan (as amended, the "1987 Plan"). The 1987
Plan is administered by a stock option plan administrative committee
appointed by the Board of Directors (the "1987 Plan Committee"). The 1987
Plan Committee has the authority to select the persons to whom awards may
be granted, to determine the terms of each award, to interpret the
provisions of the 1987 Plan and to make all other determinations that it
may deem necessary or advisable for the administration of the 1987 Plan.
The 1987 Plan provides for the grant of incentive stock options or
nonqualified options, as determined in each individual case by the 1987
Plan Committee. There are 806,930 shares of common stock reserved for
issuance under the 1987 Plan. Awards of nonstatutory options to purchase
23,350 shares of common stock all of which expire in 2004, have been
granted pursuant to the 1987 Plan. The exercise price of the options
outstanding pursuant to the 1987 Plan is $10.80 per share of common stock.
The average exercise price of options outstanding under the 1987 Plan is
$10.80. No further awards will be granted under the 1987 Plan.
F-15
<PAGE>
NOTE I - STOCK OPTIONS (CONTINUED)
(3) On November 1, 1999, the Company adopted the 1999 Walnut Financial
Services, Inc. Stock Incentive Plan (the "1999 Plan"). The 1999 Plan is
administered by an administrative committee appointed by the Company's
Board of Directors (the "1999 Plan Committee"). The 1999 Plan Committee has
the authority to select the persons to whom awards may be granted, to
determine the terms of each award, to interpret the provisions of the 1999
Plan and to make all other determinations that it may deem necessary or
advisable for the administration of the 1999 Plan. The 1999 Plan provides
for the grant of incentive stock options, nonqualified options, and
restricted stock and stock appreciation rights ("SARs"), as determined in
each individual case by the 1999 Plan Committee. The Company's Board of
Directors has reserved 2,250,000 shares of common stock for issuance under
the 1999 Plan. In connection with an employment agreement entered into in
1999, the Company issued 372,281 shares of restricted stock under the 1999
Plan. The Company recorded unearned compensation of $1,354,000 which will
be charged to operations over the three year vesting period. As of December
31, 1999, the Company has granted options under the 1999 Plan as follows:
Weighted
Average
Number of Contractual Number of
Exercise Options Remaining Options
Price Outstanding Life (in Years) Exercisable
----- ----------- --------------- -----------
$3.625 400,000 4.83 93,000
$3.625 987,500 4.83 972,000
$3.625 100,000 4.83 8,000
$10.00(1) 310,000 4.83 19,000
------------ --------------
1,797,500 1,092,000
============ ==============
(1) Granted with an exercise price which was less than quoted market
price on the date of grant.
Certain options granted under the 1999 Plan were granted with an
exercise price that was less than quoted market on the date of grant.
The Company also granted options to employees to purchase 146,500
shares of Common Stock at $10.00 per share, which was less than quoted
market on the date of grant. The options vest over three years. In
addition, in connection with the Mercury Coast Acquisition, the Company
issued an aggregate of 930,000 options to 3 individuals pursuant to
their employment agreements. The options vest over a four year period
and are exercisable at $6.00 per share, which was less than quoted
market on the date of grant. In connection with the issuance of options
with an exercise price at less than quoted market price on the date of
grant, the Company recorded an aggregate of $26,449,000 of unearned
compensation which will be charged to operations over the vesting
periods.
F-16
<PAGE>
NOTE I - STOCK OPTIONS (CONTINUED)
(3) (continued)
The Company elected to account for its employee stock based compensation
under APB 25. Had compensation cost for stock option grants been
determined based on the fair value at the grant dates for awards
consistent with the method provided by SFAS No. 123, the Company would
have reported the pro forma amounts indicated below.
Year Ended
December 31,
1999
----
Net income (loss) attributable to common stockholders:
As reported $ 1,343,000
Pro forma (400,000)
Netincome (loss) attributable to common
stockholders per share: Basic and diluted:
As reported $.27
Pro forma $(.08)
During 1999, the Company granted options to purchase 100,000 shares of
common stock at $3.625 per share as compensation for consulting services.
The options vest monthly over one year and expire in 2004. The estimated
fair value of the options vested in 1999, which amount to $86,000 was
charged to operations during 1999.
NOTE J - INCOME TAXES
The significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred income tax assets:
Net operating losses $ 702,000 $ 148,000
Unrealized losses 355,000
Preacquisition unrealized losses 1,079,000
Preacquisition net operating losses 2,270,000
-------------
4,406,000 148,000
Deferred income tax liability:
Option compensation (321,000)
Unrealized gain (1,231,000)
Valuation allowance (3,349,000) (148,000)
------------- ---------
Net deferred income tax liability $ (495,000) $ 0
============= =========
F-17
<PAGE>
NOTE J - INCOME TAXES (CONTINUED)
The valuation allowance represents the unutilized tax benefit of the
preacquisition net operating losses and unrealized losses of WFS.
The significant components of the provision (benefit) for income taxes for the
year ended December 31, 1999, the nine months ended December 31, 1998 and the
year ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Nine
Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1999 1998 1998
---------------- ------------ -------------
Current:
<S> <C> <C> <C>
Federal $ $12,000 $
State 23,000
--------------- --------
Total current taxes 0 35,000 0
--------------- -------- -------------
Deferred:
Federal, including utilization of net operating losses
credited to excess of cost over fair value of net
assets acquired 966,000
State 225,000
Change in valuation allowance (137,000)
---------------
Total deferred taxes 1,054,000 0 0
--------------- ------- -------------
Provision (benefit) for income taxes $ 1,054,000 $35,000 $ 0
=============== ======= =============
</TABLE>
The difference between the statutory federal income tax rate on the Company's
income before income taxes and the Company's effective income tax rate for the
years ended December 31, 1999 and 1998 are summarized as follows:
Nine
Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1999 1998 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 7.0 66.0
Nondeductible amortization of intangibles 10.2
Reduction in valuation allowance (5.7)
Miscellaneous (.4)
Net operating losses (unutilized) (1.1) (34.0)
----- ----- -----
Effective income tax rate 44.0% 100.0% 0%
==== ===== =====
F-18
<PAGE>
NOTE J - INCOME TAXES (CONTINUED)
As of December 1999, the Company has net operating loss carryforwards ("NOL"),
attributable to losses incurred by WFS prior to the Merger for income tax
purposes expiring as follows:
Year Ending
December 31, WFS
------------ ---
2008 $ 1,668,000
2009 878,000
2010 1,380,000
2011 156,000
2014 1,040,000
2019 1,253,000
---------------
$ 6,375,000
As a result of the change in ownership occuring in connection with the Merger,
the utilization of the NOL's of WFS are limited to approximately $700,000
annually.
The tax benefit realized upon utilization of such carryforwards will be credited
to excess of cost over fair value of net assets acquired.
In addition, the Company has NOL's of $300,000 which expire through 2014.
NOTE K - RELATED PARTY TRANSACTIONS
The Company leases office space from Hambro America Securities, Inc. which is
owned by the Co-CEO's and the COO of the Company. The lease requires payments of
$21,650 and expires on August 30, 2000. Under this lease, rent expense for the
year ended December 31, 1999 and the nine months ended December 31, 1998 was
$337,000 and $180,000, respectively, including payments in 1999 for additional
space leased on a month to month basis.
In October 1998, the Company loaned $95,000 to a related party. The loan is
non-interest bearing and is being repaid over 22 months at $4,318 per month.
During the nine months ended December 31, 1998, the Company loaned $216,000 to
its officers. The loans were noninterest bearing and had no specific repayment
date. In addition, during 1999, the Company loaned an additional $100,000 to its
officers. Prior to the consummation of the Merger, the Company forgave loans to
one of its officers in the amount of $132,237, which was charged to compensation
expense.
NOTE L - COMMITMENTS AND CONTINGENCIES
(1) Employment agreements:
The Company entered into employment agreements with each of its two
Co-CEO's. The agreements which expire in 2004 and provide for aggregate
annual base salaries of $400,000 and annual bonuses to be determined by
the Compensation Committee. In connection with the agreements, the
Company issued options to purchase 900,000 shares of common stock under
the 1999 Plan.
F-19
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)
(1) Employment agreements: (continued)
The Company entered into an employment agreement with its Chief Operating
Officer which expires in 2004 and provides for a base salary of $150,000
and an annual bonus to be determined by the Compensation Committee. In
connection with the Merger, the Company issued 372,281 shares of
restricted stock which vest in differing amounts over a period of three
years. In connection with the issuance of restricted stock, the Company
recorded unearned compensation of $1,354,000 which is being charged to
income as the shares vest.
In connection with the acquisition of Mercury Coast, the Company entered
into employment agreements with each of the three former shareholders of
Mercury Coast. Each of the agreements provides for an annual base salary
of $150,000, a minimum bonus of $50,000 in 2000, and future bonuses to be
determined by the Compensation Committee, and expire three years from the
date of the acquisition. The agreements are automatically renewable on an
annual basis unless the Company or the employee gives written notice. In
connection with the employment agreements, the Company issued options to
purchase 310,000 shares of common stock to each of the three individuals.
The options have an exercise price of $6.00 per share, are exercisable
for five years and vest over four years. In connection with the issuance
of these options, the Company recorded unearned compensation in the
aggregate amount of $23,715,000, which is being charged to earnings over
the vesting period of the options.
(2) Litigation:
By First Amended Complaint dated November 22, 1999 and filed on November
23, 1999 (the "Complaint"), the Company was sued in the Superior Court of
Washington for Spokane County in an action entitled Miller Capital Group,
L.L.C., et al. v. Inland Financial Corporation, et al. (No. 99206566-7).
The Company was named as successor to Walnut Financial Services, Inc.,
the corporate parent of defendant Inland Financial Corporation. The
complaint generally alleges that Inland Financial and others fraudulently
induced the plaintiffs to participate in various transactions related to
Inland Financial's factoring business and that funds obtained by Inland
Financial and/or Walnut Financial Services in connection with those
transactions were improperly diverted or converted. It is alleged that
Walnut Financial Services controlled Inland Financial in general and with
respect to the specific challenged transactions. Plaintiffs allege causes
of action for breach of promissory notes, state law securities fraud and
registration violations, common law misrepresentation and conversion. The
complaint seeks unspecified injunctive relief, unspecified damages and an
accounting. The complaint has only recently been filed and the lawsuit is
in its initial stages. The Company intends to defend the lawsuit
vigorously.
On April 21, 1999, Yoav Bitter commenced an action against, Tower Hill
pursuant to the New York Business Corporation Law Section 1104-a, for,
inter alia, judicial dissolution of Tower Hill and appointment of a
receiver. On June 17, 1999, Justice Goodman denied the relief sought by
Mr. Bitter, and granted Tower Hill cross motion to dismiss the matter. On
August 3, 1999, Mr. Bitter filed a Notice of Appeal of the judgment of
Justice Goodman with the New York State Supreme Court Appellate Division,
First Department. By an order entered March 14, 2000, the New York State
Supreme Court Appellate Division, First Department, dismissed Mr.
Bitter's appeal. Mr. Bitter has until April 21, 2000 to file a Notice of
Appeal to the New York State Court of Appeals. Additional payments may be
due to Mr. Bitter for his 25% interest in Tower Hill Securities pursuant
to an agreement dated as of April 13, 1998 among Messrs. Mark, Raviv and
Bitter. These payments are to be in an amount equal to 25% of "all net
profits relative to work-in-progress as of" April 30, 1999. Tower Hill
Securities, Joseph D. Mark and Adi Raviv have entered into an
indemnification agreement pursuant to which Messrs. Mark and Raviv have
agreed to indemnify Tower Hill for any amounts Tower Hill is obligated to
pay to Mr. Bitter in excess of Tower Hill Securities' net profits
relative to the engagements of Tower Hill that were pending, but not
completed, on April 30, 1999. Tower Hill Securities has agreed to
indemnify Messrs. Mark and Raviv with respect to any amounts either of
them becomes obligated to pay to Mr. Bitter in excess of the amount
described in the two prior sentences, and Tower Hill Securities has
agreed to assume and pay for the defense of any claim brought by Mr.
Bitter. The potential settlement amount, if any, cannot be determined at
this time.
On June 18, 1999, Tower Hill securities initiated an arbitration against
Yoav Bitter before the National Association of Securities Dealers, or
NASD, requesting the return of company property and the reimbursement of
certain travel expenses. On September 9, 1999, Mr. Bitter filed an answer
and counterclaims against Tower Hill Securities. Mr. Bitter denied
liability for the claims brought by Tower Hill Securities and asserted
claims for tuition expenses and additional compansation. On September 17,
1999, Tower Hill Securities filed a response denying all liability on the
counterclaims. The NASD has acknowledged jurisdiction over the
arbitration and has advised the parties that it plans to schedule a
pre-hearing conference with the parties and the arbitrations.
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NOTE M - SUBSEQUENT EVENTS:
In February 2000, Class A warrants issued in a 1997 private placement were
exercised. Common stock issued totaled 633,373 and proceeds from the exercise
approximated $5.7 million dollars.
On February 29, 2000, the Company entered into a letter of intent to acquire the
investment banking and equity research business of a private firm in Israel that
specializes in the Internet and related technologies.
In February 2000, the Board of Directors of the Company adopted the 2000 THCG,
Inc. Stock Incentive Plan (the "2000 Incentive Plan"), the 2000 Employee Stock
Purchase Plan (the "2000 Purchase Plan") and the 2000 Non-employee Director
Stock Option Plan (the "2000 Director Plan), all subject to stockholder
approval.
The maximum amount of shares available under the 2000 Incentive Plan is 200,000
shares, plus and annual increase as determined in the plan.
The maximum amount of shares available under the 2000 Purchase Plan is 200,000
shares, plus an annual increase as defined in the plan.
The maximum amount of shares available under the 2000 Director Plan is 500,000
shares.
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Independent Auditors' Report
The Board of Directors
Tower Hill Securities, Inc.
New York, New York
We have audited the accompanying statement of financial condition of Hambro
America Securities, Inc. as of December 31, 1998, and the related statements of
operations, changes in stockholder's equity, and cash flows for the nine months
ended December 31, 1998 and the year ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hambro America Securities, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the nine months ended December 31, 1998 and the year ended March 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Cohen & Schaeffer, P.C.
----------------------------
Cohen & Schaeffer, P.C.
New York, New York
January 26, 1999
F-22
Exhibit 2.4
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STOCK PURCHASE AGREEMENT
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As of February 7, 2000
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
February 7, 2000, among THCG, Inc., a Utah company (the "Purchaser"), and the
stockholders of Global Credit Services, Inc., a Delaware corporation (the
"Company"), listed on Schedule I hereto (individually, a "Seller," and,
collectively, the "Sellers"). Certain other capitalized terms used in this
Agreement have the meanings give them in Section 6.13.
WHEREAS, as of the date hereof, each of the Sellers is the
record holder and beneficial owner of the number of shares of common stock, par
value $0.001 per share, of the Company (the "Company Common Stock") set forth
opposite such Seller's name on Schedule I;
WHEREAS, the Purchaser desires to purchase from each Seller,
and each Seller desires to sell to the Purchaser, the number of shares of
Company Common Stock set forth opposite such Seller's name on Schedule I, for
the consideration set forth in Section 1.1; and
WHEREAS, as a result of the transactions contemplated by this
Agreement, the Purchaser will own 25% or more of the Company on a fully diluted
basis;
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Purchaser and each of the Sellers, intending to be legally bound, hereby agree
as follows:
ARTICLE I
PURCHASE AND SALE OF COMPANY COMMON STOCK
SECTION 1.1. Agreement to Sell and Purchase Company Common
Stock.
(a) Subject to the terms and conditions hereof, on the Closing
Date, each Seller shall sell and deliver to the Purchaser, free and clear of all
Liens, and the Purchaser shall purchase and accept from such Seller, the number
of shares of Company Common Stock set forth opposite such Seller's name on
Schedule I in consideration for which the Purchaser shall, subject to Section
1.1(c), issue to such Seller a number of shares of common stock, par value $0.01
per share, of the Purchaser (the "THCG Common Stock") equal to the product of
(i) the number of shares of Company Common Stock set forth opposite such
Seller's name on Schedule I, and (ii) the quotient, rounded to the nearest
1/10,000, obtained by dividing the "Fair Market Value Per Share of THCG Common
Stock" into $1.3957. For the purposes of this Section 1.1(a), the "Fair Market
Value Per Share of THCG Common Stock" shall be $23.00. For the purposes of
Section 1.1(b), the "Fair Market Value Per Share of THCG Common Stock" means the
volume weighted average sales prices of one share of THCG Common Stock on the
NASDAQ National Market for the ten consecutive trading days ending three trading
days prior to the effective date of the Registration Statement referred to in
Section 5.1. The number of shares of Company Common Stock which such Seller
shall deliver to the Purchaser on the Closing Date is hereinafter referred to as
the "Company Shares" and the number of shares of
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THCG Common Stock which the Purchaser shall deliver to such Seller on the
Closing Date, as the same may be recalculated and adjusted pursuant to the
provisions of Section 1.1(b), is hereinafter referred to as the "THCG Shares."
(b) If the Fair Market Value Per Share of THCG Common Stock on
the effective date of the Registration Statement is more or less than the Fair
Market Value Per Share of THCG Common Stock on the Closing Date, THCG will
recompute the number of THCG Shares to be issued to each Seller in accordance
with the provisions of Section 1.1(a). In the event such recomputation results
in a number of shares of THCG Common Stock that is greater than the number of
THCG Shares delivered to such Seller on the Closing Date, the Purchaser shall,
subject to Section 1.1(c), promptly deliver to such Seller a certificate
representing such additional shares of THCG Common Stock. In the event such
recomputation results in a number of shares of THCG Common Stock that is lower
than the number of THCG Shares delivered to such Seller on the Closing Date,
such Seller shall promptly return to the Purchaser the certificate for THCG
Shares delivered to him or it on the Closing Date against receipt from the
Purchaser of a new certificate for shares of THCG Common Stock in the recomputed
amount. In no event, however, shall the number of shares of THCG Common Stock
delivered to such Seller on the Closing Date increase or decrease by more than
twenty percent (20%); provided, however, that in the event that the Registration
Statement is declared effective by the SEC on a date that is more than 180
calendar days but less than 365 days from the Closing Date, such increase or
decrease shall be no more than forty percent (40%); provided further, that in
the event that the Registration Statement is declared effective by the SEC on a
date that is more than 365 days from the Closing Date, such increase or decrease
shall be no more than fifty percent (50%).
(c) In no event shall any Seller be entitled to a fractional
share of THCG Common Stock pursuant to Section 1.1(a) or 1.1(b), but, in lieu
thereof, THCG shall issue to each Seller otherwise entitled to a fraction of a
share of THCG Common Stock one whole share of THCG Common Stock in respect of
such fraction.
(d) Notwithstanding any provision of this Agreement to the
contrary, in lieu of delivering to the Sellers certificates for the full number
of THCG Shares provided for in Section 1.1(a), the Purchaser shall deliver or
cause to be delivered (A) to each Seller a certificate, registered in the name
of such Seller, for a number of shares of THCG Common Stock equal to 50% of the
aggregate number of THCG Shares otherwise issuable to such Seller on the Closing
Date pursuant to Section 1.1(a); and (B) to Kramer Levin Naftalis & Frankel LLP
as escrow agent (the "Escrow Agent") for deposit into the escrow account
provided for in the escrow agreement (the "Escrow Agreement") attached hereto as
Exhibit 1.1(d), a certificate, registered in the name of the Escrow Agent, for
the number of shares of THCG Common Stock equal to 50% of the aggregate number
of THCG Shares otherwise issuable to each Seller pursuant to Sections 1.1(a) and
1.1(c) on the Closing Date (the "Escrow Amount"), which certificate will be held
in the escrow account and disposed of by the Escrow Agent in accordance with the
terms and provisions of the Escrow Agreement. In lieu of depositing any
fractional shares into escrow, each Seller shall deposit with the Escrow Agent
one whole share of THCG Common Stock in respect of such fraction.
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<PAGE>
SECTION 1.2. Closing. The closing of the transactions
contemplated by Section 1.1(a) is taking place on the date hereof at the offices
of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York
10022 (the date hereof sometimes being referred to herein as the "Closing
Date").
SECTION 1.3. Delivery of Securities. At the Closing, against
delivery by the Purchaser to each Seller of a certificate representing such
Seller's THCG Shares (less such Seller's Escrow Amount), each Seller shall
deliver to the Purchaser a stock certificate representing such Seller's Company
Shares, free and clear of all Liens, which stock certificate shall be duly
endorsed to the Purchaser or accompanied by duly executed stock powers endorsed
in blank in form acceptable to the Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller hereby represents and warrants to the Purchaser as
to himself, herself or itself as follows:
SECTION 2.1. Authority; No Conflict.
(a) Such Seller has the right, power, authority and capacity
to execute and deliver this Agreement, to consummate the transactions
contemplated by this Agreement, and to perform such Seller's obligations under
this Agreement. This Agreement has been duly and validly authorized and
approved, executed and delivered by such Seller and, assuming the due
authorization, execution and delivery of the same by the Purchaser, constitutes
a valid, legal and binding obligation of such Seller enforceable against such
Seller 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) Neither the execution, delivery and performance by such
Seller of this Agreement nor the consummation by such Seller of the transactions
contemplated by this Agreement will 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 Contract or
obligation or Governmental Order to which such Seller is a party or by which
such Seller or any of his or her properties or assets is bound or, if such
Seller is not an individual, the Organizational Documents of such Seller or any
Law applicable to such Seller or any of its properties or assets.
SECTION 2.2. Ownership of Company Shares. Such Seller owns, of
record and beneficially, and has good, valid and indefeasible title to and the
right to transfer to the Purchaser pursuant to this Agreement, his, her or its
Company Shares free and clear of any and all Liens of any kind or nature
whatsoever. There are no voting trusts, stockholder agreements or any other
Contracts or understandings to which such Seller is a party or by which
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<PAGE>
such Seller or his, her or its Company Shares are bound with respect to the
issuance, sale, transfer, voting or registration of his, her or its Company
Shares. At the closing, Purchaser will acquire good, valid and marketable title
to such Seller's Company Shares free and clear as aforesaid.
SECTION 2.3. Legal Proceedings. There is no pending Proceeding
against such Seller that challenges, or may have the effect of preventing,
delaying or making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement and, to the knowledge of such
Seller, no such Proceeding has been threatened, and no event or circumstance
exists that is reasonably likely to give rise to or serve as a basis for the
commencement of any such Proceeding.
SECTION 2.4. Investment Representations of the Sellers.
(a) The THCG Shares are being and will be acquired by such
Seller for his, her or its own account, and not for any other Person, for
investment only and with no intention of distributing or reselling (and such
Seller will not distribute or resell) such THCG Shares, or any portion thereof
or interest therein, in any transaction that would violate the registration
requirements of the securities Laws of the United States of America, or any
state, without prejudice, however, to the rights of such Seller at all times to
sell or otherwise dispose of all or any part of the THCG Shares under an
effective registration statement or applicable exemption from registration under
the Securities Act and any applicable state securities Law, subject to this
Agreement and any other Contract to which such Seller is a party. Such Seller
has no Contract or arrangement with any Person to sell, transfer or pledge to
such Person the THCG Shares, any portion thereof or interest therein and such
Seller has no present plans to enter into any such Contract or arrangement.
(b) Such Seller is an accredited investor as that term is
defined in Rule 501 under the Securities Act, and has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the THCG Shares. Such Seller
is able to bear the risks associated with an investment in the THCG Shares.
(c) Such Seller has read this Agreement and all other
documents provided by the Purchaser in connection herewith, including the SEC
Reports, and fully understands the terms under which the THCG Shares are being
issued to him or her pursuant hereto. The Purchaser has made available to such
Seller the opportunity to ask questions of and receive answers from the
Purchaser concerning the Purchaser and the terms and conditions under which the
THCG Shares will be issued to him or her and to obtain any additional
information which the Purchaser possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of information
furnished in connection with this Agreement or in response to any request for
information. Such Seller is satisfied with such answers and information.
(d) Such Seller agrees that, so long as required by Law,
certificates evidencing the THCG Shares and any securities issued in exchange
for or in respect thereof shall bear a legend to the following effect:
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<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to each Seller as
follows:
SECTION 3.1. Organization and Qualification; Subsidiaries. The
Purchaser has been duly organized and is validly existing and in good standing
under the laws of Utah 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. The Purchaser 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 are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect. For purposes
of this Agreement, "Material Adverse Effect" means any change, event or effect
(i) in, on or relating to the business of the Purchaser and its Subsidiaries
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 Purchaser and its Subsidiaries, taken as a whole, other
than any change, event or effect arising out of general economic conditions in
the United States; or (ii) that may prevent or materially delay performance of
this Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated by this Agreement, including the issuance of the THCG
Shares pursuant to this Agreement.
SECTION 3.2. Capitalization. The authorized capital stock of
the Purchaser consists of (i) 50,000,000 shares of the Purchaser Common Stock,
of which 11,739,113 shares are issued and outstanding as of February 3, 2000,
633,373 are reserved for issuance upon the exercise of outstanding warrants and
3,356,878 are reserved for issuance upon the exercise of outstanding options,
and (ii) 5,000,000 shares of preferred stock, no par value, of which no shares
are issued or outstanding. The THCG Shares issuable pursuant to this Agreement
have been duly authorized and upon issuance pursuant to this Agreement will be
validly issued, fully paid and nonassessable.
SECTION 3.3. Authority Relative to this Agreement; Board
Action. The Purchaser 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 the Purchaser of this
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<PAGE>
Agreement and the consummation by the Purchaser of the transactions contemplated
by this Agreement have been duly and validly authorized by the Board of
Directors of the Purchaser, and no other corporate proceedings on the part of
the Purchaser are, or will be, necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by the Purchaser and, assuming the
due authorization, execution and delivery of the same by each of the other
parties hereto, constitutes a valid, legal and binding agreement of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to (a) 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 (b) general principles of
equity (regardless of whether considered in a proceeding at law or in equity).
SECTION 3.4. SEC Filings. The Purchaser has furnished to each
of the Sellers a complete copy (including exhibits) of: (i) the Annual Report on
Form 10-K of Walnut Financial Services, Inc. ("Walnut") for the fiscal year
ended December 31, 1998 (the "Annual Report"), (ii) Walnut's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September
30, 1999 (the "Quarterly Reports"), (iii) Walnut's Definitive Proxy Statement on
Schedule 14A, filed September 30, 1999 (the "Proxy Statement"), and (iv) the
Purchaser's Current Reports on Form 8-K and Form 8-K/A, dated November 1, 1999,
December 29, 1999 and January 13, 2000 (collectively with the Annual Report, the
Quarterly Reports, the Proxy Statement, the "SEC Reports"). The SEC Reports, at
the respective time that each such document was filed with the SEC, (a) complied
as to form in all material respects with the rules and regulations of the SEC
under the Exchange Act, and (b) did not 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 were made, not misleading.
SECTION 3.5. Consents and Approvals; No Violations.
(a) 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 Purchaser of this Agreement or the
consummation by the Purchaser of the transactions contemplated by this
Agreement, except for those required (i) under the Securities Act, the Exchange
Act or the NASDAQ Additional Listing rules and (ii) such Filings and Approvals
that, if not made or obtained, are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect.
(b) No consent or approval of any third party is, or will be,
necessary for the execution and delivery by the Purchaser of this Agreement or
the consummation of the transactions contemplated by this Agreement.
(c) Neither the execution, delivery and performance of this
Agreement or the consummation by the Purchaser of the transactions contemplated
by this Agreement will (i) conflict with or result in any breach of any
provision of the Organizational Documents of the Purchaser, (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
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<PAGE>
acceleration or Lien) under, any of the terms, conditions or provisions of any
Contract or other obligation to which the Purchaser is a party or by which the
Purchaser or any of its properties or assets is bound, or (iii) assuming that
all Filings and Approvals have been made or obtained, violate any Law or any
Governmental Order applicable to the Purchaser or any of its properties or
assets, except in the cases of clauses (ii) or (iii) for violations, breaches or
defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect.
SECTION 3.6. Absence of Changes. Except as disclosed in
writing to the Sellers or otherwise publicly disclosed by the Purchaser, since
November 1, 1999, the business of the Purchaser and its Subsidiaries has been
carried on only in the ordinary course and there has not been any event,
condition or occurrence that, individually or in the aggregate, has resulted or
which is reasonably likely to result in, a Material Adverse Effect.
SECTION 3.7. No Litigation. There is no Proceeding pending or,
to the knowledge of the Purchaser, threatened against the Purchaser which
questions the validity of this Agreement or any action to be taken by the
Purchaser in connection with the consummation of the transactions contemplated
by this Agreement or could otherwise prevent, delay, make illegal or otherwise
interfere with the consummation of such transactions.
SECTION 3.8. Disclosure. The representations and warranties by
the Purchaser contained in this Agreement 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, in light of
the circumstances under which they were made, not misleading.
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 4.1. Conditions Precedent to the Closing. The
respective obligations of each party hereto pursuant to Section 1.1 are subject
to the satisfaction of each of the following conditions precedent at or prior to
the Closing:
(a) Representations and Warranties. The representations and
warranties of each party set forth in this Agreement or in any Schedule or
certificate delivered pursuant hereto shall be true and correct as of the date
of this Agreement and shall be deemed repeated as of the Closing Date and shall
then be true and correct, except to the extent a representation or warranty is
expressly limited by its terms to another date.
(b) Performance of Covenants. Each party shall have performed
and complied with all covenants and agreements contained herein required to be
performed or complied with by such party at or before the Closing Date.
(c) Stock Purchase Agreement. The Stock Purchase Agreement, of
even date herewith, between the Company and THCG Venture Partners I LLC shall
have been duly executed and delivered by each of the parties thereto.
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<PAGE>
ARTICLE V
COVENANTS
The parties, as applicable, hereby covenant to and agree as follows:
SECTION 5.1. Registration Statement.
(a) The Purchaser shall prepare and, no later than March 31,
2000, file with the Commission a registration statement (the "Registration
Statement") under the Securities Act covering all of the THCG Shares issued to
the Sellers pursuant to this Agreement (the "Registrable Shares"). The Purchaser
shall use its commercially reasonable best efforts to (i) to cause such
registration statement to be declared effective by the Commission under the
Securities Act, and (ii) to cause such registration statement to remain
effective for a period of 90 days.
(b) With respect to the registration of Registrable Shares
pursuant to Section 5.1(a), the Purchaser may include in such registration any
Primary Shares or Other Shares; provided, however, that if the managing
underwriter advises the Purchaser that the inclusion of all Registrable Shares,
Primary Shares and Other Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of the
Registrable Shares proposed to be included in such registration, then the number
of Registrable Shares, Primary Shares and/or Other Shares proposed to be
included in such registration shall be included in the following order:
(i) first, the Registrable Shares requested to be
included in such registration by the Sellers;
(ii) second, the Primary Shares; and
(iii) third, the Other Shares.
(c) Each of the Sellers hereby acknowledges that such Seller
is required to deliver a prospectus in connection with a sale of any Registrable
Shares pursuant to the Registration Statement and hereby agrees to furnish a
prospectus to each purchaser of such Seller's Registrable Shares, subject to the
provisions of Section 5.2(b).
SECTION 5.2. Registration Procedures.
(a) In connection with the preparation and filing of the
Registration Statement pursuant to Section 5.1, the Purchaser shall, as
expeditiously as practicable:
(i) furnish, at least five business days before
filing the Registration Statement, a prospectus relating thereto and
any amendments or supplements relating to the Registration Statement or
prospectus, copies of all such documents proposed to be filed (it being
understood that such five-business-day period need not apply to
successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to the Sellers in advance of
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the proposed filing by a period of time that is customary and
reasonable under the circumstances);
(ii) notify in writing the Sellers promptly (x) of the
receipt by the Purchaser of any notification with respect to any
comments by the Commission with respect to the Registration Statement
or prospectus or any amendment or supplement thereto or any request by
the Commission to amend or supplement the same or for additional
information with respect thereto, (y) of the receipt by the Purchaser
of any notification with respect to the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or prospectus or any amendment or supplement thereto or the
initiation or threatening of any proceeding for that purpose, and (ii)
of the receipt by the Purchaser of any notification with respect to the
suspension of the qualification of such Registrable Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purposes;
(iii) use its commercially reasonable best efforts to
register or qualify such Registrable Shares under such other securities
or blue sky laws of such jurisdictions as the Sellers reasonably
request and do any and all other acts and things which may be
reasonably necessary or advisable to enable the Sellers to consummate
the disposition in such jurisdictions of such Registrable Shares;
provided, however, that the Purchaser will not be required to qualify
generally to do business, subject itself to general taxation or consent
to general service of process in any jurisdiction where it would not
otherwise be required to do so but for this Section 5.2(a)(iii);
(iv) furnish to the Sellers such number of copies of a
summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents (such as a term sheet) as the Sellers may
reasonably request in order to facilitate the public sale or other
disposition of such Registrable Shares;
(v) notify the Sellers on a timely basis at any time
when a prospectus relating to such Registrable Shares is required to be
delivered under the Securities Act of the happening of any event as a
result of which the prospectus included in the Registration Statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(vi) provide a transfer agent and registrar (which may
be the same entity and which may be the Purchaser) for such Registrable
Shares;
(vii) list such Registrable Shares on any national
securities exchange on which any shares of the THCG Common Stock are
listed;
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(viii) otherwise use its commercially reasonable best
efforts to comply with all applicable rules and regulations of the
Commission and the securities commission or other regulatory authority
of any relevant state or other jurisdiction and make available to its
securityholders, as soon as reasonably practicable, earnings statements
(which need not be audited) covering a period of 12 months beginning
within three months after the effective date of the Registration
Statement, which earnings statements shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(ix) use its commercially reasonable best efforts to
take all other steps reasonably necessary to effect the registration of
such Registrable Shares contemplated hereby.
(b) In the event the Purchaser notifies the Sellers pursuant
to Sections 5.2 (a)(ii)(x) or (y) or 5.2(a)(v), the Sellers shall immediately
cease selling Registrable Securities pursuant to the Registration Statement
until the Purchaser furnishes the Sellers with an amendment or supplement to the
Registration Statement or prospectus and informs the Sellers that sales of
Registrable Securities pursuant to the Registration Statement may resume.
SECTION 5.3. Expenses.
All expenses incurred by the Purchaser in complying with
Sections 5.1 and 5.2 , including, all registration and filing fees (including
all expenses incident to filing with the National Association of Securities
Dealers, Inc.), fees and expenses of complying with securities and blue sky
laws, printing and distribution expenses, "road show" and other marketing
expenses and fees and expenses of the Purchaser's counsel and accountants shall
be paid by the Purchaser; provided, however, that all underwriting discounts and
selling commissions applicable to the Registrable Shares shall not be borne by
the Purchaser but shall be borne by the Sellers.
SECTION 5.4. Indemnification.
(a) In connection with the registration of the Sellers'
Registrable Shares under the Securities Act pursuant to this Agreement, the
Purchaser shall indemnify and hold harmless such Sellers (and their heirs and
personal representatives), each underwriter, broker or any other person acting
on behalf of such Sellers and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with respect to any
prospectus, necessary to make the
-11-
<PAGE>
statements therein in light of the circumstances under which they were made not
misleading, or any violation by the Purchaser of the Securities Act or state
securities or blue sky laws applicable to the Purchaser in connection with such
registration or qualification under such state securities or blue sky laws; and
shall reimburse such Sellers (and their heirs and personal representatives),
such underwriter, such broker or such other person acting on behalf of the
Sellers of Registrable Shares and each such controlling person for any legal or
other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Purchaser shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, preliminary prospectus,
final prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Purchaser through an instrument duly
executed by such Sellers or underwriter specifically for use in the preparation
thereof.
(b) In connection with the registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each Seller shall indemnify
and hold harmless and reimburse (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section 5.4) the Purchaser, each
director of the Purchaser, each officer of the Purchaser who shall sign the
Registration Statement, each underwriter, broker or other person acting on
behalf of such Seller or the Purchaser and each person who controls any of the
foregoing persons within the meaning of the Securities Act with respect to any
statement or omission from the Registration Statement, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Purchaser or such underwriter through an instrument duly
executed by such Seller specifically for use in connection with the preparation
of the Registration Statement, preliminary prospectus, final prospectus,
amendment, supplement or document; provided, however, that the maximum amount of
liability in respect of such indemnification shall be limited, in the case of
each such Seller, to an amount equal to the net proceeds actually received by
such Seller from the sale of Registrable Shares effected pursuant to such
registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 5.4, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on
-12-
<PAGE>
behalf of such indemnified party and such indemnifying party shall reimburse
such indemnified party and any person controlling such indemnified party for
that portion of the fees and expenses of any one counsel retained by the
indemnified party which is reasonably related to the matters covered by the
indemnity agreement provided in this Section 5.4. Anything in this Section 5.4
to the contrary notwithstanding, (i) an indemnifying party shall not settle any
claim or action or consent to the entry of any judgment therein unless the
indemnified party is fully released and discharged as a result thereof, and (ii)
an indemnified party shall not settle any claim or action or consent to the
entry of any judgment without the prior written consent of the indemnifying
party.
(d) If the indemnification provided for in this Section 5.4 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the maximum
amount which any Seller shall be required to contribute pursuant to the
provisions of this Section 5.4(d) shall be limited to an amount equal to the net
proceeds actually received by such Seller from the sale of Registrable
Securities effected pursuant to such registration. No party who has been guilty
of fraudulent misrepresentation within the meaning of Section 11(a) of the
Securities Act shall be entitled to contribution.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Further Assurances. By its signature hereto, each
party consents and agrees to all of the transactions contemplated hereby. Each
party shall execute, deliver, file and record any and all instruments,
certificates, agreements and other documents, and take any and all other actions
as reasonably requested by any other party hereto in order to consummate and
further effectuate the transactions contemplated hereby.
SECTION 6.2. Survival of Representations, Warranties and
Agreements, Etc. All representations and warranties herein or made pursuant
hereto shall survive the Closing. All agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
SECTION 6.3. Specific Performance. Each party hereto
recognizes and acknowledges that a breach by such party of any covenants or
agreements contained in this Agreement will cause the other party to sustain
damages for which it would not have an adequate
-13-
<PAGE>
remedy at law for money damages, and therefore each party agrees that in the
event of any such breach the non-breaching party 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 such non-breaching
parties may be entitled, at law or in equity, without the posting of any bond
and without proving that damages would be inadequate.
SECTION 6.4. Successors and Assigns. This Agreement shall bind
and inure to the benefit of the parties hereto and the respective successors and
permitted assigns of such parties. The rights and duties of the Purchaser as set
forth herein may be freely assigned, in whole or in part, by the Purchaser to
any Affiliate thereof.
