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Bonds.com 8-K [bonds-8k_0206.htm]
 
Exhibit 10.8
 
AGREEMENT WITH RESPECT TO CONVERSION

This AGREEMENT WITH RESPECT TO CONVERSION is made and entered into and effective
as of February 2, 2011, by and between BEACON CAPITAL STRATEGIES, INC., a
Delaware corporation (“Seller”), and BONDS.COM GROUP, INC., a Delaware
corporation (“Parent”).

BACKGROUND

A.           Seller, Parent and Bond.com MBS, Inc., an Affiliate of Parent
(“Buyer”), are parties to the Asset Purchase Agreement (the “Asset Purchase
Agreement”), dated as of the date hereof, pursuant to which, among other things,
Buyer is purchasing substantially all of the assets of Seller (collectively, the
“Assets”) simultaneously with the execution and delivery of this Agreement.

B.           The Asset Purchase Agreement provides that the purchase price for
the Assets shall be paid by the issuance of 10,000 shares of Parent’s Series C
preferred stock, $0.0001 par value per share (the “Preferred Shares”).  The
Preferred Shares are convertible into shares of Parent’s common shares, $0.0001
par value per share (the “Common Shares”) pursuant to the terms and conditions
set forth in Series C Certificate of Designation, which among other things
provides for a conversion formula.  Seller and Parent desire to address more
specifically the means and process by which certain components of that formula
will be applied.

C.           In addition, Seller and Parent desire to address the post-Closing
obligations of Parent with respect to the operation of the Business and the
consequences of a material breach of such obligations.

OPERATIVE TERMS

Accordingly, the parties agree as follows:

ARTICLE I
DEFINITIONS

For purposes of this Agreement, the following capitalized terms have the
meanings assigned to them in this Article I. Capitalized terms used in this
Agreement and not defined in this Article I, have the meanings assigned to them
elsewhere in this Agreement and if not otherwise defined herein shall have the
meanings assigned to them in the Asset Purchase Agreement.

“Agreement” means this Agreement with Respect to Conversion, as the same may be
amended, restated or supplemented, together with all exhibits and schedules
attached hereto.

“Business” is the Buyer’s operation of that software business dedicated to the
development and offering of an electronic trading platform for trades in those
liquid and less liquid fixed income securities typically referred to as
“asset-backed securities” and “mortgage-backed securities,” including, without
limitation, those that clear through an agreed upon, established and segregated
clearing account for such securities with Pershing (or any successor clearing
agency).

“Conversion Value” means the dollar amount that is equal to the lesser of (a)
$10,000,000, and (b) Gross Revenues multiplied by three.

 
 

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“Determination Trigger Date” has the meaning provided for in the Series C
Certificate of Designation.

“GAAP” means United States generally accepted accounting principles
“consistently applied” “in a manner consistent with the Buyer’s application
thereof” in preparation of its historical financial statements.  The requirement
that such principles be “consistently applied” means that the accounting
principles applied in a current period shall be the same, in all material
respects, as those applied in the preceding period.  The requirement that such
principles be applied “in a manner consistent with the Buyer’s application
thereof” in specified prior periods means that the GAAP policies and principles,
management assumptions, management judgments and critical accounting polices
applied by the Buyer in such specified prior periods will be applied, in all
material respects, in current periods as required by the foregoing “consistently
applied” standard.

“Gross Revenues” means the gross revenues of the Business (which are primarily
derived from commissions but shall also include any commissions and/or licensing
fees and trading fees derived by the Business or the Business Assets) for the
Trailing Eighteen Month Period based on the Income Statement; provided, however,
that for purposes of determining the gross revenues for any month prior to the
Closing, the gross revenues in such month shall be zero.

“Income Statement” means the statement of income and cash flows of the Business
as of and for the Trailing Eighteen Month Period, which shall be prepared in
accordance with GAAP.

“Notice of Dispute” has the meaning set forth in Section 2.2(b).

“Person” means an individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including
any governmental entity.

“Series C Certificate of Designation” means the Certificate of Designation of
the Series C Convertible Preferred Stock of Parent filed on February 2, 2011
with the Delaware Secretary of State.

“Special Accountant” has the meaning set forth in Section 2.2(b).

