Contract
EXHIBIT
99.3
THIS
NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS NOTE.
DUE
January 31, 2010
Number: _______________________________
Principal:
$_______________________________
Original
Issue Date: _________________ ,
200__
Registered
Holder:_________________________
(name)
Arkados Group, Inc., a Delaware
corporation (the “Company”) with
principal offices at 000 Xxx Xxx Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx,
XX 00000, for value received, hereby promises to pay the registered
holder hereof (the “Holder”) the principal sum set forth above on January 31,
2010 (the “Maturity
Date”), in such coin or currency of the United States of America as at
the time of payment shall be the legal tender for the payment of public and
private debts, and to pay interest, less any amounts required by law to be
deducted or withheld, computed on the basis of a 365-day year, on the unpaid
principal balance hereof from the date hereof (the “Original Issue
Date”), at the rate of 8% per year, until such principal sum shall have
become due and payable, or has been exchanged pursuant to Section 3 or converted
pursuant to Section 4, below. Interest shall be paid, on Maturity, or
if the principal of the Note is earlier exchanged pursuant to Section 3 below or
converted pursuant to Section 4 below, upon such exchange or
conversion. All references herein to dollar amounts refers to U.S.
dollars.
By acceptance and purchase of this
Note, the registered holder hereof agrees with the Company that the Note shall
be subject to the following terms and conditions:
1. Authorization of
Notes. The Company has authorized the issue and sale of a 6%
Subordinated Note due January 31, 2010 (the “Note,” such term
includes any notes which may be issued in exchange or in replacement thereof) in
the aggregate principal amount of not more than U.S. $1,000,000.
2. Transfer or
Exchange. Prior to due presentation to the Company for
transfer of this Note, the Company and any agent of the Company may treat the
person in whose name this Note is duly registered on the Company’s Note Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes.
3. Option to Exchange Principal
into Equity Securities. The Company has disclosed to Holder,
and Xxxxxx acknowledges, that the Company intends to offer securities of the
Company (which may consist of voting stock or other securities convertible into
Common Stock or warrants to obtain the Common Stock; hereafter, collectively,
“Equity
Securities”) for sale to one or more investors pursuant to a private
offering. Holder further acknowledges that such offering may be made
simultaneously with the offering of preferred securities of the Company to
strategic investors (the “Strategic
Securities”). The Company hereby agrees not to complete such
an offering of Equity Securities or Strategic Securities without first offering
to Holder the opportunity to convert all or a portion of principal due on this
Note to the purchase of such Equity Securities upon the same terms offered to
other investors, less a discount of 33%. The Company shall give
notice to Holder prior to any such sale, which notice shall fully disclose the
material terms thereof, and Holder shall have a prior right and option for 5
days following receipt of such notice to convert all or any portion of the
principal due on this Note the purchase of a portion of the Equity
Securities. At the time of closing on the purchase of such Equity
Securities, the Company shall pay all accrued and unpaid interest due on this
Note and exchange the Equity Securities for the original executed Note,
conditioned upon the Holder executing requisite subscription documents for the
purchase of the Equity Securities and other documents reasonably necessary to
evidence the cancellation of this Note
4. Mandatory
Conversion. Subject to the provisions of this Section 4, the
Company may, at its sole election, any time until principal and interest on this
Note is paid in full, upon five (5) days written notice to the holders of the
Notes, to require any or all Holders of the Notes to convert outstanding
principal into Equity Securities by applying such principal to the purchase
price of the Equity Securities and paying all accrued and unpaid interest on the
date of such conversion.
4.1
Notice. The
Company shall notify the holder of the Company's intent to effect such a
conversion by giving written notice ("Notice of Mandatory
Conversion") to the holders of the Notes by facsimile, original to follow
by 2-day courier, before midnight, New York City time, on the business day
immediately preceeding the date of such mandatory conversion.
4.2
Effect of Mandatory
Conversion. If the Company so elects, all principal due on the
Notes shall be automatically converted into Equity Securities, as of the date
the Notice of Mandatory Conversion. Each holder of Notes shall
hereafter promptly surrender the original executed Note in exchange for the
Equity Securities and the payment of all accrued and unpaid interest at the
principal office of the Company and shall thereupon be entitled to receive
certificates evidencing the Equity Securities into which the principal and
interest on the Notes is converted. Each holder of Notes shall be deemed to be a
holder of record of the Equity Securities issuable upon such conversion as of
the effective date the conversion set forth in the Notice of Mandatory
Conversion, notwithstanding that the Note shall not have been surrendered to the
Company, the accrued and unpaid interest shall not have been paid or that
certificates evidencing Equity Securities shall not then have been actually
delivered to such holder, and from and after such date this Note shall only
represent the right to receive interest and the Equity Securities.
