We are delivering
this Notice and the accompanying Information Statement to inform our stockholders that on April 10, 2017, the holders of a majority
of the votes entitled to be cast by all outstanding Common Stock of Arkados Group, Inc. (the “Company,” “our”
or “we”) adopted resolutions by written consent, in lieu of a meeting of stockholders, to (a) amend our Certificate
and Incorporation (the “Charter”) as set forth in the Certificate of Amendment of Certificate of Incorporation attached
hereto as
Annex A
(the “Amendment”); and (b) adopt and approve our 2017 Equity Incentive Plan.
The Amendment
and the 2017 Equity Incentive Plan were approved by stockholder written consent pursuant to Section 228 of the Delaware General
Corporation Law (the “DGCL”), which permits any action that may be taken at a meeting of stockholders to be taken by
written consent by the holders of outstanding stock of the Company having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted,
and Section 2.14 of the Company’s Amended and Restated By-Laws (the “By-Laws”), which permits any action that
may be taken at a meeting of stockholders to be taken by written consent by the holders of outstanding stock of the Company if
specifically authorized do so by our Board of Directors. All necessary corporate approvals in connection with the adoption of the
Amendment and the 2017 Equity Incentive Plan have been obtained.
The Information
Statement is being furnished to the holders of the Company’s common stock, par value $0.0001 per share (“Common Stock”),
pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the rules thereunder
and Section 228 of the DGCL solely for the purpose of informing our stockholders of these corporate actions before they take effect.
In accordance with Rule 14c-2 under the Exchange Act, both of these actions will not become effective until at least 20 calendar
days after the mailing of this Notice and the accompanying Information Statement, and thus we plan to file the Amendment as soon
thereafter as is reasonably practicable.
The Amendment
and the 2017 Equity Incentive Plan were approved and recommended by our Board of Directors prior to the stockholder action by written
consent described in this Information Statement.
You have the right
to receive this Notice and the accompanying Information Statement if you were a stockholder of record of our Company at the close
of business on August 29, 2017.
INFORMATION
STATEMENT
General
In this Information
Statement, unless the context otherwise requires, “Arkados Group,” the “Company,” “we,” “us”
and “our” and similar expressions refer to Arkados Group, Inc., a Delaware corporation.
This Information
Statement is being sent to inform our stockholders that we have obtained a written consent (the “Consent”) from the
holders of a majority of the votes entitled to be cast by all outstanding Common Stock of the Company to amend our Certificate
and Incorporation (the “Charter”) as set forth in the Certificate of Amendment of Certificate of Incorporation attached
hereto as
Annex A
(the “Amendment”).
This Information
Statement is being mailed on or about September 4, 2017 to the Company’s stockholders of record as of August 29, 2017 (the
“Record Date”) that did not execute the Consent. This Information Statement constitutes notice to our stockholders
of corporate actions taken by our stockholders without a meeting as required by Section 228 the Delaware General Corporation
Law (the “DGCL”) and pursuant to Section 2.14 of the By-Laws.
We will pay the
costs of preparing and sending out the enclosed Notice and this Information Statement. We will require brokerage houses, nominees,
custodians, fiduciaries and other like parties to forward this Information Statement to the beneficial owners of our common stock,
par value $0.0001 per share (“Common Stock”), held by them and we will reimburse such persons for out-of-pocket expenses
incurred in forwarding such materials.
The date of this
Information Statement is August 29, 2017.
WE ARE NOT ASKING
YOU FOR A PROXY
AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
The Action
by Written Consent
On April 10, 2017 (the “Shareholder Vote Date”), the holders of a majority of the votes
entitled to be cast by all outstanding Common Stock of the Company (the “Consenting Stockholders”) who executed the
Consent approving the Amendment, as described herein, beneficially owned 7,515,943 shares of our outstanding Common Stock. As of
the Shareholder Vote Date, there were 14,606,167 shares of our Common Stock outstanding. No payment was made to any person
or entity in consideration of execution of the Consent.
Voting and
Vote Required
The Company is
not seeking consents, authorizations or proxies from you. Section 228 of the DGCL provides that any action that may be taken at
a meeting of stockholders may be taken by written consent by the holders of outstanding stock of the Company having not less than
the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled
to vote thereon were present and voted. Approval of at least a majority of outstanding stock entitled to vote thereon was required
to approve the Amendment.
As of the Shareholder
Vote Date, the Company had 14,606,167 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock
is entitled to one vote. On the Shareholder Vote Date, the Consenting Stockholders beneficially owned 7,515,943 shares of Common
Stock in the aggregate, which represents 51.46%% of the votes entitled to be cast by all outstanding Common Stock.
Accordingly,
the Consent executed by the Consenting Stockholders pursuant to Section 228 of the DGCL is sufficient to approve the Amendment
and no further stockholder action is required to approve this matter.
Board Authorization to Consent
Section 2.14 of
the By-Laws requires that any stockholder action by written consent in lieu of a meeting must be specifically authorized by resolution
of our Board of Directors. Our Board of Directors authorized our stockholders to approve the Amendment by written consent prior
to the execution of the Consent by the Consenting Stockholders.
Notice Pursuant
to Section 228
Pursuant to Section 228
of the DGCL, the Company is required to provide prompt notice of the taking of a corporate action by written consent of stockholders
to the Company’s stockholders who have not consented in writing to such action. This Information Statement serves as the
notice required by Section 228 of the DGCL.
Dissenters’
Rights of Appraisal
The DGCL does
not provide dissenters’ rights of appraisal to our stockholders in connection with the matters discussed in this Information
Statement.
ACTION NO. 1
APPROVAL OF
THE CERTIFICATE OF AMENDMENT
OF CERTIFICATE
OF INCORPORATION
Description
of the Amendment
On April 10, 2017,
our Board of Directors adopted resolutions authorizing an amendment to the Charter to authorize the Board of Directors, without
further vote or action by the stockholders, to create out of the unissued shares of the Company’s preferred stock, par value
$0.0001 per share (“Preferred Stock”), series of Preferred Stock and, with respect to each such series, to fix the
number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as the
Board of Directors shall determine, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion
rights and preemptive rights (the “Board Authorization”). The Charter authorizes the issuance of 5,000,000 shares of
Preferred Stock under the Charter, none of which are issued or outstanding as of the date this Information Statement.
The foregoing
summary of the changes in the Amendment does not purport to be complete and is qualified in its entirety by reference of the text
of the Amendment, a copy of which is attached to this Information Statement as
Annex A
. The changes in the Amendment will
become effective upon the filing of the Amendment with the Secretary of State of the State of Delaware, which is expected to occur
twenty (20) calendar days following the mailing of this Information Statement, or as soon thereafter as is reasonably practicable.
Reasons for and Effects of the Amendment
The Amendment
will expressly invest in our Board of Directors the authority to create series of Preferred Stock, including their designations,
numbers, preferences, voting powers, qualifications, and special or relative rights or privileges, as required by Section 151
of the DGCL. Once in effect, the Amendment will allow the Board of Directors to authorize the issuance of Preferred Stock without
further approval from the Company’s stockholders.
As previously
disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 5, 2017, 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”). As part of the consideration for the purchase of the SolBright Assets, the Company delivered to SolBright
a Convertible Promissory Note in the principal amount of $6,000,000 (“Preferred Stock Note”). The Preferred Stock Note
will automatically convert on the effective date of the Company’s filing of that certain Certificate of Designation for Series
A Convertible Preferred Stock (the “Certificate of Designation”) with the State of Delaware’s Secretary of State
in the form attached hereto as
Annex B
(Exhibit A to the Asset Purchase Agreement), which form was previously agreed upon
by the Company and SolBright as part of the Asset Purchase Agreement. The Preferred Stock Note will convert 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 (the “Conversion Rate”), as adjusted for any stock
splits, stock dividends, recapitalizations, combinations and the like that may occur prior to such conversion. The Company 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. The Amendment will give our Board the Board Authorization that is required for the
designation and issuance of the Series A Convertible Preferred Stock in order for the Company to meet its obligations under the
Asset Purchase Agreement to issue such preferred stock to SolBright. Immediately after the effective date of the filing of the
Amendment, the Company intends to file the Certificate of Designation with the Secretary of State of the State of Delaware, which
will authorize the Company to issue up to 5,000,000 shares of Series A 4% Convertible Preferred Stock that the Company is required
to issue for the automatic conversion of the Preferred Stock Note as required under the terms of such note. The rights, preferences,
privileges and restrictions of the shares of Series A Convertible Preferred Stock and the qualifications, limitations and restrictions
thereof are summarized in the section below titled “
Series A Convertible Preferred Stock
”.
Although
Board Authorization is not intended to have any anti-takeover effect and is not part of any series of anti-takeover measures
contained in any instruments or the Amendment or the By-Laws in effect on the date of this Information Statement, the
availability of authorized and unissued shares of Preferred Stock coupled with the ability of our Board of Directors to
authorize their issuance without stockholder consent could make any attempt to gain control of the Company or the Board of
Directors more difficult or time consuming. Shares of Preferred Stock could be issued by the Board of Directors to dilute the
percentage of voting rights owned by a significant stockholder and increase the cost of, or the number of, voting shares
necessary to acquire control of the Board of Directors. However, the Company believes that having Board Authorization
allowing the Board to authorize the issuance of Preferred Stock without further stockholder consent in connection with any
proper business purpose, including the Series A 4% Preferred Stock that is required for the Company to meet its obligations
in the Asset Purchase transaction, is in the best interests of the Company and its stockholders.
DESCRIPTION
OF CAPITAL STOCK
Capitalization
The Company’s
authorized capital consists of 600,000,000 shares of Common Stock, of which 21,253,402 shares are issued and outstanding
as of the date this Information Statement, and 5,000,000 shares of Preferred Stock, none of which are issued and outstanding.
Common Stock
Each outstanding share of Common Stock
entitles the holder thereof to one vote per share on all matters. Holders of Common Stock do not have preemptive rights to purchase
shares in any future issuance of Common Stock. Upon our liquidation, dissolution or winding up, and after payment of creditors
and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share basis among the holders of Common
Stock.
The holders of Common Stock are entitled
to dividends out of funds legally available when and as declared by our Board of Directors. The Board of Directors has never declared
a dividend and does not anticipate declaring a dividend in the foreseeable future. In the event of our liquidation, dissolution
or winding up, holders of Common Stock are entitled to receive, ratably, the net assets available to stockholders after payment
of all creditors.
All of the issued and outstanding shares
of Common Stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of Common
Stock are issued, the relative interests of existing holders of Common Stock will be diluted.
Preferred Stock
Upon effectiveness
of the Amendment, the Board of Directors will have the authority to issue shares of Preferred Stock from time to time on terms
it may determine, to divide shares of preferred stock into one or more series and to fix the designations, preferences, privileges,
and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation
preference, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by
the DGCL. The issuance of Preferred Stock could have the effect of decreasing the trading price of the Common Stock, restricting
dividends on the capital stock, diluting the voting power of the Common Stock, impairing the liquidation rights of the capital
stock, or delaying or preventing a change in control of the Company.
Series A Convertible
Preferred Stock
As described above,
upon the effectiveness of the Amendment, the Board shall authorize the filing of the Certificate of Designation in the form attached
hereto as
Annex B
for its Series A Convertible Preferred Stock in order to meet its obligations to SolBright under the Asset
Purchases Agreement and the Preferred Stock Note. The rights, preferences, privileges and restrictions of the shares of Series
A Convertible Preferred Stock and the qualifications, limitations and restrictions thereof are summarized as follows:
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The shares of Series A Convertible Preferred
Stock have a stated value of $1.50 per share (the “Stated Value”).
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Each holder of a share of Series A Convertible
Preferred Stock shall be entitled to receive dividends (“
Accruing Dividends
”) on such share equal to four percent
(4%) per annum (the “
Dividend Rate
”) of the stated value before any Dividends shall be declared, set apart for
or paid upon any junior stock or parity stock. Dividends on a share of Series A Convertible Preferred Stock shall accrue daily
at the Dividend Rate, commence accruing on the issuance date thereof, compound annually, be computed on the basis of a year consisting
of twelve 30-day months and payable in cash.
