FORBEARANCE AGREEMENT
EXHIBIT 99.1
THIS
FORBEARANCE AGREEMENT (this “Agreement”) by and
among Arkados Group, Inc. (formerly XXXXXX.XXX, Inc., a Delaware corporation,
the “Company”
or “Borrower”)
and each of the other parties set forth on the signature pages herein (each a
“Holder” and
collectively, the “Holders”) is entered
into and effective as of date it is executed by the Company.
RECITALS
WHEREAS,
the Company previously entered into a Securities Purchase Agreement dated,
December 28, 2005 (the “First Purchase
Agreement”), as amended on February 1, 2006, February 24, 2006, March 31,
2006, September 26, 2006, October 28, 2006, November 30, 2006, June 8, 2007,
February 28, 2007, March 6, 2007, May 2, 2007, May 30, 2007, May 31, 2007,
December 6. 2007 and December 28, 2007 whereby the Company issued and sold to
certain Holders the Company’s 6% Secured Convertible Debentures due December 28,
2008 (the “First
Debentures”) as follows:
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(a)
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$2,000,000
principal amount of First Debentures on December 28,
2005,
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|
(b)
|
$375,884.38
principal amount of First Debentures on February 1,
2006,
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|
(c)
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$500,000
principal amount of First Debentures on February 24, 2006
and
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|
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(d)
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$500,000
principal amount of First Debentures on March 31,
2006,
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for an
aggregate principal amount of all First Debentures issued equal to
$3,375,884.38.
WHEREAS,
the Company previously entered into a Securities Purchase Agreement dated, June
30, 2005 (the “Second
Purchase Agreement” and together with the First Purchase Agreement, the
“Purchase
Agreements”), as amended on September 26, 2006, October 28, 2006,
November 30, 2006, June 8, 2007, February 28, 2007, March 6, 2007, May 2, 2007,
May 30, 2007, May 31, 2007, December 6, 2007 and December 28, 2007 whereby the
Company issued and sold to certain Holders the Company’s 6% Secured Convertible
Debentures due December 28, 2008 (the “Second Debentures”
and together with the First Debentures, the “Debentures”) as
follows:
|
(a)
|
$1,773,470.83
principal amount of Second Debentures on June 30,
2006,
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|
(b)
|
$250,000
principal amount of Second Debentures on September 26,
2006,
|
|
(c)
|
$250,000
principal amount of Second Debentures on October 28,
2006,
|
|
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(d)
|
$400,000
principal amount of Second Debentures on November 30,
2006,
|
|
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(e)
|
$288,000
principal amount of Second Debentures on June 8,
2007,
|
|
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(f)
|
$327,000
principal amount of Second Debentures on February 28,
2007,
|
|
|
(g)
|
$20,000
principal amount of Second Debentures on March 6,
2007,
|
|
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(h)
|
$150,000
principal amount of Second Debentures on May 7,
2007,
|
|
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(i)
|
$610,000
principal amount of Second Debentures on May 30,
2007,
|
|
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(j)
|
$500,000
principal amount of Second Debentures on May 31,
2007,
|
|
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(k)
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$855,000
principal amount of Second Debentures on December 15, 2007,
and
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|
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(l)
|
$1,004,700.84
principal amount of Second Debentures on April 8, 2008 as an inducement
for the Holders to enter into an Amendment Agreement at that time, for
an aggregate principal amount of all Second Debentures issued equal to
$6,239,171.67.
