Exhibit 10.2

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November 8,
2016, is entered into by and between ARKADOS GROUP, INC., a Delaware
corporation, (the “Company”) and Peak One Opportunity Fund, L.P., a Delaware
limited partnership (the “Buyer”).

 

WITNESSETH:

 

WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or
Section 4(2) of the 1933 Act; and

 

WHEREAS, the Buyer wishes to purchase from the Company, and the Company wishes
to sell the Buyer, upon the terms and subject to the conditions of this
Agreement, securities consisting of the Company’s Convertible Debentures due
three years from the respective dates of issuance (the “Debentures”), each of
which are in the form of Exhibit A hereto, which will be convertible into shares
of the Company’s common stock, par value $0.0001 per share (the “Common Stock”),
in the aggregate principal amount of up to Five Hundred Thousand and 00/100
Dollars ($500,000.00), for an aggregate Purchase Price of up to Four Hundred
Fifty Thousand and 00/100 Dollars ($450,000.00), all upon the terms and subject
to the conditions of this Agreement, the Debentures, and other related
documents;

 

NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.           DEFINITIONS; AGREEMENT TO PURCHASE.

 

a.           Certain Definitions. As used herein, each of the following terms
has the meaning set forth below, unless the context otherwise requires:

 

(i)           “Affiliate” means, with respect to a specific Person referred to
in the relevant provision, another Person who or which controls or is controlled
by or is under common control with such specified Person.

 

(ii)          “Certificates” means certificates representing the Conversion
Shares issuable hereunder, each duly executed on behalf of the Company and
issued hereunder.

 

(iii)         “Closing Date” means the date on which one of the three (3)
Closings are held, which are the Signing Closing Date, the Second Closing Date
and the Third Closing Date.

 

 

 

 

(iv)        [Reserved]

 

(v)         “Commitment Fee” shall have the meaning ascribed to such term in
Section 12(a).

 

(vi)        “Common Stock” shall have the meaning ascribed to such term in the
Recitals.

 

(vii)       “Conversion Amount” shall mean the Conversion Amount as defined in
the Debentures, provided, however that for purposes of the foregoing
calculation, the full indebtedness under the Debentures shall be deemed
immediately convertible, notwithstanding the 4.99% limitation on ownership set
forth in the Debentures.

 

(viii)      “Conversion Price” means the Conversion Price as defined in the
Debentures.

 

(ix)         “Conversion Shares” means the shares of Common Stock issuable upon
conversion of the Debentures.

 

(x)          “DWAC Operational” means that the Common Stock is eligible for
clearing through the Depository Trust Company (“DTC”) via the DTC’s Deposit
Withdrawal Agent Commission or “DWAC” system and active and in good standing for
DWAC issuance by the Transfer Agent (as defined herein).

 

(xi)         “Dollars” or “$” means United States Dollars.

 

(xii)        “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

 

(xiii)       “Investments” means Peak One Investments, LLC, the general partner
of the Buyer.

 

(xiv)       “Irrevocable Resolutions” has the meaning set forth in Section 8(i).

 

(xv)        “Market Price of the Common Stock” means (x) the closing bid price
of the Common Stock for the period indicated in the relevant provision hereof
(unless a different relevant period is specified in the relevant provision), as
reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB,
OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the
closing price on such exchange, as reported by Bloomberg LP.

 

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(xvi)       “Material Adverse Effect” means a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operation of the Company and its Subsidiaries taken as a whole, in the
reasonable commercial discretion of the Buyer, irrespective of any finding of
fault, magnitude of liability (or lack of financial liability). Without limiting
the generality of the foregoing, the occurrence of any of the following, in the
reasonable commercial discretion of the Buyer, shall be considered a Material
Adverse Effect: (i) any final money, judgment, writ or warrant of attachment, or
similar process (including an arbitral determination) in excess of Fifty
Thousand Dollars ($50,000) shall be entered or filed against the Company or any
of its Subsidiaries (including, in any event, products liability claims against
the Company or its Subsidiaries), (ii) the suspension or withdrawal of any
governmental authority or permit pertaining to a material amount of the
Company’s or any Subsidiary’s products or services, (iii) the loss of any
material insurance coverage (including, in any case, comprehensive general
liability coverage, products liability coverage or directors and officers
coverage, in each case in effect at the time of execution and delivery of this
Agreement), (iv) an action by a regulatory agency or governmental body affecting
the Common Stock (including, without limitation, (1) the commencement of any
regulatory investigation of which the Company is aware, the suspension of
trading of the Common Stock by the Financial Industry Regulation Authority
(“FINRA”), the SEC, the OTC Bulletin Board (“OTCBB”) or the OTC Markets Group,
Inc., the failure of the Common Stock to be DTC eligible or the placing of the
Common Stock on the DTC “chill list” or (2) the engaging in any market
manipulation or other unlawful or improper trading or other activity by any
Affiliate), (v) the Company’s independent registered accountants shall resign
under circumstances where a disagreement exists between the Company and its
independent registered accountants, (vi) the Company shall fail to timely file
any disclosure document as required by applicable federal or state securities
laws and regulations or by the rules and regulations of any exchange, trading
market or quotation system to which the Company or the Common Stock is subject,
or (vii) the Chief Executive Officer of the Company or any other key full-time
officer or director of the Company, shall, for any reason (including, without
limitation, termination, resignation, retirement, death or disability) cease to
act on behalf of the Company in the same role and to the same extent as his or
her involvement as of the date of execution and delivery of this Agreement.

 

(xvii)      “Person” means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.

 

(xviii)     “Purchase Price” means the price that the Buyer pays for the
Debentures at each respective Closing, which are the Signing Purchase Price, the
Second Purchase Price and the Third Closing Price, as the case may be.

 

(xix)       “Registrable Securities” shall mean the Conversion Shares, the
Restricted Stock issued to Investments pursuant to Section 12(a) and, to the
extent applicable, and any other shares of capital stock or other securities of
the Company or any successor to the Company that are issued upon exchange of
Conversion Shares and/or such Restricted Stock.

 

(xx)        “Registration Statement” shall mean a registration statement on Form
S-1 (or any successor thereto) filed or contemplated to be filed by the Company
with the SEC under the Securities Act.

 

(xxi)       “Restricted Stock” shall mean shares of Common Stock which are not
freely trading shares when issued.

 

(xxii)      “Securities” means the Debentures and the Shares.

 

(xxiii)     “Shares” means the Conversion Shares.

 

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(xxiv)     “Second Closing Date” shall have the meaning ascribed to such term in
Section 6(b).

 

(xxv)      “Second Debenture” means the second of the three (3) Debentures, in
the principal amount of One Hundred Seventy Five Thousand and 00/100 Dollars
($175,000.00), which is issued by the Company to the Buyer on the Second Closing
Date.

 

(xxvi)     “Second Purchase Price” shall be One Hundred Fifty Seven Thousand
Five Hundred and 00/100 Dollars ($157,500.00)

 

(xxvii)    “Signing Closing Date” shall have the meaning ascribed to such term
in Section 6(a).

 

(xxviii)   “Signing Debenture” means the first of the three (3) Debentures, in
the principal amount of One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00), to be issued by the Company to the Buyer on the Signing Closing
Date.

 

(xxix)      “Signing Purchase Price” shall be One Hundred Thirty Five Thousand
and 00/100 Dollars ($135,000.00).

 

(xxx)       “Subsidiary” shall have the meaning ascribed to such term in Section
3(b).

 

(xxxi)      “Third Closing Date” shall have the meaning ascribed to such term in
Section 6(c).

 

(xxxii)     “Third Debenture” means the third of the three (3) Debentures, in
the principal amount of One Hundred Seventy Five Thousand and 00/100 Dollars
($175,000.00), which is issued by the Company to the Buyer on the Third Closing
Date.

 

(xxxiii)    “Third Purchase Price” shall be One Hundred Fifty Seven Thousand
Five Hundred and 00/100 Dollars ($157,500.00).

 

(xxxiv)    “Transaction Documents” means, collectively, this Agreement, the
Debentures, the Transfer Agent Instruction Letter, the Irrevocable Resolutions
and the other agreements, documents and instruments contemplated hereby or
thereby.

 

(xxxv)     “Transfer Agent” shall have the meaning ascribed to such term in
Section 4(a).

 

(xxxvi)    “Transfer Agent Instruction Letter” shall have the meaning ascribed
to such term in Section 5(a).

 

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b.           Purchase and Sale of Debentures.

 

(i)           The Buyer agrees to purchase from the Company, and the Company
agrees to sell to the Buyer, the Debentures on the terms and conditions set
forth below in this Agreement and the other Transaction Documents.

 

(ii)          Subject to the terms and conditions of this Agreement and the
other Transaction Documents, the Buyer will purchase the Debentures at certain
closings (each, a “Closing”) to be held on certain respective Closing Dates.

 

c.           [Reserved]

 

(i)          [Reserved]

 

(ii)         [Reserved]

 

2.           BUYER’S REPRESENTATIONS, WARRANTIES, ETC.

 

The Buyer represents and warrants to, and covenants and agrees with, the Company
as follows:

 

a.           Investment Purpose. Without limiting the Buyer’s right to sell the
Shares pursuant to a Registration Statement, Buyer is purchasing the Debentures,
and will be acquiring the Conversion Shares, for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.

 

b.           Accredited Investor Status. Buyer is (i) an “accredited investor”
as that term is defined in Rule 501 of the General Rules and Regulations under
the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments
of the kind described in this Agreement and the related documents, (iii) able,
by reason of the business and financial experience of its officers (if an
entity) and professional advisors (who are not affiliated with or compensated in
any way by the Company or any of its affiliates or selling agents), to protect
its own interests in connection with the transactions described in this
Agreement, and the related documents, and (iv) able to afford the entire loss of
its investment in the Securities.

 

c.           Subsequent Offers and Sales. All subsequent offers and sales of the
Securities by the Buyer shall be made pursuant to registration of the Shares
under the 1933 Act or pursuant to an exemption from registration and compliance
with applicable states’ securities laws.

 

d.           Reliance on Exemptions. Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.

 

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e.           Information. Buyer and its advisors have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer. Buyer and its advisors have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, Buyer has also had the opportunity to obtain and to review the
Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2016, and
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2016
(collectively, the “SEC Documents”).

 

f.            Investment Risk. Buyer understands that its investment in the
securities constitutes high risk investment, its investment in the Securities
involves a high degree of risk, including the risk of loss of the Buyer’s entire
investment.

 

g.           Governmental Review. Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities.

 

h.           Organization; Authorization. Buyer is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. This Agreement and the other Transaction Documents have been duly
and validly authorized, executed and delivered on behalf of the Buyer and create
a valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors’ rights generally.

 

i.            Residency. The state in which any offer to sell Securities
hereunder was made to or accepted by the Buyer is the state shown as the Buyer’s
address contained herein, and Buyer is a resident of such state only.

 

3.           COMPANY REPRESENTATIONS AND WARRANTIES, ETC.

 

The Company represents and warrants to the Buyer that:

 

a.           Concerning the Debentures and the Shares. There are no preemptive
rights of any stockholder of the Company to acquire the Debentures or the
Shares.

 

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b.           Organization; Subsidiaries; Reporting Company Status. Attached
hereto as Schedule 3(b) is an organizational chart describing all of the
Company’s wholly-owned and majority-owned subsidiaries (the “Subsidiaries”) and
other Affiliates, including the relationships among the Company and such
Subsidiaries, including as to each Subsidiary its jurisdiction of organization
and the percentage of ownership held by the Company, and the parent company of
the Subsidiary, including the percentage of ownership of the Company held by it.
The Company and each Subsidiary is a corporation or other form of businesses
entity duly organized, validly existing and in good standing under the laws its
respective jurisdiction of organization, and each of them has the requisite
corporate or other power to own its properties and to carry on its business as
now being conducted. The Company and each Subsidiary is duly qualified as a
foreign corporation or other entity to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect. The
Common Stock is listed and traded on the OTC Pink Market of the OTC Markets
Group, Inc. (trading symbol: AKDS). The Company has received no notice, either
oral or written, from FINRA, the SEC, or any other organization, with respect to
the continued eligibility of the Common Stock for such listing, and the Company
has maintained all requirements for the continuation of such listing. The
Company is an operating company in that, among other things (A) it primarily
engages, wholly or substantially, directly or indirectly through a majority
owned Subsidiary or Subsidiaries, in the production or sale, or the research or
development, of a product or service other than the investment of capital, (B)
it is not an individual or sole proprietorship, (C) it is not an entity with no
specific business plan or purpose and its business plan is not to engage in a
merger or acquisition with an unidentified company or companies or other entity
or person, and (D) it intends to use the proceeds from the sale of the
Debentures solely for the operation of the Company’s business and uses other
than personal, family, or household purposes.