“Trailing Eighteen Month Period” means the eighteen-month period immediately
preceding the Determination Trigger Date using the last full calendar month
immediately preceding the Determination Trigger Date as the last day of such
eighteen-month period if such trigger is not the last day of a full calendar
month.

ARTICLE II
DETERMINATION OF GROSS REVENUES AND CONVERSION SHARES

2.1           Determination of Gross Revenues.  As soon as reasonably
practicable but in no event later than (a) ten (10) business days following the
end of each calendar month beginning with the calendar month of February 2011,
Parent shall cause Buyer to prepare and deliver to Seller a statement of the
Gross Revenues for such Trailing Eighteen Month Period and (b) thirty (30)
calendar days following the end of each calendar month beginning with the
calendar month of February 2011, Parent shall cause Buyer to prepare and deliver
to Seller the Income Statement for such Trailing Eighteen Month
Period.  Notwithstanding the foregoing, the parties agree that the Income
Statement to be delivered by Buyer shall only cover those periods post Closing
and unless eighteen (18) full calendar months have passed since the Closing, the
Income Statement will only be for the period from Closing until the date in
question.
 

 
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2.2           Time and Manner of Determination.

(a)           Statement of Gross Revenues and the Conversion Value.  If there
has been a Determination Trigger Date, Parent shall cause the Buyer to deliver,
concurrently with the delivery of the Income Statement, its calculations of
Gross Revenues and the Conversion Value (collectively, the “Conversion
Determination”), together with all supporting documentation reasonably necessary
for a review and analysis of the Conversion Determination. Seller and its
accountants, attorneys and other representatives shall at all reasonable times
(and upon reasonable notice) be given full access to (and shall be allowed to
make copies of) such other books and records as they may reasonably request to
analyze the Conversion Determination and the accuracy and correctness thereof.

(b)           Dispute Procedures.  If Seller disputes the Conversion
Determination, Seller shall give Parent notice of such dispute (a “Notice of
Dispute”) not later than forty-five (45) days after the date on which Seller
received the Conversion Determination, supporting documentation and any other
material requested in accordance with Section 2.2(a), specifying in reasonable
detail any points of dispute.  Seller shall be deemed to have accepted the
Conversion Determination and such Conversion Determination shall be deemed
binding and final if (i) Seller fails to give a Notice of Dispute within such
forty-five (45) day period, or (ii) Seller gives notice to Parent accepting such
Conversion Determination within such forty-five (45) day period.  Upon receipt
of the Notice of Dispute, Parent and Seller shall consult promptly with each
other with respect to the points of dispute in an effort to resolve the
dispute.  If such dispute is resolved by a written, signed agreement of Seller
and Parent, the agreed Conversion Determination will be deemed final and
binding.  If any dispute is not resolved by Parent and Seller within thirty (30)
days after the Notice of Dispute is given to Parent, Parent and Seller shall
refer the dispute to Grant Thornton LLP, or if Grant Thornton LLP is unable or
unwilling to service, such other mutually agreeable firm of independent public
accountants (the “Special Accountant”) to finally determine, as soon as
practicable, and in any event within thirty (30) days after such reference, all
disputes with respect to the Conversion Determination.  For purposes of
assisting the Special Accountant in making such determination, Parent and Seller
shall submit a proposed determination of Gross Revenues and the Conversion
Value.  The fees, costs and expenses of such Special Accountant incurred in
connection with any dispute regarding the Conversion Determination will be borne
by the non-prevailing party, or if the Special Accountant determines that
neither party could be fairly found to be the prevailing party, then such fees,
costs and expenses will be borne fifty percent (50%) by Seller and fifty percent
(50%) by Parent. All determinations by the Special Accountant, which shall be
set forth in writing, shall be final, conclusive and binding with respect to the
Conversion Determination and the allocation of fees and expenses of the Special
Accountant; provided, however, that the scope of the Special Accountant’s
engagement will be limited to resolving the disputes set forth in the Notice of
Dispute and in no event may the Special Accountant resolve such disputes in a
manner that would result in the Conversion Shares being less, in the aggregate,
than the amounts proposed by Parent in the Conversion Determination, or greater,
in the aggregate, than the amount proposed by Seller in the Notice of Dispute.
 