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Each share of Series A Convertible Preferred
Stock is convertible, at the option of the holders, into that number of shares of Common Stock determined by dividing the Stated
Value by the Conversion Price which the parties agreed would be $1.50 (subject to stock splits, stock dividends, recapitalizations,
combinations and the like that may occur prior to such conversion).
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We may redeem any or all of the outstanding
Series A Convertible Preferred Stock (a “Company Redemption”) from time to time but only if “Redemption Funds”
(defined below) are available for such redemption at a redemption price that shall equal the Stated Value per share, plus any Accruing
Dividends accrued but unpaid thereon through the date chosen by the Company for the redemption. The Company’s Board of Directors
shall determine no later than 20 days after the end of each fiscal quarter if Redemption Funds are available for a Company Redemption
for such quarter, and if Redemption Funds are deemed available, then the Company shall notify the holders no later than 30 days
after the end of the respective Company fiscal quarter. The Company is under no obligation to redeem any Series A Convertible Preferred
Stock shares if such redemption would result in a violation of law, including any violation of the Delaware General Corporation
Law. “Redemption Funds” means (a) during the period from the closing date of the Asset Purchase transaction (the “Closing
Date”) until any and all amounts due under that certain 15% Secured Promissory Note (“Buyer Promissory Note”),
which note was issued concurrently with the Preferred Stock Note as part of the consideration paid to SolBright, has been fully
paid and the Buyer Promissory Note has been extinguished, the amount that equals (i) 50% of the earnings before interest, taxes,
depreciation and amortization (“EBITDA”) of the “Business” (as defined in the Asset Purchase Agreement),
calculated in accordance with generally accepted accounting principles, for the last four quarters preceding the Redemption Funds
calculation, minus (ii) the sum of all dividend payments paid by the Company to the holder for the Series A Convertible Preferred
Stock during the last 12 months preceding the Redemption Funds calculation, minus (iii) $1,200,000; and (b) during the period from
the date the Buyer Promissory Note has been extinguished until the Series A Convertible Preferred Stock has been fully redeemed,
the amount that equals (x) 100% of the EBITDA of the “Business” (as defined in the Asset Purchase Agreement), calculated
in accordance with generally accepted accounting principles, for the last four quarters preceding the Redemption Funds calculation,
minus (y) the sum of all dividend payments paid by the Company to the holder for the Series A Convertible Preferred Stock during
the last 12 months preceding the Redemption Funds calculation, minus (z) $1,200,000; provided, however, since the Redemption Funds
calculation is intended to cover a full twelve-month period, until the Redemption Funds calculation period includes a full twelve-month
period after the Closing Date, the calculation of the Redemption Funds shall be adjusted for each of (a)(i) and (ii), and (b)(x)
and (y) above, by dividing the amount so calculated in such subsection by the number of days between the Closing Date and the end
of such calculation period, and then multiplying such amount by 365.
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The shares of Series A Convertible Preferred
Stock are senior in liquidation preference to all shares of our common stock, all classes of our securities established prior to
the original issue date of the Series A Convertible Preferred Stock (the “Original Issue Date”) and each other capital
stock or series of Company’s preferred stock established after the Original Issue Date by the Board of Directors, the terms
of which do not expressly provide that such class or series ranks senior to or on a parity with the Series A Preferred Stock as
to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.
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The shares of Series A Convertible Preferred
Stock shall have no voting rights except as required by law. However, t
he consent of the holders
of a majority of the shares of Series A Convertible Preferred Stock is necessary for us to amend the Certificate of Designation.
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The foregoing summary of the rights, privileges and restrictions
of the Series A Convertible Preferred Stock and the qualifications, limitations and restrictions thereof is qualified in its entirety
by the Certificate of Designation.
ACTION NO. 2
ADOPTION OF 2017 EQUITY INCENTIVE PLAN
Introduction
On April 10, 2017, the Board approved and
adopted, and the Consenting Stockholders approved, the 2017 Equity Incentive Plan (the “Incentive Plan”). The
Incentive Plan is designed to provide a vehicle under which a variety of stock-based and other awards can be granted to the Company’s
employees, consultants and directors, which will align the interests of award recipients with those of our stockholders, reinforce
key goals and objectives that help drive stockholder value, and attract, motivate and retain experienced and highly qualified individuals
who will contribute to the Company’s financial success. The Board believes that the Incentive Plan will serve a critical
role in attracting and retaining high caliber employees, consultants and directors essential to our success and in motivating these
individuals to strive to meet our goals.
Shares Available Under the Plan
The Incentive Plan authorizes the Board
to provide incentive compensation in the form of stock options, stock appreciation rights, restricted stock and stock units, performance
shares and units, performance compensation awards and other stock-based awards. Under the Incentive Plan, the Compensation Committee
is authorized to issue up to 10,000,000 shares, subject to adjustment as provided below.
Section 162(m) Tax Considerations
The Incentive Plan is designed to help
us comply with the rules relating to our ability to deduct in full for federal income tax purposes the compensation recognized
by our executive officers in connection with certain types of awards. Section 162(m) of the Internal Revenue Code generally denies
a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer or any of the three
other most highly compensated officers of a publicly held company other than the chief financial officer. However, qualified performance-based
compensation is excluded from this limit. To enable compensation in connection with stock options, stock appreciation rights, certain
restricted stock and restricted stock unit awards, performance shares, performance units and certain other stock-based awards granted
under the Incentive Plan that are intended to qualify as “performance-based” within the meaning of Section 162(m) of
the Code to be deductible, the stockholders were asked to approve certain material terms of the Incentive Plan. By approving the
Incentive Plan, the Consenting Stockholder specifically approved, among other things:
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the eligibility requirements for participation in the Incentive Plan;
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the maximum number of shares for which stock-based awards may be granted
to an employee in any fiscal year; and
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the performance measures that may be used by theBoard of Directors
of the Company, or the Compensation Committee when it is reconstituted, to establish the performance goals applicable to the grant
or vesting of awards of restricted stock, restricted stock units, performance shares, performance units and other stock-based awards
that are intended to result in qualified performance-based compensation.
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While we believe that compensation provided
by such awards under the Incentive Plan generally will be deductible by us for federal income tax purposes, under certain circumstances,
such as a change in control, compensation paid in settlement of certain awards may not qualify as performance-based. In addition,
Section 162(m) of the Code imposes a number of other requirements that must be met in order for awards to qualify for deduction
under the Code. Accordingly, there can be no assurance that awards under the Incentive Plan will be fully deductible under all
circumstances. In addition, other awards under the Incentive Plan which are not intended to satisfy these “performance-based”
compensation requirements generally will not so qualify. To the extent that such compensation, when added to other non-exempt compensation,
exceeds $1 million in any given year paid to certain executives, then the amount in excess of $1 million will be subject to the
deduction limitations of Section 162(m) of the Code.
Summary of the Incentive Plan
The following summarizes the principal
features of the Incentive Plan which is set forth in its entirety as
Annex C
to this Information Statement. The following
summary is qualified in its entirety by reference to
Annex C
.
Description of the Incentive Plan
Authorized
Shares.
The maximum number of shares of our Common Stock that may be issued under our Incentive Plan, is 10,000,000
shares.
Shares subject
to stock awards granted under our Incentive Plan that expire or terminate without being exercised in full, or that are paid out
in cash rather than in shares, do not reduce the number of shares available for issuance under our Incentive Plan. Additionally,
shares become available for future grant under our Incentive Plan if they were issued under stock awards under our Incentive Plan
and if we repurchase them or they are forfeited. This includes shares used to pay the exercise price of a stock award or to satisfy
the tax withholding obligations related to a stock award.
Plan Administration
.
Our
Board of Directors, or a duly authorized committee of our Board of Directors, will administer our Incentive Plan. Our Board of
Directors may also delegate to one or more of our officers the authority to (1) designate employees (other than officers)
to receive specified stock awards and (2) determine the number of shares subject to such stock awards. Under our Incentive
Plan, our Board of Directors has the authority to determine and amend the terms of awards and underlying agreements, including:
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the exercise, purchase, or strike price of stock awards, if any;
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the number of shares subject to each stock award;
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the vesting schedule applicable to the awards, together with any vesting acceleration; and
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the form of consideration, if any, payable on exercise or settlement of the award.
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Under
the Incentive Plan, the Board of Directors also generally has the authority to effect, with the consent of any adversely affected
participant:
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the reduction of the exercise, purchase, or strike price of any outstanding award;
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the cancellation of any outstanding award and the grant in substitution therefore of other awards, cash, or other consideration; or
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any other action that is treated as a repricing under generally accepted accounting principles.
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Section 162(m)
Limits
.
At such
time as necessary for compliance with Section 162(m) of the Code, in a calendar year, no participant may be granted a performance
stock award covering more than 500,000 shares of our Common Stock or a performance cash award having a maximum value in excess
of $250,000. These limitations are designed to allow us to grant compensation that will not be subject to the $1,000,000 annual
limitation on the income tax deductibility of compensation paid to a covered executive officer imposed by Section 162(m) of
the Code.
Stock Options
.
Incentive
stock options and nonstatutory stock options are granted under stock option agreements adopted by the plan administrator. The plan
administrator determines the exercise price for stock options, within the terms and conditions of the Incentive Plan, provided
that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our Common Stock on the
date of grant. Options granted under the Incentive Plan vest at the rate specified in the stock option agreement as determined
by the plan administrator.
Restricted
Stock Unit Awards
.
RSUs are granted under restricted stock unit award agreements adopted by the plan administrator.
RSUs may be granted in consideration for any form of legal consideration that may be acceptable to our Board of Directors and permissible
under applicable law. An RSU may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by
the plan administrator, or in any other form of consideration set forth in the RSU agreement. Additionally, dividend equivalents
may be credited in respect of shares covered by an RSU. Except as otherwise provided in the applicable award agreement, RSUs that
have not vested will be forfeited once the participant’s continuous service ends for any reason
Restricted
Stock Awards
.
Restricted stock awards are granted under restricted stock award agreements adopted by the plan
administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past services
to us, or any other form of legal consideration that may be acceptable to our Board of Directors and permissible under applicable
law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms.
If a participant’s service relationship with us ends for any reason, we may receive any or all of the shares of Common Stock
held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition
or a repurchase right.
Stock Appreciation
Rights
.
Stock appreciation rights are granted under stock appreciation grant agreements adopted by the plan
administrator. The plan administrator determines the purchase price or strike price for a stock appreciation right, which generally
cannot be less than 100% of the fair market value of our Common Stock on the date of grant. A stock appreciation right granted
under the Incentive Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.
Performance
Awards
.
The Incentive Plan permits the grant of performance-based stock and cash awards that may qualify as
performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility imposed by Section 162(m)
of the Code. Our compensation committee, or in the absence of a compensation Committee our Board of Directors, may structure awards
so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during
a designated performance period.
The performance
goals that may be selected include one or more of the following: (a) net earnings or net income (before or after taxes); (b) basic
or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; (e) gross profit
or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital, equity,
or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
(i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements
in capital structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added
measurements; (o) share price (including, but not limited to, growth measures and total shareholder return); (p) expense targets;
(q) margins; (r) operating efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) completion of
acquisitions or business expansion; (w) achieving research and development goals and milestones; (x) achieving product commercialization
goals; and (y) other criteria as may be set by the Board of Directors from time to time.
The performance
goals may be based on company-wide performance or performance of one or more business units, divisions, affiliates, or business
segments, and may be either absolute or relative to the performance of one or more comparable companies or the performance of one
or more relevant indices. To the extent required under Section 162(m) of the Code, the Board of Directors shall, within the first
90 days of a performance period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code),
define in an objective fashion the manner of calculating the performance criteria it selects to use for such performance period.
