Document:

EXHIBIT 10.3

 

 

TRANSITION BONUS AGREEMENT

 

This TRANSITION BONUS AGREEMENT, dated as of July 6, 2016 (this “Agreement”), between MTS Systems Corporation, (the “Employer”), and John Emholz (the “Employee”) sets forth the terms of a bonus (the “Stay Bonus”) and other benefits to be paid to the Employee by the Employer subject to the terms and conditions set forth herein.

 

WHEREAS, the Employer desires to incentivize the Employee to continue employment with the Employer following the consummation of acquiring PCB Group Inc. (the “Closing”); and

 

WHEREAS, in consideration of services to be performed by the Employee, the Employer desires to award the Employee a Stay Bonus pursuant to the terms and subject to the conditions set forth herein; and

 

WHEREAS, the Employer desires to provide for a transition of his position and his employment with the Employer following the Closing.

 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto, intending to be legally bound, agree as follows:

 

1.                                      Termination of Employment.      The Employer intends to retain the services of the Employee in his current position, compensation and benefits for a period through the 60th day after the Closing and at that time (the “Termination Date”), the Employee’s employment with the Employer will be terminated by the Employer without Cause for purposes of the MTS Executive Severance Plan (“Severance Plan”), subject to earlier termination of employment as provided in the Severance Plan. On the Termination Date, conditioned on compliance with the terms and conditions set forth in the Severance Plan, the Employee shall be eligible for severance of $320,000 (“Severance”), payable in 25 biweekly installments of $12,307.69 and a final installment of $12,307.75. All payments are subject to applicable withholding. A formal Notice of Termination in accordance with the Severance Plan will be delivered within no more than 30 nor less than 5 days prior to the Termination Date, along with the form of Release required to be signed as a condition for payment of the Severance.

 

a.              If the Employee is eligible for Severance, the Employer will also pay or reimburse for outplacement services for the Employee by a company of Employee’s choice up to a value of $12,000.  These services must be completed by May 31, 2017 and any reimbursement request must be submitted by December 1, 2017.

 

b.              If the Employee is eligible and applies for health continuation coverage under Code Section 4980B or other applicable law (“COBRA Coverage”), life, accident and health insurance benefits substantially similar to those that the Participant is receiving or entitled to receive immediately prior to the Notice of Termination and the Company shall subsidize the premium cost on a pre-tax basis, equal to the Company’s share of the premiums for a period ending on the earlier of: (i) the end of the 12th month after the Date of Termination, or (ii) the date 

 

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COBRA coverage ends.

 

c.               All of the Employee’s rights under the MTS Systems Corporation Retirement Savings Plan, restricted stock units, performance restricted stock units, and stock option agreements and any other MTS benefit plan in which the Employee is a participant will be governed by the terms of those plans.  

 

2.                                      Stay Bonus. Subject to the terms and conditions set forth herein, the Employer shall pay the Employee a Stay Bonus of $150,000.00 (less applicable withholding taxes and deductions).  The Employee acknowledges that the right to a Stay Bonus is within the sole discretion of the Employer and not all employees will be offered a Stay Bonus or in the same amount.  The Employee should consider the feelings of other employees in any decision to discuss this Stay Bonus with persons other than your spouse or tax or financial advisor. The Stay Bonus will be due and payable on the earlier of (a) the 60th day anniversary of the Closing provided he is then employed by the Employer or its subsidiary or affiliates or (b) the date of a termination of the Employee’s employment that occurs following the Closing due to (i) the Employee’s death or Disability, or (ii) by the Employer without Cause (each such date, a “Payment Date”). Payment of the Stay Bonus will be made in a lump sum, in cash, less all applicable withholding taxes and deductions, within fourteen (14) business days following the applicable Payment Date. In the event of the Employee’s death, the amount shall be paid to the Employee’s estate.

