Liquidating Trust

Exhibit 10.2


LIQUIDATING TRUST
AGREEMENT


By and Among


THCG, Inc.,
as Grantor,


and


Joseph D. Mark
- and -
Adi Raviv,
as Trustees


Dated as of July 16, 2001


LIQUIDATING TRUST AGREEMENT


AGREEMENT AND DECLARATION OF TRUST, dated as of July 16, 2001, by and among THCG, Inc., a corporation organized under the laws of the State of Delaware (the "Company"), and Joseph D. Mark and Adi Raviv, as trustees.


WHEREAS, the Company's Board of Directors has approved and adopted a Plan of Liquidation of THCG, LLC (the "Plan") that, among other things, (i) provides for the establishment of a liquidating trust pursuant to the terms and conditions hereof (the "Trust"), (ii) provides for the appointment of the Trustees (as defined in Section 1.2 ) to serve as agent of the Beneficiaries (as defined in Section 1.2) and trustees of the Trust, (iii) authorizes and directs the Company to grant, assign, transfer, convey and deliver the Transferred Assets (as defined in Section 1.2) to the Trustees as agent for the Beneficiaries, and (iv) authorizes and directs the Trustees to hold for and on behalf of the Beneficiaries the assets of the Trust and to liquidate the same and distribute the proceeds thereof to the Beneficiaries in accordance with the terms and conditions hereof; and


WHEREAS, the Trust is intended to qualify as a fixed investment trust within the meaning of Section 301.7701-4(c) of the Income Tax Regulations (as defined in Section 1.2) and a liquidating trust within the meaning of Section 301.7701-4(d) of the Income Tax Regulations for Federal income tax purposes;


NOW, THEREFORE, in consideration of the premises, and subject to the terms and conditions hereof, effective as of the close of business on the Record Date (as defined in Section 1.2), the Company hereby grants, assigns, transfers, conveys and delivers unto the Trustees for the benefit of the Beneficiaries all of the Company's right, title and interest in, to and under all of the Transferred Assets for the uses and purposes stated herein, and the Trustees hereby accept such Transferred Assets and such Trust on the terms and conditions herein contained and hereby agree to perform the obligations of the Trustees under this Agreement:


ARTICLE I


NAME AND DEFINITIONS


1.1. Name. This trust shall be known as the THCG, LLC Liquidating Trust.


1.2. Certain Terms Defined. For all purposes of this instrument, unless the context otherwise requires:


(a) "Agreement" shall mean this instrument as originally executed or as it may from time to time be amended pursuant to the terms and conditions hereof.


(b) "Beneficial Interest" shall mean each Beneficiary's proportionate share of the Trust Assets initially determined by the ratio of the number of Shares held by the Beneficiary as of the close of business on the Record Date over the total number of Shares issued and outstanding as of the close of business on the Record Date and thereafter determined by the ratio of the number of Units held by such Beneficiary over the total number of Units held by all Beneficiaries.


(c) "Beneficiary" shall mean each of the Stockholders and each transferee thereof permitted pursuant to Section 3.3(a).


(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, together with any provisions amendatory thereof, supplementary thereto or substituted therefor.


(e) "Fund" shall mean THCG Venture Partners I LLC, a limited liability company organized under the laws of the State of Delaware.


(f) "Income Tax Regulations" shall mean the income tax regulations under the Code, together with any provisions amendatory thereof, supplementary thereto or substituted therefor.


(g) "Investment Company Act" shall mean the Investment Company Act of 1940, as amended, and any successor statute, and the rules and regulations of the SEC thereunder.


(h) "Investment Contracts" shall mean any and all stock purchase agreements, registration rights agreements, stockholder agreements and other agreements or instruments relating to, or entered into in connection with the acquisition of, Investment Securities.


(i) "Investment Securities" shall mean (x) shares of common stock, preferred stock, warrants to purchase common stock or preferred stock, notes or other securities acquired by the Company or (or any of its subsidiaries, including any Trust Subsidiary) for investment or in connection with the performance of investment banking, venture development or other services, and (y) the promissory notes payable to the order of the Company listed in Schedule I hereto.


(j) "Indemnity Obligations" shall have the meaning given such term in Section 2.4(b).


(k) "Liabilities" shall mean debts, claims, commitments, liabilities or other obligations of any kind or nature whatsoever, whether contingent or fixed.


(l) "Person" shall mean an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a limited liability partnership, a trust, a joint venture, any unincorporated organization or a government or political subdivision thereof.