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WHEREAS,
the obligations of the Company which are due and owing to the Holders are
secured by valid and enforceable first priority liens and security interests
against all of the assets of the Company pursuant to that certain Security
Agreement dated as of December 28, 2006, as may have been amended (the “Security
Agreement”)
WHEREAS,
Company previously proposed certain waivers and amendments to the First Purchase
Agreements, the Second Purchase Agreements, the First Debentures and the Second
Debentures, and the Warrants issued in connection with the Debentures in order
to facilitate the Company raising capital by means of a sale of shares of common
and, with the agreement of the Holders the parties entered into that certain
Amendment Agreement dated as of July 30, 2008 (the “Amendment
Agreement”);
WHEREAS,
under the terms of the Amendment Agreement, the parties, inter alia, agreed to
extend the Maturity Date of the Debentures to June 28, 2009 (the “Maturity
Date”). The Debentures have since matured by their terms and
are now due and payable in full. On or around June 30, 2009, the
Agent delivered to the Company a demand for payment and a Notice of Event of
Default. A second demand for payment was sent by the Holders on
January 14, 2010;
WHEREAS,
the Company has requested that the Holders continue to refrain and forbear from
exercising certain rights and remedies with respect to the indebtedness owing
and has once again requested that the Holders forbear from exercising their
rights and remedies under the various Transaction Documents and under
applicable law. The Company has requested additional time to pursue strategic
alternatives to restructure the company and its finances, such a restructuring,
recapitalization or a similar transaction (the “Transaction”) and the
Holders are willing to do so on the terms and conditions set forth
herein.
NOW THEREFORE, in
consideration of the premises and the mutual agreement contained therein, and
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
Section
1. Definitions
and Recitals. Capitalized terms
used and not otherwise defined herein have the meanings ascribed to such terms
in the Debentures. The above recitals shall be incorporated and
construed as part of this Agreement.
Section
2. Ratification
and Incorporation of Purchase Agreement, Debentures, Security Agreement and
Related Agreements. Except as
expressly modified by this Agreement, (a) the Company hereby acknowledges,
confirms and ratifies all of the terms and conditions set forth in, and all of
its obligations under, the First Purchase Agreement, Second Purchase Agreement,
First Debentures, Second Debentures, Amendment Agreement, Security Agreement and
related Transaction Documents, which documents are valid, binding and in full
force and effect and (b) all of the terms and conditions set forth in the
foregoing Transaction Documents are legal, valid and binding obligations and are
incorporated herein by this reference as if set forth in full
herein.
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Section
3. Acknowledgement of
Indebtedness and Senior Secured Liens.
(a) The
Company acknowledges and agrees that as of the date hereof, the aggregate
indebtedness (the “Indebtedness”) due
under the Debentures to the Holders, as of January 1, 2010, is as
follows:
[LIST OF
HOLDERS SIGNING AGREEMENT]
The
Company represents and agrees that the Indebtedness due the Holders is secured
by valid and enforceable first priority liens and security interests against the
Collateral, and that it has no offset, defense, counterclaim, dispute or
disagreement of any kind or nature whatsoever with respect to the liability or
amount of such foregoing Indebtedness or the liens and security interests
securing such Indebtedness.
(b) The
Company hereby acknowledges and agrees that Debentures have fully matured and
that Existing Defaults have occurred and are continuing, each of which
constitutes an Event of Default and entitles Holders to accrue interest at the
default rate of interest and to exercise its rights and remedies under the
Transaction Documents, applicable law or otherwise. Holders have not
waived, presently do not intend to waive and may never waive such existing
defaults and nothing contained herein or the transactions contemplated hereby
shall be deemed to constitute any such waiver. The Company hereby
acknowledges and agrees that Holders have the right to declare the Indebtedness
to be immediately due and payable.
Section
4. The
Forbearance Period. In reliance upon the representations,
warranties and covenants of the Company contained in this Agreement, and subject
to Section 5 below, each Holder agrees that until March 31, 2010, it will
forbear from exercising its rights and remedies.
Section
5. Termination
of Standstill Obligations.
(a) The
obligation of any Holder under Section 4 hereof shall terminate (the “Termination”) on the
earlier of (i) the date, if any, on which a petition for relief under the United
States Bankruptcy Code or any similar state law is filed by or against the
Company, (ii) the date that the Company defaults under any of the terms and
conditions of this Agreement (iii) the date that any of the Holders determine,
in their sole reasonable discretion, that the Company has abandoned seeking a
Transaction or (iv) the date this Agreement is otherwise terminated or
expires.
(b) Upon
Termination, the agreement of Holders to forbear shall automatically and without
further notice or action terminate and be of no force and effect, it being
understood and agreed that the effect of such Termination will be to permit
Holders to exercise such rights and remedies hereunder, under the Transaction
Documents, or applicable law, immediately without any further notice, passage of
time or forbearance of any kind.
