OAK INVESTMENT PARTNERS XII, LIMITED PARTNERSHIP
One Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
February 2, 2011
Xxxxx.xxx Group, Inc.
000 0xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxxxxx,
Chief Executive Officer
Xxxxx.xxx, Inc.
000 0xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxxxxx,
Chief Executive Officer
Re: NASD Rule 1017
Dear Xx. Xxxxxxxxx:
This letter (the "Letter Agreement") shall confirm our mutual
understanding and agreement with respect to: (i) certain regulatory requirements
to which Xxxxx.xxx, Inc. ("Bonds"), a Delaware corporation that is registered
with the Securities and Exchange Commission as a broker-dealer and is a member
of the Financial Industry Regulatory Authority ("FINRA"), is subject to pursuant
to NASD Rule 1017 in connection with the consummation of the Transactions (as
defined below) by Parent and Oak (both as defined below); and (ii) the related
undertakings of the Parties as described herein. As used herein, the term
"Parties" means, collectively, Bonds, Xxxxx.xxx Group, Inc., a Delaware
corporation and the parent company of Bonds ("Parent") and Oak Investment
Partners XII, Limited Partnership, a Delaware limited partnership ("Oak").
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Asset Purchase Agreement, dated February 2, 2011 (the "Asset
Purchase Agreement"), among Parent, Xxxxx.xxx MBS, Inc. and Beacon Capital
Strategies, Inc. ("Seller"), and the Unit Purchase Agreement, dated February 2,
2011 (the "Unit Purchase Agreement"), by and among Parent, Oak, and GFINet, Inc.
(the transactions contemplated in the Asset Purchase Agreement and the Unit
Purchase Agreement are collectively referred to herein as the "Transactions").
As a result of the Transactions, Oak may become, directly and indirectly,
the owner of approximately 27.08% of the equity of Parent. Such ownership will
result from the following:
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(i) The Asset Purchase Agreement provides for the issuance of 10,000
shares of Parent's Series C Preferred Stock to Seller, which is
convertible into a maximum of 100,000,000 shares of Common Stock of
Parent. Oak, as a shareholder of Seller, may indirectly own approximately
11.78% of Parent as a result of this issuance.
(ii) The Unit Purchase Agreement provides for the issuance by Parent of 40
Units to Oak, with each Unit consisting of 1,000 shares of Series D
Convertible Preferred Stock, and warrants exercisable for 1,428,571.429
shares of Common Stock of Parent. Each share of Series D Convertible
Preferred Stock is convertible into 14,285.714 shares of Common Stock as
of the Closing Date. Oak may directly own approximately 15.30% of Parent
as a result of this issuance.
We are aware of the existence, and applicability to Bonds, of NASD Rule
1017 ("Application for Approval of Change in Ownership, Control, or Business
Operations"). As a result of the Transactions and the above-described issuances
to Oak, Bonds will become subject to the application requirement set forth in
NASD Rule 1017. Specifically, clause (a)(4) of NASD Rule 1017 provides as
follows:
"A member shall file an application for approval of any
of the following changes to its ownership, control or
business operations:
(4) a change in the equity ownership or partnership
capital of the member that results in one person or
entity directly or indirectly owning or controlling 25
percent or more of the equity or partnership capital
{ellipsis}."
In order to ensure compliance by Bonds with NASD Rule 1017 in connection
with the Transactions, Oak, Bonds and Parent hereby agree as follows:
(i) Prior to the submission by Bonds to FINRA of an application pursuant
to NASD Rule 1017(a)(4) (as described below) and the approval of the
application, or indication of no-action regarding the application, by
FINRA, the Series C Preferred Stock directly or indirectly owned by Oak
shall only convert into the number of shares of Common Stock of Parent
such that Oak's aggregate direct and indirect ownership of Parent shall
not exceed 24.99% of the equity capital of Parent.
(ii) Notwithstanding the provisions of this Letter Agreement, if there
are changes to the equity capital of Parent and/or Bonds:
(a) such that after the NASD Rule 1017 application is submitted to
FINRA by Bonds, such changes result in Oak's aggregate direct and indirect
ownership of Parent not exceeding 24.99% of the equity capital of Parent,
then Bonds (and Parent shall cause Bonds to) shall request from FINRA that
such application be withdrawn, or
(b) such that at the time the Series C Preferred Stock is converted
into shares of Common Stock of Parent, such conversion pursuant to the
terms of the Series C Preferred Stock will not result in Oak's aggregate
direct and indirect ownership of Parent exceeding 24.99% of the equity
capital of Parent, then this Letter Agreement shall have
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no effect on such conversion and Oak shall be issued by Parent the
number of shares of Common Stock required by the terms of the Series C
Preferred Stock.
(iii) Upon the approval of the NASD Rule 1017 application, or indication
of no-action regarding the application, by FINRA, Parent shall issue to
Oak all additional shares of Common Stock of Parent to which Oak is
entitled pursuant to the Transactions and that were not previously issued
to Oak as a result of clause (i) above (such shares, the "Remaining
Shares").
(iv) Bonds will, and Parent shall cause Bonds to, use its best efforts
to: (a) timely submit to FINRA an application pursuant to NASD Rule 1017
regarding the acquisition by Oak of an equity interest in Parent equal to
or greater than 25 percent (which application shall contain all
information and documentation required by NASD Rule 1017 and which is
necessary to enable FINRA to review and process the application on an
expedited basis); and (ii) timely take such other actions (including,
without limitation, subsequent communications with and submissions to
FINRA) as may be required in order to provide Oak with all of the
Remaining Shares as soon as possible.
