Securities Purchase Agreement



 Exhibit 10.6 
  
 SECURITIES PURCHASE AGREEMENT 
  
 This Securities Purchase Agreement is entered into and dated as of December 30, 2005 (this “Agreement”), by and among Irvine Sensors
Corporation, a Delaware corporation (the “Company”), and each of the purchasers identified on the signature pages hereto (each, a “Purchaser” and, collectively, the “Purchasers”). 
  
 WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933 (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires
to purchase from the Company, certain securities of the Company pursuant to the terms set forth herein. 
  
 NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser, severally and not jointly, agree as follows: 
  
 ARTICLE I. 
 DEFINITIONS 
  
 1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth in this Section 1.1: 
  
 “Affiliate” of a Person means any other Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the first Person. Without limiting the foregoing with respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such Purchaser. 
  
 “Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof; (b) there is commenced against the Company or any Significant
Subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Significant Subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or
any Significant Subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary fails to pay, or states that it is unable to pay or is unable to pay, its debts generally as they become due;
(g) the Company or any Significant Subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (h) the Company or any Significant Subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing. 









 “Business Day” means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. 
  
 “Change of Control” means the occurrence of any of the following in one or a series of
related transactions: (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) under the Exchange Act) of more than 50% of the voting rights or equity interests in the
Company; (ii) a replacement of more than 50% of the members of the Company’s board of directors that is not approved by those individuals who are members of the board of directors on the date hereof (or other directors previously approved
by such individuals); (iii) a merger or consolidation of the Company or a sale of 50% or more of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of
the Company’s securities prior to the first such transaction continue to hold at least 50% of the voting rights and equity interests in the surviving entity or acquirer of such assets, as applicable; (iv) a recapitalization, reorganization
or other transaction involving the Company that constitutes or could result in a transfer of more than 50% of the voting rights or equity interests in the Company; (v) consummation of a “Rule 13e-3 transaction” as defined in Rule
13e-3 under the Exchange Act with respect to the Company; or (vi) the execution by the Company or its controlling shareholders of an agreement providing for or that will result in any of the foregoing events. 
  
 “Closing” means the closing of the purchase
and sale of the Securities pursuant to Section 2.1. 
  
 “Closing Date” means the date of the Closing. 
  
 “Closing Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if
the Common Stock is then listed or quoted on an Eligible Market or any other national securities exchange, the closing bid price per share of the Common Stock for such date (or the nearest preceding date) on the primary Eligible Market or exchange
on which the Common Stock is then listed or quoted; (b) if prices for the Common Stock are then quoted on the OTC Bulletin Board, the closing bid price per share of the Common Stock for such date (or the nearest preceding date) so quoted;
(c) if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent
bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by a majority in interest of the Purchasers.

  
 “Commission” means the
Securities and Exchange Commission. 
  
 “Common Stock” means the common stock of the Company, par value $0.01 per share, and any securities into which such common stock may hereafter be reclassified. 
  
 “Common Stock Equivalents” means, collectively, Options and Convertible Securities.

  
 “Company Counsel” means
Dorsey & Whitney LLP, counsel to the Company. 
  

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 “Company Security Agreement” means that certain Security Agreement,
dated as of the Closing Date, by and among the Company, Pequot Private Equity Fund III, L.P., as agent, and each of the Purchasers, as the same be amended, modified or supplemented from time to time, substantially in the form of Exhibit C.

  
 “Conversion Price” means
$2.60, subject to adjustment from time to time in accordance with the terms of the Notes. 
  
 “Convertible Securities” means any stock or securities (other than Options) convertible into or exercisable or
exchangeable for Common Stock. 
  
 “Effective Date” means the date that the Registration Statement is first declared effective by the Commission. 
  
 “Eligible Market” means any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq Capital Market. 
  
 “Exchange
Act” means the Securities Exchange Act of 1934, as amended. 
  
 “Excluded Stock” means (A) the issuance of Common Stock or Common Stock Equivalents, restricted stock, stock options or stock appreciation rights to employees, consultants or directors of the
Company pursuant to a stock option plan, stock purchase plan, stock bonus plan, deferred compensation plan, employee benefit plan (including but not limited to the Company’s Non-Qualified Deferred Compensation Plan and the Company’s Cash
or Deferred & Stock Bonus Plan) or management grant (“Incentives”), in each case as in effect on the Closing Date and specified in Schedule 3.1(g) or as approved by the Board, and in an aggregate amount not to exceed
5% of the outstanding capital stock of the Company (or equivalent) on a fully-diluted basis in any calendar year, or the issuance of Common Stock upon exercise of any of the foregoing Incentives, (B) the issuance of Common Stock or Common Stock
Equivalents (other than Incentives or pursuant to Incentives) in an amount not exceeding $2,000,000 in the aggregate in any calendar year, issued at not less than 80% of the Closing Price at such time, (C) the issuance of Common Stock upon
exercise of the warrants listed on Schedule 3.1(g), (D) the issuance of Common Stock or Common Stock Equivalents in connection with a bona fide business acquisition by the Company of another company or entity, not principally for the
purpose of acquiring cash, (E) the issuance of Common Stock pursuant to a transaction described in Sections 10(a) and 10(b) of the Notes and Sections 9(a) and 9(b) of the Warrants; (F) the issuance of Common Stock as a result of an
adjustment of the Conversion Price or Exercise Price of the Notes or Warrants pursuant to Section 10(d) of the Notes and Section 9(d) of the Warrants; (G) the issuance of the Securities; and (H) the issuance of Common Stock or
Common Stock Equivalents in connection with the acquisition of Optex Systems, Inc. in accordance with the Optex Agreement. 
  
 “Filing Date” means the 45th day following the Closing Date with respect to the initial Registration Statement required
to be filed hereunder, and, with respect to any additional Registration Statements that may be required pursuant to Section 6.1(f), the 30th day following the date on which the Company first knows, or reasonably should have known, that
such additional Registration Statement is required under such Section. 
  

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 “Governmental Authority” shall mean any government or political
subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. 
  
 “Government Bid” shall mean any offer to
sell made by the Company or a Subsidiary prior to the Closing Date which, if accepted, would result in a Government Contract and for which an award has not been issued 30 days or more prior to the date of this Agreement. 
  
 “Government Contract” shall mean any prime
contract, subcontract, teaming agreement or arrangement, joint venture, basic ordering agreement, pricing agreement, letter contract, grant, cooperative agreement or other similar arrangement of any kind in excess of $1,000,000, between the Company
or a Subsidiary on one hand, and (i) any Governmental Authority, (ii) any prime contractor of a Governmental Authority in its capacity as a prime contractor, or (iii) any subcontractor at any tier with respect to a contract with a
Governmental Authority if such subcontractor is acting in its capacity as a subcontractor, on the other hand. A task, purchase or delivery order under a Government Contract shall not constitute a separate Government Contract, for purposes of this
definition, but shall be part of the Government Contract to which it relates. 
  
 “Guaranty” means that certain guaranty executed by each of the Subsidiaries in favor of the Purchasers each in the form of Exhibit A hereto. 
  
 “Indebtedness” of any Person means
(i) all indebtedness representing money borrowed which is created, assumed, incurred or guaranteed in any manner by such Person or for which such Person is responsible or liable (whether by guarantee of such indebtedness, agreement to purchase
indebtedness of, or to supply funds to or invest in, others or otherwise), (ii) any direct or contingent obligations of such person arising under any letter of credit (including standby and commercial), bankers acceptances, bank guaranties,
surety bonds and similar instruments, and (iii) all Indebtedness of another entity secured by any Lien existing on property or assets owned by such Person. 
  
 “Intellectual Property” means all U.S. and foreign (a) inventions (whether patentable
or whether or not reduced to practice), all improvements thereto, and all patents (including, without limitation, all U.S. and foreign patents, patent applications (including provisional applications) (“Patents”), invention
disclosures and any and all divisions, continuations, continuations-in-part, reissues, re-examinations and extensions thereof) and design rights, (b) trademarks, trademark applications (including intent to use filings), trade names and service
marks (whether or not registered), trade dress, logos, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all registered copyrights, sui generis database rights and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including source code, unpatented inventions, ideas, research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, financial information and business and marketing plans and 

  

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proposals) (all of the foregoing collectively, “Trade Secrets”), (f) all computer software programs or applications (including data and
related documentation) in both source and object code forms, (g) all copies and tangible embodiments of all of the foregoing (in whatever form or medium), and registrations and applications for any of the foregoing assets listed above in
(a) through (g) and all other tangible and intangible proprietary information, materials and associated goodwill. 
  
 “Losses” means any and all damages, fines, penalties, deficiencies, liabilities, claims, losses (including loss of
value), judgments, awards, settlements, taxes, actions, obligations and costs and expenses in connection therewith (including, without limitation, interest, court costs and fees and expenses of attorneys, accountants and other experts, or any other
expenses of litigation or other Proceedings or of any default or assessment). 
  
 “Material Contract” means (A) any agreement which requires future expenditures by the Company or any Subsidiary in excess of $1,000,000 or which might result in payments to the Company or
any Subsidiary in excess of $1,000,000, (B) any purchase or task order which might result in payments to the Company or any Subsidiary in excess of $1,000,000, (C) any employment agreements, and (D) any agreement that is or would be
required to be filed as an exhibit to the SEC Reports pursuant to Item 601(b)(10) of Regulation S-K of the Commission. 
  
 “Notes” means (i) the Series 1 Senior Subordinated Secured Convertible Notes due December 30, 2009 with an
aggregate principal face amount of $7,445,493.00 and (ii) the Series 2 Senior Subordinated Secured Convertible Notes due December 30, 2007 with an aggregate principal face amount of $2,554,507.00, issued by the Company to the Purchasers
hereunder in the forms of Exhibit B and B-1 hereto. 
  
 “Options” means any rights, warrants or options to, directly or indirectly, subscribe for or purchase Common Stock or Convertible Securities. 
  
 “Person” means an individual or
corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 
  
 “Proceeding” means an action, claim, suit,
investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition. 
  
 “Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus
that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus. 
  
 “Purchaser Counsel” means Proskauer Rose LLP, counsel to Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P. 
  

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 “Registrable Securities” means the Underlying Shares issued or issuable
pursuant to the Transaction Documents, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. 
  
 “Registration Statement” means the initial
registration statement required to be filed under Article VI and any additional registration statements contemplated by Section 6.1(f), including (in each case) the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 
  
 “Required Effectiveness Date” means
(i) with respect to the initial Registration Statement required to be filed hereunder, the 120th day following the Closing Date, and (ii) with respect to any additional Registration Statements that may be required pursuant to
Section 6.1(f), the 45th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section. 
  
 “Rule 144,” “Rule 415,” and
“Rule 424” means Rule 144, Rule 415 and Rule 424, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such Rule. 
  
 “SEC Reports” has the meaning set forth in Section 3.1(h). 
  
 “Securities” means the Notes, the Warrants and the Underlying Shares issued or issuable (as applicable) to the applicable
Purchaser pursuant to the Transaction Documents. 
  