 

c.           Authorized Shares. Schedule 3(c) sets forth all capital stock and
derivative securities of the Company that are authorized for issuance and that
are issued and outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has sufficient authorized and unissued shares of
Common Stock as may be necessary to effect the issuance of the Shares, assuming
the prior issuance and exercise, exchange or conversion, as the case may be, of
all derivative securities authorized, as indicated in Schedule 3(c). The Shares
have been duly authorized and, when issued upon conversion of, or as interest
on, the Debentures, the Shares will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder. At all times, the Company shall keep available and
reserved for issuance to the holders of the Debentures shares of Common Stock
duly authorized for issuance against the Debentures.

 

d.           Authorization. This Agreement, the issuance of the Debentures
(including without limitation the incurrence of indebtedness thereunder), the
issuance of the Conversion Shares under the Debentures, and the other
transactions contemplated by the Transaction Documents, have been duly, validly
and irrevocably authorized by the Company, and this Agreement has been duly
executed and delivered by the Company. The Company’s board of directors, in the
exercise of its fiduciary duties, has irrevocably approved the entry into and
performance of the Transaction Documents, including, without limitation the sale
of the Debentures and the issuance of Conversion Shares, based upon a reasonable
inquiry concerning the Company’s financing objectives and financial situation.
Each of the Transaction Documents, when executed and delivered by the Company,
are and will be, valid, legal and binding agreements of the Company, enforceable
in accordance with their respective terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors’ rights generally.

 

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e.           Non-contravention. The execution and delivery of the Transaction
Documents, the issuance of the Securities and the consummation by the Company of
the other transactions contemplated by this Agreement and the Debentures
(including without limitation the incurrence of indebtedness thereunder) do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock, except as
herein set forth or an event which results in the creation of any lien, charge
or encumbrance upon any assets of the Company or the triggering of any
anti-dilution rights, rights of first refusal or first offer on the part of
holders of the Company’s securities, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) the Company’s listing agreement for its
Common Stock (if applicable).

 

f.            Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entering into and performing this Agreement and the other
Transaction Documents (including without limitation the issuance and sale of the
Securities to the Buyer as contemplated by this Agreement) except such
authorizations, approvals and consents that have been obtained, or such
authorizations, approvals and consents, the failure of which to obtain would not
have a Material Adverse Effect.

 

g.           SEC Filings; Rule 144 Status. None of the SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading. The Company timely filed all requisite forms, reports and
exhibits thereto with the SEC as required. The Company is not aware of any event
occurring on or prior to the execution and delivery of this Agreement that would
require the filing of, or with respect to which the Company intends to file, a
Form 8-K after such time. The Company satisfies the requirements of Rule
144(i)(2), and the Company shall continue to satisfy all applicable requirements
of Rule 144 (or any successor thereto) for so long as any Securities are
outstanding and not registered pursuant to an effective registration statement
filed with the SEC.

 

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h.           Absence of Certain Changes. Since August 31, 2016, when viewed from
the perspective of the Company and its Subsidiaries taken as a whole, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company and its Subsidiaries (including, without
limitation, a change or development which constitutes, or with the passage of
time is reasonably likely to become, a Material Adverse Effect), except as
disclosed in the SEC Documents. Since August 31, 2016, except as provided in the
SEC Documents, the Company has not (i) incurred or become subject to any
material liabilities (absolute or contingent) except liabilities incurred in the
ordinary course of business consistent with past practices; (ii) discharged or
satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any agreements
to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.

 

i.            Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
SEC Documents) that has not been disclosed in writing to the Buyer that (i)
would reasonably be expected to have a Material Adverse Effect, (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to the Transaction Documents, or
(iii) would reasonably be expected to materially and adversely affect the value
of the rights granted to the Buyer in the Transaction Documents.

 

j.            Absence of Litigation. Except as described in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board or body pending or, to the knowledge of the Company,
threatened against or affecting the Company, wherein an unfavorable decision,
ruling or finding would have a Material Adverse Effect or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Documents. The
Company is not a party to or subject to the provisions of, any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which could reasonably be expected to have a Material Adverse
Effect.

 

k.           Absence of Liens. The Company’s assets are not encumbered by any
liens or mortgages except as described in the SEC Documents.

 

l.             Absence of Events of Default. No event of default (or its
equivalent term), as defined in the respective agreement, indenture, mortgage,
deed of trust or other instrument, to which the Company is a party, and no event
which, with the giving of notice or the passage of time or both, would become an
event of default (or its equivalent term) (as so defined in such document), has
occurred and is continuing, which would have a Material Adverse Effect.

 

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m.          No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the SEC Documents or those incurred
in the ordinary course of the Company’s business since August 31, 2016, and
which individually or in the aggregate, do not or would not have a Material
Adverse Effect. No event or circumstances has occurred or exists with respect to
the Company or its properties, business, condition (financial or otherwise), or
results of operations, which, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed. There are no proposals
currently under consideration or currently anticipated to be under consideration
by the Board of Directors or the executive officers of the Company which
proposal would (x) change the articles of incorporation, by-laws or any other
charter document of the Company, each as currently in effect, with or without
shareholder approval, which change would reduce or otherwise adversely affect
the rights and powers of the shareholders of the Common Stock or (y) materially
or substantially change the business, assets or capital of the Company.

 

n.           No Integrated Offering. Neither the Company nor any of its
affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time during the six month period immediately prior to the
date of this Agreement made any offer or sales of any security or solicited any
offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Rule 506 of Regulation D
in connection with the offer and sale of the Securities as contemplated hereby.

 

o.           Dilution. The number of Shares issuable upon conversion of the
Debentures may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the Market Price of the
Common Stock declines prior to the conversion of the Debentures. The Company’s
executive officers and directors have studied and fully understand the nature of
the securities being sold hereby and recognize that they have a potential
dilutive effect and further that the conversion of the Debentures and/or sale of
the Conversion Shares may have an adverse effect on the Market Price of the
Common Stock. The Board of Directors of the Company has concluded, in its good
faith business judgment that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Conversion Shares upon conversion of the Debentures is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership %s of other shareholders of the Company.

 

p.           Regulatory Permits. The Company has all such permits, easements,
consents, licenses, franchises and other governmental and regulatory
authorizations from all appropriate federal, state, local or other public
authorities (“Permits”) as are necessary to own and lease its properties and
conduct its businesses in all material respects in the manner described in the
SEC Documents and as currently being conducted. All such Permits are in full
force and effect and the Company has fulfilled and performed all of its material
obligations with respect to such Permits, and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination thereof
or will result in any other material impairment of the rights of the holder of
any such Permit, subject in each case to such qualification as may be disclosed
in the SEC Documents. Such Permits contain no restrictions that would materially
impair the ability of the Company to conduct businesses in the manner consistent
with its past practices. The Company has not received notice or otherwise has
knowledge of any proceeding or action relating to the revocation or modification
of any such Permit.

 

q.           Residency. The state in which any offer to sell Securities
hereunder was made or accepted by the Seller is the state shown as the Seller’s
address contained herein, and Seller is a resident of such state only.

 

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r.            Hazardous Materials. The Company is in compliance with all
applicable Environmental Laws in all respects except where the failure to comply
does not have and could not reasonably be expected to have a Material Adverse
Effect. For purposes of the foregoing:

 

“Environmental Laws” means, collectively, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act,
as amended, the Clean Water Act, as amended, any other “Superfund” or
“Superlien” law or any other applicable federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning, the environment or any
Hazardous Material.

 

“Hazardous Material” means and includes any hazardous, toxic or dangerous waste,
substance or material, the generation, handling, storage, disposal, treatment or
emission of which is subject to any Environmental Law.

 

s.           Independent Public Accountants. The Company’s auditor, BDO USA,
LLP, is an independent registered public accounting firm with respect to the
Company, as required by the 1933 Act, the Exchange Act and the rules and
regulations promulgated thereunder.

 

t.            Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(1) transactions are executed in accordance with management’s general or
specific authorization; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (3) access to
assets is permitted only in accordance with management’s general or specific
authorization; and (4) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

u.           Brokers. No Person (other than the Buyer and its principals,
employees and agents) is entitled to receive any consideration from the Company
or the Buyer arising from any finder’s agreement, brokerage agreement or other
agreement to which the Company is a party.

 

v.           DWAC Operational; DRS. The Company shall, within ten (10) business
days from the date of this Agreement, apply through its Transfer Agent to become
DWAC Operational and eligible for DRS

 

 11 

 

 

4.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

 

a.           Transfer Restrictions. The parties acknowledge and agree that (1)
the Debentures have not been registered under the provisions of the 1933 Act and
the Shares have not been registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration; (2) any sale of the Securities made in reliance on Rule
144 promulgated under the 1933 Act (“Rule 144”) may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of such Securities under circumstances in which the seller, or the Person
through whom the sale is made, may be deemed to be an underwriter, as that term
is used in the 1933 Act, may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder, (3) at the
request of the Buyer, the Company shall, from time to time, within two (2)
business days of such request, at the sole cost and expense of the Company,
either (i) deliver to its transfer agent and registrar for the Common Stock (the
“Transfer Agent”) a written letter instructing and authorizing the Transfer
Agent to process transfers of the Shares at such time as the Buyer has held the
Securities for the minimum holding period permitted under Rule 144, subject to
the Buyer’s providing to the Transfer Agent certain customary representations
contemporaneously with any requested transfer, or (ii) at the Buyer’s option or
if the Transfer Agent requires further confirmation of the availability of an
exemption from registration, furnish to the Buyer an opinion of the Company’s
counsel in favor of the Buyer (and, at the request of the Buyer, any agent of
the Buyer, including but not limited to the Buyer’s broker or clearing firm) and
the Transfer Agent, reasonably satisfactory in form, scope and substance to the
Buyer and the Transfer Agent, to the effect that a contemporaneously requested
transfer of shares does not require registration under the 1933 Act, pursuant to
the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and
(4) neither the Company nor any other Person is under any obligation to register
the Securities (other than pursuant to this Agreement) under the 1933 Act or to
comply with the terms and conditions of any exemption thereunder.

 

b.           Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures, and, until such time as the Shares have been registered under the
1933 Act as contemplated hereby and sold in accordance with an effective
Registration Statement, certificates and other instruments representing any of
the Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of any such
Securities):

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.

 

 12 

 

 

c.           Piggy-Back Registration Rights. From and after the Signing Closing
Date and until eighteen (18) months after the Signing Closing Date, if the
Company contemplates making an offering of Common Stock (or other equity
securities convertible into or exchangeable for Common Stock) registered for
sale under the Securities Act or proposes to file a Registration Statement
covering any of its securities, the Company shall at each such time give prompt
written notice to Investments and Buyer of its intention to do so and of the
registration rights granted under this Agreement. Upon the written request of
Investments and/or Buyer made within thirty (30) days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by Investments and/or Buyer and the intended method of
disposition thereof), the Company shall, at its sole cost and expense, use its
best efforts to effect the registration of all Registrable Securities which the
Company has been so requested to register by Investments and/or Buyer, to the
extent requisite to permit the disposition (in accordance with the intended
methods of disposition) of the Registrable Securities by Investments and/or
Buyer, by inclusion of such Registrable Securities in the Registration Statement
which covers the securities which the Company proposes to register; provided,
that if the Company is unable to register the full amount of Registrable
Securities in an “at the market offering” under SEC rules and regulations due to
the high percentage of the Company’s Common Stock the Registrable Securities
represents (giving effect to all other securities being registered in the
Registration Statement), then the Company may reduce, on a pro rata basis, the
amount of Registrable Securities subject to the Registration Statement to a
lesser amount which equals the maximum number of Registrable Securities that the
Company is permitted to register in an “at the market offering”; and provided,
further, that if, at any time after giving written notice of its intention to
register any Registrable Securities and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of such Registrable Securities, the Company may, at its election, give written
notice of such determination to Investments and/or the Buyer and, thereupon, (i)
in the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the expenses of registration in
connection therewith), and (ii) in the case of a determination to delay
registering such Registrable Securities, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering such
other securities. If Buyer shall have transferred all or part of its Registrable
Securities, then for purposes of this Section, the term “Buyer” shall reference
Buyer and/or such transferee(s).

 

d.           Securities Filings. The Company undertakes and agrees to make all
necessary filings (including, without limitation, a Form D) in connection with
the sale of the Securities to the Buyer required under any United States laws
and regulations applicable to the Company (including without limitation state
“blue sky” laws), or by any domestic securities exchange or trading market, and
to provide a copy thereof to the Buyer promptly after such filing.