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(c) The
Company agrees that all of the Indebtedness shall, if not sooner paid, be
absolutely and unconditionally due and payable in full in cash or other
immediately available funds by the Company and the Holders on the
Termination.
Section
6. Representations
and Warranties. In order to induce the Holders to enter into
this Agreement and to forbear with respect to the Existing Defaults in the
manner provided in this Agreement, the Company represents and warrants to the
Holders as follows:
(a) Power and
Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated by, and perform its obligations hereunder.
(b) Authorization of
Agreements. The execution and delivery of this Agreement by
the Company and the performance hereunder have been duly authorized by all
necessary action, and this Agreement has been duly executed and delivered by the
Company.
(c) Enforceability. This
Agreement constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
(d) No Violation or
Conflict. The execution and delivery by the Company of this
Agreement and the performance by the Company hereunder do not and will not (i)
contravene, in any respect, any provision of any law, regulation, decree,
ruling, judgment or order that is applicable to the Borrowers or their
properties or other assets, or (ii) result in a breach of or constitute a
default under the charter, bylaws or other organizational documents of the
Company or any material agreement, indenture, lease or instrument binding upon
the Company or its properties or other assets.
(e) Governmental
Consents. No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Company of this
Agreement.
Section
7. Effect on
Agreements. Except as specifically provided herein, all of the
Transaction Documents remain in full force and effect in accordance with their
respective terms. Nothing in this Forbearance Agreement shall extend
to or affect in any way any of the rights or obligations of the Company arising
under the First Purchase Agreement, Second Purchase Agreement, First Debentures,
Second Debentures, Amendment Agreement Security Agreement and related
Transaction Documents.
Section
8. Waiver of Jury Trial;
Governing Law and Consent to Jurisdiction
(a) Jury
Trial. The Company makes the following waiver knowingly,
voluntarily, and intentionally, and understands that each of the Holders, in
entering into this Agreement, is relying thereon. THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY PRESENT OR FUTURE RIGHT TO A JURY IN ANY TRIAL OF ANY
CASE OR CONTROVERSY IN WHICH THE HOLDERS, OR EITHER OF THEM, ARE OR
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BECOME A
PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE HOLDERS,
OR EITHER OF THEM, OR IN WHICH THE HOLDERS, OR EITHER OF THEM, IS JOINED AS A
PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN RESPECT OF,
ANY RELATIONSHIP BETWEEN THE COMPANY OR ANY SUCH PERSON, AND THE HOLDERS, OR
EITHER OF THEM.
(b) Governing Law: Consent To
Jurisdiction And Venue. THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS AND DECISIONS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. BORROWERS HEREBY CONSENT AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED WITHIN THE COUNTY OF NEW YORK, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS AND
HOLDERS PERTAINING TO THIS AGREEMENT, THE DEBENTURES OR ANY OF THE OTHER
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT.
Section
9. Release
and Waivers.
(a) Waiver of Claims by the
Company. The Company hereby acknowledges and agrees that it
has no offsets, defenses, claims, or counterclaims against the Agent or Holders,
or either of them, or any of the Holders’ respective officers, directors,
employees, members, managers, affiliates, attorneys, representatives,
predecessors, successors, or assigns with respect to the Indebtedness, or
otherwise, and that if the Company now has, or ever did have, any such offsets,
defenses, claims, or counterclaims against the Holders, or either of them, or
any of the Holders’ respective officers, directors, employees, affiliates,
attorneys, representatives, predecessors, successors, or assigns, whether known
or unknown, at law or in equity, from the beginning of the world through this
date and through the time of execution of this Standstill and Forbearance
Agreement, all of them are hereby expressly WAIVED, and the Company hereby
RELEASES the Holders and the Holders’ respective officers, directors, employees,
affiliates, attorneys, representatives, predecessors, successors, and assigns
from any liability therefor.
