SECOND ADDITIONAL ISSUANCE AGREEMENT
EXHIBIT
99.5
This
Second Additional Issuance Agreement (this “Agreement”),
dated
October 24, 2006, is made pursuant to that certain Securities Purchase
Agreement, dated as of June 30, 2006, as amended (the “Purchase
Agreement”),
by
and between Arkados Group, Inc. (formerly ▇▇▇▇▇▇.▇▇▇, Inc.) (the “Company”),
Bushido Capital Master Fund, LP (“Bushido”),
▇▇▇▇▇▇ Diversified Strategy Master Fund, LLC - Series BUS (“▇▇▇▇▇▇”
and
together with Bushido, the “New
Purchasers”
and
each a “New
Purchaser”),
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (“Typaldos”)
and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Family Limited Partnership (“Typaldos
LP”)
for
the purchase of the Company’s 6% Secured Convertible Debenture due December 28,
2008 (the “Debenture”)
and
the Common Stock purchase warrant issued in connection therewith (the
“Warrant”).
Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
For
good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Issuance
of New Debentures and New Warrants; Amendment.
a. Issuance.
The
Company hereby agrees to issue against payment to each New Purchaser (a) a
debenture of the Company with a principal amount of $250,000 which debenture
shall be in the form of Exhibit
A
attached
hereto (each, a “New
Debenture”
and,
collectively, the “New
Debentures”),
(b) a
Warrant to purchase up to 117,647 shares of Common Stock, which warrant shall
be
in the form of Exhibit
B
attached
hereto (the “Long
Term Warrant”)
and
(c) a Warrant to purchase up to 117,647 shares of Common Stock, which warrant
shall be in the form of Exhibit
C
attached
hereto (the “Short
Term Warrant”
and
together with the Long Term Warrant, the “New
Warrants”).
The
total purchase price to each New Purchaser for the purchase of the New Debenture
and the New Warrants is $250,000 (the “New
Subscription Amount”).
The
Company shall promptly deliver to each New Purchaser the New Debenture, the
New
Warrants and opinion of counsel required pursuant to Section 5. The Company
hereby acknowledges its receipt of the New Subscription Amount from each New
Purchaser.
b. Amendment.
The
Purchasers and the Company hereby agree to amend the definition of “Exempt
Issuance” set forth in Section 1.1 of the Purchase Agreement by inserting at the
end of such definition, after the words and numbers “by February 8, 2007” as
follows:
“or
(g) 300,000 options with an exercise price of $0.85 per share and a 5 year
term
issued to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, a key consultant, pursuant to an option plan adopted
by a majority of the non-employee members of the Board of Directors, which
options shall vest on the six month anniversary of the date of
grant.”
1
2. Documents.
The
rights and obligations of each New Purchaser and of the Company with respect
to
the New Debentures, the New Warrants and the shares of Common Stock issuable
under the New Debentures and New Warrants (the “New
Underlying Shares”)
shall
be identical in all respects to the rights and obligations of such New Purchaser
and of the Company with respect to the Debentures, the Warrants and the
Underlying Shares issued and issuable pursuant to the Purchase Agreement. Any
rights of a New Purchaser or covenants of the Company which are dependant on
such New Purchaser holding securities of the Company or which are determined
in
magnitude by such New Purchaser’s purchase of securities pursuant to the
Purchase Agreement shall be deemed to include any securities purchased or
issuable hereunder. The Purchase Agreement is hereby amended so that the term
“Debentures” includes the New Debentures issued hereunder and “Underlying
Shares” includes the New Underlying Shares. The Registration Rights Agreement
entered into in connection with the Purchase Agreement is hereby amended so
that
the term “Registrable Securities” includes in the calculation thereof the New
Underlying Shares. The Security Agreement is hereby amended so that the term
“Debentures” includes the New Debentures. The Inter-Creditor and Waiver
Agreement, dated as of June 30, 2006, is hereby amended so that the term “New
Creditors” includes the New Purchasers and the term “New Debentures” (as defined
in the Inter-Creditor and Waiver Agreement) includes the New Debentures (as
defined herein).
