Document:

EXHIBIT
10.11

    

    SUBSCRIPTION
AGREEMENT

     

    SUBSCRIPTION
AGREEMENT (this "Agreement") made as of the last date set forth on the signature
page hereof between Optex Systems, Inc., a Delaware corporation (the "Company"),
and the undersigned (the "Subscriber”).

     

    WITNESSETH:

     

    WHEREAS,
the Company is conducting a private offering (the "Offering") consisting of up
to 45 units (the "Units"), with each Unit consisting of 300,000 shares of common
stock, no par value (the "Common Stock"), and 300,000 warrants to purchase a
share of common stock with an exercise price of $0.45 per share (the
"Warrants"), at a purchase price of $45,000 per Unit; and

     

    WHEREAS,
the Subscriber desires to purchase that number of Units set forth on the
signature page hereof on the terms and conditions hereinafter set
forth.

     

    NOW,
THEREFORE, in consideration of the premises and the mutual representations and
covenants hereinafter set forth, the parties hereto do hereby agree as
follows:

     

    1.           SUBSCRIPTION
FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER

     

    1.1           
  Subject to the terms and conditions hereinafter set forth and in the
Confidential Private Offering Memorandum dated December 9, 2008 (such
memorandum, together with all amendments thereof and supplements and exhibits
thereto, the "Memorandum"), the Subscriber hereby irrevocably subscribes for and
agrees to purchase from the Company such number of Units, and the Company agrees
to sell to the Subscriber as is set forth on the signature page hereof, at a
price equal to $45,000 per Unit. The purchase price is payable by personal or
business check or money order made payable to "U.S. Bank National Association as
Escrow Agent f/b/o Optex Systems, Inc." contemporaneously with the execution and
delivery of this Agreement by the Subscriber. Subscribers may also pay the
subscription amount by, wire transfer of immediately payable funds
to:

     

    
      
        	
                RBK:

              	
                U.S.
      Bank National Association, as Escrow Agent

              
	
                ABA:

              	
                091000022

              
	
                BNF:

              	
                U.S.
      Bank Trust N.A.

              
	
                A/C:

              	
                180121167365

              
	
                Attn:

              	
                TFM
      – Scott Kjar

              
	
                Ref:

              	
                Optex
      Systems, Inc. Escrow
#129636000

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.2            
  The Subscriber recognizes that the purchase of the Units involves a
high degree of risk including, but not limited to, the following: (a) the
Company requires funds in addition to the proceeds of the Offering; (b) an
investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (c) the Subscriber may not be able to liquidate its
investment; (d) transferability of the Common Stock and the Warrants is
extremely limited; (e) in the event of a disposition, the Subscriber could
sustain the loss of its entire investment; (f) the Company has not paid any
dividends since its inception and does not anticipate paying any dividends; (g)
the Company may issue additional securities in the future which have rights and
preferences that are senior to those of the Common Stock; and (h) that the
Company stock may not successfully become actively traded. Without limiting the
generality of the representations set forth in Section 1.5 below, the Subscriber
represents that the Subscriber has carefully reviewed the section of the
Memorandum captioned "Risk Factors."

     

    1.3            
  The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D ("Regulation D")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
and that the Subscriber is able to bear the economic risk of an investment in
the Units.

     

    1.4            
  The Subscriber hereby acknowledges and represents that (a) the
Subscriber has knowledge and experience in business and financial matters, prior
investment experience, or the Subscriber has employed the services of a
"purchaser representative" (as defined in Rule 501 of Regulation D), attorney
and/or accountant to read all of the documents furnished or made available by
the Company both to the Subscriber and to all other prospective investors in the
Units to evaluate the merits and risks of such an investment on the Subscriber's
behalf; (b) the Subscriber recognizes the highly speculative nature of this
investment; and (c) the Subscriber is able to bear the economic risk that the
Subscriber hereby assumes.

     

    1.5            
 The Subscriber hereby acknowledges receipt and careful review of this
Agreement, the Memorandum (which includes the Risk Factors), including all
exhibits thereto, and any documents which may have been made available upon
request as reflected therein (collectively referred to as the "Offering
Materials") and hereby represents that the Subscriber has been furnished by the
Company during the course of the Offering with all information regarding the
Company, the terms and conditions of the Offering and any additional information
that the Subscriber has requested or desired to know, and has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the Company and the
terms and conditions of the Offering.

     

    1.6        
     (a)    In making the decision
to invest in the Units the Subscriber has relied solely upon the information
provided by the Company in the Offering Materials. To the extent necessary, the
Subscriber has retained, at its own expense, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and the purchase of the Units hereunder. The
Subscriber disclaims reliance on any statements made or information provided by
any person or entity in the course of Subscriber's consideration of an
investment in the Units other than the Offering Materials.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)    The
Subscriber represents that (i) the Subscriber was contacted regarding the sale
of the Units by the Company (or an authorized agent or representative thereof)
and (ii) no Units were offered or sold to it by means of any form of general
solicitation or general advertising, and in connection therewith, the Subscriber
did not (A) receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available; or (B)
attend any seminar meeting or industry investor conference whose attendees were
invited by any general solicitation or general advertising.

     

    1.7              The
Subscriber hereby represents that the Subscriber, either by reason of the
Subscriber's business or financial experience or the business or financial
experience of the Subscriber's professional advisors (who are unaffiliated with
and not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly), has the capacity to protect the Subscriber's
own interests in connection with the transaction contemplated
hereby.

     

    1.8       
      The Subscriber hereby acknowledges that the
Offering has not been reviewed by the U.S. Securities and Exchange Commission
(the "SEC") nor any state regulatory authority since the Offering is intended to
be exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Regulation D promulgated thereunder. The Subscriber understands that
the Common Stock, the Warrant Shares (defined below), and the Warrants have not
been registered under the Securities Act or under any state securities or "blue
sky" laws and agrees not to sell, pledge, assign or otherwise transfer or
dispose of the Common Stock, Warrant Shares, or Warrants unless they are
registered under the Securities Act and under any applicable state securities or
"blue sky" laws or unless an exemption from such registration is
available.

     

    1.9           
  The Subscriber understands that the Common Stock, Warrant Shares and
Warrants have not been registered under the Securities Act by reason of a
claimed exemption under the provisions of the Securities Act that depends, in
part, upon the Subscriber's investment intention. In this connection, the
Subscriber hereby represents that the Subscriber is purchasing the Units for the
Subscriber's own account for investment and not with a view toward the resale or
distribution to others. The Subscriber, if an entity, further represents that it
was not formed for the purpose of purchasing the Units.

