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Vfinance - Stock Escrow Agreement
Exhibit 10.1
STOCK ESCROW AGREEMENT
THIS STOCK ESCROW AGREEMENT (this "Agreement") is dated as of November 2, 2004, among vFinance Investments Holdings, Inc., a Florida corporation ("Buyer"), vFinance, Inc., a Delaware corporation ("Parent"), Global Partners Securities, Inc. a New York corporation ("Global"), Level2.com, Inc., a Florida corporation ("Level2") and Edwards & Angell, LLP, a Massachusetts limited liability partnership, as escrow agent (the "Escrow Agent"). Buyer, Parent, Global, Level2 and Escrow Agent are hereinafter, the "Parties".
R E C I T A L S:
WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of the date hereof (the "Asset Purchase Agreement"), by and between Buyer and Global, Buyer is inter alia acquiring certain of the assets of Global ("Assets");
WHEREAS, the Asset Purchase Agreement provides that, as of the date hereof, Buyer shall deliver to the Escrow Agent (a) that number of restricted shares of common stock, par value $0.01 per share, of Parent as set forth in the Asset Purchase Agreement (the "APA Stock"), and (b) a warrant to purchase that number of shares of common stock, par value $0.01 per share, of Parent as set forth in the Asset Purchase Agreement (the "APA Warrant");
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase Agreement"), by and between Buyer and Level2, Buyer is inter alia acquiring all of the issued and outstanding capital stock of Equity Station, Inc. ("ESI") (the "ESI Stock");
WHEREAS, the Stock Purchase Agreement provides that, as of the date hereof, Buyer shall deliver to the Escrow Agent (a) that number of restricted shares of common stock, par value $0.01 per share, of Parent as set forth in the Stock Purchase Agreement (the "SPA Stock"), and (b) a warrant to purchase that number of shares of common stock, par value $0.01 per share, of Parent as set forth in the Stock Purchase Agreement (the "SPA Warrant"); (collectively the APA Stock and the SPA Stock are hereinafter, the "Parent Stock"; collectively the APA Warrant and the SPA Warrant are hereinafter, the "Parent Warrants");
WHEREAS, it is contemplated under each of the Asset Purchase Agreement and the Stock Purchase Agreement that Parent will deposit or cause to be deposited into escrow certificates representing in the aggregate shares of Parent Stock and warrants representing in the aggregate the Parent Warrants (the "Escrow Shares") as set forth in Schedule A attached hereto to be held and disbursed by the Escrow Agent in accordance with Section 7 of this Agreement;
WHEREAS, Level2 will deposit or cause to be deposited into escrow certificates representing ESI Stock to be held and disbursed by the Escrow Agent in accordance with Section 7 of this Agreement;
WHEREAS, the National Association of Securities Dealers, Inc. ("NASD") has not approved the transactions contemplated under the Asset Purchase Agreement and Stock Purchase Agreement as of the date hereof;
WHEREAS, the Escrow Agent is willing to act as the Escrow Agent hereunder;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereby agree as follows:
SECTION 1. Appointment of Escrow Agent; Capitalized Terms.
(a) Buyer, Parent, Global and Level2 hereby appoint the Escrow
Agent to serve as, and the Escrow Agent hereby agrees to act as, escrow
agent upon the terms and conditions of this Agreement;
(b) Capitalized terms used but not defined in this Agreement
have the meanings ascribed to them in the Asset Purchase Agreement or
the Stock Purchase Agreement, respectively.
SECTION 2. Establishment of the Escrow.
(a) Pursuant to the Asset Purchase Agreement and the Stock Purchase Agreement, Parent shall deliver to the Escrow Agent on the date hereof the certificates representing the Parent Stock and the Parent Warrants endorsed in blank or accompanied by duly executed stock transfer powers or appropriate transfer instruments. Level2 shall deliver to the Escrow Agent on the date hereof the certificates representing the ESI Stock endorsed in blank or accompanied by duly executed stock transfer powers or appropriate transfer instruments. The Escrow Agent shall hold the Escrow Shares and ESI Stock in escrow pursuant to this Agreement.
(b) Each of Parent and Level2 confirm to the Escrow Agent that the Escrow Shares and ESI Stock, respectively, are free and clear of all liens, claims and encumbrances except as may be created by this Agreement, the Asset Purchase Agreement and the Stock Purchase Agreement.