In addition, the board or committee (as applicable) retains the discretion to reduce or eliminate the compensation or economic
benefit due on attainment of performance goals and to define the manner of calculating the performance criteria it selects to use
for such performance period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to
the degree of achievement as specified in the award agreement or the written terms of a performance cash award.
Other Stock
Awards
. The plan administrator may grant other awards based in whole or in part by reference to our Common Stock.
The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.
Changes
to Capital Structure
. In the event there is a specified type of change in our capital structure, such as a stock split,
reverse stock split, or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares
reserved for issuance under the Incentive Plan, (2) the class and maximum number of shares by which the share reserve may
increase automatically each year, (3) the class and maximum number of shares that may be issued on the exercise of incentive
stock options, (4) the class and maximum number of shares subject to stock awards that can be granted in a calendar year (as
established under the Incentive Plan under Section 162(m) of the Code), and (5) the class and number of shares and exercise
price, strike price, or purchase price, if applicable, of all outstanding stock awards.
Corporate
Transactions
. Our Incentive Plan provides that in the event of certain specified significant corporate transactions, including:
(1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 90% of our outstanding
securities, (3) the consummation of a merger or consolidation where we do not survive the transaction, and (4) the consummation
of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding before such transaction
are converted or exchanged into other property by virtue of the transaction, unless otherwise provided in an award agreement or
other written agreement between us and the award holder, the administrator may take one or more of the following actions with respect
to such stock awards:
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arrange for the assumption, continuation, or substitution of a stock award by a successor corporation;
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arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation;
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accelerate the vesting, in whole or in part, of the stock award and provide for its termination before the transaction;
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arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us;
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cancel or arrange for the cancellation of the stock award before the transaction in exchange for a cash payment, or no payment, as determined by the board; or
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make a payment, in the form determined by our board of directors, equal to the excess, if any, of the value of the property the participant would have received on exercise of the awards before the transaction over any exercise price payable by the participant in connection with the exercise.
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The plan administrator
is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner
and is not obligated to treat all participants in the same manner.
In the event of
a change in control, awards granted under the Incentive Plan will not receive automatic acceleration of vesting and exercisability,
although this treatment may be provided for in an award agreement. Under the Incentive Plan, a change in control is defined to
include (1) the acquisition by any person or company of more than 50% of the combined voting power of our then outstanding
stock, (2) a merger, consolidation, or similar transaction in which our stockholders immediately before the transaction do
not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving
entity), (3) a sale, lease, exclusive license, or other disposition of all or substantially all of our assets other than to
an entity more than 50% of the combined voting power of which is owned by our stockholders, and (4) an unapproved change in
the majority of the board of directors.
Transferability
.
A participant may not transfer stock awards under our Incentive Plan other than by will, the laws of descent and distribution,
or as otherwise provided under our Incentive Plan.
Plan Amendment
or Termination
. Our Board of Directors has the authority to amend, suspend, or terminate our Incentive Plan, provided that
such action does not materially impair the existing rights of any participant without such participant’s written consent.
Certain material amendments also require the approval of our stockholders. No incentive stock options may be granted after
the tenth anniversary of the date our Board of Directors adopted our Incentive Plan. No stock awards may be granted under
our Incentive Plan while it is suspended or after it is terminated.
U.S. Federal Income Tax Consequences
The following paragraphs are a summary
of the general federal income tax consequences to U.S. taxpayers and the Company of awards granted under the Incentive Plan. Tax
consequences for any particular individual may be different.
Incentive Stock Options.
A
participant recognizes no taxable income as the result of the grant or exercise of an incentive stock option qualifying under Section
422 of the Internal Revenue Code (unless the participant is subject to the alternative minimum tax). If the participant exercises
the option and then later sells or otherwise disposes of the shares acquired through the exercise of the option after both the
two-year anniversary of the grant date and the one-year anniversary of the exercise date, the difference between the sale price
and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise
disposes of the shares on or before the two- or one-year anniversaries described above (a “disqualifying disposition”),
he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise
date (or the sale price, if less) minus the exercise price of the option.
Nonstatutory Stock Options
.
A
participant generally recognizes no taxable income on the date of grant of a nonstatutory stock option with an exercise price equal
to the fair market value of the underlying stock on the date of grant. Upon the exercise of a nonstatutory stock option, the participant
generally will recognize ordinary income equal to the excess of the fair market value of the shares on the exercise date over the
exercise price of the option. If the participant is an employee, such ordinary income generally is subject to withholding of income
and employment taxes. Upon the sale of shares acquired through the exercise of a nonstatutory stock option, any subsequent gain
or loss (generally based on the difference between the sale price and the fair market value on the exercise date) will be treated
as long-term or short-term capital gain or loss, depending on how long the shares were held by the participant.
Stock Appreciation Rights.
A
participant generally recognizes no taxable income on the date of grant of a stock appreciation right with an exercise price equal
to the fair market value of the underlying stock on the date of grant. Upon exercise of the stock appreciation right, the participant
generally will be required to include as ordinary income an amount equal to the sum of the amount of any cash received and the
fair market value of any shares received upon the exercise. If the participant is an employee, such ordinary income generally is
subject to withholding of income and employment taxes. Upon the sale of shares acquired by an exercise of the stock appreciation
right, any gain or loss (generally based on the difference between the sale price and the fair market value on the exercise date)
will be treated as long-term or short-term capital gain or loss, depending on how long the shares were held by the participant.
Restricted Stock, Restricted Stock
Units, Performance Awards, and Performance Shares.
A participant generally will not have taxable income at the time
an award of restricted stock, restricted stock units, performance shares, or performance units is granted. Instead, he or she generally
will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award has been
transferred to him or her and becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture.
If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. However,
the recipient of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal
to the fair market value of the shares underlying the award (less any cash paid for the shares) on the date the award is granted.
Section 409A.
Section
409A of the Code (
“Section 409A”
) provides certain requirements for non-qualified deferred compensation
arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards
granted under the Plans with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to
and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts
deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received.
Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an
additional 20% tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for the Company.
We
generally will be entitled to a tax deduction in connection with an award under the Incentive Plan in an amount equal to the ordinary
income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonqualified
stock option). However, special rules limit the deductibility of compensation paid to our chief executive officer and other “covered
employees” as determined under Section 162(m) of the Code and applicable guidance. Under Section 162(m), the annual compensation
paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, we
can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These
conditions include (among others) stockholder approval of the Incentive Plan and its material terms, setting certain limits on
the number of shares subject to awards and, for awards other than options and stock appreciation rights, establishing performance
criteria that must be met before the award actually will vest or be paid. The Incentive Plan has been designed to permit (but not
require) the administrator to grant awards that are intended to qualify as performance-based for purposes of satisfying the conditions
of Section 162(m).
THE FOREGOING IS ONLY A SUMMARY OF THE
TAX EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND VESTING OR EXERCISE OF AWARDS
UNDER THE INCENTIVE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A SERVICE PROVIDER’S
DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR NON-U.S. COUNTRY TO WHICH THE SERVICE PROVIDER MAY
BE SUBJECT.
New Plan Benefits
A new plan benefits table for the Incentive
Plan and the benefits or amounts that would have been received by or allocated to participants for the last completed fiscal year
under the Incentive Plan if the Incentive Plan was then in effect, as described in the federal proxy rules, are not provided because
all awards made under the Incentive Plan will be made at the Board of Directors or Compensation Committee’s discretion, subject
to the terms of the Incentive Plan. Therefore, the benefits and amounts that will be received or allocated under the Incentive
Plan are not determinable at this time.
Dissenters’ Rights
Pursuant to the DGCL, our stockholders
are not entitled to dissenters’ rights with respect to the Incentive Plan.
FINANCIAL STATEMENTS AND OTHER INFORMATION
We are subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, we are required to file periodic reports, proxy statements and other
information with the SEC relating to our business, financial condition and other matters. Such reports, proxy statements and other
information can be inspected and copied in person at the public reference facility maintained by the SEC at the Public Reference
Room, 100 F Street, N.E., Washington, D.C. 20549-0213. Our filings are also available to the public for downloading or viewing
free of charge on the SEC's website (www.sec.gov). In addition, we make available free of charge, our annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. The information, provided on or accessible through our
website, is not part of this Information Statement
DELIVERY OF
DOCUMENTS TO STOCKHOLDERS
Pursuant to the
rules of the SEC, we and the services that we employ to deliver communications to our stockholders are permitted to deliver to
two or more stockholders sharing the same address a single copy of this Information Statement. Upon written or oral request, we
will deliver a separate copy of the Information Statement to any stockholder at a shared address to which a single copy of the
Information Statement was delivered and who wishes to receive a separate copy of the Information Statement. Stockholders receiving
multiple copies of the Information Statement may likewise request that we deliver single copies of such documents in the future.
Stockholders may notify us of their requests by calling or writing us at:
Arkados Group,
Inc.
211 Warren Street,
Suite 320
Newark, New Jersey
07103
Attention: Investor
Relations
Telephone: (862)
373-1988
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This information
statement contains “forward-looking statements.” These statements are based on our current expectations and involve
risks and uncertainties which may cause results to differ materially from those set forth in the statements. The forward-looking
statements may include statements regarding actions to be taken in the future. We undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements should
be evaluated together with the many uncertainties that affect our business, particularly those set forth in the section on forward-looking
statements and in the risk factors in Item 1.A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2016
as filed with the Securities and Exchange Commission.
WHERE YOU CAN
FIND MORE INFORMATION
We file annual,
quarterly and current reports and other information (File No. 000-27587) with the SEC pursuant to the Exchange Act. For further
information regarding us, please see our filings with the SEC, including our annual, quarterly, and current reports and proxy statements,
which you may read and copy at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our public filings with
the SEC are also available to the public on the SEC’s website at www.sec.gov.
We maintain a
website at www.arkadosgroup.com. The information on our website or on any other website is not, and you must not consider such
information to be, a part of this Information Statement. You should rely only on the information contained in this Information
Statement and in the documents incorporated by reference.
By Order of the Board of Directors,
/s/Terrence DeFranco
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Terrence DeFranco
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Chief Executive Officer
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August 29, 2017
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ANNEX A
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
FOR
ARKADOS GROUP, INC.
Arkados Group, Inc. (the “Corporation”),
organized and existing under and by virtue of the General Corporation Law of the State of Delaware, through its duly authorized
officer and by authority of its Board of Directors, does hereby certify:
FIRST: At a meeting of the Board of Directors
of said Corporation, resolutions were duly adopted setting forth the proposed amendment of the Certificate of Incorporation of
said Corporation, declaring such amendment to be advisable. The resolution setting forth the amendment is as follows:
RESOLVED, that the Certificate
of Incorporation of this corporation be amended by changing the Article thereof numbered “FOURTH” to include the following
paragraphs:
“The Board of Directors
of the Corporation (the “Board”) is hereby expressly authorized, by resolution or resolutions from time to time thereof,
to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock and, with respect to each such series,
to fix the number of shares constituting such series and the designation of such series, the voting and other powers (if any) of
the shares of such series, and the preferences and any relative, participating, optional or other special rights and any qualifications,
limitations or restrictions thereof, of the shares of such series, including but not limited to, determination of any of the following:
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(a)
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the distinctive serial designation and the number of shares constituting such series;
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(b)
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the dividend rate, whether dividends shall be cumulative and, if so, from which date, the payment
date or dates for dividends, and the participating or other special rights, if any, with respect to dividends;
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(c)
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the voting powers, full or limited in addition to the voting powers provided by law;
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(d)
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whether the shares shall be redeemable, and if so, the price or prices at which, and the terms
and conditions on which, the shares may be redeemed;
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(e)
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the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
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(f)
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whether the shares shall be convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made and any other terms and conditions of such conversion or exchange.
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The powers, preferences and relative,
participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any time outstanding.”
SECOND: That, pursuant to Section 228 of
the General Corporation Law of the State of Delaware, as of April 10, 2017, the Corporation obtained the consents in writing to
the amendment as stated in the above resolution, signed by the holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize such amendment.
