Joint Venture Agreement

EXHIBIT 10.36


JOINT VENTURE AGREEMENT


BY AND BETWEEN


ASHTON TECHNOLOGY GROUP, INC.


AND


KINGSWAY ELECTRONIC SERVICES LIMITED


DATED AS OF
DECEMBER 16, 1999


TABLE OF CONTENTS


Page


ARTICLE 1 DEFINITIONS 2 1.1 Definitions 2 1.2 Additional Definitions 11 1.3 Interpretation and Construction of This Agreement 12


ARTICLE 2 FORMATION AND OFFICES 12 2.1 Formation 12 2.2 Principal Executive Offices and Other Offices 12 2.3 Purpose of Joint Venture 13


ARTICLE 3 CAPITALIZATION OF THE COMPANY 13 3.1 Authorized Capital; Initial Subscriptions 13 3.2 Contributions to the Company 13 3.3 Initial Capital Contributions of the Parties 13 3.4 Additional Capital Contributions of the Parties 13 3.5 Failure to Make Additional Capital Contributions 14 3.6 Loans 14 3.7 Pre-emptive Rights 15 3.8 Distributions 15 3.9 Business Plan 16 3.10 Preparation of Approved Annual Budget 16 3.11 Approved Annual Budget for Initial Financial Year 16


ARTICLE 4 OPERATIVE AGREEMENTS 16 4.1 Operative Agreements 16


ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARTIES 16 5.1 Representations and Warranties of ATG 16 5.2 Representations and Warranties of Kingsway 17


ARTICLE 6 CERTAIN COVENANTS 18 6.1 Further Assurances 18 6.2 Commitment of Parties to the Joint Venture 19 6.3 Effect of Applicable Law 19 6.4 Notice of Party Change of Control 19


ARTICLE 7 MANAGEMENT 19 7.1 Composition of the Boards 19 7.2 Responsibilities of the Company Board 21


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7.3 Certain Restrictions 21 7.4 Language 21 7.5 Officers 21 7.6 Compensation 21 7.7 Management of Subsidiaries 21


ARTICLE 8 GOVERNANCE PROVISIONS 21 8.1 Meetings; Quorum; Notice 21 8.2 Removal; Resignation; Vacancies 22 8.3 No Remuneration 23


ARTICLE 9 INDEMNIFICATION 23 9.1 Indemnification 23


ARTICLE 10 DEADLOCKS 24 10.1 Deadlocks 24


ARTICLE 11 TRANSFERS OF VENTURE INTERESTS 25 11.1 General Restrictions 25 11.2 Permitted Transferees 25 11.3 Right of First Refusal 25 11.4 Party Change of Control 26 11.5 Governmental Approvals 27 11.6 Closing of Purchase of Venture Interests 27


ARTICLE 12 FINANCIAL AND ACCOUNTING MATTERS 27 12.1 Books and Records; Financial Year 27 12.2 Financial Information 27 12.3 Right of Inspection of Books 27 12.4 Accounting Principles 27 12.5 Auditors 27


ARTICLE 13 OTHER ACTIVITIES BY THE PARTIES; EXPANSION OF TERRITORY; CONFIDENTIALITY 28 13.1 In General 28 13.2 Non-Competition Obligations 28 13.3 Non-Competition Exceptions 28 13.4 Expansion of Territory 29 13.5 Confidentiality 29


ARTICLE 14 TERM AND TERMINATION DEFAULT 29 14.1 Term of KAA 29 14.2 Termination of Joint Venture 30 14.3 Termination Notice 30


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14.4 Termination Upon Default, Etc 31 14.5 Other Terminations, Etc 31 14.6 Closing 31 14.7 Termination by Dissolution 31


ARTICLE 15 POST TERMINATION PROVISIONS 31 15.1 Consequences of Termination 31 15.2 Non-Solicitation 32 15.3 Transition Plan 32


ARTICLE 16 NEGOTIATIONS; ARBITRATION; SUBMISSION TO JURISDICTION 16.1 Negotiations; Arbitration 32