(m) "Purchase Rights" shall have the meaning given such term in Section 6.1(b).


(n) "Record Date" shall mean the date on which the Company conveys to the Trust all of the Transferred Assets.


(o) "SEC" shall mean the Securities and Exchange Commission and any successor agency that administers the Investment Company Act or the Securities Act.


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(p) "Securities Act" shall mean the Securities Act of 1933, as amended, and any successor statute and the rules and regulations of the SEC thereunder.


(q) "Shares" shall mean the shares of common stock, par value $.01 per share ("Common Stock"), of the Company.


(r) "Special Committee" shall have the meaning given such term in Section 5.2(c).


(s) "Stockholders" shall mean the holders of record of the outstanding Shares of the Company as of the close of business on the Record Date.


(t) "THCG, LLC" shall mean THCG, LLC, a limited liability company organized under the laws of the State of Delaware that is a member of the Fund, owns 9.9% of the membership interests of the Fund and is the sole member of THCG Ventures.


(u) "THCG Partners" shall mean THCG Partners LLC, a limited liability company organized under the laws of the State of Delaware that is a member of the Fund and owns 15.1% of the membership interests of the Fund.


(v) "THCG Ventures" shall mean THCG Ventures LLC, a limited liability company organized under the laws of the State of Delaware that is the non-member manager of the Fund and the managing member of THCG Partners and owns .45% of the membership interests of THCG Partners.


(w) "Transferee Liability" shall have the meaning given such term in Section 2.4(a).


(x) "Transferred Assets" shall mean all of the Company's right, title and interest in, to and under (i) its membership interests in THCG, LLC, (ii) all Investment Securities, (iii) all Investment Contracts, (iv) accounts receivable of the Company as of the Record Date, and (v) all cash and cash equivalents of the Company on hand on the Record Date in excess of [$ ].


(y) "Trust" shall mean the Trust created by this Agreement.


(z) "Trust Assets" shall mean all the property held from time to time by the Trustees under this Agreement, which initially shall consist of the Transferred Assets granted, assigned, transferred, conveyed and delivered to the Trustees by the Company pursuant to the Plan (excluding any dividends declared but unpaid having a record date prior to the Record Date) and thereafter shall include all dividends, rents, royalties, income, proceeds and other receipts of, from or attributable to any assets held by the Trustees, less any of the foregoing utilized by the Trustees to pay expenses of the Trust, satisfy Liabilities (including Transferee Liabilities, if any) of the Trust or make distributions to the Beneficiaries pursuant to the terms and conditions hereof.


(aa) "Trust Subsidiary" shall mean any and all of THCG, LLC, THCG Partners, THCG Ventures and the Fund.


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(bb) "Trustees" shall mean the original Trustees named in the beginning of this Agreement, any Trustee(s) appointed hereunder after the date hereof pursuant to Article X and their respective successors.


(cc) "Unlocated Beneficiary" shall mean any Beneficiary who has not been located by a mailing to the address of such Beneficiary as it appears on the records of the Trustees.


(dd) "Units" shall have the meaning given such term in Section 3.1(b).


ARTICLE II


NATURE OF TRANSFER


2.1. Purpose of Trust.


(a) The sole purpose of the Trust is to hold the Trust Assets in a manner calculated to conserve and protect the Trust Assets until such time as the Trust Assets can be liquidated and to collect the proceeds from such liquidation, and any income thereon, and to distribute the same to the Beneficiaries in as prompt and orderly a manner as possible after the payment of Liabilities and expenses and the making of reasonable provision for contingent Liabilities. The Trustees shall, in an expeditious but orderly manner, liquidate and convert to cash the Trust Assets, make timely distributions and not unduly prolong the duration of the Trust. The Trust shall have no objective to continue or engage in the conduct of a trade or business.


(b) The Transferred Assets and all other Trust Assets will be held in the Trust, and the Trustees shall: (i) carry out the purpose of the Trust and facilitate distribution of the Trust Assets; (ii) allocate, protect, conserve and manage the Trust Assets in accordance with the terms and conditions hereof; (iii) act on behalf of the Beneficiaries in connection with any matters; and (iv) distribute the Trust Assets in accordance with the terms and conditions hereof.


