Document:

Filed by sedaredgar.com - Americas Wind Energy Corporation - Exhibit 10.4

ASSIGNMENT AND ASSUMPTION AGREEMENT AND
CONSENT

     This Assignment and Assumption
Agreement and Consent (this “Assignment”) is made as of this 5th day of March
2009 by and among Americas Wind Energy, Inc., an Ontario registered company
(“AWE”), EWT-Americas Inc., a Delaware corporation (“EWT”), and Waverly Light
and Power, a municipal electric utility (“Customer”). 

     WHEREAS, AWE and Customer entered
into a Purchase and Sale Contract: 07 03 029 dated July 16, 2007 in connection
with the purchase and related services of two (2) AWE54-900 wind turbines by
Customer (the “Contract”); and

     WHEREAS, AWE wishes to assign to
EWT all of its rights, title and interest in the Contract and EWT has agreed to
assume the obligations of AWE under the Contract, subject to the terms set forth
in this Assignment.

     NOW, THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

     1. Assignment and Assumption
of the Contract. Effective as of the Effective Date (defined below), AWE
hereby grants, assigns and conveys to EWT all rights, interests, and benefits of
AWE to the Contract, including without limitation, AWE’s rights under the AWE
LOR (as defined below in Section 6), and EWT hereby assumes and agrees to
assume, observe and perform all of the obligations and liabilities of AWE with
respect to the Contract arising after the Effective Date. The Effective Date
shall be the date upon the last to occur of (i) the execution and delivery by
AWE and EWT and the other parties named therein of that certain Sublicense
Agreement dated the date hereof (the “Sublicense”), and (ii) the delivery of
this Assignment fully signed by all parties and all required consents referred
to therein.

     2. Deposit. AWE confirms
receipt of the deposit paid by Customer in the amount of $627,500 U.S. under the
terms of the Contract. AWE agrees to pay such Deposit to EWT in accordance with
the terms of the Sublicense. EWT agrees to credit such Deposit against the
purchase price in accordance with the terms of the Contract.

     3. Indemnification. AWE
shall indemnify and hold EWT, its officers, directors, employees, shareholders
and agents, harmless from any and all claims, damages, expenses, and liabilities
of whatever nature, including reasonable attorneys’ fees arising out of any (a)
act, omission, or default by AWE under the Contract or as a party to the
Contract, arising any time up to and including the Effective Date; and (b) any
breach or misrepresentation of any representations, warranties or covenants
contained in this Assignment. This indemnification is entitled to any set off
rights EWT may have against AWE under the Sublicense.

     4. Customer Consent.
Customer hereby consents to this Assignment and agrees to submit all payments
and any other obligations of Customer under the Contract to EWT at
____________________________________, attention _____________________________
,  _____________, or as may be otherwise directed from time to time in
writing by EWT.

     5. Representations and
Agreements of AWE and Customer. AWE and Customer hereby represent, warrant,
covenant and agree as follows:

     (a) The
Contract is in full force and effect and has not been modified or amended, AWE
and Customer have not assigned their interests in the Contract, and the Contract
represents the entire agreement between AWE and Customer; and

     (b) The
Customer has made only the Deposit and no other payments have been made by
Customer to AWE in connection with the Contract and there have been no
deliveries made or services rendered under the Contract by AWE; and

     (c) All
obligations to be observed or performed by AWE under the Contract have been duly
observed or performed by AWE up to and including the date hereof; and

     (d) AWE
and Customer have no knowledge of any existing default under the Contract and no
event has occurred to the knowledge of AWE and Customer that, with or without
the giving of notice or with the passage of time, or both, would constitute a
default under the Contract.

     6. Letter of Restriction.
On or before the Effective Date, Customer shall issue to EWT a letter of
restriction providing for payment of the Balance (the “LOR”). Upon EWT’s receipt
of the LOR, that certain Letter of Restriction dated June 15, 2007 from Customer
to Susan Whitson, Executive Vice President of First National Bank of Waverly
(the “AWE LOR”) that was issued to AWE under the Contract shall be
terminated.

     7. Amendment of Guaranty.
The parties hereto hereby agree that as of the Effective Date the Continuing
Guaranty (the “Guaranty”) made and delivered as of July 16, 2007 by Emergya Wind
Technologies B.V. in favor of Customer in connection with the Contract be and it
hereby is amended in its entirety to refer to the Contract as assigned to EWT
with EWT being substituted as the Supplier thereunder.

     8. Entire Agreement. This
Assignment constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations, and discussions,
whether written or oral, of the parties, and there are no representations,
warranties, or other agreements between the parties in connection with the
subject matter hereof other than the Sublicense.

     9. Miscellaneous. The
section headings are for convenience of reference only and will not limit or
control the meaning of any provision of this Assignment. No delay or omission on
the part of any party hereto in exercising any right hereunder will operate as a
waiver of such right or any other right under this Assignment. This Assignment
may be executed in one or more counterparts, all of which shall be considered
one and the same Assignment, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered personally or
by electronically to the other parties. Any provision of this Assignment may be
amended or waived if, 

2

and only if, such amendment or waiver is in writing and signed,
in the case of an amendment, by the parties hereto, or in the case of a waiver,
by the party against whom the waiver is to be effective. This Assignment shall
be governed by the laws of the State of Delaware without regard to its conflict
of laws rules. Any capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Contract.

[Signatures appear on following page]

3

     IN WITNESS WHEREOF, the parties
have caused this Assignment to be executed by their duly authorized officers as
of the date first above written.

	Witness: 	 	 	“AWE” 

	  	 	 	Americas Wind Energy, Inc. 
	  	 	 	  	 
	  	 	 	By: 	 
	 	 	 	 	 
	Name: 	 	 	Name: 	 
	 	 	 	 	 
	  	 	 	Title: 	 
	  	 	 	  	 
	Witness: 	 	 	“EWT” 

	  	 	 	EWT-Americas Inc. 
	  	 	 	  	 
	  	 	 	By: 	 
	 	 	 	 	 
	Name: 	 	 	Name: 	 
	 	 	 	 	 
	  	 	 	Title: 	 
	  	 	 	  	 
	Witness: 	 	 	“Customer” 

	  	 	 	Waverly Light and Power 
	  	 	 	  	 
	  	 	 	By: 	 
	 	 	 	 	 
	Name: 	 	 	Name: 	 
	 	 	 	 	 
	  	 	 	Title: 	 

Signature Page to Assignment and Assumption Agreement
(Waverly)WWW.EXFILE.COM, INC. -- 888-775-4789 -- ARKADOS GROUP, INC. -- EXHIBIT 4.4 TO FORM S-8

    2004
STOCK OPTION AND RESTRICTED STOCK PLAN, AS AMENDED NOVEMBER 10,
2008

     

    EXHIBIT
4.4

    

    

    ARKADOS
GROUP, INC.

     

    2004
STOCK OPTION AND RESTRICTED STOCK PLAN, AS AMENDED

     

    1.              Establishment and
Purpose:

     

    (A)                   Establishment. The
ARKADOS GROUP, Inc. 2004 Stock Option and Restricted Stock Plan (the “Plan”) is
hereby adopted. All options granted under the Plan are Nonqualified Stock
Options. All capitalized undefined terms shall have the meanings ascribed to
them in section 2 hereof.

     

    (B)               
    Purpose. The Plan has
been established by ARKADOS GROUP, Inc. (the “Company”) to: (i) attract, retain
and motivate Employees, Directors, and Consultants eligible to participate in
the Plan; (ii) provide incentive compensation opportunities to Employees,
Directors, and Consultants that are competitive with those of other similar
companies; (iii) provide a means whereby the Company can recognize and reward
significant vendors and service providers in a manner other than the payment of
the cost of the goods and services provided by such Persons; and (iv) identify
the interests of eligible participants with those of the Company’s other
shareholders through compensation that is based on the Company’s common stock,
and thereby promote the long-term financial success of the Company and its
Affiliates.

     

    2.              Definitions: As used
herein, the following definitions shall apply:

     

    (A)              
     “Administrator” means the Board of Directors of
the Company and/or Committee appointed by the Board pursuant to Section 4 of the
Plan.

     

    (B)                 
  “Affiliate” means a parent or subsidiary corporation as defined in
the applicable provisions (currently Section 424(e) and (f), respectively) of
the Code.

     

    (C)                
   “Applicable Laws” means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted, and the applicable laws of
any other country or jurisdiction where Options are granted under the
Plan.

     

    (D)                
   “Board” means the Board of Directors of the
Company.

     

    (E)                 
  “Cause” means the following:

     

    (i)  Any violation by Employee of
any material provision of Employee’s employment agreement, if any, upon written
notice of same by the Company describing in detail the breach asserted and
stating that it constitutes notice pursuant to this Section 2(E)(i), which
breach, if capable of being cured, has not been cured to the Company’s
satisfaction within 30 days after such notice;

     

    (ii)  Embezzlement by Employee of
funds or property of the Company;

     

    (iii)  Habitual absenteeism, bad
faith, fraud, refusal to perform his duties, gross negligence, or willful
misconduct on the part of Employee in the performance of his or her duties as an
employee of the Company, provided that the Company has given written notice of
such 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    breach
which notice describes in detail the breach asserted and stating that it
constitutes notice pursuant to this Section 2(E)(iii), provided that no such
notice or opportunity needs to be given if, in the judgment of the Company’s
Board of Directors, such conduct is habitual or would unnecessarily or
unreasonably expose the Company to undue risk of harm; or

     

    (iv)  A felonious act, conviction,
or plea of nolo contendere of Employee under the laws of the United States or
any state (except for any conviction or plea based on a vicarious liability
theory and not the actual conduct of the Employee).