SECTION 6.5. Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 6.6. Notices. All notices, requests, consents and
other communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class-registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below, or such other address, telecopy number or person's
attention, as may hereafter be designated in writing by such party to the other
parties:
(a) if to a Seller, to:
the address set forth
beneath such Seller's
name on Schedule I
with a copy to:
Herrick, Feinstein LLP
Two Park Avenue
New York, New York 10016
Attention: David A. Rosen, Esq.
Telecopier: (215) 889-7577
(b) if to the Purchaser, to:
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Adi Raviv
Telecopier: (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: (212) 715-8000
-14-
<PAGE>
All such notices, requests, consents and other communications shall be deemed to
have been delivered (i) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (ii) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (iii) in the case of mailing, on the third business day after the
posting thereof.
SECTION 6.7. Amendment; Waiver. The terms and provisions of
this Agreement may not be modified or amended, nor may any of the provisions
hereof be waived, temporarily or permanently, except pursuant to a written
instrument executed by the Purchaser and any Seller to be bound thereby.
SECTION 6.8. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
SECTION 6.9. 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 the meaning
of any of the provisions hereof. Where a reference in this Agreement is made to
a Section, Article or Schedule, such reference shall be to a Section or Article
of or Schedule to this Agreement unless otherwise indicated. Where the reference
"hereof," "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 6.10. Severability. If any provisions of this
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms.
SECTION 6.11. 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.
SECTION 6.12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO
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.
-15-
<PAGE>
SECTION 6.13. Certain Definitions. For the purposes of this
Agreement, the following terms shall have the meanings ascribed to them in this
Section 6.13:
(1) "Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with
such Person.
(2) "Commission" means the Securities and Exchange Commission.
(3) "Contract" means any agreement, contract, obligation,
trust, promise, commitment, arrangement or undertaking (whether written or oral
and whether express or implied), other than those that have been terminated.
(4) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor law.
(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 of, or entered into by or with, any Governmental Entity.
(7) "Law" means all applicable provisions of all
constitutions, treaties, statutes, laws (including common law), rules,
regulations, ordinances and codes or orders of any Governmental Entity.
(8) "Liability" means any liability or obligation of any
nature, whether accrued, contingent or otherwise, and whether due or to become
due or asserted or unasserted.
(9) "Lien" means any mortgage, lien, debt, pledge, security
interest, encumbrance, assessment, restriction, charge or other adverse claim or
interest of every nature.
(10) "Organizational Documents" means (a) the articles or
certificate of incorporation and the by-laws or code of regulations of a
corporation; (b) the partnership agreement and any statement of partnership of a
general partnership; (c) the limited partnership agreement and the certificate
of limited partnership of a limited partnership; (d) the articles or certificate
of formation and operating agreement of a limited liability company; (e) any
charter, trust certificate or document or similar document adopted or filed in
connection with the creation, formation or organization of a Person; and (e) any
and all amendments to any of the foregoing.
-16-
<PAGE>
(11) "Other Shares" means at any time those shares of THCG
Common Stock which do not constitute Primary Shares or Registrable Shares.
(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) "Primary Shares" means at any time the authorized but
unissued shares of THCG Common Stock or shares of THCG Common Stock held by the
Purchaser in its treasury.
(14) "Proceeding" means any suit, claim, action,
investigation, litigation, arbitration or other proceeding.
(15) "Securities Act" means the Securities Act of 1933, as amended, or any
successor law.
(16) "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 one or more any other
Subsidiaries, 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.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement as of the date first above written.
THCG, INC.
By: /s/ Adi Raviv
---------------------------------
Name: Adi Raviv
Title: Authorized signatory
SELLERS:
/s/ Jay R. Petschek
------------------------------------
Jay R. Petschek
Kensington Investment Associates
By: /s/ Charles I. Petschek
---------------------------------
Name: Charles I. Petschek
Title: General Partner
Corsair/Kramer, Inc.
By: /s/ Ronald J. Kramer
---------------------------------
Name: Ronald J. Kramer
Title: President
Peter Graham Money Purchase Trust
By: /s/ Peter Graham
---------------------------------
Name: Peter Graham
Title: Trustee
Lyon Share Venture Capital
By: /s/ Allan R. Lyons
---------------------------------
Name: Allan R. Lyons
Title: Managing Partner
Vestal Venture Capital
By: /s/ Allan R. Lyons
---------------------------------
Name: Allan R. Lyons
Title: Managing Partner
-18-
<PAGE>
/s/ Lawrence J. Schorr
------------------------------------
Lawrence J. Schorr
/s/ David Melin
------------------------------------
David Melin
Schuyler Associates
By: /s/ Milton Koffman
---------------------------------
Name: Milton Koffman
Title: Partner
Mataponi Trust
By: /s/ Arthur Cohen
---------------------------------
Name: Arthur Cohen
Title: Trustee
/s/ Gerry Polakoff
------------------------------------
Gerry Polakoff
/s/ Gerry Delisle
------------------------------------
Gerry Delisle
/s/ Burton Koffman
------------------------------------
Burton Koffman
Whitehorn Associates, Inc.
By: /s/ Howard M. Rittberg
---------------------------------
Name: Howard M. Rittberg
Title: President
-19-
<PAGE>
Table of Contents
Page
----
ARTICLE I
PURCHASE AND SALE OF COMPANY COMMON STOCK
SECTION 1.1. Agreement to Sell and Purchase Company Common Stock.........2
SECTION 1.2. Closing.....................................................4
SECTION 1.3. Delivery of Securities......................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION 2.1. Authority; No Conflict......................................4
SECTION 2.2. Ownership of Company Shares.................................4
SECTION 2.3. Legal Proceedings...........................................5
SECTION 2.4. Investment Representations of the Sellers...................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 3.1. Organization and Qualification; Subsidiaries................6
SECTION 3.2. Capitalization..............................................6
SECTION 3.3. Authority Relative to this Agreement; Board Action..........6
SECTION 3.4. SEC Filings.................................................7
SECTION 3.5. Consents and Approvals; No Violations.......................7
SECTION 3.6. Absence of Changes..........................................8
SECTION 3.7. No Litigation...............................................8
SECTION 3.8. Disclosure..................................................8
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 4.1. Conditions Precedent to the Closing.........................8
ARTICLE V
COVENANTS
SECTION 5.1. Registration Statement......................................9
SECTION 5.2. Registration Procedures.....................................9
SECTION 5.3. Expenses...................................................11
SECTION 5.4. Indemnification............................................11
-i-
<PAGE>
Page
----
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Further Assurances.........................................13
SECTION 6.2. Survival of Representations, Warranties and
Agreements, Etc............................................13
SECTION 6.3. Specific Performance.......................................13
SECTION 6.4. Successors and Assigns.....................................14
SECTION 6.5. Entire Agreement...........................................14
SECTION 6.6. Notices....................................................14
SECTION 6.7. Amendment; Waiver..........................................15
SECTION 6.8. Counterparts...............................................15
SECTION 6.9. Interpretation.............................................15
SECTION 6.10. Severability...............................................15
SECTION 6.11. Governing Law and Venue....................................15
SECTION 6.12. Waiver of Jury Trial.......................................15
SECTION 6.13. Certain Definitions........................................16
SCHEDULE I..................................................................iii
-ii-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
- --------------------------------------------------------------------------------------------------------------------------------
Number of THCG
Shares Delivered to
the Seller on the
Number of THCG Closing Date (less
Number of Shares of Number of Company Shares to be Issued the shares
Company Common Stock Shares to be Sold to the Seller on deposited into
Name and Address of the Seller Owned by the Seller* by the Seller* the Closing Date escrow)
- ------------------------------ -------------------- -------------- ---------------- --------------------
<S> <C> <C> <C> <C>
J.R. Petschek 595,900 174,020 10,560 5,280
87 Sheldrake Road
Scarsdale, New York 10583
- --------------------------------------------------------------------------------------------------------------------------------
Kensington Investment Associates 493,200 144,028 8,740 4,370
c/o Jay Petschek
87 Sheldrake Road
Scarsdale, New York 10583
- --------------------------------------------------------------------------------------------------------------------------------
Corsair/Kramer, Inc. 123,300 36,007 2,185 1,092
c/o Wassertein Perella
31 West 52nd Street, 27th Floor
New York, New York 10019
Attention: Ron Kramer
- --------------------------------------------------------------------------------------------------------------------------------
Peter Graham, as Trustee of the Peter 246,600 72,013 4,370 2,185
Graham Money Purchase Trust
15 Harrison Street, Apt. 2
New York, New York 10013
- --------------------------------------------------------------------------------------------------------------------------------
Lyon Share Venture Capital 665,820 194,438 11,799 5,899
Woodfield Country Club
5653 NW 38 Avenue
Boca Raton, FL 33496
Attention: Allan Lyons
- --------------------------------------------------------------------------------------------------------------------------------
Vestal Venture Capital 197,280 57,610 3,496 1,748
Woodfield Country Club
5653 NW 38 Avenue
Boca Raton, FL 33496
Attention: Allan Lyons
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence J. Schorr 41,100 12,002 728 364
Levene, Goulding & Thompson, LLP
450 Plaza Drive
Vestal, NY 13850-3657
- --------------------------------------------------------------------------------------------------------------------------------
David Melin 123,300 36,007 2,185 1,092
c/0 Tech Aerofoam Products
3551 N.W. 116th Street
Miami, FL 33167
- --------------------------------------------------------------------------------------------------------------------------------
-iii
<PAGE>
Table of Contents
(continued)
- --------------------------------------------------------------------------------------------------------------------------------
Number of THCG
Shares Delivered to
the Seller on the
Number of THCG Closing Date (less
Number of Shares of Number of Company Shares to be Issued the shares
Company Common Stock Shares to be Sold to the Seller on deposited into
Name and Address of the Seller Owned by the Seller* by the Seller* the Closing Date escrow)
- ------------------------------ -------------------- -------------- ---------------- --------------------
Schuyler Associates 2,550,000 566,437 34,373 17,186
c/o Milton Koffman
2197 Nortwest 60th Road
Willowgreens
Boca Raton, FL 33433
- --------------------------------------------------------------------------------------------------------------------------------
Mataponi Trust 1,084,800 566,437 34,373 17,186
c/oHerrick Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Leonard Grunstein
- --------------------------------------------------------------------------------------------------------------------------------
Gerry Polakoff 2,011,750 587,489 35,650 17,825
245 E. 58th Street
Apartment 6-E
New York, NY 10022
- --------------------------------------------------------------------------------------------------------------------------------
Gerry Delisle 2,011,750 587,489 35,650 17,825
20 Riverdale Street
Hillsdale, NJ 07642
- --------------------------------------------------------------------------------------------------------------------------------
Burton Koffman 1,071,550 283,220 17,187 8,593
300 Plaza Drive
Vestal NY 13850
- --------------------------------------------------------------------------------------------------------------------------------
Whitehorn Associates, Inc. 825,000 283,220 17,187 8,593
c/o Levene, Goldin & Thompson LLP
450 Plaza Drive
Vestal, NY 13850-3657
Attention: 13850-3657
- --------------------------------------------------------------------------------------------------------------------------------
Total 12,041,350 3,600,417 218,483 109,238
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All numbers calculated after giving effect to a 1,000-for-1 split of the
Company's Common Stock.
-iv-
Exhibit 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
WALNUT FINANCIAL SERVICES, INC.
Pursuant to Section 16-10a-1007 of the Utah Revised Business
Corporation Act (the "URBCA"), the undersigned corporation adopts the following
Articles of Amendment and Restatement by stating as follows:
1. The present name of the corporation is Walnut Financial
Services, Inc.
2. The following amendment and restatement of its Articles of
Incorporation was approved by the Board of Directors for submission to the
stockholders of the corporation, and was adopted by the shareholders of the
corporation at a meeting duly held on November 1, 1999, in the manner prescribed
by the URBCA.
FIRST: The name of the Corporation will be changed to THCG, Inc. (the
"Corporation").
SECOND: The address of the Corporation's present registered office in
the State of Utah and name of its present registered agent at such office is:
Name of Registered Agent Address of Registered Agent
------------------------ ---------------------------
CT Corporation Sys. 50 W. Broadway, 8th Floor
Salt Lake City, Utah 84101
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the URBCA.
FOURTH: The total number of shares of all classes of stock which the
Corporation is authorized to issue is 55,000,000 shares, of which 50,000,000
shall be designated Common Stock, par value $0.01 per share, and 5,000,000 shall
be designated Preferred Stock, par value $0.01 per share.
(a) The Common Stock:
The holders of Common Stock shall be entitled to one vote for
each share so held (with all such shares voting together as a single group), and
shall be entitled to notice of any stockholders meeting and to vote upon any
such matters as provided in the by-laws of the Corporation or as may be provided
by law. Except for and subject to those rights expressly granted to holders of
Preferred Stock, and except as may be provided by the laws of the State of Utah,
the holders of Common Stock shall have all other rights of stockholders,
including, without limitation, (i) the right to receive dividends, when, as and
if declared by the Board of Directors of the Corporation, out of assets lawfully
available therefor, and (ii) in the event of any distribution of assets upon a
liquidation or otherwise, the right to receive all the assets and funds of the
Corporation, remaining after the payment to the holders of the Preferred Stock,
if any, of the specific amounts which they are entitled to receive upon such
distribution.
(b) The Preferred Stock:
The Board of Directors is hereby expressly authorized to
provide for, designate and issue, out of the authorized but unissued shares of
Preferred Stock, one or more series of Preferred Stock, subject to the terms and
conditions set forth herein. Before any shares of any such series are issued,
the Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares of any such
series:
<PAGE>
(i) the designation of such series, the number
of shares to constitute such series and the stated value thereof, if different
from the par value thereof;
(ii) whether the shares of such series shall have
voting rights or powers, in addition to any voting rights required by law, and,
if so, the terms of such voting rights or powers, which may be full or limited;
(iii) the dividends, if any, payable on such
series, whether any such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the dividends
payable on any other series of Preferred Stock or on any other class of stock,
of the Corporation or any series of such class;
(iv) whether the shares of such series shall be
subject to redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(v) the amount or amounts payable upon shares of
such series upon, and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon any distribution
of the assets, of the Corporation;
(vi) whether the shares of such series shall be
subject to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(vii) whether the shares of such series shall be
convertible into, or exchangeable for, shares of Preferred Stock of any other
series or any other class of stock of the Corporation or any series of such
class or any other securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of such conversion or exchange;
(viii) the limitations and restrictions, if any, to
be effective while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of Preferred Stock of any other series or any other class of stock of the
Corporation or any series of such class;
(ix) the conditions or restrictions, if any, to
be effective while any shares of such series are outstanding upon the creation
of indebtedness of the Corporation or upon the issuance of any additional stock,
including additional shares of such series or of any other series of the
Preferred Stock or of any class of stock of the Corporation or any series of
such class; and
(x) any other powers, designations, preferences
and relative, participating, optional or other special rights, and any
qualifications, limitations or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease (but
not below the number of shares thereof then outstanding) the number of shares of
stock of any series of Preferred Stock designated as any one or more series of
Preferred Stock.
FIFTH: (a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided herein, in the by-laws of the Corporation or required by law.
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(b) Election of directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
(c) The number of directors of the Corporation shall be
fixed by, or in the manner provided in, the by-laws of the Corporation.
Commencing on the effective time of the merger (the "Merger") of Tower Hill
Acquisition Corp., a New York corporation and a wholly-owned subsidiary of the
Corporation, with and into Tower Hill Securities, Inc., a New York corporation,
the directors, other than those who may be elected by the holders of any series
of Preferred Stock, shall be classified, with respect to the term for which they
severally hold office, into three classes, as nearly equal in number as
possible. The initial Class I, II and III directors shall be appointed by the
Board of Directors upon the effective time of the Merger. The initial Class I
directors shall serve until the first annual meeting of stockholders after the
Merger. The initial Class II directors shall serve until the second annual
meeting of stockholders after the Merger. The initial Class III directors shall
serve until the third annual meeting of stockholders after the Merger. Members
of each class shall hold office until their successors are duly elected and
qualified or until their earlier death, disqualification, resignation or
removal. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election and until their successors
are duly elected and qualified or until their earlier death, disqualification,
resignation or removal.
(d) No director of the Corporation shall be removed from
his office as a director by vote, consent or other action of the stockholders or
otherwise except for cause.
SIXTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of the stockholders and may not be effected by a consent in
writing by any such stockholders.
SEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 16-10a-842 of the URBCA, or (iv)
for any transaction from which the director derived any improper personal
benefit. If the URBCA is amended after the date hereof to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the URBCA, as so amended. No amendment to or
repeal of this Article EIGHTH shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment.
EIGHTH: (a) The Corporation shall to the fullest extent permitted by
Utah law, as in effect from time to time (but in case of any amendment of the
URBCA, only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), indemnify each person who is or was a director
of officer of the Corporation (or any predecessor) or of any of its wholly-owned
subsidiaries who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, or was or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or of any of its subsidiaries, or
is or was at any time serving, at the request of the Corporation, any other
corporation, partnership, limited liability company, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against all expense,
liability and loss (including, but not limited to, attorneys' fees, judgments,
fines, excise taxes or penalties with respect to any employee benefit plan or
otherwise, and amounts paid or to be paid in settlement) incurred or suffered by
such director or officer in connection with such proceeding; provided, however,
that the Corporation shall not be obligated to indemnify any person under this
Article NINTH in connection with a proceeding (or part thereof) if such
proceeding (or part thereof) was initiated by
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<PAGE>
such person, but was not authorized by the Board of Directors of the Corporation
against (i) the Corporation or any of its subsidiaries; (ii) any person who is
or was a director, officer, employee or agent of the Corporation or any of its
subsidiaries and/or (iii) any person or entity which is or was controlled,
controlled by or under common control with the Corporation or has or had
business relations with the Corporation or any of its subsidiaries.
(b) Expenses incurred by a person who is or was a director
or officer of the Corporation (or any predecessor) or any of its wholly-owned
Subsidiaries in defending a proceeding shall be paid by the Corporation as they
are incurred in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation. Such expenses incurred by former directors or
other employees or agents of the Corporation may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(c) For purposes of this Article EIGHTH, the term
"Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, limited liability company,
trust or employee benefit plan; service "at the request of the Corporation"
shall include, without limitation, service as a director, officer or employee of
the Corporation which imposes duties on, or involves service by, such director,
officer or employee with respect to an employee benefit plan, its participants
or beneficiaries; any excise taxes assessed on a person with respect to an
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to any employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action in or not opposed to the best
interests of the Corporation.
(d) Notwithstanding any other provision of this Certificate
of Incorporation or the by-laws of the Corporation, no action by the
Corporation, either by amendment to or repeal of this Article EIGHTH or the
by-laws of the Corporation or otherwise shall diminish or adversely affect any
right or protection granted under this Article EIGHTH to any director or officer
or former director or officer of the Corporation (or any predecessor) or of any
of its wholly-owned subsidiaries which shall have become vested as aforesaid
prior to the date that any such amendment, repeal or other corporate action is
taken.
NINTH: (a) Except as provided otherwise by law or the by-laws of
the Corporation, the by-laws of the Corporation may be amended or repealed or
new by-laws (not inconsistent with any provision of law or this Certificate of
Incorporation) may be adopted by the Board of Directors.
(b) The by-laws of the Corporation may be amended or
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of a majority of
the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class.
3. At the time of the adoption of this Restatement of Articles of
Incorporation, there were a total of 3,350,533 shares of Common Stock
outstanding, all of which shares were entitled to vote on this Restatement of
Articles of Incorporation. Holders of 2,521,266 shares were indisputably
represented at the meeting.
4. At least 2,490,195 shares were voted for this Restatement of
Articles of Incorporation, and that number was sufficient for its approval.
Dated as of the 1st day of November, 1999.
4
<PAGE>
WALNUT FINANCIAL SERVICES, INC.
By: /s/ Joel S. Kanter
------------------------------
Joel S. Kanter, President
ATTEST:
/s/ Joshua S. Kanter
- ---------------------------
Joshua S. Kanter, Secretary
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<PAGE>
ACKNOWLEDGMENT OF REGISTERED AGENT
The undersigned, CT Corporation System, hereby acknowledges that he/she
has been named as registered agent of THCG, INC., a Utah corporation (formerly
known as Walnut Financial Services, Inc.), and the undersigned hereby agrees to
act as registered agent of said corporation.
CT Corporation System
Name: /s/ Anne E. Diamond, Asst Secretary
------------------------------------
Registered Agent
6
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
THCG, INC.
(formerly known as Walnut Financial Services, Inc.)
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders
shall be held at the hour, date and place within or without the United States
which is fixed by the Board of Directors or an officer designated by the Board
of Directors, which time, date and place may subsequently be changed at any time
by vote of the Board of Directors or by such officer so designated.
SECTION 2. Matters to be Considered at Annual Meetings. At any
annual meeting or special meeting of stockholders in lieu thereof (the "Annual
Meeting"), only such business shall be conducted, and only such proposals shall
be acted upon, as shall have been properly brought before such Annual Meeting.
To be considered as properly brought before an Annual Meeting, business must be:
(a) specified in the notice of meeting, (b) otherwise properly brought before
the meeting by, or at the direction of, the Board of Directors, or (c) otherwise
properly brought before the meeting by any holder of record (both as of the time
notice of such proposal is given by the stockholder as set forth below and as of
the record date for the Annual Meeting in question) of any shares of capital
stock of the Corporation entitled to vote at such Annual Meeting on such
business who complies with the requirements set forth in this Section 2.
In addition to any other applicable requirements, for business
to be properly brought before an Annual Meeting by a stockholder of record of
any shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation, and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the merger
(the "Merger") of Tower Hill Acquisition Corp., a New York corporation and a
wholly-owned subsidiary of the Corporation, with and into Tower Hill Securities,
Inc., a New York corporation, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the anniversary date of the immediately preceding
Annual Meeting (the "Anniversary Date"); provided, however, that in the event
the Annual Meeting is scheduled to be held on a date more than 30 days before
the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting, or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
For purposes of these By-Laws, "public announcement" shall
mean: (i) disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service, (ii) a report or other
document filed publicly with the Securities and Exchange Commission (including,
without limitation, a Current Report on Form 8-K), or (iii) a letter or report
sent to stockholders of record of the Corporation at the close of business on
the day of the mailing of such letter or report.
<PAGE>
A stockholder's notice to the Secretary shall set forth as to
each matter proposed to be brought before an Annual Meeting: (i) a brief
description of the business the stockholder desires to bring before such Annual
Meeting and the reasons for conducting such business at such Annual Meeting,
(ii) the name and address, as they appear on the Corporation's stock transfer
books, of the stockholder proposing such business, (iii) the class and number of
shares of the Corporation's capital stock beneficially owned by the stockholder
proposing such business, (iv) the names and addresses of the beneficial owners,
if any, of any capital stock of the Corporation registered in such stockholder's
name on such books, and the class and number of shares of the Corporation's
capital stock beneficially owned by such beneficial owners, (v) the names and
addresses of other stockholders known by the stockholder proposing such business
to support such proposal, and the class and number of shares of the
Corporation's capital stock beneficially owned by such other stockholders, and
(vi) any material interest of the stockholder proposing to bring such business
before such meeting (or any other stockholders known to be supporting such
proposal) in such proposal.
If the Board of Directors or a designated committee thereof
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2 or that the information
provided in a stockholder's notice does not satisfy the information requirements
of this Section 2 in any material respect, such proposal shall not be presented
for action at the Annual Meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a stockholder proposal was made in
accordance with the requirements of this Section 2, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
Notwithstanding the foregoing provisions of these By-Laws, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this By-Law, and
nothing in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement, or the
Corporation's right to refuse inclusion thereof, pursuant to Rule 14a-8 under
the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise permitted by
law, special meetings of the stockholders of the Corporation may be called only
by the Chief Executive Officer of the Corporation or the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
Directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice
of all Annual Meetings stating the hour, date and place of such Annual Meetings
shall be given by the Secretary (or other person authorized by these By-Laws or
by law) not less than 10 days nor more than 60 days before the Annual Meeting,
to each stockholder entitled to vote thereat and to each stockholder who, by law
or under the Articles of Incorporation of the Corporation ("Articles of
Incorporation") or under these By-Laws, is entitled to such notice, by
delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given
in the same manner as provided for Annual Meetings, except that the written
notice of all special meetings shall state the purpose or purposes for which the
meeting has been called.
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<PAGE>
Notice of an Annual Meeting or special meeting of stockholders
need not be given to a stockholder if a written waiver of notice is signed
before or after such meeting by such stockholder or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any Annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any
previously scheduled Annual Meeting or special meeting of stockholders and any
record date with respect thereto, regardless of whether any notice or public
disclosure with respect to any such meeting has been sent or made pursuant to
Section 2 of this Article I or Section 3 of Article II of these By-Laws or
otherwise. In no event shall the public announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2 of this Article I or Section 3 of Article II of these By-Laws.
When any meeting is convened, the presiding officer may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information which the
Board of Directors determines has not been made sufficiently or timely available
to stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Articles of Incorporation or under these By-Laws, is entitled
to such notice.
SECTION 6. Quorum. The holders of shares of voting stock
representing a majority of the voting power of the outstanding shares of voting
stock issued, outstanding and entitled to vote at a meeting of stockholders,
represented in person or by proxy at such meeting, shall constitute a quorum;
but if less than a quorum is present at a meeting, the holders of voting stock
representing a majority of the voting power present at the meeting or the
presiding officer may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 5 of
this Article I. At such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly constituted meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one
vote for each share of stock entitled to vote owned by them of record according
to the books of the Corporation, unless otherwise provided by law or by the
Articles of Incorporation. Stockholders may vote either in person or by written
proxy, but no proxy shall be voted or acted upon after eleven months from its
date, unless the proxy provides for a longer period. Proxies shall be filed with
the Secretary of the meeting before being voted. Except as otherwise limited
therein or as otherwise provided by law, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by or on behalf of any one of them unless at or prior to the exercise
of the proxy the Corporation receives a specific written notice to the contrary
from any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid, and the burden of proving invalidity shall
rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any
matter properly brought before any meeting of stockholders shall be decided by
the vote of a majority of the voting power of shares of voting stock present in
person or represented by proxy at such meeting and entitled to vote on such
matter, except where a larger vote is required by law, by the Articles of
Incorporation or by these By-Laws. Any election of Directors by stockholders
shall be determined by a plurality of the votes cast, except where a larger vote
is required by law, by the Articles of Incorporation or by these By-Laws. The
Corporation shall not directly or indirectly vote any shares of its own stock;
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<PAGE>
provided, however, that the Corporation may vote shares which it holds in a
fiduciary capacity to the extent permitted by law.
SECTION 9. Stockholder Lists. The Secretary (or the
Corporation's transfer agent or other person authorized by these By-Laws or by
law) shall prepare and make a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
The list shall be made on the earlier of ten days before the meeting for which
the list was prepared or two days after notice of the meeting was given. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period beginning
on the date the list is made pursuant to the foregoing sentence and continuing
through the meeting and any meeting adjournments, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held.
SECTION 10. Presiding Officer. The Chairman of the Board or if
there is no Chairman of the Board, or in his absence, one of the Co-Chief
Executive Officers of the Corporation or, in their absence, such other officer
as shall be designated by the Board of Directors shall preside at all Annual
Meetings or special meetings of stockholders and shall have the power, among
other things, to adjourn such meeting at any time and from time to time, subject
to Sections 5 and 6 of this Article I. The order of business and all other
matters of procedure at any meeting of the stockholders shall be determined by
the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of, or at, any meeting of stockholders, appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the presiding officer shall appoint one or
more inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as
circumstances reasonably require, including the counting of all votes and
ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors. The
presiding officer may review all determinations made by the inspector(s), and in
so doing the presiding officer shall be entitled to exercise his or her sole
judgment and discretion and he or she shall not be bound by any determinations
made by the inspector(s). All determinations by the inspector(s) and, if
applicable, the presiding officer shall be subject to further review by any
court of competent jurisdiction.
SECTION 11. No Action by Written Consent. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing by any such stockholders.
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors except as
otherwise provided by the Articles of Incorporation or required by law.
SECTION 2. Number and Terms. The number of Directors
constituting the entire Board of Directors of the Corporation shall not be less
than 3 nor more than 12 as fixed by resolution duly adopted from time to time by
the Board of Directors.
Commencing on the effective time of the Merger, the Directors
shall be classified, with respect to the term for which they severally hold
office, into three classes, as nearly equal in number as possible. The initial
Class I, II and III Directors shall be appointed by the Board of Directors upon
the effective time of the Merger. The initial Class I Directors shall serve
until the first Annual Meeting after the Merger. The initial Class II Directors
shall serve until the second Annual Meeting after the Merger. The initial Class
III Directors shall serve until the third Annual Meeting after the Merger.
Members of each class shall hold office until their successors are duly elected
and qualified or until their
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<PAGE>
earlier death, disqualification, resignation or removal. At each succeeding
Annual Meeting, the successors of the class of Directors whose term expires at
that meeting shall be elected by a plurality vote of all votes cast at such
meeting to hold office for a term expiring at the Annual Meeting held in the
third year following the year of their election.
SECTION 3. Director Nominations. Nominations of candidates for
election as Directors of the Corporation at any Annual Meeting may be made only
(a) by, or at the direction of, the Board of Directors or (b) by any holder of
record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote for the election of Directors at such Annual Meeting who complies with the
timing, informational and other requirements set forth in this Section 3. Any
stockholder who seeks to make such a nomination or his representative must be
present in person at the Annual Meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as Directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of,
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the Merger, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Secretary shall set forth as to
each person whom the stockholder proposes to nominate for election or
re-election as a Director: (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation's capital stock
which are beneficially owned by such person on the date of such stockholder
notice, (iv) the consent of each nominee to serve as a Director if elected, and
(v) such information concerning such person as is required to be disclosed
concerning a nominee for election as Director of the Corporation pursuant to the
rules and regulations under the Exchange Act. A stockholder's notice to the
Secretary shall further set forth as to the stockholder giving such notice: (i)
the name and address, as they appear on the Corporation's stock transfer books,
of such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(ii) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
stockholder's notice, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder or in connection therewith.
If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not timely made in accordance
with the terms of this Section 3 or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If neither the Board of Directors nor such
committee makes a determination as to whether a nomination was made in
accordance with the provisions of this Section 3, the presiding officer of the
Annual Meeting shall determine whether a nomination was made in accordance with
such provisions. If the presiding officer determines that any stockholder
nomination was not timely made in accordance with the terms of this Section 3 or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 3 in any material respect, then such
nomination shall not be considered at the Annual Meeting in question. If the
Board of Directors, a designated committee thereof or the presiding officer
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determines that a nomination was made in accordance with the terms of this
Section 3, the presiding officer shall so declare at the Annual Meeting and such
nominee shall be eligible for election at the meeting.
No person shall be elected by the stockholders as a Director
of the Corporation unless nominated in accordance with the procedures set forth
in this Section. Election of Directors at the Annual Meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or the
presiding officer at such Annual Meeting. If written ballots are to be used,
ballots bearing the names of all the persons who have been nominated for
election as Directors at the Annual Meeting in accordance with the procedures
set forth in this Section shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No Director need be a stockholder of
the Corporation.
SECTION 5. Vacancies. Any and all vacancies occurring on the
Board of Directors, including, without limitation, any vacancy created by reason
of an increase in the number of Directors, or resulting from death, resignation,
disqualification, removal or any other cause, may be filled by the affirmative
vote of a majority of the remaining Directors then in office, even if such
remaining Directors constitute less than a quorum of the Board of Directors, or
if such vacancy is not so filled by the remaining Directors, by the stockholders
of the Corporation. Any Director appointed or elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duly elected and
qualified or until his or her earlier death, disqualification, resignation or
removal. When the number of Directors is increased or decreased, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of Directors shall be apportioned; provided, however, that no
decrease in the number of Directors shall shorten the term of any incumbent
Director unless such Director is removed as permitted in the Articles of
Incorporation. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in
the manner provided in the Articles of Incorporation.
SECTION 7. Resignation. A Director may resign at any time by
giving written notice to the Corporation addressed to a Co-Chief Executive
Officer or the Secretary. A resignation shall be effective upon receipt, unless
the resignation otherwise provides, and need not be accepted by the Corporation.
SECTION 8. Regular Meetings. The regular annual meeting of the
Board of Directors shall be held, without notice other than this By-Law, on the
same date and at the same place as the Annual Meeting following the close of
such meeting of stockholders. Other regular meetings of the Board of Directors
may be held at such hour, date and place as the Board of Directors may by
resolution from time to time determine without notice other than such
resolution.
SECTION 9. Special Meetings. Special meetings of the Board of
Directors may be called, orally or in writing, by or at the request of a
majority of the Directors then in office or one of the co-Chief Executive
Officers of the Corporation. The person calling any such special meeting of the
Board of Directors may fix the hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and
place of all special meetings of the Board of Directors shall be given to each
Director by the Secretary or the person calling such meeting, or in case of the
death, absence, incapacity or refusal of such person, by a Co-Chief Executive
Officer of the Corporation or such other officer as shall be designated by the
Board of Directors. Notice of any special meeting of the Board of Directors
shall be given to each Director in person, by telephone, or by telex, telecopy
telegram, or other written form of electronic communication, sent to his
business or home address, at least 24 hours in advance of the meeting, or by
written notice sent by next-day delivery courier service to his business or home
address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed,
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telecopied or effected by another written form of electronic communication, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the hour, date or place of any meeting adjourned for less
than 30 days or of the business to be transacted thereat, other than an
announcement at the meeting at which such adjournment is taken of the hour, date
and place to which the meeting is adjourned.
A written waiver of notice signed before or after a meeting by
a Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Articles of
Incorporation or by these By-Laws, neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors,
a majority of the Directors then in office (but in no event less than one-third
of the entire Board of Directors) shall constitute a quorum for the transaction
of business, but if less than a quorum is present at a meeting, a majority of
the Directors present may adjourn the meeting from time to time, and the meeting
may be held as adjourned without further notice, except as provided in Section
10 of this Article II. Any business which might have been transacted at the
meeting as originally noticed may be transacted at such adjourned meeting at
which a quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of
Directors at which a quorum is present, a majority of the Directors present may
take any action on behalf of the Board of Directors, unless otherwise required
by law, by the Articles of Incorporation or by these By-Laws.
SECTION 13. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing. Such written consent shall be filed with the records of the meetings of
the Board of Directors and shall be treated for all purposes as a vote at a
meeting of the Board of Directors.
SECTION 14. Manner of Participation. Directors may participate
in meetings of the Board of Directors by means of conference telephone or
similar communications equipment by means of which all Directors participating
in the meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. Committees. The Board of Directors, by vote of a
majority of the Directors then in office, may elect from its number, one or more
committees, including but not limited to, an Executive Committee, a Compensation
Committee and an Audit Committee, and may delegate thereto some or all of its
powers except those which by law, by the Articles of Incorporation or by these
By-Laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-Laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive
such compensation for their services as shall be determined by a majority of the
Directors then in office provided that Directors who are serving the Corporation
as employees and who receive compensation for their services as such shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
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ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall
consist of Co-Chief Executive Officers, a Chief Operating Officer, a Chief
Financial Officer, a Secretary and such other officers, including, without
limitation, a Treasurer, a Chairman of the Board and one or more Vice-Chairmen
of the Board, Vice-Presidents (including Executive Vice Presidents or Senior
Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the
Board following the Annual Meeting, the Board of Directors shall elect the
Co-Chief Executive Officers, the Chief Operating Officer, the Chief Financial
Officer and the Secretary. Other officers may be elected or appointed by the
Board of Directors at such regular annual meeting of the Board of Directors or
at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or
a Director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the
Articles of Incorporation or by these By-Laws, each of the officers of the
Corporation shall hold office until the regular annual meeting of the Board of
Directors following the next Annual Meeting and until his successor is elected
and qualified or until his earlier death, disqualification, resignation or
removal.
SECTION 5. Resignation. Any officer may resign by giving
written notice to the Corporation addressed to a Co-Chief Executive Officer or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides, and need not be accepted by the Corporation.
SECTION 6. Removal. Except as otherwise provided by law, the
Board of Directors may remove any officer with or without cause at any time.
SECTION 7. Absence or Disability. In the event of the absence
or disability of any officer, the Board of Directors may designate another
officer to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled
for the unexpired portion of the term by the Board of Directors.
SECTION 9. Powers and Duties. Each of the officers of the
Corporation shall, unless otherwise ordered by the Board of Directors, have such
powers and duties as generally pertain to the officer's respective office as
well as such powers and duties as from time to time may be conferred upon the
officer by the Board of Directors.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be
entitled to a certificate of the capital stock of the Corporation in such form
as may from time to time be prescribed by the Board of Directors. Such
certificate shall be signed by the Chairman or Vice-Chairman of the Board or a
Co-Chief Executive Officer, the Chief Operating Officer or a Vice President and
by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. The corporate seal and the signatures by Corporation officers, the
transfer agent or the registrar may be facsimiles. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the time of its issue. Every certificate for shares of stock which are subject
to any restriction on transfer and every certificate issued
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<PAGE>
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer
and unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required
by law, by the Articles of Incorporation or by these By-Laws, the Corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect thereto, regardless of any transfer, pledge or
other disposition of such stock, and regardless of any notice to the Corporation
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the
Corporation of his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof or entitled to receive payments of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting. If no record date
is fixed, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day on which the first notice is delivered to stockholders.
ARTICLE V
Indemnification
The Corporation shall to the fullest extent permitted by Utah
law, as in effect from time to time (but, in the case of any amendment of the
Utah Revised Business Corporation Act, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), indemnify each
person who is or was a Director or officer of the Corporation (or any
predecessor) or of any of its wholly-owned subsidiaries who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, or was or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a Director, officer, employee or agent of the Corporation or of any of
its subsidiaries, or is or was at any time serving, at the request of the
Corporation, any other corporation, partnership, limited liability company,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against all expense, liability and loss (including, but not limited to,
attorneys' fees, judgments, fines, excise taxes or penalties with respect to any
employee benefit plan or otherwise, and amounts paid or to be paid in
settlement) incurred or suffered by such Director or officer in connection with
such proceeding; provided, however, that the Corporation shall not be obligated
to indemnify any person under this Article V in connection with a proceeding (or
part thereof) if such proceeding (or part thereof) was initiated by such person,
but was not authorized by the Board of Directors of the Corporation, against (i)
the Corporation or any of its subsidiaries, (ii) any person who is or was a
Director, officer, employee or agent of the Corporation or any of its
subsidiaries and/or (iii) any person or entity which is or was controlled,
controlled by or under common control with the Corporation or has or had
business relations with the Corporation or any of its subsidiaries.