THIRD: Such amendment was duly adopted
in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has
caused this Certificate of Amendment to be signed this ____ day of ______, 2017.
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ARKADOS GROUP, INC.
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By:
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Name:
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Terrence DeFranco
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Title:
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Chief Executive Officer
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ANNEX B
ARKADOS GROUP, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 151 OF THE
DELAWARE
GENERAL CORPORATION LAW
The undersigned, Terrence
DeFranco, does hereby certify that:
1. He is the President
and Secretary of Arkados Group, Inc., a Delaware corporation (the “
Corporation
”).
2. The Corporation
is authorized to issue 5,000,000 shares of preferred stock, none of which are issued and outstanding.
3. The
following resolutions were duly adopted by the board of directors of the Corporation (the “
Board of Directors
”):
WHEREAS, the certificate
of incorporation of the Corporation, as amended, provides for a class of its authorized stock known as Preferred Stock, consisting
of 5,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series;
WHEREAS, the Board
of Directors is authorized to fix the dividend rights, dividend rate, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation
thereof, of any of them; and
WHEREAS, it is the
desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other
matters relating to a series of the preferred stock, which shall consist of up to 5,000,000 shares of the preferred stock which
the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE
IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange
of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters
relating to such series of preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1.
Definitions
.
For the purposes hereof, the following terms shall have the following meanings:
“
Accruing
Dividends
” shall have the meaning set forth in Section 4(a).
“
Affiliate
”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“
Asset Purchase
Agreement
” means the Asset Purchase Agreement, dated as of April __, 2017, among the Corporation and SolBright Renewable
Energy, LLC, as amended, modified or supplemented from time to time in accordance with its terms.
“
Business
Day
” means any day except any Saturday, any Sunday, or any day which is a federal legal holiday in the United States.
“
Buyer Promissory
Note
” means that certain 15% Secured Promissory Note of even date hereof issued by the Corporation to SolBright Renewable
Energy, LLC in connection with the Asset Purchase Agreement.
“
Closing Date
”
means the date of closing the transactions contemplated by the Asset Purchase Agreement, as such term is defined in the Asset Purchase
Agreement.
“
Common Stock
”
means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which
such securities may hereafter be reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Corporation or its subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“
Conversion
Date
” shall have the meaning set forth in Section 8(a).
“
Conversion
Price
” shall have the meaning set forth in Section 8(b).
“
Conversion
Shares
” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred
Stock in accordance with the terms hereof.
“
DGCL
”
means the General Corporation Law of the State of Delaware.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
GAAP
”
means United States generally accepted accounting principles.
“
Holder
”
shall have the meaning given such term in
Section 2
.
“
Junior Stock
”
shall mean (a) all classes of the Common Stock, (b) classes of securities established prior to the Original Issue Date, and
(c) each other class of capital stock or series of preferred stock of the Corporation established after the Original Issue
Date by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or on a parity
with the Series A Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Corporation.
“
Liquidation
”
shall have the meaning set forth in
Section 6
.
“
New York
Courts
” shall have the meaning set forth in
Section 10(c)
.
“
Notice of
Conversion
” shall have the meaning set forth in
Section 8(a)
.
“
Original
Issue Date
” means the date of the first issuance of any shares of the Series A Preferred Stock regardless of the number
of transfers of any particular shares of Series A Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
“
Parity Stock
”
shall mean any class of capital stock or series of preferred stock of the Corporation established after the Original Issue Date
by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series
A Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Corporation.
“
Person
”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“
Redemption
Funds
” shall mean (a) during the period from the Closing Date until any and all amounts due under the Buyer Promissory
Note have been fully paid and the Buyer Promissory Note has been extinguished, the amount that equals (i) 50% of the earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of the “Business” (as defined in the Asset Purchase
Agreement), calculated in accordance with generally accepted accounting principles, for the last four quarters preceding the Redemption
Funds calculation, minus (ii) the sum of all dividend payments paid by the Corporation to the Holder for the Series A Preferred
Stock during the last 12 months preceding the Redemption Funds calculation, minus (iii) $1,200,000; and (b) during the period from
the date the Buyer Promissory Note has been extinguished until the Series A Preferred Stock has been fully redeemed, the amount
that equals (x) 100% of the EBITDA of the “Business” (as defined in the Asset Purchase Agreement), calculated in accordance
with generally accepted accounting principles, for the last four quarters preceding the Redemption Funds calculation, minus (y)
the sum of all dividend payments paid by the Corporation to the Holder for the Series A Preferred Stock during the last 12 months
preceding the Redemption Funds calculation, minus (z) $1,200,000; provided, however, since the Redemption Funds calculation is
intended to cover a full twelve-month period, until the Redemption Funds calculation period includes a full twelve-month period
after the Closing Date, the calculation of the Redemption Funds shall be adjusted for each of (a)(i) and (ii), and (b)(x) and (y)
above, by dividing the amount so calculated in such subsection by the number of days between the Closing Date and the end of such
calculation period, and then multiplying such amount by 365.
“
Securities
Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Series A
Preferred Stock
” shall have the meaning set forth in Section 2.
“
Share Delivery
Date
” shall have the meaning set forth in
Section 8(c)
.
“
Stated Value
”
shall have the meaning set forth in
Section 2
.
“
Trading Day
”
means a day on which the principal Trading Market is open for business.
“
Trading Market
”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange,
the OTCQB market (or any successors to any of the foregoing).
Section 2.
Designation,
Amount and Par Value
. The series of preferred stock shall be designated as its Series A Convertible Preferred Stock (the “
Series
A Preferred Stock
”) and the number of shares so designated shall be up to 5,000,000 (which shall not be subject to increase
without the written consent of all of the holders of the Series A Preferred Stock (each, a “
Holder
” and collectively,
the “
Holders
”)). Each share of Series A Preferred Stock shall have a par value of $0.0001 per share and a stated
value per share equal to $1.50 (the “
Stated Value
”). Such number of Series A Preferred Stock shares may be decreased
by resolution of the Board of Directors adopted and filed pursuant to Section 151(g) of the DGCL, or any successor provision,
and by the filing of a certificate of decrease with the Secretary of State of the State of Delaware; provided that no such decrease
shall reduce the number of authorized shares of Series A Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of Series A Preferred Stock.
Section 3.
Rank
.
The Series A Preferred Stock with respect to dividend or distribution rights and upon liquidation, winding-up or dissolution of
the Corporation, ranks as set forth herein (a) senior to all Junior Stock; and (b) on parity in all respects, with all
the Parity Stock.
Section 4.
Dividends
and Distributions
.
(a) Dividends
on Series A Preferred Stock will be paid out of legally available funds at the rate per annum of four percent (4%) of the Stated
Value from the Original Issue Date through the date of redemption, cancellation or surrender thereof (the “
Accruing Dividends
”).
Dividends on Series A Preferred Stock shall be fully cumulative, accruing, without interest, and, to the extent so declared by
the Board of Directors, shall be payable quarterly in arrears commencing on the first day of March, June, September and December
each year, commencing June 1, 2017 (pro-rated for partial months), except that if such date is not a Business Day then to the extent
so declared by the Board of Directors the dividend shall be payable on the first immediately succeeding Business Day (each such
date being hereinafter referred to as a “
Dividend Payment Date
”). Dividends on the Series A Preferred Stock
shall be paid in cash. Each dividend shall be paid to the holders of record of Series A Preferred Stock as they appear on the stock
register of the Corporation on the record date, not more than 10 days after the applicable Dividend Payment Date, as shall be fixed
by the Board of Directors. Dividends payable on each Dividend Payment Date shall be computed on the basis of a 365 or 366-day year
and actual days elapsed and shall be rounded to the nearest cent. Dividends on account of arrearages for any past Dividend Payment
Date may be declared and paid at any time, without reference to any scheduled Dividend Payment Date, to holders of record on such
date, as may be fixed by the Board of Directors of the Corporation. Dividends on the Series A Preferred Stock shall accrue whether
or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. No interest shall be payable with respect to any dividend payment that may be in arrears. The Holders
are not entitled to any dividends other than the dividends provided for in this Section 4(a).
(b) Nothing
contained herein shall be deemed to establish or require any payment or other charges in excess of the maximum permitted by applicable
law. In the event that any payment required to be paid or other charges hereunder exceed the maximum permitted by law,
any payments in excess of such maximum shall reduce any amounts thereafter owed by the Corporation to the Holder and thus refunded
to the Corporation.
(c) In
the event that pursuant to applicable law or contract the Corporation shall be prohibited or restricted from paying the full dividends
to which the holders of the Series A Preferred Stock shall be entitled, the amount available pursuant to applicable law or contract
shall be distributed among the holders of the Series A Preferred Stock ratably in proportion to the full amounts to which they
would otherwise be entitled and any remaining amount due to holders of the Series A Preferred Stock shall be accrued.
Section 5.
Voting
Rights
. Except as otherwise provided herein or as otherwise required by law, the Series A Preferred Stock shall have no voting
rights. However, as long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative
vote of the Holders of a majority of the then outstanding shares of the Series A Preferred Stock, alter or change adversely the
powers, preferences or rights given to the Series A Preferred Stock, including without limitation, establishing any Parity Stock,
or alter or amend this Certificate of Designation.
Section 6.
Liquidation
.
Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “
Liquidation
”),
the Holders of the Series A Preferred Stock then outstanding shall be entitled, together pro rata with the holders of Parity Stock,
to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made
to the holders of Junior Stock by reason of their ownership thereof, an amount equal to the aggregate Stated Value of all Series
A Preferred Stock held by such holder, plus any Accruing Dividends accrued but unpaid thereon (whether or not declared). The Corporation
shall mail written notice of any such Liquidation, not less than 15 days prior to the payment date stated therein, to each Holder.
Section 7.
Redemption
.
(a) On
the terms and conditions of this
Section 7
, the Corporation shall redeem the Series A Preferred Stock in whole or in part
which, upon payment of the applicable redemption price, shall constitute a forfeiture and cancellation of such redeemed shares
of the Series A Preferred Stock (each such event, a “
Company Redemption
”). Other than the redemption of the
Series A Preferred Stock occurring as a result of the Redemption Funds pursuant to this
Section 7
, the Corporation may not
redeem all or any portion of the Series A Preferred Stock without the prior written consent of the Holder of such Series A Preferred
Stock.
(b) The
Corporation shall exercise its right to require redemption under this
Section 7
from time to time only if Redemption Funds
are available for such redemption by delivering a written notice thereof to all of the Holders of shares of Series A Preferred
Stock (the “
Company Redemption Notice
” and the date all of the Holders receive such notice is referred to as
the “
Company Redemption Notice Date
”). The Company Redemption Notice shall (w) state the aggregate number
of shares of Series A Preferred Stock subject to the applicable redemption and the number of shares of Series A Preferred Stock
to be redeemed from each Holder (which shall be determined with respect to each Holder by multiplying (1) the aggregate number
of shares of Series A Preferred Stock subject to such Company Redemption times (2) the quotient of (I) the number of shares of
Series A Preferred Stock then held by such Holder divided by (II) the aggregate number of shares of Series A Preferred Stock then
outstanding, with such product being rounded up or down (as the case may be) to the nearest whole number of shares) and (x) state
the date on which the applicable Company Redemption shall occur (each a “
Company Redemption Date
”) and (y) state
the Redemption Price (as defined below) and (z) include a detailed calculation of the amount of the Redemption Funds available
for such quarter for the redemption. On or before the applicable Company Redemption Date, each Holder of shares of Series A Preferred
Stock to be redeemed on such Redemption Date, unless such Holder has exercised his, her or its right to convert such shares as
provided in
Section 8
, shall surrender the certificate or certificates representing such shares to be redeemed (or, if such
registered Holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement
reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation
on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated
in the Company Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Series
A Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series A Preferred
Stock shall promptly be issued to such Holder.