 “Securities Act” means the Securities Act of 1933, as amended. 
  
 “Security Agreements” means, collectively, the Company Security Agreement and the Subsidiary Security Agreements.

  
 “Short Sales” include,
without limitation, all “short sales” as defined in Rule 3b-3 of the Exchange Act and include all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers having the effect of hedging the Securities or investment made under this Agreement. 
  
 “Side Letter” means that certain side
letter dated as of the Closing Date between the Company and Pequot Private Equity Fund III, L.P. in the form of Exhibit E. 
  
 “Significant Subsidiary” shall have the meaning given to it under Regulation S-X Section 210.1-02(w).

  
 “Subsequent Placement” means
any instance in which the Company or any Subsidiary offers, sells, grants any option to purchase, or otherwise disposes of (or announces 

  

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any offer, sale, grant or any option to purchase or other disposition of) any of its or any Subsidiary’s equity or equity equivalent securities,
including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock or Common Stock Equivalents.

  
 “Subsidiary Security
Agreements” means, collectively, those certain Subsidiary Security Agreements, dated as of the Closing Date, by and among each of the Subsidiaries, Pequot Private Equity Fund III, L.P., as agent, and each of the Purchasers, as the same be
amended, modified or supplemented from time to time, substantially in the form of Exhibit D. 
  
 “Trading Day” means (a) any day on which the Common Stock is listed or quoted and traded on its primary Trading
Market, or (b) if the Common Stock is not then listed or quoted and traded on any Trading Market, then any Business Day. 
  
 “Trading Market” means Nasdaq Capital Market or any other primary Eligible Market or any national securities exchange,
market or trading or quotation facility on which the Common Stock is then listed or quoted. 
  
 “Transaction Documents” means this Agreement, the Notes, the Warrants, the Guaranty, the Security Agreements, the Side
Letter, the Letter Agreement and any other documents, certificates or agreements executed or delivered in connection with the transactions contemplated hereby. 
  

“Underlying Shares” means the shares of Common Stock issuable (i) upon conversion of the Notes, (ii) upon
exercise of the Warrants, and (iii) in satisfaction of any other obligation or right of the Company to issue shares of Common Stock pursuant to the Transaction Documents (including as payment of principal and/or interest under the Notes), and
in each case, any securities issued or issuable in exchange for or in respect of such securities. 
  
 “VWAP” means on any particular Trading Day or for any particular period the volume weighted average trading price per
share of Common Stock on such date or for such period on an Eligible Market as reported by Bloomberg L.P., or any successor performing similar functions; provided, however, that during any period the VWAP is being determined, the VWAP shall
be subject to adjustment from time to time for stock splits, stock dividends, combinations and similar events as applicable. 
  
 “Warrants” means the Series 1 and Series 2 Common Stock purchase warrants in the forms of Exhibit G and
G-1. 
  
 ARTICLE II. 
 PURCHASE AND SALE 
  
 2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to the Purchasers,
and the Purchasers shall purchase from the Company, the Notes and Warrants for an aggregate purchase price of $10,000,000, allocated among the Notes and Warrants as reflected on Schedule 2.1. The Closing shall take 

  

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place on December 30, 2005 at the offices of the Purchaser Counsel or at such other location or time as the parties may agree. 
  
 2.2 Closing Deliveries. 
  
 (a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following: 
  
 (i) a Series 1 Note and a Series 2 Note, each registered in the name of such Purchaser, in the principal amount indicated below such Purchaser’s name on the signature page of this Agreement under the heading “Note Principal
Amount”; 
  
 (ii) a Series 1 Warrant and a
Series 2 Warrant, each registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire such number of Underlying Shares indicated below such Purchaser’s name on the signature page of this Agreement
under the heading “Warrant Shares”. 
  
 (iii) the Side Letter duly executed by the Company; 
  
 (iv) the Company Security Agreement duly executed by the Company in favor of the Purchasers; 
  
 (v) the Subsidiary Security Agreements duly executed by the applicable Subsidiary in favor of the Purchasers; 
  
 (vi) the Guaranty executed by each Subsidiary; 

 
 (vii) proper financing statements in form appropriate for
filing under the Uniform Commercial Code of all jurisdictions that the Purchasers may reasonably deem necessary or desirable in order to perfect and protect the liens and security interests created under the Security Agreements, covering the
collateral described in the Security Agreements; 
  
 (viii) the legal opinion of Company Counsel, in the form of Exhibit H, executed by such counsel and delivered to the Purchasers; 
  
 (ix) the Letter Agreement in the form of Exhibit F (the “Letter Agreement”), executed by each of the directors and
officers of the Company; and 
  
 (x) any other
document reasonably requested by the Purchasers or Purchaser Counsel. 
  
 (b) At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the following: (i) the purchase price indicated below such Purchaser’s name on the signature page of this Agreement
under the heading “Purchase Price”, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and (ii) each Transaction Document to which such
Purchaser is a signatory, duly executed by such Purchaser. 
  

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 ARTICLE III. 
 REPRESENTATIONS AND WARRANTIES 
  
 3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchasers: 
  
 (a) Subsidiaries. The Company does not directly or indirectly control or own any interest in any other corporation,
partnership, joint venture or other business association or entity, other than those listed in Schedule 3.1(a) (each of which is referred to in the Transaction Documents as a “Subsidiary” and collectively as the
“Subsidiaries”). Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any lien, charge, claim, security interest, encumbrance, right
of first refusal or other restriction, other than restrictions on transfer under the Transaction Documents and the S1B Facility or arising under federal or state securities laws and regulations (collectively, “Liens”), and all the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. 3D Microelectronics, Inc. and 3D Microsystems, Inc. are wholly-owned subsidiaries
of the Company that do not have any assets. 
  
 (b) Organization and Qualification. Except as disclosed in Schedule 3.1(b), each of the Company and the Subsidiaries is an entity duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation or bylaws. Except as disclosed in Schedule 3.1(b), each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the
aggregate, (i) adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s or any Subsidiary’s ability to perform fully on a timely basis its obligations under any Transaction Document (any of (i),
(ii) or (iii), a “Material Adverse Effect”). 
  
 (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereunder and thereunder have been duly
authorized by all necessary action on the part of the Company and no further consent or action is required by the Company, its Board of Directors or its stockholders (except as contemplated by Section 11 of the Warrants and Section 6 of
the Notes). Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. 
  

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 (d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the Subsidiaries and the consummation by them of the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation or bylaws, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of clause
(ii) or (iii) above, as could not, individually or in the aggregate, have, or could reasonably be expected to result in, a Material Adverse Effect. 
  

(e) Filings, Consents and Approvals. Except as disclosed in Schedule 3.1(e), neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction Documents, other than the filing by the Company with the Commission of the Registration Statement, the filing by the Company of a Notice of Sale of Securities on Form D with
the Commission under Regulation D of the Securities Act, the application(s) by the Company to each Trading Market for the listing of the Underlying Shares for trading thereon, the obtaining by the Company of stockholder approval as contemplated by
Section 4.22 below, Section 11 of the Warrants and Section 6 of the Notes, and applicable Blue Sky filings (collectively, the “Required Approvals”). 
  
 (f) Issuance of the Securities. The Securities have been duly authorized. The Notes and the
Warrants have been, and the Underlying Shares or other securities issuable upon conversion of the Notes and upon exercise of the Warrants, when so issued in accordance with the terms of the Notes or the Warrants, as the case may be, will be, validly
issued. The Notes and the Warrants are, and the Underlying Shares or other securities issuable upon conversion of the Notes or Warrants, when so issued in accordance with the terms of the Notes or Warrants, as the case may be, will be, fully paid
and nonassessable and free of preemptive or similar rights. The Notes and the Warrants have been, and the Underlying Shares or other securities issuable upon conversion of the Notes and upon exercise of the Warrants, when so issued in accordance
with the terms of the Notes or the Warrants, as the case may be, will be, issued in compliance with applicable securities laws, rules and regulations. The issuance and sale of the Securities contemplated hereby does not conflict with or violate any
rules or regulations of the Trading Market. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock to be issued to the Purchasers upon conversion of the Notes, exercise of the Warrants or that
are otherwise issuable pursuant to the other Transaction Documents. 
  

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 (g) Capitalization. The number of shares and type of all authorized, issued
and outstanding capital stock of the Company is set forth in Schedule 3.1(g). No securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and except as disclosed in Schedule 3.1(g), there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares
of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as set forth in Schedule 3.1(g), the issue and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities, or to take any other action punitive to the Company or any Subsidiary. Schedule 3.1(g) contains a list of all
stock option plans, stock purchase plans and management grants, in each case as reflected on the Closing Date, true and complete copies of which have been delivered to the Purchasers. 
  
 (h) SEC Reports; Financial Statements. The Company has filed all reports required to be filed
by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such materials) (the
foregoing materials being collectively referred to herein as the “SEC Reports” and, together with the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act
and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial (individually and in the aggregate), year-end
audit adjustments and the absence of footnotes. 
  
 (i) Taxes. Except as set forth in Schedule 3.1(i), the Company and the Subsidiaries have prepared and timely filed all income tax returns and other material tax returns that are required to be filed, and have paid, or
made provision in accordance with GAAP for the payment of, all taxes that have or may have become due pursuant to said returns or pursuant to 

  

 11 








 
any assessments that have been received by the Company or the Subsidiaries. All tax returns are true and correct in all material respects. All taxes shown to
be due and payable by the Company or the Subsidiaries have been paid or will be paid prior to the time they become delinquent. To the Company’s knowledge there is no liability for any tax to be imposed upon its or any of its Subsidiaries’
properties or assets as of the date of this Agreement for which adequate provision has not been made. No material tax returns of the Company have been audited, and to the Company’s knowledge, no deficiency assessment or proposed adjustment of
the Company’s or the Subsidiaries material taxes is pending. 
  
 (j) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP (including, without limitation, the footnotes thereto) or required to be disclosed
in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, other than the Incentives
specified in Schedule 3.1(j). The Company does not have pending before the Commission any request for confidential treatment of information. Neither the Company nor any Affiliate of the Company (including, without limitation, any pension
plan, employee stock option plan or similar plan) has purchased or sold any securities of the Company within the 90 days preceding the date hereof. 
  
 (k) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as disclosed in
Schedule 3.1(k), could, if there were an unfavorable decision, individually or in the aggregate, have or result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the Company’s knowledge, any director or
officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically set forth
in Schedule 3.1(k). There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company (in his
or her capacity as such). The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 
  
 (l) Labor Relations. Except as set forth in
Schedule 3.1(l), no material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. 
  

 12 








 (m) Employee Benefit Plans. 
  
 (i) Except as set forth in Schedule 3.1(m)(i), the
Company and the Subsidiaries have no employment agreements, labor or collective bargaining agreements and there are no material employee benefit or compensation plans, agreements, arrangements or commitments (including “employee benefit
plans,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) or any other plans, policies, trust funds or arrangements (whether written or unwritten, insured or
self-insured) established, maintained, sponsored or contributed to (or with respect to any obligation that has been undertaken) by the Company, any Subsidiary or any entity that would be treated as a single employer with the Company under
Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the “Code”) or Section 4001 of ERISA (an “ERISA Affiliate”) for any employee, officer, director, consultant or
stockholder or their beneficiaries of the Company or any Subsidiary or with respect to which the Company or any Subsidiary has liability, or makes or has an obligation to make contributions on behalf of any such employee, officer, director,
consultant or stockholder or beneficiary (each a “Company Employee Plan” and collectively the “Company Employee Plans”). 
  