ARTICLE 17 MISCELLANEOUS 33 17.1 Notices 33 17.2 Applicable Law 34 17.3 Severability 34 17.4 Amendments 34 17.5 Waiver 34 17.6 Counterparts 34 17.7 Entire Agreement 34 17.8 No Assignment 34 17.9 No Third-Party Beneficiaries 34 17.10 Publicity 35 17.11 Construction 35 17.12 Disclaimer of Agency 35 17.13 Relationship of the Parties 35 17.14 Fiduciary Duties 35


EXHIBITS Exhibit A - ATG License Agreement Exhibit B - Employment Agreement Exhibit C - Territory Exhibit D - Stock Option Plan Exhibit E - Kingsway/POP Exchange Agreement


SCHEDULES Schedule 3.8 - Business Plan Schedule 3.10 - Initial Year Budget Schedule 5.1(d) - List of Finders and Brokers Schedule 5.1(f) - Competition Schedule 5.2(d) - List of Finders and Brokers Schedule 5.2(f) - Competition Schedule 7.5 - List of Officers


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JOINT VENTURE AGREEMENT


JOINT VENTURE AGREEMENT (this "Agreement"), is made and entered into as of this 16th day of December, 1999 by and between Ashton Technology Group, Inc. ("ATG"), a company organized under the laws of Delaware, United States, and Kingsway Electronic Services Limited ("Kingsway"), a company organized under the laws of the British Virgin Islands; and together with ATG, sometimes referred to herein collectively as the "Parties" and individually as a "Party"), for the express purpose of forming Kingsway ATG Asia Limited, a company to be organized under the laws of the British Virgin Islands (the "Company" or "KAA"), and such subsidiaries of KAA ("JV Companies") as KAA may choose to establish for the purpose of effectuating this Agreement.


WITNESSETH


WHEREAS, ATG and certain subsidiaries develop, deploy, and operate on-line transaction systems primarily in the United States and own and have developed an electronic trading system commonly referred to as "eVWAP" for use by exchanges, institutions, money managers and broker-dealers to which such customers submit, directly and confidentially, buy and sell orders and related systems for matching such orders and executing such trades (collectively, the "eVWAP System");


WHEREAS, Kingsway and certain of its affiliates operate brokerage and investment banking businesses throughout the Asia Pacific region and have access to various institutional and retail brokerage customers who may be interested in utilizing an eVWAP developed to match buy and sell orders in Asia Pacific equity securities (hereinafter referred to as "Asian eVWAP");


WHEREAS, it is anticipated that the Parties desire to co-develop and/or co- operate and/or co-market and/or co-utilize additional alternative trading systems (ATSs) and distribution systems for seamless use by US and Asian institutions as well as other financial intermediaries such as broker-dealers and banks;


WHEREAS, it is anticipated that the ATSs and distribution systems will initially be deployed in the Hong Kong market and will be expanded to other Asia Pacific territories and the Parties will form KAA and subsidiaries of KAA for the purpose of developing and deploying ATSs and distribution systems for use in such territories and to market and promote within the Asia Pacific region utilization of similar systems operated by ATG and its affiliates and licensees outside such region; and


WHEREAS, in connection therewith, the Parties desire to make certain contributions to the Company of working capital, to provide for the management of the Company and for certain restrictions on the transferability of their respective Equity Interests in the Company, among other things, all in furtherance of the objectives set forth above and subject to the terms and conditions hereinafter set forth.


NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements contained herein, the Parties hereto, intending to be legally bound, hereby agree as follows:


ARTICLE 1
DEFINITIONS


1.1 DEFINITIONS. As used herein, the following terms shall have the following meanings, unless the context otherwise requires:


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"Affiliate" shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under common Control with, such Person. The JV Companies shall not be deemed Affiliates of the Parties or their Affiliates for purposes of this Agreement.


"Agreement" shall mean this Joint Venture Agreement made between ATG, Kingsway, and the Company, as it may be amended from time to time.


"Applicable Law" shall mean all applicable provisions of all (i) constitutions, treaties, statutes, laws (including common law), rules, regulations, ordinances or codes of any Governmental Authority, and (ii) orders, decisions, injunctions, judgments, awards and decrees of any Governmental Authority.