Expenses incurred by a person who is or was a Director or
officer of the Corporation (or any predecessor) or any of its wholly-owned
subsidiaries in defending a proceeding shall be paid by the Corporation as they
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<PAGE>
are incurred in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such Director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation. Such expenses incurred by former Directors or
other employees or agents of the Corporation may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
For purposes of this Article, the term "Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, limited liability company, trust or
employee benefit plan; service "at the request of the Corporation" shall
include, without limitation, service as a Director, officer or employee of the
Corporation which imposes duties on, or involves service by, such Director,
officer or employee with respect to an employee benefit plan, its participants
or beneficiaries; any excise taxes assessed on a person with respect to an
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to any employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action in or not opposed to the best
interests of the Corporation.
Notwithstanding any other provision of these By-laws, no
action by the Corporation, either by amendment to or repeal of this Article or
otherwise, shall diminish or adversely affect any right or protection granted
under this Article to any Director or officer or former Director or officer of
the Corporation (or any predecessor) or of any of its wholly-owned subsidiaries
which shall have become vested as aforesaid prior to the date that any such
amendment, repeal or other corporate action is taken.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. Except as otherwise determined by the
Board of Directors, the fiscal year of the Corporation shall end on the last day
of December of each year.
SECTION 2. Seal. The Board of Directors shall have power to
adopt and alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases,
transfers, contracts, bonds, notes and other obligations to be entered into by
the Corporation in the ordinary course of its business without Board of
Directors action may be executed on behalf of the Corporation by the Chairman of
the Board, a Co-Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer, any Vice President or any other officer, employee or agent of
the Corporation as the Board of Directors may authorize.
SECTION 4. Voting of Securities. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board, a Co-Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer and any Vice President
each shall have full power and authority on behalf of the Corporation to attend
and to vote at any meeting of stockholders of any corporation or other entity in
which this Corporation may hold stock or an ownership interest, and may exercise
on behalf of this Corporation any and all of the rights and powers incident to
the ownership of such stock or ownership interest at any such meeting and shall
have power and authority to execute and deliver proxies, waivers and consents on
behalf of the Corporation in connection with the exercise by the Corporation of
the rights and powers incident to the ownership of such stock or ownership
interest. The Board of Directors, from time to time, may confer like powers upon
any other person or persons.
SECTION 5. Resident Agent. The Board of Directors may appoint
a resident agent upon whom legal process may be served in any action or
proceeding against the Corporation.
SECTION 6. Corporate Records. The original or attested copies
of the Articles of Incorporation, By-Laws and records of all meetings of the
incorporators, stockholders and the Board of Directors (and committees thereof)
and the stock transfer books, which shall contain the names of all stockholders,
their record addresses and the amount of stock held by each, may be kept outside
the State of Utah and shall be kept at the principal office of the Corporation,
at
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the office of its counsel or at an office of its transfer agent or at such other
place or places as may be designated from time to time by the Board of
Directors.
SECTION 7. Articles of Incorporation. All references in these
By-Laws to the Articles of Incorporation shall be deemed to refer to the
Articles of Incorporation of the Corporation as in effect from time to time
(including all certificates and other instruments which are filed with the
Secretary of State of the State of Utah pursuant to the provisions of the Utah
Revised Business Corporation Act and which have the effect of amending or
supplementing in some respect the Articles of Incorporation of the Corporation).
SECTION 8. Amendment of By-Laws.
(a) Amendment by Directors. Except as provided otherwise by
law, these By-Laws may be amended or repealed or new By-Laws (not inconsistent
with any provision of law or the Articles of Incorporation) may be adopted, by
the Board of Directors.
(b) Amendment by Stockholders. These By-Laws may be amended or
repealed at any Annual Meeting, or special meeting of stockholders called for
such purpose, by the affirmative vote of a majority of the total votes eligible
to be cast on such amendment or repeal by holders of voting stock, voting
together as a single class.
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Exhibit 4.2
SECURITIES PURCHASE AGREEMENT dated as of October 29, 1999
(the "Agreement") by and among (i) Greenwich Street Capital Partners II, L.P., a
Delaware limited partnership ("Greenwich II"), GSCP Offshore Fund, L.P., a
Cayman Islands limited partnership ("GSCP Offshore"), Greenwich Fund, L.P., a
Delaware limited partnership ("GF"), Greenwich Street Employees Fund, L.P., a
Delaware limited partnership ("GSEF"), and TRV Executive Fund, L.P., a Delaware
limited partnership ("TRV," together with Greenwich II, GSCP Offshore, GF and
GSEF, each a "Purchaser" and collectively, the "Purchasers"); and (ii) Walnut
Financial Services, Inc., a Utah corporation (the "Company").
W I T N E S S E T H:
Pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of August 5, 1999 (the "Merger Agreement") among the Company,
Tower Hill Securities, Inc., a New York corporation ("Tower Hill"), and Tower
Hill Acquisition Corp., a New York corporation and wholly-owned subsidiary of
the Company ("Newco"), Newco shall be merged with and into Tower Hill (the
"Merger"). The Company will change its name to "THCG, Inc." at substantially the
same time as the Merger is effected.
Substantially simultaneously with the consummation of the
Merger, but subject to the effectiveness of the Merger, the Purchasers desire to
acquire from the Company, and the Company desires to issue and sell to the
Purchasers, for the consideration hereinafter provided, the Securities (as
defined in Section 1(a)).
Capitalized terms used in this Agreement without definition
have the meanings assigned to such terms in the Merger Agreement. For purposes
hereof, the term "Purchaser Documents" shall mean and include this Agreement and
the "Warrants," the "Registration Rights Agreement," the "Voting Agreement", the
"Tag-Along Agreement" and the "Escrow Agreement" (as such terms are hereinafter
defined), together with all amendments, modifications and supplements thereof.
NOW, THEREFORE, in consideration of the premises and
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Purchasers and the Company hereby
agree as follows:
1. Sale and Purchase of Securities; the Closing.
(a) Sale and Purchase of Securities. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, and subject to the terms
and conditions of the Escrow Agreement, the Company shall sell, assign, convey
and deliver to the Purchasers, and the Purchasers shall purchase, acquire,
accept from the Company and pay for, in regard to each Purchaser, in the amounts
and at the prices set forth on Schedule A attached hereto, an aggregate of (i)
2,500,000 shares (the "Shares") of the Company's common stock, $.01 par value
per share (the "Common Stock"); (ii) Warrants to purchase 1,000,000 shares of
Common Stock at a per share exercise price equal to the greater of (w) 1.5
multiplied by the initial exercise price of options to purchase Common Stock
that are granted to Company Principals (as defined below in this Section 1(a))
substantially at the time of the Merger (such options being herein referred to
as the "Company Principals Options"), or (x) $3.00, substantially in the form
attached hereto as Exhibit A-1 (the "Initial Warrants"); and (iii) Warrants to
purchase 1,000,000 shares of Common Stock at a per share exercise price equal to
the greater of (y) 2.0 multiplied by the
<PAGE>
initial exercise price of the Company Principals Options, or (z) $4.00,
substantially in the form attached hereto as Exhibit A-2 (the "Additional
Warrants" and, together with the Initial Warrants, the "Warrants"). The Shares
and the Warrants are collectively referred to herein as the "Securities." For
purposes of the Purchaser Documents, the term "Company Principal(s)" shall mean
any Person who: (i) is an executive officer, director or Affiliate of the
Company or any executive officer or director of any Affiliate of the Company or
any Related Person of any of the foregoing, or (ii) prior to the Merger was a
shareholder, executive officer, director or Affiliate of Tower Hill or of any
shareholder, executive officer or director of Tower Hill or any Related Person
of any of the foregoing (each of the foregoing persons referred to in this
clause (ii), a "THSI Principal").
(b) The Closing. Subject to the termination of this Agreement
pursuant to Section 7, and subject to the release of the "Escrow Documents" (as
defined in the Escrow Agreement) in accordance with the provisions of Section
4(a) of the Escrow Agreement, the closing of the transactions contemplated
hereby (the "Closing") shall be deemed to have occurred substantially
simultaneously with the consummation of the Merger and provided that the
conditions set forth in Section 6 hereof have been satisfied. The date on which
the Closing is deemed to have occurred is hereinafter referred to as the
"Closing Date."
2. Consideration; Delivery.
(a) Escrow Agreement. On the Closing Date, the parties hereto
shall enter into an Escrow Agreement substantially in the form of Exhibit B
hereto (the "Escrow Agreement") with the "Escrow Agent" described therein, and
the execution copies of the Purchaser Documents (other than this Agreement and
the Escrow Agreement) shall be deposited with the Escrow Agent in accordance
with the terms of the Escrow Agreement. The Purchaser Documents (other than this
Agreement and the Escrow Agreement) shall not be effective unless and until such
copies are released by the Escrow Agent in accordance with the provisions of
Section 4(a) of the Escrow Agreement.
(b) Consideration. The aggregate consideration for the
Securities shall be five million dollars ($5,000,000), payable in cash (the
"Purchase Price"). On the Closing Date, the Purchase Price shall be deposited
with the Escrow Agent in accordance with the terms of the Escrow Agreement and
shall be released by the Escrow Agent only in accordance with the terms of the
Escrow Agreement.
(c) Delivery of Securities. On the Closing Date, the Company
shall deliver to the Escrow Agent duly executed certificates and instruments
dated as of the Closing Date registered in the names of the Purchasers
representing the Securities purchased by the Purchasers in conformity the
applicable Purchaser Documents, such certificates and instruments to be held by
the Escrow Agent in accordance with the terms of the Escrow Agreement and shall
be released by the Escrow Agent only in accordance with the terms of the Escrow
Agreement.
(d) Registration Rights Agreement; Voting Agreement and
Tag-Along Agreement. On the Closing Date, the parties hereto shall enter into a
Registration Rights Agreement substantially in the form of Exhibit C hereto (the
"Registration Rights Agreement"), the other parties to the Voting Agreement
substantially in the form of Exhibit D hereto (the "Voting Agreement") and the
Tag-Along Agreement substantially in the form of Exhibit E hereto (the
"Tag-Along Agreement") shall have entered into the Voting Agreement and the
Tag-Along
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Agreement, and counsel to the Company shall have issued opinions substantially
in the form of Exhibits F-1, F-2 and F-3 hereto (the "Legal Opinions"). The
Registration Rights Agreement, the Voting Agreement, the Tag-Along Agreement and
the Legal Opinions shall be delivered to the Escrow Agent to be held by the
Escrow Agent in accordance with the terms of the Escrow Agreement, shall be
dated as of the Closing Date and shall be released by the Escrow Agent only in
accordance with the terms of the Escrow Agreement. The Registration Rights
Agreement, the Voting Agreement, the Tag-Along Agreement and the Legal Opinions
shall not be effective unless and until such copies are released by the Escrow
Agent in accordance with the provisions of Section 4(a) of the Escrow Agreement;
but upon their release pursuant to Section 4(a) of the Escrow Agreement, such
Escrow Documents shall be effective from and after the Closing Date.
3. Representations and Warranties of the Company. The Company
hereby represents and warrants to each of the Purchasers as follows:
(a) Organization and Good Standing. The Company has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties, to carry on its business as
it is now being conducted and to issue the Securities. The Company has
heretofore delivered to Greenwich II (on behalf of all of the Purchasers) true
and complete copies of its certificate of incorporation and by-laws, together
with all amendments, modifications and supplements thereof. The Company 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 Material Adverse Effect. For purposes of this Agreement, "Material
Adverse Effect" means any change, event or effect (i) in, on or relating to the
business of the Company or a Purchaser, as applicable, 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 or such Purchaser, as applicable, 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 the Purchaser
Documents by the Company or such Purchaser, as applicable, or the consummation
by the Company or such Purchaser, as applicable, of the transactions
contemplated by the Purchaser Documents (including without limitation, the BDC
Withdrawal (as defined in the Merger Agreement)).
(b) Authorization of Agreement. The Company has all necessary
corporate power and authority to execute and deliver the Purchaser Documents, to
issue the Securities and to consummate the other transactions contemplated by
the Purchaser Documents and to perform its obligations under the Purchaser
Documents. The execution and delivery by the Company of the Purchaser Documents
and the consummation by the Company of the transactions contemplated thereby
have been duly authorized and approved by the board of directors of the Company,
and assuming approval by the shareholders of the Company pursuant to the
Company's Articles of Incorporation and Bylaws and the Business Corporations Act
of the State of Utah, no other corporate proceedings on the part of the Company
are, or will be, necessary to authorize the Purchaser Documents or to consummate
the transactions contemplated thereby. Each of the Purchaser Documents has been,
or will be at the Closing, assuming the due authorization, execution and
delivery by the Purchasers of the Purchaser Documents, duly and validly executed
and delivered by the Company and constitutes, or will
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constitute at the Closing, a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally.
(c) No Conflicts; Consents of Third Parties.
(i) 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 the Purchaser
Documents, the issuance of the Securities or the consummation by the Company of
the transactions contemplated thereby, except: (A) Filings and Approvals with
the SEC and the National Association of Securities Dealers (the "NASD"); (B)
Filings and Approvals that, if not made or obtained, could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
and (C) Filings and Approvals which have been made or obtained and which are
unconditional and in full force and effect.
(ii) No consent or approval of any third party is, or
will be, necessary for the execution and delivery by the Company of the
Purchaser Documents, the issuance of the Securities or the consummation by the
Company of the other transactions contemplated thereby, except consents or
approvals of the SEC and the NASD (including without limitation the making of an
additional listing application with Nasdaq with respect to the issuance of the
Shares), and except such consents and approvals which have been obtained and
which are unconditional and in full force and effect.
(iii) Neither the execution, delivery and performance
by the Company of the Purchaser Documents, the issuance of the Securities nor
the consummation by the Company of the other transactions contemplated by the
Purchaser Documents, will (x) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of the Company, (y)
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 (z) 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 (y) or (z) for violations, breaches or defaults which
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(d) Capitalization.
(i) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable and free of preemptive rights. Except as
contemplated by any of the Purchaser Documents (other than the Escrow Agreement)
and except as set forth on Schedule 3(d)(i) to this Agreement, there are not any
outstanding (and immediately following the consummation of the Merger and the
Related Transactions and the issuance of all shares, securities and instruments
pursuant to the Merger Agreement, the Related Agreements and this Agreement
there will not be any outstanding)
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contractual obligations of the Company to repurchase, redeem or otherwise
acquire, or providing preemptive or registration rights with respect to, any
shares of capital stock of the Company. There are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Securities.
(ii) The Securities have been duly authorized and
will be issued, free and clear of all liens, encumbrances and claims and rights
of third parties (excluding liens, encumbrances, claims and rights of third
parties claiming by, through or under any Purchaser), and are fully paid
(subject to the release of the Purchase Price therefor in accordance with the
terms of Section 4(a) of the Escrow Agreement) and non-assessable, and the
issuance of such Securities is not subject to any preemptive right of any
Person. A sufficient number of shares of Common Stock have been duly authorized
and reserved for issuance upon exercise of the Warrants, and upon issuance in
accordance with the terms of the Warrants, such shares of Common Stock will be
duly authorized, validly issued, fully paid and non-assessable and the issuance
of such Common Stock is not and will not be subject to any preemptive right of
any Person. Schedule 3(d)(ii) hereto sets forth all of the shares of capital
stock, all warrants, options and rights to acquire shares of the capital stock
and all convertible securities of the Company which will be outstanding
immediately following the consummation of the Merger and the Related
Transactions and the issuance of all shares, securities and instruments pursuant
to the Merger Agreement, the Related Agreements and this Agreement. The Shares
issued to the Purchasers will represent 30% of the Common Stock of the Company
on a fully-diluted basis (assuming the exercise of all warrants, options and
rights to acquire shares of the capital stock and all convertible securities) as
of immediately following the consummation of the Merger and the Related
Transactions and the issuance of all shares, securities and instruments pursuant
to the Merger Agreement, the Related Agreements and this Agreement. The shares
of Common Stock that will be issued as a result of the Merger will be, when
issued in accordance with the terms of the Merger Agreement, duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights. The
Company has heretofore delivered to Greenwich II (on behalf of the Purchasers) a
copy of the Merger Agreement (together with all amendments, modifications and
supplements thereto).
(e) Litigation. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company before any court or arbitrator or any Governmental Entity relating to
the transactions contemplated by the Purchaser Documents.
(f) Merger Agreement. The representations and warranties of
the Company, Tower Hill and Newco contained in the Merger Agreement were true
and correct as of the date of the Merger Agreement and the Purchasers shall be
entitled to rely upon such representations and warranties in connection with the
Purchaser Documents and the purchase of the Securities and the consummation of
the other transactions under the Purchaser Documents.
(g) Disclosure. The final Proxy Statement of the Company
accompanying the Notice of Special Meeting of Stockholders dated September 30,
1999 (the "Proxy Statement") with respect to the Company and the transactions
contemplated by the Purchaser Documents and the Proxy Statement, and the
representations and warranties by the Company contained in the Purchaser
Documents and in any Schedule or certificate furnished or to be furnished by the
Company pursuant thereto, 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
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any fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The representations and warranties contained in this Section
3(g) 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 Purchasers or their representatives know
or should have known that any such representation or warranty is or might be
inaccurate in any respect.
(h) Merger and Related Transactions. The Merger and the other
"Related Transactions" (as described in the Proxy Statement), if consummated,
will be consummated in all material respects in accordance with the terms, and
subject to the conditions, set forth in the Merger Agreement as in effect on the
date of this Agreement and as described in the Proxy Statement and without any
material amendment or waiver thereof; subject to the escrow of the documents
pertaining to the Related Transactions and, in accordance with the terms of such
escrow arrangements, the Related Transactions will be effected and the documents
pertaining thereto will be released from escrow prior to, or at the same time
as, the release of the Escrow Documents in accordance with the terms of Section
4(a) of the Escrow Agreement.
4. Representations and Warranties of the Purchaser. The
Purchasers, jointly and severally, hereby represent and warrant to the Company
that:
(a) Organization and Good Standing. Each Purchaser has been
duly organized and is validly existing and in good standing under the laws of
the jurisdiction of its organization and has the requisite power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted.
(b) Authorization of Agreement. Each Purchaser has all
necessary power and authority to execute and deliver the Purchaser Documents, to
consummate the transactions contemplated by the Purchaser Documents, and to
perform its obligations under the Purchaser Documents. The execution and
delivery by each Purchaser of the Purchaser Documents and the consummation by
each Purchaser of the transactions contemplated thereby have been duly
authorized and approved by the general partner of each Purchaser, and no other
proceedings on the part of any Purchaser are, or will be, necessary to authorize
the Purchaser Documents or to consummate the transactions contemplated thereby.
The Purchaser Documents have been, or will be at the Closing, assuming the due
authorization, execution and delivery by the Company, duly and validly executed
and delivered by each Purchaser and constitutes, or will constitute at the
Closing, a valid, legal and binding agreement of each Purchaser, enforceable
against each Purchaser 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).
(c) No Conflicts; Consents of Third Parties.
(i) No Filing and Approval of or with any
Governmental Entity is, or will be, necessary for the execution and delivery by
any Purchaser of the Purchaser Documents or the consummation by any Purchaser of
the transactions contemplated thereby, except Filings and Approvals that, if not
made or obtained, could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
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(ii) No consent or approval of any third party is, or
will be, necessary for the execution and delivery by any Purchaser of the
Purchaser Documents or the consummation by any Purchaser of the transactions
contemplated by the Purchaser Documents.
(iii) Neither the execution, delivery and performance
by any Purchaser of the Purchaser Documents, nor the consummation by any
Purchaser of the transactions contemplated by the Purchaser Documents, will (x)
conflict with or result in any breach of any provision of the applicable
organizational documents of any Purchaser, (y) 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 Purchaser is a party or by which its
properties or assets are bound, or (z) assuming that all Filings and Approvals
have been made or obtained, violate any Law or any Governmental Order applicable
to any Purchaser or its properties or assets, except in the case of clauses (y)
or (z) for violations, breaches or defaults which could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(d) Litigation. There is no action, suit, investigation or
proceeding pending or, to the knowledge of any Purchaser, threatened against any
Purchaser before any court or arbitrator or any Governmental Entity relating to
the transactions contemplated by this Agreement.
(e) Investment Representations. Each Purchaser understands
that the Securities (including the shares of Common Stock issuable upon exercise
of the Warrants (the "Warrant Shares")) have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities law. Each Purchaser also understands that the Securities and the
Warrant Shares are being offered and sold pursuant to one or more exemptions
from such registration based in part upon each Purchaser's representations
contained in this Agreement.
(i) Purchaser Bears Economic Risk. Each Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company and is capable of
evaluating the merits and risks of its investment in the Company. Each Purchaser
understands that it must bear the economic risk of this investment indefinitely
unless the Securities and the Warrant Shares are registered under the Securities
Act, or an exemption from registration is available. Each Purchaser also
understands that there is no assurance that any exemption from registration will
be available and that, even if available, such exemption may not allow such
Purchaser to transfer all or any portion of the Securities (or the Warrant
Shares) under the circumstances, in the amounts or at the times such Purchaser
might propose.
(ii) Acquisition for Own Account. Each Purchaser is
acquiring the Securities, and will acquire the Warrant Shares, for its own
account for investment only, and will not sell, transfer or otherwise dispose of
the Securities or the Warrant Shares, or any portion thereof or interest
therein, in violation of the registration requirements of applicable federal and
state securities laws.
(iii) Accredited Investor. Each Purchaser is an
accredited investor within the meaning of Regulation D under the Securities Act.
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<PAGE>
(iv) Company Information. Each Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and other management of the Company. Each Purchaser has
also had the opportunity to ask questions of, and receive answers from, the
Company and its management regarding the terms and conditions of this
investment.
(v) Rule 144. Each Purchaser acknowledges and agrees
that the Securities (including the Warrant Shares) must be held indefinitely
unless they are subsequently registered under the Securities Act and any
applicable state securities law or an exemption from such registration is
available. Each Purchaser has been advised or is aware of the provisions of Rule
144 promulgated under the Securities Act ("Rule 144"), which permits limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring not less than
one year after a Person has purchased and paid for the security to be sold, the
sale being through an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the number of shares being sold during any
three-month period not exceeding specified limitations.
(vi) Financing. Each Purchaser has, and on the
Closing Date will have, sufficient funds available to pay for the Securities to
be purchased by it pursuant to Section 1.
5. Covenants. The parties, as applicable, hereby covenant and
agree as follows:
(a) Access to Information; Confidentiality. Upon reasonable
notice, the Company shall afford to the executive officers, accountants, counsel
and other representatives of Greenwich II (on behalf of the Purchasers)
reasonable access, during the period prior to the Closing Date, to all its
facilities, properties, assets, books, contracts and records and, during such
period, the Company shall furnish promptly to Greenwich II (on behalf of the
Purchasers) all information concerning its business, facilities, properties,
assets and personnel as Greenwich II may reasonably request, and shall make
promptly available to Greenwich II (on behalf of the Purchasers) the appropriate
individuals (including officers, employees, accountants, counsel and other
professionals) for discussion of the Company's business, facilities, properties,
assets and personnel as Greenwich II may reasonably request. The Purchasers
shall keep such information confidential in accordance with the terms of the
Confidentiality Agreement dated September 2, 1999 between THCG, Inc. and
Greenwich II. By their execution of this Agreement, the Company agrees to be
bound by the terms of the foregoing Confidentiality Agreement to the same extent
as THCG, Inc. was bound, and the Purchasers agree to be bound by the terms of
the foregoing Confidentiality Agreement to the same extent as Greenwich II is
bound.
(b) Reasonable Best Efforts; Further Action. Upon the terms
and subject to the conditions set forth in the Purchaser Documents, each of the
parties hereto agrees to use its reasonable best 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 party in doing, or causing to be done, all things necessary,
proper or advisable to fulfill all conditions applicable to such party pursuant
to the Purchaser Documents, and to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by the Purchaser
Documents, including (i)
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the obtaining of all necessary actions or non-actions, 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 exemptions 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, the Purchaser Documents.
(c) Board Representation. As long as the Purchasers, in the
aggregate, are the beneficial owners of 5.0% or more of the issued and
outstanding shares of Common Stock on a fully-diluted basis (assuming for such
purpose the exercise or conversion of all outstanding options, warrants and
other convertible securities, including the Securities), Greenwich II shall be
entitled to nominate one person (the "Purchaser Appointee") for election to the
Board of Directors of the Company, provided, however, that such person is
reasonably acceptable to the Company, and the Company shall use its best efforts
to cause the Purchaser Appointee to be elected to the Board of Directors of the
Company and to be appointed to the Compensation Committee (including any stock
option or similar committee) of the Board of Directors of the Company.
(d) Restrictions on the Conduct of Business.
(i) As long as the Purchasers, in the aggregate, are
the beneficial owners of 5.0% or more of the issued and outstanding shares of
Common Stock on a fully-diluted basis (assuming for such purpose the exercise or
conversion of all outstanding options, warrants and other convertible
securities, including the Securities), the Company shall not, without the prior
written consent of Greenwich II, effect any merger, consolidation,
recapitalization, redemption or repurchase, extraordinary dividend or
distribution or any similar transaction or other extraordinary transaction
affecting the Company or any of its Subsidiaries or any shares of capital stock
of the Company or any of its Subsidiaries; provided, however, that the consent
of Greenwich II shall not be required in connection with:
(1) any of the transactions described in the
preceding paragraph as long as (A) all shares of the Common Stock owned by the
Purchasers (including the Warrant Shares) are treated as favorably as all other
then outstanding shares of the Common Stock are treated, and (B) without the
prior written consent of Greenwich II, no holder of Common Stock (or any
Affiliate or Related Person of such holder) receives in connection with the
transaction any additional value or consideration (excluding any compensation
payable in the ordinary course of business to employees of the Company or the
successor entity in any such transaction, if applicable, related solely to the
performance of their duties as employees);
(2) any repurchase of Common Stock upon the
termination of employment of any employee of the Company who is not or has not
been a THSI Principal or who is not or has not been a director of the Company;
provided, however, that such repurchase must be approved by the Independent
Directors (as defined in Section 5(d)(iii)) and must be pursuant to the terms of
a Plan (as defined in Section 5(d)(ii));
(3) any redemption of shares of redeemable
preferred stock or other securities having redemption provisions issued after
the consummation of the Merger with the approval of the Independent Directors to
a Person who is not at the time of issuance a
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Company Principal;
(4) open market purchases of shares of
Common Stock approved by the Independent Directors; or
(5) any repurchase or redemption (other than
as otherwise permitted by the foregoing clauses (1) through (4) of this Section
5(d)(i)), approved by the Independent Directors, of shares of the Common Stock
held by any stockholder as long as the aggregate of such repurchases or
redemptions (together with all prior repurchases or redemptions) from such
stockholder and all Affiliates and Related Persons of such stockholder (taken
together) does not exceed an amount equal to 5.0% or more of the number of
shares of Common Stock on a fully-diluted basis (assuming for such purpose the
exercise or conversion of all outstanding options, warrants and other
convertible securities) outstanding immediately after the consummation of the
Merger (including the Securities), as appropriately adjusted for stock splits
and dividends, reverse stock splits and combinations after the consummation of
the Merger.
(ii) Except as set forth on Schedule 5(d)(ii),
neither the Company nor any of its Subsidiaries shall issue or grant any
registration rights with respect to any capital stock, or securities convertible
into or exercisable for capital stock, of the Company or any Subsidiary without
the prior written consent of Greenwich II; provided, however, that the foregoing
restriction shall not prohibit (x) the grant of registration rights covering
shares issued in an acquisition of, or a merger with, another Person, or in a
private placement by the Company or any Subsidiary of shares of its capital
stock or other securities, where such acquisition, merger or private placement
does not involve, and the recipients of such capital stock or other securities
(and such registration rights) are not Company Principals or (y) the
registration on SEC Form S-8 of Common Stock issued pursuant to the Company's
Employee Stock Incentive Plan established at the time of the Closing or any
supplemental stock incentive plan approved by the Independent Directors (each, a
"Plan"). Any registration rights granted pursuant to clause (x) of this Section
5(d)(ii) shall not be on terms more favorable than the terms of the registration
rights granted to the Purchasers pursuant to the Registration Rights Agreement
and any right to "piggyback" on any registration effected pursuant to the
Purchasers' registration rights shall be subordinate to the Purchasers' demand
registration rights in the event of any cut-back or hold-back of shares. The
Purchasers shall have piggyback rights with respect to the exercise of any
registration right granted pursuant to clause (x) of this Section 5(d)(ii); and
the Purchasers shall have prorata sale rights with the persons who have
exercised the registration rights, but priority sale rights over any other
person whose shares are proposed to be included in the registration, in the
event of any required cut-back or hold-back of shares to be sold pursuant to the
registration right exercised.
(iii) All compensation of, and other transactions
with, any Company Principals shall be subject to the approval of the Independent
Directors. For all purposes of the Purchaser Documents, the term "Independent
Directors" shall mean members of the Board of Directors of the Company other
than the Company Principals whose compensation is being considered and who are
not involved in and have no economic or other interest in the transaction being
considered and any Affiliates or Related Persons of such Company Principals. For
all purposes of the Purchaser Documents, the term "Related Person" shall mean
and include any relative of the Person to which such Related Person refers
(including any spouse, parent or grandparent, sibling, child or grandchild,
step-child or step-grandchild or adopted child or adopted grandchild of such
Person) and any trust or similar entity which exists for the benefit of such
Person or any other "Related Person" of such Person in which the
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Person or any "Related Person" of such Person has any economic or other
interest.
(e) Tag-Along Rights.
(i) Subject to Section 5(e)(vii), if, at any time
after the Closing, any of the THSI Principals or any of their Transferees in an
Exempt Transfer (as defined in Section 5(e)(viii)) (each, a "Section 5
Transferor") or any group of Section 5 Transferors proposes to Transfer any of
such Person's Common Stock to a Person or Persons, except pursuant to an Exempt
Transfer or a Charitable Transfer (as defined in Section 5(e)(viii)), prior to
any such Transfer, such Section 5 Transferor shall promptly (and in any event at
least 20 business days prior to the proposed closing date thereof) provide the
Purchasers with written notice of the proposed Transfer (the "Transfer Notice")
containing the following:
(1) the name and address of the proposed
Transferee;
(2) the number of shares of Common Stock
proposed to be Transferred by such Section 5 Transferor; and
(3) the purchase price and other material
terms and conditions of payment and the closing date for the proposed Transfer
(including, if available, a copy of any purchase agreement related thereto).
(ii) If any Purchaser wishes to participate in such
Transfer, such Purchaser (or Greenwich II on behalf of such Purchaser) shall
notify such Section 5 Transferor by written notice (the "Tag-Along Notice") on
or before the expiration of 10 business days following receipt of the Transfer
Notice that such Purchaser desires to Transfer to the proposed Transferee a part
of its shares of Common Stock (as determined pursuant to the following sentence)
on the same terms and conditions set forth in the Transfer Notice. The Tag-Along
Notice shall specify the number of shares of Common Stock such Purchaser desires
to Transfer (the "Tag-Along Amount"). The maximum number of shares of Common
Stock that such Purchaser shall be entitled to Transfer pursuant to the
Tag-Along Notice shall be determined by multiplying the number of shares of
Common Stock held by such Purchaser at the time of the Transfer Notice by a
fraction, the numerator of which is the number of shares of Common Stock
proposed to be Transferred to the Transferee by such Section 5 Transferor and
the denominator of which is the aggregate number of shares of Common Stock then
owned by all Section 5 Transferors. If no Purchaser provides the Section 5
Transferor with a Tag-Along Notice within the period above-specified, the
Section 5 Transferor shall be free to sell all or a portion of his Common Stock
to the Transferee in the amount and on the same terms and conditions set forth
in the Transfer Notice. If any Purchaser provides the Section 5 Transferor(s)
with a Tag-Along Notice, the Section 5 Transferor may not effect such Transfer
unless the Transferee shall have purchased the Tag-Along Amount or the Reduced
Tag-Along Amount (as defined in Section 5(e)(iv)) from such Purchaser on the
same terms and conditions set forth in the Transfer Notice.
(iii) The Tag-Along Notice given by such Purchaser
shall constitute the Purchaser's irrevocable and binding agreement to Transfer
to the Transferee the Tag-Along Amount or the Reduced Tag-Along Amount on the
terms and conditions specified in the Transfer Notice.
(iv) If the sum (the "Aggregate Shares Offered") of
(w) the aggregate
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number of shares of Common Stock proposed to be Transferred to the Transferee by
the Section 5 Transferor and (x) the total of the Tag-Along Amounts for each
Purchaser exceeds the maximum number of shares of Common Stock that such
Transferee is willing to purchase (the "Maximum Number"), then (y) the maximum
number of shares of Common Stock that such Section 5 Transferor shall be
entitled to Transfer to the Transferee shall be reduced to the number (rounded
down to the nearest whole share) obtained by multiplying the number of shares of
Common Stock that such Section 5 Transferor proposed to Transfer to the
Transferee by a fraction, the numerator of which is the Maximum Number and the
denominator of which is the Aggregate Shares Offered, and (z) the maximum number
of shares of Common Stock that any Purchaser which has delivered a Tag-Along
Notice pursuant to Section 5(e)(ii) (the "Participating Purchasers") shall be
entitled to Transfer to the Transferee pursuant to such Tag-Along Notice shall
be reduced to the number (rounded up to the nearest whole share; the "Reduced
Tag-Along Amount") obtained by multiplying the Tag-Along Amount of such
Purchaser by the fraction described in clause (y) of this Section 5(e)(iv).
(v) The Participating Purchasers agree to execute and
deliver purchase agreements upon the same terms and subject to the same
conditions as the Section 5 Transferor and shall take such action as the
Transferee of such shares may reasonably request (including the delivery of
certificates or other documents) to facilitate the consummation of the Transfer
of such shares. Any indemnity provided by a Participating Purchaser to the
Transferee in such purchase agreement will only relate to the shares of Common
Stock Transferred by it. Any indemnity provided to the Transferee by the Section
5 Transferor will only relate to the shares of Common Stock Transferred by the
Section 5 Transferor.
(vi) The Section 5 Transferor(s) and the
Participating Purchasers shall be required to bear their pro rata share, based
on the number of shares of Common Stock included in such Transfer, of the
expenses of the transaction including, without limitation, legal, accounting and
investment banking fees, commissions and expenses.
(vii) Notwithstanding any other provision of this
Section 5(e), if, at any time, any Section 5 Transferor or group of Section 5
Transferors proposes to sell shares of Common Stock beneficially owned by him or
them in a public offering which, together with all prior Transfers, other than
Exempt Transfers and Charitable Transfers, by all THSI Principals, exceed 25% of
the aggregate of the shares of Common Stock (the "Original Shares") acquired by
the THSI Principals (A) pursuant to the Merger and (B) upon exercise of options
granted to the THSI Principals pursuant to the Merger Agreement and the Related
Agreements (including without limitation under the Plan), then the Purchasers
will have the right to sell in such public offering a number of shares of Common
Stock equal to four times the number of shares of Common Stock proposed to be
sold by the THSI Principals in excess of such 25% of their Original Shares and
such THSI Principals shall cut-back the number of shares of Common Stock
proposed to be sold by them in such public offering so as to accommodate the
Transfer by the Purchasers of their shares of Common Stock pursuant to this
Section 5(d)(vii); provided, however, that the foregoing shall not be applicable
to any sale by the Section 5 Transferors of shares of Common Stock pursuant to
Rule 144 if, at the time of such proposed sale pursuant to Rule 144, any
Purchaser is then permitted (subject to the volume limitations of Rule 144) also
to effect sales under Rule 144. Any allocation among the Purchasers of shares to
be transferred pursuant to this Section 5(e)(vii) shall be determined by
Greenwich II.
(viii) For purposes of the Purchaser Documents, the
term "Transfer" shall mean any sale, assignment, disposition, mortgage, pledge
or similar lien or encumbrance
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or other transfer or grant or any right to effect any of the foregoing; unless
in the case of the grant of any mortgage, pledge or similar lien or encumbrance
the mortgagee, the pledgee or holder of the lien or encumbrance agrees in
writing with the Purchasers that any further sale, assignment, disposition or
transfer or grant of any such right shall be subject to the provisions of this
Section 5 and to be deemed a "Section 5 Transferor" for all purposes of this
Agreement. For purposes of the Purchaser Documents, the term "Exempt Transfer"
shall mean a direct or indirect Transfer of capital stock of the Company to a
Person's Related Person provided that such capital stock shall continue to be
subject to the provisions of this Section 5 in connection with any further
Transfers. For purposes of the Purchaser Documents, the term "Charitable
Transfer" shall mean a Transfer of capital stock of the Company to an
organization exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, provided that the Person does not retain any
economic or other interest in the shares.
(ix) In the event of any merger, consolidation,
recapitalization, reclassification, stock split or combination, distribution of
property (other than cash) or securities, obligations or instruments, or any
other transaction affecting the Common Stock, the provisions of this Section 5
shall apply to any stock, security, obligations, instruments or property which
have been issued in connection therewith to any Section 5 Transferor.
(f) Nasdaq Listing Application. The Company shall file an
Application for Listing of Additional Shares with the NASD with respect to the
Shares and the Warrant Shares. Such Application for Listing of Additional Shares
shall be with respect to designation as a National Market System security by The
Nasdaq Stock Market; however, the Company may delay the filing of such
Application for Listing of Additional Shares until it is determined by the NASD
whether the current designation of the Common Stock of the Company as a National
Market System security shall continue. In the event that the NASD shall
determine that the designation of the Common Stock as a National Market System
security shall not continue, or otherwise if requested by Greenwich II, the
Company shall file promptly an Application for Listing of Additional Shares with
respect to designation as a Smallcap security by The Nasdaq Stock Market and
with respect to the Shares and the Warrant Shares.
(g) Public Announcements. No party will issue or cause the
publication of any press release or other public announcement with respect to
the Purchaser Documents or the transactions contemplated by the Purchaser
Documents without the prior written consent of the other party 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 party reasonable time to comment
on such release or announcement in advance of its issuance.
(h) Investment Opportunities. Company agrees that it will use
its reasonable efforts to offer Greenwich II, or affiliates of Greenwich II as
designated by Greenwich II, the opportunity to invest in private placements in
which the Company acts as the placement agent, financial advisor or principal
investor.