3. Representations
and Warranties of the Company.
The
Company hereby makes to each New Purchaser the following representations and
warranties:
(a) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. This Agreement has been
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
(b) No
Conflicts.
The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby do not
and
will not: (i) conflict with or violate any provision of the Company’s
certificate or articles of incorporation, bylaws or
2
other
organizational or charter documents; or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a
default) under, result in the creation of any Lien (except as contemplated
by
the Security Documents) upon any of the properties or assets of the Company
in
connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any material agreement, credit facility, debt or other material instrument
(evidencing Company debt or otherwise) or other material understanding to which
such Company is a party or by which any property or asset of the Company is
bound or affected; or (iii) subject to the Required Approvals, conflict with
or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which
the
Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except, in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse
Effect.
(c) Issuance
of the New Debentures.
The New
Debentures and New Warrants are duly authorized and, upon the execution of
this
Agreement by a New Purchaser, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The New
Underlying Shares, when issued in accordance with the terms of the New
Debentures and New Warrants, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The Company
has reserved from its duly authorized capital stock a number of shares of Common
Stock for issuance of the New Underlying Shares at least equal to the Required
Minimum on the date hereof.
(d) Equal
Consideration.
Except
as set forth in this Agreement, no consideration has been offered or paid to
any
person to amend or consent to a waiver, modification, forbearance or otherwise
of any provision of any of the Transaction Documents.
(e) Affirmation
of Prior Representations and Warranties.
The
Company hereby represents and warrants to each New Purchaser that the Company’s
representations and warranties listed in Section 3.1 of the Purchase Agreement
are true and correct as of the date hereof, provided that the Company’s
representation in Section 3.1(h) of the Purchase Agreement is qualified by
the
Company’s late filing of the 2006 Form 10-KSB on October 10, 2006.
4. Representations
and Warranties of the New Purchasers.
Each
New Purchaser hereby, for itself and for no other New Purchaser, represents
and
warrants as of the date hereof to the Company as follows:
(a) Authority.
The
execution, delivery and performance by such New Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such New
3
Purchaser.
This Agreement has been duly executed by such New Purchaser and, when delivered
by such Purchaser in accordance with the terms hereof, will constitute the
valid
and legally binding obligation of such New Purchaser, enforceable against it
in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other
laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(b) Own
Account.
Such
New Purchaser (i) understands that the Additional Debenture and New Warrants
are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law, (ii) is acquiring the Additional Debenture
and New Warrants as principal for its own account and not with a view to or
for
distributing or reselling such Additional Debenture or New Warrants or any
part
thereof in violation of the Securities Act or any applicable state securities
law, (iii) has no present intention of distributing any of such Securities
in
violation of the Securities Act or any applicable state securities law and
(iv)
has no arrangement or understanding with any other persons regarding the
distribution of such New Debentures and New Warrants (this representation and
warranty not limiting such New Purchaser’s right to sell the New Underlying
Shares pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the Securities
Act
or any applicable state securities law. Such New Purchaser is acquiring the
Additional Debenture and New Warrants hereunder in the ordinary course of its
business. Such New Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the New Debentures,
New Warrants or New Underlying Shares.
(c) Purchaser
Status.
Such
New Purchaser is an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act. Such New Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act.
(d) General
Solicitation.
Such
New Purchaser is not purchasing the New Debentures or New Warrants as a result
of any advertisement, article, notice or other communication regarding the
New
Debentures or New Warrants published in any newspaper, magazine or similar
media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(e) Affirmation
of Prior Representations and Warranties.
Such
New Purchaser hereby represents and warrants to the Company that its
representations and warranties listed in Section 3.2 of the Purchase Agreement
are true and correct as of the date hereof.
4
5. Delivery
of Opinion.
Concurrently herewith, the Company shall deliver to the New Purchasers an
opinion of outside counsel regarding this Agreement and the issuance of the
New
Debentures and New Warrants in form and substance reasonably acceptable to
the
New Purchasers.