(c) It is intended that the grant, assignment, transfer, conveyance and delivery of the Transferred Assets by the Company to the Trustees pursuant hereto shall be treated for federal, state and local income tax purposes as if the Company made such delivery directly to the Stockholders. It is further intended that for federal, state and local income tax purposes the Trust shall be treated as a liquidating trust under Treasury Regulation Section 301.7701-4(d) and any analogous provision of state or local law, and the Beneficiaries shall be treated as the owners of their pro rata share of the Trust pursuant to Sections 671 through 679 of the Code, and any analogous provision of state or local law, and shall be taxed on their pro rata share of the Trust's taxable income (including both ordinary income and capital gains) pursuant to Section 671 of the Code and any analogous provision of state or local law. The Trustees shall file all tax returns required to be filed with any governmental agency consistent with this position, including any returns required of grantor trusts pursuant to Section 1.671-4(a) of the Income Tax Regulations.


2.2. No Reversion to the Company. In no event shall any part of the Trust Assets revert to or be distributed to the Company.


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2.3. Instruments of Further Assurance. After the delivery of the Transferred Assets to the Trustees pursuant hereto, such Persons as shall have the right and power to so act will, upon reasonable request of the Trustees, execute, acknowledge and deliver such further instruments and do such further acts as may be necessary or proper to carry out effectively the purposes of this Agreement, to confirm or effectuate the transfer to the Trustees of any property or asset intended to be covered hereby, and to vest in the Trustees, their successors and assigns, the estate, powers, rights, properties, assets, instruments and funds in trust hereunder.


2.4. Payment of Liabilities; Indemnification.


(a) The Trustees do not assume any Liabilities of the Company, except (i) the obligation of the Company to pay, when due, in accordance with its terms, that certain promissory note dated June 29, 2001, payable to the order of Castle Creek Technology Partners LLC in the principal amount of $1,500,000, and (ii) the costs, fees and expenses, including fees and expenses of investment bankers, accountants, counsel and other advisors to the Company, incurred in connection with the establishment of the Trust and transactions related thereto. Should any Liability of the Company be asserted against the Trustees or the Trust as the transferees of the Transferred Assets (a "Transferee Liability"), the Trustees may use such part of the Trust Assets as may be necessary in contesting any such Transferee Liability or in payment thereof. While the Trustees do not assume any Liabilities of any Trust Subsidiary, the Trustees may in their discretion advance money or other Trust Assets to any Trust Subsidiary to enable such Trust Subsidiary to pay its Liabilities.


(b) The Trustees agree to indemnify and hold harmless (i) the Company's directors and officers to the full extent the Company is obligated to do so under its certificate of incorporation and by-laws in the event the Company fails to discharge such obligations; (ii) the Company against any material Liability of the Company that is not disclosed in the Company's financial statements, in any report filed by the Company with the SEC pursuant to the Securities Exchange Act of 1934, as amended, or in any exhibit or schedule to that certain Plan and Agreement of Exchange between the Company and Starcross, Inc. relating to the acquisition by the Company of Donald & Co. Securities, Inc. of which Liability the executive officers of the Company have actual knowledge as of the Record Date; and (iii) the Company against liabilities that result from any action, suit or proceeding that (x) commenced against the Company and was pending on the Record Date, including actions, suits and proceedings involving the Company's former factoring businesses or arising out of or relating to Company's guarantee of the payment of notes of Pacific Financial Services Corp., one of the Company's subsidiaries that was engaged in the factoring business, or (y) arises out of or relates to the distribution of the Units to the Stockholders (collectively, "Indemnity Obligations"). The Trustees agree to assume and control the defense of any such action, suit or proceeding and to pay the fees and expenses of counsel retained by the Company to defend the same, provided such counsel has been approved in writing by the Trustees, such approval not to be unreasonably withheld or delayed.


(c) In no event shall the Trustees, Beneficiaries or employees or agents of the Trust be personally liable, nor shall resort be had to the private property of any such Person, in the event the Trust Assets are not sufficient to satisfy Liabilities of the Trust (including Transferee Liabilities, if any, and Indemnity Obligations).


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2.5. Assignment for Benefit of Beneficiaries. The Trustees hereby declare and agree that they are holding the Trust Assets solely for the benefit of the Beneficiaries of the Trust, and hereby assign to each Beneficiary a pro rata Beneficial Interest in the Trust Assets, and retain only such incidents of ownership as are necessary to undertake the actions and transactions authorized herein.


2.6. Notice to Unlocated Beneficiaries. If the Trust holds Trust Assets for Unlocated Beneficiaries, due notice shall be given to such Beneficiaries in accordance with applicable law.