2.3           Confidentiality. The Seller agrees to use the Income Statement and
other information disseminated in this Article II solely for the purpose of
evaluating the Gross Revenues or the Conversion Determination, and for no other
purpose, and further agrees to keep confidential and not disclose to any third
party any such information.  Notwithstanding the foregoing, Seller may disclose
such information solely to those of its representatives who (i) require such
material for the purpose of evaluating the Gross Revenues or the Conversion
Determination on behalf of Seller, and (b) are informed by Seller of the
confidential nature of such information and the obligations of this Agreement
and agree to abide by the terms hereof as if they were Seller hereunder.  Seller
shall take all reasonable actions necessary to cause its representatives and
affiliates to comply with the terms of this Agreement as if they were Seller
hereunder.  Seller acknowledges that the information that may be disclosed
hereunder by Parent will
 

 
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likely contain material, non-public information.  Seller acknowledges and
understands that federal securities law and this Agreement restrict Seller from
pledging, selling, hedging, contracting to sell, short-selling, selling any
option or contract to purchase, purchasing any option or contract to sell,
granting any option, right, or warrant to purchase or otherwise hypothecating
transferring for value, directly or indirectly, any securities of Parent while
in possession of material non-public information regarding Parent.
 
ARTICLE III
OTHER AGREEMENTS
 
3.1           Working Capital Support Agreement.
 
(a)           Parent covenants and agrees that it will use commercially
reasonable efforts to support the operations of the Business and to maximize the
gross revenue of the Business and Conversion Value.  Without restricting the
generality of the foregoing, this support will include providing working capital
to the Business until the Determination Trigger Date (such period, the “Earnout
Period”) of up to $2,000,000, with such working capital expenditures to be
consistent with the budget that is set forth on Exhibit A attached hereto (the
“Budget”) for the first twenty-four (24) months after the Closing.
 
(b)           Parent and Seller acknowledge and agree that the Budget is only
intended to include the new variable expenses incurred by Parent attributable to
the Business, subject to the following sentence, and that Parent will continue
to fund the Business operations above and beyond the $2,000,000 commitment if
and when the Business is cash-flow positive.  Parent and Seller acknowledge that
the Budget shall also include (and may be revised from time to time to include
in the reasonable discretion of David Weisberger, without the unanimous approval
of the Strategy Committee), and the $2,000,000 commitment may be used to pay,
any post-Closing expenses of Seller, which may otherwise be Excluded
Liabilities, as determined in the reasonable discretion of David
Weisberger.  Parent shall set-aside such $2,000,000 from the Parent and its
Affiliates’ operating capital and shall include such $2,000,000 in their
respective operating budgets.  Any changes in Parent’s and/or any of its
Affiliates’ budgets that negatively impacts Parent’s ability to fund the
$2,000,000 commitment herein shall require the approval of the Strategy
Committee.
 
(c)           There shall be a committee comprised of Michael Sanderson and
person designated by Oak Investment Partners XII, Limited Partnership (the
“Strategy Committee”).  The Strategy Committee shall meet at least once a
calendar quarter and shall discuss and review the overall strategy and Budget of
the Business.  Any material changes to the strategy of the Business and/or the
Budget (subject to subsection (b) above) shall require the unanimous consent of
all members of the Strategy Committee.  Subject to the discretion of the
Strategy Committee, Parent covenants and agrees that David Weisberger shall be
permitted to operate the Business in his reasonable discretion but within the
Budget and the strategy approved by the Strategy Committee, with the full
ability to apply the $2,000,000 working capital commitment in his sole
reasonable discretion so long as it is consistent with the Budget.
 
(d)           Parent covenants and agrees that it or one of its Affiliates will
employ Mr. Weisberger and John Knox after the Closing and for the duration of
the Earnout Period (subject to the terms and conditions of their respective
employment agreements), and the duties and responsibilities of Mr. Weisberger
and Mr. Knox shall be primarily related to the Business and the Business
Assets.  Parent shall not terminate the employment of Mr. Weisberger or Mr.
Knox, or materially change or reallocate either of their job duties or
responsibilities, other than for cause (as defined in their respective
employment agreements) without the prior written consent of Seller.
 