4.3
Conditions to Mandatory
Conversion. The Company may only call a for Mandatory
Conversion in the event:
|
4.3.1
|
the
Company, on or before the effective date of the conversion, shall have
eliminated all outstanding secured debt in exchange for Common Stock (or
securities convertible into Common Stock upon the authorization of new
shares of common stock, hereafter referred to as “Substitute
Stock”) and payment if up to the sum of $2.5 million from the
proceeds of the sale of Equity Securities and Strategic Securities (“Secured
Restructuring”), and
|
|
4.3.2
|
the
aggregate debt owed to employees and unsecured creditors holding Notes
shall, after giving effect to the conversion of secured debt and the
issuance of common stock or Substitute Stock for such unsecured debt, be
equal to or less than $$2,000,000 (“Unsecured
Restructuring”), and
|
|
4.3.3
|
the
Equity Securities are being sold for cash to investors to at a gross price
equal to or less than $200,000 per the number of shares of Common Stock
(or Substitute Stock) which would represent (or, in the case of the
Substitute Stock automatically converted into) 1% of the shares of Common
Stock outstanding after giving effect to the Secured and Unsecured
Restructuring. For example, if $5 million is invested by
strategic investors in preferred and $4 mil buys 20% of the common, after
the Secured and Unsecured Restructuring, $1,000,000 of Principal amount of
the Notes may be converted automatically into 7.5% of the Company’s Common
Stock or that amount Substitute Stock which would represent 7.5% of the
Company’s Common Stock after its
conversion.
|
5. Restrictions on
Transferability. The Note shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 5, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any
Note. Holder, by acceptance of this Note, agrees to be bound by the
provisions of this Section 5.
5.1 Restrictive
Legend. The Holder by accepting this Note agrees that this
Note may not be assigned or otherwise transferred unless and until (i) the
Company has received an opinion of counsel for the Holder that such securities
may be sold pursuant to an exemption from registration under the Securities Act
or (ii) a registration statement relating to such securities has been filed by
the Company and declared effective by the Commission.
Except as otherwise provided in this
Section 5, the Note shall be stamped or otherwise imprinted with a
legend in substantially the following form:
“This
Note and the securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or any state securities laws and may not
be transferred in violation of such Act, the rules and regulations thereunder or
any state securities laws or the provisions of this Note.”
5.2 Notice of Proposed
Transfers. Prior to any Transfer or attempted Transfer of any
Note, the Holder shall give five (5) days’ prior written notice (a “Transfer
Notice”) to the Company of Xxxxxx’s intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and obtain
from counsel to Holder an opinion that the proposed Transfer of such Note may be
effected without registration under the Securities Act or state securities
laws. After the Company’s receipt of the Transfer Notice and opinion,
such Holder shall thereupon be entitled to Transfer such Note, in accordance
with the terms of the Transfer Notice. Each Note issued upon such
Transfer shall bear the restrictive legends set forth in Section 5.1, unless in
the opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act.
5.3 Termination of
Restrictions. Notwithstanding the foregoing provisions of
Section 5, the restrictions imposed by this Section upon the transferability of
the Notes, and the legend requirements of Section 5.1 shall terminate as to any
particular Note (i) when and so long as such security shall have been
effectively registered under the Securities Act and applicable state securities
laws and disposed of pursuant thereto or (ii) when the Company shall have
received an opinion of counsel that such shares may be transferred without
registration thereof under the Securities Act and applicable state securities
laws. Whenever the restrictions imposed by Section 5 shall terminate
as to this Note, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company upon written request of the Holder, at the expense of
the Company, a new Note bearing the following legend in place of the restrictive
legend set forth above or the Note stamped with the following
legend:
“THE
RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN NOTE CONTAINED IN SECTION 5
HEREOF TERMINATED ON ___________, 20__, AND ARE OF NO FURTHER FORCE AND
EFFECT.”