 

a.              “Cause” means:

 

i.                 the willful and continued failure by the Employee (other than any such failure resulting from (i) Disability), (ii) any such actual or anticipated failure after the issuance of a notice of termination by the Employee for Good Reason or (iii) the Employer’s active or passive obstruction of the performance of the Participant’s duties and responsibilities) to perform substantially the duties and responsibilities of the Employee’s position with the Employer after a written demand for substantial performance is delivered to the Employee by the Employer which demand specifically identifies the manner in which the Employer believes that the Employee has not substantially performed his/her duties or responsibilities;

 

ii.              the conviction of the Employee by a court of competent jurisdiction (or a plea of guilty or no contest) for felony criminal conduct which, in the good faith opinion of the Employer, would impair the Employee’s ability to perform his or her duties or impair the business reputation of the Employer;

 

iii.           the willful engaging by the Employee in fraud or dishonesty that is demonstrably injurious to the Employer, monetarily or otherwise: or

 

iv.          in the good faith opinion of the Employer, a serious violation by the Employee of the Company’s policies or codes of conduct.

 

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b.              “Disability” means the Employee has incurred or is afflicted with any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months and, as a result, the Employee has become eligible for and begun receiving income replacement benefits under the terms of the Employer’s long-term disability plan or policy as may be in effect from time to time.

 

3.                                      Effect of Stay Bonus on Other Benefits. The payment of any Stay Bonus will not alter the Employee’s entitlement to, or the amount of, any severance or other payment or benefit the Employee is entitled to under any other plans, policies or arrangements of the Employer, and compensation payable hereunder shall be in addition to, and not in lieu of compensation in respect of any such plan, policy or arrangement.

 

4.                                      No Right to Continued Employment. Nothing herein shall confer upon the Employee the right to remain in the employ or service of the Employer, its subsidiaries or its affiliates and nothing herein shall restrict the ability of any of the foregoing entities from terminating the Employee’s service, subject to the terms of this Agreement and the Severance Plan.

 

5.                                      Confidentiality and Non-Solicit.

 

a.              All information relating to or used in the business and operations of the Employer and its subsidiaries and affiliates, including, without limitation, marketing methods and procedures, customer lists, lists of professionals referring customers to the Employer and its subsidiaries and affiliates, know-how, sources of supplies and materials and business systems and processes, whether prepared, compiled, developed or obtained by Employee or by the Employer or any of its subsidiaries or affiliates before or during the date of this Agreement and specifically including PCB Group, Inc. and its subsidiaries, are and will be confidential information and trade secrets (“Confidential Information”) and the exclusive property of the Employer, its subsidiaries and affiliates. Confidential Information does not include information which (i) was known to Employee before his employment with the Employer, (ii) becomes generally available to the public other than as a result of a disclosure by Employee or (iii) becomes available to Employee on a non-confidential basis from a source other than the Employer, provided that such source is not known to be bound by a confidentiality agreement or other obligation of secrecy with respect to such information. 

 

b.              All records of and materials relating to Confidential Information or other information, whether in written form or in a form produced or stored by any electrical or mechanical means or process and whether prepared, compiled or obtained by Employee or by the Employer or any of its subsidiaries or affiliates before or during the term of this Agreement, are and will be the exclusive property of the Employer and its subsidiaries and affiliates, as the case may be. 

 

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c.               Except in the regular course of his employment or as the Employer may expressly authorize or direct in writing or as required by applicable law, a court or tribunal of competent jurisdiction or other legal process, Employee will not, during or after the term of this Agreement and his employment by the Employer, copy, reproduce, disclose or divulge to others any Confidential Information or any records of or materials relating to any such Confidential Information. Employee further agrees that during the term of this Agreement and his employment by the Employer he will not remove from the custody or control of the Employer and its subsidiaries and affiliates any records of or any materials relating to Confidential Information or other information and that upon the termination of his or her employment the Employee will deliver the same to the Employer and its subsidiaries and affiliates. 

 

c.               Following Employee’s separation from service with the Employer, Employee will furnish such information and render such assistance and cooperation as may be reasonably requested by the Employer in connection with any litigation or legal proceedings concerning the Employer and its subsidiaries and affiliates.