 (ii) Except as set forth in Schedule 3.1(m)(ii), and except for medical reimbursement spending accounts under Code
Section 125, each Company Employee Plan that is an employee welfare benefit plan as defined under Section 3(1) of ERISA is funded through an insurance company contract. Except as set forth in Schedule 3.1(m)(ii), each Company
Employee Plan by its terms and operation is in material compliance with all applicable laws and all required filings, if any, with respect to such Company Employee Plan have been timely made. Except as set forth in Schedule 3.1(m)(ii),
neither the Company, any Subsidiary nor any ERISA Affiliate has at any time maintained, contributed to or been required to contribute to or has (or has had) any liability with respect to, any plan subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA, including, without limitation, any “multiemployer plan” (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code) or any single employer pension plan
(within the meaning of Section 4001(a)(15) of ERISA) which is subject to Sections 4063, 4064 and 4069 of ERISA. The Company’s various non-qualified deferred compensation plans satisfy the requirements of Section 201(2) of ERISA.
Except as set forth in Schedule 3.1(m)(ii), the events contemplated by this Agreement (either alone or together with any other event) will not (A) entitle any employees, director or stockholder of the Company or any Subsidiary (whether
current, former or retired) or their beneficiaries to severance pay, unemployment compensation, or other similar payments under any Company Employee Plan or law, (B) accelerate the time of payment or vesting or increase the amount of benefits
due under any Company Employee Plan or compensation to any employees of the Company or any Subsidiary or (C) result in any payments (including any payment that could be characterized as an “excess parachute payment” (as defined in
Section 280G(b)(1) of the Code)) under any Company Employee Plan or Law becoming due to any employee, director or stockholder of the Company or any Subsidiary (whether current, former or retired) or their beneficiaries. Except as set forth in
Schedule 3.1(m)(ii), no amount payable under any Company Employee Plan would fail to be deductible under Code Section 162(m). 
  
 (iii) Except as set forth in Schedule 3.1(m)(iii), with respect to each of the Company Employee Plans: (1) each Company
Employee Plan that is intended to be qualified 

  

 13 








 
under Section 401(a) of the Code has received a determination letter, opinion letter, advisory letter or notification letter, as applicable, from the
Internal Revenue Service (the “IRS”) regarding its qualified status under the Code for all amendments required prior to the Economic Growth and Tax Relief Reconciliation Act of 2001 or, if reliance is permitted, relies on the
favorable opinion letter or advisory letter of the master and prototype or volume submitter plan sponsor of such plan, and nothing has occurred, whether by action or by failure to act, that caused or could cause the loss of such qualification or the
imposition of any penalty or tax liability; (2) all payments required by the Company Employee Plans, any collective bargaining agreement or other agreement, or by applicable law (including, without limitation, all contributions, insurance
premiums or intercompany charges) with respect to all periods through the date of the Closing Date shall have been made prior to the Closing Date (on a pro rata basis where such payments are otherwise discretionary at year end) or provided for by
the Company as applicable, in accordance with the provisions of each of the Company Employee Plans, applicable law and GAAP; (3) no action has been instituted or commenced or, to the knowledge of the Company, has been threatened or is
anticipated against any of the Company Employee Plans (other than non-material routine claims for benefits and appeals of such claims), any trustee or fiduciaries thereof, the Company, any Subsidiary or any ERISA Affiliate, any director, officer or
employee thereof, or any of the assets of any trust of any of the Company Employee Plans; and (4) no Company Employee Plan is or is expected to be under audit or investigation by the IRS, Department of Labor or any other governmental entity and
no such completed audit, if any, has resulted in the imposition of any tax or penalty. 
  
 (n) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it
is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws
relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters; except in each case as could not, individually or in the aggregate, have, or could reasonably be expected to
result in, a Material Adverse Effect. 
  
 (o)
Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or result in a Material Adverse Effect (“Material Permits”), and neither the Company nor
any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. 
  
 (p) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case 

  

 14 








 
free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made of
such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in
compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. 
  
 (q) Patents and Trademarks. Except as set forth in Schedule 3.1(q), the Company and the Subsidiaries own, or
possesses a valid and enforceable written license to use, all Intellectual Property that is used or held for use in connection with their respective businesses as described in the SEC Reports, as currently conducted (collectively, the
“Company Intellectual Property Rights”). To the Company’s knowledge, the operation of the business of the Company and the Subsidiaries, and the products or services in development or which are marketed or sold (or proposed to
be marketed or sold) by the Company or any Subsidiary, do not violate any license or infringe any Intellectual Property rights of any party. To the knowledge of the Company and the Subsidiaries, there is no unauthorized use, infringement or
misappropriation of any Company Intellectual Property Rights by any third party. Except as set forth in Schedule 3.1(q), other than with respect to commercially available software products which the Company or the Subsidiaries license under
standard end-user object code license agreements, there are no outstanding material options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to any Company Intellectual Property. Except as set forth in
Schedule 3.1(q), neither the Company nor any the Subsidiary is obligated to make to any third party any payments related to the Company Intellectual Property. Except as set forth in Schedule 3.1(q), neither the Company nor any
Subsidiary has agreed to indemnify any third party with respect to any Intellectual Property. No third party has made a claim that the Company or any Subsidiary has violated or, by conducting their business, would violate any Intellectual Property
rights of any other person or entity and no such claim has been threatened. Each employee, former employee, contract worker, agent, consultant other service provider and contractor who has contributed to or participated in the conception or
development of the Company Intellectual Property Rights has assigned to the Company or the Subsidiaries all Intellectual Property rights he or she owns that are related to the respective businesses of the Company and the Subsidiaries as now
conducted or as now proposed to be conducted. Schedule 3.1(q) lists all patents, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications, registered copyrights and domain
names included in the Company Intellectual Property. Except as set forth in Schedule 3.1(q), all of the Company Intellectual Property Rights which is registered or has been filed for registration with any third party (including as listed on
Schedule 3.1(q)) are in good standing and all of the fees and filings due with respect thereto have been duly made, and the Company has previously provided true and correct copies of all of the foregoing to Purchasers. No claims or, to the
Company’s knowledge, investigations challenging or threatening the validity, enforceability, effectiveness or ownership by the Company or any of its Subsidiaries of any Company Intellectual Property Rights have been made or are outstanding. No
open source or public library software, including any version of any software licensed pursuant to any GNU or other public license, is, in whole or in part, embodied or incorporated in the Company Intellectual Property, and the Companies are not
otherwise bound by any terms thereof. Neither the Company nor any of its Subsidiaries is or, as a result of the execution or delivery of this Agreement, or the performance of the Company’s obligations hereunder, will be in violation of 

  

 15 








 
any license, sublicense, agreement or instrument involving Intellectual Property to which the Company or any of its Subsidiaries is a party or otherwise
bound (an “Intellectual Property Agreement”), nor will the execution or delivery of this Agreement, or the performance of the Company’s obligations hereunder, cause the diminution, license, transfer, termination or forfeiture
of the Company’s or any of its Subsidiaries’ rights in any Company Intellectual Property Rights. Each of the Company and the Subsidiaries has taken commercially reasonable measures to protect the proprietary nature of the Company
Intellectual Property Rights and to maintain in confidence all trade secrets and confidential information owned or used by the Company or any of its Subsidiaries. The source code and system documentation relating to any software programs included in
or developed for inclusion in the Company’s or any of its Subsidiaries’ products (including all software programs embedded or incorporated in the Company’s or any of its Subsidiaries’ products) (i) have at all times been
maintained in confidence, (ii) have been disclosed by the Company and its Subsidiaries only to employees or third parties who are bound by appropriate nondisclosure obligations, (iii) have not been licensed, sold or disclosed to any third
party, and (iv) are not the subject of any escrow or similar agreement or arrangement giving any third party rights in or to such source code and/or system documentation upon the occurrence of certain events. 
  
 (r) Insurance. The Company and the
Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are reasonably prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither
the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its
business on terms consistent with the market for the Company’s and such Subsidiaries’ respective lines of business. 
  
 (s) Transactions With Affiliates and Employees. Except as set forth in Schedule 3.1(s), none of the officers or
directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 
  
 (t) Internal Accounting Controls. Except as
set forth in Schedule 3.1(t), the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general
or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 
  

 16 








 (u) Solvency. The Company is able to pay its debts (including trade debts)
as they mature; the fair saleable value of the Company’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and the Company is not left with unreasonably small capital after the transactions
contemplated by the Transaction Documents. 
  
 (v) Certain Fees. Except as payable to CTC Aero, LLC, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by a Purchaser
pursuant to written agreements executed by such Purchaser which fees or commissions shall be the sole responsibility of such Purchaser) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold harmless the Purchasers, their employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims,
losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed or existing fees, as such fees and expenses are incurred. 
  
 (w) Private Placement. Assuming the accuracy
of each Purchaser’s representations and warranties set forth in Section 3.2(b)-(f), (i) no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers under the
Transaction Documents, and (ii) the issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market. 
  
 (x) Form S-3 Eligibility. The Company is eligible to register the resale of its Common Stock for resale by the Purchasers
under Form S-3 promulgated under the Securities Act. 
  
 (y) Listing and Maintenance Requirements. The Company has not, in the two years preceding the date hereof, received notice (written or oral) from any Eligible Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance requirements of such Eligible Market. The Company is in compliance with all such listing and maintenance requirements. 
  
 (z) Registration Rights. Except as described
in Schedule 3.1(z), the Company has not granted or agreed to grant to any Person any rights (including “piggy back” registration rights) to have any securities of the Company registered with the Commission or any other governmental
authority that have not been satisfied. 
  
 (aa)
Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including 

  

 17 








 
without limitation the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. 
  
 (bb) Disclosure. All disclosure provided to
the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 
  
 (cc) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is
acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser’s purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and its representatives. The Company further acknowledges that no Purchaser has made any promises or commitments other than as set forth in this Agreement, including any
promises or commitments for any additional investment by any such Purchaser in the Company. 
  
 (dd) Investment Company. The Company is not, and is not an Affiliate of, an investment company within the meaning of the
Investment Company Act of 1940, as amended. 
  
 (ee) Ranking. Except as set forth on Schedule 3.1(ee) and except for Indebtedness permitted under Section 4.10(a) of this Agreement, as of the date of this Agreement, no Indebtedness of the Company is senior to or
pari passu with the Notes in right of payment, whether with respect to principal, interest or upon liquidation or dissolution, or otherwise. 
  
 (ff) Sarbanes-Oxley Act. Except as set forth in Schedule 3.1(ff), the Company is in compliance with applicable
requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by the Commission thereunder in effect as of the date of this Agreement, except where such noncompliance could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. 
  