All Notes issued upon registration of
transfer, division or combination of, or in substitution for, any Note or
entitled to bear such legend shall have a similar legend endorsed
thereon. Whenever the restrictions imposed by this Section shall
terminate as to any share of Restricted Common Stock, as hereinabove provided,
the holder thereof shall be entitled to receive from the Company, at the
Company’s expense, a new certificate representing such Common Stock not bearing
the restrictive legends set forth in Section 5.1.
6. Subordination. Any
right of the Holder to payment of principal or interest from the Company shall
be subordinated to the claims and rights of the holders of the Senior
Debt (“Senior Debt Holders”). “Senior Debt” means all Indebtedness of the
Company to financial institutions or secured debt other than the Notes, whether
outstanding on the date of execution of this Note or thereafter created,
incurred or assumed, except (x) any such Indebtedness that by the terms of the
instrument or instruments by which such Indebtedness was created, assumed or
incurred expressly provides that it (i) is junior in right of payment to the
Notes or (ii) ranks
pari passu in right of payment with the Notes and (y) any amendments,
modifications or supplements to, or any renewals, extensions, deferrals,
refinancing and refunding of, any of the foregoing. Any cash payment
of principal or interest to the Holder shall be collected, enforced or received
by the Holder as trustee for the Senior Debt Holders and paid over to the Senior
Debt Holders. The Holder agrees that in the event of any payment of principal or
interest by the Company to the Holder by reason of any receivership, insolvency
or bankruptcy proceeding, or proceeding for reorganization or readjustment of
the Company or its properties, or otherwise, then, in any such event, the Senior
Debt Holders shall be preferred in the payment of their claims over the claim of
the Holder to payment of principal or interest against the Company or its
properties, and the claims of the Senior Debt Holders shall be first paid and
satisfied in full before any payment or distribution of any kind or character,
whether in cash or property, shall be made to the Holder. Provided, however,
that this Section 8 shall not apply to any payment of principal or interest made
to the Holder while the Company is solvent and not in default with respect to
its Senior Debt.
7. Replacement of Note
Certificate. Upon receipt of evidence satisfactory to the Company of the
certificate loss, theft, destruction or mutilation of the Note certificate and,
in the case of any such loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of the Note certificate, the Company will issue
a new Note certificate, of like tenor, in lieu of such lost, stolen, destroyed
or mutilated Note certificate.
8. Default. If any of
the following events (herein called “Events of Default”) shall
occur:
|
|
(a)
|
if
the Company shall default in the payment or prepayment of any part of the
principal of any of the Notes after the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration
or otherwise, and such default shall continue for more than 30 days;
or
|
|
|
(b)
|
if
the Company shall default in the payment of any installment of interest on
any of the Notes for more than 30 days after the same shall become due and
payable; or
|
|
|
(c)
|
if
the Company shall make an assignment for the benefit of creditors;
or
|
|
|
(d)
|
if
the Company shall dissolve; terminate its existence; become insolvent on a
balance sheet basis; commence a voluntary case under the federal
bankruptcy laws or under any other federal or state law relating to
insolvency or debtor’s relief; permit the entry of a decree or order for
relief against the Company in an involuntary case under the federal
bankruptcy laws or under any other applicable federal or state law
relating to insolvency or debtor’s relief; permit the appointment or
consent to the appointment of a receiver, trustee, or custodian of the
Company or of any of the Company’s property; make an assignment for the
benefit of creditors; or
|
|
|
(e)
|
if
the Company shall default in the performance of or compliance with any
agreement, condition or term contained in this Note or any of the other
Notes and such default shall not have been cured within 30 days after such
default; or
|
|
|
(f)
|
Any
of the representations or warranties made by the Company herein, in the
Subscription Agreement, or in any certificate or financial or other
statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this Note or the
Subscription Agreement shall be false or misleading in any material
respect at the time made;
|
then and
in any such event the Holder of this Note shall have the option (unless the
default shall have theretofore been cured) by written notice to the Company to
declare the Note to be due and payable, whereupon the Note shall forthwith
mature and become due and payable, at the applicable prepayment price on the
date of such notice, without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived, anything contained in this
Note to the contrary notwithstanding. Upon the occurrence of an Event of
Default, the Company shall promptly notify the Holder of this Note in writing
setting out the nature of the default in reasonable detail.
9. Remedies on
Default.
