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 the Original 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 the Original 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, to the Original 8-K.
(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, to the
Original 8-K.
Joseph Gunnar & Co., LLC acted as the
non-exclusive placement agent for the AIP Financing and the Private Placement and earned a fee equal to 8% of the aggregate gross
cash proceeds for such transactions.
(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, to the Original
8-K.