 

 13 

 

 

e.           Reporting Status; Public Trading Market; DTC Eligibility. So long
as the Buyer and/or Investments beneficially own any Securities, (i) the Company
shall timely file, prior to or on the date when due, all reports that would be
required to be filed with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act if the Company had securities registered under Section 12(b) or
12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report,
to the SEC or any other Person, that the Company is a “shell company” or
indicate to the contrary to the SEC or any other Person; (iii) the Company shall
take all other action under its control necessary to ensure the availability of
Rule 144 under the 1933 Act for the sale of Shares by the Buyer at the earliest
possible date; and (iv) the Company shall at all times while any Securities are
outstanding maintain its engagement of an independent registered public
accounting firm. Except as otherwise set forth in Transaction Documents, the
Company shall take all action under its control necessary to obtain and to
continue the listing and trading of its Common Stock (including, without
limitation, all Registrable Securities) on the OTC Markets, Inc. (“OTCM”) on the
OTC Pink (“OTCP”), OTCQB (“OTCQB”), or OTCQX (“OTCQX”), and will comply in all
material respects with the Company’s reporting, filing and other obligations
under the by-laws or rules of the Financial Industry Regulatory Authority
(“FINRA”). If, so long as the Buyer and/or Investments beneficially own any of
the Securities, the Company receives any written notice from the OTCM, FINRA, or
the SEC with respect to either any alleged deficiency in the Company’s
compliance with applicable rules and regulations (including without limitation
any comments from the SEC on any of the Company’s documents filed (or the
failure to have made any such filing) under the 1933 Act or the Exchange Act)
(each, a “Regulatory Notice”), then the Company shall promptly, and in any event
within two (2) business days, provide copies of the Regulatory Notice to the
Buyer, and shall promptly, and in any event within five (5) business days of
receipt of the Regulatory Notice (a “Regulatory Response”), respond in writing
to the OTCM, FIRNA and/or SEC (as the case may be), setting forth the Company’s
explanation and/or response to the issues raised in the Regulatory Notice, with
a view towards maintaining and/or regaining full compliance with the applicable
rules and regulations of the OTCM, FIRNA and/or SEC and maintaining or regaining
good standing of the Company with the OTCM, FINRA and/or SEC, as the case may
be, the intent being to ensure that the Company maintain its reporting company
status with the SEC and that its Common Stock be and remain available for
trading on the OTCP, OTCQB, or OTCQX. Further, at all times while any Securities
are outstanding, the Common Stock shall be DWAC Operational, and the Common
Stock shall not be subject to any DTC “chill” designation or similar restriction
on the clearing of the Common Stock through DTC.

 

f.            Use of Proceeds. The Company shall use the proceeds from the sale
of the Debentures for working capital purposes only subject to customary
restrictions. Absent the prior written approval of a majority of the principal
amount of the Debentures then outstanding, the Company shall not use any portion
of the proceeds of the sale of the Debentures to (i) repay any indebtedness or
other obligation of the Company incurred prior to the date of this Agreement
outside the normal course of business, (ii) pay any dividends or redemption
amount on any of the Company’s equity or equity equivalents, (iii) pay any
amounts, whether on account of debt obligations of the Company or otherwise,
except for compensation, to any officer, director or other related party of the
Company or (iv) pay deferred compensation or any compensation to any of the
directors or officers of the Company in excess of the rate or amount paid or
accrued during the fiscal year ended May, 2016 (as base compensation and
excluding any discretionary amounts), other than modest increases consistent
with prior practice that are approved by the Company’s Board of Directors.

 

 14 

 

 

g.           Available Shares. Commencing on the date of execution and delivery
of this Agreement, the Company shall have and maintain authorized and reserved
for issuance, free from preemptive rights, that number of shares equal to Seven
Hundred percent (700%) of the number of shares of Common Stock (1) issuable
based upon the conversion of the then-outstanding Debentures (including accrued
interest thereon) as may be required to satisfy the conversion rights of the
Buyer pursuant to the terms and conditions of the Debenture Debenture (without
giving effect to the 4.99% limitation on ownership as set forth in the
Debentures), provided, however that for purposes of the foregoing calculation,
the full indebtedness under the Debentures shall be deemed immediately
convertible and (2) issuable to the Buyer on future Closing Dates, based upon
the lowest closing bid price per share of the Common Stock on the date before
the most recent Closing Date (as reported by Bloomberg LP). The Company shall
monitor its compliance with the foregoing requirements on an ongoing basis. If
at any time the Company does not have available an amount of authorized and
non-issued Shares required to be reserved pursuant to this Section, then the
Company shall, without notice or demand by the Buyer, call within thirty (30)
days of such occurrence and hold within sixty (60) days of such occurrence a
special meeting of shareholders, for the sole purpose of increasing the number
of shares authorized. Management of the Company shall recommend to shareholders
to vote in favor of increasing the number of Common Stock authorized at the
meeting. Members of the Company’s management shall also vote all of their own
shares in favor of increasing the number of Common Stock authorized at the
meeting. If the increase in authorized shares is approved by the stockholders at
the meeting, the Company shall implement the increase in authorized shares
within one (1) business day following approval at such meeting. Alternatively,
to the extent permitted by applicable law, in lieu of calling and holding a
meeting as described above, the Company may, within thirty (30) days of the date
when the Company does not have available an amount of authorized and non-issued
Shares required to be reserved as described above, procure the written consent
of stockholders to increase the number of shares authorized, and provide the
stockholders with notice thereof as may be required under applicable law
(including without limitation Section 14(c) of the Exchange Act and Regulation
14C thereunder). Upon obtaining stockholder approval as aforesaid, the Company
shall cause the appropriate increase in its authorized shares of Common Stock
within one (1) business day (or as soon thereafter as permitted by applicable
law). Company’s failure to comply with these provisions will be an Event of
Default (as defined in the Debentures).

 

h.           Reimbursement. If (i) Buyer and/or Investments becomes a party
defendant in any capacity in any action or proceeding brought by any stockholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Buyer and/or
Investments is impleaded in any such action, proceeding or investigation by any
Person, or (ii) the Buyer and/or Investments, other than by reason of its own
gross negligence, willful misconduct or breach of law (as adjudicated by a court
of law having proper jurisdiction and such adjudication is not subject to
appeal), becomes a party defendant in any capacity in any action or proceeding
brought by the SEC against or involving the Company or in connection with or as
a result of the consummation of the transactions contemplated by the Transaction
Documents, or if the Buyer or Investments is impleaded in any such action,
proceeding or investigation by any Person, then in any such case, the Company
shall promptly reimburse the Buyer and/or Investments for its or their
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith. The reimbursement obligations of
the Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of the Buyer and/or Investments who are actually named in such
action, proceeding or investigation, and partners, directors, agents, employees
and controlling Persons (if any), as the case may be, of the Buyer, Investments
and any such Affiliate, and shall be binding upon and inure to the benefit of
any successors, assigns, heirs and personal representatives of the Company, the
Buyer, Investments and any such Affiliate and any such Person. Except as
otherwise set forth in the Transaction Documents, the Company also agrees that
neither any Buyer, Investments nor any such Affiliate, partners, directors,
agents, employees or controlling Persons shall have any liability to the Company
or any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the consummation of the Transaction Documents.

 

 15 

 

 

i.            The Company shall provide the Transfer Agent and/or the Buyer,
Investments or their respective brokerage and/or clearing firm with all relevant
legal opinions and other documentation requested by the Buyer or Investments in
connection with the issuance of the Conversion Shares or the Restricted Stock,
or the sale thereof, to confirm the share issuance(s) such that the Conversion
Shares and/or Restricted Stock may be deposited with the applicable brokerage
and/or clearing firm.

 

j.            No Payments to Affiliates or Related Parties.  So long as any of
the Debentures remain outstanding, if the Debentures are in default, the Company
shall not, absent the prior written consent of the holders of all Debentures
then outstanding, make any payments to any of the Company’s or the Subsidiaries’
respective affiliates or related parties, including without limitation payments
or prepayments of principal or interest accrued on any indebtedness or
obligation in favor of affiliates or related parties.  Notwithstanding anything
to the contrary contained herein, the provisions of this Section 4(j) shall not
apply to payments to the Subsidiaries, or other businesses in which affiliates
have an interest, made in the ordinary course of business and consistent with
past practice as disclosed in the SEC Documents.

 

k.           Notice of Material Adverse Effect. The Company shall notify the
Buyer (and any subsequent holder of the Debentures), as soon as practicable and
in no event later than three (3) business days of the Company’s knowledge of any
Material Adverse Effect on the Company. For purposes of the foregoing,
“knowledge” means the earlier of the Company’s actual knowledge or the Company’s
constructive knowledge upon due inquiry.

 

l.            Public Disclosure. Except to the extent required by applicable
law, absent the Buyer’s prior written consent, the Company shall not reference
the name of the Buyer in any press release, securities disclosure, business
plan, marketing or funding proposal.

 

 16 

 

 

m.           Nature of Transaction; Savings Clause. It is the parties’ express
understanding and agreement that the transactions contemplated by the
Transaction Documents constitute an investment and not a loan. If nonetheless
such transactions are deemed to be a loan (as adjudicated by a court of law
having proper jurisdiction and such adjudication is not subject to appeal), the
Company shall not be obligated or required to pay interest at a rate that could
subject Buyer to either civil or criminal liability as a result of such rate
exceeding the maximum rate that the Buyer is permitted to charge under
applicable law, and the Company’s obligations under the Transaction Documents
shall not be void or voidable on the basis of the Buyer’s lack of any license or
registration as a lender with any governmental authority. It is expressly
understood and agreed by the parties that neither the amounts payable pursuant
to Section 12, any redemption premium, remedy upon an Event of Default (as
defined in the Debentures) or any Acceleration Amount (as defined in the
Debentures), original issue discount nor any investment returns of the Buyer on
the sale of the Debentures or the sale of any Conversion Shares (whether
unrealized or realized) shall be construed as interest. If, by the terms of the
Debentures, any other Transaction Document or any other instrument, Buyer is at
any time required or obligated to pay interest at a rate exceeding such maximum
rate, interest payable under the Debenture and/or such other Transaction
Documents or other instrument shall be computed (or recomputed) at such maximum
rate, and the portion of all prior interest payments (if any) exceeding such
maximum shall be applied to payment of the outstanding principal of the
Debentures.

 

5.           TRANSFER AGENT INSTRUCTIONS.

 

a.           Transfer Agent Instruction Letter. On or before the Signing Closing
Date, the Company shall irrevocably instruct its Transfer Agent in writing using
the letter substantially in the form of Exhibit B annexed hereto, with only such
modifications as the Buyer agrees to, executed by the Company, the Buyer and the
Transfer Agent (the “Transfer Agent Instruction Letter”), to (i) reserve that
number of shares of Common Stock as is required under Section 4(g) hereof, and
(ii) issue Common Stock from time to time upon conversion of the Debentures in
such amounts as specified from time to time by the Buyer to the Transfer Agent
in a Notice of Conversion, in such denominations to be specified by the Buyer in
connection with each conversion of the Debentures. The Transfer Agent shall not
be restricted from issuing shares from only the allotment reserved hereunder for
the Conversion Amount (as defined in the Debentures), but instead may, to the
extent necessary to satisfy the amount of shares issuable upon conversion, issue
shares above and beyond the amount reserved on account of the Conversion Amount,
without any additional instructions or authorization from the Company, and the
Company shall not provide the Transfer Agent with any instructions or
documentation contrary to the foregoing. As of the date of this Agreement, the
Transfer Agent is VStock Transfer, LLC. The Company shall at all times while any
Debentures are outstanding engage a Transfer Agent which is a party to the
Transfer Agent Instruction Letter. If for any reason the Company’s Transfer
Agent is not a signatory of the Transfer Agent Instruction Letter while any
Debentures or Restricted Stock are outstanding and held by the Buyer and/or
Investments, then such Transfer Agent shall nonetheless be deemed bound by the
Transfer Agent Instruction Letter, and the Company shall neither (i) permit the
Transfer Agent to disclaim, disregard or refuse to abide by the Transfer Agent’s
obligations, terms and agreements set forth in the Transfer Agent Instruction
Letter, nor (ii) issue any instructions to the Transfer Agent contrary to the
obligations, terms and agreements set forth in the Transfer Agent Instruction
Letter . The Company shall not terminate the Transfer Agent or otherwise change
Transfer Agents without at least fifteen (15) days prior written notice to the
Buyer and with the Buyer’s prior written consent to such change, which the Buyer
may grant or withhold in its sole discretion. The Company shall continuously
monitor its compliance with the share reservation requirements and, if and to
the extent necessary to increase the number of reserved shares to remain and be
at least Seven Hundred percent (700%) of the Conversion Amount to account for
any decrease in the Market Price of the Common Stock, the Company shall
immediately (and in any event within two (2) business days) notify the Transfer
Agent in writing of the reservation of such additional shares, provided that in
the event that the number of shares reserved for conversion of the Debentures is
less than Seven Hundred percent (700%) of the Conversion Amount, the Buyer may
also directly instruct the Transfer Agent to increase the reserved shares as
necessary to satisfy the minimum reserved share requirement, and the Transfer
Agent shall act accordingly, provided, further, that the Company shall within
two (2) business days provide any written confirmation, assent or documentation
thereof as the Transfer Agent may request to act upon a share increase
instruction delivered by the Buyer. The Company shall provide the Buyer with a
copy of all written instructions to the Company’s Transfer Agent with respect to
the reservation of shares simultaneously with the issuance of such instructions
to the Transfer Agent. The Company covenants that no instruction other than such
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Section 4(a) hereof prior to registration and sale of the
Conversion Shares under the 1933 Act will be given by the Company to the
Transfer Agent and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and applicable law. If the Buyer provides the Company
and/or the Transfer Agent with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the de-legending or transfer of the
Securities and, in the case of the Conversion Shares, instruct the Company’s
Transfer Agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyer.