     

    1.10             The
Subscriber understands that there is no trading market for the Common Stock and
that an active market may not develop for the Common Stock. The Subscriber
understands that even if an active market develops for the Common Stock, Rule
144 promulgated under the Securities Act requires for non-affiliates ("Rule
144"), among other conditions, a one-year holding period commencing as of the
date that the Company files "Form 10 information" with the SEC, prior to the
resale of securities acquired in a non-public offering without having to satisfy
the registration requirements under the Securities Act. The Subscriber
understands and hereby acknowledges that the Company is under no obligation to
register any of the Common Stock, the Warrant Shares, or the Warrants under the
Securities Act or any state securities or "blue sky" laws other than as set
forth in Article 5.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.11             The
Subscriber consents to the placement of a legend on any certificate or other
document evidencing the Common Stock, the Warrant Shares, and the Warrants that
such securities have not been registered under the Securities Act or any state
securities or "blue sky" laws and setting forth or referring to the restrictions
on transferability and sale thereof contained in this Agreement. The Subscriber
is aware that the Company will make a notation in its appropriate records with
respect to the restrictions on the transferability of such securities. The
legend to be placed on each certificate shall be in form substantially similar
to the following:

     

    "THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED. UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT-) OR ANY STATE SECURITIES OR "BLUE
SKY LAWS," AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."

     

    1.12             The
Subscriber understands that the Company will review this Agreement and is hereby
given authority by the Subscriber to call Subscriber's bank or place of
employment or otherwise review the financial standing of the Subscriber; and it
is further agreed that the Company and the Placement Agent, in their sole
discretion, reserve the unrestricted right, without further documentation or
agreement on the part of the Subscriber, to reject or limit any subscription, to
accept subscriptions for fractional shares of Common Stock and to close the
Offering to the Subscriber at any time and that the Company will issue stop
transfer instructions to its transfer agent with respect to such Common
Stock.

     

    1.13             The
Subscriber hereby represents that the address of the Subscriber furnished by
Subscriber on the signature page hereof is the Subscriber's principal residence
if Subscriber is an individual or its principal business address if it is a
corporation or other entity.

     

    1.14             The
Subscriber represents that the Subscriber has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement and
to purchase the Units. This Agreement constitutes the legal, valid and binding
obligation of the Subscriber, enforceable against the Subscriber in accordance
with its terms.

     

    1.15             If
the Subscriber is a corporation, partnership, limited liability company, trust,
employee benefit plan, individual retirement account, Keogh Plan, or other
tax-exempt entity, it is authorized and qualified to invest in the Company and
the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.16             The
Subscriber acknowledges that at such time, if ever, as the Common Stock,
Warrants and the Warrant Shares are registered (as such term is defined in
Article 5 hereof), sales of the Common Stock, Warrants and Warrant Shares will
be subject to state securities laws.

     

    1.17            (a)        The
Subscriber agrees not to issue any public statement with respect to the
Subscriber's investment or proposed investment in the Company or the terms of
any agreement or covenant between them and the Company without the Company's
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation.

     

    (b)         The
Company agrees not to disclose the names, addresses or any other information
about the Subscribers, except as required by law; provided, that the Company may
use the name of the Subscriber for any offering or in any registration statement
filed pursuant to Article 5 in which the Subscriber's Common Stock is
included.

     

    1.18             The
Subscriber understands that the Units are being offered and sold in reliance on
specific exemptions from the registration requirements of federal and state
securities laws and that the Company and the principals and controlling persons
thereof are relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings set forth herein in
order to determine the applicability of such exemptions and the undersigned's
suitability to acquire Units.

     

    1.19             The
Subscriber agrees to hold the Company and its directors, officers, employees,
affiliates, controlling persons and agents and their respective heirs,
representatives, successors and assigns harmless and to indemnify them against
all liabilities, costs and expenses incurred by them as a result of (a) any sale
or distribution of the Common Stock, Warrant Shares, or Warrants by the
Subscriber in violation of the. Securities Act or any applicable state
securities or "blue sky" laws; or (b) any false representation or warranty or
any breach or failure by the Subscriber to comply with any covenant made by the
Subscriber in this Agreement or any other document furnished by the Subscriber
to any of the foregoing in connection with this transaction. To the best of the
Purchaser’s knowledge, neither the Purchaser nor any person providing funds to
the Purchaser:  (i) is under investigation by any governmental
authority for, or has been charged with, or convicted of, money laundering, drug
trafficking, terrorist related activities, any crimes which in the United States
would be predicate crimes to money laundering, or any violation of any
Anti-Money Laundering Laws (as hereinafter defined); (ii) has been assessed
civil or criminal penalties under any Anti-Money Laundering Laws; or (iii) has
had any of its funds seized or forfeited in any action under any Anti-Money
Laundering Laws. For purposes of this paragraph, the term “Anti-Money Laundering
Laws” shall mean laws, regulations and sanctions, state and federal, criminal
and civil, that: (i) limit the use of and/or seek the forfeiture of proceeds
from illegal transactions; (ii) limit commercial transactions with designated
countries or individuals believed to be terrorists, narcotics dealers or
otherwise engaged in activities contrary to the interests of the United States;
(iii) require identification and documentation of the parties with whom a
Financial Institution conducts business; or (iv) are designed to disrupt the
flow of funds to terrorist organizations. Such laws, regulations and sanctions
shall be deemed to include the USA Patriot Act of 2001, Pub. L. No. 107-56 (the
“Patriot Act”), the Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq. (the “Bank
Secrecy Act”), the Trading with the Enemy Act, 50 U.S.C. Appendix, the
International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq.,
and the sanction regulations promulgated pursuant thereto by the OFAC, as well
as laws relating to prevention and detection of money laundering in 18 U.S.C.
Sections 1956 and 1957.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.           REPRESENTATIONS
BY AND COVENANTS OF THE COMPANY

     

    The
Company hereby represents and warrants to the Subscriber that:

     

    2.1           
  Organization, Good Standing
And Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to conduct its business.

     

    2.2          
   Authorization;
Enforceability. The Company has all corporate right, power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. All corporate action on the part of the Company, its directors and
stockholders necessary for the (i) authorization execution, delivery and
performance of this Agreement by the Company; and (ii) authorization, sale,
issuance and delivery of the Common Stock and Warrants contemplated hereby and
the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. The Common Stock and Warrant Shares, when
issued and fully paid for in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable. The issuance and sale of the
Common Stock and Warrant Shares contemplated hereby will not give rise to any
preemptive rights or rights of first refusal on behalf of any person which have
not been waived in connection with this offering.