     

    (F)                   
 “Code” means the Internal Revenue, Code of 1986, as amended.

     

    (G)    
            
  “Committee” means a committee appointed by the Board to administer
the Plan in accordance with Section 4 hereof and to perform the functions set
forth herein.

     

    (H)                  
 “Common Stock” means the Common Stock of the Company.

     

    (I)                    
 “Company” means ARKADOS GROUP, Inc., a Delaware corporation.

     

    (J)                  
  “Consultant” means any Person who is engaged by the Company or any
Affiliate to render consulting or advisory services or to supply equipment to
the Company and is compensated for such activities or its
Affiliates.

     

    (K)              
     “Director” means a member of the Board of
Directors of the Company.

     

    (L)                 
  “Disability” means, in the sole determination of the Administrator,
whose determination shall be final and binding, the reasonable likelihood that
the Employee will be unable to perform his or her duties and responsibilities to
the Company by reason of a physical or mental disability or infirmity for
either: (i) a continuous period of six months; or (ii) 270 days during any
consecutive twelve- (12-) month period

     

    (M)                   “Employee”
means any person, including Officers and Directors, employed by the Company or
any Affiliate designated by the Administrator as eligible to receive Options or
Restricted Stock subject to the conditions set forth herein. For purposes
hereof, “Employee” shall include individuals who have executed a written offer
letter of employment with the Company. A person shall not cease to be an
Employee in the case of (i) any leave approved by the Company or (ii) transfers
between locations of the Company or between the Company and its Affiliates.
Neither service as a Director nor payment of a director’s fee by the Company
shall be sufficient to constitute “employment” by the Company.

     

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

     

    (O)                
   “Fair Market Value” means, as of any date, the value of Common
Stock determined as follows:

     

    (i)  If the Common Stock is listed
on any established stock exchange or a national market system, including without
limitation the National Market or SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day before the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems
reliable,

     

    (ii)  If the Common Stock is
regularly quoted by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean between the high bid

    
      
         

      

      
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    and low
asked prices for the Common Stock on the last market trading day before the day
of determination; or

     

    (iii)  In the absence of an
established market for the Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Administrator whose determination shall be final
and binding.

     

    (P)                    
“Grantee” means a person to whom Restricted Stock has been granted or sold under
the Plan.

     

    (Q)            
       Reserved.

     

    (R)              
     “Nonqualified Stock Option” or “NQO” means an
Option that is not an Incentive Stock Option.

     

    (S)               
     “Officer” means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

     

    (T)          
         “Option” means a stock
option granted pursuant to the Plan. The grant of an Option entitles the
Optionee to purchase Shares at an exercise price established by the
Administrator.

     

    (U)               
    “Option Agreement” means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.

     

    (V)            
       “Optioned Stock” means the Common
Stock subject to an Option,

     

    (W)                   “Optionee”
means a person to whom an Option has been granted under the Plan.

     

    (X)              
     “Person” means any natural person, or entity
validly organized and existing under the laws of the United States or any State,
Commonwealth, or possession thereof.

     

    (Y)               
    “Parent” means a “Parent” corporation within the meaning
of Section 424(e) of the Code, whether now or hereafter existing.

     

    (Z)                
   “Plan” means the ARKADOS GROUP, Inc. 2004Stock Option and
Restricted Stock Plan.

     

    (AA)                 “Plan
Year” shall be a calendar year.

     

    (BB)                  “Restricted
Stock” means Common Stock of the Company granted or sold in accordance with the
Plan; such Restricted Stock may also contain a Sale and Repurchase Agreement or
similar document determined by the Administrator.

     

    (CC)                  “Section
16(b)” means Section 16(b) of the Exchange Act.

     

    (DD)                  “Share”
means a share of the Common Stock, as adjusted in accordance with Section 12 of
the Plan.

     

    (EE)                   “Subsidiary”
means a “subsidiary corporation” within the meaning of Section 424(f) of the
Code, whether now or hereafter existing.

    
      
         

      

      
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    (FF)                   “Ten
Percent Stockholder” means an Employee, who, at the time an Incentive Stock
Option is to be granted to him or her, owns (within the meaning of Section
422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or any
Affiliate.

     

    3.              
 Stock Subject to
the Plan. Subject to Section 12 of the Plan, the maximum aggregate number
of Shares which may be subject to options and sold under the Plan is
22,500,0001 Shares. If an Option expires, is
canceled, is surrendered (without exercise), or otherwise becomes unexercisable
for any reason, the Shares allocable to the canceled, surrendered, or otherwise
terminated Option may again be the subject of Options granted hereunder (unless
the Plan has terminated). However, Shares that have actually been issued under
the Plan, upon exercise of an Option, shall not be returned to the Plan and
shall not become available for future distribution under the Plan. Shares that
are retained by the Company upon exercise of an Option in order to satisfy the
exercise price for such Option or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan.

     

    4.             
  Administration.

     

    (A)        
           Administrator. The
Plan shall be administered by the Board and/or by a duly appointed Committee of
the Board having such powers as shall be specified by the Board and/or the Plan.
A majority of a quorum of the Board or Committee, as the case may be, may
authorize any action.

     

    (B)              
     Compliance with Section
162(m) of the Code. If the Company is a “publicly held corporation” as
defined in paragraph (2) of section 162(m) of the Code, as amended, and the
regulations promulgated thereunder (“Section 162(m)”), the Company may establish
a committee of outside directors meeting the requirements of Section 162(m) to
approve the grant of Options which might reasonably be anticipated to “result in
the payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes” pursuant to Section
162(m).

     

    (C)              
     Powers of the
Administrator. Subject to the provisions of the Plan and in the case of a
Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall
have the authority in its discretion:

     

    (i)  To determine the Fair Market
Value;

     

    (ii)  To select Employees,
Directors, and Consultants to whom (a) Options may from time to time be granted
hereunder and (b) Restricted Stock Options may from time to time be granted or
sold hereunder;

     

    (iii)  To determine the terms and
conditions of any Option and Restricted Stock granted hereunder. Such terms and
conditions include, without limitation, the exercise price, the time when
Options may be exercised, any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
Restricted Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

     

    (iv)  To determine the number of
shares of Common Stock to be covered by each such Option granted
hereunder;

     

    (v)  To approve forms of agreement
for use under the Plan;

     

    __________________

    
      1 As
amdended November 10, 2009.

    

    
      
         

      

      
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    (vi)  To determine the terms and
conditions, not inconsistent with the terms of the Plan, of any Option and
Restricted Stock granted hereunder;

     

    (vii)  To determine whether and
under what circumstances an Option may be settled in cash under Section 9(e)
instead of Common Stock;

     

    (viii)  To fulfill the purposes of
the Plan and without amending the Plan, to modify grants of Options to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies
customs;

     

    (ix)  To allow Optionees or
Grantees to satisfy withholding tax obligations as contemplated by Section 11
hereof;

     

    (x)  To construe and interpret the
terms of the Plan and awards granted pursuant to the Plan and to establish,
amend, and revoke rules and regulations for the administration of the Plan,
including, but without limitation, correcting any defect or supplying any
omission, or reconciling any inconsistency in the Plan or in any Agreement, in
the manner and to the extent it shall deem necessary or advisable to make the
Plan fully effective;

     

    (xi)  To determine the duration
and purposes for leaves of absence which may be granted to an Optionee or
Grantee on an individual basis without constituting a termination of employment
or service for purposes of the Plan and to determine whether a Disability has
occurred or is continuing;

     

    (xii)  To exercise its discretion
with respect to the powers and rights granted to it as set forth in the
Plan;

     

    (xiii)  Generally, to exercise
such powers and to perform such acts as are deemed necessary or advisable to
promote the best interests of the Company with respect to the Plan;
and

     

    (xiv)  Any other powers and duties
set forth in the Plan.

     

    (D)          
         Effect of Administrator’s
Decision. All decisions, determinations, and interpretations of the
Administrator shall be final, binding, and conclusive upon the Company and its
Affiliates, the Optionees or Grantees, and all other persons having any interest
therein.

     

    (E)             
      Indemnification. The
Administrator shall not be liable for any action, failure to act, determination,
or interpretation made in good faith with respect to this Plan or any
transaction hereunder, except for liability arising from his or her own willful
misfeasance, gross negligence, or reckless disregard of his or her duties. The
Company hereby agrees to indemnify and hold harmless the Administrator for all
costs and expenses and, to the extent permitted by applicable law, any
liability, damages, losses, and expenses incurred in connection with defending
against, responding to, negotiation for the settlement of, or otherwise dealing
with any claim, cause of action, or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.

     

    5.             
  Eligibility.

     

    (A)                   Nonqualified
Stock Options may be granted to Employees, Directors, or Consultants. Incentive
Stock Options may be granted only to Employees. Restricted Stock may be granted
or sold to Employees, Directors, or Consultants.

    
      
         

      

      
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    (B)          
         Each Option shall be
designated in the Option Agreement as a Nonqualified Stock Option.

     

    (C)            
       The aggregate number of Options that
may be granted to any Optionee under the Plan shall not exceed fifty percent
(50%) of the aggregate number of Shares referred to in Section 3
hereof.

     

    (D)            
       Neither the Plan nor any Option shall
confer upon any Optionee any right with respect to continuing the Optionee’s
relationship as an Employee, Director, or Consultant with the Company, nor shall
it interfere in any way with his or her right or the Company’s right to
terminate such relationship at any time, with or without cause.

     

    6.             
  Term of
Plan. The Plan shall become effective upon its adoption by the Board. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 15 of the Plan or renewed by the Board.