 

 17 

 

 

b.           Conversion. (i) The Company shall permit the Buyer to exercise the
right to convert the Debentures by faxing, emailing or delivering overnight an
executed and completed Notice of Conversion to the Company or the Transfer
Agent. If so requested by the Buyer or the Transfer Agent, the Company shall
within one (1) business day respond with its endorsement so as to confirm the
outstanding principal amount of any Debenture submitted for conversion or shall
reconcile any difference with the Buyer promptly after receiving such Notice of
Conversion.

 

(ii)          The term “Conversion Date” means, with respect to any conversion
elected by the holder of the Debentures, the date specified in the Notice of
Conversion, provided the copy of the Notice of Conversion is given either via
mail or facsimile to or otherwise delivered to the Transfer Agent and/or the
Company in accordance with the provisions hereof so that it is received by the
Transfer Agent and/or the Company on or before such specified date.

 

(iii)         The Company shall deliver (or will cause the Transfer Agent to
deliver) the Conversion Shares issuable upon conversion as follows: (1) if the
Company is then DWAC Operational, via DWAC, (2) if the Common Stock is then
eligible for the Depository Trust Company’s Direct Registration System (“DRS”),
if so requested by the Buyer, or (3) if the Company is not then DWAC Operational
or the Common Stock is not then eligible for DRS, in certificated form, to the
Buyer at the address specified in the Notice of Conversion (which may be the
Buyer’s address for notices as contemplated by Section 10 hereof or a different
address) via express courier, in each case within two (2) business days (the
“Delivery Date”) after (A) the business day on which the Company or the Transfer
Agent has received the Notice of Conversion (by facsimile, email or other
delivery) or (B) the date on which payment of interest and principal on the
Debentures, which the Company has elected to pay by the issuance of Common
Stock, as contemplated by the Debentures, was due, as the case may be.

 

 18 

 

 

c.           Failure to Timely Issue Conversion Shares or De-Legended Shares.
The Company’s failure to issue and deliver Conversion Shares to the Buyer
(either by DWAC, DRS or in certificated form, as required by Section 5(b)) on or
before the Delivery Date shall be considered an Event of Default, which shall
entitle the Buyer to certain remedies set forth in the Debentures and provided
by applicable law. Similarly, the Company’s failure to issue and deliver Common
Stock in unrestricted form without a restrictive legend when required under the
Transaction Documents shall entitle the Buyer to damages for the diminution in
value (if any) of the relevant shares between the date delivery was due versus
the date ultimately delivered in unrestricted form. The Company acknowledges
that its failure to timely honor a Notice of Conversion (or the occurrence of
any other Event of Default) shall cause definable financial hardship on the
Buyer(s) and that the remedies set forth herein and in the Debentures are
reasonable and appropriate.

 

d.           Duties of Company; Authorization. The Company shall inform the
Transfer Agent of the reservation of shares contemplated by Section 4(g) and
this Section 5, and shall keep current in its payment obligations to the
Transfer Agent such that the Transfer Agent will continue to process share
transfers and the initial issuance of shares of Common Stock upon the conversion
of Debentures. The Company hereby authorizes and agrees to authorize the
Transfer Agent to correspond and otherwise communicate with the Buyer or their
representatives in connection with the foregoing and other matters related to
the Common Stock. Further, the Company hereby authorizes the Buyer or its
representative to provide instructions to the Transfer Agent that are consistent
with the foregoing and instructs the Transfer Agent to honor any such
instructions. Should the Company fail for any reason to keep current in its
payment obligations to the Transfer Agent, the Buyer and/or Investments may pay
such amounts as are necessary to compensate the Transfer Agent for performing
its duties with respect to share reservation, issuance of Conversion Shares
and/or de-legending certificates representing Restricted Stock, and all amounts
so paid shall be promptly reimbursed by the Company. If not so reimbursed within
thirty (30) days, such amounts shall, at the option of the Buyer and without
prior notice to or consent of the Company, be added to the principal amount due
under the Debenture(s) held by the Buyer, whereupon interest will begin to
accrue on such amounts at the rate specified in the Debentures.

 

e.           Effect of Bankruptcy. The Buyer shall be entitled to exercise its
conversion privilege with respect to the Debentures notwithstanding the
commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”).
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. §362 in respect of the Buyer’s conversion privilege. The Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. §362 in respect of the conversion of the Debentures. The Company
agrees, without cost or expense to the Buyer, to take or to consent to any and
all action necessary to effectuate relief under 11 U.S.C. §362.

 

 19 

 

 

6.           CLOSINGS.

 

a.           Signing Closing. Promptly upon the execution and delivery of this
Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein
are met (the “Signing Closing Date”), (A) the Company shall deliver to the Buyer
the following: (i) the Signing Debenture; (ii) the Transfer Agent Instruction
Letter; (iii) duly executed counterparts of the Transaction Documents; and (iv)
an officer’s certificate of the Company confirming the accuracy of the Company’s
representations and warranties contained herein, and (B) the Buyer shall deliver
to the Company the following: (i) the Signing Purchase Price and (ii) duly
executed counterparts of the Transaction Documents (as applicable). The Company
shall immediately pay the fees due under Section 12 of this Agreement upon
receipt of the Signing Purchase Price if Buyer does not withhold such amounts
from the Signing Purchase Price pursuant to Section 12.

 

b.           Second Closing. At any time sixty one (61) to ninety (90) days
following the Signing Closing Date, subject to the mutual agreement of the Buyer
and the Company, for the “Second Closing Date” and subject to satisfaction of
the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to
the Buyer the following: (i) the Second Debenture; (ii) an amendment to the
Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that
number of shares of Common Stock as is required under Section 4(g) hereof, if
necessary; and (iii) an officer’s certificate of the Company confirming, as of
the Second Closing Date, the accuracy of the Company’s representations and
warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the
Second Closing Date, and (B) the Buyer shall deliver to the Company the Second
Purchase Price.

 

c.           Third Closing. At any time sixty one (61) to ninety (90) days
following the Second Closing Date, subject to the mutual agreement of the Buyer
and the Company, for the “Third Closing Date” and subject to satisfaction of the
conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the
Buyer the following: (i) the Third Debenture; (ii) an amendment to the Transfer
Agent Instruction Letter instructing the Transfer Agent to reserve that number
of shares of Common Stock as is required under Section 4(g) hereof, if
necessary; and (iii) an officer’s certificate of the Company confirming, as of
the Third Closing Date, the accuracy of the Company’s representations and
warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the
Third Closing Date, and (B) the Buyer shall deliver to the Company the Third
Purchase Price.

 

d.           Location and Time of Closings. Each Closing shall be deemed to
occur on the related Closing Date at the office of the Buyer’s counsel and shall
take place no later than 5:00 P.M., New York time, on such day or such other
time as is mutually agreed upon by the Company and the Buyer.

 

7.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The Company’s obligation to sell the Debentures to the Buyer pursuant to this
Agreement on each Closing Date is conditioned upon:

 

 20 

 

 

a.           Purchase Price. Delivery to the Company of good funds as payment in
full of the respective Purchase Price for the Debentures at each Closing in
accordance with this Agreement;

 

b.           Representations and Warranties; Covenants. The accuracy on the
Closing Date of the representations and warranties of the Buyer contained in
this Agreement, each as if made on such date, and the performance by the Buyer
on or before such date of all covenants and agreements of the Buyer required to
be performed on or before such date; and

 

c.           Laws and Regulations; Consents and Approvals. There shall not be in
effect any law, rule or regulation prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval which shall not have
been obtained.

 

8.           CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

 

The Buyer’s obligation to purchase the Debentures at each Closing is conditioned
upon:

 

a.           Transaction Documents. The execution and delivery of this Agreement
by the Company;

 

b.           Debenture(s). Delivery by the Company to the Buyer of the
Debentures to be purchased in accordance with this Agreement;

 

c.           Section 4(2) Exemption. The Debentures and the Conversion Shares
shall be exempt from registration under the Securities Act of 1933 (as amended),
pursuant to Section 4(2) thereof;

 

d.           DWAC Status. The Common Stock shall be DWAC Operational;

 

e.           Representations and Warranties; Covenants. The accuracy in all
material respects on the Closing Date of the representations and warranties of
the Company contained in this Agreement, each as if made on such date, and the
performance by the Company on or before such date of all covenants and
agreements of the Company required to be performed on or before such date;

 

f.            Good-faith Opinion. It should be Buyer’s reasonable belief that
(i) no Event of Default under the terms of any outstanding indebtedness of the
Company shall have occurred or would likely occur with the passage of time and
(ii) no material adverse change in the financial condition or business
operations of the Company shall have occurred;

 

g.           Legal Proceedings. There shall be no litigation, criminal or civil,
regulatory impairment or other legal and/or administrative proceedings
challenging or seeking to limit the Company’s ability to issue the Securities or
the Common Stock;

 

h.           [Reserved];

 

 21 

 

 

i.            Corporate Resolutions. Delivery by the Company to the Buyer a copy
of resolutions of the Company’s board of directors, approving and authorizing
the execution, delivery and performance of the Transaction Documents and the
transactions contemplated thereby in the form attached hereto as Exhibit C (the
“Irrevocable Resolutions”);

 

j.            Officer’s Certificate. Delivery by the Company to the Buyer of a
certificate of the Chief Executive Officer of the Company in the form attached
hereto as Exhibit D;

 

k.           Search Results. Delivery by the Company to the Buyer of copies of
UCC search reports, issued by the Secretary of State of the state of
incorporation of the Company and each Subsidiary, dated such a date as is
reasonably acceptable to Buyer, listing all effective financing statements which
name the Company or Subsidiary (as applicable), under its present name and any
previous names, as debtor, together with copies of such financing statements;

 

l.            Certificate of Good Standing. Delivery by the Company to the Buyer
of a copy of a certificate of good standing with respect to the Company, issued
by the Secretary of State of the state of incorporation of the Company, dated
such a date as is reasonably acceptable to Buyer, evidencing the good standing
thereof;

 

m.          Laws and Regulations; Consents and Approvals. There shall not be in
effect any law, rule or regulation prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval which shall not have
been obtained; and

 

n.           Adverse Changes. From and after the date hereof to and including
each Closing Date, (i) the trading of the Common Stock shall not have been
suspended by the SEC, FINRA, or any other governmental or self-regulatory
organization, and trading in securities generally on OTCM shall not have been
suspended or limited, nor shall minimum prices been established for securities
traded on the OTCM; (ii) there shall not have occurred any outbreak or
escalation of hostilities involving the United States or any material adverse
change in any financial market that in either case in the reasonable judgment of
the Buyer makes it impracticable or inadvisable to purchase the Debentures.

 

9.           GOVERNING LAW; MISCELLANEOUS.

 

a.           MANDATORY FORUM SELECTION. Any dispute arising under, relating to,
or in connection with the Agreement or related to any matter which is the
subject of or incidental to the Agreement (whether or not such claim is based
upon breach of contract or tort) shall be subject to the exclusive jurisdiction
and venue of the state and/or federal courts located in MIAMI-DADE County,
Florida.  This provision is intended to be a “mandatory” forum selection clause
and governed by and interpreted consistentLY with Florida law.