 

d.              During Employee’s employment with the Employer and for a period of one year after the Employee’s separation from service with the Employer, Employee will not induce or solicit any employee of the Employer or its subsidiaries and affiliates to leave his or her employment.

 

e.               The Employer may enforce the provisions of this Section 5 through injunctive relief.  In addition, the Employee agrees and covenants to repay the full amount of the Stay Bonus paid in the event the Employee is determined by a court of competent jurisdiction to have violated the terms of this Section 5.

 

f.                This Section 5 shall not supersede, but shall be interpreted consistent with any other nondisclosure or nonsolicitation restriction in favor of the Employer to which the Employee is or may become bound.

 

6.                                      Funding. The obligations of the Employer to make payments under this Agreement shall be contractual only and all such payments shall be made from the general assets of the Employer. The Employee, beneficiary or person having or claiming a right to payments hereunder shall rely solely on the unsecured promise of the Employer, and nothing herein shall be construed to give any such individual any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the Employer or in which it may have any right, title or interest now or in the future. 

 

7.                                      Termination. In the event that the Closing does not occur prior to October 1, 2016, this 

 

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Agreement shall automatically terminate on that date and be of no further force or effect.

 

8.                                      Withholding. The Employer is authorized to withhold from the Stay Bonus amounts of withholding and other taxes due in connection with the payment of the Stay Bonus.

 

9.                                      Section 409A. Notwithstanding any other provision of this Agreement, this Agreement is intended to be exempt from or comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and shall at all times be interpreted in accordance with such intent. Employee shall have no binding right to distributions made to it in error or any right to designate the time of payment of any Stay Bonus. 

 

10.                               Governing Law. This Agreement shall be governed by the laws of the State of Minnesota, without giving effect to conflict of law principles.

 

11.                               Successors. This Agreement shall inure to the benefit of Employee and Employee’s heirs and beneficiaries. This Agreement shall be binding on and inure to the benefit of the Employer and its respective successors and assigns, whether by merger, sale of assets or otherwise. 

 

12.                               Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement. 

 

13.                               Entire Agreement. This Agreement represents the complete understanding of the parties with respect to the subject matter hereof, and except as provided in Section 5, supersedes all prior and contemporaneous discussions and agreements between any parties with respect to such subject matter. 

 

14.                               Headings and Captions. The headings and captions used in this Agreement are for convenience of reference only, and shall in no way define, limit, expand or otherwise affect the meaning or construction of any provision of this Agreement.

 

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

 

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FOR   THE EMPLOYER
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By: 
    	
/s/   Judy Henton
    	
 
    
	
 
    	
Name:
    	
Judy Henton
    	
 
    
	
 
    	
Title:
    	
Sr. Vice President,   Chief Human Resources Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
FOR THE EMPLOYEE
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By: 
    	
/s/   John V. Emholz
    	
 
    
	
 
    	
Name:
    	
John V. Emholz
    	
 
    
	
 
    	
Title:
    	
Sr. Vice President,   Sensors
    

 

6THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)

 

US
$208,000.00

 

POSITIVEID
CORP.

12%
CONVERTIBLE REDEEMABLE NOTE

DUE
JUNE 30, 2017

 

FOR
VALUE RECEIVED, PositiveID Corp. (the “Company”) promises to pay to the order of UNION CAPITAL, LLC and its authorized
successors and Permitted Assigns, defined below, (“Holder”), the aggregate principal face amount of Two Hundred
Eight Thousand Dollars exactly (U.S. $208,000.00) on June 30, 2017 (“Maturity Date”) and to pay interest on
the principal amount outstanding hereunder at the rate of 12% per annum commencing on June 30, 2016. The interest will be paid
to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this
Note. This Note contains a 4% OID such that the purchase price is $200,000.00. The principal of, and interest on, this Note are
payable at 525 Norton Parkway, New Haven, CT 06511, initially, and if changed, last appearing on the records of the Company as
designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal
due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder
of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The
forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest
shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means any Holder assignment,
transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for in Section 2(f) of the
Securities Purchase Agreement.