     

    7.            
   Term
of Option. The term of each Option shall be the term stated in the Option
Agreement and the vesting period, if any, of any Restricted Stock shall be the
term stated in the applicable Stock Restriction Agreement; provided, however,
that the term shall be no more than ten (10) years from the date it is granted
(five (5) years in the case of an Incentive Stock Option granted to a Ten
Percent Stockholder), or such shorter term as the Administrator may, subsequent
to the granting of any Option, provide.

     

    8.           
    Option Exercise Price and
Consideration.

     

    (A)     
              Exercise Price. The
per-share exercise price for the Shares to be issued pursuant to exercise of an
Option, and the price per Share for the Restricted Stock to be sold or granted
hereunder, shall be such price as is determined by the
Administrator.

     

    (B)          
         Payment of Option
Price. Subject to this provision, the full exercise price for Shares
purchased upon the exercise of any Option shall be paid at the time of such
exercise (except that, in the case of an exercise arrangement described in (ii)
below, payment may be made as soon as practicable after the exercise) and the
full grant price for Restricted Stock shall be paid at the time of such grant.
The consideration to be paid for the Shares to be issued upon exercise of an
Option or purchased as Restricted Stock, including the method of payment, shall
be determined by the Administrator. Such consideration may consist of (i) cash,
by check, or cash equivalent; or (ii) consideration received by the Company
under a cashless exercise program.

     

    9.             
  Exercise
of Option.

     

    (A)                   Procedure for Exercise,
Rights as a Shareholder. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator, including performance criteria with respect to the Company and/or
the Optionee, and as shall be permissible under the terms of the Plan. An Option
may not be exercised for a fraction of a Share.

     

    (i)  An Option shall be deemed to
be exercised when the Company receives: (a) written or electronic notice of
exercise (in accordance with the Option Agreement) from the person entitled to
exercise the Option and (b) full payment for the Shares with respect to which
the Option is exercised. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment authorized by the
Administrator and permitted by the 

    
      
         

      

      
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    Option
Agreement and the Plan. Shares issued upon exercise of an Option shall be issued
in the name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is before the date
the stock certificate is issued, except as provided in Section 12 of the
Plan.

     

    (ii)  Exercise of an Option in any
manner shall result in a decrease in the number of Shares thereafter available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised. Granting of Restricted Stock in any
manner shall result in a decrease in the number of Shares thereafter available,
for purposes of the Plan, by the number of Shares of Restricted Stock so
granted.

     

    (B)         
          Termination of Relationship
as Employee, Director, or Consultant. If an Optionee ceases to be an
Employee, Director, or Consultant, as the case may be, such Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee’s termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan. The same provisions shall be applicable with
respect to a Grantee of Restricted Stock which is the subject of a repurchase
right in the Company or which is the subject of a forfeiture of Shares in the
event of a termination. No termination shall be deemed to occur if (i) the
Optionee or Grantee is a Consultant or Director who becomes an Employee within
the time specified herein; or (ii) the Optionee or Grantee is an Employee who
becomes a Consultant or Director who is not also an employee, within the time
specified herein. Notwithstanding anything herein to the contrary, if an
Optionee or Grantee ceases to be an Employee, Director, or Consultant because of
such Optionee’s or Grantee’s violation of his or her duties to the Company, as
conclusively determined by the Administrator in its sole discretion, all of such
Optionee’s unexercised Options shall immediately terminate, and all of such
Grantee’s Shares of Restricted Stock shall be forfeited, on the termination date
and he or she shall have no right to exercise any unexercised Option on or after
such date.

     

    (C)            
       Disability of Optionee or
Grantee. If an Optionee ceases to be an Employee, Director, or Consultant
as a result of Optionee’s Disability, the Optionee may within six (6) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
all vested Options through such termination date. If Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan. All unvested Options shall terminate. Upon the Disability of a
Grantee, any Shares of Restricted Stock still subject to forfeiture shall be
forfeited and terminated as of the date of termination. This clause may be
waived by the Administrator in whole or in part to allow for continuing or
accelerated vesting of Options or decelerated or no forfeiture of Restricted
Stock.

    
      
         

      

      
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    (D)             
      Death of Optionee or
Grantee . If an Optionee dies while an Employee, Director, or Consultant,
all vested Options may be exercised at any time within six (6) months following
the date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), and all unvested Options
shall be terminated. The Option may be exercised by the executor or
administrator of the Optionee’s estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee’s will or under the laws of descent and
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan. Upon the death of a Grantee, any Shares of Restricted Stock
still subject to forfeiture shall be forfeited and terminated as of the date of
termination. This clause may be waived by the Administrator in whole or in part
to allow for continuing or accelerated vesting of Options or decelerated or no
forfeiture of Restricted Stock.

     

    (E)             
      Buyout Provisions.
The Administrator may at any time offer to buy out for a payment in cash or
Shares, an Option previously granted, based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time that
such offer is made. The Company shall have the right to offset against any such
payment any amounts owed by Optionee to the Company.

     

    10.               Restricted Stock. The
Administrator may award to an Employee, Director, or Consultant Shares, subject
to this Section 10 and such other terms and conditions as the Administrator may
prescribe.

     

    (A)                   Certificate Registration
. Restricted Stock awarded under the Plan shall be evidenced by
certificates. Each certificate for Restricted Stock shall be registered in the
name of the Employee, Director, or Consultant granted Restricted Stock and
deposited, together with a stock power endorsed in blank, with the
Company.

     

    (B)               
    Restriction Period.
There shall be established for each Restricted Stock grant a restriction period
of such length as shall be determined by the Administrator (the “Restriction
Period”), but in no event less than thirty (30) days. Shares of Restricted Stock
may not be sold, assigned, transferred, pledged, or otherwise encumbered, except
as hereinafter provided, during the Restriction Period. Except for such
restrictions on transfer and such other restrictions as the Administrator may
impose, the Employee, Director, or Consultant shall have all the rights of a
holder of Common Stock as to such Restricted Stock (including, but not limited
to, voting rights and the right to receive dividends). At the expiration of the
Restriction Period, the Company shall deliver to the Employee, Director, or
Consultant (or in the case of death or disability, his or her legal
representative) the certificates deposited pursuant to this Section
10.

     

    (C)                
   Other Terms and
Conditions. The Administrator may impose other terms and conditions on
the granting of the Restricted Stock, including those otherwise set forth in the
Plan and that the Grantee execute any shareholders agreement, lock up agreement,
repurchase and other agreements deemed appropriate by the
Administrator.

     

    (D)                 
  Termination of
Relationship. Except as otherwise determined by the Administrator in its
sole discretion, upon a termination of the relationship with the Company by the
Employee, Director, or Consultant, as the case may be, for any reason during the
Restriction Period, all Shares that are subject to restriction as of the date of
termination shall be forfeited.

     

    (E)               
    Change of Control. In
the event of a Change of Control, restrictions on all Restricted Stock shall
lapse as of the date six (6) months after the date of such Change of Control as
determined by the Administrator.

    
      
         

      

      
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    11.              Withholding To Satisfy Tax
Obligations.

     

    (A)                  
Permitted
Methods. At the discretion of the Administrator, Optionees may satisfy
withholding obligations as provided in this Section 11. When an Optionee incurs
tax liability in connection with an Option, which tax liability is subject to
tax withholding under applicable tax laws, and the Optionee is obligated to pay
the Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by one or some combination
of the following methods: (i) by cash payment; (ii) out of Optionee’s current
compensation; (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (a) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (b) have a Fair Market Value on the date of
surrender equal to or less than Optionee’s marginal tax rate times the ordinary
income recognized; or (iv) by electing to have the Company withhold from the
Shares to be issued upon exercise of the Option, if any, that number of Shares
having a Fair Market Value equal to the amount of withholding due. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined.

     

    (B)              
     Procedures for Stock
Withholding. All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions: (i) the election must be made on or before the applicable tax
withholding date, (ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; (iii) all
elections shall be subject to the consent or disapproval of the Administrator,
(iv) if the Optionee is an Officer, Director, or greater than Ten Percent
Stockholder within the meaning of Rule 16a-2 under the Exchange Act (“Reporting
Person”), the election must comply with the applicable provisions of Rule 16b3
and shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.

     

    12.               Adjustments upon Changes in
Capitalization, Merger or, Certain Other Transactions.

     

    (A)                  
Changes in
Capitalization. Subject to any required action by the shareholders of the
Company, the number and class of shares of Common Stock with respect to which
Options may be granted under the Plan, the number and class of Shares of Common
Stock which are subject to outstanding Options granted under the Plan, and the
purchase price per Share of Common Stock, if applicable, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares of Common Stock effected
without receipt of consideration by the Company. The conversion of any
convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration.” Any such adjustment in the Shares subject to
outstanding Incentive Stock Options (including any adjustments in the purchase
price) shall be made in such manner as not to constitute a modification as
defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code. Adjustments shall be made by the
Administrator, whose determination in that respect shall be final, binding, and
conclusive. If, by reason of a change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional, or different
shares of stock, such new, additional, or different shares shall thereupon be
subject to all of the conditions which were applicable to the Shares subject to
the Option, as the case may be, before such Change in
Capitalization.

    
      
         

      

      
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    (B)                
   Dissolution or
Liquidation. In the event of the proposed dissolution or liquidation of
the Company, the Administrator shall notify each Optionee as soon as practicable
before the effective date of such proposed action. The Administrator in its
discretion may provide for an Optionee to have the right to exercise his or her
Option until fifteen (15) days before such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option would not
otherwise be exercisable. To the extent it has not been previously exercised, an
Option will terminate immediately before the consummation of such proposed
action.