     

    3.           TERMS
OF SUBSCRIPTION

     

    3.1             
The Company is offering the Units through Newbridge Securities Corporation, as
placement agent (the “Placement Agent”) on an “all or none basis” with respect
to the initial 22 Units (the “Minimum Offering”) and thereafter, on a “best
efforts” basis until all of the Units (including up to 5 over-allotment Units,
the “Additional Units”) are sold (the “Maximum Offering”) or the Offering period
terminates, whichever occurs first.  The initial closing may not be
held until such time as (i) subscriptions for the Minimum Offering have been
received, and (ii) the Company has entered into a definitive agreement (the
“Definitive Reverse Merger Agreement”) setting forth the terms under which it
will merge into a public company or become a wholly-owned subsidiary of a public
company (the “Reverse Merger”).  If the initial closing is not held by
February 28, 2009 all subscription proceeds will be returned to the subscribers
without interest or deduction and the Offering will terminate.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.2           
  Unless terminated earlier in the Company’s and the Placement Agent’s
discretion, the Offering Period will expire on February 28, 2009, provided,
however, if the Minimum Offering is closed on or before February 28, 2009, the
termination date may be extended by up to an additional 30 days in the Company’s
and the Placement Agent’s discretion, without notice to the investors (the
“Termination Date”). Pending the closing of the Minimum Offering all
subscription proceeds will be held in escrow at U.S. Bank National Association.
Subscriptions for Units may not be revoked once tendered, except in accordance
with certain state laws.

     

    3.3        
     Following each closing the net proceeds therefrom
will remain in escrow (“Bank Escrow”) until such time as the Company has
completed the Reverse Merger. In the event that the Company does not complete
the Reverse Merger before March 31, 2009, each investor’s entire investment
shall be returned without interest or deduction by May 30, 2009. The Company has
agreed in the event of such distribution, any amounts previously paid to the
Placement Agent as commissions will be repaid by the Company and added to the
Bank Escrow.

     

    3.4           
  This Offering can be withdrawn at any time before closing and is
specifically made subject to the terms described in this
Memorandum.  The Company reserves the right to reject any
subscription, in whole or in part, or to allocate to any prospective investor
less than the number of securities subscribed for.  The minimum
investment is $45,000 (1 Unit), although the Company and the Placement Agent
may, in their discretion, accept subscriptions for a lesser amount.

     

    3.5        
     After the initial closing of the Minimum Offering
the Company may conduct one or more subsequent closings covering additional
Units up to the Maximum Offering, but not later than Termination
Date.

     

    4.           CONDITIONS
TO OBLIGATIONS OF THE SUBSCRIBERS

     

    4.1             The
Subscriber's obligation to purchase the Units at the Closing is subject to the
fulfillment on or prior to such Closing of the following conditions, which
conditions may be waived at the option of each Subscriber to the extent
permitted by law:

     

     
(a)           Covenants. All
covenants, agreements and conditions contained in this Agreement to be performed
by the Company on or prior to the date of such Closing shall have been performed
or complied with in all material respects.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     (b)           No Legal Order
Pending. There shall not then be in effect any legal or other order
enjoining or restraining the transactions contemplated by this
Agreement.

     

    (c)       
    No Law Prohibiting or
Restricting Such Sale. There shall not be in effect any law, rule or
regulation prohibiting or restricting such sale or requiring any consent or
approval of any person, which shall not have been obtained, to issue the Common
Stock or the Warrants (except as otherwise provided in this
Agreement).

     

    5.       
    REGISTRATION RIGHTS

     

    5.1            Definitions.  As
used in this Agreement, the following terms shall have the following
meanings.

     

    (a)        
   The term "Holder" shall mean any person owning or having the
right to acquire Registrable Securities or any permitted transferee of a
Holder.

     

    (b)         
  The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
order of effectiveness of such registration statement or document.

     

    (c)         
  The term "Registrable Securities" shall mean: (i) the Common Stock,
and (ii) the shares of common stock underlying the Warrants (the "Warrant
Shares"), provided, however, that securities shall only be treated as
Registrable Securities if and only for so long as they (A) have not been
disposed of pursuant to a registration statement declared effective by the SEC;
(B) have not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale; (C) are held by a Holder or a permitted transferee of
a Holder pursuant to Section 5.8; and (D) may not be disposed of under Rule 144
under the Securities Act without restriction.

     

    (d)     
      The term "SEC Guidance" means (i) any
publicly-available written or oral guidance, requirements or notice of the staff
of the. SEC, and (ii) the Securities Act.

     

    (e)     
      The term "Rule 415" means Rule 415
promulgated by the SEC pursuant to the Securities Act, as such Rule may be
amended or interpreted from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same purpose and effect as
such Rule.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.2       
      Shelf Registration.
The Company will use its best reasonable efforts to file a registration
statement, within 45 days after the filing of the Company's "Form 10
information" with the SEC, covering the resale of all or such portion of the
Registrable Securities as permitted by SEC Guidance, for an offering to be made
on a continuous basis pursuant to Rule 415. The registration statement filed
pursuant to this Section 5.2 shall be on Form S-1, except if the Company is not
then eligible to register for resale the Registrable Securities on Form S-1, in
which case such registration shall be on another appropriate form. In the event
that less than all of the Registrable Securities are included in the
registration statement as a result of SEC Guidance, then the Company will use
its best reasonable efforts to file additional registration statements,
registering the allowable balance pursuant to Rule 415, in a manner permitted by
the SEC, until all of the Registrable Securities have been
registered.

     

    5.3          
   Registration
Procedures. Whenever required under this Article 5 to include Registrable
Securities in a Company registration statement, the Company shall, as
expeditiously as reasonably possible:

     

    (a)        
   Use its best reasonable efforts to (i) cause such registration
statement to become effective, and (ii) cause such registration statement to
remain effective until the earliest to occur of (A) such date as the sellers of
Registrable Securities (the "Selling Holders") have completed the distribution
described in the registration statement and (B) such time that all of such
Registrable Securities are no longer, by reason of Rule 144 under the Securities
Act, required to be registered for the sale thereof by such Holders. The Company
will also use its best reasonable efforts to, during the period that such
registration statement is required to be maintained hereunder, file such
post-effective amendments and supplements thereto as may be required by the
Securities Act and the rules and regulations thereunder or otherwise to ensure
that the registration statement does not contain any untrue statement of
material fact or omit to state a fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they are made, not misleading; provided, however, that if applicable rules
under the Securities Act governing the obligation to file a post- effective
amendment permits, in lieu of filing a post-effective amendment that (i)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(ii) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the Company may
incorporate by reference information required to be included in (i) and (ii)
above to the extent such information is contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") in the registration statement.

     

    (b)        
   Prepare and file with the SEC such amendments and supplements
to such registration statement, and the prospectus used in connection with such
registration statement, as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.

     

    (c)         
  Furnish to the Selling Holders such numbers of copies of a
prospectus, including a preliminary prospectus as amended or supplemented from
time to time, in conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (d)           Use
best reasonable efforts to register and qualify the securities covered by such
registration statement under such other federal or state securities laws of such
jurisdictions as shall be reasonably requested by the Selling Holders; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.