(c) Shares
of Series A Preferred Stock shall be redeemed by the Corporation if Redemption Funds are available therefor at a price equal to
the Stated Value per share, plus any Accruing Dividends accrued but unpaid thereon through the date of the respective Company Redemption
Date, whether or not declared (the “
Redemption Price
”). The Corporation’s Board of Directors shall determine
no later than 20 days after the end of each Corporation fiscal quarter if Redemption Funds are available for a Company Redemption
for such quarter, and if Redemption Funds are deemed available, then the Corporation shall send the Company Redemption Notice to
the Holders no later than 30 days after the end of the respective Corporation fiscal quarter.
(d) On
and after the close of business on any Company Redemption Date, and subject to full payment of the applicable Redemption Price,
such shares of Series A Preferred Stock that have been redeemed shall be deemed cancelled and cease to be outstanding, dividends
with respect to such shares of redeemed Series A Preferred Stock shall cease to accumulate and all rights whatsoever with respect
to such shares shall terminate. Nothing in this
Section 7
shall be construed to require or permit the Corporation to redeem
any shares of Series A Preferred Stock if such redemption would result in a violation of law, including any violation of the Delaware
General Corporation Law.
Section 8.
Conversion
.
a)
Conversions
at Option of Holder
. Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and
after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing
the Stated Value of such share of Series A Preferred Stock by the Conversion Price. Holders shall effect conversions by providing
the Corporation with the form of conversion notice attached hereto as
Annex A
(a “
Notice of Conversion
”).
Each Notice of Conversion shall specify the number of shares of Series A Preferred Stock to be converted, the number of shares
of Series A Preferred Stock owned prior to the conversion at issue, the number of shares of Series A Preferred Stock owned subsequent
to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the
applicable Holder delivers such Notice of Conversion to the Corporation (such date, the “
Conversion Date”
).
If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion
to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries
set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of
shares of Series A Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Series
A Preferred Stock to the Corporation unless all of the shares of Series A Preferred Stock represented thereby are so converted,
in which case such Holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly following
the Conversion Date at issue. Shares of Series A Preferred Stock converted into Common Stock or redeemed in accordance with the
terms hereof shall be canceled and shall not be reissued.
b)
Conversion
Price
. The conversion price for the Series A Preferred Stock shall equal $1.50, subject to adjustment herein (the “
Conversion
Price
”).
c)
Mechanics
of Conversion
.
i.
Delivery
of Conversion Shares Upon Conversion
. Not later than three (3) Trading Days after each Conversion Date (the “
Share
Delivery Date
”), the Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion
Shares being acquired upon the conversion of the Series A Preferred Stock.
ii.
Failure
to Deliver Conversion Shares
. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as
directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation
at any time on or before its receipt of such Conversion Shares, to rescind such conversion, in which event the Corporation shall
promptly return to the Holder any original Series A Preferred Stock certificate delivered to the Corporation and the Holder shall
promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.
iii.
Reservation
of Shares Issuable Upon Conversion
. The Corporation covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock,
each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder
(and the other holders of the Series A Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall
be issuable (taking into account the adjustments and restrictions of
Section 8
upon the conversion of the then outstanding
shares of Series A Preferred Stock). The Corporation covenants that all shares of Common Stock that shall be so issuable shall,
upon issue, be duly authorized, validly issued, fully paid and nonassessable.
iv.
Fractional
Shares
. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred
Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation
shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.
v.
Transfer
Taxes and Expenses
. The issuance of Conversion Shares on conversion of the Series A Preferred Stock shall be made without charge
to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion
Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares
of Series A Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until
the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established
to the satisfaction of the Corporation that such tax has been paid.
Section 9.
Certain
Adjustments
.
a)
Stock
Dividends and Stock Splits
. If at any time after the Closing Date the Corporation (i) pays a stock dividend or otherwise makes
a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment
of a dividend on, this Series A Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares,
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation,
then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section
9(a) shall become effective immediately upon the effective date of such payment, subdivision, combination or reclassification.
b)
Pro
Rata Distributions
. During such time as this Series A Preferred Stock is outstanding, if the Corporation declares or makes
any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property
or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “
Distribution
”), at any time after the issuance of this Series A Preferred Stock, then, in each such case,
the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Series A Preferred Stock.
c)
Calculations
.
All calculations under this
Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this
Section
9, the number of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
d)
Notice
to the Holders
. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 9, the Corporation shall
promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
Section 10.
Miscellaneous
.
a)
Notices
.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally or sent by a nationally recognized overnight courier service,
addressed to the Corporation, at 211 Warren Street, Suite 320, Newark, New Jersey 07103, Attention: Mr. Terrence DeFranco, CEO,
e-mail address: tmdefranco@arkadosgroup.com, or such other e-mail address or address as the Corporation may specify for such purposes
by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries
to be provided by the Corporation hereunder shall be in writing and delivered personally or sent by a nationally recognized overnight
courier service addressed to each Holder at the address of such Holder appearing on the books of the Corporation. Any notice or
other communication or deliveries hereunder shall be deemed given and effective on the earlier of the second Trading Day following
the date of mailing, if sent by U.S. nationally recognized overnight courier service, or upon actual receipt by the party to whom
such notice is required to be given.
b)
Lost
or Mutilated Series A Preferred Stock Certificate
. If a Holder’s Series A Preferred Stock certificate shall be mutilated,
lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of
a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the
shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.
c)
Governing
Law
. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation
shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to
the principles of conflict of laws thereof.
d)
Waiver
.
Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as
or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate
of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to
any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or
any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of
Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
e)
Severability
.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable
to all other Persons and circumstances.
f)
Next
Business Day
. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
g)
Headings
.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not
be deemed to limit or affect any of the provisions hereof.
h)
Status
of Converted or Redeemed Series A Preferred Stock
. If any shares of Series A Preferred Stock shall be converted, redeemed or
reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall
no longer be designated as Series A Preferred Stock.
*********************
RESOLVED, FURTHER,
that the President, and the Secretary of the Corporation be and they hereby are authorized and directed to prepare and file this
Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions
of Delaware law.
IN WITNESS WHEREOF,
the undersigned have executed this Certificate this ___ day of _________, 2017.
|
|
|
|
Name:
|
Terrence DeFranco
|
|
Name: Terrence DeFranco
|
Title:
|
President
|
|
Title: Secretary
|
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO CONVERT
SHARES OF SERIES A PREFERRED STOCK)
The undersigned hereby
elects to convert the number of shares of Series A Convertible Preferred Stock indicated below into shares of common stock, par
value $0.0001 per share (the “Common Stock”), of Arkados Group, Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person
other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as may be required by the Corporation in accordance with the Asset Purchase Agreement. No fee will
be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations
:
Date to Effect Conversion:
___________________________________________
Number of shares of Preferred
Stock owned prior to Conversion: ____________
Number of shares of Preferred
Stock to be Converted: __________________________
Stated Value of shares
of Preferred Stock to be Converted: _________________
Number of shares of Common
Stock to be Issued: ________________________
Applicable Conversion
Price: _____________________________________________
Number of shares of Preferred
Stock subsequent to Conversion: _________________
Address for Delivery:
_____________________________________________
|
[HOLDER]
|
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By:
|
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|
Name:
|
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Title:
|
ANNEX C
Arkados
Group, Inc.
2017
Equity Incentive Plan
Adopted
by the Board of Directors: April 10, 2017
Approved
by the Stockholders: April 10, 2017
Termination
Date: April 10, 2027
1.
General.
(a) Eligible
Stock Award Recipients.
Employees, Directors and Consultants are eligible to receive Stock Awards and such other individuals
designated by the Board who are reasonably expected to become Employees, Consultants or Directors after the receipt of Stock Awards.
(b) Available
Stock Awards.
The Plan provides for the grant of the following types of Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance
Share Awards, (vii) Performance Compensation Awards and (viii) Other Stock Awards.
(c) Purpose.
The name of this Plan is the Arkados Group, Inc. 2017 Equity Incentive Plan. The Plan, through the granting of Stock Awards, is
intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to
exert maximum efforts for the success of the Company and any Affiliate and provide a means by which the eligible recipients may
benefit from increases in value of the Common Stock.
2.
Administration.
(a) Administration
by Board.
The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees,
as provided in Section 2(c).
(b) Powers
of Board.
The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i)
To
determine (A) who will be granted Stock Awards; (B) when and how each Stock Award will be granted; (C) what type of Stock Award
will be granted; (D) the provisions of each Stock Award (which need not be identical), including when a person will be permitted
to exercise or otherwise receive cash or Common Stock under the Stock Award; (E) the number of shares of Common Stock subject to
a Stock Award; and (F) the Fair Market Value applicable to a Stock Award.
(ii)
To
determine the target number of Performance Shares to be granted pursuant to a Performance Share Award, the performance measures
that will be used to establish the performance goals, the performance period(s) and the number of Performance Shares earned by
a Participant.
(iii)
To
designate an Award (including a cash bonus) as a Performance Compensation Award and to select the Performance Criteria that will
be used to establish the Performance Goals.
(iv)
To
construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for
administration of the Plan and Stock Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency
in the Plan or in any Stock Award Agreement, in a manner and to the extent it will deem necessary or expedient to make the Plan
or Stock Award fully effective.
(v)
To
settle all controversies regarding the Plan and Stock Awards granted under it.
(vi)
To
accelerate, in whole or in part, the time at which a Stock Award may be exercised or vest (or at which cash or shares of Common
Stock may be issued).
(vii)
To
suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or a Stock Award Agreement, suspension or termination
of the Plan will not impair a Participant’s rights under his or her then-outstanding Stock Award without his or her written
consent except as provided in subsection (viii) below.
(viii)
To
amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating
to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to make the Plan
or Stock Awards granted under the Plan compliant with the requirements for Incentive Stock Options or exempt from or compliant
with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any,
of applicable law. However, if required by applicable law, and except as provided in Section 9(a) relating to Capitalization
Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number
of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible
to receive Stock Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D)
materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends
the term of the Plan, or (F) materially expands the types of Stock Awards available for issuance under the Plan. Except as
provided in the Plan (including subsection (viii) below) or a Stock Award Agreement, no amendment of the Plan will impair a Participant’s
rights under an outstanding Stock Award unless (1) the Company requests the consent of the affected Participant, and (2) such Participant
consents in writing.
(ix)
To
submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy
the requirements of Section 422 of the Code regarding Incentive Stock Options and intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit
on corporate deductibility of compensation paid to certain executive officers.
(x)
To
approve forms of Stock Award Agreements for use under the Plan and to amend the terms of any one or more Stock Awards, including,
but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Stock Award Agreement,
subject to any specified limits in the Plan that are not subject to Board discretion;
provided however,
that a Participant’s
rights under any Stock Award will not be impaired by any such amendment unless (A) the Company requests the consent of the
affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, (1) a Participant’s
rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the
amendment, taken as a whole, does not materially impair the Participant’s rights, and (2) subject to the limitations of applicable
law, if any, the Board may amend the terms of any one or more Stock Awards without the affected Participant’s consent (A) to
maintain the qualified status of the Stock Award as an Incentive Stock Option under Section 422 of the Code; (B) to change the
terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status
of the Award as an Incentive Stock Option under Section 422 of the Code; (C) to clarify the manner of exemption from, or to bring
the Stock Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws.
(xi)
Generally,
to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan or Stock Awards.
(xii)
To
adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors
or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary
for immaterial modifications to the Plan or any Stock Award Agreement that are required for compliance with the laws of the relevant
foreign jurisdiction).
(xiii)
To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike
price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor
of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Performance Share Award, (5) Performance
Compensation Award, (6) Other Stock Award, (7) cash and/or (8) other valuable consideration determined by the Board, in its sole
discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled
Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that
is treated as a repricing under generally accepted accounting principles.
(c) Delegation
to Committee.
The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration
of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee
of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board
will thereafter be to the Committee or subcommittee). Any delegation of administrative powers will be reflected in resolutions,
not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Committee
may, at any time, abolish the subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The Board may
retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all
of the powers previously delegated.