9.1 Acceleration of
Maturity. If any Event of Default shall have occurred and be
continuing, the Holder or Holders of at least 50.1% in aggregate principal
amount of outstanding Notes may, by notice to the Company, declare the entire
outstanding principal balance of the Notes, premium, if any, and all accrued and
unpaid interest thereon, to be due and payable immediately, and upon any such
declaration the entire outstanding principal balance of the Notes, premium, if
any, and said accrued and unpaid interest shall become and be immediately due
and payable, without presentment, demand, protest or other notice whatsoever,
all of which are hereby expressly waived, anything in the Notes (except as set
forth in Section 11 hereof) to the contrary notwithstanding.
9.2 Conduct no Waiver,
Collection Expenses. No course of dealing on the part of any
Holder, nor any delay or failure on the part of any Holder to exercise any of
its rights, shall operate as a waiver of such right or otherwise prejudice such
Holder's rights, powers and remedies. If the Company fails to pay, when due, the
principal or the premium, if any, or the interest on any Note, the Company will
pay to each Holder, to the extent permitted by law, on demand, all costs and
expenses incurred by such Holder in the collection of any amount due in respect
of any Note hereunder, including reasonable legal fees incurred by such Holder
in enforcing its rights hereunder.
9.3 Annulment of
Acceleration. If a declaration is made in accordance with
Section 9.1, then and in-every such case, the Holder or Holders of at least
50.1% in aggregate principal amount of outstanding Notes may, by an instrument
delivered to the Company, annul such declaration and the consequences thereof,
provided that
at the time such declaration is annulled:
(i) no
judgment or decree has been entered for the payment of any monies due on the
Notes or pursuant to this Agreement;
(ii) all
arrears of interest on the Notes and all other sums payable on the Notes and
pursuant to this Agreement (except any principal of or interest or premium on
the Notes which has become due and payable by reason of such declaration) shall
have been duly paid; and
(iii) every
other Event of Default shall have been duly waived or otherwise made good or
cured.
10. Amendments. With the
consent of the Holders of more than 50.1% in aggregate principal amount of the
Notes at the time outstanding, the Company, when authorized by a resolution of
its Board of Directors, may enter into a supplementary agreement for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Note or of any supplemental agreement or modifying in any
manner the rights and obligations of the holders of Notes or Common Stock issued
upon conversion of the Notes, and of the Company, provided, however, that no
such supplemental agreement shall (a) extend the fixed maturity of any Note, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or alter or impair the right to convert the same
into Common Stock at the rates and upon the terms provided in this Note, without
the consent of the Holder of each of the Notes so affected, or (b) reduce the
aforesaid percentage of Notes, the Holders of which are required to consent to
any supplemental agreement, without the consent of the Holders of all Notes then
outstanding.
11. Changes, Waivers.
etc. Neither this Note nor any provisions hereof may be
changed, waived, discharged or terminated orally, but only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, except to the extent provided in Section 11
of this Note.
12. Entire Agreement.
This Note embodies the entire agreement and understanding between the Holder and
the Company and supersedes all prior agreements and understandings relating to
the subject matter hereof.
13. Governing Law, Jurisdiction,
etc.
|
|
(a)
|
GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE
STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION
OTHER THAN SUCH STATE.
|
|
|
(b)
|
Submission to
Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental
authority
|
|
|
("Litigation")
arising out of or relating to the Note and the transactions contemplated
thereby (and agrees not to commence any Litigation relating thereto except
in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set
forth in the Letter Subscription Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of
the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any Litigation arising out of the Note
or the transactions contemplated hereby in the courts of the State of New
York or the United State of America, in each case located in the County of
New York, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient
forum.
|
|
|
(c)
|
Service of
Process. Nothing herein shall affect the right of any
holder of a Note to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against the Company in
any other jurisdiction.
|
|
|
(d)
|
WAIVER OF JURY
TRIAL. THE COMPANY HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY OF
THE NOTES.
|
|
|
(e)
|
In
the event of any dispute, question, controversy or claim arising among the
parties hereto which shall arise out of or in connection with this Note,
the parties shall keep the proceeding related to such controversy in
strict confidence and shall not disclose the nature of said dispute, the
status of the proceeding or any testimony, documents or information
obtained or exchanged in the course of said proceeding without the express
written consent of all parties to such
dispute.
|
|
|
|
| By: ___________________________ | |
| Xxxxx Xxxxxxxx, CFO |
Number: _________________________________
Name of
Holder: ____________________________
Principal: $ _______________________________
Original
Issue
Date: _________________________
