Item 1.01 Entry into a Material Definitive Agreement.
(a) Acquisition
of SolBright Renewable Energy, LLC
On May 1, 2017, Arkados
Group, Inc., a Delaware corporation (the “Company”) completed an acquisition (the “Asset Purchase”) pursuant
to an Asset Purchase Agreement dated May 1, 2017 (the “Asset Purchase Agreement”) with SolBright Renewable Energy,
LLC (“SolBright”), pursuant to which the Company has acquired substantially all of the assets, and certain specified
liabilities, of SolBright used in the operation of SolBright’s solar engineering, procurement and construction business
(the “SolBright Assets”, the transaction shall collectively be referred to herein as the “Acquisition”).
The Asset Purchase Agreement and the Acquisition were approved by the board of directors of the Company and the sole manager and
members of SolBright.
In consideration for
the purchase of the SolBright Assets, the Company delivered to SolBright (i) $3,000,000 in cash (the “Cash Payment”),
(ii) a Senior Secured Promissory Note in the principal amount of $2,000,000 (the “Secured Promissory Note”), described
below, (iii) a Convertible Promissory Note in the principal amount of $6,000,000 (“Preferred Stock Note”), described
below, and (iv) the Common Stock Consideration, described below.
The Secured Promissory
Note matures on May 1, 2020 barring any events of default, an equity financing in which the Company issues equity securities which
yield gross cash proceeds to the Company of at least $10,000,000 (excluding redeemable or convertible notes) or a change of control
of the Company. The Company shall make prepayments of principal on a quarterly basis pursuant to the terms of the Secured Promissory
Note if such funds are available. The Secured Promissory Note bears interest at 15% per annum, payable on a quarterly basis with
the first payment due on May 31, 2017. The Secured Promissory Note is secured with a second priority lien on the accounts receivable
of the Company relating to the solar engineering, procurement and construction business of SolBright acquired by the Company pursuant
to the Asset Purchase Agreement, with such lien being junior only to the first priority security position granted pursuant to
the Note Purchase Agreement and the Security Agreement, both dated May 1, 2017, described in (b) below.
The Preferred Stock
Note matures on July 31, 2018 barring any demands following an event of default, provided that the Company shall make prepayments
of principal on a quarterly basis pursuant to the terms of the Preferred Stock Note if such funds are available. The Preferred
Stock Note bears interest at 4% per annum, provided that upon and during an event of default it shall bear interest at 12% per
annum. Interest is payable quarterly in arrears commencing on May 1, 2017 and on the first business day of each August, November,
February and May thereafter. The Preferred Stock Note will automatically convert on the date that the Company’s Certificate
of Designation is filed with the State of Delaware’s Secretary of State and becomes effective into a number of shares of
the Company’s Series A 4% Convertible Preferred Stock, par value $0.0001 per share, equal to the outstanding principal and
interest on the Preferred Stock Note divided by $1.50 per share, as adjusted for any stock splits, stock dividends, recapitalizations,
combinations and the like that may occur prior to such conversion. The Company has agreed in the Asset Purchase Agreement to take
the actions required for the automatic conversion of the Preferred Stock Note promptly following the closing of the Asset Purchase.
In connection with
the Asset Purchase Agreement, and in addition to the consideration represented by the Cash Payment, the Secured Promissory Note
and the Preferred Stock Note, the Company issued to SolBright 4,000,000 shares of Company’s common stock at one dollar per
share (the “Common Stock Consideration”). The Common Stock Consideration is subject to antidilution protection if,
within 120 days of the closing of the Asset Purchase, the Company sells shares of its common stock at a price per share that is
less than one dollar per share, in which case the Company shall issue additional shares of common stock to SolBright so that the
total number of shares the Company has issued to SolBright equals $4,000,000 divided by such lower price per share.
The Asset Purchase
Agreement contained customary representations, warranties and covenants of the Company and SolBright.
A copy of the Asset
Purchase Agreement, Secured Promissory Note and the Preferred Stock Note are attached as Exhibits 2.1, 10.1 and 10.2, respectively,
to this Current Report on Form 8-K and are incorporated herein by reference. The foregoing description of the Asset Purchase Agreement,
Secured Promissory Note and the Preferred Stock Note is qualified in its entirety by reference to the full text of the Asset Purchase
Agreement, Secured Promissory Note and the Preferred Stock Note filed with this Current Report on Form 8-K.
The Asset Purchase
Agreement has been included to provide investors with information regarding the terms of the transactions contemplated thereby.
The Asset Purchase Agreement is not intended to provide any other factual information about the Company, SolBright or their respective
subsidiaries or affiliates. The Asset Purchase Agreement contains representations and warranties of the Company and SolBright.
The assertions embodied in those representations and warranties were made for purposes of the Asset Purchase Agreement and are
qualified by information in confidential disclosure schedules that the parties have exchanged in connection with the execution
of the Asset Purchase Agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions
to the representations and warranties set forth in the Asset Purchase Agreement. In addition, certain representations and warranties
were made as of a specific date may be subject to a contractual standard of materiality different from what an investor might
view as material, or may have been used for purposes of allocating risk between the respective parties rather than establishing
matters as facts. Accordingly, you should read the representations and warranties in the Asset Purchase Agreement not in isolation
but only in conjunction with the other information about the Company, SolBright and their respective subsidiaries that are included
in reports, statements and other filings made by the Company with the Securities and Exchange Commission (the “SEC”).