 

 22 

 

 

b.           Governing Law. Except in the case of the Mandatory Forum Selection
clause above, this Agreement shall be delivered and accepted in and shall be
deemed to be contracts made under and governed by the internal laws of the State
of Nevada, and for all purposes shall be construed in accordance with the laws
of the State of Nevada, without giving effect to the choice of law provisions.
To the extent determined by the applicable court described above, the Company
shall reimburse the Buyer for any reasonable legal fees and disbursements
incurred by the Buyer in enforcement of or protection of any of its rights under
any of the Transaction Documents.

 

c.           Waivers. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

 

d.           Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto.

 

e.           Construction. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.

 

f.            Facsimiles; E-mails. A facsimile or email transmission of this
signed Agreement or a Notice of Conversion under the Debentures shall be legal
and binding on all parties hereto. Such electronic signatures shall be the
equivalent of original signatures.

 

g.           Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original.

 

h.           Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

i.            Enforceability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

 

j.            Amendment. This Agreement may be amended only by the written
consent of a majority in interest of the holders of the Debentures and an
instrument in writing signed by the Company.

 

k.           Entire Agreement. This Agreement, together with the other
Transaction Documents, supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.

 

l.            No Strict Construction. This Agreement shall be construed as if
both Parties had equal say in its drafting, and thus shall not be construed
against the drafter.

 

m.          Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

 23 

 

 

10.         NOTICES.

 

Any notice required or permitted hereunder shall be given in writing (unless
otherwise specified herein) and shall be deemed effectively given on the
earliest of:

 

a.           the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile or email transmission,

 

b.           the third (3rd) business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or

 

c.           the first (1st) business day after deposit with a recognized
courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by
next-day express courier, with delivery costs and fees prepaid,

 

in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days’ advance written notice similarly given to each of the other
parties hereto):

 

COMPANY:    

Arkados Group, Inc.

211 Warren Street, Suite 320

Newark, NJ 07103

Attention: Terrence DeFranco, Chief Executive Officer

Facsimile: ___________________

Email: tmdefranco@arkadosgroup.com

 

 

 

With copies to (which shall not constitute notice):

 

LKP Global Law, LLP

1901 Avenue of the Stars, Suite 480

Los Angeles, CA 90067

Attention: ______________________

Email: _________________________

 

BUYER:

Peak One Opportunity Fund, L.P.

333 South Hibiscus Drive

Miami Beach, FL 33139

Attention: Jason Goldstein

Email: jgoldstein@peakoneinvestments.com

 

 

With copies to (which shall not constitute notice):

 

 

Legal & Compliance, LLC

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

Attention: Laura Anthony, Esq.

Email: LAnthony@LegalandCompliance.com

 

 24 

 

 

11.         SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s
representations and warranties herein shall survive for so long as any
Debentures are outstanding, and shall inure to the benefit of the Buyer, its
successors and assigns.

 

12.         FEES; EXPENSES.

 

a.           Commitment Fee. The Company shall pay to Investments a
non-accountable fee (the “Commitment Fee”) of (i) Three Thousand Five Hundred
and 00/100 Dollars ($3,500.00) and (ii) Fifty Thousand (50,000) shares of
Restricted Stock for Investments’ expenses and analysis performed in connection
with the analysis of the Company and the propriety of the Buyer’s making the
contemplated investment. The Commitment Fee shall be paid on the Signing Closing
Date if Buyer does not withhold such amounts from the Signing Purchase Price
pursuant to Section 12(c).

 

b.           Legal Fees. The Company shall pay the legal fees of the Buyer’s
counsel (the “Legal Fees”) in the amount of Two Thousand Five Hundred and 00/100
Dollars ($2,500.00). The foregoing legal fees shall be paid on the Signing
Closing Date if Buyer does not withhold such amounts from the Signing Purchase
Price pursuant to Section 12(c). The Company further agrees to pay in full the
reasonable legal fees of the Buyer’s counsel incurred after the Signing Closing
Date incurred in connection with the Transaction Documents (including addressing
any purported breach(es) or default(s) by the Company, enforcement of the
Company’s obligations or the exercise of the Buyer’s remedies thereunder).

 

c.           Disbursements. In furtherance of the foregoing, the Company hereby
authorizes the Buyer to deduct the cash portion of the Commitment Fee and the
Legal Fees from the Signing Purchase Price and transmit same to the respective
payee.

 

[Signature Page Follows]

 

 25 

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and the
Company as of the date first set forth above.

 

  COMPANY:       ARKADOS GROUP, INC.       By: /s/ Terrence DeFranco   Name:
Terrence DeFranco   Title: Chief Executive Officer       BUYER:         PEAK ONE
OPPORTUNITY FUND, L.P.         By: Peak One Investments, LLC,     General
Partner

 

  By: /s/ Jason Goldstein   Name: Jason Goldstein   Title: Managing Member

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

SCHEDULE 3(b)

 

COMPANY ORGANIZATION CHART

 

Subsidiary / Affiliate

Name and Relationship

  Jurisdiction of Incorporation   Percentage of Ownership                      
                                                                               
                                     

 

 2 

 

 

SCHEDULE 3(c)

 

COMPANY CAPITALIZATION TABLE

 

COMMON STOCK AND COMMON STOCK EQUIVALENTS

ISSUED, OUTSTANDING AND RESERVED

 

DESCRIPTION   AMOUNT Authorized Common Stock      Authorized Capital Stock    
Authorized Common Stock     Issued Common Stock     Outstanding Common Stock    
Treasury Stock     Authorized, but unissued           Authorized Preferred Stock
    Issued Preferred Stock           Reserved for Equity Incentive Plans    
Reserved for Convertible Debt     Reserved for Options and Warrants     Reserved
for Other Purposes           TOTAL COMMON STOCK AND COMMON STOCK EQUIVALENTS
OUTSTANDING    

 

 3 

 

 

EXHIBITS

 

Exhibit A FORM OF DEBENTURE     Exhibit B FORM OF TRANSFER AGENT INSTRUCTION
LETTER     Exhibit C FORM OF RESOLUTIONS OF THE BOARD OF DIRECTORS     Exhibit D
FORM OF OFFICER’S CERTIFICATE

 

 4 

 

 

EXHIBIT A

 

FORM OF DEBENTURE

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED
OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION
REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

 

ARKADOS GROUP, INC.

 

CONVERTIBLE DEBENTURE DUE ____________, 2019

 

Issuance Date:  ____________, 2016 Principal Amount:  $____________

 

FOR VALUE RECEIVED, ARKADOS GROUP, INC., a corporation organized and existing
under the laws of the State of Delaware) (the “Company”), hereby promises to pay
to PEAK ONE OPPORTUNITY FUND, L.P., having its address at 333 South Hibiscus
Drive, Miami Beach, FL 33139, or its assigns (the “Holder” and together with the
other holders of Debentures issued pursuant to the Securities Purchase Agreement
(as defined below), the “Holders”), the initial principal sum of ____________and
00/100 Dollars ($____________) (subject to adjustment as provided herein, the
“Principal Amount”) on ____________, 2019 (the “Maturity Date”) [THIRD
ANNIVERSARY OF DATE OF ISSUANCE]. The Company has the option to redeem this
Debenture prior to the Maturity Date pursuant to Section 2(b). All unpaid
principal due and payable on the Maturity Date shall be paid in the form of
Common Stock of the Company, par value $0.0001 per share (“Common Stock”)
pursuant to Section 3. The Holder has the option to cause any outstanding
principal and accrued interest, if any, on this Debenture to be converted into
Common Stock at any time prior to the Redemption Date (as defined below) or the
Maturity Date pursuant to Section 2(a).

 

This Debenture is one of the Debentures referred to in the Securities Purchase
Agreement (the “Securities Purchase Agreement”) dated as of November __, 2016,
between the Company and the Holder. Capitalized terms used but not defined
herein shall have the meanings set forth in the Securities Purchase Agreement.
This Debenture is subject to the provisions of the Securities Purchase Agreement
and further is subject to the following additional provisions:

 

1.           This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act and other applicable state
and foreign securities laws. The Holder may transfer or assign this Debenture
(or any part thereof) without the prior consent of the Company, and the Company
shall cooperate with any such transfer. In the event of any proposed transfer of
this Debenture, the Company may require, prior to issuance of a new Debenture in
the name of such other Person, that it receive reasonable transfer documentation
including legal opinions that the issuance of the Debenture in such other name
does not and will not cause a violation of the Securities Act or any applicable
state or foreign securities laws or is exempt from the registration requirements
of the Securities Act. Prior to due presentment for transfer of this Debenture
to which the Company has consented, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Company's books and records of outstanding debt securities and obligations
(“Debenture Register”) as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

 

 5 

 

 

2.           Conversion at Holder’s Option; Redemption at Company’s Option.

 

a.           The Holder is entitled to, at any time or from time to time,
convert the Conversion Amount (as defined below) into Conversion Shares, at a
conversion price for each share of Common Stock (the “Conversion Price”) equal
to either: (i) if no Event of Default (as defined herein) has occurred and the
date of conversion is prior to the date that is one hundred fifty (150) days
after the Issuance Date, $0.65, or (ii) if an Event of Default has occurred or
the date of conversion is on or after the date that is one hundred fifty (150)
days after the Issuance Date, the lesser of (a) $0.65 or (b) Sixty Five percent
(65%) of the lowest closing bid price (as reported by Bloomberg LP) of the
Common Stock for the twenty (20) Trading Days immediately preceding the date of
the date of conversion of the Debentures (provided, further, that if either the
Company is not DWAC Operational at the time of conversion or the Common Stock is
traded on the OTC Pink (“OTCP”) at the time of conversion, then Sixty Five
percent (65%) shall automatically adjust to Sixty percent (60%) of the lowest
closing bid price (as reported by Bloomberg LP) of the Common Stock for the
twenty (20) Trading Days immediately preceding the date of conversion of the
Debentures), subject in each case to equitable adjustments resulting from any
stock splits, stock dividends, recapitalizations or similar events. The Company
shall issue irrevocable instructions to its Transfer Agent regarding conversions
such that the transfer agent shall be authorized and instructed to issue
Conversion Shares upon its receipt of a Notice of Conversion without further
approval or authorization from the Company. For purposes of this Debenture, the
“Conversion Amount” shall mean the sum of (A) all or any portion of the
outstanding Principal Amount of this Debenture, as designated by the Holder upon
exercise of its right of conversion plus (B) any interest, pursuant to Section
10 or otherwise, that has accrued on the portion of the Principal Amount that
has been designated for payment pursuant to (A).

 

Conversion shall be effectuated by delivering by facsimile, email or other
delivery method to the Transfer Agent of the completed form of conversion notice
attached hereto as Annex A (the “Notice of Conversion”), executed by the Holder
of the Debenture evidencing such Holder's intention to convert this Debenture or
a specified portion hereof. No fractional shares of Common Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The Holder may, at
its election, deliver a Notice of Conversion to either the Company or the
Transfer Agent. The date on which notice of conversion is given (the “Conversion
Date”) shall be deemed to be the date on which the Company or the Transfer
Agent, as the case may be, receives by fax, email or other means of delivery
used by the Holder the Notice of Conversion (such receipt being evidenced by
electronic confirmation of delivery by facsimile or email or confirmation of
delivery by such other delivery method used by the Holder). Delivery of a Notice
of Conversion to the Transfer Agent may be given by the Holder by facsimile at
212-828-8436, by email to Yoel@vstocktransfer.com or by delivery to the Transfer
Agent at the address set forth in the Transfer Agent Instruction Letter (or such
other contact facsimile number, email or street address as may be designated by
the Transfer Agent to the Holder). Delivery of a Notice of Conversion to the
Company shall be given by the Holder pursuant to the notice provisions set forth
in Section 10 of the Agreement. The Conversion Shares must be delivered to the
Holder within two (2) business days from the date of delivery of the Notice of
Conversion to the Transfer Agent or Company, as the case may be. Conversion
shares shall be delivered by DWAC so long as the Company is then DWAC
Operational, unless the Holder expressly requests delivery in certificated form
or the Conversion Shares are in the form of Restricted Stock and are required to
bear a restrictive legended. Conversion Shares shall be deemed delivered (i) if
delivered by DWAC, upon deposit into the Holder’s brokerage account, or (ii) if
delivered in certificated form, upon the Holder’s actual receipt of the
Conversion Shares in certificated form at the address specified by the Holder in
the Notice of Conversion, as confirmed by written receipt.

 

 6 

 

 

Notwithstanding the foregoing, unless the Holder delivers to the Company written
notice at least sixty-one (61) days prior to the effective date of such notice
that the provisions of this paragraph (the “Limitation on Ownership”) shall not
apply to such Holder, in no event shall a holder of Debentures have the right to
convert Debentures into, nor shall the Company issue to such Holder, shares of
Common Stock to the extent that such conversion would result in the Holder and
its affiliates together beneficially owning more than 4.99% of the then issued
and outstanding shares of Common Stock. For purposes hereof, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13D-G under the Exchange Act.