     

    (e)       
    In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Selling
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

     

    (f)         
   Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, (i) when the registration
statement or any post-effective amendment and supplement thereto has become
effective; (ii) of the issuance by the SEC of any stop order or the initiation
of proceedings for that purpose (in which event the Company shall make every
effort to obtain the withdrawal of any order suspending effectiveness of the
registration statement at the earliest possible time or prevent the entry
thereof); (iii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose; and (iv)
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.

     

    (g)         
  Cause all such Registrable Securities registered hereunder to be
listed on each securities exchange or quotation service on which similar
securities issued by the Company are then listed or quoted.

     

    (h)        
   Provide a transfer agent for all Registrable. Securities
registered pursuant hereunder and CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such
registration.

     

    (i)          
 Cooperate with the Selling Holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates representing
the Registrable Securities to be sold, which certificates will not bear any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters, if any,
shall request at least two business days prior to any sale of the Registrable
Securities to the underwriters.

     

    (j)            
 Comply with all applicable rules and regulations of the
SEC.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (k)          
  If the offering is underwritten and at the request of any Selling
Holder, use its best reasonable efforts to furnish on the date that Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration: (i) opinions dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and the
transfer agent for the Registrable Securities so delivered, respectively, to the
effect that such registration statement has become effective under the
Securities Act and such Registrable Securities are freely tradable, and covering
such other matters as are customarily covered in opinions of issuer's counsel
delivered to underwriters and transfer agents in underwritten public offerings
and (ii) a letter dated such date from the independent public accountants who
have certified the financial statements of the Company included in the
registration statement or the prospectus, covering such matters as are
customarily covered in accountants' letters delivered to underwriters in
underwritten public offerings.

     

    5.4      
       Furnish Information.
It shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Article 5 with respect to the Registrable Securities of
any Selling Holder that such Holder shall furnish to the Company such
information regarding the Holder, the Registrable Securities held by the Holder,
and the intended method of disposition of such securities as shall be reasonably
required by the Company to effect the registration of such Holder's Registrable
Securities.

     

    5.5            
 Registration
Expenses. The Company shall bear and pay all registration expenses
incurred in connection with any registration, filing or qualification of
Registrable Securities with respect to registration pursuant to Section 5.2 for
each Holder, but excluding (i) legal expenses of the Holders and (ii)
underwriting discounts and commissions relating to Registrable
Securities.

     

    5.6       
      Delay of
Registration. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Article.

     

    5.7        
     Indemnification. In
the event that any Registrable Securities are included in a registration
statement under this Article 5:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (a)      
     To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, or the Exchange Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
of a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation by the Company of the Securities Act, the
Exchange Act, or any rule or regulation promulgated under the Securities Act, or
the Exchange Act, and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 5.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.

     

    (b)        
   To the extent permitted by law, each Selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, or the Exchange Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
Section 5.7(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this Section 5.7(b) exceed the greater of the cash value of the
(i) gross proceeds from the Offering received by such Holder or (ii) such
Holder's investment pursuant to this Agreement as set forth on the signature
page attached hereto.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)        
   Promptly after receipt by an indemnified party under this
Section 5.7 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 5.7,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel selected by
the indemnifying party and approved by the indemnified party (whose approval
shall not be unreasonably withheld); provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
5.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 5.7.

     

    (d)      
     If the indemnification provided for in this
Section 5.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the alleged
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

     

    (e)        
   Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in such underwriting
agreement shall control.

     

    (f)       
    The obligations of the Company and Holders under this
Section 5.7 shall survive the completion of the Offering.

     

    5.8            
 Permitted
Transferees. The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under this Article 5 may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities, to (a) any partner or retired partner of a Holder that
is a partnership, or (b) any family member or trust for the benefit of any
individual Holder, provided that (i) such Holder gives prior written notice to
the Company; (ii) such transferee agrees to comply with the terms and provisions
of this Agreement; (iii) such transfer is otherwise in compliance with this
Agreement; and (iv) such transfer is otherwise effected in accordance with
applicable securities laws. Except as specifically permitted by this Section
5.8, the rights of a Holder with respect to Registrable Securities as set out
herein shall not be transferable to any other person, and any attempted transfer
shall cause all rights of such Holder therein to be forfeited.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.          
 MISCELLANEOUS

     

    6.1           
  Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefore,
addressed as follows:

     

    If to the
Company, to it at:

     

    Optex Systems, Inc.

    1420 Presidential Drive

    Richardson,
TX 75081-2439

    Attention:
Stanley A. Hirschman, President

    

    With a
copy to:

     

    Jolie G.
Kahn, Esq.

    61
Broadway, Suite 2820

    New York,
NY 10006

    Facsimile:
(866) 705-3071

    

    If to the
Subscriber, to the Subscriber's address indicated on the signature page of this
Agreement.

     

    Notices
shall be deemed to have been given or delivered on the date of mailing, except
notices of change of address, which shall be deemed to have been given or
delivered when received.

     

    6.2             Except
as otherwise provided herein, this Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by the party to be charged.

     

    6.3         
    Subject to the provisions of Section 5.8, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and to
their respective heirs, legal representatives, successors and assigns. This
Agreement sets forth the entire agreement and understanding between the parties
as to the subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.

     

    6.4          
   Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided, subject, however, to
the right hereby reserved by the Company to enter into the same agreements with
other subscribers and to add and/or delete other persons as
subscribers.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.5        
     NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY
BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL
THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO SUCH STATE'S
PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL DISTRICT
COURTS SITUATED THEREIN AND AGREE TO SAID VENUE.

     

    6.6         
    In order to discourage frivolous claims the parties
agree that unless a claimant in any proceeding arising out of this Agreement
succeeds in establishing his claim and recovering a judgment against another
party (regardless of whether such claimant succeeds against one of the other
parties to the action), then the other party shall be entitled to recover from
such claimant all of its/their reasonable legal costs and expenses relating to
such proceeding and/or incurred in preparation therefore.

     

    6.7          
   The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.

     

    6.8        
     It is agreed that a waiver by either party of a
breach of any provision of this Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.

     

    6.9          
   All of the representations and warranties contained in this
Subscription Agreement shall survive execution and delivery of this Subscription
Agreement and the undersigned's investment in the Company.

     

    6.10             This
Subscription Agreement shall be governed by, interpreted under, and construed in
accordance with, the internal laws of the State of New York applicable to
agreements made and to be performed within the State of New York without regard
to the principles of conflicts-of-Iaw thereof.

     

    6.11            The
parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this
Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.12            This
Agreement may be executed in two or more counterparts each of which shall be
deemed an original, but all of which shall together constitute one and the same
instrument.

     

    6.13             Nothing
in this Agreement shall create or be deemed to create any rights in any
person or entity not a party to this Agreement.