(i) No Regulatory Filings. The Company and its Subsidiaries
shall not effect or engage in any transaction, investment or business which
might impose upon any Purchaser (or any of its Affiliates, partners, directors,
officers or employees) any obligation under any Law to file any reports, or to
furnish any information to any governmental authority (other than reports or
information required to be made or furnished under the Exchange Act and the
rules
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and regulations promulgated thereunder). In the event any Law, rule or
governmental regulation shall be enacted or adopted subsequent to the Company or
its Subsidiaries effecting or making any transaction or investment, or
subsequent to the commencement of any business, the Company shall use
commercially reasonable efforts to restructure such transaction, investment or
business so as to avoid any such reporting or information obligation imposed on
any Purchaser (or any of its Affiliates, partners, directors, officers or
employees).
(j) Use of Proceeds. The Company will use the proceeds from
the sale of the Securities for the purposes described in the Proxy Statement and
for general corporate purposes.
(k) Name Change. The Company shall, prior to the release of
the Escrow Documents pursuant to Section 4(a) of the Escrow Agreement, change
the name of the Company to "THCG, Inc."
6. Conditions to Closing.
(a) Conditions Precedent to Each Party's Obligations.
The respective obligations of each party hereunder are subject
to the fulfillment or satisfaction on or before the Closing of each of the
following conditions (any one or more of which may be waived in writing by the
Company or Greenwich II (on behalf of all the Purchasers), as the case may be):
(i) All consents and approvals of the Boards of
Directors and shareholders of the Company and the other parties to the Merger
Agreement and the Related Transactions required for the consummation of the
Merger, the change of the name of the Company to "THCG, Inc.", the Related
Transactions and the transactions under the Purchaser Documents shall have been
obtained. All of the other conditions to the obligations of the parties to
consummate the Merger, the Related Transactions and the transactions under the
Purchaser Documents, and to effect the name change, shall have been satisfied
subject only to: (A) the filing of articles of merger with the Secretary of
State of the New York to effect the Merger; and (B) the filing of the BDC
Withdrawal; and (C) the escrow of the documents pertaining to the Related
Transactions and, in accordance with the terms of such escrow arrangements, such
documents pertaining thereto being released from escrow prior to, or at the same
time as, the release of the "Escrow Documents" (as defined in the Escrow
Agreement") in accordance with the terms of Section 4(a) of the Escrow
Agreement.
(ii) No Law or Governmental Order shall have been
enacted, entered, promulgated or enforced which prohibits, restrains, enjoins or
restricts the consummation of the transactions contemplated by the Purchaser
Documents, or which subjects any party to substantial damages as a result of the
consummation of the transactions contemplated by the Purchaser Documents.
(iii) All required consents, approvals, waivers and
authorizations of any Governmental Entity or Regulatory Agency which are
necessary to effect the transactions contemplated by the Purchaser Documents at
the Closing shall have been obtained.
(iv) The Escrow Agreement shall have been executed
and delivered by the parties hereto and the Escrow Agent; and the Escrow
Documents, the Shares and the
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Warrants and the Purchase Price shall have been deposited with the Escrow Agent
in accordance with this Agreement and the Escrow Agreement.
(b) Conditions Precedent to Obligations of the Company.
The obligations of the Company hereunder are subject to the
fulfillment or satisfaction on or before the Closing Date of each of the
following conditions (any one or more of which may be waived in writing by the
Company):
(i) Accuracy of Representations and Warranties. The
representations and warranties of each Purchaser set forth in Section 4 hereof
shall be true and accurate in all material respects (other than those qualified
by materiality or Material Adverse Effect which shall be true and accurate) on
and as of the Closing Date with the same force and effect as if they had been
made at the Closing, and each Purchaser shall execute and deliver a certificate
to such effect by an officer of such Purchaser.
(ii) Covenants. Each Purchaser shall have performed
and complied in all material respects with all of its covenants required to be
performed by it under the Purchaser Documents on or before the Closing Date, and
each Purchaser shall execute and deliver a certificate to such effect by an
officer of such Purchaser.
(iii) Delivery of Certificates. At the Closing, each
Purchaser shall deliver the certificates required by Sections 6(b)(i) and (ii)
hereof to the Escrow Agent for deposit into escrow pursuant to the terms and
conditions of the Escrow Agreement.
(c) Conditions Precedent to Obligations of the
Purchasers.
The obligations of the Purchasers hereunder are subject to the
fulfillment or satisfaction on or before the Closing Date of each of the
following conditions (any one or more of which may be waived in writing by
Greenwich II, on behalf of the Purchasers):
(i) Accuracy of Representations and Warranties. The
representations and warranties of the Company set forth in Section 3 hereof and
the representations and warranties of the Company, Newco and Tower Hill set
forth in the Merger Agreement shall be true and accurate in all material
respects (other than those qualified by materiality or Material Adverse Effect
which shall be true and accurate) on and as of the Closing Date with the same
force and effect as if they had been made at the Closing, and the Company shall
execute and deliver a certificate to such effect by an officer of the Company.
(ii) Covenants. The Company shall have performed and
complied in all material respects with all of the covenants required to be
performed by the Company under the Purchaser Documents on or before the Closing
Date, and the Company shall execute and deliver a certificate to such effect by
an officer of the Company.
(iii) Delivery of Certificates. At the Closing, the
Company shall deliver the certificates issued pursuant to Sections 6(c)(i) and
(ii) to the Escrow Agent for deposit into escrow pursuant to the terms and
conditions of the Escrow Agreement.
(iv) Board Nominee. The Board of Directors of the
Company shall have elected Keith Abell to the Board of Directors of the Company
as the Purchaser Nominee
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effective upon the satisfaction of the terms of Section 4(a) of the Escrow
Agreement; and the THSI Principals shall have executed and delivered to the
Escrow Agent, for deposit into escrow pursuant to the terms and conditions of
the Escrow Agreement, an agreement substantially in the form attached hereto as
Exhibit D hereto wherein the THSI Principals agree to vote their shares for the
election of the Purchaser Appointee as a director of the Company (the "Voting
Agreement").
(v) Issuance of the Securities. The Securities shall
have been duly authorized and validly issued pursuant to Section 2(c) hereof
(against the payment of the purchase price therefor pursuant to Section 2(b)
hereof), free and clear of all liens, encumbrances and claims and rights of
third parties (including without limitation preemptive rights, but excluding
liens, encumbrances, claims and rights of third parties claiming by, through or
under any Purchaser); and the Purchasers shall have received the Legal Opinions.
7. Termination of Agreement.
(a) Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(i) by mutual written consent duly executed by the
Company and Greenwich II (on behalf of the Purchasers);
(ii) by either Greenwich II (on behalf of the
Purchasers) or the Company, if the Merger Agreement is terminated in accordance
with its terms; or
(iii) by Greenwich II (on behalf of the Purchasers)
or the Company at any time after December 31, 1999 if the Closing shall not have
occurred on or before that date.
(b) Notice of Termination. Any termination of this Agreement
under Section 7(a) hereof will be effective by the delivery of written notice
(in accordance with the provisions of Section 10(b)) of the terminating party to
the other parties hereto.
(c) Effect of Termination. In the case of any termination of
this Agreement as provided in this Section 7, this Agreement shall be of no
further force and effect; provided, however, that a termination of this
Agreement shall not relieve any party from liability for any breach of this
Agreement or defeat or impair the right of any party to pursue such relief as
may otherwise be available to it as a result of any breach of this Agreement or
any of the representations, warranties, covenants or agreements contained
herein.
8. Legend on Certificates. Each stock certificate or warrant
certificate issued to represent the Securities and the Warrant Shares shall bear
the following (or a substantially equivalent) conspicuous legend on the face or
reverse side thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS. NEITHER THESE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN
EFFECT WITH
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RESPECT THERETO UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL TO THE HOLDER OF
SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend shall also bear such legend, unless in the
opinion of counsel for the Company, the Securities or the Warrant Shares
represented thereby need no longer be subject to the restrictions contained in
this Agreement. The Company shall not transfer on its books any certificate for
the Securities or the Warrant Shares in violation of the provisions of the
Purchaser Documents. The Company shall give appropriate stop transfer
instructions to its stock transfer agent with respect to the Securities and the
Warrant Shares.
9. Indemnification.
(a) The Company agrees to indemnify, defend and hold harmless
the Purchasers (and each officer, director, partner and Affiliate of the
Purchasers) from and against any and all losses, liabilities, damages,
deficiencies, costs or expenses (including reasonable attorneys' fees and
disbursements) (collectively, "Losses") based upon or arising out of or in
connection with any inaccuracy in or breach of any representation, warranty,
covenant or agreement of the Company contained in the Purchaser Documents.
(b) The Purchasers agree, jointly and severally, to indemnify,
defend and hold harmless the Company (and each officer, director, stockholder
and Affiliate of the Company) from and against any and all Losses based upon or
arising out of or connection with any inaccuracy in or breach of any
representation, warranty, covenant or agreement of any Purchaser contained in
the Purchaser Documents.
10. Miscellaneous.
(a) Entire Agreement; Assignment. The Purchaser Documents (a)
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, 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.
(b) 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 Purchaser: Greenwich Street Capital Partners II, L.P.
388 Greenwich Street, 36th Floor
New York, New York 10013
Attention: Keith Abell and Matthew C. Kaufman
Facsimile: (212) 816-0166
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with a copy to: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Attention: Ronald R. Jewell, Esq.
Facsimile: (212) 698-3599
if to the Company: Walnut Financial Services, Inc. (or THCG, Inc.)
650 Madison Avenue
New York, New York 10022
Attention: 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.
(c) Parties in Interest. The Purchaser Documents shall be
binding upon and inure solely to the benefit of each party hereto and its
successors and permitted assigns, and except for those parties indemnified
pursuant to Section 9 or pursuant to the provisions of Section 8 of the
Registration Rights Agreement, nothing in the Purchaser Documents, 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 the
Purchaser Documents.
(d) 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.
(e) 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.
(f) Interpretation. The 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.
(g) Governing Law and Venue. THIS AGREEMENT SHALL BE DEEMED TO
BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
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GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(h) Waiver of Jury Trial. THE PURCHASERS AND THE COMPANY
IRREVOCABLY WAIVE, 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 THE PURCHASER DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY.
(i) Expenses. Each party shall bear its own expenses in
connection with the negotiation and execution of this Agreement and the
transactions contemplated hereby, except that at the Closing the Company shall
reimburse Greenwich II, on behalf of the Purchasers, for their reasonable
out-of-pocket expenses in connection with the foregoing, up to an aggregate
amount of $50,000.
* * *
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.
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
By: Greenwich Street Investments II,
L.L.C., their general partner
Walnut Financial Services, Inc.
By:____________________________ By: ______________________________________
Joel S. Kanter Print Name:
President Print Title:
19
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT dated as of November 1, 1999
(the "Agreement"), by and among:
(i) THCG, Inc., a Utah corporation and formerly known as Walnut Financial
Services, Inc. (the "Company"); and
(ii) Greenwich Street Capital Partners II, L.P., a Delaware limited
partnership ("Greenwich II"), GSCP Offshore Fund, L.P., a Cayman
Islands limited partnership ("GSCP Offshore"), Greenwich Fund, L.P., a
Delaware limited partnership ("GF"), Greenwich Street Employees Fund,
L.P., a Delaware limited partnership ("GSEF"), and TRV Executive Fund,
L.P., a Delaware limited partnership ("TRV," and together with
Greenwich II, GSCP Offshore, GF and GSEF, each a "Purchaser" and
collectively, "Greenwich" or the "Purchasers").
W I T N E S S E T H:
The Company and Greenwich have entered into a Securities
Purchase Agreement dated as of October 29, 1999 (the "Purchase Agreement")
pursuant to which Greenwich is purchasing from the Company (i) 2,500,000 shares
(the "Shares") of the Company's Common Stock, $.01 par value per share (the
"Common Stock"), (ii) Warrants to purchase 1,000,000 shares of the Common Stock
at a per share exercise price of $7.25 (the "Initial Warrants") and (iii)
Warrants to purchase 1,000,000 shares of the Common Stock at a per share
exercise price of $5.4375 (the "Additional Warrants" and, together with the
Initial Warrants, the "Warrants").
Capitalized terms used in this Agreement without definition
have the meanings assigned to such terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Greenwich and the Company hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in New York
City are authorized or required by law, regulation or executive order to close.
"Delay Notice" shall have the meaning set forth in Section
6(b) hereof.
"Demand Participation Notice" shall have the meaning set forth
in Section 3(a) hereof.
"Demand Registration" shall have the meaning set forth in
Section 3(a) hereof.
"Demand Registration Notice" shall have the meaning set forth
in Section 3(a) hereof.
<PAGE>
"Holder" shall mean any Person that owns Registrable
Securities. For purposes of this Agreement, the Company may deem the registered
holder of a Registrable Security as the Holder thereof, regardless of any notice
to the Company.
"Material Development Condition" shall have the meaning set
forth in Section 6(b) hereof.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
materials incorporated by reference in such prospectus.
"Registrable Securities" shall mean (i) the Shares, (ii) the
Warrant Shares, and (iii) any other securities issued or issuable as a result of
or in connection with any stock dividend, stock split or reverse stock split,
combination, recapitalization, reclassification, merger or consolidation,
exchange or distribution in respect of such Common Stock.
"Registration Expenses" shall have the definition set forth in
Section 7 hereof.
"Registration Period" shall have the definition set forth in
Section 3(b) hereof.
"Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all materials incorporated by reference in such registration
statement.
"Requesting Securityholder" shall have the meaning set forth
in Section 4 hereof.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 415" shall mean Rule 415 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 903" shall mean Rule 903 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 904" shall mean Rule 904 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
<PAGE>
"SEC" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Underwritten Offering" shall mean a registered offering in
which securities of the Company are sold to an underwriter on a firm commitment
basis for reoffering to the public.
"Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
2. Securities Subject to this Agreement. The securities entitled
to the benefits of this Agreement are the Registrable Securities but, with
respect to any particular Registrable Security, only so long as Greenwich or
their Affiliates or Related Persons continue to be the Holder of such
Registerable Security. A Registrable Security that has ceased to be a
Registrable Security cannot thereafter become a Registrable Security.
3. Demand Registration.
(a) Demand. At any time and from time to time during the term
of this Agreement, Greenwich II may demand, in writing (a "Demand Registration
Notice"), that the Company effect the registration of all or part of such
Registrable Securities held by one or more of the Holders (and in the amounts
specified by Greenwich II in the Demand Registration Notice) in the following
manner: (i) only one demand may be made with respect to the Shares, (ii) only
one demand may be made with respect to the Warrant Shares issuable upon exercise
of the Initial Warrants and (iii) only one demand may be made with respect to
the Warrant Shares issuable upon exercise of the Additional Warrants. In other
words, Holders shall have a total of three demands exercisable by Greenwich II
which shall be exercised as provided in the foregoing clauses (i)-(iii);
however, any demand made under clauses (ii) and (iii) may include any
Registrable Securities that might not have been covered by any previous "Demand
Registration" (as hereinafter defined). The Company shall have no obligation to
effect any Demand Registration unless the Demand Registration Notice covers
Registrable Securities having a "Market Price" (as defined in the Warrants) of
at least $500,000 in the aggregate. Greenwich II may, at any time up to five (5)
Business Days before the filing date of the applicable Registration Statement
relating to the Demand Registration, request that Registrable Securities of any
Holder not be included therein by providing a written notice to that effect to
the Company, which request shall be final and irrevocable. If Greenwich II shall
give such notice with respect to all of the Registrable Securities included in
the Demand Registration Notice, the Demand Registration Notice shall be deemed
not to have been made or count towards any demand rights hereunder provided that
Greenwich II (or Holders) shall reimburse the Company for its out-of-pocket
costs and expenses incurred in connection with the preparation and filing of the
Registration Statement and provided that Greenwich II has not exercised such
withdrawal right with respect to all Registrable Securities included in the
Demand Registration Notice with respect to any previously proposed Demand
Registration.
Upon receipt of a Demand Registration Notice, the Company
shall use its reasonable best efforts to file a Registration Statement on Form
S-1 or, if then available to the Company, Form S-2 or Form S-3 (or any successor
forms), or any other available form under the Securities Act, covering all
Registrable Securities which the Company has been so
<PAGE>
requested to register (the "Demand Registration"), as expeditiously as possible,
but in any event no later than: (i) sixty days in the case of a Registration
Statement on Form S-1 or a Registration Statement on Form S-2 or S-3 which will
be an Underwritten Offering, or (ii) forty-five (45) days in the case of a
Registration Statement on Form S-2 or S-3 which is not an Underwritten Offering.
(b) Effectiveness of Registration Statement. Subject to the
provisions of Section 6(b) hereof, the Company agrees to use its best efforts to
(i) cause the Registration Statement(s) relating to the Demand Registration
described in Section 3(a) hereof to become effective as promptly as practicable,
and (ii) thereafter keep each such Registration Statement effective continuously
for the period (the "Registration Period") ending, subject to the second
sentence of Section 5(b) hereof and clauses (ii) and (iii) of the last sentence
of Section 6(b) hereof, on the earlier of (i) 120 days after such Registration
Statement is declared effective by the SEC, and (ii) the date on which all
Registrable Securities covered by each such Registration Statement have been
sold and the distribution contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company and any other
holder of the Company's securities who has registration rights may include its
securities in the Demand Registration effected pursuant to this Section 3
subject to the provisions of Section 5(d)(ii) of the Securities Purchase
Agreement and; provided, the Holders shall have priority sale rights over the
Company and such other holders with respect to all Registrable Securities
requested by them to be included in such Demand Registration.
(d) Underwriter. Upon the request of the Company or Greenwich
II, and the identification by the Company of a managing underwriter reasonably
satisfactory to the Holders who have submitted the Demand Registration Notice,
the Demand Registration Statement shall provide for an Underwritten Offering.
The Company and the Holders whose Registrable Securities are covered by the
Demand Registration Statement shall enter into customary purchase and
underwriting agreements with such underwriter in connection with any
Underwritten Offering and take all such other actions as such Holders of the
Registrable Securities shall reasonably request in order to facilitate or
expedite the disposition of the Registrable Securities, including without
limitation the furnishing of information regarding the Company and its
subsidiaries and their businesses, assets, liabilities, financial condition and
results of operations and causing the officers and employees of the Company and
its subsidiaries to be available to discuss and answer questions regarding such
information.
4. Piggyback Registration. If, during the term of this Agreement,
the Company at any time proposes to file a registration statement with respect
to any class of equity securities, other than for the registration of securities
for sale on a continuous or delayed basis pursuant to Rule 415, whether (i) for
its own account (other than in connection with the Registration Statement
contemplated by Section 3 hereof or a registration statement on Form S-4 or S-8
(or any successor or substantially similar form), and other than in connection
with (x) an employee stock option, stock purchase or compensation plan or of
securities issued or issuable pursuant to any such plan or (y) a dividend
reinvestment plan), or (ii) for the account of a holder of securities of the
Company pursuant to demand registration rights granted by the Company in a
manner and on terms which satisfy the requirements of, and only to the extent
permitted by Section 5(d)(ii) of the Securities Purchase Agreement (a
"Requesting Securityholder"), then the Company shall in each case give written
notice of such proposed filing to all Holders of Registrable Securities at least
thirty (30) days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such
<PAGE>
registration statement. Each Holder of Registrable Securities desiring to have
its Registrable Securities registered under this Section 4 shall so advise the
Company in writing within fifteen (15) days after the date of receipt of such
notice (which request shall set forth the amount of Registrable Securities for
which registration is requested), and the Company shall use its best efforts to
include in such registration statement all such Registrable Securities so
requested to be included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of any such proposed public offering reasonably
advises the Company that the total amount or kind of securities which the
Company, the Holders of Registrable Securities and any other Persons or entities
intended to be included in such proposed public offering is sufficiently large
to adversely affect the success of such proposed public offering, then the
amount or kind of securities to be offered for the accounts of any person
intended to be included in the proposed offering, other than the Company, the
Requesting Securityholders and the Holders of Registrable Securities, shall be
reduced (to zero if necessary) to the extent necessary to reduce the total
amount or kind of securities to be included in such proposed public offering to
the amount or kind recommended by such managing underwriter or underwriters, and
if such reduction is not sufficient, then the amount or kind of securities to be
offered for the accounts of the Requesting Securityholders and the Holders of
Registrable Securities shall be reduced pro rata, based on the aggregate number
of securities to be offered for the accounts of all Requesting Securityholders
and all Holders of Registrable Securities, before any reduction in the number or
kind of securities to be offered by the Company. Anything to the contrary in
this Agreement notwithstanding, the Company may withdraw or postpone a
registration statement referred to in this Section 4 at any time before it
becomes effective or withdraw, postpone or terminate the offering after it
becomes effective without obligation to the Holder or Holders of the Registrable
Securities.
5. Registration Procedures.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 hereof and, to the extent applicable, Section
4 hereof, the Company will:
(i) subject to the provisions of Section 6(b) hereof,
prepare and file with the SEC a new Registration Statement or such amendments
and post-effective amendments to an existing Registration Statement as may be
necessary to keep such Registration Statement effective for the time periods set
forth in Section 3(b) hereof, provided that no Registration Statement shall be
required to remain in effect after all Registrable Securities covered by such
Registration Statement have been sold and distributed as contemplated by such
Registration Statement, and, provided, further, that as soon as practicable, but
in no event later than three (3) Business Days before filing such Registration
Statement, any related Prospectus or any amendment or supplement thereto, other
than any amendment or supplement made solely as a result of incorporation by
reference of documents filed with the SEC subsequent to the filing of such
Registration Statement, the Company shall furnish to the Holders of the
Registrable Securities covered by such Registration Statement and the managing
underwriters, if any, copies of all such documents proposed to be filed, which
documents shall be subject to the review of such Holders and underwriters;
(ii) notify the selling Holders of Registrable
Securities and the managing underwriters, if any, promptly (u) when a new
Registration Statement, Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any new
Registration Statement or post-effective amendment, when it has become
effective, (v) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (w) of the
issuance by the SEC of any comments with
<PAGE>
respect to any filing, (x) of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose,
(y) of any suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (z) if there is a misstatement, untrue statement or omission
of a material fact in any Registration Statement, Prospectus or any document
incorporated therein by reference or if any event occurs which requires the
making of any changes in any Registration Statement, Prospectus or any document
incorporated therein by reference in order to make the statements therein (in
the case of any Prospectus, in the light of the circumstances under which they
were made) not misleading;
(iii) if reasonably requested by the managing
underwriter or underwriters or a Holder of Registrable Securities being sold in
connection with an Underwritten Offering, promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters and the Holders of a majority of the Registrable Securities being
sold in such Underwritten Offering agree should be included therein relating to
the sale of the Registrable Securities, including information with respect to
the aggregate number of shares of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the Underwritten Offering of the Registrable
Securities to be sold in such offering; and promptly make all required filings
of such Prospectus supplement or post-effective amendment;
(iv) furnish to each selling Holder of Registrable
Securities and each managing underwriter, if any, without charge, as many
conformed copies as may reasonably be requested of the then effective
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(v) deliver to each selling Holder of Registrable
Securities and the underwriters, if any, without charge, as many copies of the
then effective Prospectus (including each prospectus subject to completion) and
any amendments or supplements thereto as such Persons may reasonably request;
(vi) use its reasonable best efforts to register or
qualify or cooperate with the selling Holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or "blue sky" laws of such jurisdictions as any selling
Holder of Registrable Securities or underwriter reasonably requests in writing;
provided, however, that the Company will not be required to (1) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, but for this paragraph (vi), (2) subject itself to general taxation in
any such jurisdiction, or (3) file a general consent to service of process in
any such jurisdiction;
(vii) cooperate with the selling Holders of
Registrable Securities and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriters if any may request at least two (2) Business Days
prior to any sale of Registrable Securities to the underwriters;
(viii) cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange (or
quotation system operated by a national
<PAGE>
securities association) on which identical securities issued by the Company are
then listed if requested by the Holders of a majority of the Registrable
Securities covered by such Registration Statement or the managing underwriters,
if any, and enter into customary agreements including, if necessary, a listing
application and indemnification agreement in customary form, and provide a
transfer agent for such Registrable Securities no later than the effective date
of such Registration Statement;
(ix) otherwise use its best efforts to comply in all
material respects with all applicable rules and regulations of the SEC relating
to such registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act;
(x) use its reasonable best efforts to list
Registrable Securities on any securities exchange (including without limitation
Nasdaq) on which the Common Stock is then listed for trading, and cooperate and
assist in any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD");
(xi) subject to the proviso in Section 5(a)(vi)
hereof, if the transfer or sale of any shares of the Common Stock or other
securities of the Company is required to be registered with or approved by any
governmental agencies or authorities (other than the SEC or the NASD) to enable
a transferor or seller thereof to effect a transfer or sale, and if such
registration or approval requirements are then applicable to the transfer or
sale of the Registrable Securities, then the Company shall use its reasonable
best efforts to cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such Registrable
Securities (other than as may be required by the governmental agencies or
authorities of any foreign jurisdiction and other than as may be required by a
law applicable to a selling Holder by reason of its own activities or business
other than the sale of Registrable Securities);
(xii) provide a transfer agent and registrar for all
such Registrable Securities not later than the effective date of such
registration statement;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or suspending the
qualification of any Common Stock included in such Registration Statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of each order;
(xiv) use its reasonable best efforts to cause such
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition of such
Registrable Securities, if the disposition or transfer of any shares of the
Common Stock or other securities of the Company are required to be registered
with or approved by any governmental authority under any federal or state law
before any disposition or transfer of such shares may be effected and if such
registration or approval requirements are then applicable to the disposition of
such Registrable Securities (other than as may be required by the governmental
agencies or authorities of any foreign jurisdiction and other than as may be
required by a law applicable to a selling Holder by reason of its own activities
or business other than the sale of Registrable Securities); and
<PAGE>
(xv) obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as the holders
of a majority of the Registrable Securities covered by the Registration
Statement reasonably request.
As a condition precedent to the participation in any
registration hereunder, the Company may require each seller of Registrable
Securities as to which any such registration is being effected to furnish to the
Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request to comply
with the applicable provisions of the Securities Act.
(b) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
5(a)(ii) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the then current Prospectus until (i) such
Holder is advised in writing by the Company that a new Registration Statement
covering the offer of Registrable Securities has become effective under the
Securities Act or (ii) such Holder receives copies of any required supplemented
or amended Prospectus, or until such Holder is advised in writing by the Company
that the use of the Prospectus may be resumed. If the Company shall have given
any such notice during a period when a Demand Registration is in effect, the
Company shall extend the period during which such Registration Statement shall
be maintained effective pursuant to this Agreement by the number of days during
which any such disposition of Registrable Securities is discontinued pursuant to
this Section 5(b). If so directed by the Company, on the happening of such
event, the Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
6. Holdback Agreements.
(a) Hold-Back Election. In the case of the registration of any
Underwritten Offering initiated by the Company (other than any registration by
the Company on Form S-4 or Form S-8 (or any successor or substantially similar
form), and other than in connection with (i) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable pursuant to
any such plan, or (ii) a dividend reinvestment plan) or any underwritten
secondary offering initiated at the request of a Requesting Securityholder, each
Holder agrees that if it is reasonably requested to do so by the managing
underwriter or the underwriters, then such Holder shall not effect any public
sale or distribution of securities of the Company, except as part of such
underwritten registration, during the period beginning twenty (20) days prior to
the closing date of such Underwritten Offering and ending ninety (90) days after
such closing date (or such longer period as may be reasonably requested by the
managing underwriter or underwriters).
The Company agrees not to effect any public sale or
distribution of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock (but the mere issuance of shares of
Common Stock upon any conversion, exercise or exchange of outstanding options,
warrants or other convertible securities shall not itself be deemed to be a
public sale or distribution for purposes of this sentence), (i) during the 10
days prior to and during the forty-five (45) day period following the effective
date of any Demand Registration or Piggyback Registration, or (ii) if an
Underwritten Offering, such longer period as any underwriter in the Underwritten
Offering shall require, or such shorter period as the underwriter in the
<PAGE>
Underwritten Offering shall permit, but in no event longer than 90 days
following the effective date of any Demand Registration or Piggyback
Registration.
(b) Material Development Condition. With respect to any
Registration Statement filed or to be filed pursuant to Section 3 hereof, if the
Company determines that, in its good faith judgment, (i) it would (because of
the existence of, or in reasonable anticipation of, any acquisition or corporate
reorganization or other transaction, financing activity, stock repurchase or
other development involving the Company or any subsidiary, or the unavailability
for reasons substantially beyond the Company's control of any required financial
statements, or any other event or condition of similar significance to the
Company or any subsidiary for purposes of disclosure to the stockholders or
potential investors of the Company) be materially disadvantageous (a "Material
Development Condition") to the Company or any subsidiary or its stockholders for
such a Material Development Condition to be publicly disclosed, and (ii) the
Company reasonably believes it would be required under the Securities Act to
disclose such Material Development Condition in such Registration Statement,
then the Company shall, notwithstanding any other provision of this Agreement,
be entitled, upon the giving of a written notice that a Material Development
Condition has occurred (a "Delay Notice") from an officer of the Company to any
Holder of Registrable Securities included or to be included in such Registration
Statement, (x) to cause sales of Registrable Securities by such Holder pursuant
to such Registration Statement to cease, (y) to cause such Registration
Statement to be withdrawn and the effectiveness of such Registration Statement
terminated, or (z) in the event no such Registration Statement has yet been
filed or declared effective, to delay filing or effectiveness of any such
Registration Statement until, in the good faith judgment of the Company, such
Material Development Condition may be disclosed or no longer exists (notice of
which the Company shall promptly deliver to any Holder of Registrable Securities
with respect to which any such Registration Statement has been filed).
Notwithstanding the foregoing provisions of this Section 6(b): (i) in no event
may such cessation or delay be, for each such Registration Statement, for a
period of more than ninety (90) consecutive days from the giving of its Delay
Notice to a Holder or Holders with respect to such Material Development
Condition, as above provided; (ii) in the event a Registration Statement is
filed and subsequently withdrawn by reason of any existing or anticipated
Material Development Condition, the Company shall cause a new Registration
Statement covering the Registrable Securities to be filed with the SEC as soon
as practicable after such Material Development Condition may be discharged or no
longer exists or, if sooner, as soon as practicable after the expiration of such
ninety (90) day period and the Registration Period for such new Registration
Statement shall be the greater of thirty (30) days or the number of days that
remained in such Registration Period with respect to the withdrawn Registration
Statement at the time it was withdrawn; and (iii) in the event the Company
elects not to withdraw or terminate the effectiveness of any such Registration
Statement but to cause a Holder or Holders to refrain from selling Registrable
Securities for any period during the Registration Period, the Registration
Period with respect to such Holders shall be extended by the number of days
during the Registration Period that such Holders are required to refrain from
selling Registrable Securities.
7. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including all registration and
filing fees, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications or registrations (or the obtaining of exemptions therefrom)
of the Registrable Securities), printing expenses (including expenses of
printing Prospectuses), messenger and delivery expenses, fees and disbursements
of its counsel and its independent certified public accountants, securities acts
liability insurance (if the Company elects to obtain such insurance), fees and
expenses of any special experts retained
<PAGE>
by the Company in connection with any registration hereunder, fees and expenses
of other Persons retained by the Company and fees and expenses in connection
with any review of the underwriting arrangements by the NASD (all such expenses
being referred to as "Registration Expenses"), shall be borne by the Company;
provided, that Registration Expenses shall not include any fees and expenses of
counsel for the Holders, out-of-pocket expenses incurred by the Holders and
underwriting discounts, commissions or fees attributable to the sale of the
Registrable Securities.
8. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities (and its Affiliates,
partners, shareholders, officers and directors), and each Person who controls
such Holder (within the meaning of the Securities Act), against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and reasonable legal fees and expenses) resulting from any untrue
statement or alleged untrue statement of a material fact in, or any omission or
alleged omission of a material fact required to be stated in, any Registration
Statement or Prospectus or necessary to make the statements therein (in the case
of a Prospectus in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any
underwriters expressly for use therein. The Company will also indemnify
underwriters participating in the distribution, their officers, directors,
employees, partners and agents, and each Person who controls such underwriters
(within the meaning of the Securities Act), to the same extent as provided above
in this Section 8(a) with respect to the indemnification of the Holders of
Registrable Securities, if so requested.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each such Holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law, but without
duplication, the Company, its Affiliates, officers, directors, stockholders,
employees, advisors and agents, and each Person who controls the Company (within
the meaning of the Securities Act), against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement or
alleged untrue statement of material fact in, or any omission or alleged
omission of a material fact required to be stated in, the Registration Statement
or Prospectus or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement, or omission or alleged omission, is contained in any
information or affidavit so furnished in writing by such Holder to the Company
specifically for inclusion therein. The Company and the other Persons described
above in this Section 8(b) shall be entitled to receive indemnities from
underwriters participating in the distribution to the same extent as provided
above with respect to information furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel of such indemnifying party's choice; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
<PAGE>
counsel and to participate in (but not control) the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such
indemnified Person unless (A) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to the
indemnified party in a timely manner or (B) in the reasonable judgment of any
such Person, based upon a written opinion of its counsel, a conflict of interest
may exist between such Person and the indemnifying party with respect to such
claims (in which case, if the Person notifies the indemnifying party in writing
that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). No indemnifying party will
be subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of the claim will not
be obligated to pay the fees and expenses of more than one counsel (except one
local counsel if required in a specific instance) for all parties indemnified by
such indemnifying party with respect to such claim.
(d) Contribution. If for any reason the indemnification
provided for in Section 8(a) or Section 8(b) hereof is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated by Section
8(a) and Section 8(b) hereof, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage, liability or expense in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnifying party and
the indemnified party, but also the relative fault of the indemnifying party and
the indemnified party, as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement or the omission or alleged
omission relates to information supplied by the indemnifying party or parties on
the one hand, or the indemnified party or parties on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations. In no event shall any
participating Holder be required to contribute any amount in excess of the
proceeds received by such Holder from the Registrable Securities offered and
sold by such Holder pursuant to such Registration Statement.
9. Participation in Underwritten Registrations. No Person may
participate in any Underwritten Offering hereunder unless such Person (i) agrees
to sell such Person's Registrable Securities on the basis provided in any
customary underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Nothing in this
Section 9 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
10. Term of Agreement. This Agreement may be terminated at any
time by a written instrument signed by Holders of all of the Registrable
Securities then outstanding. Unless sooner terminated in accordance with the
preceding sentence, this Agreement shall terminate in its entirety on such date
as Greenwich or their Affiliates or Related Persons shall cease to be the
Holders of all Registrable Securities.
<PAGE>
11. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto 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 (b) shall not be assigned by operation of law or otherwise.
12. Amendment. The provisions of this Agreement, including the
provisions of this Section 12, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Registrable Securities then outstanding, and any such consent so obtained
shall be binding on all Holders of Registrable Securities.
13. 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 Purchasers: Greenwich Street Capital Partners II, L.P.
388 Greenwich Street, 36th Floor
New York, New York 10013
Attention: Keith Abell and Matthew C. Kaufman
Facsimile: (212) 816-0166
with a copy to: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Attention: Ronald R. Jewell, Esq.
Facsimile: (212) 698-3599
if to the Company to: THCG, Inc.
650 Madison Avenue
New York, New York 10022
Attention: 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.
14. 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 except in regard to the parties indemnified pursuant to
Section 8 hereof, 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; however, any Affiliate
or Related Person of Greenwich which becomes a Holder of Registrable Securities
shall be entitled to the benefits of this Agreement.
<PAGE>
15. 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.
16. 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.
17. Interpretation. The 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 "hereof," "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.
18. 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.
19. Waiver of Jury Trial. THE PURCHASERS AND THE COMPANY
IRREVOCABLY WAIVE, 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.
* * *
<PAGE>
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.
Greenwich Street Capital Partners II,
L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
THCG, Inc. (formerly Walnut Financial By: Greenwich Street Investments II,
Services, Inc.) L.L.C., their general partner
By: /s/ Joel S. Kanter By: /s/ Keith Abell
-------------------------------- ----------------------------------
Joel S. Kanter Print Name: Keith Abell
President Print Title: Managing Member
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT dated as of November 1, 1999
(the "Agreement"), by and among:
(i) THCG, Inc., a Utah corporation and formerly known as Walnut
Financial Services, Inc. (the "Company"); and
(ii) the parties listed as purchasers on the signature pages hereof
(each a "Purchaser" and, collectively, the "Purchasers").
W I T N E S S E T H:
The Company and Purchasers have entered into a Securities
Purchase Agreement dated as of November 1, 1999 (the "Purchase Agreement")
pursuant to which Purchasers are purchasing from the Company an aggregate of up
to 400,000 shares (the "Shares") of the Company's Common Stock, $.01 par value
per share (the "Common Stock").
Capitalized terms used in this Agreement without definition
have the meanings assigned to such terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Greenwich and the Company hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in New York
City are authorized or required by law, regulation or executive order to close.
"Greenwich Funds" shall mean Greenwich Street Capital Partners
II, L.P., a Delaware limited partnership, GSCP Offshore Fund, L.P., a Cayman
Islands limited partnership, Greenwich Fund, L.P., a Delaware limited
partnership, Greenwich Street Employees Fund, L.P., a Delaware limited
partnership, and TRV Executive Fund, L.P., a Delaware limited partnership.
"Greenwich Registration Rights Agreement" shall mean that
certain registration rights agreement dated November 1, 1999 among the Company
and the Greenwich Funds.
"Holder" shall mean any Person that owns Registrable
Securities. For purposes of this Agreement, the Company may deem the registered
holder of a Registrable Security as the Holder thereof, regardless of any notice
to the Company.
"NASD" shall mean the National Association of Securities
Dealers.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
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"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
materials incorporated by reference in such prospectus.
"Registrable Securities" shall mean (i) the Shares, and (ii)
any other securities issued or issuable as a result of or in connection with any
stock dividend, stock split or reverse stock split, combination,
recapitalization, reclassification, merger or consolidation, exchange or
distribution in respect of such Common Stock.
"Registration Expenses" shall have the definition set forth in
Section 5.
"Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all materials incorporated by reference in such registration
statement.
"Requesting Securityholder" shall have the meaning set forth
in Section 3.
"Rule 415" shall mean Rule 415 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"SEC" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Underwritten Offering" shall mean a registered offering in
which securities of the Company are sold to an underwriter on a firm commitment
basis for reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled
to the benefits of this Agreement are the Registrable Securities but, with
respect to any particular Registrable Security, only so long as Purchaser or its
Affiliates or Related Persons continue to be the Holder of such Registerable
Security. A Registrable Security that has ceased to be a Registrable Security
cannot thereafter become a Registrable Security.