 (gg) Material Contracts. 
  
 (i) Assuming the due execution and delivery by the other parties thereto, each of the Material Contracts is as of the date hereof legal, valid and binding, and in full force and effect, and enforceable in accordance
with its terms, subject to (A) laws of general application relating to bankruptcy, insolvency, and relief of debtors, and (B) rules of law governing specific performance, injunctive relief, or other equitable remedies. There is no material
breach, violation or default by the Company or any of the Subsidiaries (or, to the 

  

 18 








 
Company’s knowledge, any other party) under any such Material Contract, and no event (including, without limitation, the transactions contemplated by
the Transaction Documents) has occurred which, with notice or lapse of time or both, would (1) constitute a material breach, violation or default by the Company or any Subsidiary (or, to the Company’s knowledge, any other party) under any
such Material Contract, or (2) give rise to any Lien (other than a Lien permitted pursuant to Section 4.10(b)) or right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration against the
Company or any Subsidiary under any such Material Contract. Except as set forth in Schedule 3.1(gg)(i), neither the Company nor any Subsidiary is and, to the Company’s knowledge, no other party to any such Material Contract is in arrears
in respect of the performance or satisfaction of any material terms or conditions on its part to be performed or satisfied under any of such Material Contract, and neither the Company nor any Subsidiary has and, to the Company’s knowledge, no
other party thereto has granted or been granted any material waiver or indulgence under any of such Material Contract or repudiated any provision thereof. 
  
 (ii) The Company has provided or made available to the Purchasers complete copies of each of the Material Contracts, including all
schedules, exhibits and attachments thereto. 
  
 (hh) Suppliers and Customers. Since December 31, 2004 none of the Company’s or any Subsidiaries’ suppliers, vendors, or customers has: (i) terminated or cancelled a Material Contract or material business
relationship; (ii) threatened to terminate or cancel a Material Contract or material business relationship; (iii) expressed dissatisfaction with the performance of the Company or any Subsidiary with respect to a Material Contract or
material business relationship; or (iv) demanded any material modification, termination or limitation of a Material Contract or material business relationship with the Company or any Subsidiary (excluding any contracts or business relationship
which, if so terminated, cancelled, modified or limited, would not result in a Material Adverse Effect). Schedule 3.1(hh) sets forth the 10 largest suppliers and 10 largest customers of the Company and the Subsidiaries as of the date hereof,
based on the dollar amount of sales for the period from January 1, 2004 through December 31, 2005. 
  
 (ii) Government Contracts. 
  
 (i) A true and correct list of each material Government Contract which is in effect as of the date of this Agreement and Government Bid is
set forth in Schedule 3.1(ii)(i). 
  
 (ii) Except as set forth in Schedule 3.1(ii)(ii), (A) the Company and each Subsidiary has fully complied with the terms and conditions of each Government Contract and Government Bid to which it is a party; (B) the Company
and each Subsidiary has complied with all requirements of any law pertaining to such Government Contract or Government Bid; (C) all representations and certifications made by the Company and each Subsidiary with respect to such Government
Contract or Government Bid were accurate, current and complete in all material respects as of their effective date; (D) neither the Company nor any Subsidiary is in violation, or currently alleged to be in violation, in any material respect of
the False Statements Act, as amended, the False Claims Act, as amended, or any other federal requirement relating to 

  

 19 








 
the communication of false statements or submission of false claims to a Governmental Authority; and (E) no termination or default notice, cure notice
or show cause notice has been issued to the Company or any Subsidiary and remains unresolved, and the Company has no knowledge of any plan or proposal of any entity to issue any such notice. 
  
 (iii) Except as set forth in Schedule 3.1(ii)(iii),
(A) to the Company’s knowledge, none of the Company’s or a Subsidiary’s employees, consultants or agents is (or during the last five years has been) under administrative, civil or criminal investigation or indictment by any
Governmental Authority with respect to the conduct of the business of the Company or a Subsidiary; (B) to the Company’s knowledge, there is no pending audit or investigation of the Company or any of its officers, employees or
representatives or a Subsidiary or any of its officers, employees or representatives nor within the last five years has there been any audit or investigation of the Company or any of its officers, employees or representatives or a Subsidiary or any
of its officers, employees or representatives resulting in an adverse finding with respect to any alleged irregularity, misstatement or omission arising under or relating to any Government Contract or Government Bid; and (C) during the last
five years, neither the Company nor any Subsidiary has made any voluntary disclosure in writing to the Government or any other Governmental Authority with respect to any alleged irregularity, misstatement or omission arising under or relating to a
Governmental Contract or Government Bid that has led to any of the consequences set forth in clause (A) or (B) of the immediately preceding sentence or any other material damage, penalty assessment, recoupment of payment or disallowance of
cost. 
  
 (iv) Except as set forth in Schedule
3.1(ii)(iv), there are (A) no outstanding written claims against the Company, either by any Governmental Authority or by any prime contractor, subcontractor, vendor or other third party arising under or relating to any Government Contract
or Government Bid, and (B) to the Company’s knowledge, no outstanding disputes (i) between the Company or a Subsidiary, on the one hand, and the Government or any Governmental Authority, on the other hand, under the Contract Disputes
Act or any other Federal statute, or (ii) between the Company or a Subsidiary, on the one hand, and any prime contractor, subcontractor or vendor, on the other hand, arising under or relating to any Government Contract or Government Bid.

  
 (v) The rates and rate schedules submitted to
the Government with respect to the Government Contracts have been audited and closed out for all years prior to 2003. 
  
 (vi) None of the Government Contracts are subject to termination by a Governmental Authority as a result of the consummation of the
transactions contemplated by the Transaction Documents. 
  
 (jj) No Suspension or Debarment. Neither the Company nor any Subsidiary during the last five (5) years has been and, to the Company’s knowledge, none of their respective employees, consultants
or agents during the last five (5) years has been suspended or debarred from eligibility for award of contracts with any Governmental Authority or is or was the subject of a finding of non-responsibility or ineligibility for government
contracting. During the past five (5) years, no government contracting suspension or debarment action has been threatened or commenced against the Company or a Subsidiary, or, to the Company’s knowledge, any of its officers or employees.
The Company does not have knowledge of a valid basis, nor specific 

  

 20 








 
circumstances that are or, with the passage of time, would likely become a basis for the Company’s or a Subsidiary’s suspension or debarment from
award of contracts with the Government. 
  
 (kk)
Environmental Matters. 
  
 (i) The
Company and the Subsidiaries comply and have at all times complied with all federal, state and local laws, judgments, decrees, orders, consent agreements, authorizations, permits, licenses, rules, regulations, common or decision law (including,
without limitation, principles of negligence and strict liability) relating to the protection, investigation or restoration of the environment (including, without limitation, natural resources) or the health or safety matters of humans and other
living organisms, including the Resource Conservation and Recovery Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Federal Clean Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic Substances Control Act, or any state and local analogue (hereinafter “Environmental Laws”), except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect. 
  
 (ii) Except as set forth in Schedule 3.1(kk), (A) the Company has no knowledge of any claim, and neither it nor any Subsidiary has received notice of a written complaint, order, directive, claim, request
for information or citation, and to the Company’s knowledge no proceeding has been instituted raising a claim against the Company or any predecessor or any of their respective real properties, formerly owned, leased or operated or other assets
indicating or alleging any damage to the environment or any liability or obligation under or violation of any Environmental Law and (B) neither the Company nor any Subsidiary is subject to any order, decree, injunction or other directive of any
Governmental Authority. 
  
 (iii) Except as set
forth in Schedule 3.1(kk), (A) neither the Company nor any Subsidiary has used and, to the Company’s knowledge, no other person has used any portion of any property currently used or formerly owned, operated or leased by the Company
or any Subsidiary for the generation, handling, processing, treatment, storage or disposal of any hazardous materials except in accordance with applicable Environmental Laws; (B) neither the Company nor any Subsidiary owns or operates any
underground tank or other underground storage receptacle for hazardous materials, any asbestos-containing materials or polychlorinated biphenyls, and, to the Company’s knowledge, no underground tank or other underground storage receptacle for
hazardous materials, asbestos-containing materials or polychlorinated biphenyls is located in any portion of any property currently owned, operated or leased by the Company and (C) to the Company’s knowledge, the Company has not caused or
suffered to occur any releases or threatened releases of hazardous materials on, at, in, under, above, to, from or about any property currently used or formerly owned, operated or leased by the Company or any Subsidiary. 
  
 (ll) Export Controls. None of the Company, any
Subsidiary or, to the Company’s knowledge, the Company’s or a Subsidiary’s employees have violated any law pertaining to export controls, technology transfer or industrial security including, without limitation, the Export
Administration Act, as amended, the International Emergency Economic 

  

 21 








 
Powers Act, as amended, the Arms Export Control Act, as amended, the National Industrial Security Program Operating Manual, as amended, or any regulation,
order, license or other legal requirement issued pursuant to the foregoing (including, without limitation, the Export Administration Regulations and the International Traffic in Arms Regulations). Neither the Company, any Subsidiary nor, to the
Company’s knowledge, any employee of the Company or any Subsidiary is the subject of an action by a Governmental Authority that restricts such person’s ability to engage in export transactions. 
  
 (mm) Foreign Corrupt Practices Act. Neither
the Company, any Subsidiary nor, to the Company’ knowledge, any employee of the Company or any Subsidiary has violated the United States Foreign Corrupt Practices Act, as amended, in any material respect. To the Company’s knowledge, no
stockholder, director, officer, employee or agent of the Company or of a Subsidiary has, directly or indirectly, made or agreed to make, any unlawful or illegal payment, gift or political contribution to, or taken any other unlawful or illegal
action, for the benefit of any customer, supplier, governmental employee or other Person who is or may be in a position to assist or hinder the business of the Company or a Subsidiary. 
  
 3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, as to itself only and for no
other Purchaser, represents and warrants to the Company as follows: 
  
 (a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate, limited
liability company or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the Transaction Documents to which it is a party have been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like
action, on the part of such Purchaser. Each of the Transaction Documents to which such Purchaser is a party has been duly executed by such Purchaser and, when delivered by such Purchaser in accordance with terms hereof, will constitutes the valid
and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms. 
  
 (b) Investment Intent. Such Purchaser is acquiring the Securities as principal for its own account for investment purposes
and not with a view to distributing or reselling such Securities or any part thereof in violation of applicable securities laws, without prejudice, however, to such Purchaser’s right at all times to sell or otherwise dispose of all or any part
of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold the Securities for any period of time. Such Purchaser understands
that the Securities have not been registered under the Securities Act, and therefore the Securities may not be sold, assigned or transferred unless (i) a registration statement under the Securities Act is in effect with respect thereto or
(ii) an exemption from registration is found to be available to the reasonable satisfaction of the Company. 
  
 (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, an
“accredited investor” as defined in Rule 501(a) under the 

  

 22 








 
Securities Act. Such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act. 
  
 (d) Experience of such Purchaser. Such
Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. 
  
 (e) General Solicitation. Such Purchaser is
not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement. 
  