"Applicable Rate" shall mean, during any period during which interest is due and payable, the rate of interest per annum then being charged with respect to the then outstanding Senior Debt of the Company; PROVIDED, HOWEVER, if no such Senior Debt is then outstanding, "Applicable Rate" shall mean the then current U.S. dollar prime rate established by U.S. banks, as quoted in the Wall Street Journal.


"ATG License Agreement" shall mean the ATG License Agreement dated as of even date herewith among ATG, Universal Trading Technologies Corporation, and KAA, a true and correct copy of which is attached hereto as EXHIBIT A.


"Authorized Investments" shall mean, at any time, (i) any time deposit, certificate of deposit or bankers acceptance, maturing not more than one year after such time, maintained with or issued or guaranteed by either (a) a commercial banking institution (including U.S. branches of foreign banking institutions) that is a member of the Federal Reserve System and has assets of not less than $1,000,000,000, or (b) a commercial banking institution located in the Territory with assets of not less than $1,000,000,000, (ii) U.S. or Asia Pacific government or local authority guaranteed securities, maturing not more than one year after such time or (iii) commercial paper, maturing not more than nine months after the date of issue, which is issued by a corporation (other than an Affiliate of a Party) organized under the laws of any state of the United States, the District of Columbia or any country in the Territory and rated at least AAA by Standard & Poor's or the equivalent rating by Moody's rating services; PROVIDED, HOWEVER, an Authorized Investment must be denominated in U.S. dollars.


"Bankruptcy" shall mean, with respect to any Person, (i) the commencement, under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, appointment of examiner, dissolution, insolvency or liquidation or similar Applicable Law of any jurisdiction, whether now or hereafter in effect, by such Person of a case or proceeding seeking (A) the entry as to such Person of an order of relief, (B) such Person's own bankruptcy, liquidation, reorganization, rehabilitation or composition or adjustment of debts, or (C) a suspension or moratorium of payments, (ii) the commencement against such Person of any case or proceeding of the type described in clause (i) of this definition which remains undismissed for a period of 30 days; (iii) the appointment of a custodian, trustee, administrator or similar official under any Applicable Law described in clause (i) of this definition with respect to such Person, or the taking charge by such custodian, trustee, administrator or similar official, of all or any substantial part of the property of such Person; (iv) any adjudication that such Person is insolvent or bankrupt; (v) the entering of any order of relief in, or other order approving, any case or proceeding of the type described in clause (i) of this definition; (vi) the making by such Person of a general assignment for the benefit of its creditors; (vii) the failure by such Person to pay, or the statement by such Person that it is unable to pay or shall be unable or deemed unable to pay its debts generally as they become due under Applicable Law; (viii) the calling by such Person of a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or (ix) any indication by such Person, either by an act or failure to act, of its consent to, approval of or acquiescence in any of the actions, orders or events described in the foregoing clauses of this definition.


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"Business Day" shall mean any day on which commercial banks in each of the cities of New York and Hong Kong are normally open for the conduct of commercial banking business.


"Business Plan" shall mean the Business Plan referred to in Section 3.8 and implemented as provided herein.


"Competing Services" shall mean, (i) the JV Business described in clause (a) of Section 2.3 and (ii) any services in the Territory substantially similar to such JV Business, PROVIDED, HOWEVER, nothing herein shall preclude either of the Parties from conducting any business activity which is being conducted by it on the date of this Agreement or the date of termination of this Agreement (in the case of ATG, outside the Territory), or that is derived from the business activity being conducted by it on the date of this Agreement or the date of termination of this Agreement and is not substantially similar to such JV Business, or, in the case of Kingsway and its Affiliates, any internet-based or on-line securities or other brokerage business; PROVIDED, HOWEVER, that the utilization by Kingsway or its Affiliates of order-trading services shall not be deemed a Competing Service so long as Kingsway and its Affiliates do not hold any ownership, financial or other interest therein other than as a broker.


"Constituent Documents" shall mean the charters, bylaws, memorandum or articles of association, or such other similar documents as may be required or otherwise entered into in connection with the formation pursuant to Section 2.1(a).


"Contract" shall mean any loan or credit agreement, note, bond, indenture, mortgage, deed of trust, lease, franchise, contract, or other agreement, obligation, instrument or binding commitment of any nature.