(d) Delegation
to an Officer.
The Board may delegate to one (1) or more Officers the authority to do one or both of the following: (i) designate
Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock
Awards) and, to the extent permitted by applicable law, the terms of such Stock Awards, and (ii) determine the number of shares
of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding
such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such
Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the
form of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions
approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of
an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(t) below.
(e) Effect
of Board’s Decision.
All determinations, interpretations and constructions made by the Board in good faith will not be
subject to review by any person and will be final, binding and conclusive on all persons.
3.
Shares
Subject to the Plan.
(a) Share
Reserve
.
(i)
Subject
to Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued
pursuant to Stock Awards from and after the Effective Date will not exceed 10,000,000 shares (the
“Share Reserve”
).
(ii)
For
clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued
pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a).
(b) Reversion
of Shares to the Share Reserve
. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all
of the shares covered by such Stock Award having been issued or (ii) is settled in cash (
i.e.
, the Participant receives
cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares
of Common Stock that may be available for issuance under the Plan. If any shares of Common Stock issued pursuant to a Stock Award
are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest
such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for
issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or
as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan.
(c) Incentive
Stock Option Limit.
Subject to the Share Reserve and Section 9(a) relating to Capitalization Adjustments, the aggregate
maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options will be equal to
the aggregate number of shares of Common Stock that may be issued as Stock Awards under this Plan as set forth in Section 3(a)(i).
(d) Source
of Shares.
The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including
shares repurchased by the Company on the open market or otherwise.
4.
Eligibility.
(a) Eligibility
for Specific Stock Awards
. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation”
or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock
Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants and those individuals whom the
Board determines are reasonably expected to become Employees, Consultants and Directors following the date of grant;
provided,
however
, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service
only to any “parent” of the Company, as such term is defined in Rule 405, unless (i) the stock underlying such
Stock Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Stock
Awards are granted pursuant to a corporate transaction such as a spin off transaction), or (ii) the Company, in consultation with
its legal counsel, has determined that such Stock Awards are otherwise exempt from or alternatively comply with the distribution
requirements of Section 409A of the Code.
(b) Ten
Percent Stockholders
. A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value on the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(c) Consultants.
A Consultant will not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or sale of the
Company’s securities to such Consultant is not exempt under Rule 701 because of the nature of the services that the
Consultant is providing to the Company, because the Consultant is not a natural person, or because of any other provision of Rule 701,
unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption
under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions
.
5.
Provisions
Relating to Options and Stock Appreciation Rights.
Each Option or SAR
will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option
is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some
portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion
thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical;
provided, however
,
that each Stock Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Stock
Award Agreement or otherwise) the substance of each of the following provisions:
(a) Term.
Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the
expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Award Agreement.
(b) Exercise
Price.
Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each
Option or SAR will be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the
Option or SAR on the date the Stock Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise
or strike price lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Stock Award
if such Stock Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant
to a Corporate Transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section
424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c) Purchase
Price for Options.
The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent
permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment
set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment
(or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use
a particular method of payment. The permitted methods of payment are as follows:
(i)
by
cash, check, bank draft or money order payable to the Company;
(ii)
pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock
subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions
to pay the aggregate exercise price to the Company from the sales proceeds;
(iii)
by
delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv)
if
an Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce
the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that
does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the
Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number
of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter
to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the “net exercise,”
(B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding
obligations;
(v)
according
to a deferred payment or similar arrangement with the Optionholder;
provided, however
, that interest will compound at least
annually and will be charged at the minimum rate of interest necessary to avoid (A) the imputation of interest income to the
Company and compensation income to the Optionholder under any applicable provisions of the Code, and (B) the classification
of the Option as a liability for financial accounting purposes; or
(vi)
in
any other form of legal consideration that may be acceptable to the Board and specified in the applicable Stock Award Agreement.
(d) Exercise
and Payment of a SAR.
To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company
in compliance with the provisions of the Stock Award Agreement evidencing such SAR. The appreciation distribution payable on the
exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of
the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant
is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the strike price.
The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration,
as determined by the Board and contained in the Stock Award Agreement evidencing such SAR.
(e) Transferability
of Options and SARs.
The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs
as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on
the transferability of Options and SARs will apply:
(i) Restrictions
on Transfer
. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (and pursuant
to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The
Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except
as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.
(ii) Domestic
Relations Orders
. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant
to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as
permitted by Treasury Regulation 1.421-1(b)(2). If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory
Stock Option as a result of such transfer.
(iii) Beneficiary
Designation
. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice
to the Company, in a form approved by the Company (or the designated broker), designate a third party who, upon the death of the
Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting
from such exercise. In the absence of such a designation, the executor or administrator of the Participant’s estate will
be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However,
the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation
would be inconsistent with the provisions of applicable laws.
(f) Vesting
Generally.
The total number of shares of Common Stock subject to an Option or SAR may vest and therefore become exercisable
in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the
time or times when it may or may not be exercised (which may be based on the satisfaction of performance goals or other criteria)
as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f)
are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR
may be exercised.
(g) Termination
of Continuous Service.
Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the
Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the
Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant
was entitled to exercise such Stock Award as of the date of termination of Continuous Service) within the period of time ending
on the earlier of (i) the date three (3) months following the termination of the Participant’s Continuous
Service (or such longer or shorter period specified in the applicable Stock Award Agreement, which period will not be less than
thirty (30) days if necessary to comply with applicable laws unless such termination is for Cause) and (ii) the
expiration of the term of the Option or SAR as set forth in the Stock Award Agreement. If, after termination of Continuous Service,
the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable)
will terminate.
(h) Extension
of Termination Date.
Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant
and the Company, if the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other
than for Cause and other than upon the Participant’s death or Disability) would be prohibited at any time solely because
the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or
SAR will terminate on the earlier of (i) the expiration of a total period of three (3) months (that need not be
consecutive) after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR
would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option or SAR as set
forth in the applicable Stock Award Agreement. In addition, unless otherwise provided in a Participant’s Stock Award Agreement,
if the sale of any Common Stock received upon exercise of an Option or SAR following the termination of the Participant’s
Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option or SAR will
terminate on the earlier of (i) the expiration of a period of time (that need not be consecutive) equal to the applicable
post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the
Common Stock received upon exercise of the Option or SAR would not be in violation of the Company’s insider trading policy,
or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Stock Award Agreement.
(i) Disability
of Participant.
Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant
and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the
Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR
as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the
date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified
in the Stock Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable
laws), and (ii) the expiration of the term of the Option or SAR as set forth in the Stock Award Agreement. If, after termination
of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option
or SAR (as applicable) will terminate.
(j) Death
of Participant.
Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant
and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii)
the Participant dies within the period (if any) specified in the Stock Award Agreement for exercisability after the termination
of the Participant’s Continuous Service (for a reason other than death), then the Option or SAR may be exercised (to the
extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate,
by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise
the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date
eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Stock Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable
laws), and (ii) the expiration of the term of such Option or SAR as set forth in the Stock Award Agreement. If, after the
Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable)
will terminate.
(k)
Termination for Cause.
Except as explicitly provided otherwise in a Participant’s Stock Award Agreement or other
individual written agreement between the Company or any Affiliate and the Participant, if a Participant’s Continuous Service
is terminated for Cause, the Option or SAR will terminate immediately upon such Participant’s termination of Continuous Service,
and the Participant will be prohibited from exercising his or her Option or SAR from and after the time of such termination of
Continuous Service.
(l) Non-Exempt
Employees
. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards
Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six (6)
months following the date of grant of the Option or SAR (although the Stock Award may vest prior to such date). Consistent with
the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon
a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control,
or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Stock Award Agreement,
in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Company's then
current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six (6) months
following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee
in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent
permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt
employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the
employee’s regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated
by reference into such Stock Award Agreements.
(m) Early
Exercise of Options.
An Option may, but need not, include a provision whereby the Optionholder may elect at any time before
the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock
subject to the Option prior to the full vesting of the Option. Subject to the “Repurchase Limitation” in Section 8(m),
any unvested shares of Common Stock so purchased may be subject to a repurchase right in favor of the Company or to any other restriction
the Board determines to be appropriate. Provided that the “Repurchase Limitation” in Section 8(m) is not
violated, the Company will not be required to exercise its repurchase right until at least six (6) months (or such longer
or shorter period of time required to avoid classification of the Option as a liability for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option Agreement.
(n) Right
of Repurchase
. Subject to the “Repurchase Limitation” in Section 8(m), the Option or SAR may include
a provision whereby the Company may elect to repurchase all or any part of the vested shares of Common Stock acquired by the Participant
pursuant to the exercise of the Option or SAR.
(o) Right
of First Refusal
. The Option or SAR may include a provision whereby the Company may elect to exercise a right of first refusal
following receipt of notice from the Participant of the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option or SAR. Such right of first refusal will be subject to the “Repurchase Limitation”
in Section 8(m). Except as expressly provided in this Section 5(o) or in the Stock Award Agreement, such right of first
refusal will otherwise comply with any applicable provisions of the bylaws of the Company.
6.
Provisions
of Stock Awards Other than Options and SARs.
(a) Restricted
Stock Awards.
Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the
Board deems appropriate. To the extent consistent with the Company’s bylaws, at the Board’s election, shares of Common
Stock may be (i) held in book entry form subject to the Company’s instructions until any restrictions relating to the
Restricted Stock Award lapse; or (ii) evidenced by a certificate, which certificate will be held in such form and manner as
determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms
and conditions of separate Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will
conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of
the following provisions:
(i) Consideration
.
A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company,
(B) past services to the Company or an Affiliate, or (C) any other form of legal consideration
(including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable
law.
(ii) Vesting
.
Subject to the “Repurchase Limitation” in Section 8(m), shares of Common Stock awarded under the Restricted
Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) Termination
of Participant’s Continuous Service
. If a Participant’s Continuous Service terminates, the Company may receive
through a forfeiture condition or a repurchase right, any or all of the shares of Common Stock held by the Participant that have
not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv) Transferability
.
Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only
upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole
discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted
Stock Award Agreement.
(v) Dividends.
A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting
and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
(b) Restricted
Stock Unit Awards.
Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions
as the Board deems appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time,
and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit
Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the
substance of each of the following provisions:
(i) Consideration.
At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant
upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by
the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration
that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting.
At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting
of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment
.
A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination
thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv) Additional
Restrictions.
At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted
Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.
(v) Dividend
Equivalents.
Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award,
as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such
dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such
manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such
dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement
to which they relate.
(vi) Termination
of Participant’s Continuous Service.
Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement,
such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination
of Continuous Service.
(vii) Compliance
with Section 409A of the Code.
Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award
granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions
so that such Restricted Stock Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions,
if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted
Stock Unit Award. For example, such restrictions may include, without limitation, a requirement that any Common Stock that is to
be issued in a year following the year in which the Restricted Stock Unit Award vests must be issued in accordance with a fixed
pre-determined schedule.
(c) Performance
Share Awards
(i) Grant
of Performance Share Awards
. Each Performance Share Award granted under the Plan shall be evidenced by a Stock Award Agreement.
Each Performance Share Award so granted shall be subject to the conditions set forth in this Section 6(c), and to such other conditions
not inconsistent with the Plan as may be reflected in the applicable Stock Award Agreement. The Board shall have the discretion
to determine: (i) the number of shares of Common Stock or stock-denominated units subject to a Performance Share Award granted
to any Participant; (ii) the performance period applicable to any Stock Award; (iii) the conditions that must be satisfied for
a Participant to earn a Stock Award; and (iv) the other terms, conditions and restrictions of the Stock Award.
(ii) Earning
performance Share Awards
. The number of Performance Shares earned by a Participant will depend on the extent to which the performance
goals established by the Board are attained within the applicable Performance Period, as determined by the Board. No payout shall
be made with respect to any Performance Share Award except upon written certification by the Board that the minimum threshold performance
goal(s) have been achieved.