SECTION 3. Purpose of the Escrow. The Escrow Shares and ESI Stock will be deposited with the Escrow Agent and held by the Escrow Agent to pay the Purchase Price under each of the Asset Purchase Agreement and Stock Purchase Agreement under the terms and conditions herein, to secure: (a) the indemnification obligations of Global contained in each of the Asset Purchase Agreement and Level2 contained in the Stock Purchase Agreement, and (b) to secure the Escrow Shares and ESI Stock pending NASD Approval.
SECTION 4. Percentage Interest in the Escrow Shares. Attached hereto as Schedule A is a schedule listing each Global and Level2's initial percentage interest in the Escrow Shares (the "Percentage Interest"). The Percentage Interest of each of Global and Level2 shall be adjusted as necessary to comply with this Agreement.
SECTION 5. Shareholder Rights.
(a) While any Escrow Shares and ESI Stock are held in escrow, and pending the distribution thereof to Global, Level2, or Buyer as the case may be, in connection with any distributions of Escrow Shares and ESI Stock in accordance with Section 7 hereof, each of Global, Level2 and Buyer will have full rights with respect solely to the Escrow Shares and ESI Stock issued in such shareholder's name (including, without limitation, the right to vote such shares as set forth in Section 5(b) below) and to receive distributions thereon.
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(b) Each of Global, Level2 and Buyer shall have the right to exercise any voting rights solely with respect to the Escrow Shares and ESI Stock attributable to such stockholder.
(c) Each of Global, Level2 and Buyer shall be responsible for and shall pay and discharge all taxes, assessments and governmental charges imposed on or with respect to the Escrow Shares and ESI Stock attributable to such stockholder.
SECTION 6. Share Value. The parties hereto agree and acknowledge that, for all purposes under this Agreement, each share of Parent Stock held in escrow pursuant to this Agreement shall be valued at Twenty Cents ($0.20) (the "Share Value"), and each Warrant Share shall be valued at the difference between $0.11 and the Fair Market Value of the Parent Stock at such time (the "Warrant Value"). For purposes of this Agreement, "Fair Market Value" shall mean the last reported sale price of Parent Stock, or in case no such reported sale takes place on such day, the average of the last reported sales prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Parent Stock is listed or admitted to trading or if the Parent Stock is not listed or admitted to trading on any national securities exchange, the last reported sale price as furnished by the NASD through NASDAQ or the OTC Bulletin Board if NASDAQ is no longer reporting such information, or if the Parent Stock is not quoted on NASDAQ or the OTC Bulletin Board, as determined in good faith by resolution of the Parent's Board of Directors, based on the best information available to it for the day immediately preceding such issuance or sale.
SECTION 7. Payments from the Escrow Funds.
(a) If, at any time on or prior to the Expiration Date (as defined below), Buyer shall deliver to the Escrow Agent a certificate of Buyer, executed by an authorized officer of Buyer (a "Buyer Certificate"), which Buyer Certificate shall:
(i) state that Buyer has incurred Losses under the Asset Purchase Agreement or the Stock Purchase Agreement (an "Indemnification Item");
(ii) state the aggregate amount of such Indemnification Item and the number of shares of Parent Stock and/or Parent Warrants necessary to satisfy the Indemnification Item based on the Share Value and the Warrant Value; and
(iii) specify in reasonable detail the nature and amount of each individual Indemnification Item, including whether such Indemnification Item results from a breach of representation or warranty or covenant of Global or of Level2.
The Escrow Agent shall, promptly upon receipt of such Buyer Certificate, deliver a copy of such Buyer Certificate to Global and/or Level2 as applicable. For purposes of this Agreement, the "Expiration Date" shall be the date which is 15 days after the first three complete calendar months of trading by Global's emerging markets group debt traders that become associated with, or work for, Buyer or Parent as a result of this transaction after transfer of Global's clearing arrangement for this group with Jefferies from Global to Parent, and the date which is 15 days after the first four complete calendar months of trading using Merrill Lynch as ESI's clearing firm.