"Control" (including, with its correlative meanings, "Controlled by" and "under common Control with") shall mean, with respect to any Person, any of the following: (i) ownership, directly or indirectly, by such Person of equity securities entitling it to exercise in the aggregate more than fifty percent (50%) of the voting power of the equity share capital of the entity in question, or (ii) the possession by such Person of the power, directly or indirectly, (A) to elect a majority of the board of directors (or equivalent governing body) of the entity in question; or (B) to direct or cause the direction of the management and policies of or with respect to the entity in question, whether through ownership of securities, by Contract or otherwise.


"Distribution" shall mean any distribution by the Company by means of any dividend payment, whether in cash, shares, property, other Equity Interests or otherwise, any payment or application of any of its assets to purchase, redeem or otherwise retire Equity Interests held by a Party, any distribution by way of reduction of capital, partial liquidation or otherwise in respect of any such Equity Interests held by such Party or any interest or other payment in respect of, or any repayment, repurchase or redemption of, Subordinated Debt of the Company or any Subsidiary of the Company held by or on behalf of a Party.


"Employment Agreements" shall mean, collectively, the (i) Employment Agreement between KAA and Richard Yin, and (ii) other Employment Agreements entered into between KAA and senior management of KAA, true and correct copies of which are attached hereto as EXHIBIT B.


"Equity Interest" shall mean in relation to KAA, the voting common stock of KAA, any subsequently issued classes or series of any other capital stock of KAA and any debt or other right convertible into Share Capital of the Company.


"Financial Year" shall mean the period commencing July 1 in any year and ending on June 30 of the following year, except that the first Financial Year with respect to KAA formed pursuant to Article 2 hereof, shall commence on the date of its formation and end on June 30, 2000.


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"GAAP" shall mean generally accepted accounting principles as in effect from time to time in Hong Kong or the Asia Pacific Territory in which the JV Company operates.


"Governmental Approval" shall mean any consent, approval, authorization, waiver, grant, concession, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Governmental Authority.


"Governmental Authority" shall mean any federation, nation, state, sovereign or government, any federal, supranational, regional, state or local political subdivision, any governmental or administrative body, instrumentality, department or agency, any self regulatory organization or any court, administrative hearing body, commission or other similar dispute resolving panel or body, and any other entity exercising executive, legislative, judicial, regulatory or administrative functions of a government to which KAA and/or any Party hereto is subject.


"Indebtedness" shall mean, without duplication, all (i) obligations for borrowed money or other extensions of credit, whether secured or unsecured and whether absolute or contingent, including, without limitation, unmatured reimbursement obligations with respect to letters of credit or guarantees issued on behalf of any Person and all obligations for the deferred purchase price of property, including finance leases and hire purchase agreements, (ii) obligations evidenced by bonds, notes, debentures or other similar instruments, (iii) obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired by the Company or its Subsidiaries, (iv) capital lease obligations, sale-leaseback or similar obligations and (v) all guarantees, endorsements or other contingent or surety obligations (other than endorsement of instruments for collection in the ordinary course of business) with respect to obligations of others, including, without limitation, any obligation to furnish funds, directly or indirectly (whether by virtue of partnership arrangements, commission agreements, or otherwise), through the purchase of goods, supplies or services or by way of shares purchase, capital contribution, advance or loan.


"Injunction" shall mean any preliminary, temporary, interim or final injunction, temporary restraining order or other court ordered legal prohibition or equitable remedy requiring or prohibiting action.


"Invest or Participate" (including, with its correlative meanings, "Investment or Participation", "Invested or Participated" and "Investing or Participating"), as it relates to a Party or any of its Affiliates, shall mean, with respect to any other Person that Offers Competing Services, directly or indirectly through an Affiliate, (a) to acquire, as a principal, partner, shareholder, beneficial owner or in any similar capacity, any ownership interest in such Person or (b) by contract or otherwise to manage, operate or finance such Person, or to participate in the management, operation or financing of such Person, or to act as agent, representative, consultant or in any similar capacity for such Person, or to use the name of such Person, or permit the use of the name of such Party or its Affiliate by such Person, to the extent that any of such activities described in this clause (b) are related to such Competing Services.


