EXTENSION AND CONVERSION AGREEMENT
EXHIBIT
4.3
This Agreement made as of this 7th day of
July, 2008 between Arkados Group, Inc., formerly XXXxxx.xxx, Inc., a Delaware
corporation (the “Company”) having a principal place of business at 000 Xxx Xxx
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000, and the holder of the Company’s
outstanding 6% Convertible Subordinated Notes due June 30, 2008 (the “Notes”)
that has executed this Agreement on Schedule I hereto. Such holder is
referred to herein as the “Lender”.
WHEREAS, the Company issued $1,066,500
of the principal of the Notes;
WHEREAS, principal and
interest on the Notes, as previously amended, was due on June 30, 2008 and the
Company’s failure to pay principal and interest by July 7, 2008, absent this
Agreement becoming effective, would constitute an “Event of Default” as defined
in the Notes;
WHEREAS, the Lender deems it in its
best interest to enter into this Agreement to facilitate capital raising
activities by the Company; and
WHEREAS, Lender is willing to release
the Company from its obligation to repay the principal amount of the Notes held
by each Lender upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the
terms, conditions and agreements contained in this Agreement, the parties agree
as follows:
1. EXTENSION, FORBEARANCE AND
WAIVER.
(a) Extension. The
Lender hereby agrees to amend the Notes to extend the “Maturity Date” defined in
the Notes to June 30, 2009 (the “Extension”). Such amendment will be
effective upon the execution of this Agreement by the holders of $711,000 of the
principal amount of the Notes.
(b) Forbearance. The
Lender agrees to refrain from exercising any rights as creditor arising from the
Notes and related security purchase agreements and warrants (the “Ancillary
Documents”) until the Maturity Date of the Notes, as modified by this
Agreement.
(c) Waiver. The
Lender agrees to waive (i) any and all prior defaults on the Notes and Ancillary
Documents; and (ii) any right to mandatory redemption of the Notes pursuant to
Section 4(c) thereof.
2. ISSUANCE OF
SECURITIES.
(a) In
exchange for a portion of the Notes, the Lender agrees to accept in full
satisfaction of the Company’s obligation to repay 25% of the principal and
interest due on the
Notes,
that number of restricted shares of the Company’s common stock (“Shares”)
determined by dividing 25% of principal and interest of the Note as of June 30,
2008 by $0.35.
For example, the holder of $100
principal of the Notes, assuming the Notes have been outstanding for three full
years, the interest accrued on the Notes would be $18, the total of principal
and interest would be $118, the holder would receive 85 Shares and the Note
would continue to represent $75 of principal and $13.50 accrued and unpaid
interest.
In order to receive the Shares, the
Lender must surrender the original Note to the Company so that the Company can
endorse the Note with the adjusted principal and interest
outstanding. The Company agrees to issue certificates representing
the Shares and a return the endorsed Note representing the balance that is not
exchanged within five business days after receiving the Notes, properly endorsed
for transfer to the Company.
(b) Certificates,
representing the Shares, in due and proper form, representing the shares will be
registered in the name of the Lender and bear a legend substantially in the
following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN
OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT”.
(c) Notwithstanding
the restricted nature of the Shares upon issuance, the Company, at its sole cost
and expense, will provide an opinion of counsel to its transfer agent to the
effect that the Shares may be transferred without registration pursuant to the
exemption set forth in Rule 144, provided the Lender can provide a
representation letter to the transfer agent substantially in the form annexed
hereto as Exhibit A.
3. LENDER’S REPRESENTATIONS AND
WARRANTIES.
The Lender hereby acknowledges,
represents and warrants to, and agrees with, the Company as
follows:
(a) The
Lender has the authority and power, corporate and otherwise, is acquiring the
shares for his own account as principal, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization thereof, in
whole or in part, and no other person has a direct or indirect beneficial
interest in such shares.
(b) The
Lender acknowledges its understanding that the exchange of Shares for 25% of the
Notes is intended to be exempt from registration under the Act by
virtue of
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Sections
3(a)(10) and 4(2) of the Securities Act of 1933, as amended (the “Act”) and the
provisions of Regulation D thereunder.
(c) The
Lender has the financial ability to bear the economic risk of his investment,
has adequate means for providing for his current needs and personal
contingencies and has no need for liquidity with respect to his
investment in the Company.
(d) The
Lender is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D under the Act (17 C.F.R. 230.501(a)).
(e) The
Lender has made an independent investigation of the Company’s business, and is
relying solely on the information contained in the Company’s reports filed under
Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.
(f) The
Lender is aware that the Company will pay Trident Partners Ltd. a fee of $40,000
and 50,000 restricted shares of the Company’s Common Stock as an exchange
solicitation fee.
(g) The
Lender is aware that the Company is negotiating certain amendments to its 6%
secured convertible debentures due June 28, 2009 (the “Secured Debentures”),
which, among other things, would capitalize interest due on July 1, 2008 and if
such amendments are not accepted by the holders of the requisite amount of
outstanding principal of the Secured Debentures and the Company fails to make
the interest payment when due, the holders of the Secured Debentures could
declare an Event of Default and accelerate the due date thereof.