(d) Performance
Compensation Awards
(i) General
.
The Board shall have the authority, at the time of grant of any Stock Award described in this Plan (other than Options and Stock
Appreciation Rights granted with an exercise price equal to or greater than the Fair Market Value per share of Common Stock on
the date of grant), to designate such Stock Award as a Performance Compensation Award in order to qualify such Stock Award as “performance-based
compensation” under Section 162(m) of the Code. In addition, the Board shall have the authority to make a Stock Award of
a cash bonus to any Participant and designate such Stock Award as a Performance Compensation Award in order to qualify such Stock
Award as “performance-based compensation” under Section 162(m) of the Code.
(ii) Eligibility
.
The Board will, in its sole discretion, designate within the first 90 days of a Performance Period (or, if longer or shorter, within
the maximum period allowed under Section 162(m) of the Code) which Participants will be eligible to receive Performance Compensation
Awards in respect of such Performance Period. However, designation of a Participant eligible to receive a Stock Award hereunder
for a Performance Period shall not in any manner entitle the Participant to receive payment in respect of any Performance Compensation
Award for such Performance Period. The determination as to whether such Participant becomes entitled to payment in respect of any
Performance Compensation Award shall be decided solely in accordance with the provisions of this Section 6(d). Moreover, designation
of a Participant eligible to receive a Stock Award hereunder for a particular Performance Period shall not require designation
of such Participant eligible to receive a Stock Award hereunder in any subsequent Performance Period and designation of one person
as a Participant eligible to receive a Stock Award hereunder shall not require designation of any other person as a Participant
eligible to receive a Stock Award hereunder in such period or in any other period.
(iii) Discretion
of Board with Respect to Performance Compensation Awards
. With regard to a particular Performance Period, the Board shall have
full discretion to select the length of such Performance Period (provided any such Performance Period shall be not less than one
fiscal quarter in duration), the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be
used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goal(s) that is (are) to apply to the
Company and the Performance Formula. Within the first 90 days of a Performance Period (or, if longer or shorter, within the maximum
period allowed under Section 162(m) of the Code), the Board shall, with regard to the Performance Compensation Awards to be issued
for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding
sentence of this
Section
6.4(c)(iii) and record the same in writing.
(iv) Payment
of Performance Compensation Awa
rds.
(1) Condition
to Receipt of Payment
. Unless otherwise provided in the applicable Stock Award Agreement, a Participant must be employed by
the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for
such Performance Period.
(2) Limitation
.
A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A)
the Performance Goals for such period are achieved; and (B) the Performance Formula as applied against such Performance Goals determines
that all or some portion of such Participant's Performance Compensation Award has been earned for the Performance Period.
(3) Certification
.
Following the completion of a Performance Period, the Board shall review and certify in writing whether, and to what extent, the
Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing the amount of the
Performance Compensation Awards earned for the period based upon the Performance Formula. The Board shall then determine the actual
size of each Participant's Performance Compensation Award for the Performance Period and, in so doing, may apply Negative Discretion
in accordance with Section 6(d)(4) hereof, if and when it deems appropriate.
(4) Use
of Discretion
. In determining the actual size of an individual Performance Compensation Award for a Performance Period, the
Board may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance
Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Board
shall not have the discretion to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period
if the Performance Goals for such Performance Period have not been attained or (B) increase a Performance Compensation Award above
the maximum amount payable under Section 6(d)(6) of the Plan.
(5) Timing
of Award Payments
. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as
administratively practicable following completion of the certifications required by this Section 6(d) but in no event later than
2 1/2 months following the end of the fiscal year during which the Performance Period is completed.
(6) Maximum
Award Payable
. Notwithstanding any provision contained in this Plan to the contrary, the maximum Performance Compensation
Award payable to any one Participant under the Plan for a Performance Period (excluding any Options and Stock Appreciation Rights)
is five hundred thousand (500,000) shares of Common Stock or, in the event such Performance Compensation Award is paid in cash,
the equivalent cash value thereof on the first or last day of the Performance Period to which such Award relates, as determined
by the Board. The maximum amount that can be paid in any calendar year to any Participant pursuant to a cash bonus Award described
in the last sentence of Section 6(d)(i) shall be $250,000. Furthermore, any Performance Compensation Award that has been
deferred shall not (between the date as of which the Stock Award is deferred and the payment date) increase (A) with respect to
a Performance Compensation Award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable
rate of interest set by the Board or (B) with respect to a Performance Compensation Award that is payable in shares of Common
Stock, by an amount greater than the appreciation of a share of Common Stock from the date such Stock Award is deferred to the
payment date.
(e) Other
Stock Awards
. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock,
including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than one
hundred percent (100%) of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition
to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan,
the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock
Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other
Stock Awards and all other terms and conditions of such Other Stock Awards.
7.
Covenants
of the Company.
(a) Availability
of Shares.
The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy
then-outstanding Stock Awards.
(b) Securities
Law Compliance.
The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock
Awards;
provided, however,
that this undertaking will not require the Company to register under the Securities Act the Plan,
any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a
reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the
Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.
A Participant will not be eligible for the grant of a Stock Award or the subsequent issuance of cash or Common Stock pursuant to
the Stock Award if such grant or issuance would be in violation of any applicable securities law.
(c) No
Obligation to Notify or Minimize Taxes.
The Company will have no duty or obligation to any Participant to advise such holder
as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise
advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not
be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock
Award.
8.
Miscellaneous.
(a) Use
of Proceeds from Sales of Common Stock.
Proceeds from the sale of shares of Common Stock pursuant to Stock Awards will constitute
general funds of the Company.
(b) Corporate
Action Constituting Grant of Stock Awards.
Corporate action constituting a grant by the Company of a Stock Award to any Participant
will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when
the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the
Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action
constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those
in the Stock Award Agreement as a result of a clerical error in the papering of the Stock Award Agreement, the corporate records
will control and the Participant will have no legally binding right to the incorrect term in the Stock Award Agreement.
(c) Stockholder
Rights.
No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to a Stock Award unless and until (i) such Participant has satisfied all requirements for exercise
of, or the issuance of shares of Common Stock under, the Stock Award pursuant to its terms, and (ii) the issuance of the Common
Stock subject to the Stock Award has been entered into the books and records of the Company.
(d) No
Employment or Other Service Rights.
Nothing in the Plan, any Stock Award Agreement or any other instrument executed thereunder
or in connection with any Stock Award granted pursuant thereto will confer upon any Participant any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or will affect the right of the Company
or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the
service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law
of the state in which the Company or the Affiliate is incorporated, as the case may be.
(e) Change
in Time Commitment
. In the event a Participant’s regular level of time commitment in the performance of his or her services
for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company
and the Employee has a change in status from a full-time Employee to a part-time Employee) after the date of grant of any Stock
Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of
shares subject to any portion of such Stock Award that is scheduled to vest or become payable after the date of such change in
time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable
to such Stock Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the
Stock Award that is so reduced or extended.
(f) Incentive
Stock Option Limitations.
To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under
all plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000) (or such other limit established
in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that
exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated
as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(g) Investment
Assurances.
The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial
and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the
Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account
and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances
given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities
Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(h) Withholding
Obligations.
Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any
federal, state or local tax withholding obligation relating to a Stock Award by any of the following means or by a combination
of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the
shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock Award;
provided, however
,
that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or
such lesser amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes);
(iii) withholding cash from a Stock Award settled in cash; (iv) withholding payment from any amounts otherwise payable to
the Participant; or (v) by such other method as may be set forth in the Stock Award Agreement.
(i) Electronic
Delivery
. Any reference herein to a “written” agreement or document will include any agreement or document delivered
electronically or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which
the Participant has access).
(j) Deferrals.
To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or
the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Stock Award may be deferred and may establish
programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance
with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant
is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Stock Awards
and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the
Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the provisions
of the Plan and in accordance with applicable law.
(k) Compliance
with Section 409A of the Code.
To the extent that the Board determines that any Stock Award granted hereunder is subject to
Section 409A of the Code, the Stock Award Agreement evidencing such Stock Award shall incorporate the terms and conditions
necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Stock
Award Agreements shall be interpreted in accordance with Section 409A of the Code.
(l) Repurchase
Limitation
. The terms of any repurchase right will be specified in the Stock Award Agreement. The repurchase price for vested
shares of Common Stock will be the Fair Market Value of the shares of Common Stock on the date of repurchase. The repurchase price
for unvested shares of Common Stock will be the lower of (i) the Fair Market Value of the shares of Common Stock on the date
of repurchase or (ii) their original purchase price. However, the Company will not exercise its repurchase right until at
least six (6) months (or such longer or shorter period of time necessary to avoid classification of the Stock Award as
a liability for financial accounting purposes) have elapsed following delivery of shares of Common Stock subject to the Stock Award,
unless otherwise specifically provided by the Board.
9.
Adjustments
upon Changes in Common Stock; Other Corporate Events.
(a) Capitalization
Adjustments
. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the
class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum
number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), and
(iii) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will
make such adjustments, and its determination will be final, binding and conclusive. Further, with respect to Stock Awards intended
to qualify as “performance-based compensation” under Section 162(m) of the Code, any adjustments will not cause the
Company to be denied a tax deduction on account of Section 162(m) of the Code.
(b) Dissolution
or Liquidation
. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of
the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock
not subject to a forfeiture condition or the Company’s right of repurchase) will terminate immediately prior to the completion
of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase rights or subject
to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock
Award is providing Continuous Service,
provided, however,
that the Board may, in its sole discretion, cause some or all
Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock
Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) Corporate
Transaction.
The following provisions will apply to Stock Awards in the event of a Corporate Transaction unless otherwise
provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the
Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Corporate
Transaction, then, notwithstanding any other provision of the Plan, the Board may take one or more of the following actions with
respect to Stock Awards, contingent upon the closing or completion of the Corporate Transaction:
(i)
arrange
for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume
or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award
to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction);
(ii)
arrange
for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to
the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent
company);
(iii)
accelerate
the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to
a date prior to the effective time of such Corporate Transaction as the Board determines (or, if the Board does not determine such
a date, to the date that is five (5) days prior to the effective date of the Corporate Transaction), with such Stock
Award terminating if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction; provided, however,
that the Board may require Participants to complete and deliver to the Company a notice of exercise before the effective date of
a Corporate Transaction, which exercise is contingent upon the effectiveness of such Corporate Transaction;
(iv)
arrange
for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award;
(v)
cancel
or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the
Corporate Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate;
and
(vi)
make
a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the
Participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the Corporate Transaction,
over (B) any exercise price payable by such holder in connection with such exercise. For clarity, this payment may be zero
($0) if the value of the property is equal to or less than the exercise price. Payments under this provision may be delayed to
the same extent that payment of consideration to the holders of the Company’s Common Stock in connection with the Corporate
Transaction is delayed as a result of escrows, earn outs, holdbacks or any other contingencies.
The Board need not take
the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. The Board
may take different actions with respect to the vested and unvested portions of a Stock Award.
(d) Change
in Control.
A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in
Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement
between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
10.
Plan
Term; Earlier Termination or Suspension of the Plan.
(a) Plan
Term.
The Board may suspend or terminate the Plan at any time. Unless terminated sooner by the Board, the Plan will automatically
terminate on the day before the tenth (10th) anniversary of the earlier of (i) the date the Plan is adopted by the Board,
or (ii) the date the Plan is approved by the stockholders of the Company. No Stock Awards may be granted under the Plan while
the Plan is suspended or after it is terminated. Unless the Company determines to submit Section 6(d) of the Plan and the definition
of “Performance Goal” and “Performance Criteria” to the Company's shareholders at the first shareholder
meeting that occurs in the fifth year following the year in which the Plan was last approved by shareholders (or any earlier meeting
designated by the Board), in accordance with the requirements of Section 162(m) of the Code, and such shareholder approval is obtained,
then no further Performance Compensation Awards shall be made under Section 6(d) after the date of such annual meeting, but the
Plan may continue in effect for Stock Awards to Participants not in accordance with Section 162(m) of the Code.