"Joint Venture" shall mean KAA and the rights and obligations of the Parties and their Affiliates under this Agreement and the other Operative Agreements.


"Judgment" shall mean any judgment, order, judicial decree or arbitral award.


"JV Companies" shall mean, collectively, KAA, its respective Subsidiaries, if any, that may hereafter be formed.


"Major Competitor" shall mean a Person or any Affiliate of such Person, which materially competes with the Company or any Subsidiary through the offering of Competing Services, or a Person which has taken substantial steps to become such a competitor.


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"Material Non-Monetary Default" shall mean a breach by a Party of any of the terms or provisions of Article 13 of this Agreement, which breach is not cured by such Party within thirty (30) days after written notice hereof is furnished to such Party by the other Party.


"Offer" (including, with its correlative meanings, "Offering" or "Offered") shall mean, with respect to electronic brokerage related products and services, directly or indirectly, offering, producing, providing, selling, promoting, distributing or marketing such product or service.


"Operative Agreements" shall mean all agreements that are exhibits to this Agreement and such other agreements that the Parties enter into for the purpose of fostering the Joint Venture.


"Party" or "Parties" shall have the respective meanings ascribed to such terms in the first paragraph hereof.


"Party Change of Control", with respect to a Party, shall mean the acquisition by any Person (other than William Lam or his Affiliates) or group of Persons acting in concert, directly or indirectly, of equity securities of such Party (or such Party's parent entity) entitling it or them to exercise in the aggregate fifty percent (50%) or more of the voting power of such Party (or such Party's parent entity), unless, in the case of Kingsway, William Lam maintains effective management control following such acquisition.


"Party Subordinated Debt" shall mean Subordinated Debt of the Company owing to one of its Parties that is subordinated to any other Indebtedness of the Company other than other Subordinated Debt of the Company owing to one of its Parties.


"Percentage Interest" with respect to any Person's investment in another Person, shall mean such Person's equity interest therein (whether voting or non-voting) expressed as a percentage of the total outstanding equity share capital of such other Person on a fully diluted basis (whether voting or non-voting).


"Permitted Affiliate" shall mean a Subsidiary of a Party, no minority interest in which is owned or held or the benefits of which are in any way enjoyed, directly or indirectly, by any Person engaged in a Competing Service.


"Permitted Lien" shall mean: (i) material, mechanics, carriers, workmen's, repairmen's or other like liens arising in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings, (ii) liens for current taxes not yet due or any taxes being contested in good faith by appropriate proceedings, (iii) liens to secure performance of statutory obligations, (iv) any lien securing any purchase money indebtedness incurred in the ordinary course of business, and (v) liens of lessors under Leases.


"Person" shall mean an individual or a partnership, an association, a joint venture, a corporation, a business or a trust or other entity organized under any Applicable Law, an unincorporated organization or any Governmental Authority.


"Proceeding" shall mean any action, litigation, suit, proceeding or formal investigation or review of any nature, civil, criminal, regulatory or otherwise, before any Governmental Authority.


"Public Offering" shall mean (i) any bona fide public offering of equity securities (or securities exchangeable for or convertible into equity securities) of the Company pursuant to an effective registration statement under the Securities Act or any other Applicable Law or any other offering which results in such securities being listed for trading on any international securities exchange, or (ii) any offer


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of equity securities (or securities exchangeable for or convertible into equity securities) of a Person made in reliance on Rule 144A under the Securities Act.


"Securities Act" shall mean the United States Securities Act of 1933, or any similar United States federal statute, and the rules and regulations of the U.S. Securities and Exchange Commission thereunder, all as the same shall be in effect from time to time.


"Security Interest" shall mean any debenture, mortgage, pledge, security interest, adverse claim, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, the filing of or agreement to give any financing statement under the Uniform Commercial Code (or similar filing pursuant to Applicable Law of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of any obligation.


"Senior Debt" of any Person shall mean indebtedness of such Person ranking senior in right of payment and in liquidation to any other Indebtedness of such Person.


"Share Capital" shall mean all classes or series of the Company's equity securities.


"Subordinated ...