(h) The
Lender represents, warrants and agrees that it will not sell or otherwise
transfer the Securities unless registered under the Act or in reliance upon an
exemption therefrom, and fully understands and agrees that he must
bear the economic risk of his purchase for an indefinite period of time because,
among other reasons, the shares or underlying securities have not been
registered under the Act or under the securities laws of certain states and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states or an exemption from such registration
is available. The Lender further understands that sales or transfers
of the Securities or shares of Common Stock underlying the Warrants are
restricted by the provisions of state securities laws.
(i) The
Company may, before or after the issuance of the shares, borrow funds as part of
a plan of financing, which borrowings may be secured by a security interest in
substantially all of the Company’s assets.
(j) The
foregoing representations, warranties and agreements shall survive the delivery
of the shares under the Agreement.
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4. COMPANY REPRESENTATIONS AND
WARRANTIES.
The Company hereby acknowledges,
represents and warrants to, and agrees with the Lenders as follows:
(a) The
Company has been duly organized, validly exists and is in good standing under
the laws of the State of Delaware. The Company has full corporate
power and authority to enter into this Agreement and this Agreement has been
duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement may be limited by the
United States Bankruptcy Code and laws effecting creditors rights,
generally.
(b) Subject
to the performance by the Lender of its obligations under this Agreement and the
accuracy of the representations and warranties of the Lender, the offering and
sale of the shares will be exempt from the registration requirements of the
Act.
(c) The
execution and delivery by the Company of, and the performance by the Company of
its obligations under this Agreement in accordance with the terms of this
Agreement will not contravene any provision of applicable law or the charter
documents of the Company or any agreement or other instrument binding upon the
Company, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations under
this Agreement in accordance with the terms of this Agreement.
(d) The
foregoing representations, warranties and agreements shall survive the
Closing.
5. RELEASE.
The Lender releases and forever
discharges the Company of and from all and all manner of actions, suits, debts,
sums of money, contracts, agreements, claims and demands at law or in equity,
that Lender had, or may have arising from the 25% of the original principal of
the Notes and interest accrued on 25% of the principal balance from the Original
Issuance Date to June 30, 2008, except for the Company’s obligation to deliver
the Shares in exchange for the Notes that are retired.
6. OBLIGATION IRREVOCABLY AND
SEVERAL.
The Lenders obligations under this
Agreement are several and not joint and will be effective and irrevocable upon
the receipt of an executed counterpart of this Agreement signed by each
Lender.
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7. MISCELLANEOUS.
(a) Modification. Neither
this Agreement nor any provisions hereof shall be modified, discharged or
terminated except by an instrument in writing signed by the party against whom
any waiver, change, discharge or termination is sought.
(b) Notices. Any
notice, demand or other communication which any party hereto may be required, or
may elect, to give to anyone interested hereunder shall be
sufficiently given if (a) deposited, postage prepaid, in a United
States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as may be given herein,
or (b) delivered personally at such address.
(c) Counterparts. This
Agreement may be executed through the use of separate signature pages or in any
number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same
counterpart.
(d) Binding
Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of
the parties and their heirs, executors, administrators, successors,
legal representatives and assigns. If the undersigned is more than
one person, the obligation of the Investor shall be joint and several, and the
agreements, representations, warranties and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators and
successors.
(e) Entire
Agreement. This instrument contains the entire agreement
of the parties, and there are no representations, covenants or
other agreements except as stated or referred to herein.
(f) Applicable
Law. This Agreement shall be governed and construed
under the laws of the State of New York.
IN WITNESS WHEREOF, the Company and
Lenders have caused this Agreement to be executed and delivered by their
respective officers, thereunto duly authorized.
|
By:
________________________________
Xxxx
Xxxxxxxx, CEO
|
[LENDER
SIGNATURE PAGES FOLLOW]
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SCHEDULE
I
EXTENSION,
FORBEARANCE AND DEBT CONVERSION AGREEMENT
IN WITNESS WHEREOF, the undersigned
holder of the Company’s 6% Convertible Subordinated Notes due June 30, 2008 has
caused this Agreement to be duly executed this ___ day of _____________
2008.
Original
Principal
Amount of
Note: $__________
| Dated: _______________, 2008 |
Print
Name: ___________________________________
Signature: ___________________________________
Title
(if applicable): _____________________________
Telephone No.:
________________________________
|
BY
EXECUTING THIS AGREEMENT, LENDER AGREES TO DELIVER THE ORIGINAL NOTE TO THE
COMPANY FOR ENDORSEMENT AND ACKNOWLEDGES THAT THE COMPANY WILL NOT DELIVER
CERTIFICATES REPRESENTING THE SHARES TO THE LENDER UNTIL THE ORIGINAL
NOTE IS DELIVERED TO THE COMPANY.
THE
OFFER IS SUBJECT TO ACCEPTANCE BY THE COMPANY, AS EVIDENCED BY ITS EXECUTION OF
A COUNTERPART SIGNATURE PAGE. THE OFFER MAY BE MODIFIED OR WITHDRAWN AT THE
COMPANY’S SOLE DISCRETION.
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