     

    (C)               
    Merger or Sale of
Assets. If the Company is to be consolidated with or acquired by another
unrelated entity in a merger or other reorganization in which the holders of the
outstanding voting stock of the Company immediately preceding the consummation
of such event, shall immediately following such event, hold, in the aggregate,
less than a majority of the voting securities of the surviving or successor
entity, or in the event of a sale of all or substantially all of the Company’s
assets or otherwise (each, a “Change-of-Control”), then each outstanding Option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. If the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall fully vest in and have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such notice
and the Option shall terminate upon the expiration of such period. For purposes
of this paragraph, the Option shall be considered assumed if, following the
Change of Control, the Option confers the right to purchase for each Share of
Optioned Stock subject to the Option immediately before the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per-share consideration received by
holders of Common Stock in the merger or sale of assets.

     

    (D)             
      Certain
Distributions. In the event of any distribution to the Company’s
shareholders of securities of any other entity or other assets (other than
dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.

     

    13.               Non-Transferability of
Options and Restricted Stock. Except as otherwise provided in this
Section, Options may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised or purchased during the lifetime of the
Optionee, only by the Optionee. Notwithstanding the foregoing, the Administrator
may, in its discretion and consistent with applicable laws, authorize all or a
portion of the Options and/or Restricted Stock to be granted to an Optionee to
be transferred by such Optionee to (i) the spouse, children, or grandchildren of
such Optionee (“Immediate Family Members”), (ii) a trust of trusts for the
benefit of an Immediate Family Member, or (iii) a partnership or limited
liability company in which Immediate Family Members are the only partners or
members, provided, that (x) there is no consideration for such transfer, (y) the
Option Agreement expressly provides for the transfer of the Options in
accordance with this Section, and (z) subsequent transfers of such Options are
prohibited except by or in accordance with the laws of descent or
distribution.

    
      
         

      

      
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    14.              Time of Granting
Options. The date of grant of an Option shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option, or
such other date as is determined by the Administrator. Notice of the
determination shall be given to each Employee, Director, or Consultant to whom
an Option is so granted within a reasonable time after the date of such
grant.

     

    15.              Amendment and Termination of
the Plan.

     

    (A)          
         Amendment and
Termination. The Board or the Administrator may at any time amend, alter,
suspend, or terminate the Plan.

     

    (B)           
        Shareholder Approval.
To the extent necessary and desirable to comply with Applicable Laws, the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

     

    (C)             
      Effect of Amendment or
Termination. No amendment, alteration, suspension, or termination of the
Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing
and signed by the Optionee and the Company. Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan before the date of such
termination.

     

    16.               Conditions Upon Issuance of
Shares.

     

    (A)           
        Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any Stock
Exchange.

     

    (B)              
     Investment
Representation. As a condition to the exercise of an Option, the
Administrator may require the person exercising such Option to represent and
warrant to the Company in writing at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares, and will not be sold or transferred other
than pursuant to an effective registration thereof under the Exchange Act or
pursuant to an exemption applicable under the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder. The certificates
evidencing any such Shares shall be appropriately legended to reflect their
status as restricted securities.

     

    (C)               
    Settlement of Award.
Shares delivered pursuant to the exercise of an Option shall be subject to such
conditions, restrictions, and contingencies as the Administrator may establish
in the Agreement. The Administrator, in its discretion, may impose such
conditions, restrictions, and contingencies with respect to Shares acquired
pursuant to the exercise of an Option that the Administrator determines to be
desirable.

     

    17.               Regulations and Other
Approvals: Governing Law.

     

    (A)                  
This Plan and the rights of all persons claiming hereunder shall be construed
and determined in accordance with the laws of the State of New Jersey, and all
actions brought to 

    
      
         

      

      
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    interpret
or enforce this Agreement shall be brought in a forum in New Jersey solely at
the discretion of the Administrator.

     

    (B)                
   The obligation of the Company to sell or deliver Shares with
respect to Options and Restricted Stock granted under the Plan shall be subject
to all Applicable Laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the
Administrator.

     

    (C)               
    The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company’s counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.

     

    (D)                   
The Administrator may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or to obtain
for Employees granted Incentive Stock Options the tax benefits under the
applicable provisions of the Code and regulations promulgated
thereunder.

     

    18.               Reservation of
Shares. The Company, during the term of this Plan, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

     

    19.               Agreements. Options
and Restricted Stock shall be evidenced by written agreements in such form as
the Administrator shall approve from time to time. A form of agreement to (a)
grant Options is set forth on Exhibit A hereto and (b) grant or sell Restricted
Stock is set forth on Exhibit B attached hereto, although the Administrator may
make appropriate changes to the form based on and to reflect the terms and
conditions of the grant of Option or Restricted Stock.

    
      
         

      

      
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    EXHIBIT
A

     

    Stock
Option Grant Agreement

     

    Under
The

     

    ARKADOS
GROUP, INC. 2004 Stock Option Plan

     

    This Grant Agreement (the “Agreement”)
is entered into by and between ARKADOS GROUP, Inc., a Delaware corporation (the
“Company”), and the individual (the “Optionee”) specified on the Notice of Grant
of Stock Options attached hereto and incorporated by reference herein (the
“Notice of Grant of Stock Options”), effective as of ________, 20__ (the “Grant
Date”).

     

    1.      Grant of Option. The
Company hereby grants to the Optionee, pursuant to the ARKADOS GROUP, Inc. 2004
Stock Option and Restricted Stock Plan (the “Plan”), an option (the “Option”) to
purchase the number of Shares set forth in the Notice of Grant attached hereto
as Exhibit 1, at the exercise price per Share set forth in the Notice of Grant
(the “Exercise Price”), and subject to the terms and conditions of the Plan,
which is incorporated herein by reference. Subject to Section 15(c) of the Plan
(Effect of Amendment or Termination), in the event of a conflict between the
terms and conditions of the Plan and this Option Agreement, the terms and
conditions of the Plan shall prevail.

     

    (a)  This Option is not intended
to qualify as an Incentive Stock Option as defined in Section 422 of the Code
and shall be treated as a Nonqualified Stock Option (“NQO”). The Notice of Grant
of Stock Options sets forth the following terms of the Option: (i) the
Optionee, (ii) the number of shares of Stock subject to the Option,
(iii) the Strike Price per share, and (iv) the date as of which the
Option shall expire (the “Expiration Date”), at 5:00 p.m. Eastern Time, unless
fully exercised or earlier terminated. The information provided on the Notice of
Grant of Stock Options is in all respects subject to the terms of this
Agreement.

     

    2.      Terminology. Unless
stated otherwise in this Agreement, capitalized terms in this Agreement shall
have the meaning set forth in the Plan. Except where the context otherwise
requires, the term “Company” shall mean ARKADOS GROUP, Inc., a Delaware
corporation.

     

    3.      Exercise of
Option.

     

    (a)  Right to Exercise.
Except as otherwise provided in this Agreement, this Option may be exercised as
to its vested portion at any time and from time to time, in whole or in part, on
or before the Expiration Date or earlier termination of the Option by executing
the exercise notice in the form of Exhibit 2. To the extent not exercised,
vested shares shall accumulate and be exercisable, in whole or in part, at any
time after becoming exercisable, but not later than the Expiration Date or other
termination of the Option. In the event of the Optionee’s death, disability, or
other termination of employment, the exercisability is governed by
Section 4 below.

     

    (b)  Vesting. Unless the
Option has earlier terminated, Optionee shall vest in accordance with the
vesting schedule set forth in the Notice of Grant.

     

    (c)  Exercise Procedure.
Subject to the conditions set forth in this Agreement, including without
limitation the execution of a Stock Restriction Agreement as required by
Section 3(e) hereof, this Option shall be exercised by delivery of written
notice of exercise on any business day to the Corporate Secretary of the Company
in such form as the Administrator 

    
      
         

      

      
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    may
require from time to time. Such notice shall specify the number of shares in
respect of which the Option is being exercised and shall be accompanied by full
payment of the Strike Price for such shares in accordance with Section 3(d)
of this Agreement. The exercise shall be effective upon receipt by the Corporate
Secretary of the Company of such written notice accompanied by the required
payment. The Option may be exercised only in multiples of whole vested shares
and may not be exercised at any one time as to fewer than one hundred (100)
shares (or such lesser number of shares as to which the Option is then
exercisable). No fractional shares shall be issued pursuant to this
Option.

     

    (d)  Method of Payment.
Payment of the Strike Price shall be by any of the following, or a combination
thereof, as determined by the Administrator in its discretion at the time of
exercise:

     

    i.       By
delivery of cash, certified or cashier’s check, or money order;

     

    ii.       By
any other method approved by the Administrator.

     

    Subject to such limitations as the
Administrator may determine, at any time during which the Stock is publicly
traded on a national securities exchange or NASDAQ, the Strike Price shall be
deemed to be paid, in whole or in part, if the Optionee delivers a properly
executed exercise notice, together with irrevocable instructions: (A) to a
brokerage firm approved by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the Strike Price and any
withholding tax obligations that may arise in connection with the exercise, and
(B) to the Company to deliver the certificates for such purchased shares
directly to such brokerage firm.

     

    (e)  Issuance of Shares upon
Exercise. Upon due exercise of the Option, in whole or in part, in
accordance with the terms of this Agreement, the Company shall issue to the
Optionee, or such other person exercising the Option, as the case may be, the
number of shares of Stock so paid for, in the form of fully paid and
nonassessable stock and shall deliver certificates therefor as soon as
practicable thereafter. The stock certificates for any shares of Stock issued
hereunder shall, unless such shares are registered or an exemption from
registration is available under applicable federal and state law, bear a legend
restricting transferability of such shares, and if such shares are subject to a
Stock Restriction Agreement pursuant to Section 3(e) hereof, shall bear a
legend referencing the Stock Restriction Agreement.