 (f) Certain Trading Activities. Such Purchaser has not directly or indirectly, nor has any Person acting at the direction of such Purchaser, engaged in any transactions in the securities of the Company
(including, without limitation, any Short Sales involving the Company’s securities) since August 11, 2005. Such Purchaser covenants that neither it nor any Person acting at the direction of such Purchaser will engage in any transactions in
the securities of the Company (including Short Sales) after the date hereof and prior to the date of the press release described in Section 4.8. Each Purchaser represents that as of the date of this Agreement and without giving effect to the
purchase of Securities hereunder, it holds no Common Stock or other securities of the Company (it being acknowledged that one managing director of an entity affiliated with the Purchasers holds 10,000 shares of Common Stock of the Company purchased
in 2004). 
  
 The Company acknowledges and agrees that each
Purchaser does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2. 
  
 ARTICLE IV. 
 OTHER AGREEMENTS OF THE PARTIES 
  
 4.1 Transfer Restrictions. 
  
 (a) The Securities may only be disposed of pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and
in compliance with any applicable state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company or pursuant to Rule 144(k), except as otherwise set forth herein, the
Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with its transfer agent, without any such legal opinion, any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies 

  

 23 








 
to the Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement (and any other applicable Transaction Document) and shall have the rights of a Purchaser under this Agreement. 
  
 (b) The Purchasers agree to the imprinting on any
certificate evidencing Securities, except as otherwise permitted by Section 4.1(c), of a restrictive legend in substantially the form as follows, together with any additional legend required by (i) any applicable state securities laws and
(ii) any securities exchange upon which such Securities may be listed: 
  
 [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES. 
  
 (c) Certificates evidencing Securities shall not be required to contain the legend set forth in Section 4.1(b) (i) following any sale of such Securities pursuant to the “Plan of Distribution” of an effective Registration
Statement covering the resale of such Securities under the Securities Act and compliance with the prospectus delivery requirements of Section 5 of the Securities Act in connection with such resale, (ii) following any sale of such
Securities in compliance with Rule 144, (iii) if such Securities are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent in connection with any transfer occurring after the Effective Date. Following the Effective Date
or at such earlier time as a legend is no longer required for certain Securities, the Company will no later than three Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a legended certificate
representing such Securities, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends provided in this Agreement. The Company may not make any 

  

 24 








 
notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in Section 4.1(b).

  
 (d) The Company acknowledges and agrees that
a Purchaser may from time to time pledge or grant a security interest in some or all of the Securities in connection with a bona fide margin agreement secured by the Securities and, if required under the terms of such agreement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend
the list of selling stockholders thereunder. 
  
 4.2
Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities (including the Underlying Shares) will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain
market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Securities (including the Underlying Shares) pursuant to the Transaction Documents,
are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim that the Company may have against any Purchaser. 
  
 4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. Upon the
request of any Purchaser, the Company shall deliver to such Purchaser a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with paragraph (c) of Rule 144 such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request to satisfy the provisions of Rule 144 applicable to the issuer of securities relating to transactions for the sale
of securities pursuant to Rule 144. 
  
 4.4 Integration.
The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market, except for the offer and sale of securities in connection with the acquisition of Optex Systems, Inc. 
  

 25 








 4.5 Reservation and Listing of Securities. 
  
 (a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. 
  
 (b) The Company shall (i) prepare and timely file with each Trading Market an additional shares listing
application covering all of the shares of Common Stock issued or issuable under the Transaction Documents, (ii) use reasonable best efforts to cause such shares of Common Stock to be approved for listing on each Trading Market as soon as
practicable thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) use reasonable best efforts to maintain the listing of such Common Stock on each such Trading Market or another Eligible Market. 
  
 (c) In the case of a breach by the Company of
Section 4.5(a), in addition to the other remedies available to the Purchasers, the Purchasers shall have the right to require the Company to either: (i) use its best efforts to obtain the required shareholder approval necessary to permit
the issuance of such shares of Common Stock as soon as is possible, but in any event not later than the 90th day after such notice, or (ii) within five Trading Days after delivery of a written notice, pay cash to such Purchaser, as liquidated
damages and not as a penalty, in an amount equal to the number of shares of Common Stock not issuable by the Company times 115% of the average Closing Price over the five Trading Days immediately prior to the date of such notice or, if greater, the
five Trading Days immediately prior to the date of payment (the “Cash Amount”). If the exercising or converting Purchaser elects the first option under the preceding sentence and the Company fails to obtain the required shareholder
approval on or prior to the 90th day after such notice, then within three Trading Days after such 90th day, the Company shall pay the Cash Amount to such Purchaser, as liquidated damages and not as a penalty or as an exclusive remedy hereunder.

  
 4.6 Subsequent Placements. 
  
 (a) From the date hereof until the Effective Date, the
Company will not, directly or indirectly, effect any Subsequent Placement. 
  
 (b) From the Effective Date and for so long as the Notes are outstanding, the Company will not, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this
Section 4.6. 
  
 (i) The Company shall
deliver to each Purchaser a written notice (the “Offer”) of any proposed or intended issuance or sale or exchange of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer
shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the Persons or entities to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with each Purchaser (A) a pro rata portion of the Offered
Securities based on such Purchaser’s pro rata portion of the aggregate principal amount of the Notes purchased hereunder 

  

 26 








 
(the “Basic Amount”), and (B) with respect to each Purchaser that elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other Purchasers as such Purchaser shall indicate it will purchase or acquire should the other Purchasers subscribe for less than their Basic Amounts (the “Undersubscription
Amount”). 
  
 (ii) To accept an Offer,
in whole or in part, a Purchaser must deliver a written notice to the Company prior to the end of the 10 Trading Day period after the Offer, setting forth the portion of the Purchaser’s Basic Amount that such Purchaser elects to purchase and,
if such Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Purchaser elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all
Purchasers are less than the total of all of the Basic Amounts, then each Purchaser who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the
“Available Undersubscription Amount”), each Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase on that portion of the Available Undersubscription Amount as the Basic Amount of such Purchaser
bears to the total Basic Amounts of all Purchasers that have subscribed for Undersubscription Amounts, subject to rounding by the Board of Directors to the extent its deems reasonably necessary. 
  
 (iii) The Company shall have fifteen (15) Trading Days
from the expiration of the period set forth in Section 4.6(d)(ii) above to issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Purchasers (the “Refused
Securities”), but only to the offerees described in the Offer and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less
favorable to the Company than those set forth in the Offer. 
  
 (iv) In the event the Company shall propose to sell less than all of the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4.6(d)(iii) above), then each Purchaser may, at
its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that the Purchaser
elected to purchase pursuant to Section 4.6(d)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Purchasers pursuant to Section 4.6(c)(ii) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Purchaser so elects
to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been
offered to the Purchasers in accordance with Section 4.6(d)(i) above. 
  
 (v) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Purchasers shall acquire from the Company, and the Company 

  

 27 








 
shall issue to the Purchasers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.6(d)(iv) above if the Purchasers have so elected, upon the terms and conditions specified in the Offer. The purchase by the Purchasers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the
Company and the Purchasers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Purchasers and their respective counsel. 
  
 (vi) Any Offered Securities not acquired by the Purchasers or other persons in accordance with
Section 4.6(d)(iii) above may not be issued, sold or exchanged until they are again offered to the Purchasers under the procedures specified in this Agreement. 
  
 (c) The restrictions contained in this Section 4.6 shall not apply to issuances of Excluded Stock.

  
 (d) If at any time while any Note is
outstanding the Company proposes to directly or indirectly effect a Subsequent Placement pursuant to which securities will be issued at an Effective Price to the Company per share of Common Stock less than the Conversion Price (as defined in the
Note), then the Company shall offer to repurchase an amount of each Purchaser’s Note for an aggregate price (as determined below) equal to the lesser of (A) the aggregate amount of the Subsequent Placement, and (B) the aggregate
amount required to repurchase all of the Notes pursuant to this Section 4.6(d). All Notes repurchased under this Section 4.6(d) shall be repurchased at a price equal to the greater of (x) the outstanding principal amount
of the Notes purchased, plus all accrued but unpaid interest thereon through the date of payment, and (y) the Event Equity Value of the Underlying Shares then issuable upon conversion of the Notes purchased (without regard to any restrictions
on conversion). 
  
 4.7 Conversion and Exercise Procedures.
The form of Exercise Notice included in the Warrants and the form of Holder Conversion Notice included in the Notes set forth the totality of the procedures required by the Purchasers in order to exercise the Warrants or convert the Notes. No
additional legal opinion or other information or instructions shall be necessary to enable the Purchasers to convert their Notes. The Company shall honor exercises of the Warrants and conversions of the Notes and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the Transaction Documents. 
  
 4.8 Securities Laws Disclosure; Publicity. On the Business Day following the Closing Date, the Company shall issue a press release reasonably acceptable to the Purchasers disclosing the transactions
contemplated hereby. Within one Business Day of the Closing Date, the Company shall file a Current Report on Form 8-K with the Commission (the “8-K Filing”) describing the material terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form 8-K this Agreement and the form of Notes and Warrants, in the form required by the Exchange Act. Thereafter, the Company shall timely file any filings and notices
required by the Commission or applicable law with respect to the transactions contemplated hereby and provide copies thereof to the Purchasers promptly after filing. The Company shall, at least two Trading Days prior to the filing or dissemination
of any disclosure required by the foregoing, provide a copy thereof to the Purchasers for their review; provided, however, that the Company shall only be required to provide a copy of the 8-K Filing to the Purchasers one day prior to such filing.
The Company and the Purchasers shall consult 

  

 28 








 
with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory
agency or Trading Market with respect to the transactions contemplated hereby, and neither party shall issue any such press release or otherwise make any such public statement, filing or other communication without the prior consent of the other,
except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement, filing or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market (other than the Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange Act, the proxy statement to be filed pursuant to Section 4.22 and any application to list additional shares filed with the Trading Market), without the prior written
consent of such Purchaser, except to the extent such disclosure is required by law, Trading Market regulations or the Commission or Nasdaq, in which case the Company shall provide the Purchasers with prior notice of such disclosure. If at any time
the Purchasers do not have a designee on the Company’s Board of Directors, the Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing without the express written consent of such Purchaser. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Purchaser shall be consulted by the
Company in connection with any such press release or other public disclosure prior to its release). Each press release disseminated by the Company during the 12 months prior to the Closing Date did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 
  
 4.9 Use of Proceeds. The Company shall use substantially all of the
net proceeds from the sale of the Securities hereunder to acquire Optex Inc., pursuant to that certain Stock Purchase Agreement and Buyer Option Agreement dated on or about December 30, 2005 by and between the Company and Optex Systems, Inc.
(the “Optex Agreement”). 
  