     

    IN
WITNESS WHEREOF, the undersigned have executed this Subscription Agreement as of
___________________, 200_.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SUBSCRIPTION
AGREEMENT COUNTERPART SIGNATURE PAGE

    [COMPANY
OR TRUST]

     

    The
undersigned hereby represents, warrants and covenants that the undersigned is
duly authorized by the prospective investor to take all requisite action on the
part of the prospective investor listed below to enter into this Agreement and,
further, that the prospective investor has all requisite authority to enter into
such Agreement.

     

    The
undersigned represents and warrants that each of the above representations,
agreements or understandings set forth herein applies to the prospective
investor and that the undersigned has authority under the charter, by-laws,
corporate resolutions or trust agreement of such prospective investor to execute
this Agreement.

     

    Name of
Company (Please type or print)

    

    
      
        
          
            	
                    By:

                  	 
      
	
                    Name:

                  	 
      
	
                    Title:

                  	 
      

          

        

      

    

    

    
      
        
          	
                  Number
      of Units Subscribed for:

                	 
      	
                  Amount
      of check enclosed:

                
	 
      	 
      	 
      
	 
      	 
      	
                  $________________________

                

        

      

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    SUBSCRIPTION
AGREEMENT COUNTERPART SIGNATURE PAGE

    [PARTNERSHIP]

     

    If the
prospective investor is a PARTNERSHIP, complete the following and enclose a true
copy of the Partnership Agreement of the prospective investor.

     

    The
undersigned hereby represents, warrants and covenants that the undersigned is a
general partner of the prospective investor named below, is duly authorized by
the prospective investor to enter into this Agreement, and that the prospective
investor has all requisite authority to enter into this Agreement and set forth
below are the names of all Partners of the prospective investor.

     

    The
undersigned represents and warrants that each of the above representations,
agreements or undertakings set forth herein applies to the prospective investor
and that the undersigned is authorized by such prospective investor to execute
this Agreement.

     

    Name of
Company (Please type or print)

    

    
      
        
          	
                  By:

                	 
      
	
                  Name:

                	 
      
	
                  Title:

                	 
      

        

      

    

    

    
      
        	
                Names
      of Partners:

              	 
      	
                Signature:

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

      

    

    (Add
additional sheets if necessary)

    

    
      
        	
                Number
      of Units Subscribed for:

              	 
      	
                Amount
      of check enclosed:

              
	 
      	 
      	 
      
	 
      	 
      	
                $________________________

              

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    SUBSCRIPTION
AGREEMENT COUNTERPART SIGNATURE PAGE

    [INDIVIDUAL]

     

    If the
prospective investor is an individual, please execute this Agreement
below.

     

    Name of
Company (Please type or print)

    

    
      
        	
                By:

              	 
      
	
                Name:

              	 
      
	
                Title:

              	 
      

      

    

    

    And (if
applicable)

    

    
      
        	
                By:

              	 
      
	
                Name:

              	 
      
	
                Title:

              	 
      

      

    

    

    HOW UNITS
WILL BE HELD:

    

    
      
        
          
            	
                    Individually

                  	
                    ________

                  
	
                    JTWROS

                  	
                    
                      ________

                    

                  
	
                    TBTE

                  	
                    
                      ________

                    

                  

          

        

      

    

    

    
      
        	
                Number
      of Units Subscribed for:

              	 
      	
                Amount
      of check enclosed:

              
	 
      	 
      	 
      
	 
      	 
      	
                $________________________

              

      

    

    

    *If
investment is taken in joint names, both must sign.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    [ACCEPTANCE
PAGE FOR SUBSCRIPTION AGREEMENT]

     

    Agreed to
and accepted as of ________________, 200_.

    

    
      
        
          
            
              
                
                  	 	Optex
      Systems, Inc. 
	 	 	 
	 
      	
                          By:

                        	 
      
	 
      	
                          Name:

                        	 
      
	 
      	
                          Title:

                        	 
      

                

              

            

          

        

      

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    CERTIFICATE
OF SIGNATORY

     

    (To be
completed if Units are being subscribed for by an entity)

     

    I,
________________________, am the _________________ of ________________________
(the "Entity").

     

    I certify
that I am empowered and duly authorized by the Entity to execute and carry out
the terms of the. Subscription Agreement and to purchase and hold the Units, and
certify further that the Subscription Agreement has been duly and validly
executed on behalf of the Entity and constitutes a legal and binding obligation
of the Entity.

     

    IN
WITNESS WHEREOF, I have executed this Subscription Agreement this _______ day of
________________, 200_.

     

    
      
        	 
      	 
      
	 
      	
                (Signature)

              

      

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    Exhibit
1

     

    Investor
Questionnaire

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    INDIVIDUAL INVESTOR
QUESTIONNAIRE

    

    Investor
Name: _______________________

     

    The
information contained in this Questionnaire is being furnished in order to
determine whether the undersigned Investor's subscription to purchase the Units
described in the Subscription Agreement may be accepted.

     

    ALL
INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY.  The undersigned Investor understands, however, that
the Company may present this Questionnaire to such parties as it deems
appropriate if called upon to establish that the proposed offer to purchase the
Units is exempt from registration under the Securities Act of 1933, as amended,
or meets the requirements of applicable state securities or "blue sky"
laws.  Further, the undersigned Investor understands that the offering
may be required to be reported to the Securities and Exchange Commission and to
various state securities and "blue sky" regulators.

     

    Please
answer all questions.  If the answer is "none" or "not applicable,"
please so state.

     

    INFORMATION
REQUIRED OF EACH PROSPECTIVE INVESTOR:

     

    
      
        	
                1.

              	
                Name: __________________________________________________________________________ Age:________

              

      

    

     

    
      
        	
                 

              	
                Social
      Security
      Number: _____________________________________________ No. of
      Dependents: ________

              

      

      

      
        	
                 

              	
                Marital Status: ____________________________________________ Citizenship:  _________________________
      

              

      

    

    
       

      
        
          
            	2.	
                    Residence Address and Telephone Number: 

                  	
                    
                        

                    

                  
	 	 	 
	 	 
      	 
      
	 	 	 
	 	 
      	 
      

          

           

        

      

    

    
      
        
          	
                  3.

                	
                  State in which you:

                

        

        

        
          
            	 	
                    are licensed to drive? 

                  	
                     

                  

          

        

         

        
          
            	 	
                    are registered to vote? 

                  	
                     

                  

          

        

         

        
          
            	 	
                    file income tax returns? 

                  	
                     

                  

          

        

      

      

        
          
             

          

          
            1

            
              

            

          

          
             

          

        

        
          
            	
                    4.

                  	
                    Employer and Position: 

                  	
                     

                  
	 	 	 
	 	 	 

          

        

         

        
          
            	5.	
                    
                      Business Address and Telephone Number: 

                    

                  	
                     

                  
	 	 	 
	 	 	 
	 	 	 
	 	 	 

          

        

      

    

     

    
      
        
          	
                  6.