(b) If Global or Level2 shall object to any amount claimed in connection with any Indemnification Item specified in any Buyer Certificate, Global and/or Level2 shall, within fifteen (15) Business Days after delivery by the Escrow Agent to either party of such Buyer Certificate, deliver to the
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Escrow Agent a certificate, executed by an authorized officer of Global and/or Level2, as applicable (a "Seller Certificate"), (i) specifying each such amount to which the Seller objects and (ii) specifying in reasonable detail the nature and basis for each such objection. Promptly upon receipt of a Seller Certificate, the Escrow Agent shall deliver a copy of such Seller Certificate to Buyer and Parent. If the Escrow Agent shall not have received a Seller Certificate objecting to the amount claimed with respect to an Indemnification Item within such fifteen (15) Business Day period after delivery to Global and/or Level2, as applicable, of a Buyer Certificate specifying such Indemnification Item, Global and Level2, as applicable, shall be deemed to have acknowledged the correctness of the amount claimed on such Buyer Certificate with respect to such Indemnification Item, and the Escrow Agent shall thereafter, as soon as administratively practicable, but subject to Section 7(g) hereof, deliver to Buyer (such delivery to be applied to each of Global and Level2's percentage interest in the Escrow Shares in accordance with their respective percentage responsibility for such Indemnification Items) such number of Escrow Shares, as specified in the Buyer Certificate, equal to the lesser of (A) the amount claimed in the Buyer Certificate with respect to such Indemnification Item with Warrant Value (with respect to the Warrant Shares) and the Share Value (with respect to the Escrow Shares) and (B) the number of Warrant Shares and Escrow Shares then remaining in escrow.
(c) If the Escrow Agent receives, within fifteen (15) Business Days after delivery to Global and Level2 of a Buyer Certificate, a Seller's Certificate objecting to the amount claimed with respect to any Indemnification Item specified in such Buyer Certificate, the amount so objected to shall be held by the Escrow Agent and shall not be released from escrow except in accordance with either (a) written instructions executed by each of Global and/or Level2, as applicable, and Buyer or (b) written instructions of Buyer consistent with the final nonappealable judgment of a court having jurisdiction over the matters relating to the claim by Buyer for indemnification from Global and/or Level2, as the case may be, after which time the Escrow Agent shall, as soon as administratively practicable, subject to Section 7(g) hereof, deliver to Buyer (such delivery to be applied to each of Global and Level2's percentage interest in the Escrow Shares in accordance with their respective percentage responsibility for such Indemnification Items) such number of Escrow Shares, as specified in such judgment, or if not so specified, as specified in joint written instructions signed by Buyer, Global and Level2.
(d) Within five (5) business days following the Expiration Date, Buyer shall deliver to the Escrow Agent (with copies to Parent, Global and Level2) written instructions for the release of the Escrow Shares (the "Distribution Notice") which notice shall include a computation of the Actual Revenues (defined below) and the number of Escrow Shares to be delivered to each of Global and Level2, or to be returned to the Parent, as follows:
(i) if the actual aggregate revenues generated
from ESI during the three complete calendar
months following thirty (30) days of trading
using Merrill Lynch as ESI's clearing firm
("ESI Revenue") is $500,000 or more, then
the Escrow Agent shall, as soon as
administratively practicable after receipt
of the Distribution Notice, and subject to
Section 7(g) hereof, deliver to Level2 its
respective Escrow Shares pursuant to the
Distribution Notice (the "ESI Escrow
Shares").
(ii) if ESI Revenue is less than $500,000, then
the Escrow Agent shall, as soon as
administratively practicable after receipt
of the Distribution Notice, subject to
Section 7(g) hereof, deliver (i) to Parent
the Cancelled Shares (as defined herein) and
(ii) to Level2 its respective remaining pro
rata ESI Escrow Shares after reducing such
ESI Escrow Shares by the amount of Cancelled
Shares, as determined below in this Section
7 (e).
(iii) if the actual aggregate revenue generated
by Vfinance's equity trading group
(consisting of the former Global traders,
as well as Vfinance's traders) during the
three complete calendar months following the
date hereof, combined with the actual
aggregate revenue generated by (y) the
former Global ITG agency business and (z)
the former Global emerging markets debt
group, that become associated with Vfinance
as a result of the acquisition, during the
three complete calendar months following the
transfer of Global's clearing arrangement
with Jefferies from Global to Vfinance (the
"Global Increment") is more than $1,000,000
above the monthly average of revenues
generated by Vfinance's trading group for
the twelve months prior to the quarter ended
June 30, 2004 times three, then the Escrow
Agent shall, as soon as administratively
practicable after receipt of the
Distribution Notice, and subject to Section
7(g) hereof, deliver to Global its
respective Escrow Shares pursuant to the
Distribution Notice (the "Global Escrow
Shares").
(iv) if the Global Increment is less than
$1,000,000, then the Escrow Agent shall, as
soon as administratively practicable after
receipt of the Distribution Notice, subject
to Section 7(g) hereof, deliver (i) to
Parent the Cancelled Shares (as defined
herein) and (ii) to Global its respective
remaining pro rata Global Escrow Shares
after reducing such Global Escrow Shares by
the amount of Cancelled Shares, as
determined below in this Section 7 (e).