     

    4.      Termination of
Employment.

     

    (a)  Exercise Period Following
Termination of Employment. Unless the Option has earlier terminated, if
the Optionee’s employment with the Company is terminated, other than as a result
of the causes set forth in clauses (b), (c) or (d) below: (i) this Option
shall terminate immediately upon such termination of employment to the extent of
any unvested shares, and all unvested shares shall be forfeited, and
(ii) this Option shall be exercisable during the 30-day period following
such termination of employment with respect to any vested shares, but in no
event after the Expiration Date. Unless sooner terminated, this Option shall
terminate in its entirety upon the expiration of the applicable exercise period
noted above in this Section 4(a).

     

    (b)  Permanent Disability of
Optionee. Notwithstanding the provisions of Section 4(a) above,
if the Optionee’s employment with the Company terminates as a result of his
Permanent Disability (as defined herein), (i) this Option shall terminate
immediately upon such termination of employment to the extent of any unvested
shares, and all unvested shares shall be forfeited, and (ii) this Option
shall be exercisable during the six-month period following such
termination

    
      
         

      

      
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    of
employment with respect to any vested shares, but in no event after the
Expiration Date. Unless sooner terminated, this Option shall terminate in its
entirety upon the expiration of such six-month period. “Permanent Disability”
shall have the meaning set forth in Optionee’s existing Employment Agreement
with the Company. If no such Employment Agreement is in effect, then such term
shall have the same meaning as set forth in the last existing employment
agreement between Optionee and the Company or otherwise in accordance with the
definition set forth in the Plan.

     

    (c)  Death of Optionee. If
the Optionee dies before the Expiration Date or other termination of the Option,
(i) this Option shall terminate immediately upon the Optionee’s death to
the extent of any unvested shares, and all unvested shares shall be forfeited,
and (ii) this Option shall be exercisable during the six-month period
following the date of death of the Optionee with respect to any vested shares,
but in no event after the Expiration Date, by the Optionee’s executor, personal
representative, or the person(s) to whom this Option is transferred by will or
the laws of descent and distribution. Unless sooner terminated, this Option
shall terminate in its entirety upon the expiration of such six-month
period.

     

    (d)  Discharge for Cause.
Notwithstanding anything to the contrary herein, this Option shall terminate in
its entirety, regardless of whether the Option is vested in whole or in part,
immediately upon the Optionee’s discharge of employment for Cause. For purposes
of this Section, the term “Cause” shall have the meaning set forth in existing
Employment Agreement with the Company. If no such Employment Agreement is in
effect, then such term shall have the same meaning as set forth in the last
existing employment agreement between Optionee and the Company or as set forth
in the Plan.

     

    5.      Adjustments and Business
Combinations.

     

    (a)  Adjustments for Events
Affecting Stock. In the event of changes in the Stock of the Company by
reason of any stock dividend, spin-off, split-up, recapitalization, merger,
consolidation, business combination or exchange of shares and the like, the
Administrator shall, in its discretion, make appropriate adjustments to the
number, kind, and price of shares covered by this Option, and shall, in its
discretion and without the consent of the Optionee, make any other adjustments
in this Option, including but not limited to reducing the number of shares
subject to the Option or providing or mandating alternative settlement methods
such as settlement of the Option in cash or in shares of Stock or other
securities of the Company or of any other entity, or in any other matters which
relate to the Option as the Administrator shall, in its sole discretion,
determine to be necessary or appropriate.

     

    (b)  Pooling of Interests
Transaction. Notwithstanding anything in the Plan or this Agreement to
the contrary and without the consent of the Optionee, the Administrator, in its
sole discretion, may make any modifications to the Option, including but not
limited to cancellation, forfeiture, surrender, or other termination of the
Option in whole or in part regardless of the vested status of the Option, in
order to facilitate any business combination that is authorized by the Board to
comply with requirements for treatment as a pooling of interests transaction for
accounting purposes under generally accepted accounting principles.

     

    (c)  Adjustments for Unusual
Events. The Administrator is authorized to make, in its discretion and
without the consent of the Optionee, adjustments in the terms and conditions of,
and the criteria included in, the Option in recognition of unusual or
nonrecurring events affecting the Company, or the financial statements of the
Company or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Administrator determines 

    
      
         

      

      
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    that such
adjustments are appropriate to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Option or the
Plan.

     

    (d)  Binding Nature of
Adjustments. Adjustments under this Section 5 will be made by the
Administrator, whose determination as to what adjustments, if any, will be made
and the extent thereof will be final, binding, and conclusive. No fractional
shares will be issued pursuant to this Option on account of any such
adjustments.

     

    6.      Confidential
Information. In consideration of the Option granted to the Optionee
pursuant to this Agreement, the Optionee agrees and covenants that, except as
specifically authorized by the Company, the Optionee will keep confidential any
trade secrets or confidential or proprietary information of the Company which
are now or which hereafter may become known to the Optionee as a result of the
Optionee’s employment by the Company, and shall not at any time, directly or
indirectly, disclose any such information to any person, firm, Company, or other
entity, or use the same in any way other than in connection with the business of
the Company, at all times during and after the Optionee’s employment. The
provisions of this Section 6 shall not narrow or otherwise limit the
obligations and responsibilities of the Optionee set forth in any agreement of
similar import entered into between the Optionee and the Company.

     

    7.      Non-Guarantee of
Employment. Nothing in the Plan or this Agreement shall alter the at-will
or other employment, consultant, or director status of the Optionee, nor be
construed as a contract of employment between the Company and the Optionee, or
as a contractual right of Optionee to continue in the employ of, the Company, or
as a limitation of the right of the Company to discharge the Optionee at any
time with or without cause or notice.

     

    8.      No Rights as a
Stockholder. The Optionee shall not have any of the rights of a
stockholder with respect to the shares of Stock that may be issued upon the
exercise of the Option until such shares of Stock have been issued to him or her
upon the due exercise of the Option. No adjustment shall be made for dividends
or distributions or other rights for which the record date is before the date
such certificate or certificates are issued.

     

    9.      Nonstatutory Nature of the
Option. The Optionee acknowledges that, upon exercise of this Option, the
Optionee will recognize taxable income in an amount equal to the excess of the
then Fair Market Value of the shares over the Strike Price and must comply with
the provisions of Section 10 of this Agreement with respect to any tax
withholding obligations that arise as a result of such exercise.

     

    10.    Withholding of Taxes.
At the time the NSO Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Optionee hereby authorizes
withholding from payroll or any other payment of any kind due the Optionee and
otherwise agrees to make adequate provision for foreign, federal, state, and
local taxes required by law to be withheld, if any, which arise in connection
with the Option. The Company may require the Optionee to make a cash payment to
cover any withholding tax obligation as a condition of exercise of the Option.
If the Optionee does not make such payment when requested, the Company may
refuse to issue any Stock certificate under the Plan until arrangements
satisfactory to the Administrator for such payment have been made. The
Administrator may, in its sole discretion, permit the Optionee to satisfy, in
whole or in part, any withholding tax obligation which may arise in connection
with the Option either by electing to have the Company withhold from the shares
to be issued upon exercise that number of shares, or by electing to deliver to
the Company already-owned shares, in either case having a Fair Market Value
equal to the amount necessary to satisfy the statutory minimum withholding
amount due.

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    11.    The Company’s Rights.
The existence of this Option shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company’s capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred, or other stocks with preference ahead of
or convertible into, or otherwise affecting the Stock or the rights thereof, or
the dissolution or liquidation of the Company, or any sale or transfer of all or
any part of the Company’s assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.

     

    12.    Optionee. Whenever
the word “Optionee” is used in any provision of this Agreement under
circumstances where the provision should logically be construed, as determined
by the Administrator, to apply to the estate, personal representative, or
beneficiary to whom this Option may be transferred by will or by the laws of
descent and distribution, the word “Optionee” shall be deemed to include such
person.

     

    13.    Nontransferability of
Option. This Option is nontransferable otherwise than by will or the laws
of descent and distribution and during the lifetime of the Optionee, the Option
may be exercised only by the Optionee or, during the period the Optionee is
under a legal disability, by the Optionee’s guardian or legal representative.
Except as provided above, the Option may not be assigned, transferred, pledged,
hypothecated, or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment, or similar
process.

     

    14.    Notices. All notices
and other communications made or given pursuant to this Agreement shall be in
writing and shall be sufficiently made or given if hand-delivered or mailed by
certified mail, addressed to the Optionee at the address contained in the
records of the Company, or addressed to the Administrator, care of the Company
for the attention of its Corporate Secretary at its principal office or, if the
receiving party consents in advance, transmitted and received via telecopy or
via such other electronic transmission mechanism as may be available to the
parties.

     

    15.    Entire Agreement.
This Agreement contains the entire agreement between the parties with respect to
the stock option granted hereunder. Any oral or written agreements,
representations, warranties, written inducements, or other communications made
before the execution of this Agreement with respect to the stock option granted
hereunder shall be void and ineffective for all purposes.

     

    16.    Amendment. This
Agreement may not be modified, except as provided in the Plan or in a written
document signed by each of the parties hereto.

     

    17.    Conformity with Plan.
This Agreement is intended to conform in all respects with, and is subject to
all applicable provisions of, the Plan, which is incorporated herein by
reference. Inconsistencies between this Agreement and the Plan shall be resolved
in accordance with the terms of the Plan. In the event of any ambiguity in this
Agreement or any matters as to which this Agreement is silent, the Plan shall
govern. A copy of the Plan is available upon request to the
Administrator.

     

    18.    Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey, other than the conflict of laws principles thereof. All
actions to enforce or interpret this Agreement shall be brought in an exclusive
forum in New Jersey determined by the Administrator.

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    19.    Headings. The
headings in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.

     

    IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer as of the date first above written.