(v) Bonds agrees, and Parent shall cause Bonds, to provide Oak with drafts
of any submissions, correspondence or other documentation to be sent to
FINRA with respect to the NASD Rule 1017 application at least five (5)
business days prior to any such submission; and, further, Bonds will, and
Parent shall cause Bonds to, make any changes to such submissions,
correspondence or other documentation as may be reasonably requested by
Oak or its legal counsel.
(vi) Bonds agrees, and Parent shall cause Bonds, to provide Oak with
copies of any communications or documentation received by FINRA in
connection with the NASD Rule 1017 application, promptly after Bonds'
receipt thereof.
(vii) As promptly as possible, but in no event later than one hundred and
eighty (180) days following the date hereof, Parent shall use its best
efforts to undertake any and all actions necessary to create, authorize,
approve and effect a new series of preferred stock pursuant to its blank
check preferred authority in its certificate of incorporation, with
rights, preferences and privileges substantially identical to those of the
Series A Preferred Stock of Parent, par value $0.0001 per share (the
"Series A Preferred Stock"), as of the date hereof, and in any event with
rights, preferences and privileges no more favorable than those of the
Series A Preferred Stock, as of the date hereof (the "New Series of
Preferred"). The authorized number of shares of the New Series of
Preferred shall be sufficient to permit Parent to comply with its
obligations under paragraph (viii) below. Such actions of Parent shall
include, without limitation, obtaining the approval of all stockholders of
Parent required for the creation, authorization, approval and effect of
the New Series of Preferred. Notwithstanding the foregoing, if Bonds has
received the approval of FINRA or a FINRA no-action indication has been
obtained by Bonds prior to the creation of the New Series of Preferred,
the obligations under this paragraph (vii) shall terminate. Each holder
of Parent's Series D Convertible Preferred Stock, par value $0.0001 per
share, and/or Parent's Series D-1 Convertible Preferred Stock, par value
$0.0001 per share, is a third party beneficiary of this paragraph (vii)
and is entitled to
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enforce the provisions herein (collectively, the "Third Party
Beneficiaries"), and such third party beneficiary rights may not be
amended or modified in any respect without the prior written consent of
such Third Party Beneficiaries.
(viii) If the NASD Rule 1017 Application is denied by FINRA and is no
longer appealable by Bonds as the applicant, then in lieu of the Remaining
Shares, Parent shall issue to Oak a number of shares of the New Series of
Preferred of Parent, that equals the number of Remaining Shares divided by
one hundred (100), or as otherwise calculated such that Oak is
economically in the same position as if it had been issued the Remaining
Shares but without the voting rights of such Remaining Shares.
(ix) If there is a liquidation, dissolution or winding-up of Parent
(including any deemed liquidation, dissolution or winding-up of Parent
pursuant to the Series C Preferred Stock Certificate of Designation) prior
to Bonds' receipt of the approval of FINRA or a FINRA no-action indication
from FINRA, then the liquidation preference rights of Oak's shares of
Series C Preferred Stock under the Series C Preferred Stock Certificate of
Designation shall be calculated regardless of the terms of this Letter
Agreement (i.e., the Pre-Determination Date Liquidation Preference, the
Post-Determination Date Liquidation Preference and/or the Change of
Control Liquidation Preferred (each as defined in the Series C Preferred
Stock Certificate of Designation) shall be calculated as if such FINRA
approval or no-action indication had been received).
Oak hereby agrees to provide Bonds and/or Parent with all reasonably
necessary cooperation and documentation required from it with respect to the
NASD Rule 1017 application.
This Letter Agreement is and shall continue to be in full force and effect
as of the Closing Date of the Transactions. The execution, delivery and
effectiveness of this Letter Agreement shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of the Parties, or any
other Person under, or provision of, the Transaction Agreements.
Section 8(a) of the Unit Purchase Agreement is hereby incorporated by
reference, mutatis mutandis. No party may assign its rights, duties or
obligations under this Agreement without the prior written consent of the other
party. This Letter Agreement may not be amended and/or terminate, and no
provision hereof may be waived, without the prior written consent of all of the
Parties (subject to the rights of the Third Party Beneficiaries as provided in
paragraph (vii) of this Agreement). The invalidity or unenforceability of any
provision of this Letter Agreement shall not affect the validity or
enforceability of any other provision of this Letter Agreement, which shall
remain in full force and effect. This Letter Agreement may be executed in any
number of separate counterparts, each of which shall, collectively and
separately, constitute one agreement. Legal delivery of this Letter Agreement
may be made by, among other methods, telecopy or by e-mail (PDF format).
(Remainder of page intentionally left blank.)
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BY SIGNING BELOW, THE PARTIES AGREE TO BE BOUND BY THE TERMS SET FORTH
ABOVE.
ACCEPTED AND AGREED:
OAK INVESTMENT PARTNERS XII, LIMITED PARTNERSHIP
By: Oak Associates XII, LLC,
its General Partner
By: /s/Xxx Xxxxxx
Name: Xxx Xxxxxx
Title: Managing Partner
XXXXX.XXX GROUP, INC.
By:/s/Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title: CFO
XXXXX.XXX, INC.
By:/s/Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title: CFO
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