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This
Note is subject to the following additional provisions:

 

 1. This
Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder
shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder subsequently transfers,
assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that it will provide the Company
with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase Agreement.

 

 2. The
Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

 3. This
Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“Act”),
applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement. Any attempted transfer to a
non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company
and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as
the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall
be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth
in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prequalified prospective transferee
of this Note, also is required to give the Company written confirmation that this Note is being converted (“Notice of
Conversion”) in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of
such Notice of Conversion shall be the Conversion Date. All notices of conversion will be accompanied by an Opinion of Counsel.

 

 4. (a) The
Holder of this Note is entitled, at its option, at any time, to convert all or any amount of the principal face amount of this
Note then outstanding into shares of the Company’s common stock (the “Common Stock”) at a price (“Conversion
Price”) for each share of Common Stock equal to the lower of (i) $0.022 per share or (ii)
62.5% of the lowest closing bid of the Common Stock as reported on the National Quotations Bureau OTC Markets
exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“Exchange”),
for the fifteen prior trading days including the day upon which a Notice of Conversion is received
by the Company (provided such Notice of Conversion is delivered together with an Opinion of Counsel, by fax or other electronic
method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include
the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded.
Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days
of receipt by the Company of the Notice of Conversion. Accrued, but unpaid interest shall be subject to conversion. No fractional
shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. To the extent the Conversion Price of the Company’s Common Stock closes below the par value
per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the
lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event
the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 55% instead of 65%
while that “Chill” is in effect. If the Company fails to maintain the share reserve at the 4x discount
of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10% to reflect a net conversion
discount of 45%. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other
shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 4.99% of the outstanding shares
of the Common Stock of the Company (which may be increased up to 9.9% upon 60 days prior written notice by the Investor). The
conversion discount and lookback period will be adjusted downward (i.e. for the benefit of the Holder) if the Company offers a
more favorable conversion discount (whether via interest, rate OID or otherwise) or lookback period to another party while this
note is in effect and the Holder will also get the benefit of any other term (for a example a higher prepay) granted to any third
party while this Note is in effect.

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 (b) Interest
on any unpaid principal balance of this Note shall be paid at the rate of 12% per annum. Interest shall be paid by the Company
in Common Stock (“Interest Shares”). Holder may, at any time, send in a Notice of Conversion to the Company for Interest
Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a
portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice. The 12% interest
is guaranteed, and is such in no event shall the interest be less than 12% of the $208,000 principal amount and this amount may
be added the principal amount of this Note for purposes of conversions and repayments.

 

 (c) The
Notes may be prepaid during the first 90 days with a prepayment penalty equal to 120% of the face amount and any accrued interest
and in the following 90 days with a prepayment penalty equal to 135% of the face amount and any accrued interest. This Note may
not be prepaid after the 180th day. Such redemption must be closed and funded within 3 days of giving notice of redemption
of the right to redeem shall be null and void.

 

 (d)
 Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series
of related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or other
change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or
(iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving
entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of
items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request
of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of
redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with
the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion
Price.

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(e)
 In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection
with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of
this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number
of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization
or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon
exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing
provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other
than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good
faith.

 

 5. No
provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal
of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

 6. The
Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice
of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

 7. The
Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by
the Holder in collecting any amount due under this Note.

 

 8. If
one or more of the following described “Events of Default” shall occur:

 

 (a) The
Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company;
or

 

 (b) Any
of the representations or warranties made by the Company herein or in any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or
the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or

 

 (c) The
Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of
the Company under this Note or any other note issued to the Holder; or

 

 (d) The
Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its inability
to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its
dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part
of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against
it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or

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 (e) A
trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such appointment; or

 

 (f) Any
governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of the Company; or

 

 (g) One
or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in
the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of
any proposed sale thereunder; or

 

 (h) Defaulted
on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such
default within the appropriate grace period; or

 

 (i) The
Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common Stock trades
on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934
act reports with the SEC;

 

 (j) If
a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the
Board;

 

 (k) The
Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business
days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which supports the removal
of a restrictive legend; or

 

 (l)
 The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.