(b) Release. In
consideration of the agreements of the Holders contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company on behalf of itself and its successors, assigns,
heirs, executor, administrator and other legal representatives, hereby, jointly
and severally, absolutely, unconditionally and irrevocably releases, remises and
forever discharges the Agent and Holders, successors and assigns, and their
respective present and former shareholders, affiliates, subsidiaries, divisions,
predecessors, directors, officers, attorneys, employees, members, managers,
agents and other representatives (the Agent and Holders and all such other
parties being hereinafter referred to collectively as the “Releasees” and
individually as a “Releasee”), of and from all demands, actions, causes of
action, suits,
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covenants,
contracts, controversies, agreements, promises, sums of money, accounts, bills,
reckonings, damages and any and all other claims, counterclaims, defenses,
rights of set off, demands and liabilities whatsoever (individually, a “Claim”
and collectively, “Claims”) of every name and nature, known or unknown,
suspected or unsuspected, both at law and in equity, which the Company, or any
of its officers, directors, employees, successors, assigns, heirs, executor,
administrator or other legal representatives, as the case may be, may now or
hereafter own, hold, have or claim to have against the Releasees or any of them
for, upon, or by reason of any nature, cause or thing whatsoever which arises at
any time on or prior to the day and date of this Agreement, for or on account
of, or in relation to, or in any way in connection with the Agreements, as
amended and supplemented through the date hereof.
(c) Covenant Not to
Xxx. The Company, on behalf of itself and its successors,
shareholders, assigns, heirs, executor, administrator and other legal
representatives, hereby jointly and severally, absolutely, unconditionally and
irrevocably, covenants and agrees with each Releasee that it will not xxx (at
law, in equity, in any regulatory proceeding or otherwise) any Releasee on the
basis of any Claim released, remised and discharged by the
Company. If the Company or any party on its behalf violates the
foregoing covenant, the Company agrees to pay, in addition to such other damages
as any Releasee may sustain as a result of such violation, all attorneys’ fees
and costs incurred by any Releasee as a result of such violation.
Section
10. Miscellaneous.
(a) This
Agreement (i) contains the entire understanding of the parties with respect to
the subject matter hereof, (ii) may not be amended except in writing signed by
all of the parties hereto, (iii) shall inure to the benefit of the parties
hereto and their respective successors and assigns, (iv) may be executed in
multiple counterparts, each of which shall be deemed to be an original and all
of which taken together shall constitute one and the same
agreement.
(b) Any
determination that any provision of this Agreement or any application thereof is
invalid, illegal, or unenforceable in any respect in any instance shall not
affect the validity, legality, or enforceability of such provision in any other
instance, or the validity, legality, or enforceability of any other provision of
this Agreement. Section headings used herein are for convenience of
reference only, are not part of this Agreement, and are not to be taken into
consideration in interpreting this Agreement.
(c) The
Company represents and warrants that it (a) has engaged counsel and understands
fully the terms of this Agreement and the consequences of the execution and
delivery of this Agreement, (b) has been afforded an opportunity to have this
Agreement reviewed by, and to discuss this Agreement with such attorneys and
other persons as the Company may wish, and (c) has entered into this Agreement
and executed and delivered all documents in connection herewith of its own free
will and accord and without threat, duress or other coercion of any kind by any
person. The parties hereto acknowledge and agree that neither this
Agreement nor the other documents executed pursuant hereto shall be construed
more favorably in favor of one than the other based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially to
the negotiation and preparation of this Agreement and the other documents
executed pursuant hereto or in connection herewith.
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(d) In making
proof of this Agreement, it shall not be necessary to produce or account for
more than one counterpart thereof signed by each of the parties
hereto. Delivery of any executed counterpart of this Agreement by
telefacsimile or electronic communication shall have the same force and effect
as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this
Agreement by telefacsimile or electronic communication also shall deliver an
original executed counterpart of this Agreement, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement as to such party or any other
party.
The
remainder of this page is intentionally blank. Signature page
follows.
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IN
WITNESS WHEREOF, the parties have executed this Standstill and Forbearance
Agreement as of the date first above written.
By:
_____________________________ Dated:
Name:
Title:
DEBENTURE
HOLDERS SIGNATURE PAGES
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