3. Piggyback Registration. (a) If, during the term of this
Agreement, the Company at any time proposes to file a registration statement
with respect to any class of equity securities, other than for the registration
of securities for sale on a continuous or delayed basis pursuant to Rule 415,
whether (i) for its own account (other than in connection with a registration
statement on Form S-4 or S-8 (or any successor or substantially similar form),
and other than in connection with (x) an employee stock option, stock purchase
or compensation plan or of securities issued or issuable pursuant to any such
plan or (y) a dividend reinvestment plan),
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or (ii) for the account of a holder of securities of the Company pursuant to
demand registration rights granted by the Company (a "Requesting
Securityholder"), then the Company shall in each case give written notice of
such proposed filing to all Holders of Registrable Securities at least thirty
(30) days before the anticipated filing date of any such registration statement
by the Company, and such notice shall offer to all Holders the opportunity to
have any or all of the Registrable Securities held by such Holders included in
such registration statement. Each Holder of Registrable Securities desiring to
have its Registrable Securities registered under this Section 3 shall so advise
the Company in writing within fifteen (15) days after the date of receipt of
such notice (which request shall set forth the amount of Registrable Securities
for which registration is requested), and the Company shall use its best efforts
to include in such registration statement all such Registrable Securities so
requested to be included therein.
(b) Notwithstanding Section 3(a), if the managing underwriter
or underwriters of any such proposed public offering reasonably advises the
Company that the total amount or kind of securities which the Company, the
Holders of Registrable Securities and any other Persons or entities intended to
be included in such proposed public offering is sufficiently large to adversely
affect the success of such proposed public offering, then the amount or kind of
securities to be offered for the accounts of any person intended to be included
in the proposed offering, other than the Company, the Requesting Securityholders
and the Greenwich Funds pursuant to the Greenwich Registration Rights Agreement,
but including the Holders of Registrable Securities, shall be reduced (to zero
if necessary) to the extent necessary to reduce the total amount or kind of
securities to be included in such proposed public offering to the amount or kind
recommended by such managing underwriter or underwriters, provided, however that
such reduction will be on a pro rata basis, based on the aggregate number of
securities to be offered for the accounts of all other persons intended to be
included in the proposed offering and all Holders of Registrable Securities,
before any reduction in the number or kind of securities to be offered by
Requesting Securityholders, the Company or the Greenwich Funds pursuant to the
Greenwich Registration Rights Agreement.
(c) Anything to the contrary in this Agreement
notwithstanding, the Company may withdraw or postpone a registration statement
referred to in this Section 3 at any time before it becomes effective or
withdraw, postpone or terminate the offering after it becomes effective without
any obligation to any Holder or Holders of the Registrable Securities.
4. Registration Procedures.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3, the Company will:
(i) as soon as practicable, but in no event
later than three (3) Business Days before filing any Registration Statement, any
related Prospectus or any amendment or supplement thereto, other than any
amendment or supplement made solely as a result of incorporation by reference of
documents filed with the SEC subsequent to the filing of such Registration
Statement, the Company shall furnish to the Holders of the Registrable
Securities covered by such Registration Statement copies of all such documents
proposed to be filed, which documents shall be subject to the review of such
Holders;
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(ii) notify the selling Holders of Registrable
Securities promptly (u) when a new Registration Statement, Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any new Registration Statement or post-effective amendment, when it
has become effective, (v) of any request by the SEC for amendments or
supplements to any Registration Statement or Prospectus or for additional
information, (w) of the issuance by the SEC of any comments with respect to any
filing, (x) of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose, (y) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (z) if there is a misstatement, untrue statement or omission of a
material fact in any Registration Statement, Prospectus or any document
incorporated therein by reference or if any event occurs which requires the
making of any changes in any Registration Statement, Prospectus or any document
incorporated therein by reference in order to make the statements therein (in
the case of any Prospectus, in the light of the circumstances under which they
were made) not misleading;
(iii) furnish to each selling Holder of
Registrable Securities, without charge, as many conformed copies as may
reasonably be requested of the then effective Registration Statement and any
post-effective amendments thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(iv) deliver to each selling Holder of
Registrable Securities, without charge, as many copies of the then effective
Prospectus (including each prospectus subject to completion) and any amendments
or supplements thereto as such Holders may reasonably request;
(v) use its reasonable best efforts to register
or qualify or cooperate with the selling Holders of Registrable Securities and
their respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or "blue
sky" laws of such jurisdictions as any selling Holder of Registrable Securities
reasonably requests in writing; provided, however, that the Company will not be
required to (1) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, but for this paragraph (v), (2) subject itself
to general taxation in any such jurisdiction, or (3) file a general consent to
service of process in any such jurisdiction;
(vi) cooperate with the selling Holders of
Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends;
(vii) cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange (or
quotation system operated by a national securities association) on which
identical securities issued by the Company are then listed if requested by the
Holders of a majority of the Registrable Securities, and enter into customary
agreements including, if necessary, a listing application and indemnification
agreement in customary form, and provide a transfer agent for such Registrable
Securities no later than the effective date of such Registration Statement;
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(viii) otherwise use its best efforts to comply in
all material respects with all applicable rules and regulations of the SEC
relating to such registration and the distribution of the securities being
offered and make generally available to its securities holders earnings
statements satisfying the provisions of Section 10(a) of the Securities Act;
(ix) subject to the proviso in Section 4(a)(v),
use its reasonable best efforts to cause the Registrable Securities covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities
(other than as may be required by the governmental agencies or authorities of
any foreign jurisdiction and other than as may be required by a law applicable
to a selling Holder by reason of its own activities or business other than the
sale of Registrable Securities);
(x) provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement;
(xi) in the event of the issuance of any stop
order suspending the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or suspending the
qualification of any Common Stock included in such Registration Statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of each order; and
(xii) obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as the Holders
of a majority of the Registrable Securities covered by the Registration
Statement reasonably request.
As a condition precedent to the participation in any
registration hereunder, the Company may require each seller of Registrable
Securities as to which any such registration is being effected to furnish to the
Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request to comply
with the applicable provisions of the Securities Act.
(b) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4(a)(ii), such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the then current Prospectus until (i) such Holder is
advised in writing by the Company that a new Registration Statement covering the
offer of Registrable Securities has become effective under the Securities Act or
(ii) such Holder receives copies of any required supplemented or amended
Prospectus, or until such Holder is advised in writing by the Company that the
use of the Prospectus may be resumed. If so directed by the Company, on the
happening of such event, the Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including all registration and
filing fees, fees and expenses of
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compliance with securities or "blue sky" laws (including reasonable fees and
disbursements of counsel in connection with "blue sky" qualifications or
registrations (or the obtaining of exemptions therefrom) of the Registrable
Securities), printing expenses (including expenses of printing Prospectuses),
messenger and delivery expenses, fees and disbursements of its counsel and its
independent certified public accountants, securities acts liability insurance
(if the Company elects to obtain such insurance), fees and expenses of any
special experts retained by the Company in connection with any registration
hereunder, fees and expenses of other Persons retained by the Company and fees
and expenses in connection with any review of the underwriting arrangements by
the NASD (all such expenses being referred to as "Registration Expenses"), shall
be borne by the Company; provided, that Registration Expenses shall not include
any fees and expenses of counsel for the Holders, out-of-pocket expenses
incurred by the Holders and underwriting discounts, commissions or fees
attributable to the sale of the Registrable Securities.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities (and its Affiliates,
partners, shareholders, officers and directors), and each Person who controls
such Holder (within the meaning of the Securities Act), against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and reasonable legal fees and expenses) resulting from any untrue
statement or alleged untrue statement of a material fact in, or any omission or
alleged omission of a material fact required to be stated in, any Registration
Statement or Prospectus or necessary to make the statements therein (in the case
of a Prospectus in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any
underwriters expressly for use therein. The Company will also indemnify
underwriters participating in the distribution, their officers, directors,
employees, partners and agents, and each Person who controls such underwriters
(within the meaning of the Securities Act), to the same extent as provided above
in this Section 6(a) with respect to the indemnification of the Holders of
Registrable Securities, if so requested.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each such Holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law, but without
duplication, the Company, its Affiliates, officers, directors, stockholders,
employees, advisors and agents, and each Person who controls the Company (within
the meaning of the Securities Act), against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement or
alleged untrue statement of material fact in, or any omission or alleged
omission of a material fact required to be stated in, the Registration Statement
or Prospectus or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is contained in any information
or affidavit so furnished in writing by such Holder to the Company specifically
for inclusion therein. The
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Holders participating in any Registration Statement will also indemnify
underwriters participating in the distribution, their officers, directors,
employees, partners and agents, and each Person who controls such underwriters
(within the meaning of the Securities Act), to the same extent as provided above
in this Section 6(b) with respect to the indemnification of the Company, if so
requested. The Company and the other Persons described above in this Section
6(b) shall be entitled to receive indemnities from underwriters participating in
the distribution to the same extent as provided above with respect to
information furnished in writing by such Persons specifically for inclusion in
any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel of such indemnifying party's choice; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in (but not control) the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such
indemnified Person unless (A) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to the
indemnified party in a timely manner or (B) in the reasonable judgment of any
such Person, based upon a written opinion of its counsel, a conflict of interest
may exist between such Person and the indemnifying party with respect to such
claims (in which case, if the Person notifies the indemnifying party in writing
that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). No indemnifying party will
be subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of the claim will not
be obligated to pay the fees and expenses of more than one counsel (except one
local counsel if required in a specific instance) for all parties indemnified by
such indemnifying party with respect to such claim.
(d) Contribution. If for any reason the indemnification
provided for in Section 6(a) or Section 6(b) is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Section 6(a) and
Section 6(b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement or the omission or alleged omission relates
to information supplied by the indemnifying party or parties on the one hand, or
the indemnified party or parties on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. In no event shall any participating Holder be
required to contribute any
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amount in excess of the proceeds received by such Holder from the Registrable
Securities offered and sold by such Holder pursuant to such Registration
Statement.
7. Participation in Underwritten Registrations. No Person may
participate in any Underwritten Offering hereunder unless such Person (i) agrees
to sell such Person's Registrable Securities on the basis provided in any
customary underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Nothing in this
Section 7 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
8. Term of Agreement. This Agreement may be terminated at any time by a
written instrument signed by Holders of all of the Registrable Securities then
outstanding. Unless sooner terminated in accordance with the preceding sentence,
this Agreement shall terminate in its entirety on such date as the Purchasers
shall cease to be the Holders of all Registrable Securities.
9. Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties hereto 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 (b) shall not be assigned by operation of law or otherwise.
10. Amendment. The provisions of this Agreement, including the
provisions of this Section 10, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Registrable Securities then outstanding, and any such consent so obtained
shall be binding on all Holders of Registrable Securities.
11. 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 Purchaser: At the address given by such
Purchaser on his signature page to
this Agreement.
if to the Company to: THCG, Inc.
650 Madison Avenue
New York, New York 10022
Attention: 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
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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.
12. 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 except in regard to the parties indemnified pursuant to
Section 6, 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; however, any Affiliate
or Related Person of Greenwich which becomes a Holder of Registrable Securities
shall be entitled to the benefits of this Agreement.
13. 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.
14. 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.
15. Interpretation. The 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 or Exhibit, such reference shall be to a
Section or Exhibit to this Agreement unless otherwise indicated. Where the
reference "hereof," "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.
16. Governing Law; Submission to Jurisdiction. 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. EACH OF THE
PARTIES HERETO IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE COUNTY OF NEW YORK AND ANY FEDERAL COURT SITTING IN THE
SOUTHERN DISTRICT OF THE STATE OF NEW YORK IN RESPECT OF ANY SUIT OR PROCEEDING
RELATED TO OR ARISING OUT OF THIS AGREEMENT. EACH PARTY HERETO ALSO HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO THE LAYING OF THE VENUE OF ANY SUCH SUIT OR
PROCEEDING IN ANY SUCH COURT AND FURTHER WAIVES ANY CLAIM THAT ANY SUCH SUIT OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
IN ADDITION TO ANY OTHER FORM OF SERVICE OF PROCESS AUTHORIZED BY LAW, SERVICE
OF PROCESS IN ANY SUIT OR PROCEEDING HEREUNDER SHALL BE SUFFICIENT IF MAILED TO
EACH PARTY HERETO AT THE ADDRESS SPECIFIED IN SECTION 11,
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AND SUCH SERVICE SHALL CONSTITUTE "PERSONAL SERVICE" FOR PURPOSES OF SUCH SUIT
OR PROCEEDING.
17. Waiver of Jury Trial. THE PURCHASERS AND THE COMPANY
IRREVOCABLY WAIVE, 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.
***
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser: Exodus Project, Inc.
By: /s/ Sonia Ben-Yehuda
---------------------------------
Name:
Social Security Number or other
Taxpayer Identification Number:
------------------------------------
Address:____________________________
------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:______________________
Services, Inc.)
By: /s/ Joel S. Kanter
--------------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Shai Novik
--------------------------------
Name:
Social Security Number or other
Taxpayer Identification Number:
-----------------------------------
Address:___________________________
-----------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_____________________
Services, Inc.)
By: /s/ Joel S. Kanter
-------------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Maria Iannitti
-----------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
--------------------------------------
Address:______________________________
--------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:________________________
Services, Inc.)
By: /s/ Joel S. Kanter
--------------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Alon Hoshmond
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:________________________
Services, Inc.)
By: /s/ Joel S. Kanter
-----------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Luis Vergara
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Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
----------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Joseph J. Schmidman
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
-----------------------------------
Authorized Officer
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IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Amit Avnet
-----------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
--------------------------------------
Address:______________________________
--------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:________________________
Services, Inc.)
By: /s/ Joel S. Kanter
----------------------------
Authorized Officer
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Chris A. Lawrence
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
-----------------------------
Authorized Officer
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Patrick Regan
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
-------------------------------
Authorized Officer
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Erica Siegel
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
----------------------------
Authorized Officer
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Lawrence D. Loeb
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Joel S. Kanter
------------------------------
Authorized Officer
-21-
Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT dated as of November 1, 1999
(the "Agreement"), by and among:
(i) THCG, Inc., a Utah corporation and formerly known as Walnut
Financial Services, Inc. (the "Company"); and
(ii) the parties listed as purchasers on the signature pages hereof
(each a "Purchaser" and, collectively, the "Purchasers").
W I T N E S S E T H:
The Company and Purchasers have entered into a Securities
Purchase Agreement dated as of October 22, 1999 (the "Purchase Agreement")
pursuant to which Purchasers are purchasing from the Company an aggregate of up
to 932,500 shares (the "Shares") of the Company's Common Stock, $.01 par value
per share (the "Common Stock").
Capitalized terms used in this Agreement without definition
have the meanings assigned to such terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Greenwich and the Company hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in New York
City are authorized or required by law, regulation or executive order to close.
"Greenwich Funds" shall mean Greenwich Street Capital Partners
II, L.P., a Delaware limited partnership, GSCP Offshore Fund, L.P., a Cayman
Islands limited partnership, Greenwich Fund, L.P., a Delaware limited
partnership, Greenwich Street Employees Fund, L.P., a Delaware limited
partnership, and TRV Executive Fund, L.P., a Delaware limited partnership.
"Greenwich Registration Rights Agreement" shall mean that
certain registration rights agreement dated November 1, 1999 among the Company
and the Greenwich Funds.
"Holder" shall mean any Person that owns Registrable
Securities. For purposes of this Agreement, the Company may deem the registered
holder of a Registrable Security as the Holder thereof, regardless of any notice
to the Company.
"NASD" shall mean the National Association of Securities
Dealers.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
materials incorporated by reference in such prospectus.
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<PAGE>
"Registrable Securities" shall mean (i) the Shares, and (ii)
any other securities issued or issuable as a result of or in connection with any
stock dividend, stock split or reverse stock split, combination,
recapitalization, reclassification, merger or consolidation, exchange or
distribution in respect of such Common Stock.
"Registration Expenses" shall have the definition set forth in
Section 5.
"Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all materials incorporated by reference in such registration
statement.
"Requesting Securityholder" shall have the meaning set forth
in Section 3.
"Rule 415" shall mean Rule 415 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"SEC" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Underwritten Offering" shall mean a registered offering in
which securities of the Company are sold to an underwriter on a firm commitment
basis for reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled
to the benefits of this Agreement are the Registrable Securities but, with
respect to any particular Registrable Security, only so long as Purchaser or its
Affiliates or Related Persons continue to be the Holder of such Registerable
Security. A Registrable Security that has ceased to be a Registrable Security
cannot thereafter become a Registrable Security.
3. Piggyback Registration. (a) If, during the term of this
Agreement, the Company at any time proposes to file a registration statement
with respect to any class of equity securities, other than for the registration
of securities for sale on a continuous or delayed basis pursuant to Rule 415,
whether (i) for its own account (other than in connection with a registration
statement on Form S-4 or S-8 (or any successor or substantially similar form),
and other than in connection with (x) an employee stock option, stock purchase
or compensation plan or of securities issued or issuable pursuant to any such
plan or (y) a dividend reinvestment plan), or (ii) for the account of a holder
of securities of the Company pursuant to demand registration rights granted by
the Company (a "Requesting Securityholder"), then the Company shall in each case
give written notice of such proposed filing to all Holders of Registrable
Securities at least thirty (30) days before the anticipated filing date of any
such registration statement by the Company, and such notice shall offer to all
Holders the opportunity to have any or all of the Registrable Securities held by
such Holders included in such registration statement. Each Holder of Registrable
Securities desiring to have its Registrable Securities registered under this
Section 3 shall so advise the Company in writing within fifteen (15) days after
the date of receipt of such notice (which request shall set forth the amount of
Registrable Securities for which registration is requested), and the Company
shall use its best efforts to include in such registration statement all such
Registrable Securities so requested to be included therein.
(b) Notwithstanding Section 3(a), if the managing underwriter
or underwriters of any such proposed public offering reasonably advises the
Company that the total amount or kind of securities which the Company, the
Holders of Registrable Securities and any other Persons or entities intended to
be included in such proposed public offering is sufficiently large to adversely
affect the success of such proposed public offering, then the amount or kind of
securities to be offered for the accounts of any person intended to be included
in the proposed
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<PAGE>
offering, other than the Company, the Requesting Securityholders and the
Greenwich Funds pursuant to the Greenwich Registration Rights Agreement, but
including the Holders of Registrable Securities, shall be reduced (to zero if
necessary) to the extent necessary to reduce the total amount or kind of
securities to be included in such proposed public offering to the amount or kind
recommended by such managing underwriter or underwriters, provided, however that
such reduction will be on a pro rata basis, based on the aggregate number of
securities to be offered for the accounts of all other persons intended to be
included in the proposed offering and all Holders of Registrable Securities,
before any reduction in the number or kind of securities to be offered by
Requesting Securityholders, the Company or the Greenwich Funds pursuant to the
Greenwich Registration Rights Agreement.
(c) Anything to the contrary in this Agreement
notwithstanding, the Company may withdraw or postpone a registration statement
referred to in this Section 3 at any time before it becomes effective or
withdraw, postpone or terminate the offering after it becomes effective without
any obligation to any Holder or Holders of the Registrable Securities.
4. Registration Procedures.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3, the Company will:
(i) as soon as practicable, but in no event
later than three (3) Business Days before filing any Registration Statement, any
related Prospectus or any amendment or supplement thereto, other than any
amendment or supplement made solely as a result of incorporation by reference of
documents filed with the SEC subsequent to the filing of such Registration
Statement, the Company shall furnish to the Holders of the Registrable
Securities covered by such Registration Statement copies of all such documents
proposed to be filed, which documents shall be subject to the review of such
Holders;
(ii) notify the selling Holders of Registrable
Securities promptly (u) when a new Registration Statement, Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any new Registration Statement or post-effective amendment, when it
has become effective, (v) of any request by the SEC for amendments or
supplements to any Registration Statement or Prospectus or for additional
information, (w) of the issuance by the SEC of any comments with respect to any
filing, (x) of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose, (y) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (z) if there is a misstatement, untrue statement or omission of a
material fact in any Registration Statement, Prospectus or any document
incorporated therein by reference or if any event occurs which requires the
making of any changes in any Registration Statement, Prospectus or any document
incorporated therein by reference in order to make the statements therein (in
the case of any Prospectus, in the light of the circumstances under which they
were made) not misleading;
(iii) furnish to each selling Holder of
Registrable Securities, without charge, as many conformed copies as may
reasonably be requested of the then effective Registration Statement and any
post-effective amendments thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(iv) deliver to each selling Holder of
Registrable Securities, without charge, as many copies of the then effective
Prospectus (including each prospectus subject to completion) and any amendments
or supplements thereto as such Holders may reasonably request;
(v) use its reasonable best efforts to register
or qualify or cooperate with the selling Holders of Registrable Securities and
their respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or "blue
sky" laws of such jurisdictions as any selling
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<PAGE>
Holder of Registrable Securities reasonably requests in writing; provided,
however, that the Company will not be required to (1) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify, but for
this paragraph (v), (2) subject itself to general taxation in any such
jurisdiction, or (3) file a general consent to service of process in any such
jurisdiction;
(vi) cooperate with the selling Holders of
Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends;
(vii) cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange (or
quotation system operated by a national securities association) on which
identical securities issued by the Company are then listed if requested by the
Holders of a majority of the Registrable Securities, and enter into customary
agreements including, if necessary, a listing application and indemnification
agreement in customary form, and provide a transfer agent for such Registrable
Securities no later than the effective date of such Registration Statement;
(viii) otherwise use its best efforts to comply in
all material respects with all applicable rules and regulations of the SEC
relating to such registration and the distribution of the securities being
offered and make generally available to its securities holders earnings
statements satisfying the provisions of Section 10(a) of the Securities Act;
(ix) subject to the proviso in Section 4(a)(v),
use its reasonable best efforts to cause the Registrable Securities covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities
(other than as may be required by the governmental agencies or authorities of
any foreign jurisdiction and other than as may be required by a law applicable
to a selling Holder by reason of its own activities or business other than the
sale of Registrable Securities);
(x) provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement;
(xi) in the event of the issuance of any stop
order suspending the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or suspending the
qualification of any Common Stock included in such Registration Statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of each order; and
(xii) obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as the Holders
of a majority of the Registrable Securities covered by the Registration
Statement reasonably request.
As a condition precedent to the participation in any
registration hereunder, the Company may require each seller of Registrable
Securities as to which any such registration is being effected to furnish to the
Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request to comply
with the applicable provisions of the Securities Act.
(b) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4(a)(ii), such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the then current Prospectus until (i) such Holder is
advised in writing by the Company that a new Registration Statement covering the
offer of Registrable Securities has become effective under the Securities Act or
(ii) such Holder receives copies of any required supplemented or amended
Prospectus, or until such Holder is advised in writing by the Company that the
use
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<PAGE>
of the Prospectus may be resumed. If so directed by the Company, on the
happening of such event, the Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including all registration and
filing fees, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications or registrations (or the obtaining of exemptions therefrom)
of the Registrable Securities), printing expenses (including expenses of
printing Prospectuses), messenger and delivery expenses, fees and disbursements
of its counsel and its independent certified public accountants, securities acts
liability insurance (if the Company elects to obtain such insurance), fees and
expenses of any special experts retained by the Company in connection with any
registration hereunder, fees and expenses of other Persons retained by the
Company and fees and expenses in connection with any review of the underwriting
arrangements by the NASD (all such expenses being referred to as "Registration
Expenses"), shall be borne by the Company; provided, that Registration Expenses
shall not include any fees and expenses of counsel for the Holders,
out-of-pocket expenses incurred by the Holders and underwriting discounts,
commissions or fees attributable to the sale of the Registrable Securities.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities (and its Affiliates,
partners, shareholders, officers and directors), and each Person who controls
such Holder (within the meaning of the Securities Act), against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and reasonable legal fees and expenses) resulting from any untrue
statement or alleged untrue statement of a material fact in, or any omission or
alleged omission of a material fact required to be stated in, any Registration
Statement or Prospectus or necessary to make the statements therein (in the case
of a Prospectus in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any
underwriters expressly for use therein. The Company will also indemnify
underwriters participating in the distribution, their officers, directors,
employees, partners and agents, and each Person who controls such underwriters
(within the meaning of the Securities Act), to the same extent as provided above
in this Section 6(a) with respect to the indemnification of the Holders of
Registrable Securities, if so requested.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each such Holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law, but without
duplication, the Company, its Affiliates, officers, directors, stockholders,
employees, advisors and agents, and each Person who controls the Company (within
the meaning of the Securities Act), against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement or
alleged untrue statement of material fact in, or any omission or alleged
omission of a material fact required to be stated in, the Registration Statement
or Prospectus or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is contained in any information
or affidavit so furnished in writing by such Holder to the Company specifically
for inclusion therein. The Holders participating in any Registration Statement
will also indemnify underwriters participating in the distribution, their
officers, directors, employees, partners and agents, and each Person who
controls such underwriters (within the meaning of the Securities Act), to the
same extent as provided above in this Section 6(b) with respect to the
indemnification of the Company, if so requested. The Company and the other
Persons described above in this Section 6(b) shall be entitled to receive
indemnities from underwriters participating in
-5-
<PAGE>
the distribution to the same extent as provided above with respect to
information furnished in writing by such Persons specifically for inclusion in
any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel of such indemnifying party's choice; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in (but not control) the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such
indemnified Person unless (A) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to the
indemnified party in a timely manner or (B) in the reasonable judgment of any
such Person, based upon a written opinion of its counsel, a conflict of interest
may exist between such Person and the indemnifying party with respect to such
claims (in which case, if the Person notifies the indemnifying party in writing
that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). No indemnifying party will
be subject to any liability for any settlement made without its consent. No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of the claim will not
be obligated to pay the fees and expenses of more than one counsel (except one
local counsel if required in a specific instance) for all parties indemnified by
such indemnifying party with respect to such claim.
(d) Contribution. If for any reason the indemnification
provided for in Section 6(a) or Section 6(b) is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Section 6(a) and
Section 6(b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement or the omission or alleged omission relates
to information supplied by the indemnifying party or parties on the one hand, or
the indemnified party or parties on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. In no event shall any participating Holder be
required to contribute any amount in excess of the proceeds received by such
Holder from the Registrable Securities offered and sold by such Holder pursuant
to such Registration Statement.
7. Participation in Underwritten Registrations. No Person may
participate in any Underwritten Offering hereunder unless such Person (i) agrees
to sell such Person's Registrable Securities on the basis provided in any
customary underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Nothing in this
Section 7 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
8. Term of Agreement. This Agreement may be terminated at any
time by a written instrument signed by Holders of all of the Registrable
Securities then outstanding. Unless sooner terminated in accordance with the
preceding sentence, this Agreement shall terminate in its entirety on such date
as the Purchasers shall cease to be the Holders of all Registrable Securities.
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<PAGE>
9. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto 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 (b) shall not be assigned by operation of law or otherwise.
10. Amendment. The provisions of this Agreement, including the
provisions of this Section 10, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Registrable Securities then outstanding, and any such consent so obtained
shall be binding on all Holders of Registrable Securities.
11. 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 Purchaser: At the address given by such Purchaser on his
signature page to the Purchase Agreement.
if to the Company to: THCG, Inc.
650 Madison Avenue
New York, New York 10022
Attention: 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.
12. 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 except in regard to the parties indemnified pursuant to
Section 6, 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; however, any Affiliate
or Related Person of Greenwich which becomes a Holder of Registrable Securities
shall be entitled to the benefits of this Agreement.
13. 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.
14. 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.
15. Interpretation. The 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 or Exhibit, such reference shall be to a
Section or Exhibit to this Agreement unless otherwise indicated. Where the
reference "hereof," "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
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<PAGE>
"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.
16. Governing Law; Submission to Jurisdiction. 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. EACH OF THE
PARTIES HERETO IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE COUNTY OF NEW YORK AND ANY FEDERAL COURT SITTING IN THE
SOUTHERN DISTRICT OF THE STATE OF NEW YORK IN RESPECT OF ANY SUIT OR PROCEEDING
RELATED TO OR ARISING OUT OF THIS AGREEMENT. EACH PARTY HERETO ALSO HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO THE LAYING OF THE VENUE OF ANY SUCH SUIT OR
PROCEEDING IN ANY SUCH COURT AND FURTHER WAIVES ANY CLAIM THAT ANY SUCH SUIT OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
IN ADDITION TO ANY OTHER FORM OF SERVICE OF PROCESS AUTHORIZED BY LAW, SERVICE
OF PROCESS IN ANY SUIT OR PROCEEDING HEREUNDER SHALL BE SUFFICIENT IF MAILED TO
EACH PARTY HERETO AT THE ADDRESS SPECIFIED IN SECTION 11, AND SUCH SERVICE SHALL
CONSTITUTE "PERSONAL SERVICE" FOR PURPOSES OF SUCH SUIT OR PROCEEDING.
17. Waiver of Jury Trial. THE PURCHASERS AND THE COMPANY
IRREVOCABLY WAIVE, 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.
***
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Tomas Haendler
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Jonathon Art
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Ilan Kaufthal
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-11-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ James D. Halper
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-12-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Daniel Schur
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-13-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Robert Friedman
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-14-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ James K. Rosenthal
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-15-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Evan M. Marks
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-16-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser: LE HAGEN PARTNERS
By: /s/ LeHagen Partners
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_____________________
Services, Inc.)
By: /s/ Adi Raviv
-----------------------
Authorized Officer
-17-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Stanley Stern
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-18-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Yaron Eitan
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-19-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Anders Brag
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-20-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Ian Berkowitz
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-21-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Mandel Benyamin
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-22-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Henry Klein
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-23-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Larry W. Smith
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-24-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Edward A. Tedeschi
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-25-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Michael Gegenneimer
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-26-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Betty R. Rauch
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-27-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Abraham Schlussel
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-28-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Jeffrey D. Heilpern
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-29-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Jack Silver
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-30-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser: MODAN ASSOCIATES
By: /s/ Daniel E. Straus
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-31-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Registration Rights Agreement to be duly executed on its behalf as of the day
and year first above written.
Purchaser:
By: /s/ Daniel E. Straus
------------------------------------
Name:
Social Security Number or other Taxpayer
Identification Number:
---------------------------------------
Address:_______________________________
---------------------------------------
THCG, Inc. (formerly Walnut Financial Facsimile No.:_________________________
Services, Inc.)
By: /s/ Adi Raviv
---------------------------
Authorized Officer
-32-
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of December 29, 1999, (the "Effective Date") between THCG,
Inc., a Utah corporation (the "Corporation"), and Larry Smith, Ed Tedeschi and
Michael Gegenheimer (collectively, the "Stockholders"), which Stockholders are
all of the stockholders of Mercury Coast Inc., a Delaware corporation ("Mercury
Coast"), immediately prior to the consummation of the merger contemplated by the
Merger Agreement (as defined below).
Pursuant to an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement") by and among the Corporation, Coast
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Corporation, Mercury Coast and the Stockholders, the Corporation is acquiring by
merger all of the issued and outstanding capital stock of Mercury Coast.
Capitalized terms used herein and not otherwise defined have the meanings
assigned to them in Merger Agreement.
The Stockholders will be the beneficial owners of the
Registrable Shares (as defined below) pursuant to the transactions contemplated
in the Merger Agreement. The Corporation and the Stockholders deem it to be in
their respective best interests to set forth the rights of the Stockholders in
connection with the Registrable Shares.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the Corporation and the
Investor Stockholders, intending to be legally bound, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, par value $0.01
per share, of the corporation.
"Management Shares" shall mean at any time those shares of
Common Stock owned by Joseph D. Mark, Adi Raviv or Shai Novik, or trusts for the
benefits of members of their immediate family.
"Other Shares" shall mean at any time those shares of Common
Stock which do not constitute Primary Shares, Registrable Shares or Management
Shares.
"Primary Shares" shall mean at any time the authorized but
unissued shares of Common Stock or shares of Common Stock held by the
Corporation in its treasury.
<PAGE>
"Registrable Shares" shall mean the shares of Common Stock
held by the Stockholders which constitute Restricted Shares.
"Restricted Shares" shall mean the shares of Common Stock any
other securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof, in
any case, which are held by the Stockholders and which have not theretofore been
sold to the public pursuant to a registration statement under the Securities Act
or pursuant to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto
(such as Rule 144A).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
SECTION 2. Piggyback Registration.
(a) If the Corporation at any time proposes for any reason to
register Primary Shares or Other Shares under the Securities Act (other than on
Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms
thereto), and such registration also includes Management Shares, it shall
promptly give written notice to the Stockholders of its intention so to register
the Primary Shares or Other Shares and, upon the written request, given within
30 days after delivery of any such notice by the Corporation, of any Stockholder
to include in such registration Registrable Shares (which request shall specify
the number of Registrable Shares proposed to be included in such registration),
the Corporation shall use its best efforts to cause all such Registrable Shares
to be included in such registration on the same terms and conditions as the
securities otherwise being sold in such registration. Notwithstanding the
foregoing, if the managing underwriter advises the Corporation that the
inclusion of all Registrable Shares, Primary Shares, Other Shares and Management
Shares proposed to be included in such registration would interfere with the
successful marketing (including pricing) of such shares, then the number of
Primary Shares, Registrable Shares, Other Shares and Management Shares proposed
to be included in such registration shall be included in the following order:
(i) first, the Primary Shares; and
(ii) second, the Management Shares, Other Shares
and the Registrable Shares held by the Stockholders requested to be
included in such registration, pro rata in accordance with the number
of shares proposed to be included in the registration; provided,
however, that to the extent the Other Shares consist of shares owned by
Greenwich Street Capital Partners II, L.P., GSCP Offshore Fund, L.P.,
Greenwich Fund, L.P., Greenwich Street Employees Fund, L.P. or TRV
Executive Fund, L.P., such Other Shares shall have priority and shall
not be cut back on a pro rata basis.
(b) No Stockholder may participate in any
underwritten offering hereunder unless such Stockholder (i) agrees to
sell such Stockholder's Registrable Shares on the basis provided in any
underwriting arrangements approved by the
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<PAGE>
Company and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Nothing in
this Section 2(b) shall be construed to create any additional rights
regarding the registration of Registrable Shares otherwise than as set
forth herein.
(c) With respect to any registration filed or to be
filed pursuant to Section 2 hereof, the Company shall be entitled to
(i) cause such registration statement to be withdrawn and the effective
ness of such registration statement terminated or (ii) in the event no
such registration statement has yet been filed or declared effective,
to delay filing or effectiveness of any such registration statement, in
either case without liability to the Stockholders.
(d) Anything contained in this Agreement
notwithstanding, when in the opinion of outside counsel to the Company,
registration of the Registrable Shares is not required by the
Securities Act and other applicable securities laws in connection with
a proposed sale of such Registrable Shares, the Stockholders shall have
no rights pursuant to Section 2 hereof to request a piggyback
registration in connection with such proposed sale and the Company
shall promptly provide to the transfer agent and the Stockholder's or
Stockholders' broker or brokers in connection with any sale transaction
an opinion to the effect set forth above and all legends related to
restrictions on transfer shall be removed from the certificates
evidencing the Registrable Shares.
SECTION 3. Preparation and Filing. If and whenever the
Corporation is under an obligation pursuant to the provisions of this Agreement
to effect the registration of any Registrable Shares, the Corporation shall, as
expeditiously as practicable:
(a) furnish, at least ten business days before filing
a registration statement that registers such Registrable Shares, a
prospectus relating thereto and any amendments or supplements relating
to such a registration statement or prospectus, to counsel selected by
the Stockholders (the "Stockholders' Counsel"), copies of all such
documents proposed to be filed (it being understood that such
ten-business-day period need not apply to successive drafts of the same
document proposed to be filed so long as such successive drafts are
supplied to the Stockholders' Counsel in advance of the proposed filing
by a period of time that is customary and reasonable under the
circumstances);
(b) notify in writing the Stockholders' Counsel
promptly (i) of the receipt by the Corporation of any notification with
respect to any comments by the Commission with respect to such
registration statement or prospectus or any amendment or supplement
thereto or any request by the Commission to amend or supplement the
same or for additional information with respect thereto, (ii) of the
receipt by the Corporation of any notification with respect to the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any
amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) of the receipt by the Corporation
of any notification with respect
-3-
<PAGE>
to the suspension of the qualification of such Registrable Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes;
(c) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the Stockholders reasonably request and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the holders of such Registrable Shares to consummate the
disposition in such jurisdictions of such Registrable Shares; provided,
however, that the Corporation will not be required to qualify generally
to do business, subject itself to general taxation or consent to
general service of process in any jurisdiction where it would not
otherwise be required to do so but for this paragraph (c);
(d) furnish to the holders of such Registrable Shares
such number of copies of a summary prospectus or other prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents (such as a term sheet)
as the holders of such Registrable Shares may reasonably request in
order to facilitate the public sale or other disposition of such
Registrable Shares;
(e) notify the holders of such Registrable Shares on
a timely basis at any time when a prospectus relating to such
Registrable Shares is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(f) make available for inspection by the holders of
such Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by the holders of such Registrable
Shares or any underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents
and properties of the Corporation (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Corporation's officers,
directors and employees to supply all information (together with the
Records, the "Information") reasonably requested by any holders of such
Registrable Shares in connection with such registration statement;
provided, however, that any of the Information which the Corporation
determines in good faith to be confidential, and of which determination
the Inspectors are so notified, shall not be disclosed by the
Inspectors unless (i) the disclosure of such Information is necessary
to avoid or correct a misstatement or omission in the registration
statement, (ii) the release of such Information is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction or
(iii) such Information has been made generally available to the public;
and provided further, however, that the holders of Registrable Shares
agree that they will, upon learning that disclosure of such Information
is sought in a court of competent jurisdiction, give notice to the
Corporation and allow the Corporation, at the Corporation's expense, to
undertake appropriate action to prevent disclosure of the Information
deemed confidential;
-4-
<PAGE>
(g) use its best efforts to obtain from its
independent certified public accountants "comfort" letters in customary
form and at customary times and covering matters of the type
customarily covered by cold comfort letters;
(h) use its best efforts to obtain from its counsel
an opinion or opinions in customary form;
(i) provide a transfer agent and registrar (which may
be the same entity and which may be the Corporation) for such
Registrable Shares;
(j) list such Registrable Shares on any national
securities exchange on which any shares of the Common Stock are listed
or, if the Common Stock is not listed on a national securities
exchange, use its best efforts to qualify such Registrable Shares for
inclusion on the Nasdaq National Market System or the Nasdaq SmallCap
Market or such other national securities exchange as the Investor shall
reasonably request;
(k) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and the securities
commission or other regulatory authority of any relevant state or other
jurisdiction and make available to its securityholders, as soon as
reasonably practicable, earnings statements (which need not be audited)
covering a period of 12 months beginning within three months after the
effective date of the registration statement, which earnings statements
shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(l) use its best efforts to take all other steps
reasonably necessary to effect the registration of such Registrable
Shares contemplated hereby.