     

     

    
      
        	 	      
                ARKADOS
      GROUP, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	 	 
	 	 	_____,
      President 	 
	 	 	 	 

      

    

     

    The
undersigned hereby acknowledges that he/she has carefully read this Agreement
and the Plan and agrees to be bound by all of the provisions set forth in such
documents.

     

     

    
      
        	WITNESS:   	 	 	OPTIONEE: 	 
	
                 

              	 	 	
                 

              	 
	
                 

              	 	 	
                 

              	 
	
                 

              	 	 	
                Date:
      As of ____________, 200__

              	 

      

    

    

    
      
         

      

      
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    EXHIBIT
1

     

    NOTICE OF GRANT OF STOCK
OPTIONS

     

     

    

       

      
        	Optionee: 	____________________________________ 	 
	 	 	 
	Grant
      Date: 	______________________________,
      200__ 	 
	 	 	 
	      
                Number
      of Shares Subject 

              	 	 
	 	 	 
	To The
      Option:  	______________________________
      (NSOs) 	 
	 	 	 
	 	 	 
	Strike Price
      Per Share:	$
    _____ 	 
	 	 	 
	Vesting:  	____________________________________	 
	 	____________________________________ 	 
	 	 	 
	Expiration
      Date:  	____________________________________ 	 
	 	 	 

      

       

    

     

     

    
      
         

      

      
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    EXHIBIT
2

     

    FORM OF NOTICE OF
EXERCISE

     

    Administrator
of 2004 Stock Option and Restricted Stock Plan

     

    c/o
Office of the Corporate Secretary

     

    ARKADOS
GROUP, Inc.

     

    _____________

     

    _____________

     

    

     

    Gentlemen:

     

    I hereby exercise the Stock Option
granted to me on ____________________, 200__, by ARKADOS GROUP, Inc. (the
“Company”), subject to all the terms and provisions thereof and of the ARKADOS
GROUP, Inc. 20__ Stock Option and Restricted Stock Plan (the “Plan”), and notify
you of my desire to purchase ____________ shares of Common Stock of the Company
at a price of $___________ per share pursuant to the exercise of said Option.
This will confirm my understanding with respect to the shares to be issued to me
by reason of this exercise of the Option (the shares to be issued pursuant
hereto shall be collectively referred to hereinafter as the “Shares”), unless
such exercise occurs after a registration statement is filed and effective, as
follows:

     

    (a)  I am acquiring the Shares for
my own account for investment with no present intention of dividing my interest
with others or of reselling or otherwise disposing of any of the
Shares.

     

    (b)  The Shares are being issued
without registration under the Securities Act of 1933, as amended (the “Act”),
in reliance upon one or more exemptions contained in the Act, and such reliance
is based in part on the above representation.

     

    (c)  The certificates for the
Shares to be issued to me will bear a legend substantially as
follows:

     

    “The securities represented by this
stock certificate have not been registered under the Securities Act of 1933 (the
“Act”) or applicable state securities laws (the “State Acts”), and shall not be
sold, pledged, hypothecated, donated, or otherwise transferred (whether or not
for consideration) by the holder except upon the issuance to the Company of a
favorable opinion of its counsel and/or submission to the Company of such other
evidence as may be satisfactory to counsel for the Company, to the effect that
any such transfer shall not be in violation of the Act and the State
Acts.

     

    “The shares of stock represented by
this certificate are subject to restrictions on transfer and an option to
purchase set forth in a certain Stock Restriction Agreement between the Company
and the registered owner of this certificate (or his predecessor in interest),
and no transfer of such shares may be made without compliance with that
Agreement. A copy of that Agreement is available for inspection at the office of
the Company upon appropriate request and without charge.”

     

    Appropriate
stop transfer instructions will be issued by the issuer to its transfer
agent.

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    (d)  Since the Shares have not
been registered under the Act, they must be held indefinitely until an exemption
from the registration requirements of the Act is available or they are
subsequently registered, in which event the representation in Paragraph (a)
hereof shall terminate. As a condition to any transfer of the shares, I
understand that the issuer will require an opinion of counsel satisfactory to
the issuer to the effect that such transfer does not require registration under
the Act or any state securities law.

     

    (e)  The issuer is not obligated
to comply with the registration requirements of the Act or with the requirements
for an exemption under Regulation A or Regulation D under the Act for my
benefit.

     

    I am a party to a Stock Restriction
Agreement with the Issuer, pursuant to which I have agreed to certain
restrictions on the transferability of the Shares and other matters relating
thereto.

     

    Total
Amount Enclosed: $__________

     

     

    
    

     

    
      	Date:_______________________________ 	 	___________________________________ 	 	 
	 	 	      
              (Optionee) 

            	 	 
	 	 	 	 	 
	 	 	ARKADOS GROUP,
      Inc. 	 	 
	 	 	 	 	 
	 	 	By:
      ________________________________ 	 	 
	 	 	 	 	 
	 	 	_________
      President 	 	 

    

       

     

    
      
         

      

      
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    EXHIBIT
B

     

    FORM OF STOCK RESTRICTION
AGREEMENT

     

    

     

    This
Stock Subscription, Restriction, and Repurchase Agreement (the “Agreement”) is
made as of this ____ day of __________, 200___ by and between ARKADOS GROUP,
Inc., a Delaware corporation (the “Company”), and ______________ (“Stockholder”,
which term includes his heirs, executors, guardians, success and
assigns).

     

    The Stockholder desires to purchase
shares of Common Stock of the Company and the Company desires to sell shares of
the Company’s common stock, no par value (the “Common Stock”) to the Stockholder
on the terms and subject to the conditions set forth in this
Agreement.

     

    The parties therefore agree as
follows:

     

    I.        PURCHASE AND SALE OF
STOCK.

     

    1.1.              Purchase and Sale of
Stock. Subject to the terms and conditions of this Agreement, the Company
shall sell to Stockholder, and Stockholder shall purchase from the Company,
________________ (______) shares of Common Stock (“Purchased Shares”) at a price
of $______ per share for an aggregate purchase price of $________ (“Purchase
Price”).

     

    1.2.              Payment. Concurrently
with the delivery of this Agreement to the Secretary of the Company, the
Stockholder shall pay the Purchase Price by delivering to the Company at the
time of execution of this Agreement, at the Company’s election, either: (a) a
check or cash in the amount of the Purchase Price; (b) an executed
non-negotiable promissory note to the Company in the principal amount of the
Purchase Price, payable as follows: (x) interest only on December 31 of each
year at the annual interest rate of __% and (y) a balloon payment of principal
and interest _____ years from the date hereof accelerated upon the closing of a
transaction resulting in a Change of Control; No-Cash Exercise in the manner
described in the Option Agreement; or (d) such other manner of payment as shall
be determined by the Administrator. The Stockholder shall deliver whatever
additional documents may be required by the Company, including the Assignment
Separate from Certificate attached hereto a Exhibit A.

     

    II.        SECTION
83(B) ELECTION. Stockholder understands that Section 83(a) of the
Internal Revenue Code of 1986, as amended (the “Code”) taxes as ordinary income
the difference between the amount paid for the Purchased Shares and the fair
market value of the Purchased Shares the earlier of (x) the date such shares
become freely transferable (as defined by the relevant provisions of Code
Section 83) or (y) the date the shares become substantially vested. In this
context, the Purchased Shares become “substantially vested” as determined by the
rights, or lack of rights, of the Company to buy back the Purchased Shares under
the vesting or repurchase schedule set forth in Section IV of this Agreement.
Stockholder understands that he may elect to be taxed at the time the Purchased
Shares are acquired rather than when and as such Purchased Shares vest or are no
longer subject to repurchase by filing an election under Section 83(b) of the
Code with the Internal Revenue Service within thirty (30) days from the date of
purchase. Even if the fair market value of the Purchased Shares equals the
amount paid (and thus no tax is payable), the election may be made to eliminate
ordinary compensation income tax consequences in the future. Stockholder
understands that failure to make this filing within the thirty- (30-) day period
will result in the recognition of ordinary income by the Stockholder as vesting
or the lapse of repurchase rights occurs, determined with reference to the value
of the Purchased Shares as of the date of vesting (i.e. the date the Company’s
repurchase rights lapse). STOCKHOLDER ACKNOWLEDGES THAT IT IS STOCKHOLDER’S SOLE
RESPONSIBILITY AND NOT 

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    THE
COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), EVEN IF STOCKHOLDER
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER
BEHALF.

     

    III.       TRANSFER
RESTRICTIONS.

     

     3.1.             Restriction on
Transfer. Stockholder shall not transfer, assign, pledge, encumber, or
otherwise dispose of any of the Purchased Shares which are subject to the
Company’s rights under Article IV. Such restrictions on transfer set forth in
Article V, however, shall not be applicable to (i) a gratuitous transfer of the
Purchased Shares made to the Stockholder’s spouse, parents, siblings, or issue,
including adopted children, or to a trust for the exclusive benefit of the
Stockholder or the Stockholder’s spouse, parents, siblings, or issue, including
adopted children, or (ii) a transfer of title to the Purchased Shares effected
pursuant to the Stockholder’s will or the laws of intestate
succession.

     

     3.2.             Transferee
Obligations. Each person (other than the Company) to whom the Purchased
Shares are transferred by means of one of the permitted transfers specified in
Section 3.1 must, as a condition precedent to the validity of such transfer,
acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the transferred shares are subject to the
Company’s repurchase and first refusal rights granted hereunder and the market
standoff obligations set forth in Article VIII, to the same extent such shares
would be so subject if retained by the Stockholder.

     

     3.3.             Definition of Owner.
For purposes of Articles IV and V of this Agreement, the term “Owner”, “Sell”,
“Stockholder” and terms of similar import shall include the Stockholder and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Stockholder in accordance with Section
3.1.