(e) Notwithstanding anything contained in this Section 7 to the contrary, following the Expiration Date, Buyer shall be entitled to assert claims against the Escrow Shares in respect of Losses that were incurred prior to the Expiration Date. Such Losses may include Losses associated with Vfinance not meeting the revenue performance targets described in (d) above, with such Losses calculated according to the following formula ("Formula"). For Level2, Escrow Shares subject to cancellation (the "Cancelled Shares") as a result of not meeting the revenue targets indicated in this Section 7 shall equal total ESI Escrow Shares multiplied by X where X, expressed as a percentage, equals the difference of A minus B, where A equals the percentage by which the ESI Revenue is below $500,000 and where B equals the percentage by which the total revenue of Parent for that same three month period (less the ESI Revenue and the Global Increment) ("Parent Revenue") is less than $6,970,000, which is the adjusted quarterly revenue figure for Parent based on its trailing twelve months revenuesFor example: if ESI Revenue is 20% less than $500,000 (such that A equals 20) and Parent Revenue is 10% less than $6,970,000 (such that B equals 10), then X would equal 10% and the amount of Cancelled Shares would be equal to 10% of the ESI Escrow Shares. For Global, Escrow Shares subject to cancellation as a result of not meeting the revenue targets indicated in this Section 7 shall equal total Global Escrow Shares multiplied by Y where Y, expressed as a percentage, equals the difference of C minus B, where C equals the percentage by which the Global Increment is below $1,000,000. For example: if the Global Increment is 20% less than $1,000,000 (such that C equals 20) and Parent Revenue is 10% less than $6,970,000 (such that B equals 10), then Y would equal 10% and the amount of Cancelled Shares would be equal to 10% of the Global Escrow Shares. For the purposes of this calculation, Parent may not apply revenues of any new acquisitions closed after September 30, 2004 to the $6,970,000 figure.
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For the purposes of this Section 7(e), Parent Revenue shall not include any revenues or earnings associated with any acquisitions or mergers consummated after September 30, 2004; and if B or X or Y is a negative number, then B or X or Y, as the case may be, shall be equal to zero. Furthermore, in order to aggregate the cumulative impact of the revenues generated for the benefit of both Global and Level2 shareholders, in the event that Escrow Shares held for Global or Level 2 are subject to cancellation as a result of a failure to achieve either of the revenue targets specified above, any excess revenue above the thresholds set forth above (by either Global's units or Level2's) may be credited to either Global or Level 2 (whosever's revenue target missed its mark) for the purposes of the Formula described above. For purposes of clarification, if ESI Revenue for the relevant performance measurement period equals $575,000 (leaving an extra $75,000), and the Global Increment is less than $1,000,000, then up to $75,000 may be added to the Global Increment prior to determining the Global Cancelled Shares, if any.
(f) With respect to Indemnification Items resulting from a breach of a representation or warranty or covenant of the Asset Purchase Agreement in the case of Global or the Stock Purchase Agreement in the case of Level2, any Escrow Shares transferred out of escrow pursuant to Section 7(b) shall be transferred out of such Party's Percentage Interest in the Escrow Shares and shall not be accounted against the Percentage Interest of the other in the Escrow Shares, and the Percentage Interests shall be adjusted accordingly.
(g) Notwithstanding anything contained in this Section 7 to the contrary, no Escrow Shares or ESI Stock shall be delivered by the Escrow Agent while NASD Approval is pending.
SECTION 8. Reversion of the Escrow Shares and ESI Stock. If the NASD rejects the transfer of control as contemplated under the Asset Purchase Agreement and Stock Purchase Agreement, the Escrow Agent shall, as soon as reasonably practicable, deliver the Parent Stock and the Parent Warrants to Parent and the ESI Stock to Level2.
SECTION 9. Maintenance of the Escrow Shares and ESI Stock. The Escrow Agent shall continue to maintain the Escrow Shares and ESI Stock until the earlier of (i) the time at which there shall not be Parent Warrants, Parent Stock and ESI Stock in escrow, and (ii) the termination of this Agreement.
SECTION 10. Assignment of Rights to the Escrow Shares; Assignment of Obligations; Successors. This Agreement may not be assigned by operation of law or otherwise without the express written consent of the other parties hereto (which consent may be...
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