SECTION 4. Expenses. All expenses incurred by the Corporation
in complying with Section 2, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws, printing and distribution expenses, "road show"
and other marketing expenses, fees and expenses of the Corporation's counsel and
accountants and fees and expenses of the Stockholders' Counsel (but not the
Inspectors), shall be paid by the Corporation; provided, however, that all
underwriting discounts and selling commissions applicable to the Registrable
Shares shall not be borne by the Corporation but shall be borne by the holders
of Registrable Shares.
SECTION 5. Indemnification. In connection with any
registration of any Registrable Shares under the Securities Act pursuant to this
Agreement, the Corporation shall indemnify and hold harmless the holders of
Registrable Shares (and their heirs and personal representatives), each
underwriter, broker or any other person acting on behalf of the holders of
Registrable Shares and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
registration statement under which
-5-
<PAGE>
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or any violation by the Corporation of the Securities Act or state
securities or blue sky laws applicable to the Corporation in connection with
such registration or qualification under such state securities or blue sky laws;
and shall reimburse the holders of Registrable Shares (and their heirs and
personal representatives), such underwriter, such broker or such other person
acting on behalf of the holders of Registrable Shares and each such controlling
person for any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document
incident to registration or qualification of any Registrable Shares in reliance
upon and in conformity with written information furnished to the Corporation
through an instrument duly executed by the holders of Registrable Shares or
underwriter specifically for use in the preparation thereof.
In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, the holders of Registrable
Shares shall indemnify and hold harmless and reimburse (in the same manner and
to the same extent as set forth in the preceding paragraph of this Section 5)
the Corporation, each director of the Corporation, each officer of the
Corporation who shall sign such registration statement, each underwriter, broker
or other person acting on behalf of the holders of Registrable Shares and each
person who controls any of the foregoing persons within the meaning of the
Securities Act with respect to any statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein or
otherwise filed with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Corporation or such underwriter through an
instrument duly executed by the holders of Registrable Shares specifically for
use in connection with the preparation of such registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document;
provided, however, that the maximum amount of liability in respect of such
indemnification shall be limited, in the case of the Stockholders, to an amount
equal to the net proceeds actually received by the Stockholders from the sale of
Registrable Shares effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 5, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the
-6-
<PAGE>
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available to
such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or action involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section 5, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any one counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 5. Anything in this
Section 5 to the contrary notwithstanding, (i) an indemnifying party shall not
settle any claim or action or consent to the entry of any judgment therein
unless the indemnified party is fully released and discharged as a result
thereof, and (ii) an indemnified party shall not settle any claim or action or
consent to the entry of any judgment without the prior written consent of the
indemnifying party. No party who has been guilty of fraudulent misrepresentation
within the meaning of Section 11(a) of the Securities Act shall be entitled to
contribution.
If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the maximum amount which any Investor shall be
required to contribute pursuant to the provisions of this paragraph shall be
limited to an amount equal to the net proceeds actually received by such
Investor from the sale of Registrable Securities effected pursuant to such
registration.
SECTION 6. Information by Holder. The Stockholders proposing
to sell Registrable Shares pursuant to a registration to which this Agreement
relates shall furnish to the Corporation such written information regarding
himself and the distribution proposed by him as the Corporation may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
SECTION 7. Termination. This Agreement shall terminate and be
of no further force or effect when there shall not be any Restricted Shares.
-7-
<PAGE>
SECTION 8. Successors and Assigns. This Agreement shall bind
and inure to the benefit of the Corporation, the Stockholders (and their heirs
and personal representatives) and, subject to Section 12, the respective
successors and assigns of the Corporation and the Stockholders.
SECTION 9. Assignment. This Agreement may not be assigned by
the Stockholders without the prior written consent of the Corporation, which
consent shall not be unreasonably withheld.
SECTION 10. Entire Agreement. This Agreement and the Merger
Agreement, and the other writings referred to therein or delivered pursuant
thereto, contain the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.
SECTION 11. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address, facsimile number or person's
attention as may hereafter be designated in writing given as aforesaid by such
party to the other parties:
(i) if to the Corporation, to:
THCG, Inc.
650 Madison Avenue
21st Floor
New York, New York 10022
Attention: Joseph D. Mark
Telecopier: 9212) 223-0161
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
(ii) if to the Stockholders:
at the most current address given by such
Stockholder to the Corporation, in
accordance with the provisions of this
Section 11, which address initially is, with
respect to each Stockholder, listed on
Schedule 1 attached hereto.
with a copy to:
-8-
<PAGE>
Law Offices of Steven E. Rosenfeld, P.C.
369 Lexington Avenue
New York, New York 10017
Attention: Steven E. Rosenfeld, Esq.
Telecopier: (212) 867-1914
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopier, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 12. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision be waived, except pursuant to a writing signed by the Corporation and
the Stockholders.
SECTION 13. Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
SECTION 14. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
SECTION 15. Headings. The headings of the various sections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement.
SECTION 16. Remedies. The Corporation agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees that in the
event of any breach or threatened breach by the Corporation of any of its
obligations under this Agreement, the Investor shall be entitled, in addition to
all other remedies, to a decree for specific performance, injunctive relief and
other forms of equitable relief without posting any bond and without proving
that damages would be an inadequate remedy.
SECTION 17. 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.
SECTION 18. Waiver of Jury Trial. EACH OF THE PARTIES HERETO
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.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
THCG, INC.
By: /s/ Joseph D. Mark
-------------------------------
Name: Joseph D. Mark
Title: Co-Chief Executive Officer
/s/ Larry Smith
----------------------------------
Larry Smith
/s/ Ed Tedeschi
----------------------------------
Ed Tedeschi
/s/ Michael Gegenheimer
----------------------------------
Michael Gegenheimer
-10-
<PAGE>
SCHEDULE 1
Larry Smith
222 West 14th Street, Apt. 9E
New York, New York 10011
Ed Tedeschi
17 West 76th Street
New York, New York 10023
Michael Gegenheimer
401 East 34th Street, N19B
New York, New York 10016
-11-
Exhibit 10.3
[EXECUTION COPY]
Inland Financial Corporation
9207 East Mission, Suite A
Spokane, Washington 99206
As of November 1, 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 November 1, 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 Executive
Officers, or, as applicable, Chief Executive Officer, or the Chief Operating
Officer of
<PAGE>
the Company or of Walnut Financial Services, Inc. ("Walnut"). 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 Walnut'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. 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, Walnut 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, Walnut
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-
<PAGE>
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 Walnut; 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 Walnut,
or upon direction or authority of the Co-Chief Executive Officers or, as
applicable, Chief Executive Officer of the Company or of Walnut, or upon the
advice of counsel for the Company or Walnut, 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 Walnut.
(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 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, Walnut and the
Company's affiliates and their customers and
-3-
<PAGE>
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, 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, Walnut or the Company's affiliates to terminate
his, her, or its relationship with the Company, Walnut 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, Walnut 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 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, Walnut 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; (iii) is independently developed by CAG or Mauer other
than in connection with the consulting engagement hereunder; or (iv) is obtained
by
-4-
<PAGE>
CAG or Mauer in its or his capacity as an investor in Walnut or Walnut'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, Walnut or the Company's
affiliates. All confidential records shall be and remain the sole property of
the Company, or, as applicable, Walnut 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, Walnut 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 Walnut in good faith.
-5-
<PAGE>
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:
Inland Financial Corporation
c/o Walnut Financial Services, 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.
-6-
<PAGE>
(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, 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.
-7-
<PAGE>
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.
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.
-8-
<PAGE>
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: /s/ Joel Kanter
------------------------------
Name: Joel Kanter
Title: Vice President
Accepted and Agreed:
Chicago Advisory Group
By: /s/ Joshua S. Kanter
---------------------------
Name: Josuha S. Kanter
Title: Vice President
Robert Mauer hereby accepts, and agrees to abide by, the terms
of Section 5 of the Agreement.
/s/ Robert Mauer
---------------------------------
Robert Mauer
Exhibit 10.4
[EXECUTION COPY]
Walnut Financial Services, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
As of November 1, 1999
Joel Kanter
Windy City, Inc.
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Dear Mr. Kanter:
Walnut Financial Services, 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 November 1, 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 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
<PAGE>
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. 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
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<PAGE>
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 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,
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<PAGE>
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 the Company; (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.
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<PAGE>
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 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:
Walnut Financial Services, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: (212) 223-0161
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<PAGE>
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
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.
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<PAGE>
(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 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.
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<PAGE>
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,
WALNUT FINANCIAL SERVICES, INC.
By: /s/ Joel Kanter
--------------------------------
Name: Joel Kanter
Title: President
Accepted and Agreed:
Windy City, Inc.
By: /s/ Joshua S. Kanter
----------------------------
Name: Joshua S. Kanter
Title: Vice President
Joel Kanter hereby accepts, and agrees to abide by, the terms
of Section 5 of the Agreement.
/s/ Joel Kanter
-----------------------------------
Joel Kanter
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Exhibit 10.5
[EXECUTION COPY]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
November 1, 1999 (the "Effective Date"), by and between WALNUT FINANCIAL
SERVICES, INC., a Utah 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.
(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
<PAGE>
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 two options to
purchase 250,000 and 200,000 shares, respectively, of the common stock of the
Company, in accordance with and subject to the provisions of The 1999 Walnut
Financial Services, Inc. Stock Incentive Plan and the grants 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 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.
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<PAGE>
(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 Utah law.
(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
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<PAGE>
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.
(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.
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<PAGE>
(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 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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<PAGE>
(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 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:
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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; 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
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<PAGE>
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 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,
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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
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
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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:
Walnut Financial Services, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Adi Raviv
Facsimile No.: (212) 223-0161
To the Executive:
Joseph Mark
Walnut Financial Services, 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
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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 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.
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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.
WALNUT FINANCIAL SERVICES, INC.
By: /s/ Joel S. Kanter
-------------------------------------
Name: Joel S. Kanter
Title: President and Chief Executive
Officer
/s/ Joseph Mark
---------------------------------------
Joseph Mark
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Exhibit 10.6
[EXECUTION COPY]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
November 1, 1999 (the "Effective Date"), by and between WALNUT FINANCIAL
SERVICES, INC., a Utah 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 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
<PAGE>
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 two options to
purchase 250,000 and 200,000 shares, respectively, of the common stock of the
Company, in accordance with and subject to the provisions of The 1999 Walnut
Financial Services, Inc. Stock Incentive Plan and the grants 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 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.
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(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 Utah 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
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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.
(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.
(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.
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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 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.
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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; 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
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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 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.
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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.
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.
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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:
Walnut Financial Services, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: (212) 223-0161
To the Executive:
Adi Raviv
Walnut Financial Services, 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,
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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 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.
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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.
WALNUT FINANCIAL SERVICES, INC.
By: /s/ Joel S. Kanter
-----------------------------
Name: Joel S. Kanter
Title: President and Chief
Executive Officer
/s/ Adi Raviv
--------------------------------
Adi Raviv
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Exhibit 10.7
[EXECUTION COPY]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
November 1, 1999 (the "Effective Date"), by and between WALNUT FINANCIAL
SERVICES, INC., a Utah 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 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
<PAGE>
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
shares of restricted stock in accordance with and subject to the provisions of
The 1999 Walnut Financial Services, Inc. Stock Incentive Plan and the grant
thereunder, as provided for in the Amended and Restated Agreement and Plan of
Merger By and Among Walnut Financial Services, Inc., Tower Hill Acquisition
Corp. and Tower Hill Securities, Inc., dated as of August 5, 1999.
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 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.
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(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 Utah 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.
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(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 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
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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 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.
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(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 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
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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 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
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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 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
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<PAGE>
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
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
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<PAGE>
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:
Walnut Financial Services, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Joseph Mark
Facsimile No.: (212) 223-0161
To the Executive:
Shai Novik
Walnut Financial Services, 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
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<PAGE>
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 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.
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<PAGE>
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.
WALNUT FINANCIAL SERVICES, INC.
By: /s/ Joel S. Kanter
---------------------------------------
Name: Joel S. Kanter
Title: President and Chief Executive
Officer
/s/ Shai Novik
---------------------------------------
Shai Novik
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Exhibit 10.8
AMENDED AND RESTATED
RESTRICTED STOCK GRANT AGREEMENT
This Agreement, dated as of the 2nd day of November, 1999,
between THCG, Inc. (the "Company") and Shai Novik (the "Participant"), entered
into pursuant to the 1999 Walnut Financial Services, Inc. Stock Incentive Plan,
as the same may be amended from time to time (the "Plan"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings given to
them under the Plan.
W I T N E S S E T H
WHEREAS, as memorialized in a letter to the Participant from Adi
Raviv of Tower Hill Securities, Inc. ("Tower Hill"), dated February 26, 1999,
the Participant accepted the position of Managing Director and Chief Operating
Officer of Tower Hill, the terms of which employment included, among other
things, the granting of options to purchase up to 10% of the outstanding equity
of Tower Hill in two installments of 5% each;
WHEREAS, the Participant executed an Agreement for Options
Grant, dated as of April 21, 1999 (the "Option Agreement"), pursuant to which he
was granted an option to purchase 5% of the equity of Tower Hill, at a strike
price of $0.01, to vest in monthly installments pro rata over 24 months starting
on March 1, 1999 and ending February 1, 2001, and a second option to purchase an
additional 5% of such equity, at a strike price of $0.01, to vest in monthly
installments pro rata over 60 months starting on March 1, 1999 and ending
February 1, 2004;
WHEREAS, Tower Hill entered into that certain Amended and
Restated Agreement and Plan of Merger by and among Walnut Financial Services,
Inc., Tower Hill Acquisition Corp., and Tower Hill, dated as of August 5, 1999
(the "Merger Agreement"), whereby outstanding shares of Tower Hill would be
converted into shares of Company;
WHEREAS, Section 2.1(c) of the Merger Agreement provides for the
cancellation of any options to acquire shares of Tower Hill held by the
Participant, including those pursuant to the Option Agreement or any other
agreement, and for the issuance of Restricted Stock of the Company to the
Participant;
WHEREAS, the Participant agreed to the cancellation of the
Option Agreement and each option granted thereunder or pursuant to any other
agreement in exchange for a grant of shares of Restricted Stock pursuant to the
Plan;
<PAGE>
WHEREAS, effective as of November 1, 1999, the Participant
received such a grant pursuant to the Plan (the "November 1st Grant");
WHEREAS, the Committee and the Participant have agreed to amend
and restate certain terms of the November 1st Grant;
WHEREAS, the Plan requires that such grant be evidenced by a
written agreement, executed by the Company and the Participant, containing such
restrictions, terms and conditions as may be required by the Plan and the
Committee; and
WHEREAS, this Amended and Restated Agreement (this "Agreement")
has been approved by the Committee to evidence the grant made to the
Participant;
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter set forth, the Participant and the Company hereby amend
and restate the November 1st Grant in its entirety and agree as follows:
1. The Company, effective as of the Date of the Grant, hereby
grants to the Participant 372,281 shares of Restricted Stock (the "Grant"), in
two classes of 204,755 and 167,526 shares (respectively, the "First Class" and
the "Second Class") which shall be subject to the restrictions, terms and
conditions set forth below and in the Plan. The Grant is issued in replacement
of the options granted pursuant to the Option Agreement or any other agreement,
which are hereby cancelled and without further force or effect.
2. The Issue Date for each of the First Class and the Second
Class of the Grant is November 1, 1999.
3. (a) The vesting dates (each, a "Vesting Date") with respect
to each class are as follows:
(i) That number of shares of Restricted Stock pursuant to the
First Class that equals the total number of First Class shares
multiplied by a fraction the numerator of which is the total
number of whole months from March 1, 1999 to the Issue Date and
the denominator of which is 24 shall be vested on the Issue
Date; the balance of the First Class shares of Restricted Stock
shall vest in four equal three-month ("quarterly") installments,
commencing on the first quarterly anniversary of the Issue Date
(February 1, 2000) and ending on the one-year anniversary of the
Issue Date.
(ii) That number of shares of Restricted Stock pursuant to the
Second Class that equals the total number of Second Class shares
multiplied by a fraction the numerator of which is the total
number of whole months from March 1, 1999 to the Issue Date and
the denominator of which is 60 shall be vested on the Issue
Date; the balance of the Second Class shares of Restricted Stock
shall vest in equal quarterly installments, commencing on first
quarterly anniversary of the Issue Date and ending on the
three-year anniversary of the Issue Date.
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<PAGE>
(b) Until a share of Restricted Stock vests, the Participant
acknowledges that the Participant may not, and the Participant agrees that the
Participant shall not, transfer the Participant's rights to such share of
Restricted Stock or to any cash payment related thereto. Until a share of
Restricted Stock vests, no attempt to transfer such shares or the right to any
cash payment related thereto, whether by transfer, pledge, hypothecation or
otherwise and whether voluntary or involuntary, by operation of law or
otherwise, shall vest the transferee with any interest or right in or with
respect to such share of Restricted Stock or such cash payment, but immediately
upon any such attempt, the portion of the Grant represented by such share of
Restricted Stock and any related cash payment shall be canceled, and the
transfer shall be of no force or effect.
(c) Upon a Termination of Employment for any reason, other than
for Cause, during the six-month period following the occurrence of a Change in
Control at any time after the Effective Time, all such shares of Restricted
Stock which have not theretofore vested, or been canceled and forfeited pursuant
to any provision hereof, immediately shall vest.
(d) Except as provided in Section 3(c) hereof, the Participant
must be employed by the Company on each subsequent quarterly anniversary of the
Issue Date for the next installment of shares of Restricted Stock to vest on
such Vesting Date; provided, however, if the Participant's Employment is
Terminated at any time prior to the next Vesting Date his shares of Restricted
Stock shall vest ratably with respect to that Vesting Date, such that the total
number of shares of Restricted Stock that would have vested on such date shall
be multiplied by a fraction the numerator of which is the total number of days
on which he was employed during the quarter in which the Participant's
Termination of Employment occurred and the denominator of which is the total
number of days in such quarter and the resulting number shall be the number of
shares of Restricted Stock that vest as of such Termination of Employment.
(e) Except as provided in Section 3(c) hereof, the Participant's
Termination of Employment with the Company (other than on account of death or
Disability) shall cause the immediate forfeiture of all shares of Restricted
Stock that have not vested as of the date of such Termination of Employment.
(f) Upon the Participant's Termination of Employment with the
Company on account of death or Disability, all such shares of Restricted Stock
which have not theretofore vested, or been canceled and forfeited pursuant to
any provision hereof, immediately shall vest.
4. (a) Reasonably promptly after the Issue Date, with respect to
any shares of Restricted Stock that have not theretofore vested or been
forfeited, the Company shall issue stock certificates, registered in the name of
the Participant, evidencing such shares of Restricted Stock; provided, that the
Company shall not cause to be issued such a stock certificate unless it has
received a stock power endorsed by the Participant in blank with respect to such
shares of Restricted Stock. Each such certificate, in addition to bearing such
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<PAGE>
legends as the Company deems necessary or appropriate to comply with federal and
applicable state securities laws, shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and conditions
(including forfeiture and restrictions against transfer) contained in
the 1999 Walnut Financial Services, Inc. Stock Incentive Plan and an
Agreement entered into between the registered owner of such shares and
THCG, Inc. A copy of the Plan and Agreement is on file in the office of
the Secretary of THCG, Inc., 650 Madison Avenue, 21st Floor, New York,
New York 10022."
Such legend shall not be removed from the certificates evidencing such shares of
Restricted Stock until the shares vest.
(b) Each certificate issued pursuant to Section 4(a) hereof,
together with the stock powers relating to such shares of Restricted Stock,
shall be deposited by the Company with a custodian designated by the Company.
The Company may designate itself as custodian hereunder. The Company shall cause
such custodian to issue to the Participant a receipt evidencing the certificates
held by it which are registered in the name of the Participant.
(c) Reasonably promptly after any such shares of Restricted
Stock vest pursuant to Section 3 hereof, the Company shall cause to be issued
certificates evidencing such shares of Restricted Stock, free of the legend
provided in Section 4(a) hereof, but including such legends as the Company deems
necessary or appropriate to comply with federal and applicable state securities
laws, and shall cause such certificates to be delivered to the Participant (or
such Participant's legal representative, beneficiary or heir), together with any
other property directly related to such vested shares of Restricted Stock of the
Participant held by the custodian pursuant to Section 9 hereof.
(d) No adjustments shall be made for dividends or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued in respect of the Grant.
5. The Participant acknowledges that: (a) this Agreement shall
neither require the Committee to make a grant to the Participant at any other
time nor preclude the Committee from making subsequent grants to the
Participant; (b) the Plan and this Agreement are not a contract of employment
and the terms of the Participant's employment shall not be affected in any way
by the Plan, this Agreement or related instruments; (c) the establishment of the
Plan and the grant made by this Agreement shall not be construed as conferring
any legal rights upon the Participant for continuation of employment or as
interfering with or limiting the right of the Company or the Subsidiary by whom
the Participant is employed to terminate the Participant's employment at any
time, for any reason, for or without Cause, and without regard to the effect
that such termination might have upon the Participant as a Participant; (d) any
grant, determination, construction, prescription or other act of the Committee
shall be finally and conclusively binding upon the Participant and all other
4
<PAGE>
persons; (e) no member of the Committee or the Board of Directors shall be
liable for any action or determination made in good faith with respect to the
Plan or the grant made by this Agreement; (f) the Board of Directors may amend,
suspend or terminate the Plan or any part thereof at any time provided that,
except as otherwise provided in the Plan, no amendment, suspension or
termination shall be made or effected which would adversely affect any right of
the Participant with respect to the grant made by this Agreement without the
written consent of the Participant and (g) the Participant has read the Plan and
agrees to be bound by all the provisions thereof. In the event that any
provision herein is inconsistent with the Plan, the terms of the Plan shall
govern.
6. (a) Notwithstanding anything herein to the contrary, the
Company shall not be obligated to issue or deliver or cause to be issued or
delivered any certificates evidencing shares of Restricted Stock awarded by this
Agreement unless and until the Company is advised by its counsel that the
issuance and delivery of such certificates are in compliance with all applicable
laws, regulations of governmental authority and the requirements of any exchange
or automated quotation system upon which shares of Company Stock are traded.
(b) The Company shall not be obligated to register any
securities pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) (the "Securities Act") or to take any other affirmative
action in order to cause the issuance and delivery of such certificates or the
making of such payment to comply with any such law, regulation or requirement.
7. (a) The Company agrees to make or cause to be made cash loans
to the Participant (the "Cash Loans") as necessary to satisfy, and equal to the
amount of, (i)(A) the federal, state and local taxes that the Company or an
Affiliate is required by law to withhold with respect to the Grant of shares of
Restricted Stock, or the vesting thereof, in accordance with the terms of this
Agreement minus (B) an amount equal to the sum of the after-tax proceeds of any
Cash Bonus or any other cash payment paid to the Participant by the Company
expressly for the purpose of satisfying all or a portion of the tax (including
estimated tax) liability to which such withholding relates and (ii)(A) the
income tax liability incurred by the Participant as a result of the Grant of
shares of Restricted Stock, or the vesting thereof, in accordance with the terms
of this Agreement, including the tax liability resulting from the Participant
making an election pursuant to Section 83(b) of the Internal Revenue Code of
1986, as amended, minus (B) an amount equal to the sum of (1) the after-tax
proceeds of any Cash Bonus, (2) the after-tax proceeds of any other cash payment
paid to the Participant by the Company and (3) any previous Cash Loan, where
such Cash Bonus, cash payment or Cash Loan is expressly for the purpose of
satisfying all or a portion of such tax liability. Cash Loans pursuant to clause
(a)(i) of this Section 7 shall be made immediately prior to the date such tax
withholding obligation must be satisfied. Cash Loans made pursuant to clause
(a)(ii) of this Section 7 shall be made no later than 5 days prior to the date
such tax liability is due (without regard to extensions). The term of each such
Cash Loan shall be three years and the Cash Loan shall bear interest to be paid
at maturity at a rate equal to the prime rate in effect at the time such loan is
issued to the Participant. Each such Cash Loan shall be secured by the shares of
Restricted Stock to which such Cash Loan relates, and in the event of default
the Company shall be entitled to receive from the Participant such shares of
Company Stock. The number of shares of Company Stock that the Company shall be
entitled to receive from the
5
<PAGE>
Participant in the event of default shall equal the quotient of the total amount
due and payable in respect of the defaulted Cash Loan over the Fair Market Value
of one share of Company Stock. Other terms of the Cash Loan shall be determined
by the Committee in its discretion as memorialized in a Promissory Note and
Pledge Agreement the execution of which by the Participant shall be a condition
precedent to the issuance of the Cash Loan, provided that the terms of such
Promissory Note and Pledge Agreement be reasonable and customary. In the event
of the Participant's Termination of Employment without cause prior to the
maturity date of any Cash Loans, the Company agrees that it will discharge the
Participant's obligations to repay to the Company any such Cash Loans that have
not so matured. The Participant and the Company agree that any such discharge
shall be treated as additional compensation income to the Participant for tax
purposes at the time of such discharge.
(b) The Participant agrees to pay to the Company or an Affiliate
of the Company, as the case may be, the amount of any taxes that the Company or
such Affiliate is required by law to withhold with respect to the Grant of
shares of Restricted Stock, or the vesting thereof, in accordance with the terms
of this Agreement. Such payment shall be due on the date the Company or such
Subsidiary is required by law to withhold such taxes. In the event that such
payment is not made when due, the Company or such Subsidiary shall have the
right (i) to retain, or sell with 10 days notice or such longer notice as may be
required by applicable law, a sufficient number of the shares of Restricted
Stock subject to any Grant made to the Participant in order to cover all or part
of the amount required to be withheld; (ii) to deduct, to the extent permitted
by law, from any cash payment due under the Grant made by this Agreement or from
any payment of any kind otherwise due to such person from the Company or any
Affiliate thereof all or a part of the amount required to be withheld; or (iii)
to pursue any other remedy at law or in equity. The Participant agrees that,
with respect to Cash Loans to be made pursuant to clause (a)(i) of this Section
7, the Company may directly apply such Cash Loans towards payment of the
withholding tax liability.
(c) The Participant hereby indemnifies the Company and any
officers or directors thereof with respect to any liability of the Company for
taxes, including withholding taxes, and including interest and penalties
thereon, arising with respect to the Grant of shares of Restricted Stock, or the
vesting or exercise thereof, other than (i) any such liability as to which a
Cash Loan is made, which Cash Loan is subject to the repayment terms set forth
in subsection (a) of this Section 7 and in the Promissory Note and Pledge
Agreement (ii) any such liability that arises if the Company determines, or that
would have arisen had the Company determined, its withholding liability by
reference to the vesting date of the Restricted Shares and (iii) any such
liability in excess of $150,000.
8. In addition to the remedies of the Company elsewhere provided
for herein, failure by the Participant (or beneficiary or permitted transferee)
to comply with any of the terms and conditions of the Plan or this Agreement,
unless such failure is remedied by the Participant (or beneficiary or permitted
transferee) within 30 days after having been notified of such failure by the
Committee, shall be grounds for the cancellation of the Grant, in whole or in
part, as the Committee, in its sole discretion, determines. Upon such
cancellation, the shares of Restricted Stock relating to that portion of the
Grant canceled shall be irrevocably forfeited.
9. (a) The Committee shall adjust any Grant as of the date of
the occurrence of any of the following events to reflect any dividend, stock
split, recapitalization, merger, consolidation, exchange of shares or similar
corporate change as the Committee may deem appropriate to prevent the
enlargement or dilution of the Participant's rights under the Grant. The
Participant will be notified of any adjustment made pursuant to this Section and
any such adjustment, or the failure to make such adjustment, shall be binding on
the Participant.
(b) Unless the Committee otherwise determines, where any
securities and other property, including cash dividends, result from any
dividend, stock split, recapitalization, merger, consolidation, combination,
exchange of shares or otherwise with respect to a share of Restricted Stock
which occurs after such share's Issue Date but prior to its Vesting Date, such
securities and other property will not vest until such share of Restricted Stock
vests and shall be promptly deposited with the custodian designated by the
Company to be held in custody in accordance with Section 4(b) hereof as though
such securities and other property were part of such share.
6
<PAGE>
10. Any notice that either party hereto or the Committee may be
required or permitted to give to the other with respect to the Plan or this
Agreement shall be in writing, and may be delivered personally or by mail,
postage prepaid, addressed as follows:
(a) if to the Company:
THCG, Inc.
650 Madison Avenue
21st Floor
New York, New York 10022
Attn: Co-Chief Executive Officer or General Counsel
(b) if to the Committee:
Compensation Committee of the Board of Directors
THCG, Inc.
650 Madison Avenue
21st Floor
New York, New York 10022
Attn: Committee Secretary
(c) if to the Participant:
Mr. Shai Novik
c/o THCG, Inc.
650 Madison Avenue
21st Floor
New York, New York 10022
or to such other address as the person to whom the notice is directed shall have
designated in writing to others.
11. This Agreement is made and accepted in the State of New
York. The laws of the State of New York (without reference to the principles of
conflict of laws) shall control the interpretation and performance of the terms
of the Plan and of this Agreement.
7
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Participant has set hereunto his hand and seal, all as of the day and year first
above written.
/s/ Shai Novik
------------------------------------
Participant
THCG, Inc.
By: /s/ Joseph D. Mark
---------------------------------
Name: Joseph D. Mark
Title: Co-Chief Executive Officer
8
Exhibit 10.9
FIRST AMENDMENT
TO
AMENDED AND RESTATED
RESTRICTED STOCK GRANT AGREEMENT
This First Amendment is entered into this 15th day of
December, 1999, by and between THCG, Inc. (the "Company"), and Shai Novik (the
"Participant").
WHEREAS, the Company and the Participant have entered into
that certain Amended and Restated Restricted Stock Grant Agreement between the
Company and the Participant, made as of November 2, 1999 (the "Amended and
Restated Agreement");
WHEREAS, the parties wish to amend the Amended and Restated
Agreement so that certain amendments of Section 3 thereof (which relates to the
vesting of the Participant's shares of Restricted Stock and the effect on such
vesting of a Termination of Employment) are incorporated therein.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived herefrom, the parties hereto agree that the Amended and Restated
Agreement is hereby amended as follows:
1. Sections 3(c), (d), (e) and (f) of the Amended and Restated
Agreement are hereby amended in their entirety to read as follows:
(c) Upon a Termination of Employment by the Company for any
reason other than for Cause, or by the Participant for Good
Reason (as defined in Paragraph 5(e) of that certain
Employment Agreement by and between Walnut Financial Services,
Inc. and the Participant, made as of November 1, 1999, as
amended by the First Amendment to Employment Agreement,
entered into as of December 15, 1999), or on account of death
or Disability, all such shares of Restricted Stock which have
not theretofore vested, or been canceled and forfeited
pursuant to any provision hereof, immediately shall vest.
(d) Except as provided in Section 3(c) hereof, the Participant
must be employed by the Company on each subsequent quarterly
anniversary of the Issue Date for the next installment of
shares of Restricted Stock to vest on such Vesting
<PAGE>
Date; provided, however, if the Participant's Employment is
Terminated at any time prior to the next Vesting Date his
shares of Restricted Stock shall vest ratably with respect to
that Vesting Date, such that the total number of shares of
Restricted Stock that would have vested on such date shall be
multiplied by a fraction the numerator which is the total
number of days on which he was employed during the quarter in
which the Participant's Termination of Employment occurred and
the denominator of which is the total number of days in such
quarter and the resulting number shall be the number of shares
of Restricted Stock that vest as of such Termination of
Employment.
(e) Intentionally omitted.
(f) Intentionally omitted.
IN WITNESS WHEREOF, Participant has signed his name and the
Company, by the signature of its duly authorized officer, has executed this
Agreement, as of the date and year first above written.
The Company:
THCG, INC.
By: /s/ Joseph D. Mark
-----------------------------
Name: Joseph D. Mark
Title: Co-CEO
Participant:
/s/ Shai Novik
--------------------------------
Shai Novik
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
December 29, 1999 (the "Effective Date") by and between THCG, INC., a Utah
corporation (the "Company"), and Larry Smith (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 third 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
President of the Company and shall report to the Chief Executive Officer(s) of
the Company.
(b) The Executive shall have such authority and
responsibility as is customary for such position or positions in businesses
comparable in size and function to the Company, and such other responsibilities
as may reasonably be assigned to him by the Chief Executive Officer(s) or the
board of directors of the Company (the "Board").
(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 and its subsidiaries; provided,
however, the Executive may engage in outside business activities with the
consent of the Chief Executive Officer(s), provided that such consent shall not
be unreasonably withheld or delayed. It shall not be considered a violation of
the foregoing for the Executive to serve on corporate, industry, civic or
charitable boards or committees, or to invest, and to supervise the investment
of, his own personal assets so long as such activities do
<PAGE>
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 $150,000 per annum, or such greater sum as may from time
to time be fixed by the Compensation Committee of the Board, 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 a bonus in
respect of the year 2000 in a minimum amount of $50,000 as determined by the
Compensation Committee of the Board; thereafter the Executive shall be entitled
to bonus compensation (the "Bonus Compensation") in accordance with a bonus
scheme based on the operating profit of the business unit(s) of the Company for
which the Executive is responsible, as devised in good faith by the Compensation
Committee of the Board.
(c) The Executive shall receive an option to purchase
310,000 shares of the common stock of the Company, at an exercise price of $6.00
per share. Such option shall vest pro-rata in twelve equal quarterly
installments commencing on January 1, 2001. In the event the Executive's
employment hereunder is terminated prior to the end of the Term by the Company
without Cause pursuant to paragraph 5(d) hereof or by the Executive for Good
Reason pursuant to Paragraph 5(e) hereof, then any unvested shares of common
stock under the option shall accelerate and become fully exercisable as of the
date of such termination of employment. The shares of common stock under the
option shall terminate on December 31, 2004. The option shall be subject to the
same provisions as are contained in The 1999 Walnut Financial Services, Inc.
Stock Incentive Plan (the "Plan"); however, the option shall not be issued
pursuant to the Plan. The option shall be included in the Company's registration
statement on Form S-8, the most recent draft of which is attached hereto as
Exhibit A. The Company shall use its commercially reasonable efforts to prepare
and file such registration statement as promptly as practicable following the
Effective Date and to cause such registration statement to become effective.
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.
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(b) The Executive shall be entitled to participate in
any and all life insurance (up to $1 million), medical insurance, group health,
disability 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 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.
(e) 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(e)
shall not exceed $500 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.
(f) 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.
(g) The Company agrees to reimburse the Executive for
personal tax preparation and financial planning assistance in a total amount not
to exceed $2,500 per year.
(h) The Executive shall be indemnified by the Company
to the greatest extent permitted under the laws of the State of Delaware, but
only if and to the extent permitted under the laws of the State of Utah.
(i) 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
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purposes of this Agreement, "Totally Disabled" means that the Executive has been
unable, for a period of one hundred eighty (180) consecutive 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 hereof; 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 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.
i. The Executive may terminate his
employment hereunder for "Good Reason" for (1) a Change in
Control of the Company; (2) the assignment to the Executive of
any duties inconsistent in any significant respect with
Paragraph 2 hereof, or any other action by the Company that
results in a material diminution in the Executive's position,
authority, duties or responsibilities; (3) any failure by the
Company to comply with Paragraph 3 or 4 hereof, 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; (4) a
change in the Executive's location of employment to a place of
employment outside the New York Metropolitan Area; (5) any
purported termination of the Executive's employment by the
Company for a reason or in a manner not expressly permitted by
this Agreement; (6) any failure
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<PAGE>
by the Company to comply with Paragraph 10(c) hereof; or (7)
any other substantial breach of this Agreement by the Company.
ii. "Change in Control of the Company" shall
be conclusively deemed to have occurred if any of the
following shall have taken place:
(1) 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;
(2) 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
fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities;
(3) 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;
(4) 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
fifty percent (50%) 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 twenty five percent (25%)
of the combined voting power of the Company's then
outstanding securities shall not constitute a Change
in Control of the Company; or
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<PAGE>
(5) 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.
iii. 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 ninety (90)
days 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.
(a) Termination by Reason of Death or Total
Disability; Termination by the Company for Cause; Termination by the Executive
Without Good Reason. In the event that the Executive's employment hereunder is
terminated prior to the end of the Term (i) by reason of the Executive's death
or Total Disability pursuant to Paragraph 5(a) or 5(b) hereof, (ii) by the
Company for Cause pursuant to Paragraph 5(c) hereof or (iii) by the Executive
without Good Reason pursuant to Paragraph 5(f) hereof, the Company shall pay the
following amounts to the Executive (or to the Executive's estate, as the case
may be):
i. Any accrued but unpaid Base Salary (as
determined pursuant to Paragraph 3(a) hereof) for
services rendered to the date of termination;
ii. Any declared but unpaid bonus (as
determined pursuant to Paragraph 3(b) hereof); and
iii. Any accrued but unpaid expenses
required to be reimbursed pursuant to Paragraph 4
hereof.
(b) Termination by the Company Without Cause;
Termination for Good Reason. In the event the Executive's employment hereunder
is terminated prior to the end of the Term by the Company without Cause pursuant
to Paragraph 5(d) hereof or by the Executive for Good Reason pursuant to
Paragraph 5(e) hereof, the Company shall pay the following amounts to the
Executive:
i. Any accrued but unpaid Base Salary (as
determined pursuant to paragraph 3(a) hereof) for
services rendered to the date of termination;
ii. Any declared but unpaid bonus (as
determined pursuant to Paragraph 3(b) hereof);
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iii. Any accrued by unpaid expenses
required to be reimbursed pursuant to Paragraph 4
hereof; and
iv. Any unvested options shall accelerate
and become fully exercisable pursuant to Paragraph
3(c) hereof.
(c) 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) hereof, the Executive's employment is
terminated by the Company without Cause pursuant to Paragraph 5(d) hereof, or
the Executive's employment is terminated by the Executive for Good Reason
pursuant to Paragraph 5(e) hereof, the Executive shall not be required to seek
other employment to mitigate damages.
(d) 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.