     

    IV.       REPURCHASE
RIGHT.

     

    4.1.             Grant. The Company is
hereby granted the right (the “Repurchase Right”) exercisable at any time during
the one hundred eighty- (180-) day period following the date Stockholder ceases
to be a Service Provider (as defined herein) to the Company before the date
which there are no Unvested Shares for any reason, to repurchase, at the price
originally paid by the Stockholder for the shares (the “Purchase Price”) all or
any portion of the Purchased Shares in which the Stockholder has not acquired a
vested interest in accordance with the vesting provisions of Section 4.3 (such
shares to be hereinafter called the “Unvested Shares”). The Repurchase Right
applies to the Unvested Shares regardless of whether the Stockholder owns such
Shares or they have been transferred to anyone else. For purposes of this
Agreement, the Stockholder shall be deemed to be a Service Provider to the
Company for so long as the Stockholder renders periodic services to the Company
or one or more of its parent or subsidiary corporations as either an employee, a
non-employee member of the Board of Directors, or an independent non-employee
consultant as determined by and in the sole discretion of the Board of Directors
of the Company. The one hundred eighty- (180-) day period during which the
Company’s Repurchase Right must be exercised under this Section 4.1 shall be
suspended during any period the Stockholder is on an approved leave of absence.
Should the Stockholder fail to return to full-time employment with the Company
before the expiration date of the approved leave, then the Company shall have a
period of one hundred eighty (180) days following such expiration date in which
to exercise the Repurchase Right with respect to any or all Purchased Shares
which were Unvested Shares at the time the approved leave
commences.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

     4.2.             Exercise of the Repurchase
Right. The Repurchase Right shall be exercisable by written notice
delivered to the Owner of the Unvested Shares before the expiration of the
applicable one hundred eighty- (180-) day period specified in Section 4.1. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of notice. The Company shall pay to Owner in
cash or cash equivalents (including the cancellation of any purchase money
indebtedness) an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased.

     

     4.3.             Termination of the
Repurchase Right. The Repurchase Right shall terminate with respect to
any Unvested Shares for which it is not timely exercised under Section 4.2. In
addition, the Repurchase Right shall terminate, and cease to be exercisable and
shall be null and void, with respect to any and all Purchased Shares in which
the Stockholder vests in accordance with the schedule below. Accordingly, the
Stockholder shall acquire a vested interest in, and the Repurchase Right shall
lapse with respect to and be null and void with respect to, the Purchased Shares
in accordance with the following provisions:

     

    (i)  The Stockholder shall
immediately acquire a vested interest in, and the Repurchase Right shall lapse
and be null and void with respect to, _________ percent (__%) of the Purchased
Shares.

     

    (ii)  From and after __________,
200__, the Stockholder shall acquire a vested interest in, and the Repurchase
Right shall lapse with respect to, an additional ___% of the Purchased Shares
(for a total vested interest, and lapsing of the Repurchase Right in and to __%
of the Purchased Shares), but in no event shall there be counted or include in
such computation any period of time occurring after the date the Stockholder
ceases to be a Service Provider to the Company if he is terminated for Cause or
if he voluntarily quits without Good Reason.

     

    (iii)  From and after _______,
200__, the Stockholder shall acquire a vested interest in, and the Repurchase
Right shall lapse with respect to, an additional ___% of the Purchased Shares
(for a total vested interest, and lapsing of the Repurchase Right in and to ___%
of the Purchased Shares), but in no event shall there be counted or include in
such computation any period of time occurring after the date the Stockholder
ceases to be a Service Provider to the Company if he is terminated for Cause or
if he voluntarily quits without Good Reason.

     

    (iv)  From and after ____________,
200__, the Stockholder shall acquire a vested interest in, and the Repurchase
Right shall lapse with respect to, an additional ___% of the Purchased Shares
(for a total vested interest, and lapsing of the Repurchase Right in and to 100%
of the Purchased Shares).

     

    (v)  Accordingly, the Repurchase
Right shall lapse in its entirety, and cease to be exercisable to any extent
whatsoever, upon the expiration of the three- (3-) year period ending
___________, 200__, provided Stockholder continues to be a Service Provider to
the Company throughout such period and is not terminated for Cause or does not
voluntarily quit without Good Reason. All Purchased Shares as to which the
Repurchase Right lapses shall, however, continue to be subject to (i) the right
of first refusal and take-along rights of the Company and its assignees under
Article V; (ii) the market standoff provisions of Section 7.1; and (iii) the
repurchase provisions of Article VIII.

     

     4.4.             Fractional Shares. No
fractional shares shall be repurchased by the Company. Accordingly, should the
Repurchase Right extend to a fractional share (in accordance with the vesting
computation provisions of Section 4.3) at the time the Stockholder ceases to be
a Service 

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    Provider
to the Company, then such fractional share shall be added to any fractional
share in which the Stockholder is at such time vested in order to make one whole
vested share no longer subject to the Repurchase Right.

     

     4.5.             Additional Shares or
Substituted Securities. In the event of any stock dividend, stock split,
recapitalization, or other transaction affecting the Company’s outstanding
Common Stock as a class without receipt of consideration, then any new,
substituted, or additional securities or other property (including money paid
other than an as a regular cash dividend) which is by reason of any such
transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Repurchase Right, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
to reflect the distribution of such securities or property shall be made to the
number of Purchased Shares for all purposes relating to the Repurchase Right,
and any property or money (other than regular cash dividends) distributed with
respect to the Purchased Shares covered by the Repurchase Right shall be
delivered to the Company (or its successor) to be held in escrow under Article
VI. Appropriate adjustments shall also be made to the price per share to be paid
upon the exercise of the Repurchase Right to reflect the effect of any such
transaction upon the Company’s capital structure; provided, however, that the
aggregate purchase price shall remain substantially the same.

     

     4.6.             Special Termination of
Repurchase Right. Notwithstanding anything contained in this Agreement to
the contrary, the Repurchase Right shall be terminated, fully lapsed, null and
void, and all Shares shall be Vested Shares, upon the first to occur of a Change
in Control, the Stockholder’s termination by the Company for Good Reason, or the
Stockholder’s termination by the Company without Cause.

     

    (a)     A
“Change of Control” shall be:

     

    (i)  A merger or acquisition in
which the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State in which the Company is
incorporated;

     

    (ii)  The sale, transfer, or other
disposition of all or substantially all of assets of the Company;
or

     

    (iii)  Any other corporate
reorganization or business combination in which fifty percent (50%) or more of
the outstanding voting stock of the Company is transferred to different holders
in a single transaction of the Company or a series of related transactions, then
the Repurchase Right shall lapse and all Shares have become 100% vested and
there shall be no more Unvested Shares.

     

    (b)     “Good
Reason” shall mean the term as defined in Stockholder’s Employment Agreement
and, if no such written agreement is then in effect, then any one or more of the
following actions taken by the Company without the written consent of the
Stockholder as reasonably determined by the Company: (i) the assignment to the
Stockholder of any duties, or any limitation of the Stockholder’s
responsibilities, that is a substantial reduction of the Stockholder’s
positions, duties, responsibilities, and status with the Company immediately
before the date of the Change of Control; (ii) the relocation of the principal
place of the Stockholder’s employment to a location that is more than twenty
(20) miles from the Stockholder’s principal place of employment immediately
before the date of the Change of Control, or the imposition of travel
requirements substantially more demanding of the Stockholder than such travel
requirements existing immediately before the date of the Change of Control;
(iii) any failure by the Company to pay, or any reduction by the Company of: (1)
the Stockholder’s base salary in 

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    effect
immediately before the date of the Change of Control, or (2) the Stockholder’s
target bonus compensation, if any, in effect immediately before the date of the
Change of Control (subject to applicable performance requirements, that may be
established by the Company, with respect to the actual amount of bonus
compensation earned by the Stockholder) unless reductions comparable in target
percentage (of annual base salary) are concurrently made for all other employees
of the Company with responsibilities, organizational level, and title comparable
to the Stockholder’s); or (iv) any failure by the Company to continue to provide
the Stockholder with the opportunity to participate, on terms no less favorable
than those in effect for the benefit of any employee or service provider group
which customarily includes a person holding the employment or service provider
position or a comparable position with the Company then held by the Stockholder,
in any benefit or compensation plans and programs, including, but not limited
to, the Company’s life, disability, health, dental, medical, savings, profit
sharing, stock purchase, and retirement plans, if any, in which the Stockholder
was participating immediately before the date of the Change of Control, or their
equivalent.

     

    (c)     “Cause”
shall mean the term as defined in Stockholder’s Employment Agreement and if no
written agreement is in existence, then with respect to the termination of
Stockholder’s employment by the Company, shall mean (i) the conviction (or a
plea of nolo contendere plea in lieu thereof) by Stockholder of an act of fraud,
embezzlement, or willful breach of a fiduciary duty to the Company (including
the unauthorized disclosure of confidential or proprietary material information
of the Company); (ii) the willful commission by Stockholder of a material breach
of any covenant, provision, term, or condition contained in this Agreement;
(iii) any criminal liability of the Company substantially caused by the conduct
of the Stockholder; or (iv) any habitual absenteeism, gross negligence, bad
faith, or willful misconduct by Stockholder in the performance of his duties
which such conduct results in a material detriment to the Company. Cause shall
be determined by the Company, which determination shall be final and binding on
the Stockholder. The Company shall provide Employee with thirty (30) days’ prior
written notice and opportunity to cure any alleged act of Cause under clause
(ii) or (iv), unless in the Company’s reasonable judgment, such notice and
opportunity to cure would subject the Company to considerable legal or monetary
exposure or risk.