 
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(e)           Parent shall devote and cause to be available to the Business,
without any additional expense to the Business or from the Budget, such of its
and its’ Affiliates sales, marketing, compliance, administrative and any other
over-head personnel and resources, including without limitation, general office
equipment, general-use software (e.g., Microsoft Office), business continuity
data security, voice telephones and other general office expenses as is
reasonably necessary for the operation of the Business, and shall cause its
personnel to use their reasonable efforts to market and cross-sell the services
of the Business to Buyer’s customers and potential customers.
 
3.2           Remedy for Material Breach.  Parent and Seller covenant and agree
that if Parent materially breaches any of its obligations under Section 3.1,
then the Conversion Shares shall equal one hundred million
(100,000,000).  Parent and Seller hereby agree that fixing the Conversion Shares
to equal one hundred million (100,000,000) in the event of a material breach of
Section 3.1 by Parent is intended to compromise any dispute over the damages
that Seller would suffer as a result of such a material breach. The parties
specifically agree and acknowledge that the calculation of damages at the time
of breach would be speculative and virtually impossible to establish and that
the adjustment of the number of Conversion Shares as set forth above is not
intended to be a penalty, but, rather, it is a reasonable measure of the damages
Seller would actually suffer and it is the sole and exclusive remedy of Seller
in the event of such a material breach for such reasons.
 
ARTICLE IV
ADDITIONAL PROVISIONS

4.1           Enforcement.  Parent and Seller acknowledge that Seller intends to
dissolve and liquidate within one (1) year after the Closing Date and that it is
anticipated that the Shares will be distributed to the stockholders of Seller in
connection therewith.  From and after the final dissolution and liquidation of
Seller (whether or not within such one (1) year period), the rights, obligations
and agreements of Seller in and under this Agreement shall be automatically
assigned to one or more holder(s) of the Shares (other than the shares of Escrow
Stock so long as such shares remain in escrow), on behalf of all holders of the
Shares (other than the shares of Escrow Stock so long as such shares remain in
escrow), so long as the holder(s) of the Shares were stockholders of Seller and
agree to enter into and be bound by the terms and conditions of this Agreement,
including without limitation those in Article II.
 
4.2           Notices.  All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be deemed duly given:
(a) if personally delivered, when so delivered; (b) if mailed, seven (7)
Business Days after having been sent by first class, registered or certified
U.S. mail, return receipt requested, postage prepaid and addressed to the
intended recipient as set forth below; (c) if given by facsimile, once such
notice or other communication is transmitted to the facsimile number specified
below, provided that (i) the sending facsimile generates a transmission report
showing successful completion of such transaction, and (ii) if such facsimile is
sent after 5:00 p.m. local time at the location of the receiving facsimile, or
is sent on a day other than a Business Day, such notice or communication shall
be deemed given as of 9:00 a.m. local time at such location on the next
succeeding Business Day; or (d) if sent through a nationally-recognized
overnight delivery service that guarantees next day delivery, the Business Day
following its delivery to such service in time for next day delivery with all
charges for next Business Day delivery prepaid:

 
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If to Seller:
 
Beacon Capital Strategies, Inc.
9th Floor
420 Madison Avenue
New York, NY  10017
Attn:  David Weisberger
Fax: None
Telephone: None
 
With a copy to (which shall not constitute notice):
 
Duane Morris LLP
1540 Broadway
New York, New York 10036-4086
Attn: Michael D. Schwamm, Esq.
Fax: (212) 208-4451
Telephone: (212) 692-1054
 
and
 
Finn Dixon & Herling LLP
177 Broad Street
Stamford, Connecticut 06901
Attn: Michael J. Herling, Esq.
Fax: (203) 325-5001
Telephone: (203) 325-5000

If to Parent:
 
Bonds.com Group, Inc.
529 5th Avenue, 8th Floor
New York, New York 10017
Attention:  Chief Executive Officer
Fax No:  (212) 946-3999
 
With a copy to (which shall not constitute notice):
 
Hill Ward Henderson
101 E. Kennedy Blvd., Suite 3700
Tampa, Florida 33602
Attn:  Mark A. Danzi, Esq.
Fax:  (813) 221-2900
Telephone:  (813) 221-3900

Any party entitled to notice may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving
the other parties notice in the manner herein set forth.