 

 (m) The
Company shall be delinquent in its periodic report filings with the Securities and Exchange Commission; or

 

 (n)
 The Company shall cause to lose the “bid” price for its stock in a market (including the OTC marketplace or other
exchange).

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Then,
or at any time thereafter, unless cured (except for 8(m) and 8(n) which are incurable defaults, the sole remedy of which
is to allow the Holder to cancel both this Note and the Holder Issued Note, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately
due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all
of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights
and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue
at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest
rate of interest permitted by law. In the event of a breach of Section 8(k), the parties agree that damages shall be difficult
to determine and in lieu of a penalty, the parties agree to a liquidated damages payment of $250 per day the shares are not issued
beginning on the 4th day after the conversion notice was delivered to the Company. This liquidated damages payment
shall increase to $500 per day beginning on the 10th day. In the event of a breach of Section 8(p), the parties agree
that damages shall be difficult to determine and in lieu of a penalty, the parties agree to an increase of the outstanding principal
amounts by 20% as a liquidated damages payment. In case of a breach of Section 8(i), the parties agree that damages shall be difficult
to determine and in lieu of a penalty, the parties agree to an increase of the outstanding principal amounts by 50% as a liquidated
damages payment. Further, if a breach of Section 8(o) occurs or is continuing after the 6 month anniversary of the Note, then
the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion.
For example, if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50%
the Holder may elect to convert future conversions at $0.005 per share. If this Note is not paid at maturity, the outstanding
principal due under this Note shall increase by 10%.

 

If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the
conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder
incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable
to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:

 

Failure
to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]

 

The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.

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 9. In
case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired
thereby.

 

 10. Neither
this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the
Company and the Holder. This Note may not be assigned without the prior written consent of the Company.

 

 11. The
Company represents that it is not a “shell” issuer and that if it previously has been a “shell” issuer
that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer a “shell
issuer.

 

12. The
Company will issue irrevocable transfer agent instructions reserving 1,206,848,376 shares of its Common Stock for conversions
under this Note, and all other Company notes held by the Holder (the “Share Reserve”). Upon full conversion of this
Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all transfer agent costs associated
with issuing and delivering the share certificates to the Holder, as well as maintaining the Share Reserve. If such amounts are
to be paid by the Holder, it may deduct such amounts from the Conversion Price. The company should at all times reserve a minimum
of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request increases
from time to time to reserve such amounts. The Company will instruct its transfer agent to provide the outstanding share information
to the Holder in connection with its conversions.

 

 13. The
Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits,
recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.

 

 14. This
Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be
performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and
the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of
New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts, and
the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

____

Initials

 

    	 	7	 

    	 	 	 

    

 

IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.

  

Dated:
___________________

 

	 	POSITIVEID
    CORP.
	 	 	 
	 	By:	 
	 	 	 
	 	Title:	 

____

Initials

 

    	 	8	 

    	 	 	 

    

 

EXHIBIT
A

  

NOTICE
OF CONVERSION

 

(To
be Executed by the Registered Holder in order to Convert the Note)

 

The
undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of PositiveID
Corp. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If
Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes
and charges payable with respect thereto.

 

	Date
    of Conversion: 	 	 

	Applicable
    Conversion Price: 	 	 

	Signature:
    	 	 
	 	[Print
    Name of Holder and Title of Signer]	 

 

	Address:
    	 	 
	 	 	 

 

	SSN
    or EIN: 	 	 

	Shares
    are to be registered in the following name: 	 

 

	Name:
    	 	 

	Address:
    	 	 

	Tel:
    	 	 

	Fax:
    	 	 

	SSN
    or EIN: 	 	 

 

Shares
are to be sent or delivered to the following account:

 

	Account
    Name: 	 	 

	Address:
    	 	 

____

Initials

 

    	 	9

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