 

b.           So long as no Event of Default (as defined in Section 10) shall
have occurred and be continuing (whether such Event of Default has been declared
by the Holder) (unless the Holder consents to such redemption notwithstanding
such Event of Default, as described in clause (v), below), the Company may at
its option call for redemption all or part of the Debentures, with the exception
of any portion thereof which is the subject of a previously-delivered Notice of
Conversion, prior to the Maturity Date, as follows:

 

(i)           The Debentures called for redemption shall be redeemable by the
Company, upon not more than two (2) days written notice, for an amount (the
“Redemption Price”) equal to: (i) if the Redemption Date (as defined below) is
one hundred twenty (120) days or less from the date of issuance of this
Debenture, One Hundred percent (100%) of the sum of the Principal Amount so
redeemed plus accrued interest, if any; (ii) if the Redemption Date is greater
than or equal to one hundred twenty-one (121) days from the date of issuance of
this Debenture and less than or equal to one hundred fifty (150) days from the
date of issuance of this Debenture, One Hundred Fifteen percent (115%) of the
sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if
the Redemption Date is greater than or equal to one hundred fifty one (151) days
from the date of issuance of this Debenture and less than or equal to one
hundred eighty (180) days from the date of issuance of this Debenture, One
Hundred Twenty percent (120%) of the sum of the Principal Amount so redeemed
plus accrued interest, if any; and (iv) if either (1) the Debentures are in
default but the Holder consents to the redemption notwithstanding such default
or (2) the Redemption Date is greater than or equal to one hundred eighty one
(181) days from the date of issuance of this Debenture, One Hundred Thirty
percent (130%) of the sum of the Principal Amount so redeemed plus accrued
interest, if any. The date upon which the Debentures are redeemed and paid shall
be referred to as the “Redemption Date” (and, in the case of multiple
redemptions of less than the entire outstanding Principal Amount, each such date
shall be a Redemption Date with respect to the corresponding redemption).

 

 7 

 

 

(ii)          If fewer than all outstanding Debentures are to be redeemed and
are held by different investors, then all Debentures shall be partially redeemed
on a pro rata basis.

 

(iii)         [Reserved]

 

(iv)        On the Redemption Date, the Company shall cause the Holders whose
Debentures have been presented for redemption to be issued payment of the
Redemption Price. In the case of a partial redemption, the Company shall also
issue new Debentures to the Holders for the Principal Amount remaining
outstanding after the Redemption Date promptly after the Holders’ presentation
of the Debentures called for redemption.

 

(v)         To effect a redemption the Company shall provide a written notice to
the Holder(s) not more than two (2) days prior to the Redemption Date (the
“Redemption Notice”), setting forth the following:

 

1.the Redemption Date;

 

2.the Redemption Price;

 

3.the aggregate Principal Amount of the Debentures being called for redemption;

 

4.a statement instructing the Holders to surrender their Debentures for
redemption and payment of the Redemption Price, including the name and address
of the Company or, if applicable, the paying agent of the Company, where
Debentures are to be surrendered for redemption;

 

5.a statement advising the Holders that the Debentures (or, in the case of a
partial redemption, that portion of the Principal Amount being called for
redemption) as of the Redemption Date will cease to be convertible into Common
Stock as of the Redemption Date; and

 

6.in the case of a partial redemption, a statement advising the Holders that
after the Redemption Date a substitute Debenture will be issued by the Company
after deduction the portion thereof called for redemption, at no cost to the
Holder, if the Holder so requests.

 

Notwithstanding the foregoing, in the event the Company issues a Redemption
Notice but fails to fund the redemption on the Redemption Date, then such
Redemption Notice shall be null and void, and (i) the Holder(s) shall be
entitled to convert the Debentures previously the subject of the Redemption
Notice, and (ii) the Company may not redeem such Debentures for at least thirty
(30) days following the intended Redemption Date that was voided, and the
Company shall be required to pay to the Holder(s) the Redemption Price
simultaneously with the issuance of a Redemption Notice in connection with any
subsequent redemption pursued by the Company.

 

 8 

 

 

3.           Unless demand has otherwise been made by the Holder in writing for
payment in cash as provided hereunder, and so long as no Event of Default shall
exist (whether or not notice thereof has been delivered by the Holder to the
Company), any Debentures not previously tendered to the Company for conversion
as of the Maturity Date shall be deemed to have been surrendered for conversion,
without further action of any kind by the Company or any of its agents,
employees or representatives, as of the Maturity Date at the Conversion Price
applicable on the Maturity Date (“Mandatory Conversion”).

 

4.           No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional to convert this Debenture
into Common Stock, at the time, place, and rate herein prescribed. This
Debenture is a direct obligation of the Company.

 

5.           If the Company (a) merges or consolidates with another corporation
or business entity and the Company is not the surviving entity or (b) sells or
transfers all or substantially all of its assets to another Person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee will agree that this Debenture may thereafter
be converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any (i) proposed
merger or consolidation where the Company is not the surviving entity or (ii)
sale or transfer of all or substantially all of the assets of the Company (in
either such case, a “Sale”), the Holder shall have the right to convert by
delivering a Notice of Conversion to the Company within fifteen (15) days of
receipt of notice of such Sale from the Company.

 

6.           If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock or otherwise recapitalizes its Common Stock, the Conversion Price
shall be equitably adjusted to reflect such action. By way of illustration, and
not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split
of its Common Stock, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such split, the Conversion
Price shall be deemed to be one-half of what it had been calculated to be
immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse
split of its Common Stock, thereafter, with respect to any conversion for which
the Company issues the shares after the record date of such reverse split, the
Conversion Price shall be deemed to be the amount of such Conversion Price
calculated immediately prior to the record date multiplied by 10; and (iii) if
the Company declares a stock dividend of one share of Common Stock for every 10
shares outstanding, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such dividend, the Conversion
Price shall be deemed to be the amount of such Conversion Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares for which a dividend share will be issued and
the denominator is such number of shares plus the dividend share(s) issuable or
issued thereon.

 

 9 

 

 

7.           All payments contemplated hereby to be made “in cash” shall be made
by wire transfer of immediately available funds in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder to an account designated by the Holder to the Company and if the Holder
has not designated any such accounts at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time; except that the Holder may designate, by notice to the Company, a
different delivery address for any one or more specific payments or deliveries.

 

8.           The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except in compliance with the terms of the
Securities Purchase Agreement and under circumstances which will not result in a
violation of the Securities Act or any applicable state Blue Sky or foreign laws
or similar laws relating to the sale of securities.

 

9.           This Debenture shall be governed by and construed in accordance
with the laws of the State of Nevada. Each of the parties consents to the
exclusive jurisdiction and venue of the state and/or federal courts located in
Miami-Dade County, Florida in connection with any dispute arising under this
Agreement. This provision is intended to be a “mandatory” forum selection clause
and governed by and interpreted consistent with Florida law (Nevada law
governing all other, substantive matters). Each of the parties hereby consents
to the exclusive jurisdiction and venue of any state or federal court having its
situs in said county, and each waives any objection based on forum non
conveniens. To the extent determined by such court, the Company shall reimburse
the Holder for any reasonable legal fees and disbursements incurred by the
Holder in enforcement of or protection of any of its rights under this Debenture
or the Securities Purchase Agreement.

 

10.         The following shall constitute an “Event of Default”:

 

a.           The Company fails in the payment of principal or interest (to the
extent that interest is imposed under this Section 10) on this Debenture as
required to be paid in cash hereunder, and payment shall not have been made for
a period of five (5) business days following the payment due date (as to which
no further cure period shall apply); or

 

b.           Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement or in any certificate or financial
or other written statements heretofore or hereafter furnished by the Company to
the Holder in connection with the issuance of this Debenture, shall be false or
misleading (including without limitation by way of the misstatement of a
material fact or the omission of a material fact) in any material respect at the
time made (as to which no cure period shall apply); or

 

 10 

 

 

c.           The Company fails to remain listed on OTCP, OTCQB, or OTCQX, or a
more senior stock exchange any time from the date hereof to the Maturity Date
for a period in excess of five (5) Trading Days (as to which no further cure
period shall apply); or

 

d.           The Company (i) fails to timely file required SEC reports when due
(including extensions), becomes, is deemed to be or asserts that it is a “shell
company” at any time for purposes of the 1933 Act, and Rule 144 promulgated
thereunder or otherwise takes any action, or refrains from taking any action,
the result of which makes Rule 144 under the 1933 unavailable to the Holder for
the sale of their Securities, (ii) fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of Common Stock upon
exercise by the Holder of the conversion rights of the Holder in accordance with
the terms of this Debenture, (iii) fails to transfer or to cause its Transfer
Agent to transfer any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture
and such transfer is otherwise lawful, (iv) fails to remove any restrictive
legend or to cause its Transfer Agent to transfer any certificate or any shares
of Common Stock issued to the Holder upon conversion of this Debenture as and
when required by the relevant Transaction Document(s) and such legend removal is
otherwise lawful, or (v) the Company fails to perform or observe any of its
obligations under the Section 5 of the Agreement or under the Transfer Agent
Instruction Letter (no cure period shall apply in the case of clauses (i)
through (v) above, inclusive); or

 

e.           The Company fails to perform or observe, in any material respect
(i) any other covenant, term, provision, condition, agreement or obligation set
forth in the Debenture, (subject to a cure period of three (3) days other than
in the case of a failure under Section 5 hereof, as to which no cure period
shall apply), or (ii) any other covenant, term, provision, condition, agreement
or obligation of the Company set forth in the Securities Purchase Agreement and
such failure shall continue uncured for a period of either (1) three (3) days
after the occurrence of the Company’s failure under Section 4(d), (e) (except as
described in Section 10(c) hereof, as to which Section 10(c) hereof shall
control), (f), (g) or (h) of the Securities Purchase Agreement, or (2) ten (10)
days after the occurrence of the Company’s failure under any other provision of
the Securities Purchase Agreement not otherwise specifically addressed in the
Events of Default set forth in this Section 10; or

 

f.            The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business (as to which no cure period shall
apply); or

 

g.           A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment (as to which no cure period shall apply); or

 

h.           Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within sixty (60) days thereafter (as to which no cure
period shall apply); or

 

 11 

 

 

i.            Any money judgment, writ or warrant of attachment, or similar
process (including an arbitral determination), in excess of Fifty Thousand
Dollars ($50,000) in the aggregate shall be entered or filed against the Company
or any of its properties or other assets (as to which no cure period shall
apply); or

 

j.            The occurrence of a breach or an event of default under the terms
of any indebtedness or financial instrument of the Company or any subsidiary
(including but not limited to any Subsidiary) of the Company in an aggregate
amount in excess of Fifty Thousand Dollars ($50,000) or more which is not waived
by the creditors under such indebtedness (as to which no cure period shall
apply); or

 

k.           Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding
(as to which no further cure period shall apply); or

 

l.            The issuance of an order, ruling, finding or similar adverse
determination the SEC, the Secretary of State of the State of Nevada or Florida,
the National Association of Securities Dealers, Inc. or any other securities
regulatory body (whether in the United States, Canada or elsewhere) having
proper jurisdiction that the Company and/or any of its past or present directors
or officers have committed a material violation of applicable securities laws or
regulations (as to which no cure period shall apply); or

 

m.          The Company shall have its Common Stock suspended or delisted from a
national securities exchange or an electronic quotation service such as the
OTCP, OTCQB, or OTCQX for a period in excess of five (5) Trading Days (as to
which no further cure period shall apply); or

 

n.           Any of the following shall occur and be continuing: a breach or
default by any party under (a) any agreement identified by the Company in its
SEC filings as a material agreement or (b) any note or other form of
indebtedness in favor of the Company representing indebtedness of at least Fifty
Thousand Dollars ($50,000.00), irrespective of whether such breach or default
was waived (as to which no cure period shall apply); or

 

o.           Notice of a Material Adverse Effect is provided by the Company or
the determination in good faith by the Holder that a Material Adverse Effect has
occurred (as to which no cure period shall apply); or

 

p.           The Company attempts to modify, amend, withdraw, rescind, disavow
or repudiate any part of the Irrevocable Instructions (as to which no cure
period shall apply).

 

q.           Any attempt by the Company or its officers, directors, and/or
affiliates to transmit, convey, disclose, or any actual transmittal, conveyance,
or disclosure by the Company or its officers, directors, and/or affiliates of,
material non-public information concerning the Company, to the Holder or its
successors and assigns, which is not immediately cured by Company’s filing of a
Form 8-K pursuant to Regulation FD on that same date.