                	
                  Business
      or professional education and the degrees received are as
      follows:

                

        

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	 
      	
                                                School

                                              	 	
                                                Degree

                                              	 	
                                                Year Received

                                              
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      
	 
      	 
      	 	 
      	 	 
      

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
          	
                  7.

                	
                  (a)

                	
                  Individual
      income 2 years ago:

                	 
      	
                  _____

                	 
      	
                  $50,000
      - $100,000

                
	 
      	 
      	
                  (exclusive
      of spouse's

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $200,000

                
	 
      	 
      	
                  income)

                	 
      	
                  _____

                	 
      	
                  over
      $200,000

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                  (b)

                	
                  Individual
      income last year:

                	 
      	
                  _____

                	 
      	
                  $50,000
      - $100,000

                
	 
      	 
      	
                  (exclusive
      of spouse's

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $200,000

                
	 
      	 
      	
                  income)

                	 
      	
                  _____

                	 
      	
                  over
      $200,000

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                  (c)

                	
                  Estimated
      income this year:

                	 
      	
                  _____

                	 
      	
                  $50,000
      - $100,000

                
	 
      	 
      	
                  (exclusive
      of spouse's

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $200,000

                
	 
      	 
      	
                  income

                	 
      	
                  _____

                	 
      	
                  over
      $200,000

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                  (d)

                	
                  Joint
      income, with spouse,

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $300,000

                
	 
      	 
      	
                  2
      years ago:

                	 
      	
                  _____

                	 
      	
                  over
      $300,000

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                  (e)

                	
                  Joint
      income, with spouse,

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $300,000

                
	 
      	 
      	
                  last
      year:

                	 
      	
                  _____

                	 
      	
                  over
      $300,000

                
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                  (f)

                	
                  Estimated
      joint income,

                	 
      	
                  _____

                	 
      	
                  $100,000
      - $300,000

                
	 
      	 
      	
                  with
      spouse, this year:

                	 
      	
                  _____

                	 
      	
                  over
      $300,000

                

        

      

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            	
                    8.

                  	
                    Estimated
      net worth

                  	 
      	
                    _____

                  	 
      	
                    under
      $1,000,000

                  
	 
      	
                    (may
      include joint net

                  	 
      	
                    _____

                  	 
      	
                    over
      $1,000,000

                  
	 
      	
                    worth
      with spouse)

                  	 
      	
                     
      

                  	 
      	 
      

          

        

      

    

    

    9.           Are
you involved in any litigation, which, if an adverse decision occurred, would
materially affect your financial condition?   Yes
____   No ____   If yes, please provide
details:

     

                  
___________________________________________________________________________________________

     

                  
___________________________________________________________________________________________

     

                  
___________________________________________________________________________________________

    

    10.         I
consider myself to be an experienced and sophisticated investor or am advised by
a qualified investment advisor, all as required under the various securities
laws and regulations:  Yes ____   No ____

    

    11.         I
understand the full nature and risk of an investment in the Units, and I can
afford the complete loss of my entire investment.   Yes
____   No ____

        

    12.         I
am able to bear the economic risk of an investment in the Units for an
indefinite period of time and understand that an investment in the Units is
illiquid.  Yes ____   No ____

    

    13.         I
further understand that I will be required to agree not to dispose of the Units
except in compliance with Rule 144 under the Act or any other conditions
contained in the accompanying Subscription Agreement.  Yes
____   No ____

    

    
      14.         Have you
participated in other private placements of securities?
Yes ____   No ____

    

    

    15.         I
have, either individually or together with a Purchaser Representative (as that
term is defined in Regulation D of the General Rules and Regulations under the
Act), such knowledge and experience in financial, investment and business
matters that the I am capable of evaluating the merits and risks of the
prospective investment in the securities of the Company.  Yes
____   No ____

    

      I
understand that the Company will be relying on the accuracy and completeness of
my responses to the foregoing questions and I represent and warrant to the
Company as follows:

     

      The
answers to the above questions are complete and correct and may be relied upon
by the Company whether the offering in which I propose to participate is exempt
from registration under the Act and the securities laws of certain
states;

     

      I will
notify the Company immediately of any material change in any statement made
herein occurring prior to the closing of any purchase by me of an interest in
the Company; and

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    I am able
to bear the economic risk of the investment and currently could afford a
complete loss of such investment.

     

    IN
WITNESS WHEREOF, I have executed this Investor Questionnaire this
_________________________, 200___ and declare that it is truthful and correct to
the best of my knowledge.

    

    
      	 
      	 
      
	 
      	
              Signature
      of Prospective Investor

            
	 
      	 
      
	 
      	 
      
	 
      	
              Signature
      of Prospective Investor

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    CORPORATION
INVESTOR QUESTIONNAIRE

    

    Investor
Name: _____________________________________ (the
“Corporation”)

     

    The
information contained in this Questionnaire is being furnished in order to
determine whether the undersigned Corporation's subscription to purchase the
Units described in the Subscription Agreement may be accepted.

     

    ALL
INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY.  The undersigned Corporation understands, however,
that the Company may present this Questionnaire to such parties as it deems
appropriate if called upon to establish that the proposed offer to purchase the
Units is exempt from registration under the Securities Act of 1933, as amended,
or meets the requirements of applicable state securities or "blue sky"
laws.  Further, the undersigned Corporation understands that the
offering may be required to be reported to the Securities and Exchange
Commission and to various state securities and "blue sky"
regulators.

     

    
      	
              I.

            	
              PLEASE
      CHECK ANY OF STATEMENTS 1-4 BELOW THAT APPLIES TO THE
      CORPORATION.

            

    

    

    ___
1. The undersigned Corporation: (a) has total assets in excess of
$5,000,000; and (b) was not formed for the specific purpose to purchase the
Units.

    

    ___
2. Each of the stockholders of the undersigned Corporation is able to
certify that such stockholder meets at least one of the following two
conditions:

    

    a.         
the stockholder is a natural person whose individual net worth or joint net
worth with his or her spouse exceeds $1,000,000; or

     

    b.     
    the stockholder is a natural person who had an individual
income in excess of $200,000 in each of the last 2 years and who reasonably
expects an individual income in excess of $200,000 in the current
year.

    

    ___
3. Each of the stockholders of the undersigned Corporation is able to
certify that such stockholder is a natural person who, together with his or her
spouse, has had a joint income in excess of $300,000 in each of the last 2 years
and who reasonably expects a joint income in excess of $300,000 in the current
year.