(a) 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 clients, trade secrets, and other
proprietary information relating to the business of the Company and its
subsidiaries and affiliates and its clients and suppliers, and in consideration
of compensation to be received hereunder, the Executive agrees that during his
employment hereunder, and for one year thereafter in the event the Executive's
employment hereunder is terminated prior to the end of the Term by the Company
for Cause pursuant to Paragraph 5(c) hereof or by the Executive without Good
Reason pursuant to Paragraph 5(f) hereof, the Executive will not compete with or
be engaged in any business (whether as an officer, director, employee, agent,
proprietor, stockholder, partner, member or otherwise) which is engaged in the
business of (i) evaluating, structuring and building e-commerce and
Internet-based businesses, including, without limitation, the marketing,
branding and funding of such e-commerce and Internet-based businesses, or (ii)
providing investment banking services and related financial advisory services,
including, without limitation, the services of capital raising, financial
restructuring, and identifying and structuring mergers and acquisitions. The
provisions of this Paragraph 7(a) will not be deemed breached merely because the
Executive owns less than ten percent (10%) of the outstanding common stock of a
publicly-traded company or is a passive investor who owns less than ten percent
(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 or of the
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Company's clients to terminate his, her or its relationship with the Company or
such client; (ii) directly or indirectly solicit or attempt to solicit any of
the employees, agents, consultants or representatives of the Company or of the
Company's clients to become employees, agents, consultants or representatives of
any other person or entity; (iii) directly or indirectly solicit or attempt to
solicit, persuade or seek to persuade any customer, vendor or distributor of the
Company or of any of the Company's clients to cease to do business or to reduce
the amount of business which any customer, vendor or distributor has customarily
done or contemplates doing with the Company or any such client whether or not
the relationship between the Company or any such client and such customer,
vendor or distributor was originally established in whole or in part through the
Executive's efforts. Any reference in this Paragraph 7(a) to the "Company" shall
mean and include the Company's subsidiaries and affiliates.
(b) 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 and
affiliates. 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 Paragraph 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.
(c) 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 or affiliates or clients referred to in
Paragraph 7(b). All confidential records shall be and remain the sole property
of the Company, or, as applicable, the Company's subsidiaries, affiliates or
clients during the Term and thereafter.
(d) Inventions and Patents. Any interest in patents,
patent applications, inventions, copyrights, developments, business methods,
trade secrets 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
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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.
(e) Enforcement.
i. 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 without proving damages or that damages
would be inadequate and without posting any bond.
ii. 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:
Facsimile No.: (212) 223-0161
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with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Peter S. Kolevzon, Esq.
Facsimile No.: (212) 715-8000
To the Executive:
Larry Smith
222 West 14th Street, Apt. 9E
New York, New York 10011
Facsimile No.: (212) ___-____
with a copy to:
Law Offices of Steven E. Rosenfeld, P.C.
369 Lexington Avenue
New York, New York 10017
Attention: Steven E. Rosenfeld, Esq.
Telecopier No.: (212) 867-1914
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
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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 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 by
and construed and enforced 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 conflict of laws.
14. Waiver of Jury Trial. Each of the parties hereto
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.
15. 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.
16. 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.
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IN WITNESS WHEREOF, the Executive has executed this Employment
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: /s/ Jospeh D. Mark
---------------------------------
Name: Jospeh D. Mark
Title: Co-Chief Executive Officer
EXECUTIVE:
/s/ Larry Smith
------------------------------------
Larry Smith
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Exhibit 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
February 1, 2000 (the "Effective Date") by and between THCG Ventures, LLC, a
Delaware limited liability company (the "Company"), and Evan Marks (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 day after the third 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
President and Chief Executive Officer of the Company, or in an equivalent
position with an affiliate of the Company or its parent corporation, THCG, Inc.
("THCG"), and shall report to the managing member of the Company (the "Managing
Member") and the Board of Directors of THCG.
(b) The Executive shall have such authority and
responsibility as is customary for such position or positions in businesses
comparable in size and function to the Company, and such other responsibilities
as may reasonably be assigned to him by the Managing Member or the Board of
Directors of THCG.
(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
<PAGE>
Company and its affiliates; provided, however, the
Executive may engage in outside business activities with the consent of the
Managing Member, or the Chief Executive Officer of THCG, provided that such
consent shall not be unreasonably withheld or delayed. It shall not be
considered a violation of the foregoing for the Executive to serve on corporate,
industry, civic or charitable boards or committees, or to invest, and to
supervise the investment of, his own personal assets 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 $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 of
THCG, 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, THCG
or one of its affiliates. 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 a bonus in
respect of the year 2000 in a minimum amount of $50,000 as determined by the
Compensation Committee of the Board of Directors of THCG; thereafter the
Executive shall be entitled to bonus compensation (the "Bonus Compensation") in
accordance with a bonus scheme based on the operating profit of the business
unit(s) of the Company, THCG or any of its affiliates for which the Executive is
responsible, as devised in good faith by the Compensation Committee of the Board
of Directors of THCG.
(c) The Executive shall receive an option to purchase
195,000 shares of the common stock of THCG, 25% of which shall have an exercise
price of $12.50 per share, 25% of which shall have an exercise price of $15.00
per share, 25% of which shall have an exercise price of $17.50 per share and 25%
of which shall have an exercise price of $20.00 per share. Such option shall
vest pro-rata in twelve equal quarterly installments commencing on February 1,
2000. In the event the Executive's employment hereunder is terminated prior to
the end of the Term by the Company without Cause pursuant to paragraph 5(d)
hereof or by the Executive for Good Reason pursuant to Paragraph 5(e) hereof,
then any unvested shares of common stock under the option provided for in this
Section 3(c) or under any other options then held by Executive shall accelerate
and become fully exercisable as of the date of such termination of employment.
The option shall be granted under the 2000 THCG, Inc. Stock Incentive Plan and
shall terminate on December 31, 2005. The option shall be included in the
Company's registration statement on Form S-8. The Company shall use its
commercially reasonable efforts to prepare and file such registration statement
as promptly as practicable following the Effective Date and to cause such
registration statement to become effective.
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<PAGE>
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 life insurance (up to $1 million), medical insurance, group health,
disability insurance, and other benefit plans and programs which are made
generally available by the Company or THCG 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 THCG's group pension, profit-sharing and employee benefit programs now
or hereafter made available to employees of THCG generally.
(d) 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.
(e) 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(e)
shall not exceed $500 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.
(f) 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.
(g) The Company agrees to reimburse the Executive for
personal tax preparation and financial planning assistance in a total amount not
to exceed $2,500 per year.
(h) The Executive shall be indemnified by the Company
to the greatest extent permitted under the laws of the State of Delaware.
(i) 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 or THCG.
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<PAGE>
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 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 THCG or the Company or any customer, client, agent or
employee thereof; (iii) willful breach of a covenant set forth in Paragraph 7
hereof; 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 Managing Member 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.
i. The Executive may terminate his
employment hereunder for "Good Reason" for (1) a Change in
Control of the Company; (2) the assignment to the Executive of
any duties inconsistent in any significant respect with
Paragraph 2 hereof, or any other action by the Company that
results in a material diminution in the Executive's position,
authority, duties or responsibilities; (3) any failure by the
Company to comply with Paragraph 3 or 4
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<PAGE>
hereof, 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; (4) a change in the Executive's location of
employment to a place of employment outside the New York
Metropolitan Area; (5) any purported termination of the
Executive's employment by the Company for a reason or in a
manner not expressly permitted by this Agreement; (6) any
failure by the Company to comply with Paragraph 10(c) hereof;
or (7) any other substantial breach of this Agreement by the
Company.
ii. "Change in Control of the Company" shall
be conclusively deemed to have occurred if any of the
following shall have taken place:
(1) 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;
(2) 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 THCG or the Company
representing fifty percent (50%) or more of the
combined voting power of the THCG's or the Company's
then outstanding securities;
(3) during any period of two (2)
consecutive years during this Agreement, individuals
who at the beginning of such period constitute the
Board of Directors of THCG 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;
(4) the stockholders of THCG or the
Company approve a merger or consolidation of THCG or
the Company with any other corporation, other than a
merger or consolidation which would result in the
voting securities of THCG or 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 fifty percent (50%) of the combined
voting power of the voting securities of THCG or the
Company or such surviving entity outstanding
immediately after such merger or consolidation;
provided, however, that a
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<PAGE>
merger or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove
defined) acquires more than twenty five percent (25%)
of the combined voting power of the Company's then
outstanding securities shall not constitute a Change
in Control of the Company; or
(5) the stockholders of THCG or the
Company approve a plan of complete liquidation of
THCG or the Company or an agreement for the sale or
disposition by THCG or the Company of, or THCG or the
Company sells or disposes of, all or substantially
all of THCG's or the Company's assets.
iii. 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 ninety (90)
days 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.
(a) Termination by Reason of Death or Total
Disability; Termination by the Company for Cause; Termination by the Executive
Without Good Reason. In the event that the Executive's employment hereunder is
terminated prior to the end of the Term (i) by reason of the Executive's death
or Total Disability pursuant to Paragraph 5(a) or 5(b) hereof, (ii) by the
Company for Cause pursuant to Paragraph 5(c) hereof or (iii) by the Executive
without Good Reason pursuant to Paragraph 5(f) hereof, the Company shall pay the
following amounts to the Executive (or to the Executive's estate, as the case
may be):
i. Any accrued but unpaid Base Salary (as
determined pursuant to Paragraph 3(a) hereof) for
services rendered to the date of termination;
ii. Any declared but unpaid bonus (as
determined pursuant to Paragraph 3(b) hereof); and
iii. Any accrued but unpaid expenses
required to be reimbursed pursuant to Paragraph 4
hereof.
(b) Termination by the Company Without Cause;
Termination for Good Reason. In the event the Executive's employment hereunder
is terminated prior to the end of the Term by the Company without Cause pursuant
to Paragraph 5(d) hereof or by the Executive for Good Reason pursuant to
Paragraph 5(e) hereof, the Company shall pay the following amounts to the
Executive:
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<PAGE>
i. Any accrued but unpaid Base Salary
(as determined pursuant to paragraph 3(a) hereof) for
services rendered to the date of termination;
ii. Any declared but unpaid bonus (as
determined pursuant to Paragraph 3(b) hereof);
iii. Any accrued by unpaid expenses required
to be reimbursed pursuant to Paragraph 4 hereof; and
iv. Any unvested options shall accelerate
and become fully exercisable pursuant to Paragraph
3(c) hereof.
(c) 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) hereof, the Executive's employment is
terminated by the Company without Cause pursuant to Paragraph 5(d) hereof, or
the Executive's employment is terminated by the Executive for Good Reason
pursuant to Paragraph 5(e) hereof, the Executive shall be under no duty to
mitigate with respect to any severance or other amounts payable pursuant to this
Agreement and such payments shall be made without regard to sums earned by
Executive from any other source.
(d) 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.
(a) 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 clients, trade secrets, and other
proprietary information relating to the business of the Company and its
subsidiaries and affiliates and its clients and suppliers, and in consideration
of compensation to be received hereunder, the Executive agrees that during his
employment hereunder, and for one year thereafter in the event the Executive's
employment hereunder is terminated prior to the end of the Term by the Company
for Cause pursuant to Paragraph 5(c) hereof or by the Executive without Good
Reason pursuant to Paragraph 5(f) hereof, the Executive will not compete with or
be engaged in any business (whether as an officer, director, employee, agent,
proprietor, stockholder, partner, member or otherwise) which is engaged in the
business of (i) evaluating, structuring and building e-commerce and
Internet-based businesses, including, without limitation, the marketing,
branding and funding of such e-commerce and Internet-based businesses, or (ii)
providing investment banking services and related financial advisory services,
including, without limitation, the services of capital raising, financial
restructuring, and identifying and structuring mergers and acquisitions. The
provisions of this Paragraph 7(a) will not be deemed breached merely because the
Executive owns less than
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<PAGE>
ten percent (10%) of the outstanding common stock of a publicly-traded company
or is a passive investor who owns less than ten percent (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 or of the Company's
clients to terminate his, her or its relationship with the Company or such
client; (ii) directly or indirectly solicit or attempt to solicit any of the
employees, agents, consultants or representatives of the Company or of the
Company's clients to become employees, agents, consultants or representatives of
any other person or entity; (iii) directly or indirectly solicit or attempt to
solicit, persuade or seek to persuade any customer, vendor or distributor of the
Company or of any of the Company's clients to cease to do business or to reduce
the amount of business which any customer, vendor or distributor has customarily
done or contemplates doing with the Company or any such client whether or not
the relationship between the Company or any such client and such customer,
vendor or distributor was originally established in whole or in part through the
Executive's efforts. Any reference in this Paragraph 7(a) to the "Company" shall
mean and include the Company's subsidiaries and affiliates.
(b) 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 and
affiliates. 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 Paragraph 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.
(c) 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 or affiliates or clients referred to in
Paragraph 7(b). All confidential records shall be
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<PAGE>
and remain the sole property of the Company, or, as applicable, the Company's
subsidiaries, affiliates or clients during the Term and thereafter.
(d) Inventions and Patents. Any interest in patents,
patent applications, inventions, copyrights, developments, business methods,
trade secrets 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.
(e) Enforcement.
i. 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 injunctive relief without proving
damages or that damages would be inadequate and without
posting any bond.
ii. 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:
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<PAGE>
To the Company:
THCG Ventures, LLC
650 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Secretary
Facsimile 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.
Facsimile No.: (212) 715-8000
To the Executive:
Evan Marks
1185 Park Avenue
New York, New York 10128
Facsimile No.: (212) 722-2997
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,
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<PAGE>
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 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 by
and construed and enforced 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 conflict of laws.
14. Waiver of Jury Trial. Each of the parties hereto
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.
15. 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.
16. 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.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed this Employment
Agreement and, pursuant to the authorization of the Manager, the Company has
caused this Agreement to be executed in its name and on its behalf, all as of
the date above written.
THCG Ventures, LLC
By: /s/ Joseph D. Mark
---------------------------------------
Name: Joseph D. Mark
Title: Co-Chief Executive Officer
EXECUTIVE:
/s/ Evan Marks
------------------------------------------
Evan Marks
THCG, Inc. hereby guarantees the obligations
of THCG Ventures, LLC under the foregoing
Employment Agreement
THCG, Inc.
By: /s/ Joseph D. Mark
---------------------------------------
Name: Joseph D. Mark
Title: Co-Chief Executive Officer
Exhibit 10.12
THE 1999 WALNUT FINANCIAL SERVICES, INC.
STOCK INCENTIVE PLAN
(as adopted November 1, 1999)
1. Purpose of the Plan
This 1999 Walnut Financial Services, Inc. Stock Incentive Plan is
intended to promote the interests of the Company and its stockholders by
providing certain key individuals, on whose judgment, initiative and efforts the
successful conduct of the business of the Company largely depends, and who are
largely responsible for the management, growth and protection of the business of
the Company, with appropriate incentives and rewards to encourage them to
continue their Employment with the Company and to maximize their performance and
to provide certain "performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Affiliate" shall mean any entity (whether or not incorporated)
controlling, controlled by or under common control with the Company.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash
pursuant to Section 13 hereof.
(d) "Cause" shall mean, when used in connection with a Participant's
Termination of Employment:
(i) to the extent that there is an employment, severance or
other agreement governing the relationship between the Participant
and the Company, which agreement contains a definition of "Cause,"
cause will consist of those acts or omissions that would constitute
"cause" under such agreement; and otherwise
(ii) the Participant's Termination of Employment by the Company
or an Affiliate on account of any one or more of the following:
(A) any failure by the Participant substantially to perform
the Participant's employment duties;
(B) any excessive unauthorized absenteeism by the
Participant;
(C) any refusal by the Participant to obey the lawful
orders of the Board of Directors or any other person or
committee to whom the Participant reports;
(D) any act or omission by the Participant that is or may
be injurious to the Company, monetarily or otherwise;
(E) any act by the Participant that is competitive with the
best interests of the Company;
(F) the Participant's material violation of any of the
Company's policies, including, without limitation, those
policies relating to discrimination or sexual harassment;
(G) the Participant's unauthorized (a) removal from the
premises of the Company or Affiliate of any document (in any
medium or form) relating to the Company or an Affiliate or the
customers of the Company or an Affiliate or (b) disclosure to
any person or entity of any of the Company's confidential or
proprietary information;
<PAGE>
(H) the Participant's commission of any felony, or any
other crime involving moral turpitude; and
(I) the Participant's commission of any act involving
dishonesty or fraud.
To the extent the definition of Cause herein is determined pursuant
to Section 2(d)(ii) hereof, then solely for the purposes of Sections 6(h), 9(e),
10(g) and 11(e) of this Plan the definition of Cause shall be determined only by
reference to subsections (C), (F), (G), (H) and (I) of such Section 2(d)(ii).
Any rights the Company may have hereunder in respect of the events
giving rise to Cause shall be in addition to the rights the Company may have
under any other agreement with a Participant or at law or in equity. Any
determination of whether a Participant's Employment is (or is deemed to have
been) terminated for Cause shall be made by the Committee in its discretion,
which determination shall be final and binding on all parties. If, subsequent to
a Participant's voluntary Termination of Employment or involuntary Termination
of Employment without Cause, it is discovered that the Participant's Employment
could have been terminated for Cause, such Participant's Employment shall be
deemed to have been terminated for Cause. A Participant's Termination of
Employment for Cause shall be effective as of the date of the occurrence of the
event giving rise to Cause, regardless of when the determination of Cause is
made.
(e) "Change in Control" shall mean the occurrence of any of the
following:
(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 Exchange Act shall have occurred, unless such
change in control results in control by the Participant, 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 Participant, 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.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
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(g) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan; provided, however, that the Committee shall
at all times consist of two or more persons. The Committee shall consist solely
of individuals who are (or grants shall be made by a subcommittee of two or more
persons, each of whom shall be) a "non-employee director" within the meaning of
Rule 16b-3. Each member of the Committee shall be an "outside director" within
the meaning of Section 162(m) of the Code.
(h) "Company" shall mean Walnut Financial Services, Inc. or any
successor thereto.
(i) "Company Stock" shall mean the common stock of the Company.
(j) "Disability" shall mean, except in connection with an Incentive
Stock Option, any physical or mental condition that would qualify a Participant
for a disability benefit under the long-term disability plan maintained by the
Company or, if there is no such plan, a physical or mental condition that
prevents the Participant from performing the essential functions of the
Participant's position (with or without reasonable accommodation) for a period
of six consecutive months or, in connection with an Incentive Stock Option, a
disability described in Section 422(c)(6) of the Code. The existence of a
Disability shall be determined by the Committee in its absolute discretion.
(k) "Dividend Equivalent Right" shall mean an Incentive Award granted
pursuant to Section 14 hereof of a right to receive an amount equivalent to the
ordinary cash dividends paid in respect to some or all of the shares of Company
Stock underlying an Incentive Award.
(l) "Employment" shall mean, in the case of a Participant who is not
an employee of the Company, the Participant's association with the Company or an
Affiliate as a consultant.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(n) "Fair Market Value" shall mean, with respect to a share of
Company Stock on an applicable date:
(i) If Company Stock is traded on a national securities
exchange, (A) the average of the high and low reported sales price
regular way per share of Company Stock on the principal national
securities exchange on which Company Stock is traded or (B) if no
reported sales take place on the applicable date, the average of the
highest bid and lowest asked price of Company Stock on such exchange
or (C) if no such quotation is made on such date, on the next
preceding day (not more than 10 business days prior to the applicable
date) on which there were reported sales or such quotations.
(ii) If Company Stock is not traded on a national securities
exchange but quotations are available for Company Stock on the
over-the-counter market, (A) the mean between the highest bid and
lowest asked quotation on the over-the-counter market as reported by
the National Quotations Bureau, or any similar organization, on the
applicable date or (B) if no such quotation is made on such date on
the next preceding day (not more than 10 business days prior to the
applicable date) on which there were such quotations.
(iii) If Company Stock is neither traded on a national
securities exchange nor are quotations therefor available on the
over-the-counter market or if there are no sales or quotations in the
10 business days immediately prior to the applicable date, as
determined in good faith by the Committee in a manner consistently
applied.
(o) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR, Dividend Equivalent Right, share of Restricted Stock, share of
Phantom Stock, Stock Bonus, Cash Bonus or other equity-based award granted
pursuant to the terms of the Plan.
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(p) "Incentive Stock Option" shall mean an Option that is an
"incentive stock option" within the meaning of Section 422 of the Code and that
is identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(q) "Issue Date" shall mean the date established by the Committee on
which certificates representing shares of Restricted Stock shall be issued by
the Company pursuant to the terms of Section 10(d) hereof.
(r) "LSAR" shall mean a limited stock appreciation right that is
granted pursuant to the provisions of Section 7 hereof and that relates to an
Option. Each LSAR shall be exercisable only upon the occurrence of a Change in
Control and only in the alternative to the exercise of its related Option.
(s) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(t) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 6 hereof. Each Option shall be identified as either
an Incentive Stock Option or a Non-Qualified Stock Option in the agreement by
which it is evidenced.
(u) "Participant" shall mean any person who is eligible to
participate in the Plan and to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, the employee's successors, heirs, executors and
administrators, as the case may be.
(v) "Person" shall mean a "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act.
(w) "Phantom Stock" shall mean the right to receive in cash the Fair
Market Value of a share of Company Stock, which right is granted pursuant to
Section 11 hereof and subject to the terms and conditions contained therein.
(x) "Plan" shall mean this 1999 Walnut Financial Services, Inc. Stock
Incentive Plan, as it may be amended from time to time.
(y) "Reload Option" shall mean an Option granted to a Participant in
accordance with Section 6 hereof upon the exercise of an Option.
(z) "Restricted Stock" shall mean a share of Company Stock that is
granted pursuant to the terms of Section 10 hereof and that is subject to the
restrictions set forth in Section 10(c) hereof for so long as such restrictions
continue to apply to such share.
(aa) "SAR shall mean a Tandem SAR, Stand-Alone SAR or LSAR.
(bb) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(cc) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 9 hereof that is not related to any Option.
(dd) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Company Stock pursuant to Section 12 hereof.
(ee) "Tandem SAR" shall mean a stock appreciation right granted
pursuant to Section 8 hereof that is related to an Option. Each Tandem SAR shall
be exercisable only to the extent its related Option is exercisable and only in
the alternative to the exercise of its related Option.
(ff) "Termination of Employment" shall mean a Participant's ceasing
to be employed by the Company and any Affiliates or by a corporation assuming
Incentive Awards in a transaction to which section 424(a) of the Code applies.
The Committee may determine, in its absolute discretion (i) whether any leave of
absence or
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absence in military or government service constitutes a Termination of
Employment for purposes of the Plan, subject to applicable law, (ii) the effect,
if any, of any such leave of absence on Incentive Awards granted under the Plan,
and (iii) when a change in a non-employee's association with the Company
constitutes a Termination of Employment for purposes of the Plan.
(gg) "Vesting Date" shall mean the date established by the Committee
on which a share of Restricted Stock or Phantom Stock may vest.
3. Stock Subject to the Plan
(a) Plan Limit
Subject to adjustment as provided in Section 16 hereof, the
Committee may grant Incentive Awards hereunder with respect to a number of
shares of Company Stock that in the aggregate does not exceed 2,250,000 shares.
The grant of an LSAR, Tandem SAR or Dividend Equivalent Right shall not reduce
the number of shares of Company Stock with respect to which Incentive Awards may
be granted pursuant to the Plan. Incentive Awards granted under the Plan shall
count against the foregoing limits at the time they are granted but shall again
become available for grant under the Plan as follows:
(i) To the extent that any Options, together with any related
rights granted under the Plan, terminate, expire or are canceled
without having been exercised (including a cancellation resulting
from the exercise of a related LSAR or a Tandem SAR) the shares
covered by such Options shall again be available for grant under the
Plan.
(ii) To the extent that any Stand-Alone SARs terminate, expire
or are canceled without having been exercised, the shares covered by
such Stand-Alone SARs shall again be available for grant under the
Plan.
(iii) To the extent any shares of Restricted Stock or Phantom
Stock, or any shares of Company Stock granted as a Stock Bonus are
forfeited or canceled for any reason, such shares shall again be
available for grant under the Plan.
Shares of Company Stock issued under the Plan may be either
newly issued shares or treasury shares, at the discretion of the Committee.
(b) Individual Limit
Subject to adjustment as provided in Section 14 hereof, the
Committee shall not, during any calendar year, grant any one Participant
Incentive Awards hereunder with respect to more than 450,000 shares of Company
Stock. Such Incentive Awards may be made up entirely of any one type of
Incentive Award or any combination of types of Incentive Awards available under
the Plan, in the Committee's sole discretion. Once granted to a Participant,
Incentive Awards shall not again be available for grant to that Participant. The
grant of an LSAR, Tandem SAR or Dividend Equivalent Right shall not reduce the
number of shares of Company Stock with respect to which Incentive Awards may be
granted to any Participant pursuant to the Plan.
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4. Administration of the Plan
The Plan shall be administered by the Committee. The Committee shall
from time to time designate the key individuals who shall be granted Incentive
Awards and the amount and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and the
terms of any Incentive Award issued under it, and to adopt such rules and
regulations for administering the Plan as it may deem necessary or appropriate.
Decisions of the Committee shall be final and binding on all parties. The
Committee's determinations under the Plan may, but need not, be uniform and may
be made on a Participant-by-Participant basis (whether or not two or more
Participants are similarly situated).
The Committee may, in its absolute discretion, without amendment to
the Plan, (i) accelerate the date on which any Option or Stand-Alone SAR granted
under the Plan becomes exercisable or otherwise adjust any of the terms of such
Option or Stand-Alone SAR (except that no such adjustment shall, without the
consent of a Participant, reduce the Participant's rights under any previously
granted and outstanding Incentive Award unless the Committee determines that
such adjustment is necessary or appropriate to prevent such Incentive Award from
constituting "applicable employee remuneration" within the meaning of Section
162(m) of the Code), (ii) accelerate the Vesting Date or Issue Date, or waive
any condition imposed hereunder, with respect to any share of Restricted Stock
granted under the Plan or otherwise adjust any of the terms of such Restricted
Stock and (iii) accelerate the Vesting Date or waive any condition imposed
hereunder, with respect to any share of Phantom Stock granted under the Plan or
otherwise adjust any of the terms of such Phantom Stock.
In addition, the Committee may, in its absolute discretion and
without amendment to the Plan, grant Incentive Awards of any type to
Participants on the condition that such Participants surrender to the Committee
for cancellation such other Incentive Awards of the same or any other type
(including, without limitation, Incentive Awards with higher exercise prices or
values) as the Committee specifies. Notwithstanding Section 3(a) hereof, prior
to the surrender of such other Incentive Awards, Incentive Awards granted
pursuant to the preceding sentence of this Section 4 shall not count against the
limits set forth in such Section 3(a).
No member of the Committee shall be liable for any action, omission,
or determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
Notwithstanding anything in the Plan to the contrary, until the
Board of Directors shall have appointed the members of the Committee, the Board
of Directors shall administer the Plan. In addition, the Board of Directors may,
in its sole discretion, at any time and from time to time, grant Incentive
Awards or resolve to administer the Plan in which case, to the extent provided
in such resolutions, the Board of Directors shall have the powers of the
Committee.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be those key current and former employees of the
Company and its Affiliates (including prospective employees, which Incentive
Awards shall be conditioned on the prospective employees actually becoming
employees) and certain current and former consultants or other independent
contractors (including directors of the Company or any of its Affiliates who are
not employees of the Company or any of its Affiliates) to the Company and its
Affiliates who are largely responsible for the management, growth and protection
of the business of the Company and its Affiliates (including officers of the
Company, whether or not they are directors of the Company) as the Committee
shall select from time to time. Except with respect to certain consultants or
other independent contractors (including directors of the Company or any of its
Affiliates who are not employees of the Company or any of its Affiliates) to the
Company and its Affiliates, persons who are not (or are not expected to be)
classified as employees of the Company or an
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Affiliate for purposes of the Company's or an Affiliate's payroll shall not be
eligible to receive Incentive Awards under the Plan.
6. Options
The Committee may grant Options pursuant to the Plan. Such Options
shall be evidenced by agreements in such form as the Committee shall from time
to time approve. Options shall comply with and be subject to the following terms
and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified
in the agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) Conditions to Issuance and Excercisability
At the time of the grant of any Options under the Plan, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the issuance or excercisability of the Options, as the
Committee, in its absolute discretion, deems appropriate. By way of example and
not by way of limitation, the Committee may require, as a condition to the
issuance or exercisability of any Options, that the Participant or the Company
achieve such performance criteria as the Committee may specify at the time of
the grant of such shares.
(c) Exercise Price
The exercise price of any Non-Qualified Stock Option granted
under the Plan shall be such price as the Committee shall determine (which may
be equal to, less than or greater than the Fair Market Value of a share of
Company Stock on the date such Non-Qualified Stock Option is granted) on the
date on which such Non-Qualified Stock Option is granted; provided, that such
price may not be less than the minimum price required by law. Subject to
Paragraph (d) of this Section 6, the exercise price-per-share of any Incentive
Stock Option granted under the Plan shall be not less than 100% of the Fair
Market Value of a share of Company Stock on the date on which such Incentive
Stock Option is granted (except as permitted in connection with the assumption
or issuance of Options in a transaction to which Section 424(a) of the Code
applies).
(d) Term and Exercise of Options
(i) Each Option shall be exercisable on such date or dates,
during such period and for such number of shares of Company Stock as
shall be determined by the Committee on the day on which such Option
is granted and set forth in the agreement evidencing such Option;
provided, however, that: (A) if such agreement does not specify the
date or dates on which the Option will become exercisable, the shares
subject to the Option shall become exercisable in three equal
installments on each of the first, second and third anniversary of
the day on which the Option is granted; (B) no Option shall be
exercisable after the expiration of ten years from the date such
Option was granted; and (C) each Option shall be subject to earlier
termination, expiration or cancellation as provided in the Plan.
(ii) Each Option shall be exercisable in whole or in part;
provided, that no partial exercise of an Option shall be for an
aggregate exercise price of less than $1,000. The partial exercise of
an Option shall not cause the expiration, termination or cancellation
of the remaining portion thereof. Upon the partial exercise of an
Option, the agreement evidencing such Option and any related LSARs
and Tandem SARs shall be returned to the Participant exercising such
Option together with the delivery of the certificates described in
Section 6(d)(v) hereof.
(iii) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than five business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the agreement
or agreements evidencing the Option and
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any related LSARs and Tandem SARs, shall specify the number of shares
of Company Stock with respect to which the Option is being exercised
and the effective date of the proposed exercise and shall be signed
by the Participant. The Participant may withdraw such notice at any
time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case
such agreement or agreements shall be returned to him. Payment for
shares of Company Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either:
(A) in cash, by certified check, bank cashier's check or
wire transfer; or
(B) subject to the approval of the Committee, in shares of
Company Stock owned by the Participant and valued at their Fair
Market Value on the effective date of such exercise, or partly
in shares of Company Stock with the balance in cash, by
certified check, bank cashier's check or wire transfer; or
(C) subject to the approval of the Committee, pursuant to a
"cashless exercise" pursuant to procedures adopted by the
Committee whereby the Participant, by a properly written notice,
directing (A) an immediate market sale or margin loan respecting
all or a part of the shares of Company Stock to which the
Participant is entitled upon exercise pursuant to an extension
of credit by the Company to the Participant of the exercise
price, (B) the delivery of the shares of Company Stock from the
Company directly to the brokerage firm, and (C) the delivery of
the exercise price from the sale or margin loan proceeds from
the brokerage firm directly to the Company.
Any payment in shares of Company Stock shall be effected by
the delivery of such shares to the Secretary of the Company, duly
endorsed in blank or accompanied by stock powers duly executed in
blank, together with any other documents and evidences as the
Secretary of the Company shall require from time to time.
(iv) Except as otherwise provided in an applicable agreement
evidencing an Option, during the lifetime of a Participant, each
Option granted to a Participant shall be exercisable only by the
Participant and no Option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
The Committee may, in any applicable agreement evidencing an Option
(other than an Incentive Stock Option to the extent inconsistent with
the requirements of Section 422 of the Code applicable to incentive
stock options), permit a Participant to transfer all or some of the
Options to (A) the Participant's spouse, children or grandchildren
("Immediate Family Members"), (B) a trust or trusts for the exclusive
benefit of such Immediate Family Members, or (C) other parties
approved by the Committee in its absolute discretion. Following any
such transfer, any transferred Options shall continue to be subject
to the same terms and conditions as were applicable immediately prior
to the transfer.
(v) Certificates for shares of Company Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant
or his beneficiary (or permitted transferee), as the case may be, and
delivered to the Participant or his beneficiary (or permitted
transferee), as the case may be, as soon as practicable following the
effective date on which the Option is exercised.
(e) Limitations on Grant of Incentive Stock Options
(i) The aggregate Fair Market Value of shares of Company Stock
with respect to which Incentive Stock Options granted hereunder are
exercisable for the first time by a Participant during any calendar
year under the Plan and any other stock option plan of the Company
(or any "subsidiary corporation" of the Company within the meaning of
Section 424 of the Code) shall not exceed $100,000. Such Fair Market
Value shall be determined as of the date on which each such Incentive
Stock Option is granted. In the event that the aggregate Fair Market
Value of shares of Company Stock with respect to such Incentive Stock
Options exceeds $100,000, then Incentive Stock Options granted
hereunder to such Participant shall, to the extent and in the order
in which they were granted, automatically be deemed to be
Non-Qualified Stock Options, but all other terms and provisions of
such Incentive Stock Options shall remain unchanged.
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(ii) No Incentive Stock Option may be granted to an individual
if, at the time of the proposed grant: (i) such individual was not an
employee of the company, a parent or subsidiary corporation of the
Company, or a corporation or a parent or subsidiary corporation of
such corporation issuing or assuming a stock option in a transaction
to which Section 424(a) of the Code applies or (ii) such individual
owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or any of its
"subsidiary corporations" (within the meaning of Section 424 of the
Code), unless (A) the exercise price of such Incentive Stock Option
is at least one hundred ten percent (110%) of the Fair Market Value
of a share of Company Stock at the time such Incentive Stock Option
is granted and (B) such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock
Option is granted.
(f) Grants of Reload Options
The Committee may, in its discretion, include in any agreement
evidencing an Option (the "Original Option") a provision that a Reload Option
shall be granted to any Participant who, pursuant to Section 6(d)(iii), delivers
shares of Company Stock in partial or full payment of the exercise price of the
Original Option. The Reload Option shall relate to a number of shares of Company
Stock equal to the number of shares of Company Stock delivered, and shall have
an exercise price-per-share equal to the Fair Market Value of a share of Company
Stock on the date of the exercise of the Original Option. In the event that an
agreement evidencing an Original Option provides for the grant of a Reload
Option, such agreement shall also provide that the exercise price-per-share of
the Original Option shall be no less that the Fair Market Value of a share of
Company Stock on its date of grant, and that any shares that are delivered
pursuant to Section 6(d)(iii) in payment of such exercise price shall have been
held for at least six months.
(g) Effect of Termination of Employment
(i) Unless otherwise provided in any agreement evidencing an
Option, in the event that the Employment of a Participant with the
Company and its Affiliates shall terminate for any reason other than
Cause, Disability or death (A) Options granted to such Participant,
to the extent that they were exercisable at the time of such
Termination of Employment, shall remain exercisable until the
expiration of three months after such Termination of Employment, on
which date they shall expire, and (B) Options granted to such
Participant, to the extent that they were not exercisable at the time
of such Termination of Employment, shall expire at the close of
business on the date of such Termination of Employment; provided,
however, that no Option shall be exercisable after the expiration of
its term.
(ii) Unless otherwise provided in any agreement evidencing an
Option, in the event that the Employment of a Participant with the
Company shall terminate on account of the Disability or death of the
Participant (A) Options granted to such Participant, to the extent
that they were exercisable at the time of such Termination of
Employment, shall remain exercisable until the expiration of the
original term as provided for in the Plan or as specified in the
agreement evidencing the Option, and (B) Options granted to such
Participant, to the extent that they were not exercisable at the time
of such Termination of Employment, shall expire at the close of
business on the date of such Termination of Employment.
(iii) Unless otherwise provided in any agreement evidencing an
Option, in the event of a Participant's Termination of Employment for
Cause, all outstanding Options granted to such Participant shall
expire at the commencement of business on the effective date of such
Termination of Employment.
(h) Acceleration of Exercise Date Upon Change in Control
In the event a Participant's employment is terminated by the
Company, other than for Cause, on or after the occurrence of a Change in Control
but prior to the expiration of a six-month period following the Change in
Control, each Option granted under the Plan that is outstanding and
unexercisable immediately prior to such termination of employment shall become
fully and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the Plan.
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7. LSARs
The Committee may grant in connection with any Option granted
hereunder one or more LSARs relating to a number of shares of Company Stock less
than or equal to the number of shares of Company Stock subject to the related
Option. An LSAR may be granted at the same time as, or, in the case of a
Non-Qualified Stock Option, subsequent to the time that, its related Option is
granted. Each LSAR shall be evidenced by an agreement in such form as the
Committee shall from time to time approve. Each LSAR granted hereunder shall be
subject to the following terms and conditions:
(a) Benefit Upon Exercise
(i) The exercise of an LSAR relating to a Non-Qualified Stock
Option with respect to any number of shares of Company Stock shall
entitle the Participant to a cash payment, for each such share, equal
to the excess of (A) the greater of (x) the highest price-per-share
of Company Stock paid in the Change in Control in connection with
which such LSAR became exercisable and (y) the Fair Market Value of a
share of Company Stock on the date of such Change in Control over (B)
the exercise price of the related Option. Such payment shall be made
as soon as practicable, but in no event later than the expiration of
five business days after the effective date of such exercise.
(ii) The exercise of an LSAR relating to an Incentive Stock
Option with respect to any number of shares of Company Stock shall
entitle the Participant to a cash payment, for each such share, equal
to the excess of (A) the Fair Market Value of a share of Company
Stock on the effective date of such exercise over (B) the exercise
price of the related Option. Such payment shall be made as soon as
practicable, but in no event later than the expiration of five
business days, after the effective date of such exercise.
(b) Term and Exercise of LSARs
(i) An LSAR shall be exercisable only during the period
commencing on the first day following the occurrence of a Change in
Control and terminating on the expiration of sixty days after such
date. Notwithstanding anything else herein, an LSAR relating to an
Incentive Stock Option may be exercised with respect to a share of
Company Stock only if the Fair Market Value of such share on the
effective date of such exercise exceeds the exercise price relating
to such share. Notwithstanding anything else herein, an LSAR may be
exercised only if and to the extent that the Option to which it
relates is exercisable.