     

    4.7.              Restrictive Legend.
Until the Stockholder’s interest in the Purchased Shares vests in accordance
with the provisions of Section 4.3, each certificate representing Unvested
Shares shall bear the following restrictive legend:

     

    “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE BY THE
COMPANY PURSUANT TO THE PROVISIONS OF THE STOCK SUBSCRIPTION, RESTRICTION, AND
REPURCHASE AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE
SECURITIES (OR HIS OR HER PREDECESSOR IN INTEREST). SUCH AGREEMENT GRANTS
CERTAIN REPURCHASE RIGHTS TO THE COMPANY IF THE REGISTERED HOLDER (OR HIS OR HER
PREDECESSOR IN INTEREST) CEASES TO PROVIDE SERVICES TO THE COMPANY. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.”

     

    V.        ESCROW.

     

    5.1.              Deposit. Upon
issuance, the certificates for the Purchased Shares shall be deposited in escrow
with the Secretary of the Company to be held in accordance with the provisions
of this Article V. Each deposited certificate shall be accompanied by an
Assignment Separate from Certificate properly endorsed by the Owner of the
Purchased Shares. The deposited certificates, together with any other assets or
securities from time to time deposited with the Company 

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    pursuant
to the requirements of this Agreement, shall remain in escrow until such time or
times as the certificates (or other assets and securities) are to be released or
otherwise surrendered for cancellation in accordance with Section
5.4.

     

    5.2.              Rights of
Stockholder. Subject to the terms hereof, Stockholder shall have all the
rights of a stockholder with respect to the Purchased Shares while such Shares
are held in escrow and subject to the Repurchase Right, including without
limitation the right to vote the Purchased Shares and receive any dividends
declared thereon.

     

    5.3.              Recapitalization. All
regular cash dividends on the Purchased Shares (or other securities) shall be
paid directly to the Owner and shall not be held in escrow. However, if any
stock dividend, stock split, recapitalization or other transaction affecting the
Company’s outstanding securities is effected without receipt of consideration,
then any new, substituted, or additional securities or other property which is
by reason of such transaction distributed with respect to the Purchased Shares
shall be immediately subject to the provisions of Sections 4.5 and 4.6, the
Company’s first refusal, and escrow rights under Articles V and VI, but only to
the extent the Purchased Shares are at the time covered by such
rights.

     

    5.4.              Release/Surrender.
The Purchased Shares, together with any other assets or securities held in
escrow hereunder, shall be subject to the following terms and conditions
relating to their release from escrow or their surrender to the Company for
repurchase and cancellation:

     

    (i)  Should the Company (or its
assignees) elect to exercise the Repurchase Right under Article IV with respect
to any Unvested Shares, then the escrowed stock certificates for such Unvested
Shares (together with any other assets or securities issued with respect
thereto) shall be canceled concurrently with the payment to the Owner, in cash
or cash equivalents (including the cancellation of any purchase money
indebtedness), of an amount equal to the aggregate Purchase Price for such
Unvested Shares along with a stock certificate representing any Vested Shares
previously held in Escrow, if any. The Owner shall cease to have any further
rights or claims with respect to such Unvested Shares (or other assets or
securities).

     

    (ii)  As the interest of the
Stockholder in the Purchased Shares (or any other assets or securities issued
with respect thereto) vests in accordance with the provisions of Article V, the
stock certificates for such vested shares (as well as all other vested assets
and securities) shall be released from escrow and delivered to the Owner in
accordance with the following schedule:

     

    1.   
  Releases of vested shares shall occur 30 days after
vesting.

     

    2.      Upon the
Stockholder’s cessation of Service Provider status, any escrowed Purchased
Shares (or other assets or securities) in which the Stockholder is at the time
vested shall be promptly released from escrow to the Stockholder.

     

    3.      Upon any
earlier termination of the Company’s Repurchase Right in accordance with the
applicable provisions of Article IV, the Purchased Shares (or other assets or
securities) at the time held in escrow hereunder shall promptly be released to
the Owner as they become fully vested.

     

    (iii)  Notwithstanding the other
provisions of this Article V, no Purchased Shares shall be released for which
there remains an unpaid principal balance on any Note used to purchase such
shares, except, however, as specifically provided in a stock pledge agreement
securing such obligations.

    
      
         

      

      
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    VI.              GENERAL
PROVISIONS.

     

    6.1.              Assignment. The
Company may assign its rights under Article V and/or Article VIII to any person
or entity selected by the Company’s Board of Directors including (without
limitation) one or more stockholders of the Company.

     

    6.2.              Definitions. For
purposes of this Agreement, the following provisions shall apply in determining
the parent and subsidiary corporations of the Company:

     

    (i)  Any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company shall
be considered to be a parent corporation of the Company, provided each such
corporation in the unbroken chain (other than the Company) owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

     

    (ii)  Each corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company
shall be considered to be a subsidiary of the Company, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

     

    6.3.              No Employment or Service
Contract. Nothing in this Agreement shall confer upon the Stockholder any
right to continue in the service of the Company (or any parent or subsidiary
corporation of the Company employing or retaining Stockholder) for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any parent or subsidiary corporation of the Company employing
or retaining Stockholder) or the Stockholder, which rights are hereby expressly
reserved by each, to terminate the Service Provider status at any time for any
reason whatsoever, with or without cause, except as otherwise provided in any
written Employment Agreement with Stockholder.

     

    6.4.              Notices. Any notice
required in connection with (i) the Company’s rights under Articles IV, V or
VIII or (ii) the disposition of any Purchased Shares covered thereby shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States mail, registered or certified, postage prepaid and
addressed to the party entitled to such notice at the address indicated below
such party’s signature line on this Agreement or at such other address as such
party may designate by ten (10) days’ advance written notice under this Section
8.4 to all other parties to this Agreement.

     

    6.5.              No Waiver. The
failure of the Company (or its assignees) in any instance to exercise the rights
granted under Article IV through VIII shall not constitute a waiver of any other
repurchase rights and/or rights of first refusal that may subsequently arise
under the provisions of this Agreement or any other agreement between the
Company and the Stockholder. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.

     

    6.6.            
Cancellation of
Shares. If the Company (or its assignees) shall make available, at the
time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement), and such shares shall be

    
      
         

      

      
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    deemed
purchased in accordance with the applicable provisions hereof and the Company
(or its assignees) shall be deemed the owner and holder of such shares, whether
or not the certificates therefor have been delivered as required as required by
this Agreement.

     

    VII.             MISCELLANEOUS
PROVISIONS.

     

    7.1           
  Stockholder
Undertaking. Stockholder hereby agrees to take additional action and
execute whatever additional documents the Company may in its judgment deem
necessary or advisable to carry out or effect one or more of the obligations or
restrictions imposed on either the Stockholder or the Purchased Shares pursuant
to the express provisions of this Agreement.

     

    7.2         
    Agreement Is Entire
Contract. This Agreement constitutes the entire contract between the
parties hereto with regard to the subject matter hereof and supersedes any prior
understandings whether written or oral regarding the same.

     

    7.3        
     Governing Law. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New Jersey, as such laws are applied to contracts entered into and
performed in such State, without regard to conflicts-of-law principles. The
Company shall have the right to choose the exclusive forum to interpret or
enforce this Agreement provided that forum shall be within the State of New
Jersey.

     

    7.4          
   Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.

     

    7.5          
  Successors
and Assigns. The provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Company and its successors and assigns and the
Stockholder and the Stockholder’s legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions
hereof.

     

    7.6          
   Amendments and
Waivers. This Agreement represents the entire understanding of the
parties with respect to the subject matter hereof and supersedes all previous
understandings, written or oral. This Agreement may only be amended with the
written consent of the parties hereto or the successors or assigns of the
foregoing, and no oral waiver or amendment shall be effective under any
circumstances whatsoever.

     

    7.7            
 Power of
Attorney. Stockholder’s spouse hereby appoints Stockholder his or her
true and lawful attorney in fact, for him or her and in his or her name, place,
and stead and for his or her use and benefit, to agree to any amendment or
modification of this Agreement and to execute such further instruments and take
such further actions as may reasonably be necessary to carry out the intent of
this Agreement. Stockholder’s spouse further gives and grants unto Stockholder
as his or her attorney in fact full power and authority to do and perform every
act necessary and proper to be done in the exercise of any of the foregoing
powers as fully as he or she might or could do if personally present, with full
power of substitution and revocation, hereby ratifying and confirming all that
Stockholder shall lawfully do and cause to be done by virtue of this power of
attorney.

     

    IN
WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first indicated above.

     

    
    

     

    
      	 	      
              ARKADOS
      GROUP, INC. 

            	 	 
	 	 	 	 
	 	By:
      ________________________ 	 	 
	 	 	 	 
	 	Its: _____
      President 	 	 
	 	___________________________ 	 	 
	 	___________________________ 	 	 
	 	 	 	 
	 	Address:____________________ 	 	 
	 	___________________________ 	 	 

    

     

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    

    EXHIBIT
A

     

    ASSIGNMENT SEPARATE FROM
CERTIFICATE

     

    FOR VALUE
RECEIVED, I , __________________, hereby sell, assign, and transfer unto ARKADOS
GROUP, Inc. ______ shares of ______________________,Inc. (the “Company”),
standing in my name on the books of said corporation represented by Certificate
No. ______ herewith and do hereby irrevocably constitute and appoint the Company
to transfer said stock on the books of the within-named corporation with full
power of substitution in the premises.

     

    
    

     

    
      	Dated: ________
      ____, 200__ 	 	 	 	 
	 	      
              Signature: 

            	 	 	 
	 	___________________________________ 	 	 	 

    

     

     

     

     

     

    
      
         

      

      
        30

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