6. Public
Disclosure.
The
Company shall, on the Trading Day following the date of payment of the New
Subscription Amounts, issue a Current Report on Form 8-K, reasonably acceptable
to the New Purchasers, disclosing the material terms of the transactions
contemplated hereby and attaching this Agreement as an exhibit thereto. The
Company shall consult with the New Purchasers in issuing any other press
releases with respect to the transactions contemplated hereby.
7. Other
Purchaser Consent.
The
other Purchasers hereby consent to the execution by the Company of this
Agreement and the issuance of the New Debentures and New Warrants to the New
Purchasers.
8. Effect
on Transaction Documents.
Except
as expressly set forth above, all of the terms and conditions of the Transaction
Documents shall continue in full force and effect after the execution of this
Agreement and shall not be in any way changed, modified or superseded by the
terms set forth herein, including, but not limited to, any other obligations
the
Company may have to the New Purchasers under the Transaction
Documents.
Notwithstanding the foregoing, this Agreement shall be deemed for all purposes
as an amendment to any Transaction Document as required to serve the purposes
hereof, and in the event of any conflict between the terms and provisions of
the
Debentures, the Registration Rights Agreement or any other Transaction Document,
on the one hand, and the terms and provisions of this Agreement, on the other
hand, the terms and provisions of this Agreement shall prevail.
9. Expenses.
The
Company agrees to pay to each New Purchaser upon demand any and all reasonable
out-of-pocket costs or expenses (including, without limitation, reasonable
legal
fees and disbursements) incurred or sustained by such New Purchaser, in
connection with the preparation of this Agreement and related
matters.
10.
Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and each New Purchaser.
11.
Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be delivered as set forth in the Purchase
Agreement.
12.
Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit of
each
Purchaser. The Company may not assign (except by merger) its rights or
obligations hereunder without the prior written consent of all of the New
5
Purchasers
of the then-outstanding Securities. Each New Purchaser may assign their
respective rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
13.
Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
14.
Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of
the
Purchase Agreement.
15.
Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
16.
Headings.
The
headings in this Agreement are for convenience only, do not constitute a part
of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
17. Independent
Nature of New Purchasers’ Obligations and Rights.
The
obligations of each New Purchaser hereunder are several and not joint with
the
obligations of any other New Purchasers hereunder, and no New Purchaser shall
be
responsible in any way for the performance of the obligations of any other
New
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any New Purchaser
pursuant hereto, shall be deemed to constitute the New Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the New Purchasers are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each New Purchaser shall be entitled to protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.
6
Executed
as of October 24, 2006 by the undersigned duly authorized representatives of
the
Company, Bushido, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇ and by Typaldos:
By:
/s/
▇▇▇▇
▇▇▇▇▇▇▇
Name:
▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief
Financial Officer
Bushido
Capital Master Fund, LP
Signature
of Authorized Signatory of Bushido:
/s/
▇▇▇▇▇
▇▇▇▇▇▇
Name
of
Authorized Signatory:
▇▇▇▇▇
▇▇▇▇▇▇
Title
of
Authorized Signatory: President,
Bushido Capital Partners, Ltd., as
GP
(New
Subscription Amount was paid in full by Bushido to Company on October 19,
2006.)
▇▇▇▇▇▇
Diversified Strategy Master Fund, LLC - Series BUS
Signature
of Authorized Signatory of ▇▇▇▇▇▇:
/s/
▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Name
of
Authorized Signatory:
▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Title
of
Authorized Signatory: Attorney-in-Fact
(New
Subscription Amount was paid in full by ▇▇▇▇▇▇ to Company on October 19,
2006.)
As
to
Section 1 and Section 7 only:
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
/s/
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Family Limited Partnership
Signature
of Authorized signatory for Typaldos: /s/
▇▇▇▇▇
▇▇▇▇▇▇▇▇
Name
of
Authorized Signatory: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title
of
Authorized Signatory: Managing Partner
7