2.7. The Trust Subsidiaries.


(a) Subject to the terms of any agreements governing the management and operation of any Trust Subsidiary, including without limitation with respect to obligations of the directors, officers or managers of any Trust Subsidiary to act in the best interests of the Trust Subsidiary and the shareholders, equity holders and members of such Trust Subsidiary, the Trustees shall act with respect to the Trust's interest in each Trust Subsidiary (whether in connection with the Trust's position as equity owner, member or manager, or as a director, officer, employee or agent of such Trust Subsidiary), and shall, subject to any obligations to any other members of a Trust Subsidiary, cause each Trust Subsidiary to act, consistent with the purposes and provision of the Trust and this Agreement (including treating as part of the cash of the Trust its indirect interest in all similarly available cash of the respective Trust Subsidiary, as provided in Section 2.7(c)).


(b) The Trustees shall use their reasonable commercial efforts, to the extent not achieved on or prior to the Record Date, (i) to amend, or cause to be amended, the operating agreements and other governing documents of each Trust Subsidiary to provide that (A) the overriding purpose of such entity is the same as that set forth in Section 2.1, including no objective to continue or engage in the conduct of a trade or business (other than as necessary to preserve the value of its assets) and the expeditious but orderly disposition and distribution of its assets, and (B) such Trust Subsidiary shall, to the extent permitted under applicable law, act on a basis that is consistent with the purposes and provisions of the Trust and this Agreement, and (ii) to cause each Trust Subsidiary to agree in writing (A) to the provisions of this Section 2.7, and (B) whether or not its operating agreements and other governing documents ultimately are amended, to act on a basis that is consistent with the purposes and provisions of this Agreement.


(c) The Trustees shall cause each Trust Subsidiary to distribute to the Trust and to such Trust Subsidiary's other equity owners, if any, in proportion to their interests therein, on or before each annual distribution date provided for in Section 5.4 (or such earlier time as required to be included in the distribution by the Trust on the annual distribution date) all of its cash (less any amounts required for payment of taxes and any other expenses or Liabilities as needed or as may be needed by such Trust Subsidiary, which amounts are not required to be paid to the Trust).


(d) Subject to the provisions of this Section 2.7, the Trustees may serve as members, officers, employees or agents of a Trust Subsidiary.


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ARTICLE III


BENEFICIARIES


3.1. Beneficial Interests.


(a) The Beneficial Interest of each Stockholder as a Beneficiary shall be determined by the Trustees in accordance with a certified copy of the Company's stockholder list as of the close of business on the Record Date. The Company will deliver such a certified copy of its stockholder list to the Trustees within a reasonable time after such date. For ease of administration, the Trustees shall express the Beneficial Interest of each Beneficiary in terms of units ("Units"). Each record owner of shares of Common Stock as of the close of business on the Record Date shall receive one Unit for each share of Common Stock then owned. Each holder of Common Stock shall have the same pro rata interest in the Trust as his interest in the Company on the Record Date.


(b) The rights of Beneficiaries in, to and under the Trust Assets and the Trust shall not be represented by any form of certificate or other instrument. The Trustees shall maintain at their place of business a record of the name and address of each Beneficiary and such Beneficiary's Beneficial Interest in the Trust.


3.2. Rights of Beneficiaries.


(a) Each Beneficiary shall be entitled to participate in the rights and benefits due to a Beneficiary according to his Beneficial Interest. Each Beneficiary shall take and hold the same subject to all the terms and conditions hereof. The interest of the Beneficiary hereby is declared and shall be in all respects personal property and upon the death of an individual Beneficiary, his Beneficial Interest shall pass as personal property to his legal representative and such death shall in no way terminate or affect the validity of this Agreement or the Trust. A Beneficiary shall have no title to, right to, possession of, management of or control of the Trust Assets, or any of them, or to or of the Trust except as herein expressly provided. No widower, widow, heir, distributee, legatee or devisee of any Person who may be a Beneficiary shall have any right of dower, homestead or inheritance or of partition or of any other right, statutory or otherwise, in any property or asset forming a part of the Trust Assets but the whole title to all of the Trust Assets shall be vested in the Trustees and the sole interest of the Beneficiaries or any such other Person shall be the rights and benefits given to such Persons under this Agreement. For federal, state and local income tax purposes, the Beneficiaries will be treated as the grantors and deemed owners of the Trust, and they will be treated as owning undivided interests in the Trust Assets.