 4.10
Indebtedness; Liens. 
  
 (a) At any time
after the date of this Agreement, neither the Company nor any Subsidiary shall create, incur, assume or suffer to exist any Indebtedness, other than: (i) trade Indebtedness incurred to finance the purchase of equipment, components and other
similar property and operating assets, in each case, in the ordinary course of business consistent with past practice; (ii) Indebtedness incurred pursuant to that certain Loan and Security Agreement dated as of December 30, 2005 between
the Company and Square 1 Bank in an aggregate 

  

 29 








 
amount not to exceed $7,000,000 (the “S1B Facility”); (iii) extensions, refinancings and renewals of any items in (i) or
(ii) above, provided that such extensions, refinancings or renewals do not or will not impose more burdensome terms, conditions or obligations upon the Company or any Subsidiary or increase the commitments or loan amounts thereunder;
(iv) U.S. government accounts receivable financing of up to $2,000,000 to fund works-in-progress; and (v) inter-company Indebtedness between the Company and any Significant Subsidiary incurred in the ordinary course of business and
consistent with past practice. 
  
 (b) At any
time after the date of this Agreement, neither the Company nor any Subsidiary shall create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than: (i) Liens
incurred by the Company or the Subsidiaries, pursuant to the financings permitted under Section 4.10(a) above; (ii) Liens pursuant to the Security Agreements; (iii) Liens arising from taxes, assessments, charges or claims that are not
yet due or that remain payable without penalty; and (iv) Liens on real property that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company
and the Subsidiaries. 
  
 (c) The provisions of
this Section 4.10 shall terminate and be of no further force or effect upon the conversion or indefeasible repayment in full of the Notes and all accrued interest thereon and any and all expenses or liabilities relating thereto. 
  
 4.11 Repayment of Notes. Each of the parties hereto agrees that
(a) all repayments of the Notes (including any accrued interest thereon) by the Company (other than by conversion of the Notes) will be paid pro rata to the holders thereof based upon the principal amount then outstanding to each of such
holders, and (b) except as otherwise set forth herein, all payments on the Notes shall be applied to the payment of accrued but unpaid interest before being applied to the payment of the principal. 
  
 4.12 No Impairment. At all times after the date hereof, the Company
will not take or permit any action, or cause or permit any Subsidiary to take or permit any action that impairs or adversely affects the rights of the Purchasers under any Transaction Document. 
  
 4.13 Fundamental Changes. In addition to any other rights provided by
law or set forth herein, from and after the date of this Agreement and for so long as any Note remains outstanding, neither the Company nor any Subsidiary shall, without first obtaining the approval (by vote or written consent, as provided by law)
of the holders of a majority of the outstanding principal face amount of the Notes: 
  
 (a) dissolve, liquidate or merge or consolidate with or into another Person, or dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person; 
  
 (b) purchase, redeem (other than pursuant to the Company’s stock option plan or similar employee incentive plan as described in
Schedule 3.1(g) giving the Company the right to repurchase shares at cost upon the termination of an employee’s or director’s services) or set aside any sums for the purchase or redemption of, or declare or pay any dividend
(including a 

  

 30 








 
dividend payable in stock of the Company) or make any other distribution with respect to, any shares of capital stock or any other securities that are
convertible into or exercisable for such stock; 
  
 (c) sell, dispose or otherwise transfer any assets or property with a value equal to or greater than $500,000, except in the ordinary course of business consistent with past practice; 
  
 (d) make any material change to its accounting or tax
methods; 
  
 (e) fail to maintain its corporate
existence, or change the nature of the Company’s principal business to any business which is fundamentally distinct and separate from the business currently conducted by the Company; 
  
 (f) cause or permit any Subsidiary of the Company directly
or indirectly to take any actions described in clauses (a) through (e) above; or 
  
 (g) enter into any agreement to do any of the foregoing. 
  
 4.14 Indemnification. 
  
 (a) If any Purchaser or any of its Affiliates or any officer, director, partner, controlling person, employee or agent of a Purchaser or
any of its Affiliates (a “Related Person”) becomes involved in any capacity in any Proceeding brought by or against any Person in connection with or as a result of any breach or failure to comply by the Company or any officer,
director, employee or agent of the Company or any of its Affiliates with any representation, warranty or covenant in the Transaction Documents, the Company will indemnify and hold harmless such Purchaser or Related Person for its reasonable legal
and other expenses (including the costs of any investigation, preparation and travel) and for any Losses incurred in connection therewith, as such expenses or Losses are incurred, excluding only Losses that result directly from such Purchaser’s
or Related Person’s gross negligence or willful misconduct. In addition, the Company shall indemnify and hold harmless each Purchaser and Related Person from and against any and all Losses, as incurred, arising out of or relating to any breach
by the Company of any of the representations, warranties or covenants made by the Company in this Agreement or any other Transaction Document, or any allegation by a third party that, if true, would constitute such a breach. The conduct of any
Proceedings for which indemnification is available under this paragraph shall be governed by Section 6.4(c) below. The indemnification obligations of the Company under this paragraph shall be in addition to any liability that the Company may
otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Purchasers and any such Related Persons. If the Company breaches its obligations under any Transaction Document,
then, in addition to any other liabilities the Company may have under any Transaction Document or applicable law, the Company shall pay or reimburse the Purchasers on demand for all costs of collection and enforcement (including reasonable attorneys
fees and expenses). Without limiting the generality of the foregoing, the Company specifically agrees to reimburse the Purchasers on demand for all costs of enforcing the indemnification obligations in this paragraph. 
  
 4.15 D & O Insurance. So long as the Purchasers have a designee on
the Company’s Board of Directors, the Company shall maintain directors’ and officers’ liability insurance 

  

 31 








 
providing coverage in such amounts and on such terms as is customary for a publicly traded company of similar size to the Company but in no event in an
amount less than $3,000,000. Such insurance shall include coverage for all directors of the Company, including any director designated by the Purchasers. 
  
 4.16 Shareholders Rights Plan. No claim will be made or enforced by the Company or any other Person that any Purchaser is an “Acquiring
Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving
Underlying Shares under the Transaction Documents or under any other agreement between the Company and the Purchasers. 
  
 4.17 Delivery of Certificates. In addition to any other rights available to a Purchaser, if the Company fails to deliver or to cause to be
delivered to such Purchaser a certificate representing Common Stock on the date on which delivery of such certificate is required by any Transaction Document, and if after such date such Purchaser purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of the shares that the Purchaser anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three Trading Days after
such Purchaser’s request and in such Purchaser’s discretion, either (i) pay cash to such Purchaser in an amount equal to such Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such
Purchaser a certificate or certificates representing such Common Stock and pay cash to such Purchaser in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times
(B) the Closing Price on the date of the event giving rise to the Company’s obligation to deliver such certificate. 
  
 4.18 Access. In addition to any other rights provided by law or set forth herein, from and after the date of this Agreement and for so long as any
Note remains outstanding, the Company shall, and shall cause each of the Subsidiaries, to give each Purchaser and its representatives, at the request of the Purchasers, access during reasonable business hours to (a) all properties, assets,
books, contracts, commitments, reports and records relating to the Company and the Subsidiaries, and (b) the management, accountants, lenders, customers and suppliers of the Company and the Subsidiaries; provided, however, that
the Company shall not be required to provide such Purchaser access to any information or Persons if the Company reasonably determines that access to such information or Persons (x) would adversely affect the attorney-client privilege between
the Company and its counsel, and (y) would result in the disclosure of trade secrets, material nonpublic information or other confidential or proprietary information, and, in each case, cannot be provided to the Purchasers in a manner that
would avoid the adverse affect on the attorney-client privilege between the Company and its counsel or the disclosure of trade secrets, material nonpublic information or other confidential or proprietary information, as applicable. 
  
 4.19 Amendments to S1B Facility; Transaction Documents. So long as any
Note remains outstanding (a) neither the Company nor any subsidiary shall amend, supplement or otherwise modify any of the documents comprising the S1B Facility, and (b) the Company shall 

  

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provide the Purchasers with copies of (i) any and all written communication with S1B, including, without limitation, any request, demand, authorization,
direction, notice, consent or waiver, in each case whether delivered by or to S1B, and (ii) any document or financial or other report delivered by the Company or any Subsidiary or any of their respective representatives or accountants to S1B to
the extent such document or financial or other report was not previously delivered to the Purchasers. The Company shall not, and shall not permit any of its Subsidiaries to, enter into, become or remain subject to any agreement or instrument, except
for the Transaction Documents, that would prohibit or require the consent of any Person to any amendment, modification or supplement to any of the Transaction Documents. 
  
 4.20 New Subsidiaries. After the date hereof, if the Company or any Subsidiary forms, creates or acquires a
subsidiary or if at any time either 3D Microelectronics, Inc. or 3D Microsystems, Inc. holds any material assets (in each case, a “New Subsidiary”), the Company shall immediately provide written notice thereof to the
Purchasers, and shall promptly cause, or cause a Subsidiary to cause, such New Subsidiary to guarantee all of the Company’s obligations to the Purchasers by executing and delivering (i) a joinder to the Guaranty, and (ii) a security
agreement substantially in the form of the Subsidiary Security Agreements attached hereto as Exhibit D. The Company shall also deliver to the Purchasers an opinion of counsel to such New Subsidiary that is reasonably satisfactory to the
Purchasers covering such legal matters with respect to such New Subsidiary becoming a guarantor of the Company’s obligations, executing and delivering a security agreement in favor of the Purchasers and any other matters that the Purchasers may
reasonably request. The stock or other equity interests of a New Subsidiary shall be pledged to the Purchasers pursuant to the applicable Security Agreement, and, if at any time the Indebtedness permitted under to Section 4.10(a)(ii) is not
outstanding, the Company shall deliver, or cause the applicable Subsidiary to deliver, each of the physical stock certificates of such New Subsidiary, along with undated stock powers for each such certificates, executed in blank (or, if any such
shares of capital stock are uncertificated, confirmation and evidence reasonably satisfactory to the Purchasers that the security interest in such uncertificated securities has been transferred to and perfected by the Purchasers, in accordance with
Sections 8-313, 8-321 and 9-115 of the Uniform Commercial Code or any other similar or local or foreign law that may be applicable). 
  
 4.21 Employee Compensation. Promptly after the Closing Date and until June 30, 2007, the Company shall engage an independent compensation
consultant reasonably acceptable to the Purchasers, who shall advise the Company’s Board of Directors and compensation committee on compensation policies. 
  

4.22 Stockholder Approval. 
  
 (a) The Company shall seek, and use its best efforts to obtain as soon as possible, but in no event later than 90 days following the date
hereof, or 120 days in the event the proxy materials shall be reviewed by the Commission, stockholder approval of the issuance of the Underlying Shares, including, without limitation, all shares issuable without regard to Section 6(b) of the
Notes and Section 11 of the Warrants (the “Proposal”), which approval shall meet the requirements of Nasdaq’s Rule 4350(i) set forth in the NASD Manual (the “Stockholder Approval Date”). 
  

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 (b) As soon as practicable following the date of this Agreement, but in no event later
than 30 days following the date of this Agreement, the Company shall prepare and file with the Commission preliminary proxy materials in connection with the annual meeting (the “Annual Meeting”) of its stockholders, seeking approval
of the Proposal. The Company shall use its reasonable best efforts to cause such proxy materials to reach the “no further comment” stage as soon as possible (the “Clearance Date”) and to hold the Annual Meeting as soon as
possible following the Clearance Date, but in no event later than 60 days following the Clearance Date. 
  