4.3           Amendments; No Waivers.  Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed by Parent and Seller, in the case of an amendment, or in the case of a
waiver, by the party against whom the waiver is to be effective.  No waiver by a
party of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence.  No failure or delay by a party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.

 
4.4           Expenses.  Subject to Section 3.09 below, all costs and expenses
incurred in connection with the negotiation and execution of this Agreement and
in closing and carrying out the transactions contemplated hereby shall be paid
by the party incurring such cost or expense (except as otherwise set forth in
the Budget).

 
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4.5           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Parent may not assign or delegate this Agreement nor any of
their respective rights, interests or obligations hereunder without the prior
written approval of Seller.  Subject to the terms of Section 4.1, Seller may
assign or delegate its rights under this Agreement to one or more of its
stockholders on behalf of such stockholders.  Any assignment or delegation in
breach of this Section 4.5 shall be null and void.
 
4.6           Counterparts; Effectiveness.  This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument and
delivered in person.  Signatures transmitted electronically by .pdf file or
facsimile shall be binding for all purposes hereof.
 
4.7           Entire Agreement.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement.
 
4.8           Severability; Third Party Beneficiaries.  If any provision of this
Agreement, or the application thereof to any Person, place or circumstance,
shall be held by an arbitral tribunal or court of competent jurisdiction to be
invalid, unenforceable or void, the remainder of this Agreement and such
provisions as applied to other Persons, places and circumstances shall remain in
full force and effect if, but only if, after excluding the portion deemed to be
unenforceable, the remaining terms shall provide for the consummation of the
transactions contemplated hereby in substantially the same manner as originally
set forth at the later of the date this Agreement was executed or last
amended.  No provision of this Agreement shall be deemed to create any third
party beneficiary rights in any Person.
 
4.9           Further Assurances.  From time to time (including after the
Closing), the parties will execute and deliver such other documents,
certificates, agreements and other writings and take such other actions as may
reasonably be necessary or requested by another party in order to consummate,
evidence or implement expeditiously the transactions contemplated by this
Agreement.
 
4.10           Governing Law; Jurisdiction.

(a)           This Agreement and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of law.

(b)           Any Proceeding arising out of or relating to this Agreement, any
other agreement or document relating to the Transaction Agreements or any of the
transactions contemplated may be brought in the courts of the State of New York,
County of New York, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of New York, each of the parties
irrevocably submits to the exclusive jurisdiction of each such court in any such
Proceeding, waives any objection it may now or hereafter have to venue or to
convenience of forum, agrees that all claims in respect of the Proceeding shall
be heard and determined only in any such court or any appellate court arising
therefrom and agrees not to bring any proceeding arising out of or relating to
this Agreement, any other agreement or document relating to the Transaction
Agreements or any of the transactions contemplated thereby in any other
court.  The parties agree that any of them may file a copy of this paragraph
with any court as written evidence of the knowing, voluntary and bargained-for
agreement

 
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among the parties irrevocably to waive any objections to venue or to convenience
of forum.  Process in any Proceeding referred to in the first sentence of this
Section 4.10(b) may be served on any party anywhere in the world in accordance
with Section 4.2 or applicable law.
 
(c)           THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER AGREEMENT OR
DOCUMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT
AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT, ANY OTHER AGREEMENT OR
DOCUMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY SHALL INSTEAD BE TRIED
IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
 
4.11           Prevailing Party.  In the event a party commences an action to
enforce its rights pursuant to this Agreement, the prevailing party shall be
entitled to receive its attorneys’ fees and costs from the non-prevailing party.

 

[Signature Pages Follow]

 
 

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COUNTERPART EXECUTION PAGE TO
AGREEMENT WITH RESPECT TO CONVERSION

IN WITNESS WHEREOF, the parties hereto have caused this Agreement with Respect
to Conversion to be executed as of the day and year first above written.

   
BEACON CAPITAL STRATEGIES, INC.
               
By:
/s/ David Weisberger    
Name:
David Weisberger    
Title:
CEO

   
BONDS.COM GROUP, INC.
               
By:
/s/ Michael O. Sanderson    
Name:
Michael O. Sanderson     Title: CEO