(b) AIP
Financing
On May 1, 2017, the
Company completed a financing transaction with AIP Asset Management Inc. (the “Security Agent”), AIP Global Macro
Fund, LP (“AGMF”), AIP Global Macro Class (“AGMC”) and AIP Canadian Enhance Income Class (“ACEIC”
and together with AGMF and AGMC, collectively, “AIP”), pursuant to which the Company raised additional capital by
issuing 10% Secured Convertible Promissory Notes (the “10% Notes”) in the aggregate principal amount of $2,500,000
to AIP and AIP Private Capital Inc. (collectively, the “Holders”) in accordance with the terms of the Note Purchase
Agreement dated May 1, 2017 (the “Purchase Agreement”) with AIP (the “AIP Financing”). In connection
with the issuance of the 10% Notes, the Company and its subsidiaries entered into a Security Agreement dated May 10, 2017 (the
“Security Agreement”) with the Security Agent, pursuant to which the Company granted the Security Agent a security
interest in substantially all assets of the Company and its subsidiaries. In addition, pursuant to the Note Purchase Agreement,
the Company issued warrants (the “AIP Warrants”) to the Holders to purchase 2,500,000 shares of the Company’s
common stock, subject to adjustment for certain events, such as stock splits and stock dividends, at an exercise price of $1.00
per share, and which have three year terms.
The principal amount
of the 10% Notes exceeds the cash consideration paid by the Holders for such notes, with such excess representing a 15% original
issue discount. The 10% Notes mature on May 1, 2018 unless earlier converted pursuant to the terms of the Purchase Agreement.
The 10% Notes bear interest at 10% per annum, provided that during an Event of Default (as defined in the Purchase Agreement)
it shall bear interest at 20% per annum, payable on a monthly basis. The 10% Notes are secured with a first priority lien as set
forth in the Security Agreement. The outstanding principal and interest under the 10% Notes is convertible at the option of the
Holder of each Note into shares of the Company’s common stock at $0.80 per share, or $0.60 if the Company has not raised
$500,000 in the 90 days following the closing, or, upon an uncured Event of Default (as defined in the Purchase Agreement), the
lesser of the closing bid of the Company’s common stock on the day notice of conversion is given or 75 percent of the price
of Shares in any registered offering.
In connection
with the AIP Financing, the Company and the Holders entered into a Registration Rights Agreement under which the Company is required,
in no event later than 75 calendar days after the closing of the AIP Financing, to file a registration statement with the SEC
covering the resale of the shares of the Company’s common stock issuable pursuant to the 10% Notes and the Warrants and
to use reasonable best efforts to have the registration declared effective as soon as practicable, but in no event later than
120 days after the closing of the AIP Financing. The Company will be subject to certain monetary penalties, as set forth in the
Registration Rights Agreement, if the registration statement is not filed, does not become effective on a timely basis, or does
not remain available for the resale (subject to certain allowable grace periods) of the Registrable Securities, as such term is
defined in the Registration Rights Agreement.
The foregoing
does not purport to be a complete description of the Purchase Agreement, the 10% Notes, the Security Agreement, the Registration
Rights Agreement or the AIP Warrants and is qualified in its entirety by reference to the full text of such documents, which are
filed as Exhibits 10.3, 10.4, 10.5, 10.6, and 10.7, respectively, hereto.
(c) Note
and Warrant Financing
On May 1, 2017, the Company closed a private
placement (the “Private Placement”) of approximately $899,999 principal amount of 9% Convertible Promissory Notes
(the “9% Notes”) and Common Stock Purchase Warrants (the “Warrants”) issued to L2 Capital LLC (“L2”)
and SBI Investments LLC 2014-1 (“SBI” and together with L2, the “Investors”). A Note and a Warrant was
issued pursuant to a Securities Purchase Agreement, dated May 1, 2017, with each Investor, in substantially the same form (each,
a “Securities Purchase Agreement”).
The 9% Notes mature on November 1, 2017 unless earlier
converted pursuant to the terms of the Securities Purchase Agreement. The 9% Notes bear interest at 9% per annum. The outstanding
principal and interest under the 9% Notes, solely upon an Event of Default (as defined in the 9% Notes), is convertible at the option
of the Holder of each Note into shares of the Company’s common stock as set forth in the 9% Notes.
As a part
of the Private Placement, the Company issued Warrants to the Investors providing them with the right to purchase up to an aggregate
of 1,279,998 shares of the Company’s common stock at an initial exercise price equal to the lesser of (i) $0.60 and (ii)
75% of the offering price of the Company’s common stock in the Company’s next publicly registered offering, subject
to adjustment for certain events, such as stock splits and stock dividends. Subject to certain limitations, the Warrants are exercisable
on any date after the date of issuance for a term of five years.
The foregoing does
not purport to be a complete description of the Securities Purchase Agreements, the 9% Notes and the Warrant and is qualified
in its entirety by reference to the full text of such documents, which are filed as Exhibits 10.8, 10.9 and 10.7, respectively,
hereto.
(d) Common
Stock and Warrant Financing
On
May 1, 2017, the Company closed a private placement (the “Private Placement”) of approximately 1,783,335 shares
of the Company’s common stock and Common Stock Purchase Warrants to purchase 1,783,335 shares of the Company’s
common stock (the “Warrants”) issued to various investors (the “Investors”), each pursuant to a
Securities Purchase Agreement, dated May 1, 2017, with each Investor, in substantially the same form (each, a
“Securities Purchase Agreement”).
As a part of the
Private Placement, the Company issued Warrants to the Investors providing them with the right to purchase up to an aggregate
of 1,783,335 shares of the Company’s common stock at an exercise price equal to one dollar, subject to adjustment for
certain events, such as stock splits and stock dividends. Subject to certain limitations, the Warrants are exercisable on any
date after the date of issuance for a term of three years.
The foregoing does
not purport to be a complete description of the Securities Purchase Agreements and the Warrants and is qualified in its entirety
by reference to the full text of the form of such documents, which are filed as Exhibits 10.15 and 10.7, respectively, hereto.