 

 12 

 

 

r.            At any time while this Debenture is outstanding, the lowest traded
price on the OTCP, OTCQB, or OTCQX, or other applicable principal trading market
for the Common Stock, is equal to or less than $0.0001.

 

Then, or at any time thereafter, the Company shall immediately give written
notice of the occurrence of such Event of Default to the Holders of all
Debentures then outstanding, and in each and every such case, unless such Event
of Default shall have been waived in writing by a majority in interest of the
Holders of the Debentures (which waiver shall not be deemed to be a waiver of
any subsequent default), then at the option of a majority in interest of the
Holders and in the discretion of a majority in interest of the Holders, take any
or all of the following actions: (i) pursue remedies against the Company in
accordance with any of the Holder’s rights, (ii) increase the interest rate
applicable to the Debentures to the lesser of eighteen percent (18%) per annum
and the maximum interest rate allowable under applicable law, (iii) in the case
of an Event of Default under Section 10(e)(ii)(1) based on the Company’s failure
to be DWAC Operational, increase the Principal Amount to an amount equal to one
hundred five percent (105%) of the then-outstanding Principal Amount, (iv) in
the case of an Event of Default under Section 10(d)(i), increase the Principal
Amount to an amount equal to one hundred ten percent (110%) of the
then-outstanding Principal Amount, (v) in the case of an Event of Default under
Section 10(d)(i) through (v), increase the Principal Amount of the relevant
Holder’s Debenture by One Thousand Dollars and 00/100 ($1,000.00) for each day
the related failure continues, (vi) in the case of an Event of Default under
Section 10(d)(ii) through (v) arising from an untimely delivery to the Holder of
Conversion Shares or shares of Common Stock in de-legended form, if the closing
bid price of the Common Stock on the Trading Day immediately prior to the actual
date of delivery of Conversion Shares or de-legended shares, as the case may be,
is less than the closing bid price on the Trading Day immediately prior to the
date when Conversion Shares or de-legended shares were required to be delivered,
increase the Principal Amount of the relevant Holder’s Debenture by an amount
per share equal to such difference, and (vii) following the expiration of the
applicable grace period (if any), at the option and discretion of the Holder,
accelerate the full indebtedness under this Debenture, in an amount equal to one
hundred forty percent (140%) of the outstanding Principal Amount and accrued and
unpaid interest (the “Acceleration Amount”), whereupon the Acceleration Amount
shall be immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything
contained herein, in the Securities Purchase Agreement or in any other note or
instruments to the contrary notwithstanding. In the case of an Event of Default
under Section 10(d)(ii), the Holder may either (i) declare the Acceleration
Amount to exclude the Conversion Amount that is the subject of the Event of
Default, in which case the Acceleration Amount shall be based on the remaining
Principal Amount and accrued interest (if any), in which case the Company shall
continue to be obligated to issue the Conversion Shares, or (ii) declare the
Acceleration Amount to include the Conversion Amount that is the subject of the
Event of Default, in which case the Acceleration Amount shall be based on the
full Principal Amount, including the Conversion Amount, and accrued interest (if
any), whereupon the Notice of Conversion shall be deemed withdrawn. At its
option, the Holder may elect to convert the Debenture pursuant to Section 2
notwithstanding the prior declaration of a default and acceleration, in the sole
discretion of such Holder. A majority in interest of the Holders may immediately
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by applicable law. Notwithstanding the
foregoing, in the case of a default under Section 10(d)(ii) through (iv), the
Holder of the Debenture sought to be converted, transferred or de-legended, as
the case may be, acting singly, shall have the sole and absolute discretion to
increase the applicable interest rate on the Debentures held by such Holder
and/or to accelerate the Debenture(s) held by such Holder. The Company expressly
acknowledges and agrees that the Holder’s exercise of any or all of the remedies
provided herein or under applicable law, including without limitation the
increase(s) in the Principal Amount and the Acceleration Amount as may be
declared in the case of a default, is reasonable and appropriate due to the
inability to define the financial hardship that the Company’s default would
impose on the Holders. To the extent that the Holder’s exercise of any of its
remedies in the case of an Event of Default shall be construed to exceed the
maximum interest rate allowable under applicable law, then such remedies shall
be reduced to equal the maximum interest rate allowable under applicable law

 

 13 

 

 

11.         Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.

 

12.         This Debenture may be amended only by the written consent of the
parties hereto. Notwithstanding the foregoing, the Principal Amount of this
Debenture shall automatically be reduced by any and all Conversion Amounts (to
the extent that the same relate to principal hereof). In the absence of manifest
error, the outstanding Principal Amount of the Debenture on the Holder’s book
and records shall be the correct amount.

 

13.         In the event of any inconsistency between the provisions of this
Debenture and the provisions of any other Transaction Document, the provisions
of this Debenture shall prevail. Without limiting the generality of the
foregoing, in the event the Transfer Agent is not required to transfer any
Common Stock, issue Conversion Shares or de-legended shares of Restricted Stock
pursuant to the Transfer Agent Instruction Letter, this shall not operate as an
excuse, extension or waiver of the Company’s obligation to issue and deliver
Conversion Shares or de-legended Restricted Stock.

 

14.         The Company specifically acknowledges and agrees that in the event
of a breach or threatened breach by the Company of any provision hereof or of
any other Transaction Document, the Holder will be irreparably damaged, and that
damages at law would be an inadequate remedy if this Debenture or such other
Transaction Document were not specifically enforced. Therefore, in the event of
a breach or threatened breach by the Company, the Holder shall be entitled, in
addition to all other rights and remedies, to an injunction restraining such
breach, without being required to show any actual damage or to post any bond or
other security, and/or to a decree for a specific performance of the provisions
of this Debenture and the other Transaction Documents.

 

15.         No waivers or consents in regard to any provision of this Debenture
may be given other than by an instrument in writing signed by the Holder.

 

 14 

 

 

16.         Each time, while this Debenture is outstanding, the Company enters
into a Section 3(a)(9) transaction (including but not limited to the issuance of
new promissory notes or debentures, or of a replacement promissory note or
debenture), or Section 3(a)(10) transaction, in which any 3rd party has the
right to convert monies owed to that 3rd party (or receive shares pursuant to a
settlement or otherwise) at a discount to market greater than the Conversion
Price in effect at that time (prior to all other applicable adjustments in this
Debenture), then the Conversion Price shall be automatically adjusted to such
greater discount percentage (prior to all applicable adjustments in this
Debenture) until this Debenture is no longer outstanding. Each time, while this
Debenture is outstanding, the Company enters into a Section 3(a)(9) transaction
(including but not limited to the issuance of new promissory notes or
debentures, or of a replacement promissory note or debenture), or Section
3(a)(10) transaction, in which any 3rd party has a look back period greater than
the look back period in effect under this Debenture at that time (currently a
twenty (20) Trading Day look back period as described in this Debenture
applies), then the Holder’s look back period shall automatically be adjusted to
such greater number of days until this Debenture is no longer outstanding. The
Company shall give written notice to the Holder, with the adjusted Conversion
Price and/or adjusted look back period (each adjustment that is applicable due
to the triggering event), within one (1) business day of an event that requires
any adjustment described in this section.

 

[Signature Page Follows]

 

 15 

 

 

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
an officer thereunto duly authorized as of the date of issuance set forth above.

 

  Arkados Group, Inc.         By:     Name: Terrence DeFranco   Title: Chief
Executive Officer

 

[Signature Page to Convertible Debenture]

 

 

 

 

EXHIBIT B

 

ARKADOS GROUP, INC.

 

IRREVOCABLE TRANSFER AGENT INSTRUCTION LETTER

 

November __, 2016

 

VStock Transfer, LLC

18 Lafayette Place

Woodmere, NY 11598

 

Re: Irrevocable Instructions for Peak One Opportunity Fund, LP

 

Ladies and Gentlemen:

 

ARKADOS GROUP, INC., a Delaware corporation (the "Company") and Peak One
Opportunity Fund, L.P. (together with its successors and assigns, the
"Investor") have entered into a Securities Purchase Agreement dated as of
November __, 2016 (the "Agreement") providing for the issuance of the
Convertible Debentures, convertible into the Company’s common stock, par value
$0.0001 per share (“Common Stock”) in the principal amount of up to $500,000.00
(collectively, the "Debentures").

 

A copy of the form of the Debentures is attached hereto. The shares of Common
Stock to be issued upon conversion of the Debentures are to be registered in the
name(s) of the registered holder(s) of the Debentures submitted for conversion,
or its assignees, as requested by the Investor.

 

VStock Transfer, LLC (“VStock Transfer,” the “Transfer Agent” or “you”) are
hereby irrevocably authorized and instructed to reserve a sufficient number of
shares of Common Stock of the Company to satisfy the Company’s share reservation
requirement of 700% of the Debentures under the Agreement (initially, 4,375,000
shares of Common Stock which should be held in reserve for the Investor pursuant
to the subject Debentures as of this date) for issuance upon conversion of any
of the Debentures referenced herein in accordance with the terms thereof
(without giving effect to the 4.99% limitation on ownership, each as set forth
in the Debentures). The amount of Common Stock so reserved may be increased,
from time to time, by written instructions of the Company or the Investor. The
amount of Common Stock so reserved may not be decreased without the prior
written consent of the Investor (unless such decrease in reserved shares is due
to an issuance of reserved shares pursuant to the conversion of Debentures). You
will adjust the number of reserved shares accordingly, within one (1) business
day of receipt of any such instructions, so as long as there are sufficient
available authorized shares.

 

 

 

 

The ability to convert the Debentures in a timely manner is a material
obligation of the Company pursuant to the Debentures. Your firm is hereby
irrevocably authorized and instructed to issue shares of Common Stock of the
Company (without any restrictive legend) to the Investor at the request of the
Investor without any further action or confirmation by the Company, in which
case the issuance shall be deducted against the reserve or, if there are not
enough shares held in reserve, from available authorized shares of the Company,
either (i) electronically by crediting the account of the Investor’s broker with
the Depository Trust Company through its Deposit Withdrawal Agent Commission
system, provided that the Company has been made FAST/DRS eligible by DTCC
(DWAC), or (ii) if requested by the Investor or if a legal opinion is not
provided to the Transfer Agent as described below, in certificated form without
any legend which would restrict the transfer of the shares, and you should
remove all stop-transfer instructions relating to such shares: (A) upon your
receipt from the Investor dated within two (2) business days from the date of
the issuance or transfer request, of: (i) a notice of conversion ("Notice of
Conversion") executed by the Investor; and (ii) an opinion of counsel of the
Investor or the Company, in form, substance and scope customary for opinions of
counsel in comparable transactions (and reasonably satisfactory to the Transfer
Agent), to the effect that the shares of Common Stock of the Company issued to
the Investor pursuant to the Notice of Conversion are not "restricted
securities" as defined in Rule 144 and should be issued to the Investor without
any restrictive legend; and (B) the number of shares to be issued is less than
4.99% of the total issued Common Stock of the Company. If an opinion from
counsel is not provided, you are instructed and authorized to issue shares to
the Investor as restricted and the associated certificate(s) should include the
customary 144 restrictive legend. You will issue the Common Stock upon
conversion within two (2) business days of receipt of a Conversion Notice and
any other documents and information you reasonably request. The Transfer Agent
must issue the shares of Common Stock to the Investor, pursuant to this
agreement, despite any threatened or ongoing dispute between the Company and
Investor, unless there is a valid court order prohibiting such issuance.

 

The Company affirms that it has by all appropriate corporate action irrevocably
resolved to issue all required Common Stock to the investor and hereby requests
that your firm act immediately, without delay and without the need for any
action or confirmation by the Company with respect to the reservation of shares
and the issuance of Common Stock pursuant to any Conversion Notices received
from the Investor. You agree that the Company’s irrevocable resolutions and this
irrevocable letter of instructions constitute sufficient documentation to
evidence the Company’s authorization to complete the activities contemplated
hereby and that no other Company documentation or confirmation shall be
necessary or requested from the Company. The Company hereby irrevocably appoints
the Investor as its attorney-in-fact for purposes of executing and delivering,
in the Company’s name, any documentation or confirmation that the transfer agent
may request in connection with the reservation of shares or the issuance of
Common Stock upon conversion as contemplated hereby.