    

    ___
4. The undersigned Corporation is:

    

    a.         
a bank as defined in Section 3(a)(2) of the Securities Act; or

     

    b.        
a savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; or

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    c.         
a broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934, as amended; or

     

    d.        
 an insurance company as defined in Section 2(13) of the Securities Act;
or

     

    e.         
an investment company registered under the Investment Company Act of 1940, as
amended, or a business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940, as amended; or

     

    f.           a
small business investment company licensed by the U.S. Small Business
Administration under Section 301 (c) or (d) of the Small Business Investment Act
of 1958, as amended; or

     

    g.          an
organization described in Section 501(c)(3) of the Internal Revenue Code of
1986, as amended, or a Massachusetts or similar business trust or Company not
formed for the specific purpose to purchase the Units offered hereby, with total
assets in excess of $5,000,000; or

     

    h.          a
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940, as amended.

    

    
      	
              II. 

            	
              OTHER
      CERTIFICATIONS.

            

    

    

    By
signing the Signature Page, the undersigned certifies the
following:

    

    (a)           that
the Corporation's purchase of the Units will be solely for the Corporation's own
account and not for the account of any other person or entity; and

    

    (b)           that
the Corporation's name, address of principal place of business, place of
incorporation, and taxpayer identification number as set forth in this
Questionnaire are true, correct, and complete.

    

    
      	
              III. 

            	
              GENERAL
      INFORMATION.

            

    

    

    (a)           PROSPECTIVE
PURCHASER (THE CORPORATION)

    

    
      
        	 	
                Name: 

              	
                  

              

      

    

    

    
      
        	 	
                Principal Place of Business: 

              	
                   

              

      

    

    
      (Number
and
Street)

    

    

    
      
        	 	
                Address for Correspondence (if different): 

              	
                 

              

      

    

    
      (Number and
Street)

    

    

    
      Telephone Number:  (_____) _________________
 

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      
        	 	
                State of Incorporation: _________________________________ Date of Formation:

              	
                 

              

      

    

    

    Taxpayer
Identification Number: ___________________________

    

    Number of
Stockholders: _________________________________

    

    (b)           INDIVIDUAL
WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE CORPORATION

    

    
      
        
          	 	
                   Name:  

                	
                   

                

        

      

    

    

    
      
        	 	
                Position or Title: 

              	
                  

              

      

    

    

    The
undersigned understands that the Company is relying upon the representations set
forth above in determining whether to accept the subscription being
tendered.

    

    
      
        
          
            
              
                
                  
                    	 	 
	 
      	
                            Name
      of Corporation

                          
	 
      	 
      
	 
      	
                            By:

                          	 
      
	 
      	 
      	
                            *Signature
      of Authorized Officer

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            Title
      (If Signed on Behalf of Entity)

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            Print
      Name

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            Date

                          

                  

                

              

            

          

        

      

    

    

    *           Signature
must match signatory to attached Subscription Agreement.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    PARTNERSHIP INVESTOR
QUESTIONNAIRE

     

    

    Investor
Name: ___________________________________ (the “Partnership”)

     

    The
information contained in this Questionnaire is being furnished in order to
determine whether the undersigned Partnership’s subscription to purchase the
Units described in the Company’s Subscription Agreement
may be accepted.

     

    ALL
INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY.  The undersigned Partnership understands, however,
that the Company may present this Questionnaire to such parties as it deems
appropriate if called upon to establish that the proposed offer to purchase the
Units is exempt from registration under the Securities Act of 1933, as amended,
or meets the requirements of applicable state securities or "blue sky"
laws.  Further, the undersigned Partnership understands that the
offering may be required to be reported to the Securities and Exchange
Commission and to various state securities and "blue sky"
regulators.

     

    
      	
              I.

            	
              PLEASE
      CHECK ANY OF STATEMENTS 1-3 BELOW THAT APPLIES TO THE
      PARTNERSHIP.

            

    

     

    ___
1.                 The
undersigned Partnership: (a) has total assets in excess of $5,000,000; and (b)
was not formed for the specific purpose to purchase the Units.

    

    ___
2.                 Each
of the partners of the undersigned Partnership is able to certify that such
partner meets at least one of the following two conditions:

    

    a.           the
partner is a natural person whose individual net worth or joint net worth with
his or her spouse exceeds $1,000,000; or

    

    b.           the
partner is a natural person who had an individual income in excess of $200,000
in each of the last 2 years and who reasonably expects an individual income in
excess of $200,000 in the current year.

     

    ___
3.                 Each
of the partners of the undersigned Partnership is able to certify that such
partner is a natural person who, together with his or her spouse, has had a
joint income in excess of $300,000 in each of the last 2 years and who
reasonably expects a joint income in excess of $300,000 during the current
year.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              II. 

            	
              OTHER
      CERTIFICATIONS.

            

    

    

    By
signing the Signature Page, the undersigned certifies the
following:

    

    1.           that
the Partnership's purchase of the Units will be solely for the Partnership's own
account and not for the account of any other person or entity; and

    

    2.           that
the Partnership's name, address of principal place of business, place of
incorporation, and taxpayer identification number as set forth in this
Questionnaire are true, correct, and complete.

    

    
      	
              IV. 

            	
              GENERAL
      INFORMATION.

            

    

    

    1.           PROSPECTIVE
PURCHASER (THE PARTNERSHIP)

     

    
      	 	
              Name:  

            	
               

            

    

     

    
      
        	 	
                Principal Place of Business For Correspondence: 

              	
                 
  

              

      

    

     

    Telephone
Number:  (_____) ____________________________

    

    State of
Certification: ____________________________ Date of
Formation: ________________

     

    Taxpayer
Identification Number: ____________________________

    

    Number of
Partners: ____________________________

    

    2.           INDIVIDUAL
WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE PARTNERSHIP

    
      

      
        
          
            	 	
                     Name:  

                  	
                     

                  

          

        

      

      

      
        
          	 	
                  Position or Title: 

                	
                    

                

        

      

       

    

    The
undersigned understands that the Company is relying upon the representations set
forth above in determining whether to accept the subscription being
tendered.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	 
      
	 
      	
                Name
      of Partnership

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	 
      
	 
      	
                Name: 

              	 
      
	 
      	 
      	 
      
	 
      	
                Its:

              	 
      

      

    

    
      
         

      

      
        6Exhibit
10.1

     

    2010
Executive Officer Bonus Plan

    

    Objective:

     

    
      
        	
                
                

              	
                -

              	
                Align
      the interests of employees and shareholders in the future growth and
      success of ArthroCare Corporation (the “Company”) by rewarding employee
      performance.