(b) If any conflicting claims or demands are made or asserted with respect to the ownership of any Units, or if there should be any disagreement between or among the heirs, distributees, legatees or devisees succeeding to all or part of the interest of any Beneficiary resulting in adverse claims or demands being made in connection with such Units, then, in any of such events, the Trustees shall be entitled, in their sole discretion, to refuse to comply with any such conflicting claims or demands. In so refusing, the Trustees may elect to make no payment or distribution with respect to such Units, or to make such payment to a court of competent


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jurisdiction or an escrow agent, and in so doing the Trustees shall not be or become liable to any of such parties for the Trustees' failure or refusal to comply with any of such conflicting claims or demands, nor shall the Trustees be liable for interest on any funds so withheld. The Trustees shall be entitled to refrain and refuse to act until either (i) the rights of the adverse claimants have been adjudicated by a final judgment of a court of competent jurisdiction, (ii) all differences have been adjusted by valid written and acknowledged agreement between or among all of such parties, and the Trustees shall have been furnished with an executed counterpart of such agreement, or (iii) there is furnished to the Trustees a surety bond or other security satisfactory to the Trustees, as they shall deem appropriate in their sole discretion, to fully indemnify them as between or among all conflicting claims or demands.


3.3. No Transfer of Interests of Beneficiaries.


(a) The Beneficial Interest of a Beneficiary may not be transferred either by the Beneficiary personally or by a duly authorized agent or attorney, or by the duly appointed legal representatives of the Beneficiary, and a Beneficiary shall have no authority or power to sell, assign, transfer or otherwise convey or encumber or in any other manner dispose of his Beneficial Interest; provided, however, that the Beneficial Interest shall be assignable or transferable by will, intestate succession or operation of law; and provided, further, that the executor administrator or other personal representative of the estate of a Beneficiary may mortgage, pledge, grant a security interest in, hypothecate or otherwise encumber the Beneficial Interest held by the estate of such Beneficiary if necessary in order to borrow money to pay estate, succession or inheritance taxes or the expenses of administering the estate of the Beneficiary, upon written notice to and consent of the Trustees, which consent shall not be unreasonably withheld.


(b) The Beneficial Interests of the Beneficiaries shall not be subject to attachment, levy, execution, sequestration or any order of a court, nor shall such interests be subject to the contracts, pledges, engagements or Liabilities of any Beneficiary, but the interest of a Beneficiary shall be paid by the Trustees to the Beneficiary free and clear of all assignments, attachments, levies, executions, sequestrations and orders and shall become the property of a Beneficiary only when actually received by such Beneficiary.


ARTICLE IV


DURATION AND TERMINATION OF TRUST


4.1. Duration. The existence of the Trust shall terminate upon the earliest of (i) a termination required by the applicable laws of the State of New York, (ii) the distribution of all the Trust Assets as provided in Section 5.5, or (iii) the expiration of a period of three years from the date of the creation of the Trust; provided, however, that the Trustees, in their sole discretion, may extend the existence of this Trust to such later date, but no event later than five years from the date of the creation of the Trust, as they may designate if they determine that an extension is reasonably necessary either to pay or make provision for then known Liabilities or to conserve and protect the Trust Assets for the benefit of the Beneficiaries.


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4.2. Other Obligations of Trustees upon Termination. Upon distribution of all the Trust Assets, the Trustees shall provide for the retention of the books, records, lists of holders of Units and files which shall have been delivered to or created by the Trustees with respect to the Trust. In the Trustees' sole discretion, all of such records and documents may be destroyed at any time after seven years (or such longer period as may be required by applicable law) from the distribution of all of the Trust Assets. Except as otherwise expressly provided herein, upon the distribution of all of the Trust Assets, the Trustees shall have no further duties or obligations hereunder.


ARTICLE V


ADMINISTRATION OF TRUST ASSETS


5.1. Disposition of Trust Assets. Subject to the express provisions of Section 6.1 and the other express provisions of this Agreement, the Trustees may, at such times and for such amounts as they may deem appropriate, collect, liquidate, reduce to cash, sell, assign, transfer, exchange, convey or otherwise dispose of all or any part of the Trust Assets as they deem appropriate at public or private sale for cash, securities or other property or upon credit (either secured or unsecured) and upon such other terms and conditions as the Trustees shall determine in their sole discretion.


5.2. Transactions with Related Persons; Appointment and Authority of Special Committee.


(a) Notwithstanding any other provision of this Agreement, the Trustees shall not, directly or indirectly, sell or otherwise transfer all or any part of the Trust Assets to, or contract with, or enter into any material transaction with (i) any Trustee, employee, agent or Beneficiary (acting in their individual capacities) of the Trust, (ii) any member of the family of any Trustee or any employee, agent or Beneficiary of the Trust, or ...