 

 

 

 

The Investor and the Company understand that VStock Transfer shall not be
required to perform any issuances or transfers of shares if (a) the Company or
request violates, or is in material violation of, any terms of the Transfer
Agent Agreement, (b) such an issuance or transfer of shares is, in the opinion
of the Transfer Agent’s legal counsel, as demonstrated by a written legal
opinion addressed to the Company and the Investor, in violation of any state or
federal securities law or regulation or (c) the issuance or transfer of shares
is prohibited or stopped as required or directed by a valid court order. If the
Company informs you that there is a court order stopping issuances, then the
Company agrees to provide VStock Transfer with a copy of such court order
immediately, and a legal opinion from counsel within three (3) business days
addressing the matter and, once such court order and legal opinion are received,
you will not be obligated to perform any issuances related to the Debentures and
this agreement. If the Company has an outstanding balance of fees owed to VStock
Transfer for any reason, the Investor understands VStock Transfer will not be
obligated to issue Common Stock to the Investor unless the Company or Investor
first pays all fees owed to VStock Transfer, provided that if the Investor pays
the fees of VStock Transfer for the specific issuance of Common Stock to the
Investor under a given Conversion Notice, then VStock Transfer will issue such
shares notwithstanding any unpaid fees owed it by the Company for other
purposes. The Company authorizes VStock Transfer to inform the Investor of the
amount and nature of any outstanding transfer agency fee balances owed by the
Company if the Investor requests such information.

 

You are hereby authorized and directed to promptly disclose to the Investor
without any additional confirmation from the Company, after Investor’s request
from time to time, the total number of shares of Common Stock issued and
outstanding, the total number of shares of Common Stock in the float, and the
total number of shares of Common Stock that are authorized but unissued and
unreserved.

 

The Company shall indemnify you and your officers, directors, principals,
partners, agents and representatives, and hold each of them harmless from and
against any and all loss, liability, damage, claim or expense (including the
reasonable fees and disbursements of its attorneys) incurred by or asserted
against you or any of them arising out of or in connection the instructions set
forth herein, the performance of your duties hereunder and otherwise in respect
hereof, including the costs and expenses of defending yourself or themselves
against any claim or liability hereunder, except that the Company shall not be
liable hereunder as to matters in respect of which it is determined that you
have acted with gross negligence or in bad faith. You shall have no liability to
the Company in respect to any action taken or any failure to act in respect of
this if such action was taken or omitted to be taken in good faith, and you
shall be entitled to rely in this regard on the advice of counsel.

 

The Board of Directors of the Company has approved the foregoing (irrevocable
instructions) and does hereby extend the Company’s irrevocable agreement to
indemnify your firm and any successor transfer agent for all loss, liability or
expense in carrying out the authority and direction herein contained on the
terms herein set forth.

 

The Investor is intended to be, and is, a third party beneficiary hereof, and no
amendment or modification to the instructions set forth herein may be made
without the consent of the Investor. The Transfer Agent agrees that in the event
of its resignation, then the Transfer Agent will provide at least fifteen (15)
days prior written notice to the Company and the Investor. The Transfer Agent
also agrees that if the Company requests the Transfer Agent provide records
pertaining to the register of Common Stock to any third party in what the
Transfer Agent has reason to believe is in contemplation of replacing the
Transfer Agent with another party, then the Transfer Agent shall notify the
Investor within two (2) business days of the Transfer Agent’s receipt of such
request.

 

 

 

 

The Company agrees that in the event it seeks to replace the Transfer Agent, the
Company shall provide at least fifteen (15) days prior written notice to the
Transfer Agent and the Investor, and the Company shall propose to the Investor a
suitable replacement transfer agent and obtain the Investor’s written consent to
the replacement of the Transfer Agent at least ten (10) days prior to the
proposed effective date of the transition to the replacement transfer agent. The
Transfer Agent shall not transfer any records or documentation pertaining to the
Common Stock to any purported successor transfer agent without the Investor’s
prior written consent. Any replacement transfer agent (whether approved by the
Investor or appointed by the Company without the Investor’ prior consent in
breach of the foregoing provisions) shall automatically be bound by this Letter
Agreement as if a party hereto, and any such replacement transfer agent shall
confirm in writing to the Investor within two (2) business days that it is bound
by the terms and conditions of these irrevocable instructions.

 

[Signature Page Follows]

 

 

 

 

Very truly yours,

 

ARKADOS GROUP, INC.

 

By:     Name: Terrence DeFranco   Title: Chief Executive Officer  

 

Acknowledged and Agreed:

 

VSTOCK TRANSFER, LLC

 

By:     Name:     Title:    

 

PEAK ONE OPPORTUNITY FUND, L.P.

 

  By: Peak One Investments, LLC,       its General Partner                 By:  
      Name: Jason Goldstein       Title: Managing Member  

 

 

 

 

EXHIBIT C

 

IRREVOCABLE CORPORATE RESOLUTIONS OF THE

BOARD OF DIRECTORS OF

ARKADOS GROUP, INC.

 

We, the undersigned, do hereby certify that at a meeting of the Board of
Directors (the “Board”) of Arkados Group, Inc., a corporation incorporated under
the laws of the State of Delaware (the “Corporation”), duly held on November __,
2016, at which said meeting no less than a majority of the directors were
present and voting throughout, the following resolution, upon motions made,
seconded and carried, was duly adopted and is now in full force and effect:

 

WHEREAS, the Board deems it in the best interests of the Corporation to enter
into a Securities Purchase Agreement to be dated on or about November __, 2016
(the “Agreement”), by and between the Corporation and Peak One Opportunity Fund
LP (the “Buyer”) in connection with the purchase and sale of certain Debentures
of the Corporation, in the aggregate principal amount of up to Five Hundred
Thousand and 00/100 Dollars ($500,000.00) (the “Debentures”), convertible into
shares of common stock, par value $0.0001 per share, of the Corporation (the
“Common Stock”), upon the terms and subject to the limitations and conditions
set forth in the Agreement; and

 

WHEREAS, the Board deems it in the best interest of the Corporation to, pursuant
to the Agreement, enter into an irrevocable letter agreement with VStock
Transfer, LLC, the Corporation’s transfer agent (the “Transfer Agent”), with
respect to the reserve of shares of Common Stock which may be issued to the
Buyer upon conversion of the Debentures, the issuance of such shares of Common
Stock in connection with a conversion of the Debentures, and the indemnification
of the Transfer Agent for all loss, liability, or expense in carrying out the
authority and direction contained in the irrevocable letter agreement (the
“Letter Agreement”).

 

NOW, THEREFORE, BE IT:

 

RESOLVED, that the Corporation is hereby authorized and instructed to enter into
and perform the Agreement (including, without limitation, the incurrence of
indebtedness thereunder), the Debentures, the Letter Agreement, and all other
related documents and, to the extent that any corporate action has been taken
prior to the date hereof with respect to any matter which would be otherwise
authorized pursuant hereto, such action is hereby ratified and confirmed in its
entirety;

 

RESOLVED, that the Corporation is hereby irrevocably authorized and instructed
to issue the Securities (as defined in the Agreement) and all Common Stock
(including without limitation the issuance of 50,000 shares of Common Stock (the
“Restricted Stock”) to Peak One Investments, LLC pursuant to the Agreement)
issuable under the Agreement or upon conversion of the Debentures, when issued
pursuant to the Transaction Documents (as defined in the Agreement), shall be
fully-paid, validly issued, non-assessable shares of Common Stock of the
Corporation;

 

 

 

 

RESOLVED, that the Corporation is hereby irrevocably authorized and instructed
to: (i) reserve shares of Common Stock of the Corporation to be issued upon any
conversion of the Debentures, (ii) issue such shares of Common Stock in
connection with a conversion of the Debentures, upon issuance of a notice of
conversion by the holder of the Debentures) without any further action or
confirmation by the Corporation, (iii) indemnify the Transfer Agent for all
loss, liability, or expense in carrying out the authority and direction
contained in the Letter Agreement (iv) provide a power or attorney wherein it
appoints the Investor as the Corporation’s attorney-in-fact for purposes of the
transactions contemplated by the Letter Agreement.

 

RESOLVED, that any executive officer of the Corporation be, and hereby is,
authorized, empowered and directed, from time to time, to take such additional
action and to execute, certify and deliver to the transfer agent of the
Corporation, as any appropriate or proper to implement the provisions of the
foregoing resolutions; and

 

RESOLVED, that the foregoing resolutions are irrevocable and cannot be modified,
repealed or rescinded without the prior written consent of the Buyer, any
purported modification, repeal or rescission without the prior written consent
of the Buyer being void, invalid, of no force or effect and unenforceable; and

 

The undersigned, do hereby certify that we are members of the Board, that the
attached is a true and correct copy of resolutions duly adopted and ratified at
a meeting of the Board duly convened and held in accordance with its by-laws and
the laws of the Corporation’s state of incorporation, as transcribed by us from
the minutes; and that the same have not in any way been modified, repealed or
rescinded and are in full force and effect. The foregoing resolutions are
irrevocable and cannot be modified, repealed or rescinded without the prior
written consent of the Buyer.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, we have hereunto set our hands as Members of the Board of
Directors of the Corporation.

 

Dated: November __, 2016

 

      Name: Terrence DeFranco   Title: Director

 

 

 

 

EXHIBIT D

 

OFFICER'S CERTIFICATE

 

The undersigned, Terrence DeFranco, Chief Executive Officer of Arkados Group,
Inc., a Delaware corporation (the “Company”), in connection with the sale and
issuance of those certain Debentures in the aggregate principal amount of up to
Five Hundred Thousand and 00/100 Dollars ($500,000.00), in accordance with that
certain Securities Purchase Agreement dated November __, 2016, by and between
the Company and Peak One Opportunity Fund, L.P. (the “Purchase Agreement”),
hereby certifies that:

 

1.          I am the duly appointed Chief Executive Officer of the Company.

 

2.          Attached hereto as Exhibit I is a true and complete copy of the
Articles of Incorporation of the Company and all amendments thereto to the date
hereof.

 

3.          Attached hereto as Exhibit II is a true and complete copy of the
Bylaws of the Company as in effect on the date hereof

 

4.          Attached hereto as Exhibit III are resolutions dated November __,
2016, duly adopted by the Board of Directors of the Company, which resolutions
have not been amended, modified or rescinded and remain on this date in full
force and effect.

 

5.          The representations and warranties made by the Company in the
Purchase Agreement are true and correct in all material respects as of the date
of this Officer’s Certificate. The capitalization of the Company described in
the Purchase Agreement has not changed as of the date hereof.

 

6.          As of the date hereof, the Company has satisfied and duly performed
all of the conditions and obligations specified the Purchase Agreement to be
satisfied on or prior to the Closing Date (as defined in the Purchase Agreement)
or such conditions and obligations have been waived expressly in writing signed
by the purchaser.

 

7.          The Company has complied with or, if compliance prior to Closing (as
defined in the Purchase Agreement) is not required, promptly following the
Closing the Company shall comply with, the filing requirements in respect of
this transaction under (a) Regulation D under the Securities Act of 1933, as
amended (the “1933 Act”) (and applicable Blue Sky regulations) and (b) the
Securities Exchange Act of 1934, as amended.

 

8.          There has been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Company’s most recent financial statements filed with the SEC, other
than losses and matters which would not, individually or in the aggregate, have
a Material Adverse Effect (as defined in the Purchase Agreement).

 

 

 

 

9.          The Company is qualified as a foreign corporation in all
jurisdictions in which the Company owns or leases properties, or conducts any
business except where failure of the Company to be so qualified would not have a
Material Adverse Effect (as defined in the Purchase Agreement).

 

10.        The Company is subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, and is in compliance
with all applicable filing requirements, and has filed all required reports
during the previous twelve months.

 

11.        To the best of my knowledge and belief, no officer, director, owner
of ten percent (10%) or more of the common stock, or other affiliate of the
Company has been convicted within the previous ten (10) years of any felony in
connection with the purchase or sale of any security, nor been subject to a
United States Postal Service false representation order within the past five (5)
years.

 

12.        The Company is an operating company, and is not a shell company. If
the Company has previously been a shell company, it has since filed Form 10
information (supporting the claim that it is no longer a shell company),
reported that it is no longer a shell company, filed all required reports for at
least twelve consecutive months after the filing of the respective Form 10
information, and has therefore complied with Rule 144(i)(2).

 

13.        The Company is a corporation organized under the laws of the state of
Delaware and is in good standing therein.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, the undersigned has executed this Officer’s Certificate as
of November __, 2016.

 

      Name: Terrence DeFranco   Title: Chief Executive Officer

 

 

 

 

EXHIBIT I

 

ARTICLES OF INCORPORATION

 

(see attached)

 

 

 

 

EXHIBIT II

 

BYLAWS

 

(see attached)

 

 

 

 

EXHIBIT III

 

RESOLUTIONS OF THE BOARD OF DIRECTORS

 

(see Exhibit C to Securities Purchase Agreement)