              

      

    

     

    
      Bonus
Pool:

    

     

    
      
        	
              	
                -

              	
                The
      officer bonus pool is equal to the sum of the target bonuses of all
      officers in the pool and are covered in this document during the period of
      January 1, 2010 through December 31, 2010 (the “Bonus
      Period”).  Target bonuses are defined as a percentage of the
      year’s salary and are specified in the paragraph under the “Bonus
      Potential” category below.  The size of the bonus pool may be
      adjusted for promotional salary increases of officers in the pool, or the
      addition of officers in the pool, and then on a prorated basis. By way of
      example, the Total Bonus Potential for an Eligible Participant who is a
      Vice President and who is in the 45% bonus potential category with a base
      salary of $200,000 shall be $90,000.  The Total Bonus Potential
      of an Eligible Participant, other than the Chief Executive Officer, may be
      increased or decreased at the sole discretion of the Compensation
      Committee upon the recommendation of the Chief Executive Officer of the
      Company.  The Total Bonus Potential of the Chief Executive
      Officer may be increased or decreased at the sole discretion of the
      Company’s Board of Directors.

              

      

    

     

    
      Eligible
Participants:

    

     

    
      
        	
              	
                -

              	
                All
      executive officers of the Company from the period of January 1, 2010
      through the payment date of a bonus (the “Bonus Payment Date”) who began
      employment with the Company on or before December 31, 2010, other than
      those employees who are ineligible due to performance issues, as
      determined by the Compensation Committee of the Company’s Board of
      Directors. Executive officers
      must be employed by the Company on the bonus payment date to be eligible
      for any payment.  Executive officers whose employment with the
      Company begins after January 1, 2010 and who remain employed by the
      Company through the Bonus Payment Date or executive officers who go on a
      Company-approved leave of absence during 2010 will have their bonus
      prorated for time worked during the Bonus
  Period.

              

      

    

     

    
      Bonus
Potential:

    

     

    
      
        	
              	
                -

              	
                45%
      of base salary for fiscal year end December 31, 2010 for Vice Presidents
      who are executive officers of the company and whose titles are not listed
      below in the 50% target bonus potential
category

              

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        	
              	
                -

              	
                50%
      of base salary for fiscal year end December 31, 2010 for Senior Vice
      President, Strategic Business Units, Senior Vice President and Chief
      Financial Officer, and Senior Vice President and President,
      International

              

      

    

     

    
      
        	
              	
                -

              	
                80%
      of base salary for fiscal year end December 31, 2010 for the Chief
      Executive Officer

              

      

    

     

    
      Bonus
Factors:

    

     

    
      
        	
              	
                -

              	
                The
      payment to be earned by each Eligible Participant will be a factor of both
      the Company’s achievement of the below goals and the achievement by such
      Eligible Participant of personal performance objectives determined by the
      Chief Executive Officer or, in the case of the Chief Executive Officer, by
      the Board of Directors.

              

      

    

     

    In the
event the Company achieves at least the “Minimum Achievement Level” (see below),
a bonus will be earned by each Eligible Participant.  The Total
Revenue Goal, Adjusted Operating Margin and Adjusted Earnings Before Interest,
Tax, Depreciation, Amortization and non-cash equity Compensation (EBITDAC) Goals
shall be as set forth in the Company’s operating budget for the full year of
2010 as approved by the Board of Directors.

     

    
      
        	
              	
                -

              	
                The
      Total Revenue, Adjusted Operating Margin and Adjusted EBITDAC Goals shall
      be ascribed a percentage weight totaling 100% in the aggregate, as
      follows:

              

      

    

     

    
      	
               
      

            	
              Total
      Revenue – 50% weight – $356 Million

            

    

     

    
      	
               
      

            	
              Adjusted
      Operating Margin – 25% weight – 11%

            

    

     

    Adjusted
EBITDAC – 25% weight – $65 Million

     

    
      
        	
              	
                -

              	
                The
      Minimum Achievement Level is determined by adding the weighted average of
      the full year Total Revenue Goal (i.e., Total Revenue Achieved (as defined
      below) multiplied by 50%), plus the weighted average of the Adjusted
      Operating Margin and Adjusted EBITDAC Goals (same formula).  If
      the sum of these percentages is equal to or greater than 85%, then a bonus
      is payable.

              

      

    

     

    
      
        	
              	
                -

              	
                If
      the Bonus Achievement Level is between 85% and 100%, then Eligible
      Participants are eligible for a prorated bonus equal to a 1 to 3 ratio of
      the bonus achieved.  For example, if the Bonus Achievement Level
      is 85%, then Eligible Participants are eligible for 55% of their Total
      Target Bonus Potential.

              

      

    

     

    
      Bonus
Multiplier:

    

     

    
      
        	
              	
                -

              	
                If
      the Bonus Achievement Level is in excess of 100%, then Eligible
      Participants are eligible for 100% of their Total Bonus Potential, plus a
      percentage of their Total Bonus Potential equal to three times the portion
      in excess of 100%.  For example, if the Bonus Achievement Level
      is 110%, then Eligible Participants are eligible for 100% of their Total
      Target Bonus Potential, plus 30% of the Total Target Bonus
      Potential.  The Bonus Achievement Level maximum is 115% and the
      maximum Total Bonus Potential is
145%.

              

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      Defined
Terms:

    

     

    
      	
               
      

            	
              Total Revenue shall mean
      the amount of ArthroCare total revenue from the period of January 1, 2010
      through December 31, 2010.

            

    

     

    
      	
               
      

            	
              Adjusted Operating Margin
      shall mean the GAAP operating income, excluding “Investigation and
      Restatement” costs, for the calendar year 2010 divided by GAAP
      consolidated revenues.

            

    

     

    Adjusted EBITDAC shall mean
Earnings before Interest, Tax, Depreciation, Amortization and non-cash equity
Compensation excluding “Investigation and Restatement” costs and adjusted for
changes in Working Capital for the calendar year ended 2010. Working Capital is
defined as the sum of accounts receivable, inventory and other non-cash current
assets less accounts payable, accrued liabilities and other current
liabilities.  For clarity, an increase in net Working Capital will be
a reduction in Adjusted EBITDAC and a decrease in net Working Capital will be an
increase in Adjusted EBITDAC.

     

    
      	
               
      

            	
              Total Revenue Achieved
      shall mean the percentage determined by dividing the full year total
      revenue by the Total Revenue Goal.

            

    

     

    
      	
               
      

            	
              Adjusted Operating Margin
      Achieved shall mean the percentage determined by dividing the full
      year Adjusted Operating Margin by the Adjusted Operating Margin
      Goal.

            

    

     

    
      	
               
      

            	
              Adjusted EBITDAC Goal Achieved
      shall mean the percentage determined by dividing the adjusted
      EBITDAC by the adjusted EBITDAC
Goal.

            

    

     

    
      	
               
      

            	
              Bonus Achievement Level
      shall mean the actual level of bonus
  achieved.

            

    

     

    Any
bonuses payable under this 2010 Bonus Plan are subject to the approval of the
Company’s Board of Directors and will not be paid before the Company has filed
with the SEC its Annual Report on Form 10-K for 2010.  The Board of
Directors may make such changes in plan participants, the bonus pool or any
other aspect of this plan as it deems appropriate at any time and without prior
notice.

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