 (c) The Company’s Board of Directors shall recommend approval of the Proposal by the Company’s stockholders, provided that such
recommendation shall not as a result of events occurring after the date hereof, in the sole determination of the Company’s Board of Directors, constitute a breach of a directors’ fiduciary duties to the Company or its stockholders. The
Company shall mail and distribute its proxy materials for the Annual Meeting to its stockholders at least 30 days prior to the date of the Annual Meeting and shall actively solicit proxies to vote for the Proposal. The Company shall provide the
Purchasers an opportunity to review and comment on such proxy materials by providing copies of such proxy materials and any revised version of such materials to the Purchasers at least three (3) days prior to its filing with the Commission. The
Company shall provide the Purchasers excerpts of all correspondence from or to the Commission or its staff concerning the Proposal promptly after the same is sent or received by the Company and summaries of any comments of the Commission’s
staff concerning the Proposal which the Company receives orally promptly after receiving such oral comments. The Company shall (i) furnish to the Purchasers and their Counsel a copy of its definitive proxy materials for the Annual Meeting and
any amendments or supplements thereto promptly after the same are first mailed to stockholders or filed with the Commission, (ii) inform the Purchasers of the progress of solicitation of proxies for such meeting and (iii) inform the
Purchasers of any adjournment of the Annual Meeting and report the result of the vote of stockholders on the Proposal at the conclusion of the Annual Meeting. 
  

(d) If for any reason the Proposal is not approved at the Annual Meeting, the Company will take such additional acts or actions as are
necessary to hold an additional special meeting of its stockholders to consider the Proposal and in conjunction therewith shall hire a nationally recognized proxy solicitation firm, selected by the Purchasers which is reasonably satisfactory to the
Company, to assist the Company in obtaining the necessary stockholder votes to approve the Proposal. The Company shall bear all costs and expenses of the preparation and filing of any and all proxy materials and Special Meetings, including but not
limited to the costs and expenses of the proxy solicitation firm if needed. 
  
 4.23 Material Weakness. The Company shall use commercially reasonable efforts to resolve the material weaknesses identified in the Company’s Form 10-K filed with the Commission on December 12, 2005.

  
 4.24 Recordation of Patents and Patent Applications.
Promptly after the Closing Date but in no event later than February 15, 2006, the Company shall or shall cause the Patents and Patent Applications set forth in Schedule 4.24 to be properly recorded in the name of the Company or a
Subsidiary, as applicable, with the United States Patent & Trademark Office 
  

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 ARTICLE V. 
 CONDITIONS 
  
 5.1 Conditions
Precedent to the Obligations of the Purchasers. The obligation of each Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions:

  
 (a) Representations and Warranties.
The representations and warranties of the Company contained herein shall be true and correct in all material respects (without giving effect to any qualifications as to materiality herein) as of the date when made and as of the Closing as though
made on and as of such date; 
  
 (b)
Performance. The Company and each other Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing; 
  
 (c)
No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction Documents; 
  
 (d) Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that has had
or reasonably would be expected to have or result in a Material Adverse Effect; and 
  
 (e) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the Commission
or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any time since the date of execution of this Agreement, and the Common
Stock shall have been at all times since such date listed for trading on an Eligible Market. 
  
 5.2 Conditions Precedent to the Obligations of the Company. The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of
each of the following conditions: 
  
 (a)
Representations and Warranties. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such
date; 
  
 (b) Performance. The Purchasers
shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing; and

  
 (c) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or 

  

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governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

  
 ARTICLE VI. 
 REGISTRATION RIGHTS 
  
 6.1 Shelf Registration. 
  
 (a) As promptly as possible, and in any event on or prior to the Filing Date, the Company shall prepare and file with the Commission a
“shelf” Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. If for any reason the Commission does not permit all of the Registrable Securities to
be included in such Registration Statement, then the Company shall prepare and file with the Commission a separate Registration Statement with respect to any such Registrable Securities not included with the initial Registration Statements, as
expeditiously as possible, but in no event later than the date which is 30 days after the date on which the Commission shall indicate as being the first date such filing may be made. The Registration Statement shall be on Form S-3 and shall contain
(except if otherwise directed by the Purchasers) the “Plan of Distribution”, substantially as attached hereto as Exhibit I. In the event the Form S-3 is not available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form in accordance herewith as the Purchasers may consent and (ii) attempt to register the Registrable Securities on Form S-3 as soon
as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statements then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission. 
  
 (b) The Company
shall use reasonable best efforts to cause the Registration Statement to be declared effective by the Commission as promptly as possible after the filing thereof, but in any event prior to the Required Effectiveness Date, and shall use reasonable
best efforts to keep the Registration Statement continuously effective under the Securities Act until the earlier of (i) the fifth anniversary of the Effective Date, (ii) such time as all Registrable Securities covered by such Registration
Statement have been sold publicly or (iii) such time as all of the Registrable Securities covered by such Registration Statement may be sold pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion
letter to such effect (the “Effectiveness Period”). 
  
 (c) The Company shall notify each Purchaser in writing promptly (and in any event within one business day) after receiving notification from the Commission that the Registration Statement has been declared effective.

  
 (d) If: (i) any Registration Statement
is not filed on or prior to the Filing Date (if the Company files such Registration Statement without affording the Purchasers the opportunity to review and comment on the same as required by Section 6.2(a) hereof, the Company shall not be
deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days after the date that the
Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or 

  

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will not be subject to further review, or (iii) the Company fails to respond to any comments made by the Commission within 10 Trading Days after the
receipt of such comments, or (iv) a Registration Statement filed hereunder is not declared effective by the Commission by the Required Effectiveness Date, or (v) after a Registration Statement is filed with and declared effective by the
Commission, such Registration Statement ceases to be effective as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period without being succeeded within 10 Trading Days by an
amendment to such Registration Statement or by a subsequent Registration Statement filed with and declared effective by the Commission, or (vi) an amendment to a Registration Statement is not filed by the Company with the Commission within ten
Trading Days after the Commission’s having notified the Company that such amendment is required in order for such Registration Statement to be declared effective, or (vii) the Common Stock is not listed or quoted, or is suspended from
trading on an Eligible Market for a period of three consecutive Trading Days or five Trading Days (which need not be consecutive) in any 180 day period, (any such failure or breach being referred to as an “Event,” and for purposes
of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clauses (iii), (v) or (vi) the date which such ten
Trading Day-period is exceeded, or for purposes of clause (vii) the date on which such three or five (as the case may be) Trading Day period is exceeded, being referred to as “Event Date”), then: (x) on each such Event
Date the Company shall pay to each Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate purchase price paid by such Purchaser pursuant to the Purchase Agreement; and (y) on each monthly
anniversary of each such Event Date thereof (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Purchaser an amount in cash, as partial liquidated damages and not as a
penalty, equal to 2% of the aggregate purchase price paid by such Purchaser pursuant to the Purchase Agreement. Such payments shall be in partial compensation to the Purchasers and shall not constitute the Purchaser’s exclusive remedy for such
events. If the Company fails to pay any liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Purchaser, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. This Section 6.1(d) shall not apply to a delay to the
extent caused by (i) the Purchasers or (ii) the Company’s independent auditors, if such delay is outside the control of the Company and not related to any action or inaction on the part of the Company, the Subsidiaries or any of their
respective officers or directors. 
  
 (e) The
Company shall not, prior to the Effective Date of the Registration Statement, prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its
equity securities, other than those Persons identified in Schedule 3.1(y) whom the Company intends to include in the Registration Statement. 
  
 (f) If the Company issues to the Purchasers any Common Stock pursuant to the Transaction Documents that is not included in the initial
Registration Statement, then the Company shall file an additional Registration Statement covering such number of shares of Common Stock on or prior to the Filing Date and shall use reasonable best efforts to cause such 

  

 37 








 
additional Registration Statement to become effective by the Commission by the Required Effectiveness Date. 
  
 (g) Each Purchaser agrees to furnish to the Company a
completed Questionnaire in the form attached to this Agreement as Exhibit J (a “Selling Stockholder Questionnaire”). The Company shall not be required to include the Registrable Securities of a Purchaser in a Registration
Statement if such Purchaser fails to furnish to the Company a Selling Stockholder Questionnaire at least two Trading Days prior to the Filing Date. 
  
 6.2 Registration Procedures. In connection with the Company’s registration obligations hereunder, the Company shall: 
  
 (a) Not less than six Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish to the Purchasers and Purchaser
Counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Purchasers and Purchaser Counsel. The Company shall not file a
Registration Statement or any such Prospectus or any amendments or supplements thereto to which Purchasers holding a majority of the Registrable Securities shall reasonably object. 
  
 (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each
Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Purchasers true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; provided, however, the Company will not be required to provide copies of
any correspondence that would result in the disclosure to a Purchaser of material and non-public information concerning the Company unless such Purchaser has executed a confidentiality agreement with the Company; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of
disposition by the Purchasers thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. 
  
 (c) Notify the Purchasers of Registrable Securities to be sold and Purchaser Counsel as promptly as reasonably possible, and (if requested
by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Registration Statement;
(ii) the Commission comments in writing on any Registration Statement (in which 

  

 38 








 
case the Company shall deliver to each Purchaser a copy of such comments and of all written responses thereto; provided, however, the Company
will not be required to provide copies of any responses that would result in the disclosure to a Purchaser of material and non-public information concerning the Company unless such Purchaser has executed a confidentiality agreement with the
Company); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to any Registration Statement
or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives
notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included
or incorporated by reference in any Registration Statement become ineligible for inclusion or incorporation therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein
by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 
  
 (d) Use reasonable best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of any Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable. 
  
 (e) Furnish to each Purchaser and Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. 
  

(f) Promptly deliver to each Purchaser and Purchaser Counsel, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Purchasers
in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. 
  
 (g) (i) Prepare and timely file with each Trading Market an additional shares listing application covering all of the Registrable
Securities; (ii) use reasonable best efforts to cause such Registrable Securities to be approved for listing on each Trading Market as soon as practicable thereafter; (iii) provide to the Purchasers evidence of such listing; and
(iv) use reasonable best efforts to maintain the listing of such Registrable Securities on each such Trading Market or another Eligible Market. 
  

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 (h) Prior to any public offering of Registrable Securities, use reasonable best efforts
to register or qualify or cooperate with the selling Purchasers and Purchaser Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United States as any Purchaser requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement. 
  
 (i) Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such Purchasers may request. 
  
 (j) Upon the occurrence of any event described in Section 6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the affected Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. 
  
 6.3 Registration Expenses. The Company shall pay (or reimburse the Purchasers for) all fees and expenses incident to the performance of or compliance with this Agreement by the Company, including without
limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the Commission, any Trading Market and in connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of the Purchaser Counsel, (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the Trading Market. Discounts, concessions, commissions and similar selling expenses, if any, payable to an underwriter and specifically attributable to the sale of Registrable
Securities by a Purchaser will be borne by such Purchaser. 
  