(ii) The exercise of an LSAR with respect to a number of shares
of Company Stock shall cause the immediate and automatic cancellation
of the Option to which it relates with respect to an equal number of
shares. The exercise of an Option, or the cancellation, termination
or expiration of an Option (other than pursuant to this Paragraph
(ii)), with respect to a number of shares of Company Stock, shall
cause the cancellation of the LSAR related to it with respect to an
equal number of shares.
(iii) Each LSAR shall be exercisable in whole or in part;
provided, that no partial exercise of an LSAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of
an LSAR shall not cause the expiration, termination or cancellation
of the remaining portion thereof. Upon the partial exercise of an
LSAR, the agreement evidencing the LSAR, the related Option and any
Tandem SARs related to such Option, marked with such notations as the
Committee may deem appropriate to evidence such partial exercise,
shall be returned to the Participant exercising such LSAR together
with the payment described in Paragraph 7(a)(i) or (ii) hereof, as
applicable.
(iv) Except as otherwise provided in an applicable agreement
evidencing an LSAR, during the lifetime of a Participant, each LSAR
granted to a Participant shall be exercisable only by the Participant
and no LSAR shall be assignable or transferable otherwise than by
will or by the laws of descent and distribution and otherwise than
together with its related Option. The Committee may, in any
applicable agreement evidencing an LSAR, permit a Participant to
transfer all or some of the LSAR to (A) the Participant's Immediate
Family Members, (B) a trust or trusts for the exclusive benefit of
such Immediate
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Family Members, or (C) other parties approved by the Committee in its
absolute discretion. Following any such transfer, any transferred
LSARs shall continue to be subject to the same terms and conditions
as were applicable immediately prior to the transfer.
(v) An LSAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than five business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreement evidencing the LSAR, the related Option and any Tandem SARs
relating to such Option, shall specify the number of shares of
Company Stock with respect to which the LSAR is being exercised and
the effective date of the proposed exercise and shall be signed by
the Participant. The Participant may withdraw such notice at any time
prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case
such agreement shall be returned to him.
8. Tandem SARs
The Committee may grant in connection with any Option granted
hereunder one or more Tandem SARs relating to a number of shares of Company
Stock less than or equal to the number of shares of Company Stock subject to the
related Option. A Tandem SAR may be granted at the same time as, or subsequent
to the time that, its related Option is granted. Each Tandem SAR shall be
evidenced by an agreement in such form as the Committee shall from time to time
approve. Tandem SARs shall comply with and be subject to the following terms and
conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of
shares of Company Stock shall entitle a Participant to a cash payment, for each
such share, equal to the excess of (i) the Fair Market Value of a share of
Company Stock on the effective date of such exercise over (ii) the exercise
price of the related Option. Such payment shall be made as soon as practicable,
but in no event later than the expiration of five business days, after the
effective date of such exercise.
(b) Term and Exercise of Tandem SAR
(i) A Tandem SAR shall be exercisable at the same time and to
the same extent (on a proportional basis, with any fractional amount
being rounded down to the immediately preceding whole number) as its
related Option. Notwithstanding the first sentence of this Section
8(b)(i), (A) a Tandem SAR shall not be exercisable at any time that
an LSAR related to the Option to which the Tandem SAR is related is
exercisable and (B) a Tandem SAR relating to an Incentive Stock
Option may be exercised with respect to a share of Company Stock only
if the Fair Market Value of such share on the effective date of such
exercise exceeds the exercise price relating to such share.
(ii) The exercise of a Tandem SAR with respect to a number of
shares of Company Stock shall cause the immediate and automatic
cancellation of its related Option with respect to an equal number of
shares. The exercise of an Option, or the cancellation, termination
or expiration of an Option (other than pursuant to this Paragraph
(ii)), with respect to a number of shares of Company Stock shall
cause the automatic and immediate cancellation of its related Tandem
SARs to the extent that the number of shares of Company Stock subject
to such Option after such exercise, cancellation, termination or
expiration is less than the number of shares subject to such Tandem
SARs. Such Tandem SARs shall be canceled in the order in which they
became exercisable.
(iii) Each Tandem SAR shall be exercisable in whole or in part;
provided, that no partial exercise of a Tandem SAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of
a Tandem SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the partial
exercise of a Tandem SAR, the agreement evidencing such Tandem SAR,
its related Option and LSARs relating to such Option shall be
returned to the Participant exercising such Tandem SAR together with
the payment described in Section 8(a) hereof.
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(iv) Except as otherwise provided in an applicable agreement
evidencing a Tandem SAR, during the lifetime of a Participant, each
Tandem SAR granted to a Participant shall be exercisable only by the
Participant and no Tandem SAR shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
The Committee may, in any applicable agreement evidencing a Tandem
SAR, permit a Participant to transfer all or some of the Tandem SAR
to (A) the Participant's Immediate Family Members, (B) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or
(C) other parties approved by the Committee in its absolute
discretion. Following any such transfer, any transferred Tandem SARs
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to the transfer.
(v) A Tandem SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than five business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreement evidencing the Tandem SAR, its related Option and any LSARs
related to such Option, shall specify the number of shares of Company
Stock with respect to which the Tandem SAR is being exercised and the
effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time
prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case
such agreement shall be returned to him.
9. Stand-Alone SARs
The Committee may grant Stand-Alone SARs pursuant to the Plan, which
Stand-Alone SARs shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Stand-Alone SARs shall comply with and be
subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the Plan
shall be determined by the Committee at the time of the grant of such
Stand-Alone SAR.
(b) Benefit Upon Exercise
(i) The exercise of a Stand-Alone SAR with respect to any number
of shares of Company Stock prior to the occurrence of a Change in
Control shall entitle a Participant to a cash payment, for each such
share, equal to the excess of (A) the Fair Market Value of a share of
Company Stock on the exercise date over (B) the exercise price of the
Stand-Alone SAR.
(ii) The exercise of a Stand-Alone SAR with respect to any
number of shares of Company Stock on or after the occurrence of a
Change in Control shall entitle a Participant to a cash payment, for
each such share, equal to the excess of (A) the greater of (x) the
highest price-per-share of Company Stock paid in connection with such
Change in Control and (y) the Fair Market Value of a share of Company
Stock on the date of such Change in Control over (B) the exercise
price of the Stand-Alone SAR.
(iii) All payments under this Section 9(b) shall be made as soon
as practicable, but in no event later than five business days, after
the effective date of the exercise.
(c) Term and Exercise of Stand-Alone SARs
(i) Each Stand-Alone SAR shall be exercisable on such date or
dates, during such period and for such number of shares of Company
Stock as shall be determined by the Committee and set forth in the
agreement evidencing such Stand-Alone SAR; provided, however, that:
(A) if such agreement does not specify the date or dates on which the
Stand-Alone SAR will become exercisable, the shares subject to the
Stand-Alone SAR shall become exercisable in three equal installments
on each of the first, second and third anniversary of the day on
which the Stand-Alone SAR is granted; (B) no Stand-Alone SAR shall be
exercisable after the expiration of ten years from the date such
Stand-Alone SAR was granted; and (C)
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<PAGE>
each Stand-Alone SAR shall be subject to earlier termination,
expiration or cancellation as provided in the Plan.
(ii) Each Stand-Alone SAR may be exercised in whole or in part;
provided, that no partial exercise of a Stand-Alone SAR shall be for
an aggregate exercise price of less than $1,000. The partial exercise
of a Stand-Alone SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the partial
exercise of a Stand-Alone SAR, the agreement evidencing such
Stand-Alone SAR, marked with such notations as the Committee may deem
appropriate to evidence such partial exercise, shall be returned to
the Participant exercising such Stand-Alone SAR, together with the
payment described in Section 9(b)(i) or 9(b)(ii) hereof.
(iii) A Stand-Alone SAR shall be exercised by delivering notice
to the Company's principal office, to the attention of its Secretary,
no less than five business days in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
applicable agreement evidencing the Stand-Alone SAR, shall specify
the number of shares of Company Stock with respect to which the
Stand-Alone SAR is being exercised and the effective date of the
proposed exercise, and shall be signed by the Participant. The
Participant may withdraw such notice at any time prior to the close
of business on the business day immediately preceding the effective
date of the proposed exercise, in which case the agreement evidencing
the Stand-Alone SAR shall be returned to him.
(iv) Except as otherwise provided in an applicable agreement
evidencing a Stand-Alone SAR, during the lifetime of a Participant,
each Stand-Alone SAR granted to a Participant shall be exercisable
only by the Participant and no Stand-Alone SAR shall be assignable or
transferable otherwise than by will or by the laws of descent and
distribution. The Committee may, in any applicable agreement
evidencing a Stand-Alone SAR, permit a Participant to transfer all or
some of the Stand-Alone SAR to (A) the Participant's Immediate Family
Members, (B) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (C) other parties approved by the
Committee in its absolute discretion. Following any such transfer,
any transferred Stand-Alone SARs shall continue to be subject to the
same terms and conditions as were applicable immediately prior to the
transfer.
(d) Effect of Termination of Employment
(i) Unless otherwise provided in any agreement evidencing a
Stand-Alone SAR, in the event that the Employment of a Participant
with the Company and its Affiliates shall terminate for any reason
other than Cause, Disability or death (A) Stand-Alone SARs granted to
such Participant, to the extent that they were exercisable at the
time of such Termination of Employment, shall remain exercisable
until the expiration of three months after such Termination of
Employment, on which date they shall expire, and (B) Stand-Alone SARs
granted to such Participant, to the extent that they were not
exercisable at the time of such Termination of Employment, shall
expire at the close of business on the date of such Termination of
Employment; provided, however, that no Stand-Alone SAR shall be
exercisable after the expiration of its term.
(ii) Unless otherwise provided in any agreement evidencing a
Stand-Alone SAR, in the event that the Employment of a Participant
with the Company and its Affiliates shall terminate on account of the
Disability or death of the Participant (A) Stand-Alone SARs granted
to such Participant, to the extent that they were exercisable at the
time of such Termination of Employment, shall remain exercisable
until the expiration of the original term as provided for in the Plan
or as specified in the agreement evidencing the Stand-Alone SAR, and
(B) Stand-Alone SARs granted to such Participant, to the extent that
they were not exercisable at the time of such Termination of
Employment, shall expire at the close of business on the date of such
Termination of Employment.
(iii) In the event of a Participant's Termination of Employment
for Cause, all outstanding Stand-Alone SARs granted to such
Participant shall expire at the commencement of business on the
effective date of such Termination of Employment.
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<PAGE>
(e) Acceleration of Exercise Date Upon Change in Control
In the event a Participant's employment is terminated by the
Company, other than for Cause, on or after the occurrence of a Change in Control
but prior to the expiration of a six-month period following the Change in
Control, each Stand-Alone SAR granted under the Plan that is outstanding and
unexercisable immediately prior to such termination of employment shall become
fully and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the Plan.
10. Restricted Stock
The Committee may grant shares of Restricted Stock pursuant to the
Plan. Each grant of shares of Restricted Stock shall be evidenced by an
agreement in such form and containing such terms and conditions and subject to
such agreements or understandings as the Committee shall from time to time
approve. Each grant of shares of Restricted Stock shall comply with and be
subject to the following terms and conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting Date or
Vesting Dates with respect to such shares. The Committee may divide such shares
into classes and assign a different Issue Date and/or Vesting Date for each
class. If the Committee does not specify a Vesting Date or Vesting Dates at the
time of the grant, the shares shall vest in three equal installments on the
first, second and third anniversary of the Issue Date. Except as provided in
Sections 10(c) and 10(f) hereof, upon the occurrence of the Issue Date with
respect to a share of Restricted Stock, a share of Restricted Stock shall be
issued in accordance with the provisions of Section 10(d) hereof. Provided that
all conditions to the vesting of a share of Restricted Stock imposed pursuant to
Section 10(b) hereof are satisfied, and except as provided in Sections 10(c) and
10(f) hereof, upon the occurrence of the Vesting Date with respect to a share of
Restricted Stock, such share shall vest and the restrictions of Section 10(c)
hereof shall cease to apply to such share.
(b) Conditions to Vesting
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the vesting of such shares as it, in its absolute
discretion, deems appropriate. By way of example and not by way of limitation,
the Committee may require, as a condition to the vesting of any class or classes
of shares of Restricted Stock, that the Participant or the Company achieve such
performance criteria as the Committee may specify at the time of the grant of
such shares.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no transfer
of a Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
(i) Except as provided in Sections 10(c) or 10(f) hereof,
reasonably promptly after the Issue Date with respect to shares of
Restricted Stock, the Company shall cause to be issued a stock
certificate, registered in the name of the Participant to whom such
shares were granted, evidencing such shares; provided, that the
Company shall not cause to be issued such a stock certificate unless
it has received a stock power duly endorsed in blank with respect to
such shares. Each such stock certificate shall bear the following
legend:
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The transferability of this certificate and the
shares of stock represented hereby are subject to the
restrictions, terms and conditions (including forfeiture
provisions and restrictions against transfer) contained in the
1999 Walnut Financial Services, Inc. Stock Incentive Plan and an
Agreement entered into between the registered owner of such
shares and Walnut Financial Services, Inc. A copy of the Plan
and Agreement is on file in the office of the Secretary of
Walnut Financial Services, Inc., 650 Madison Avenue, 21st Floor,
New York, New York 10022.
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section 10(d)(i)
hereof, together with the stock powers relating to the shares of
Restricted Stock evidenced by such certificate, shall be deposited by
the Company with a custodian designated by the Company (which
custodian may be the Company). The Company shall cause such custodian
to issue to the Participant a receipt evidencing the certificates
held by it which are registered in the name of the Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock pursuant to the
terms hereof, the restrictions of Section 10(c) hereof shall cease to apply to
such share. Reasonably promptly after a share of Restricted Stock vests pursuant
to the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 10(d)(i) hereof, together with
any other property of the Participant held by the custodian pursuant to Section
16(b) hereof.
(f) Effect of Termination of Employment
(i) In the event that the Employment of a Participant with the
Company shall terminate for any reason (other than a termination that
is, or is deemed to have been, for Cause) prior to the vesting of
shares of Restricted Stock granted to such Participant, a proportion
of such shares, to the extent not forfeited or canceled on or prior
to such Termination of Employment pursuant to any provision hereof,
shall vest on the date of such Termination of Employment. The
proportion referred to in the preceding sentence shall initially be
determined by the Committee at the time of the grant of such shares
of Restricted Stock and may be based on the achievement of any
conditions imposed by the Committee with respect to such shares
pursuant to Section 10(b). Such proportion may be equal to zero. In
the absence of any such provision in an agreement evidencing an award
of Restricted Stock, a Participant's Termination of Employment with
the Company and its Affiliates for any reason (including death or
Disability) shall cause the immediate forfeiture of all shares of
Restricted Stock that have not vested as of the date of such
Termination of Employment.
(ii) In the event a Participant's Employment is or is deemed to
have been terminated for Cause, all shares of Restricted Stock
granted to such Participant that have not vested as of the effective
date of such Termination of Employment immediately shall be
forfeited.
(g) Effect of Change in Control
In the event a Participant's employment is terminated by the
Company, other than for Cause, on or after the occurrence of a Change in Control
but prior to the expiration of a six-month period following the Change in
Control, all shares of Restricted Stock which have not vested as of the date
immediately prior to such termination of employment (including those with
respect to which the Issue Date has not yet occurred), or have not been canceled
or forfeited pursuant to any provision hereof, immediately shall vest.
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<PAGE>
11. Phantom Stock
The Committee may grant shares of Phantom Stock pursuant to the Plan.
Each grant of shares of Phantom Stock shall be evidenced by an agreement in such
form as the Committee shall from time to time approve. Each grant of shares of
Phantom Stock shall comply with and be subject to the following terms and
conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the
Committee shall establish a Vesting Date or Vesting Dates with respect to such
shares. The Committee may divide such shares into classes and assign a different
Vesting Date for each class. If the Committee does not specify a Vesting Date or
Vesting Dates at the time of the grant, the shares shall vest in three equal
installments on the first, second and third anniversary of the date on which
such Phantom Stock was granted. Provided that all conditions to the vesting of a
share of Phantom Stock imposed pursuant to Section 11(c) hereof are satisfied,
and except as provided in Section 11(d) hereof, upon the occurrence of the
Vesting Date with respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant
shall be entitled to receive, within 30 days after the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair Market
Value of a share of Company Stock on the date on which such share of Phantom
Stock vests and (ii) the aggregate amount of cash dividends paid with respect to
a share of Company Stock the record date for which occurs during the period
commencing on the date on which the share of Phantom Stock was granted and
terminating on the date on which such share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the vesting of such shares as it, in its absolute
discretion, deems appropriate. By way of example and not by way of limitation,
the Committee may require, as a condition to the vesting of any class or classes
of shares of Phantom Stock, that the Participant or the Company achieve such
performance criteria as the Committee may specify at the time of the grant of
such shares of Phantom Stock.
(d) Effect of Termination of Employment
(i) In the event that the Employment of a Participant with the
Company and its Affiliates shall terminate for any reason (other than
a termination that is, or is deemed to have been, for Cause) prior to
the vesting of shares of Phantom Stock granted to such Participant, a
proportion of such shares, to the extent not forfeited or canceled on
or prior to such Termination of Employment pursuant to any provision
hereof, shall vest on the date of such Termination of Employment. The
proportion referred to in the preceding sentence initially shall be
determined by the Committee at the time of the grant of such shares
of Phantom Stock and may be based on the achievement of any
conditions imposed by the Committee with respect to such shares
pursuant to Section 11(c). Such proportion may be equal to zero. In
the absence of any such provision in an agreement evidencing an award
of Phantom Stock, a Participant's Termination of Employment with the
Company and its Affiliates for any reason (including death or
Disability) shall cause the immediate forfeiture of all shares of
Phantom Stock that have not vested as of the date of such Termination
of Employment.
(ii) In the event a Participant's Employment is or is deemed to
have been terminated for Cause, all shares of Phantom Stock granted
to such Participant which have not vested as of the date of such
Termination of Employment immediately shall be forfeited.
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(e) Effect of Change in Control
In the event a Participant's employment is terminated by the
Company, other than for Cause, on or after the occurrence of a Change in Control
but prior to the expiration of a six-month period following the Change in
Control, all shares of Phantom Stock which have not vested as of the date
immediately prior to such termination of employment, or have not been canceled
or forfeited pursuant to any provision hereof, immediately shall vest.
12. Stock Bonuses
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time (including
a future date selected by the Committee at the time of grant) and subject to
such conditions as the Committee shall determine at the time of the grant of
such Stock Bonus. Certificates for shares of Company Stock granted as a Stock
Bonus shall be issued in the name of the Participant to whom such grant was made
and delivered to such Participant as soon as practicable after the date on which
such Stock Bonus is required to be paid. Prior to the date on which a Stock
Bonus awarded hereunder is required to be paid, such award shall constitute an
unfunded, unsecured promise by the Company to distribute Company Stock in the
future.
13. Cash Bonuses
The Committee may, in its absolute discretion, in connection with any
grant of Restricted Stock or Stock Bonus or at any time thereafter, grant a cash
bonus, payable promptly after the date on which the Participant is required to
recognize income for federal income tax purposes in connection with such grant
of Restricted Stock or Stock Bonus, in such amounts as the Committee shall
determine from time to time; provided, however, that in no event shall the
amount of a Cash Bonus exceed the Fair Market Value of the related shares of
Restricted Stock or Stock Bonus on such date. A Cash Bonus shall be subject to
such conditions as the Committee shall determine at the time of the grant of
such Cash Bonus.
14. Grant of Dividend Equivalent Rights
The Committee may, in its absolute discretion, in connection with any
Incentive Award (other than an award of shares of Phantom Stock), grant a
Dividend Equivalent Right entitling the Participant to receive amounts equal to
the ordinary dividends that would be paid on the shares of Company Stock covered
by such Incentive Award if such shares then were outstanding, during the time
such Incentive Award is outstanding and (a) in the case of Options and SARs,
during the time such Options or SARs are unexercised or (b) in the case of
Restricted Stock and Stock Bonuses, prior to the issue date for the related
shares of Company Stock. The Committee shall determine whether any Dividend
Equivalent Rights shall be payable in cash, in shares of Company Stock or in
another form, the time or times at which they shall be made, and such other
terms and conditions as the Committee shall deem appropriate. No Dividend
Equivalent Right shall be conditioned on the exercise of any Option or SAR.
15. Other Equity-Based Awards
The Committee may grant other types of equity-based awards in such
amounts and subject to such terms and conditions, as the Committee shall in its
discretion determine, subject to the provisions of the Plan. Such Incentive
Awards may entail the transfer of actual shares of Company Stock to
Participants, or payment in cash or otherwise of amounts based on the value of
shares of Company Stock.
16. Adjustment Upon Changes in Company Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Company
Stock outstanding by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum number of shares of Company Stock with
respect to which the Committee may grant Incentive Awards under Section 3 hereof
shall be appropriately adjusted by the Committee.
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In the event of any change in the number of shares of Company Stock outstanding
by reason of any other event or transaction, the Committee may, but need not,
make such adjustments in the number and class of shares of Company Stock with
respect to which Incentive Awards may be granted under Section 3 hereof as the
Committee may deem appropriate.
(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends paid in cash)
received by a Participant with respect to a share of Restricted Stock, the Issue
Date with respect to which occurs prior to such event, but which has not vested
as of the date of such event, as a result of any dividend, stock split, reverse
stock split, recapitalization, merger, consolidation, combination, exchange of
shares or otherwise will not vest until such share of Restricted Stock vests,
and shall be promptly deposited with the custodian designated pursuant to
Paragraph 10(d)(ii) hereof.
The Committee may, in its absolute discretion, adjust any grant
of shares of Restricted Stock, the Issue Date with respect to which has not
occurred as of the date of the occurrence of any of the following events, or any
grant of shares of Phantom Stock, to reflect any dividend, stock split, reverse
stock split, recapitalization, merger, consolidation, combination, exchange of
shares or similar corporate change as the Committee may deem appropriate to
prevent the enlargement or dilution of rights of Participants under the grant.
(c) Outstanding Options, LSARs, Tandem SARs, Stand-Alone SARs and
Dividend Equivalent Rights -- Increase or Decrease in Issued
Shares Without Consideration
Subject to any required action by the stockholders of the
Company, in the event of any increase or decrease in the number of issued shares
of Company Stock resulting from a subdivision or consolidation of shares of
Company Stock or the payment of a stock dividend (but only on the shares of
Company Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Company, the Committee shall
proportionally adjust the number of shares of Company Stock subject to each
outstanding Option, LSAR, Tandem SAR and Stand-Alone SAR, and the exercise
price-per-share of Company Stock of each such Option, LSAR, Tandem SAR and
Stand-Alone SAR and the number of any related Dividend Equivalent Rights.
(d) Outstanding Options, LSARs, Tandem SARs, Stand-Alone SARs and
Dividend Equivalent Rights -- Certain Mergers
Subject to any required action by the stockholders of the
Company, in the event that the Company shall be the surviving corporation in any
merger or consolidation (except a merger or consolidation as a result of which
the holders of shares of Company Stock receive securities of another
corporation), each Option, LSAR, Tandem SAR, Stand-Alone SAR and Dividend
Equivalent Right outstanding on the date of such merger or consolidation shall
pertain to and apply to the securities which a holder of the number of shares of
Company Stock subject to such Option, LSAR, Tandem SAR, Stand-Alone SAR or
Dividend Equivalent Right would have received in such merger or consolidatation
(e) Outstanding Options, LSARs, Tandem SARs, Stand-Alone SARs and
Dividend Equivalent Rights -- Certain Other Transactions
In the event of (i) a dissolution or liquidation of the Company,
(ii) a sale of all or substantially all of the Company's assets, (iii) a merger
or consolidation involving the Company in which the Company is not the surviving
corporation or (iv) a merger or consolidation involving the Company in which the
Company is the surviving corporation but the holders of shares of Company Stock
receive securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, each Option (including each LSAR, Tandem-SAR or Dividend
Equivalent Right related thereto) and Stand-Alone SAR (including each
Dividend Equivalent Right related thereto) outstanding immediately
prior to such event
-18-
<PAGE>
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or
Stand-Alone SAR was granted an amount in cash, for each share of
Company Stock subject to such Option or Stand-Alone SAR,
respectively, equal to the excess of (x) the value, as determined by
the Committee in its absolute discretion, of the property (including
cash) received by the holder of a share of Company Stock as a result
of such event over (y) the exercise price of such Option or
Stand-Alone SAR; or
(B) provide for the exchange of each Option (including any
related LSAR, Tandem SAR or Dividend Equivalent Right) and
Stand-Alone SAR (including any related Dividend Equivalent Right)
outstanding immediately prior to such event (whether or not then
exercisable) for an option on or stock appreciation right and
dividend equivalent right with respect to, as appropriate, some or
all of the property for which such Option or Stand-Alone SAR is
exchanged and, incident thereto, make an equitable adjustment as
determined by the Committee in its absolute discretion in the
exercise price of the option or stock appreciation right, or the
number of shares or amount of property subject to the option, stock
appreciation right or dividend equivalent right or, if appropriate,
provide for a cash payment to the Participant to whom such Option or
Stand-Alone SAR was granted in partial consideration for the exchange
of the Option or Stand-Alone SAR.
(f) Outstanding Options, LSARs, Tandem SARs, Stand-Alone SARs and
Dividend Equivalent Rights -- Other Changes
In the event of any change in the capitalization of the Company
or a corporate change other than those specifically referred to in Sections
16(c), (d) or (e) hereof, the Committee may, in its absolute discretion, make
such adjustments in the number and class of shares subject to Options, LSARs,
Tandem SARs, Stand-Alone SARs and Dividend Equivalent Rights outstanding on the
date on which such change occurs and in the per-share exercise price of each
such Option, LSAR, Tandem SAR and Stand-Alone SAR as the Committee may consider
appropriate to prevent dilution or enlargement of rights. In addition, if and to
the extent the Committee determines it is appropriate, the Committee may elect
to cancel each Option (including each LSAR, Tandem-SAR or Dividend Equivalent
Right related thereto) and Stand-Alone SAR (including each Dividend Equivalent
Right related thereto) outstanding immediately prior to such event (whether or
not then exercisable), and, in full consideration of such cancellation, pay to
the Participant to whom such Option or Stand-Alone SAR was granted an amount in
cash, for each share of Company Stock subject to such Option or Stand-Alone SAR,
respectively, equal to the excess of (i) the Fair Market Value of Company Stock
on the date of such cancellation over (ii) the exercise price of such Option or
Stand-Alone SAR
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of shares of stock
of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation, merger
or consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Company Stock subject to an Incentive Award or the exercise
price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
17. Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any
shares of Company Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date the Participant becomes the registered
owner of such shares. Except as otherwise expressly provided in Section 16
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
-19-
<PAGE>
18. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall confer
upon any Participant any right with respect to the continuation of his
Employment by the Company or interfere in any way with the right of the Company
or an Affiliate, subject to the terms of any separate employment agreement to
the contrary, at any time to terminate such Employment or to increase or
decrease the compensation of the Participant from the rate in existence at the
time of the grant of an Incentive Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
19. Securities Matters
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any interests in the Plan or any
shares of Company Stock to be issued hereunder or to effect similar compliance
under any state laws. Notwithstanding anything herein to the contrary, the
Company shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the Plan unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange on which
shares of Company Stock are traded. The Committee may require, as a condition of
the issuance and delivery of certificates evidencing shares of Company Stock
pursuant to the terms hereof, that the recipient of such shares make such
covenants, agreements and representations, and that such certificates bear such
legends, as the Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall be effective
only at such time as counsel to the Company shall have determined that the
issuance and delivery of shares of Company Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any securities exchange on which shares of Company Stock are
traded. The Committee may, in its sole discretion, defer the effectiveness of
any exercise of an Option granted hereunder in order to allow the issuance of
shares of Company Stock pursuant thereto to be made pursuant to registration or
an exemption from registration or other methods for compliance available under
federal or state securities laws. The Committee shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
granted hereunder. During the period that the effectiveness of the exercise of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain a refund of any amount paid with respect thereto.
20. Withholding Taxes
(a) Cash Remittance
Whenever shares of Company Stock are to be issued upon the
exercise of an Option, the occurrence of the Issue Date or Vesting Date with
respect to a share of Restricted Stock or the payment of a Stock Bonus, or in
connection with a Dividend Equivalent Right, the Company shall have the right to
require the Participant to remit to the Company, in cash, an amount sufficient
to satisfy the federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or payment prior to the delivery of
any certificate or certificates for such shares. In addition, upon the exercise
of an LSAR, Tandem SAR or Stand-Alone SAR, the grant of a Cash Bonus or the
making of a payment with respect to a share of Phantom Stock or a Dividend
Equivalent Right, the Company shall have the right to withhold from any cash
payment required to be made pursuant thereto an amount sufficient to satisfy the
federal, state and local withholding tax requirements, if any, attributable to
such exercise or grant.
-20-
<PAGE>
(b) Stock Remittance
At the election of the Participant, subject to the approval of
the Committee, when shares of Company Stock are to be issued upon the exercise
of an Option, the occurrence of the Issue Date or the Vesting Date with respect
to a share of Restricted Stock or the grant of a Stock Bonus, or a payment in
connection with a Dividend Equivalent Right, in lieu of the remittance required
by Section 20(a) hereof, the Participant may tender to the Company a number of
shares of Company Stock, the Fair Market Value of which at the tender date the
Committee determines to be sufficient to satisfy the federal, state and local
withholding tax requirements, if any, attributable to such exercise, occurrence,
grant or payment and not greater than the Participant's estimated total federal,
state and local tax obligations associated with such exercise, occurrence, grant
or payment.
(c) Stock Withholding
The Company shall have the right, when shares of Company Stock
are to be issued upon the exercise of an Option, the occurrence of the Issue
Date or the Vesting Date with respect to a share of Restricted Stock or the
grant of a Stock Bonus or a payment in connection with a Dividend Equivalent
Right, in lieu of requiring the remittance required by Section 20(a) hereof, to
withhold a number of such shares, the Fair Market Value of which at the exercise
date the Committee determines to be sufficient to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such exercise,
occurrence, grant or payment and is not greater than the Participant's estimated
total federal, state and local tax obligations associated with such exercise,
occurrence, grant or payment.
21. Amendment or Termination of the Plan
The Board of Directors may, at any time, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however, that if
and to the extent required under Section 422 of the Code (if and to the extent
that the Board of Directors deems it appropriate to comply with Section 422) and
if and to the extent required to treat some or all of the Incentive Awards as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, (if and to the extent that the Board of Directors deems it appropriate to
meet such requirements), no amendment shall be effective without the approval of
the stockholders of the Company, that (a) except as provided in Section 16
hereof, increases the number of shares of Company Stock with respect to which
Incentive Awards may be issued under the Plan, (b) modifies the class of
individuals eligible to participate in the Plan or (c) materially increases the
benefits accruing to individuals pursuant to the Plan. Nothing herein shall
restrict the Committee's ability to exercise its discretionary authority
hereunder pursuant to Section 4 hereof, which discretion may be exercised
without amendment to the Plan. No action under this Section 21 may, without the
consent of a Participant, reduce the Participant's rights under any previously
granted and outstanding Incentive Award except to the extent that the Board of
Directors determines that such amendment is necessary or appropriate to prevent
such Incentive Awards from constituting "applicable employee remuneration"
within the meaning of Section 162(m) of the Code.
22. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or
Stand-Alone SAR shall impose no obligation upon such Participant to exercise
such Option, LSAR, Tandem SAR or Stand-Alone SAR.
23. Transfers Upon Death
Upon the death of a Participant, outstanding Incentive Awards granted
to such Participant may be exercised only by the executors or administrators of
the Participant's estate or by any person or persons who shall have acquired
such right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award. Except as provided in this Section 23, or in any
-21-
<PAGE>
applicable agreement pusuant to Sections 6(d)(iv), 7(b)(iv), 8(b)(iv), or
9(c)(iv) of the Plan, no Incentive Award shall be transferable, and Incentive
Awards shall be exercisable only by a Participant during the Participant's
lifetime.
24. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
25. Limitations Imposed by Section 162(m)
Notwithstanding any other provision hereunder, prior to a Change in
Control, if and to the extent that the Committee determines the Company's
federal tax deduction in respect of an Incentive Award may be limited as a
result of Section 162(m) of the Code, the Committee may take the following
actions:
(a) With respect to Options, Tandem SARs, Stand-Alone SARs or
Dividend Equivalent Rights, the Committee may delay the payment in respect of
such Options, Tandem SARs, Stand-Alone SARs or Dividend Equivalent Rights until
a date that is within 30 days after the earlier to occur of (i) the date that
compensation paid to the Participant no longer is subject to the deduction
limitation under Section 162(m) of the Code and (ii) the occurrence of a Change
in Control. In the event that a Participant exercises an Option, Tandem SAR or
Stand-Alone SAR or would receive a payment in respect of a Dividend Equivalent
Right at a time when the Participant is a "covered employee," and the Committee
determines to delay the payment in respect of any such Incentive Award, the
Committee shall credit cash or, in the case of an amount payable in Company
Stock, the Fair Market Value of the Company Stock, payable to the Participant to
a book account. The Participant shall have no rights in respect of such book
account and the amount credited thereto shall not be transferable by the
Participant other than by will or laws of descent and distribution. The
Committee may credit additional amounts to such book account as it may determine
in its sole discretion. Any book account created hereunder shall represent only
an unfunded unsecured promise by the Company to pay the amount credited thereto
to the Participant in the future.
(b) With respect to Restricted Stock, Phantom Stock and Stock
Bonuses, the Committee may require the Participant to surrender to the Committee
any certificates with respect to Restricted Stock and Stock Bonuses and
agreements with respect to Phantom Stock, in order to cancel the awards of such
Restricted Stock, Phantom Stock and Stock Bonuses (and any related Cash Bonuses
or Dividend Equivalent Rights). In exchange for such cancellation, the Committee
shall credit to a book account a cash amount equal to the Fair Market Value of
the shares of Company Stock subject to such awards. The amount credited to the
book account shall be paid to the Participant within 30 days after the earlier
to occur of (i) the date that compensation paid to the Participant no longer is
subject to the deduction limitation under Section 162(m) of the Code and (ii)
the occurrence of a Change in Control. The Participant shall have no rights in
respect of such book account and the amount credited thereto shall not be
transferable by the Participant other than by will or laws of descent and
distribution. The Committee may credit additional amounts to such book account
as it may determine in its sole discretion. Any book account created hereunder
shall represent only an unfunded unsecured promise by the Company to pay the
amount credited thereto to the Participant in the future.
26. Failure to Comply
In addition to the remedies of the Company elsewhere provided for
herein, a failure by a Participant (or beneficiary or permitted transferee) to
comply with any of the terms and conditions of the Plan or the agreement
executed by such Participant (or beneficiary or permitted transferee) evidencing
an Incentive Award, unless such failure is remedied by such Participant (or
beneficiary or permitted transferee) within ten days after having been notified
of such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion, may determine.
-22-
<PAGE>
27. Effective Date of Plan
The Plan was adopted by the Board of Directors on September 27, 1999,
subject to approval by the stockholders of the Company. Incentive Awards may be
granted under the Plan at any time prior to the receipt of such stockholder
approval; provided, however, that each such grant shall be subject to such
approval. Without limitation on the foregoing, no Option, LSAR, Tandem SAR or
Stand-Alone SAR may be exercised prior to the receipt of such approval, no share
certificate shall be issued pursuant to a grant of Restricted Stock or Stock
Bonus prior to the receipt of such approval and no Cash Bonus or payment with
respect to a Dividend Equivalent Right or share of Phantom Stock shall be paid
prior to the receipt of such approval. If the Plan is not so approved on or
before [day before 1st anniversary of date of adoption], 2000 then the Plan and
all Incentive Awards then outstanding under the Plan shall forthwith
automatically terminate and be of no force or effect.
28. Term of the Plan
The right to grant Incentive Awards under the Plan will terminate
upon the expiration of 10 years after the date the Plan was adopted.
29. Application of Investment Company Act of 1940
Any provision of this Plan that would conflict with a provision of
the Investment Company Act of 1940, to the extent applicable to the Company or
any Affiliate, shall have no force or effect.
30. Forfeiture of Gain from Awards in Certain Events
To the extent that a Participant breaches any restrictive covenant
applicable to the Participant (such as a noncompetition, nonsolicitation or
nondisclosure covenant) within one year after the date on which the Participant
exercises an Option, LSAR, Tandem SAR or Stand-Alone SAR, or the date on which
any Restricted Stock or Phantom Stock vests, or the date on which the
Participant realizes income with respect to any other Incentive Award (each such
event, a "Realization Event"), then any gain realized by the Participant from
the Realization Event shall be paid by the Participant to the Company
immediately upon notice from the Company. Such gain shall be determined as of
the date of the Realization Event, without regard to any subsequent change in
the Fair Market Value of a share of Company Stock. To the fullest extent
permitted by applicable law, the Company shall have the right to offset such
gain against any amounts otherwise owed to the Participant by the Company
(whether as wages, vacation pay or pursuant to any benefit plan or other
compensatory arrangement or otherwise).
31. Applicable Law
Except to the extent preempted by any applicable federal law, the
Plan will be construed and administered in accordance with the laws of the State
of New York, without reference to the principles of conflicts of law.
-23-
Exhibit 21.1
Subsidiaries of THCG, Inc.
Jurisdiction of Incorporation or
Name of Subsidiary Organization
Pacific Financial Services Corp. Washington
Inland Financial Corporation Washington
Walnut Consulting, Inc. Delaware
Tower Hill Securities, Inc. New York
THCG, LLC Delaware
Walnut GP, LLC Delaware
WGP Management Company, Inc. Delaware
Walnut Growth Partners Limited Partnership Illinois
Mercury Coast Inc. Delaware
THCG Ventures, LLC Delaware
THCG Venture Partners I, LLC Delaware
THCG Partners, LLC Delaware
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 333-33028) of our report dated March 16, 2000 on the
financial statements included in the 1999 annual report on Form 10-K of THCG,
Inc.
/s/ Richard A. Eisner & Company, LLP
------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
March 29, 2000
Exhibit 23.2
Consent of Independent
Certified Public Accountants
THCG, Inc.
New York, New York
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of our reports dated May 20, 1998 and January 26, 1999, appearing in
the Current Report on Form 8-K/A of THCG, Inc. relating to the March 31, 1998
and December 31, 1998 financial statements of Hambro America Securities, Inc.
respectively which is incorporated by reference in THCG, Inc.'s previously filed
Registration Statement on Form S-8 (Registration No. 333-33028).
/s/ Cohen & Schaeffer, P.C.
---------------------------
Cohen & Schaeffer, P.C.
New York, New York
March 29, 2000
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