(b) No
Impairment of Rights.
Suspension or termination of the Plan will not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the affected Participant or as otherwise permitted in the Plan.
11.
Effective
Date of Plan.
This Plan will become
effective on the Effective Date.
12.
Choice
of Law.
The laws of the
State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without
regard to that state’s conflict of laws rules.
13.
Definitions.
As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a)
“
Affiliate
”
means, at the time of determination, any “parent” or “majority-owned subsidiary” of the Company, as such
terms are defined in Rule 405. The Board will have the authority to determine the time or times at which “parent”
or “majority-owned subsidiary” status is determined within the foregoing definition.
(b)
“
Board
”
means the Board of Directors of the Company.
(c)
“
Capitalization
Adjustment
” means any change that is made in, or other events that occur with respect to, the Common Stock subject
to the Plan or subject to any Stock Award after the Effective Date without the receipt of consideration by the Company through
merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash,
large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure, or any similar equity restructuring transaction, as that term is used in Statement of Financial
Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing,
the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(d)
“
Cause
”
will have the meaning ascribed to such term in any written agreement between
the Participant and the Company defining such term and, in the absence of such agreement, such term means, with respect to a Participant,
the occurrence of any of the following events: (i) such Participant’s commission of any felony or any crime involving
fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participant’s attempted
commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participant’s intentional,
material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company;
(iv) such Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets;
or (v) such Participant’s gross misconduct. The determination that a termination of the Participant’s Continuous
Service is either for Cause or without Cause will be made by the Company, in its sole discretion. Any determination by the Company
that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Stock Awards
held by such Participant will have no effect upon any determination of the rights or obligations of the Company or such Participant
for any other purpose.
(e)
“
Change
in Control
” means the occurrence, in a single transaction or in a series of related transactions, of any one or
more of the following events:
(i)
any
Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%)
of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation
or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the
acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company
by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction
or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity
securities or (C) solely because the level of Ownership held by any Exchange Act Person (the “
Subject Person
”)
exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition
of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition
had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated
percentage threshold, then a Change in Control will be deemed to occur;
(ii)
there
is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after
the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto
do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%)
of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more
than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding
voting securities of the Company immediately prior to such transaction;
(iii)
the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company,
or a complete dissolution or liquidation of the Company will otherwise occur, except for a liquidation into a parent corporation;
(iv)
there
is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated
assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of
the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership
of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(v)
individuals
who, on the date the Plan is adopted by the Board, are members of the Board (the “
Incumbent Board
”)
cease for any reason to constitute at least a majority of the members of the Board;
provided, however,
that if the appointment
or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members
of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the
Incumbent Board.
Notwithstanding the
foregoing definition or any other provision of this Plan, (A) the term Change in Control will not include a sale of assets,
merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, and (B) the definition
of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant
will supersede the foregoing definition with respect to Stock Awards subject to such agreement;
provided, however,
that
if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing
definition will apply.
(f)
“
Code
”
means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(g)
“
Committee
”
means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(h)
“
Common
Stock
” means the common stock of the Company.
(i)
“
Company
”
means Arkados Group, Inc., a
Delaware corporation.
(j)
“
Consultant
”
means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory
services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is
compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director
to be considered a “Consultant” for purposes of the Plan.
(k)
“
Continuous
Service
” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director
or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company
or an Affiliate as an Employee, Director or Consultant or a change in the Entity for which the Participant renders such service,
provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will
not terminate a Participant’s Continuous Service;
provided, however
, that if the Entity for which a Participant is
rendering services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participant’s
Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. For example,
a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director will not constitute an interruption
of Continuous Service. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s
sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence
approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers
between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous
Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence
policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required
by law.
(l)
“
Corporate
Transaction
” means the consummation, in a single transaction or in a series of related transactions, of any one or
more of the following events:
(i)
a
sale
or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated
assets of the Company and its Subsidiaries;
(ii)
a
sale or other disposition of at least ninety percent (90%)
of the outstanding securities
of the Company;
(iii)
a
merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv)
a
merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of
the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(m)
“
Director
”
means a member of the Board.
(n)
“
Disability
”
means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be
expected to last for a continuous period of not less than twelve (12) months as provided in Sections 22(e)(3) and
409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted
under the circumstances.
(o)
“
Effective
Date
” means the effective date of this Plan, which is the earlier of (i) the date that this Plan is first approved
by the Company’s stockholders, and (ii) the date this Plan is adopted by the Board.
(p)
“
Employee
”
means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services,
will not cause a Director to be considered an “Employee” for purposes of the Plan.
(q)
“
Entity
”
means a corporation, partnership, limited liability company or other entity.
(r)
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(s)
“
Exchange
Act Person
”
means any natural person, Entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or
any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee
or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any
natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as
of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%)
of the combined voting power of the Company’s then outstanding securities.
(t)
“
Fair
Market Value
” means, as of any date, the value of the Common Stock determined by the Board in compliance with Section
409A of the Code or, in the case of an Incentive Stock Option, in compliance with Section 422 of the Code.
(u)
“
Incentive
Stock Option
” means an option granted pursuant to Section 5 of the Plan that is intended to be, and that qualifies
as, an “incentive stock option” within the meaning of Section 422 of the Code.
(v)
“
Negative
Discretion
” means the discretion authorized by the Plan to be applied by the Board to eliminate or reduce the
size of a Performance Compensation Award in accordance with Section 6(d)(iv) of the Plan;
provided
,
that
, the exercise
of such discretion would not cause the Performance Compensation Award to fail to qualify as “performance-based compensation”
under Section 162(m) of the Code.
(w)
“
Nonstatutory
Stock Option
” means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock
Option.
(x)
“
Officer
”
means any person designated by the Company as an officer.
(y)
“
Option
”
means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.
(z)
“
Option
Agreement
” means a written agreement between the Company and an Optionholder evidencing the terms and conditions
of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(aa)
“
Optionholder
”
means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding
Option.
(bb)
“Other
Stock Award”
means an award based in whole or in part by reference to the Common Stock which is granted pursuant
to the terms and conditions of Section 6(e).
(cc)
“
Other
Stock Award Agreement
” means a written agreement between the Company and a holder of an Other Stock Award evidencing
the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions
of the Plan.
(dd)
“
Own
,”
“
Owned
,” “
Owner
,” “
Ownership
”
A person or
Entity will be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired
“Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect
to such securities.
(ee)
“
Participant
”
means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding
Stock Award.
(ff)
“
Performance
Compensation Award
” means any Award designated by the Board as a Performance Compensation Award pursuant to
Section 6(d) of the Plan.
(gg)
“
Performance
Criteria
” means the criterion or criteria that the Board shall select for purposes of establishing the Performance
Goal(s) for a Performance Period with respect to any Performance Compensation Award under the Plan. The Performance Criteria that
will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company
(or Affiliate, division, business unit or operational unit of the Company) and may include the following: (a) net earnings
or net income (before or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net
revenue growth; (d) gross revenue; (e) gross profit or gross profit growth; (f) net operating profit (before or after taxes);
(g) return on assets, capital, invested capital, equity, or sales; (h) cash flow (including, but not limited to, operating cash
flow, free cash flow, and cash flow return on capital); (i) earnings before or after taxes, interest, depreciation and/or amortization;
(j) gross or operating margins; (k) improvements in capital structure; (l) budget and expense management; (m) productivity ratios;
(n) economic value added or other value added measurements; (o) share price (including, but not limited to, growth measures and
total shareholder return); (p) expense targets; (q) margins; (r) operating efficiency; (s) working capital targets; (t) enterprise
value; (u) safety record; (v) completion of acquisitions or business expansion; (w) achieving research and development goals and
milestones; (x) achieving product commercialization goals; and (y) other criteria as may be set by the Board from time to time.
Any one or more of the Performance Criteria
may be used on an absolute or relative basis to measure the performance of the Company and/or an Affiliate as a whole or any division,
business unit or operational unit of the Company and/or an Affiliate or any combination thereof, as the Board may deem appropriate,
or as compared to the performance of a group of comparable companies, or published or special index that the Board, in its sole
discretion, deems appropriate, or the Board may select Performance Criterion (o) above as compared to various stock market indices.
The Board also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals
pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the
Board shall, within the first 90 days of a Performance Period (or, if longer or shorter, within the maximum period allowed under
Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use
for such Performance Period. In the event that applicable tax and/or securities laws change to permit the Board discretion to alter
the governing Performance Criteria without obtaining shareholder approval of such changes, the Board shall have sole discretion
to make such changes without obtaining shareholder approval.
(hh)
“
Performance
Formula
” means, for a Performance Period, the one or more objective formulas applied against the relevant Performance
Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but
less than all, or none of the Performance Compensation Award has been earned for the Performance Period.
(ii)
“
Performance
Goals
” means, for a Performance Period, the one or more goals established by the Board for the Performance Period
based upon the Performance Criteria. The Board is authorized at any time during the first 90 days of a Performance Period (or,
if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), or at any time thereafter (but only
to the extent the exercise of such authority after such period would not cause the Performance Compensation Awards granted to any
Participant for the Performance Period to fail to qualify as “performance-based compensation” under Section 162(m)
of the Code), in its sole and absolute discretion, to adjust or modify the calculation of a Performance Goal for such Performance
Period to the extent permitted under Section 162(m) of the Code in order to prevent the dilution or enlargement of the rights of
Participants based on the following events: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c)
the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (d) any
reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion
No. 30 (or any successor or pronouncement thereto) and/or in management's discussion and analysis of financial condition and results
of operations appearing in the Company's annual report to shareholders for the applicable year; (f) acquisitions or divestitures;
(g) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (h) foreign exchange gains
and losses; and (i) a change in the Company's fiscal year.
(jj)
“
Performance
Period
” means the one or more periods of time not less than one fiscal quarter in duration, as the Board may select,
over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right
to and the payment of a Performance Compensation Award.
(kk)
“
Performance
Share Award
” means any Award granted pursuant to Section 6(c) hereof
(ll)
“
Performance
Share
” means the grant of a right to receive a number of actual shares of Common Stock based upon the performance
of the Company during a Performance Period, as determined by the Board.
(mm)
“
Plan
”
means this Arkados Group, Inc. 2017 Equity Incentive Plan.
(nn)
“
Restricted
Stock Award
” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).
(oo)
“
Restricted
Stock Award Agreement
” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing
the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms
and conditions of the Plan.
(pp)
“
Restricted
Stock Unit Award
”
means a right to receive shares of Common Stock which is granted pursuant to the
terms and conditions of Section 6(b).
(qq)
“
Restricted
Stock Unit Award Agreement
”
means a written agreement between the Company and a holder of a Restricted
Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement
will be subject to the terms and conditions of the Plan.
(rr)
“
Rule
405
” means Rule 405 promulgated under the Securities Act.
(ss)
“
Rule
701
” means Rule 701 promulgated under the Securities Act.
(tt)
“
Securities
Act
” means the Securities Act of 1933, as amended.
(uu)
“
Stock
Appreciation Right
” or “
SAR
” means a right to receive the appreciation on Common Stock
that is granted pursuant to the terms and conditions of Section 5.
(vv)
“
Stock
Appreciation Right Agreement
” means a written agreement between the Company and a holder of a Stock Appreciation
Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be
subject to the terms and conditions of the Plan.
(ww)
“
Stock
Award
” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory
Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Share Award, a
Performance Compensation Award or any Other Stock Award.
(xx)
“
Stock
Award Agreement
” means a written agreement between the Company and a Participant evidencing the terms and conditions
of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan.
(yy)
“
Subsidiary
”
means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding
capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership,
limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting
or participation in profits or capital contribution) of more than fifty percent (50%) .
(zz)
“
Ten
Percent Stockholder
” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or
any Affiliate.