 6.4
Indemnification. 
  
 (a)
Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Purchaser, the officers, directors, partners, members, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Purchaser (within the meaning of
Section 15 of the Securities Act or Section 20 of the 

  

 40 








 
Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements, alleged untrue statements,
omissions or alleged omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such
Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. 
  
 (b) Indemnification by Purchasers. Each Purchaser shall, severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of any untrue statement
of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading to the extent, but only to the extent, that (i) such untrue
statement or omission is based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use in such Registration Statement or Prospectus, or to the extent that such information relates to
such Purchaser or such Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 6.2(c)(iv)-(vii), the use by such Purchaser of an outdated or defective Prospectus after the Company has
notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no event shall the liability of any selling Purchaser hereunder be greater
in amount than the dollar amount of the net proceeds received by such Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation. 
  
 (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against
any Person entitled to indemnity hereunder (an “Indemnified Party”), such 

  

 41 








 
Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. 
  
 An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the
Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including
any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not
have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 
  
 All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent
it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). 
  
 (d) Contribution. If a claim for indemnification under Section 6.4(a) or (b) is unavailable to an Indemnified Party (by
reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault
of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in 

  

 42 








 
question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by,
or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 6.4(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. 
  
 The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6.4(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 
  
 The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 
  
 6.5 Dispositions. Each Purchaser agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration Statement. Each Purchaser further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 6.2(c)(iv)-(vii),
such Purchaser will discontinue disposition of such Registrable Securities under the Registration Statement until such Purchaser’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by
Section 6.2(j), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. 
  
 6.6 No Piggyback on Registrations. Except as set forth on Schedule
3.1(y) or with the prior written consent of the holders of a majority of the Registrable Securities or as permitted by Section 6.7 below, neither the Company nor any of its security holders (other than the Purchasers in such capacity
pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not during the Effectiveness Period enter into any agreement providing any such right to any of its
security holders to be included in the Registration Statement for the Registrable Securities. 
  

 43 








 6.7 Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an
effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under
the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of
any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Purchaser written notice of such determination and if, within fifteen days after receipt of
such notice, any such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Purchaser requests to be registered, subject to customary underwriter cutbacks
applied on a pro rata basis to all holders of registration rights. 
  
 ARTICLE VII. 
 MISCELLANEOUS 
  
 7.1 Termination. This Agreement may be terminated by the Company or any Purchaser, by written notice to the other parties, if the Closing has not
been consummated by the fifth Trading Day following the date of this Agreement; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties). 
  
 7.2 Fees and Expenses. At the Closing, the Company shall pay to the
Purchasers the legal and accounting fees and expenses incurred by them in connection with due diligence and the preparation and negotiation of the Transaction Documents not to exceed $227,500, of which amount $25,000 has been previously paid by the
Company. The Company shall satisfy this obligation by directing funds to Purchaser Counsel at the Closing. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes
and other taxes and duties levied in connection with the issuance of any Securities. 
  
 7.3 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company
will execute and deliver to the Purchasers such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents. 
  
 7.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading Day after the date of transmission, if such notice or 

  

 44 








 
communication is delivered via facsimile at the facsimile number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, specifying next business day delivery or (iv) upon actual receipt
by the party to whom such notice is required to be given if delivered by hand. The address for such notices and communications shall be as follows: 
  

			
	If to the Company:	  	Irvine Sensors Corporation
	 	  	3001 Red Hill Avenue
	 	  	Costa Mesa, California 92626
	 	  	Attn: John J. Stuart, Jr.
	 	  	Fax No.: (714) 444-8773
		
	With a copy to:	  	With a copy to:
	 	  	Dorsey & Whitney LLP
	 	  	38 Technology Drive
	 	  	Irvine, California 92618-5310
	 	  	Attn: Ellen Bancroft, Esq.
	 	  	Fax No.: (949) 932-3601
		
	If to the Purchasers:	  	To the address set forth under such Purchaser’s name on the signature pages attached hereto.

  
 or such other address
as may be designated in writing hereafter, in the same manner, by such Person by two Trading Days’ prior notice to the other party in accordance with this Section 7.4. 
  
 7.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Purchasers who hold a majority of the outstanding principal balance on the Notes (the “Majority Purchasers”), or, in the case of a waiver, by
the Majority Purchasers. Any waiver executed by the Majority Purchasers shall be binding on the Company and all holders of Notes. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the
exercise of any such right. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Purchasers under Article VI and that does not directly or
indirectly affect the rights of other Purchasers may be given by Purchasers holding at least a majority of the Registrable Securities to which such waiver or consent relates. 
  
 7.6 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall
not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against
any party. 
  

 45 








 7.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers. Any Purchaser may assign its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof and of the applicable Transaction Documents that apply to
the “Purchasers.” Notwithstanding anything to the contrary herein, Securities may be pledged to any Person in connection with a bona fide margin account secured by such Securities. 
  
 7.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such Sections directly against the parties with obligations thereunder. 
  
 7.9 Governing Law; Venue; Waiver of Jury Trial. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (EXCEPT FOR MATTERS GOVERNED BY CORPORATE LAW IN THE STATE OF DELAWARE), WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES,
DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THIS AGREEMENT), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT
DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT 

  

 46 








 
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. IF EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS AGREEMENT OR ANY TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN SUCH ACTION OR
PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER REASONABLE COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING. 
  
 7.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities, as applicable. 
  
 7.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original
thereof. 
  
 7.12 Severability. If any provision of this
Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt in good faith
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 
  
 7.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided,
then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights. 
  
 7.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances
shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 
  

 47 








 7.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 
  
 7.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or any Purchaser enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company by a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as
if such payment had not been made or such enforcement or setoff had not occurred. 
  
 7.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit
or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.
Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in
the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is
increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate of interest applicable to the Transaction Documents from the
effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the
Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election. 
  
 7.18 Independent Nature of Purchasers’ Obligations and Rights.
The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser
under any Transaction Document. The decision of each Purchaser to purchase Notes pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, 

  

 48 








 
statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiary which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other
Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. The Company hereby confirms that it understands and agrees that the Purchasers are not acting as a “group” as that term is used in Section 13(d) of the Exchange Act. Each Purchaser
acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment
hereunder. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. 
  
 7.19 Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in this Agreement to a number of shares or a price per
share shall be amended to appropriately account for such event. 
  
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 
 SIGNATURE PAGES FOLLOW] 
  

 49 








 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed
by their respective authorized signatories as of the date first indicated above. 
  

			
	IRVINE SENSORS CORPORATION
		
	 By:
	 	 /s/ JOHN J. STUART, JR.

	 	 	 Name: John J. Stuart, Jr.

	 	 	 Title: SVP/CFO



  
 [REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK 
 SIGNATURE PAGES OF PURCHASERS FOLLOW.] 
  


					
	Securities Purchase Agreement	  	 	  	 










			
	PURCHASERS:
	
	PEQUOT PRIVATE EQUITY FUND III, L.P.
		
	 By:
	 	 Pequot Capital Management, Inc.,
 its Investment Manager

		
	 By:
	 	 /s/ CARLOS RODRIGUES

	 	 	 Name: Carlos Rodrigues

	 	 	 Title: Chief Financial Officer

	
	Purchase
Price:                                       
  $8,764,490
	
	 Notes Principal Amount:

	 	 	 Series 1
Note                                    
$6,525,595

	 	 	 Series 2
Note                                    
$2,238,895

	
	 Warrant Shares:

	 	 	 Series 1
Warrant                                 878,446

	 	 	 Series 2
Warrant                                 301,390

	
	Address for Notice:
	
	 Pequot Private Equity Fund III, L.P.
 c/o
Pequot Capital Management, Inc.
 500 Nyala Farm Road
 Westport,
CT 06880
 Facsimile No.:   203-429-2400
 Telephone No.:
203-429-2200
 Attn: Aryeh Davis
          Carlos Rodrigues

	
	With a copy to:
	
	 Proskauer Rose LLP
 1585 Broadway

New York, NY 10036-8299
 Facsimile No.: (212) 969-2900
 Attn: Adam J. Kansler, Esq.



  


					
	Securities Purchase Agreement	  	 	  	 










			
	PEQUOT OFFSHORE PRIVATE EQUITY PARTNERS III, L.P.
		
	By:	 	 Pequot Capital Management, Inc.,
 its Investment Manager

		
	By:	 	 /s/ CARLOS RODRIGUES

	 	 	 Name: Carlos Rodrigues
 Title: Chief Financial Officer

	
	Purchase
Price:                                 $1,235,510
	
	Notes Principal Amount:
	 	 	Series 1
Note                                     $919,898
	 	 	Series 2
Note                                     $315,612
	
	Warrant Shares:
	 	 	Series 1
Warrant                                 123,832
	 	 	 Series 2
Warrant                                   42,486

	
	Address for Notice:
	  
 Pequot Offshore
Private Equity Partners III, L.P.
 c/o Pequot Capital Management, Inc.
 500 Nyala Farm Road
 Westport, CT 06880
 Facsimile No.: 203-429-2400
 Telephone No.: 203-429-2200
 Attn: Aryeh Davis
           Carlos Rodrigues
  
 With a copy to:
  
 Proskauer Rose LLP
 1585 Broadway
 New York, NY 10036-8299
 Facsimile No.: (212) 969-2900
 Attn: Adam J. Kansler, Esq.



  


					
	Securities Purchase Agreement	  	 	  	 










			
	 Exhibits:
	  	 
		
	 A.
	  	Subsidiary Guaranty
		
	 B.
	  	Form of Series 1 Note
		
	 B-1.
	  	Form of Series 2 Note
		
	 C.
	  	Company Security Agreement
		
	 D.
	  	Form of Subsidiary Security Agreement
		
	 E.
	  	Side Letter
		
	 F.
	  	Form of Letter Agreement
		
	 G.
	  	Form of Series 1 Warrant
		
	 G-1.
	  	Form of Series 2 Warrant
		
	 H.
	  	Opinion of Company Counsel
		
	 I.
	  	Plan of Distribution
		
	 J.
	  	Selling Stockholder Questionnaire
		
	 Schedules:
	  	 
		
	 2.1
	  	Allocation of Purchase Price
		
	 3.1(a)
	  	Subsidiaries
		
	 3.1(g)
	  	Capitalization
		
	 3.1(i)
	  	Taxes
		
	 3.1(l)
	  	Labor Relations
		
	 3.1(m)
	  	Employee Benefit Plans
		
	 3.1(q)
	  	Certain Intellectual Property
		
	 3.1(s)
	  	Transaction with Affiliates and Employees
		
	 3.1(t)
	  	Internal Accounting Controls
		
	 3.1(z)
	  	Registration Rights

  

 53 









			
	 3.1(ee)
	  	Ranking
		
	 3.1(ff)
	  	Sarbanes-Oxley Act
		
	 3.1(gg)
	  	Material Contracts
		
	 3.1(hh)
	  	Suppliers/Customers
		
	 3.1(ii)
	  	Government Contracts
		
	 3.1(kk)
	  	Environmental Matters
		
	 4.24
	  	Recordation of Patents and Patent Applications

  

 54